<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended October 1, 1995
Commission File Number 0-16852
KOMAG, INCORPORATED
(Registrant)
Incorporated in the State of Delaware
I.R.S. Employer Identification Number 94-2914864
275 South Hillview Drive, Milpitas, California 95035
Telephone: (408) 946-2300
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 / /
On October 1, 1995, 25,203,597 shares of the Registrant's common stock, $0.01
par value, were issued and outstanding.
<PAGE> 2
INDEX
KOMAG, INCORPORATED
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated income statements--Three- and
nine-months ended October 1, 1995, and
October 2, 1994 .......................................... 3
Consolidated balance sheets--October 1, 1995,
and January 1, 1995 ...................................... 4
Consolidated statements of cash flows--Nine
months ended October 1, 1995, and
October 2, 1994 .......................................... 5
Notes to consolidated financial statements--
October 1, 1995 .......................................... 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ............ 8-13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ........................................ 13
Item 2. Changes in Securities .................................... 13
Item 3. Defaults Upon Senior Securities .......................... 13
Item 4. Submission of Matters to a Vote of Security Holders ...... 13
Item 5. Other Information ........................................ 13
Item 6. Exhibits and Reports on Form 8-K ......................... 14
SIGNATURES ........................................................ 15
</TABLE>
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<PAGE> 3
PART I. FINANCIAL INFORMATION
KOMAG, INCORPORATED
CONSOLIDATED INCOME STATEMENTS
(In Thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
---------------------- ----------------------
OCT 1 Oct 2 OCT 1 Oct 2
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 132,835 $ 98,172 $ 358,705 $ 293,647
Cost of sales 79,513 66,602 226,596 199,292
--------- --------- --------- ---------
GROSS PROFIT 53,322 31,570 132,109 94,355
Operating expenses:
Research, development and engineering 5,863 5,324 17,875 16,137
Selling, general and administrative 12,236 6,499 30,274 20,415
--------- --------- --------- ---------
18,099 11,823 48,149 36,552
--------- --------- --------- ---------
OPERATING INCOME 35,223 19,747 83,960 57,803
Other income (expense):
Interest income 1,264 902 3,428 2,420
Interest expense (528) (679) (1,726) (2,301)
Other, net 1,539 53 1,983 205
--------- --------- --------- ---------
2,275 276 3,685 324
--------- --------- --------- ---------
Income before income taxes, minority interest,
and equity in joint venture income 37,498 20,023 87,645 58,127
Provision for income taxes 9,373 6,387 21,910 17,437
--------- --------- --------- ---------
Income before minority interest and equity in
joint venture income 28,125 13,636 65,735 40,690
Minority interest in net income of consolidated subsidiary 488 265 1,359 672
Equity in net income of unconsolidated joint venture 2,762 1,644 4,264 4,395
--------- --------- --------- ---------
NET INCOME $ 30,399 $ 15,015 $ 68,640 $ 44,413
========= ========= ========= =========
Net income per share $ 1.21 $ 0.65 $ 2.81 $ 1.94
========= ========= ========= =========
Number of shares used in per share computation 25,033 23,053 24,405 22,855
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 4
KOMAG, INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
OCT 1 January 1
1995 1995
----------- ---------
(UNAUDITED) (note)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 172,752 $ 47,329
Short-term investments 28,936 46,619
Accounts receivable less
allowances of
$3,136 in 1995 and 67,655 44,778
$2,223 in 1994
Inventories:
Raw materials 20,138 15,030
Work-in-process 4,814 5,652
Finished goods 3,679 3,419
--------- ---------
Total inventories 28,631 24,101
Prepaid expenses and deposits 3,720 1,611
Deferred income taxes 7,069 7,069
--------- ---------
Total current assets 308,763 171,507
Investment in Unconsolidated Joint Venture 27,047 22,653
Property, Plant and Equipment
Land 4,360 4,360
Building 37,045 33,322
Equipment 387,578 294,626
Furniture 5,894 4,711
Leasehold Improvements 50,746 45,633
--------- ---------
485,623 382,652
Less allowances for depreciation and amortization (197,844) (153,769)
--------- ---------
Net property, plant and equipment 287,779 228,883
Deposits and Other Assets 830 1,052
--------- ---------
$ 624,419 $ 424,095
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $ 30,612 $ 20,196
Accrued compensation and benefits 24,466 17,913
Other liabilities 1,506 1,665
Income taxes payable 13,290 271
Current portion of long-term debt -- 13,232
--------- ---------
Total current liabilities 69,874 53,277
Long-term Debt, less current portion -- 16,250
Deferred Income Taxes 18,725 18,725
Other Long-term Liabilities 493 548
Minority Interest in Consolidated Subsidiary 5,159 4,080
Stockholders' Equity
Preferred stock -- --
Common stock 252 229
Additional paid-in capital 368,433 238,262
Retained earnings 155,430 86,790
Accumulated foreign currency translation adjustments 6,053 5,934
--------- ---------
Total stockholders' equity 530,168 331,215
--------- ---------
$ 624,419 $ 424,095
========= =========
</TABLE>
Note: The balance sheet at January 1, 1995 has been derived from the
audited financial statements at that date.
See notes to consolidated financial statements.
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<PAGE> 5
KOMAG, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
----------------------
OCT 1 Oct 2
1995 1994
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 68,640 $ 44,413
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 45,659 35,356
Provision for losses on accounts receivable 554 158
Equity in net income of unconsolidated joint venture (4,264) (4,395)
Loss on disposal of equipment 524 470
Deferred rent (55) 11
Minority interest in net income of consolidated subsidiary 1,359 672
Changes in operating assets and liabilities:
Accounts receivable (23,431) (3,643)
Inventories (4,530) 6,604
Prepaid expenses and deposits (2,629) 700
Trade accounts payable 9,014 (5,354)
Accounts payable to related parties 1,402 834
Accrued compensation and benefits 6,553 632
Other liabilities (159) (1,059)
Income taxes payable 13,528 4,231
Restructuring liability -- (15,887)
--------- ---------
Net cash provided by operating activities 112,165 63,743
INVESTING ACTIVITIES
Acquisition of property, plant and equipment (105,199) (62,143)
Purchases of short-term investments (22,461) (63,618)
Proceeds from short-term investments at maturity 40,144 75,440
Proceeds from disposal of property, plant, and equipment 120 12,071
Deposits and other assets 222 1,091
--------- ---------
Net cash used in investing activities (87,174) (37,159)
FINANCING ACTIVITIES
Increase in notes payable -- 1,500
Payments of notes payable -- (4,500)
Payments of long-term obligations (29,482) (11,275)
Sale of Common Stock, net of issuance costs 130,194 8,533
Distribution to minority interest holder (280) --
--------- ---------
Net cash provided by (used in) financing activities 100,432 (5,742)
Increase in cash and cash equivalents 125,423 20,842
Cash and cash equivalents at beginning of year 47,329 27,159
--------- ---------
Cash and cash equivalents at end of period $ 172,752 $ 48,001
--------- ---------
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 6
KOMAG, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
OCTOBER 1, 1995
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of Management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three- and
nine-month periods ended October 1, 1995 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1995.
For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-K for
the year ended January 1, 1995.
The Company uses a 52-53 week fiscal year ending on the Sunday closest to
December 31. The three- and nine-month reporting periods for the comparable
years included in this report are each comprised of thirteen weeks and
thirty-nine weeks, respectively.
NOTE 2 - INVESTMENT IN DEBT SECURITIES
The Company invests its excess cash in high-quality, short-term debt
and equity instruments. Short-term investments consist primarily of AAA-rated,
municipal auction-rate preferred stock with maturities greater than 90 days.
None of the Company's investments have maturities greater than one year.
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<PAGE> 7
The following is a summary of the Company's investments by major security
type at amortized cost which approximates its fair value:
<TABLE>
<CAPTION>
OCT 1 Jan 1
(in thousands) 1995 1995
----------- -----------
<S> <C> <C>
State and local government securities $170,811 $70,765
Corporate debt securities 5,367 2,417
Mortgage-backed securities 27,421 10,677
----------- -----------
$203,599 $83,859
----------- -----------
Amounts included in cash and cash equivalents $174,663 $37,240
Amounts included in short term investments 28,936 46,619
----------- -----------
$203,599 $83,859
----------- -----------
</TABLE>
The Company utilizes zero-balance accounts and other cash management tools
to invest all available funds including bank balances in excess of book
balances.
NOTE 3 - INCOME TAXES
The estimated annual effective income tax rate for 1995 of 25% is
lower than the 1995 combined federal and state statutory rate of 41% and the
effective income tax rate for 1994 of 30%. The Company's wholly-owned thin-film
media operation, Komag USA (Malaysia) Sdn., has been granted a tax holiday for
a period of five years commencing in July 1993. The decrease in the effective
income tax rate for 1995 relative to 1994 is primarily due to anticipated
growth in the percentage of consolidated income to be derived from the
Malaysian operation in 1995.
NOTE 4 - STOCKHOLDERS' EQUITY
In September 1995, the Company raised $122.3 million from the sale of
1,750,000 shares of Common Stock through a follow-on public stock offering.
In November 1995, the Company's Board of Directors approved, subject
to stockholder approval, an increase in the number of authorized shares of
Common Stock from 35,000,000 to 85,000,000. Additionally, the Board of
Directors adopted resolutions declaring a two-for-one stock split on the
Company's outstanding Common Stock to stockholders of record on December 21,
1995. The stock split is subject to stockholder approval of the increase in
the number of authorized shares of Common Stock. The accompanying unaudited
consolidated financial statements do not reflect this proposed stock split.
-7-
<PAGE> 8
KOMAG, INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
Revenue
Net sales of thin-film media increased 35% in the third quarter of
1995 relative to the third quarter of 1994. The combination of unit sales
volume growth and an increase in the overall average selling price resulted in
the substantially higher net sales. Approximately 60% of the improvement in net
sales was attributable to higher unit sales volume in the third quarter of 1995
relative to the third quarter of 1994. The overall average selling price
typically strengthens only as the result of product mix shifts to
higher-priced, more technologically advanced product offerings. Price
reductions for individual product offerings are characteristic of the thin-film
media industry. The Company began a rapid transition to its current
highest-density product offering (1800 Oe) in the fourth quarter of 1994. Sales
of this product accounted for 78% of unit sales in the third quarter of 1995,
up from 61%, 41% and 14% of unit sales in the immediately prior three quarters,
respectively. The higher sales mix of 1800 Oe product and a favorable pricing
environment arising from an industry shortage of this product strengthened the
overall average selling price in the third quarter of 1995 relative to the
third quarter of 1994. Unit sales of the Company's highest density product
offering in the third quarter of 1994 (1600 Oe) accounted for approximately 73%
of net sales in the quarter, but revenues in the 1994 quarter were adversely
affected by pricing as industry supply of this product met or exceeded demand.
In addition to sales of its internally produced disk products, the Company
resells products manufactured by its Japanese joint venture, Asahi Komag Co.,
Ltd. ("AKCL"). Distribution sales of thin-film media manufactured by AKCL were
$0.2 million in the third quarter of 1995 compared to $3.3 million in the third
quarter of 1994. The Company expects that distribution sales of AKCL product
will be minimal for the remainder of 1995 and through 1996 as demand within the
Japanese thin-film media market is expected to absorb most of AKCL's production
output.
Net sales increased 22% in the first nine months of 1995 relative to the
first nine months of 1994. Over two-thirds of the increase was due to higher
unit sales volume. The overall average selling price increased between the
comparable nine-month periods due to the transition to 1800
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<PAGE> 9
Oe product and the favorable pricing environment arising from strong market
demand. Distribution sales of AKCL manufactured thin- film media were $0.6
million in the first nine months of 1995 compared to $8.9 million in the first
nine months of 1994.
During the third quarter of 1995 four customers individually accounted for
at least ten percent of consolidated net sales: Seagate Technology, Inc. (44%),
Quantum Corporation (26%), Hewlett-Packard Company (12%), and Western Digital
Corporation (11%). The Company expects that it will continue to derive a
substantial portion of its sales from a relatively few number of customers. The
distribution of sales among customers may vary from quarter to quarter based on
the match of the Company's product capabilities with specific disk drive
programs of the customers.
Increased production volume may occur due to increased effective capacity
(additional production lines and/or reduced process cycle time) and
improvements in manufacturing efficiencies (yields and/or equipment
utilization). The increased unit production volume required to support the
growth in unit sales in the third quarter of 1995 relative to the third quarter
of 1994 was almost entirely achieved through an increase in effective
production capacity. The Company has historically increased effective
production capacity through implementation of process improvement programs
designed to improve unit output and the addition of sputtering lines. Shortened
process cycle times resulting from these process improvement programs accounted
for approximately one-half of the increase in effective capacity in the third
quarter of 1995 relative to the third quarter of 1994. Net physical capacity
additions provided the remaining increase in unit production volume. The
Company added three new sputtering lines in August 1994, March 1995 and
September 1995. The Company has a total of fifteen production sputteing lines,
ten of which are in the U.S. and five in Malaysia. In late 1994, the Company
began a program to upgrade its sputtering machines to enhance product
capabilities and shorten process cycle times. The Company expects one machine
will be out of production on a rotating basis for the next two years. Unit
production provided by a slightly improved manufacturing yield partially offset
the unfavorable impact of lower equipment utilization in the third quarter of
1995 relative to the third quarter of 1994.
Increased unit production volume in the first nine months of 1995 compared
to the first nine months of 1994 was primarily achieved through higher
effective capacity in the current year period. Approximately one-half of the
effective capacity increase resulted from process cycle time reductions. Net
physical capacity additions provided the remaining increase in effective
capacity. The effects of slightly lower equipment utilization in the first
nine months of 1995 relative to the first nine months of 1994 were partially
offset by an improvement in manufacturing yields. The Company anticipates that
overall unit production volume will continue to rise during the fourth quarter
of 1995. Assuming market demand continues to remain strong, the Company will
remain production constrained during this time period.
-9-
<PAGE> 10
Gross Margin
The gross margin percentage for the third quarter of 1995 was 40.1%,
up markedly from the 32.2% gross margin achieved for the third quarter of 1994.
The gross margin percentage for the first nine months of 1995 increased to
36.8% from 32.1% for the first nine months of 1994. The increases for both the
three- and nine-month comparisons were primarily due to the higher overall
average selling price resulting from the favorable sales mix shift to 1800 Oe
products. Shortened sputter cycle times, manufacturing efficiencies and a
smaller mix of lower-margin distribution sales of product manufactured by AKCL
also contributed to the improved gross margin percentage for both the three-
and nine-month periods of 1995 relative to the comparable periods of 1994. The
positive effects of these improvements for the first nine months of 1995 were
offset in part by 1800 Oe production start-up costs incurred during the first
quarter at the Company's Malaysian facility, by higher process and computer
equipment write-offs in the current year, and by the effects of an electrical
power disruption in Malaysia lasting for several days late in the second
quarter of 1995.
The gross margin percentage for third quarter of 1995 reached an
historical high for the Company. Shortened sputter cycle times and
manufacturing efficiency improvements, combined with a rising overall average
selling price due to the Company's continuing mix shift to 1800 Oe disks and a
favorable pricing environment arising from an industry shortage of these high
performance disks, resulted in the record gross margin percentage. To the
extent these factors continue for the next several quarters, gross margins
could remain near the high end of the Company's historical range. Longer term
the Company's gross margin performance will depend on the Company's ability to
introduce disk products at both the current 1800 Oe and next-generation 2000 Oe
density levels that support near-contact recording and eventually
magneto-resistive technology. While the Company believes that it has developed
products to address these requirements, there can be no assurance that the
performance of the Company's products will meet or exceed the performance of
its competitors' products. Failure to maintain technology leadership would
adversely effect the Company's gross margin.
Operating Expenses
Research and development ("R&D") expenses increased 10% ($0.5 million)
and 11% ($1.7 million) in the three- and nine-month periods of 1995,
respectively, compared to the comparable periods of 1994. The increases between
these periods were mainly due to development costs for advanced thin-film
media. Selling, general and administrative ("SG&A") expenses increased $5.7
million and $9.9 million in the third quarter of 1995 relative to the third
quarter of 1994 and in the nine-month period of 1995 relative to the nine-month
period of 1994, respectively. The increases were primarily due to higher
provisions for the Company's bonus and profit sharing programs resulting from
the substantially higher operating
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<PAGE> 11
performance in the 1995 periods. Provisions for bad debt increased $0.7 million
and $0.5 million between the comparable three- and nine-month periods,
respectively. Excluding provisions for bad debt and the Company's bonus and
profit sharing programs, SG&A expenses increased approximately $1.2 million
between the three-month periods and $1.6 million between the nine-month
periods. Increases in administrative costs required to support the growth in
the business accounted for the majority of the increase.
Interest and Other Income/Expense
Interest income increased $0.4 million (40%) in the third quarter of
1995 relative to the third quarter of 1994 and $1.0 million (42%) in the
nine-month period of 1995 relative to the comparable nine-month period of 1994.
The increase in the comparable three-month periods was due primarily to higher
average cash and short-term investment balances and the change in the
comparable nine-month periods was due primarily to higher interest rates in the
current year period. Interest expense decreased $0.2 million (22%) in the third
quarter of 1995 relative to the third quarter of 1994 and $0.6 million (25%) in
the nine-month period of 1995 relative to the comparable period in 1994 due to
lower average outstanding debt balances in the current year periods. Other
income increased $1.5 million in the third quarter of 1995 compared to the
third quarter of 1994 and $1.8 million in the nine-month period of 1995
relative to the comparable nine-month period of 1994. The increase between the
three- and nine-month periods was primarily due to the accrual for an insurance
recovery related to an electrical power disruption at the Company's Malaysian
manufacturing facility.
Income Taxes
The estimated annual effective income tax rate for 1995 of 25% is
lower than the 1995 combined federal and state statutory rate of 41% and the
effective income tax rate for 1994 of 30%. The Company's wholly-owned thin-film
media operation, Komag USA (Malaysia) Sdn., has been granted a tax holiday for
a period of five years commencing July 1993. The decrease in the effective
income tax rate for 1995 relative to 1994 is primarily due to anticipated
growth in the percentage of consolidated income to be derived from the
Malaysian operation in 1995.
Minority Interest in KMT/Equity in Net Income of AKCL
The minority interest in the net income of consolidated subsidiary
represented Kobe Steel USA Holdings Inc's 45% share of Komag Material
Technology, Inc.'s ("KMT's") net income. KMT recorded net income of $1.1
million and $3.0 million in the third quarter and nine-month period of 1995,
respectively, compared to $0.6 million and $1.5 million in the third quarter
and nine-month period of 1994, respectively.
The Company records 50% of AKCL's net income as equity in net income of
unconsolidated joint venture. AKCL reported net income of $5.5 million in the
third quarter of 1995, up from $3.3 million in the third quarter of 1994. AKCL
reported net income of $8.5
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<PAGE> 12
million for the nine-month period of 1995 compared to $8.8 million for the
nine-month period of 1994. AKCL's functional currency is the Japanese yen and
the Company translates AKCL's yen-based income statements to U.S. dollars at
the average exchange rate for the period. The yen strengthened approximately 5%
and 11% between the comparable three-and nine-month periods, respectively.
AKCL's net income would have been approximately $5.3 million and $7.6 million
in the third quarter and nine-month period of 1995, respectively, had the
yen-based income statement been translated at the average rates in effect for
the comparable 1994 periods. The difference between the 1994 results and the
yen adjusted 1995 results for the three month periods was due to improved
operating results. The change in the nine-month period was attributable to the
combination of improved operating performance and the partial writedown of
AKCL's investment in Headway Technologies, Inc. (Headway). AKCL recorded
writedowns of its investment in Headway of $2.2 million (net of tax) in the
first half of 1995. No writedown of AKCL's investment in Headway was required
in the third quarter of 1995 as Headway's operating losses were entirely offset
by receipt of license revenue. Additional writedowns by AKCL may be required if
Headway is not profitable in future quarters.
LIQUIDITY AND CAPITAL RESOURCES:
Cash and short-term investments of $201.7 million at the end of the
third quarter of 1995 increased $107.8 million from the end of the prior fiscal
year. Consolidated operating activities generated $112.2 million in cash during
the nine-month period of 1995 and more than funded the Company's $105.2 million
of capital spending during the nine-month period. Sales of Common Stock under
the Company's stock option and stock purchase programs during this period
generated $8.2 million, while scheduled repayments of long-term obligations
used $9.5 million. In September 1995, the Company raised $122 million (net of
underwriting commissions and expenses) through a public offering of 1.75
million shares of the Company's common stock. The Company used $20 million of
the proceeds from the stock offering to repay all of its long-term debt.
Total capital expenditures for 1995 are currently planned at approximately
$150 million. Construction of a 230,000 square-foot manufacturing plant on a
55-acre site in the east Malaysian state of Sarawak, capital expenditures
associated with process improvements in the U.S. and Malaysian facilities,
installation of two additional sputtering lines, and payments on an additional
sputtering line (expected to be installed in Malaysia in 1996) are the major
components of the capital plan. Current non-cancellable commitments total
approximately $136 million.
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<PAGE> 13
The Company believes that, in order to achieve its long-term expansion
objectives and maintain and enhance its competitive position, it will need
significant additional financial resources over the next several years for
capital expenditures, working capital, and research and development. During the
two-year period of 1995 and 1996, the Company expects to spend approximately
$400 million to construct three new production facilities and to add production
equipment at its existing facilities as well as at two of the newly-
constructed facilities. The Company has partially completed construction of a
230,000 square foot facility in the Malaysian state of Sarawak, recently broke
ground for its new 200,000 square foot facility in San Jose, California, and is
currently completing site development activities for a new Southeast Asian
facility. Assuming a continued strong operating performance, the Company has
potential cash resources to fund these expenditures through a combination of
cash flow from operations, its cash balances recently enhanced by the follow-on
public offering, and funds available from existing bank lines of credit.
Additionally the Company is currently in negotiations to expand its credit
facilities. The Company anticipates that capital expenditures will continue to
remain high beyond 1996. New debt or equity financing may therefore be
required to fund future capital expenditures. If the Company is unable to
obtain sufficient capital it could be required to reduce its capital equipment
and research and development expenditures which could materially adversely
affect the Company's results of operations.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings--Not Applicable.
ITEM 2. Changes in Securities--Not Applicable.
ITEM 3. Defaults Upon Senior Securities--Not Applicable.
ITEM 4. Submission of Matters to a Vote of Security
Holders--Not Applicable
ITEM 5. Other Information--Not Applicable.
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<PAGE> 14
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Exhibit Description Page
- ----------------------------------------------------------------------------------------------
<S> <C>
10.1.12 Lease Agreement dated August 4, 1995 by and between Great Oaks
Interests and Komag, Incorporated
10.11.12 Komag Material Technology, Inc. 1995 Stock Option Plan
10.11.13 Komag Material Technology, Inc. Savings and Deferred Profit-
Sharing Plan as restated May 9, 1994
10.11.14 Komag, Incorporated Restated Savings and Deferred Profit-Sharing
Plan as restated January 1, 1994
10.11.15 Amendment No.1 to Komag, Incorporated Restated Savings and
Deferred Profit-Sharing Plan dated January 1, 1995
10.11.16 Amendment No.2 to Komag, Incorporated Restated Savings and
Deferred Profit-Sharing Plan dated January 1, 1995
(b) Not applicable.
</TABLE>
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<PAGE> 15
SIGNATURES
Pursuant to the requirements 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.
KOMAG, INCORPORATED
(Registrant)
DATE: November 10, 1995 BY: /s/ William L. Potts, Jr.
-------------------- -----------------------------
William L. Potts, Jr.
Vice President and
Chief Financial Officer
DATE: November 10, 1995 BY: /s/ Stephen C. Johnson
-------------------- -----------------------------
Stephen C. Johnson
President and
Chief Executive Officer
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<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Exhibit Description Page
- ----------------------------------------------------------------------------------------------
<S> <C>
10.1.12 Lease Agreement dated August 4, 1995 by and between Great Oaks
Interests and Komag, Incorporated
10.11.12 Komag Material Technology, Inc. 1995 Stock Option Plan
10.11.13 Komag Material Technology, Inc. Savings and Deferred Profit-
Sharing Plan as restated May 9, 1994
10.11.14 Komag, Incorporated Restated Savings and Deferred Profit-Sharing
Plan as restated January 1, 1994
10.11.15 Amendment No.1 to Komag, Incorporated Restated Savings and
Deferred Profit-Sharing Plan dated January 1, 1995
10.11.16 Amendment No.2 to Komag, Incorporated Restated Savings and
Deferred Profit-Sharing Plan dated January 1, 1995
</TABLE>
<PAGE> 1
EXHIBIT 10.1.12
LEASE BETWEEN
GREAT OAKS INTERESTS AND KOMAG INCORPORATED
<TABLE>
<CAPTION>
Section Page #
- ------- ------
<S> <C>
Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Term and Rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Adjustment in Rent for Variance in Building Square Footage . . . . 2
Security Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Late Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Construction and Possession . . . . . . . . . . . . . . . . . . . . . . . 3
Building Shell Construction . . . . . . . . . . . . . . . . . . . 3
Tenant Improvement Plans . . . . . . . . . . . . . . . . . . . . . 3
Preliminary Cost Estimate . . . . . . . . . . . . . . . . . . . . 3
Final Pricing . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Building Shell Costs . . . . . . . . . . . . . . . . . . . . . . . 4
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Landlord Overhead & Profit . . . . . . . . . . . . . . . . . . . . 5
Insurance/Indemnity . . . . . . . . . . . . . . . . . . . . . . . 5
Punchlist Items . . . . . . . . . . . . . . . . . . . . . . . . . 6
Other Work by Tenant . . . . . . . . . . . . . . . . . . . . . . . 6
Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Parking Lot . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Tank Farm . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Acceptance of Possession and Covenants to Surrender . . . . . . . . . . . 6
Uses Prohibited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Alterations and Additions . . . . . . . . . . . . . . . . . . . . . . . . 7
Maintenance of Premises . . . . . . . . . . . . . . . . . . . . . . . . . 8
Tenant's Obligations . . . . . . . . . . . . . . . . . . . . . . . 8
Landlord's Obligations . . . . . . . . . . . . . . . . . . . . . . 9
Hazard Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Tenant's Use . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Landlord's Liability Insurance . . . . . . . . . . . . . . . . . . 10
Property Insurance . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
Tenant's Insurance . . . . . . . . . . . . . . . . . . . . . . . . 10
Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Free From Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Compliance With Governmental Regulations . . . . . . . . . . . . . . . . 13
Toxic Waste and Environmental Damage . . . . . . . . . . . . . . . . . . 13
Landlord's Responsibility . . . . . . . . . . . . . . . . . . . . 14
Tenant's Responsibility . . . . . . . . . . . . . . . . . . . . . 14
Tenant's Indemnity Regarding Hazardous Materials . . . . . . . . . 14
Actual Release by Tenant . . . . . . . . . . . . . . . . . . . . . 15
Environmental Monitoring . . . . . . . . . . . . . . . . . . . . . 16
Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Advertisements and Signs . . . . . . . . . . . . . . . . . . . . . . . . 17
Attorney's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Tenant's Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Right to Re-enter . . . . . . . . . . . . . . . . . . . . . . . . 18
Abandonment . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
No Termination . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Surrender of Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Habitual Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Landlord's Default . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Entry by Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Destruction of Premises . . . . . . . . . . . . . . . . . . . . . . . . . 20
Destruction by an Insured Casualty . . . . . . . . . . . . . . . . 20
Destruction by an Uninsured Casualty . . . . . . . . . . . . . . . 21
Damage or Destruction at End of Term . . . . . . . . . . . . . . . 21
Assignment or Sublease . . . . . . . . . . . . . . . . . . . . . . . . . 21
Consent by Landlord . . . . . . . . . . . . . . . . . . . . . . . 22
Assignment or Subletting Consideration . . . . . . . . . . . . . . 22
No Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Effect of Default . . . . . . . . . . . . . . . . . . . . . . . . 23
Excluded Transfers . . . . . . . . . . . . . . . . . . . . . . . . 23
Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Effects of Conveyance . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Holding Over . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
Page ii
<PAGE> 3
<TABLE>
<S> <C>
Estoppel Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Option to Extend the Lease Term . . . . . . . . . . . . . . . . . . . . . 26
Grant and Exercise of Option . . . . . . . . . . . . . . . . . . . 26
Determination of Fair Market Rental . . . . . . . . . . . . . . . 27
Resolution of a Disagreement over the Fair Market Rental . . . . . 27
Options to lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Tenant's Right of First Refusal . . . . . . . . . . . . . . . . . . . . . 28
Grant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Covenants of Landlord . . . . . . . . . . . . . . . . . . . . . . 28
Exercise of Tenant's Right of First Refusal to Purchase . . . . . 29
Terms for Right of First Refusal to Purchase . . . . . . . . . . . 29
Continuing Right . . . . . . . . . . . . . . . . . . . . . . . . . 29
Exclusive Nature of Option . . . . . . . . . . . . . . . . . . . . 29
Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . 29
Right of First Opportunity to lease . . . . . . . . . . . . . . . . . . . 30
Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Landlord's Liability . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Authority of Parties . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Transportation Demand Management programs . . . . . . . . . . . . . . . . 31
Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Miscellaneous Provisions . . . . . . . . . . . . . . . . . . . . . . . . 32
Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Performance by Landlord . . . . . . . . . . . . . . . . . . . . . 32
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Rights and Remedies . . . . . . . . . . . . . . . . . . . . . . . 32
Survival of Indemnities . . . . . . . . . . . . . . . . . . . . . 32
Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Choice of Law . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 32
Representations . . . . . . . . . . . . . . . . . . . . . . . . . 33
Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Recordation . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
EXHIBIT "A" - Premises . . . . . . . . . . . . . . . . . . . . . . . . . 34
EXHIBIT "B" - Formula for Determination of Base Monthly Rent . . . . . . 35
EXHIBIT "C" - Shell Plans and Specifications . . . . . . . . . . . . . . 36
EXHIBIT "D" - Building Shell Definition . . . . . . . . . . . . . . . . . 37
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C>
EXHIBIT "E" - Tenant's Trade Fixtures . . . . . . . . . . . . . . . . . . 38
EXHIBIT "F" - Option to Lease . . . . . . . . . . . . . . . . . . . . . . 39
EXHIBIT "G" - Right of First Opportunity . . . . . . . . . . . . . . . . 44
Grant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Covenants of Landlord . . . . . . . . . . . . . . . . . . . . . . 44
Exercise of Tenant's Right of First Opportunity . . . . . . . . . 44
Conditions to Right of First Offer . . . . . . . . . . . . . . . . 45
Negotiation Period . . . . . . . . . . . . . . . . . . . . . . . . 45
Continuing Right . . . . . . . . . . . . . . . . . . . . . . . . . 45
</TABLE>
Page iv
<PAGE> 5
1. PARTIES: THIS LEASE, is entered into on this fourth day of
August, 1995 ("Execution Date"), between Great Oaks Interests, a California
Limited Partnership, whose address is 10600 North De Anza Boulevard, Suite 200,
Cupertino, CA 95014 and Komag Incorporated, a Delaware corporation, whose
address is 275 S. Hillview Drive, Milpitas, CA 95035, hereinafter called
respectively Landlord and Tenant.
2. PREMISES: Landlord hereby leases to Tenant, and Tenant hires
from Landlord those certain Premises with the appurtenances, situated in the
City of San Jose, County of Santa Clara, State of California, and more
particularly described as follows, to-wit:
That certain 13.54 acre site on the south side of Automation Parkway, San Jose,
California, including all appurtenances and buildings now or during the Term
located thereon. Pursuant to the terms of this Lease, Landlord is obligated to
construct a single story building of approximately 200,000 rentable square feet
("Building"), a parking lot consisting of a minimum of 600 parking spaces, and
provide and reserve an approximate 23,000 square foot area for a tank farm.
Landlord represents and warrants that Landlord is the fee simple owner of the
Premises, the Premises constitute a separate and distinct legal parcel and tax
parcel.
3. USE: Tenant shall use the Premises only for the following
purposes and shall not change the use of the Premises without the prior written
consent of Landlord, which consent shall not be unreasonably withheld or
delayed: Office, research, development, testing, manufacturing, ancillary
warehouse, and other legal uses. Landlord makes no representation or warranty
that any specific use of the Premises desired by Tenant is permitted pursuant
to any Laws. Tenant represents and warrants to Landlord that, as of the
Commencement Date, (i) the Premises are in compliance with all municipal,
county, state and federal statutes, laws, ordinances, including zoning
ordinances, and regulations governing and relating to the Building Shell; (ii)
there shall exist no patent or, to the best of Tenant's knowledge, latent
defect in the Premises; and (iii) the Premises shall be in good condition and
repair and fit for Tenant's particular purposes. Landlord represents and
warrants to Tenant that, as of the Commencement Date, the land is zoned
industrial ("I").
4. TERM AND RENTAL: The term ("Lease Term") shall be for one
hundred twenty (120)
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months, commencing on October 1, 1996 ("Commencement Date"), and ending one
hundred twenty (120) months thereafter, ("Expiration Date"). In addition to all
other sums payable by Tenant under this Lease, Tenant shall pay as base monthly
rent ("Base Monthly Rent") below for the Premises in an amount determined
pursuant to Exhibit "B" attached hereto. Base Monthly Rent shall increase at
the end of the forty-second and eighty fourth month of the Lease Term by the
product of the Base Monthly Rent payable for the preceding month and one and
147/1000 (1.147). The parties agree to enter into an amendment to this Lease
setting forth the exact amount of the Base Monthly Rent payable during the Lease
Term within fourteen (14) days following determination by Landlord.
Base Monthly Rent shall be due on or before the first day of each calendar
month during Lease Term. All sums payable by Tenant under this Lease shall be
paid in lawful money of the United States of America, without offset or
deduction, and shall be paid to Landlord at the address specified in Article 1
of this Lease or at such place or places as may be designated from time to time
by Landlord. Base Monthly Rent for any period less than a calendar month shall
be a pro rata portion of the monthly installment.
A. ADJUSTMENT IN RENT FOR VARIANCE IN BUILDING SQUARE FOOTAGE: In
the event the square footage of the Building is other than 200,000 determined
by measurement after completion of construction, within thirty (30) days after
the Commencement Date, Landlord and Tenant shall execute an amendment to the
Lease setting forth the actual rentable square feet of the Building, which
calculation shall be consistent with the BOMA standard for Industrial Buildings
(i.e. outside of outside wall to outside of outside wall without deduction).
5. SECURITY DEPOSIT: None required.
6. LATE CHARGES: Tenant hereby acknowledges that late payment by
Tenant to Landlord of Base Monthly Rent and other sums due hereunder will cause
Landlord to incur costs not contemplated by this Lease, the exact amount of
which will be extremely difficult to ascertain. Such costs include, but are
not limited to, administrative, processing, accounting charges, and late
charges, which may be imposed on Landlord by the terms of any contract,
revolving credit, mortgage or trust deed covering the Premises. Accordingly,
if any installment of Base Monthly Rent or any other sum due from Tenant shall
not be received by Landlord or Landlord's designee within ten (10) days after
Tenant's receipt of written notice from Landlord that such amount is
delinquent, Tenant shall pay to Landlord a late charge equal to five (5%)
percent of such overdue amount which late charge shall be due and payable with
the payment then delinquent. The parties hereby agree that such late charge
represents a fair and reasonable estimate of the costs Landlord will incur by
reason of late payment by Tenant. Acceptance of such late charge by Landlord
shall in no event constitute a waiver of Tenant's default with respect to such
overdue amount, nor prevent Landlord from exercising any of the other rights
and remedies granted hereunder.
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<PAGE> 7
IT IS FURTHER MUTUALLY AGREED BETWEEN THE PARTIES AS FOLLOWS:
7. CONSTRUCTION AND POSSESSION:
A. BUILDING SHELL CONSTRUCTION. Tenant shall cause the shell
of the Building ("Building Shell") to be constructed by independent contractors
to be employed by and under the supervision of Tenant, in accordance with the
building shell plans prepared by Comprehensive Architectural Services
("Tenant's Architect") and approved by Landlord and Tenant and guideline
specifications, which are attached hereto as Exhibit "C" and are incorporated
herein by this reference ("Shell Plans and Specifications"). Tenant shall
construct the Building Shell in accordance with all applicable municipal,
local, state and federal laws, statutes, rules, regulations and ordinances.
Landlord shall pay for all costs and expenses associated with the construction
of the Building Shell. The Building Shell shall include all items customarily
included within the definition of a speculative "building shell," including
without limitation, those items set forth in the Building Shell Definition,
attached hereto as Exhibit "D", and incorporated herein by this reference.
Tenant shall provide Landlord half-size vellum as-built drawings of the
Building Shell within thirty (30) days following completion of construction
thereof.
B. TENANT IMPROVEMENT PLANS. Tenant, at Tenant's sole cost
and expense, has also hired Tenant's Architect, to prepare plans and outline
specifications ("Tenant Improvement Plans") with respect to the construction of
improvements to the interior premises ("Tenant Improvements"). The Tenant
Improvements shall consist of those all items not included within in the scope
of the Building Shell definition pursuant to Section 7.A above and Exhibit "D".
Tenant's Architect shall prepare the Preliminary Tenant Improvement Plans
consistent with instructions from Tenant. The Tenant Improvement Plans shall
be prepared in sufficient detail to allow Tenant to construct the Tenant
Improvements. Tenant shall construct the Tenant Improvements in accordance
with all applicable municipal, local, state and federal laws, statutes, rules,
regulations and ordinances. Tenant shall pay for all costs and expenses
associated with the construction of the Tenant Improvements.
C. PRELIMINARY COST ESTIMATE. Within fourteen (14) days
after Tenant's delivery of the Shell Plans and Specifications to Landlord,
Tenant shall deliver to Landlord a preliminary cost estimate of the cost to
construct the Building Shell. The preliminary cost estimate shall contain
sufficient detail for Landlord to understand the cost element of each portion
of the proposed Building Shell.
D. FINAL PRICING. Within ten (10) days after Landlord's
approval of the preliminary cost estimate, Tenant shall submit to Landlord
competitive bids from a minimum of three (3)
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<PAGE> 8
subcontractors for each aspect of the work which is to be performed. Tenant
must utilize the low bid in each case, unless Landlord approves Tenant's use of
another subcontractor, and the amount owing by Landlord to Tenant as a result
of the construction of the Building Shell shall be based upon construction
expenses equal to the sum of the bid amounts as approved by Landlord. Upon
Landlord's written approval of the contract bids, Landlord and Tenant shall
each be deemed to have given their approval of the final Shell Plans and
Specifications on which the cost estimate was made, and Tenant shall proceed
with the construction of the Building Shell in accordance with the terms of
Article 7.H below. If Landlord does not specifically approve or disapprove the
bids within seven (7) days, Landlord shall be deemed to have approved the bids.
Tenant shall be entitled to the benefit of any cost savings actually realized
in the course of constructing the Building Shell and shall be responsible for
the cost of any cost overruns.
E. & F. Intentionally left blank
G. BUILDING SHELL COSTS. Landlord shall pay all costs
associated with the Building Shell. The costs of the Building Shell shall
consist of only the following costs to the extent actually incurred by Tenant
in connection with the construction of the Building Shell: costs of
construction, costs of permits, and the general contractor overhead described
in Article 7.J below. During the course of construction of the Building Shell,
Tenant may deliver to Landlord not more than once each calendar month a written
request for payment which shall include and be accompanied by: (i) Tenant's
certified statements setting forth the amount requested; (ii) copies of payment
requests, invoices, lien waivers and vouchers from Tenant's contractors,
subcontractors and materialmen for all work and supplies or for other items for
which reimbursement is requested; and (iii) as applicable, a certificate of the
architect certifying that the portion of the Building Shell completed prior to
the date of the certification substantially comply with the approved Shell
Plans and Specifications and the Final Tenant Improvement Plans and with all
governmental laws, codes, rules and regulations, certifying the percentage of
completion of each item for which reimbursement is requested and certifying
that the progress payment requested is due to a subcontractor of Tenant
pursuant to a contract between Tenant and Tenant's general contractor.
Landlord shall pay to Tenant, within thirty (30) days after Landlord's receipt
of the above items, the costs incurred by Tenant in connection with the
Building Shell in accordance with the Shell Plans and Specifications minus the
retainage set forth below. Landlord shall be entitled to retain ten percent
(10%) of the amount invoiced by Tenant until the Building Shell is
"Substantially Complete" (defined in Article 7.H). Landlord shall pay the
retained balance owing to Tenant within thirty (30) days following the date
that the Building is Substantially Complete. All costs for the Building Shell
shall be fully documented to and verified by Landlord. The amounts charged to
Landlord shall be limited as
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<PAGE> 9
provided in Article 7.D above.
H. CONSTRUCTION. Tenant shall use Tenant's best efforts to
obtain a building permit from the City of San Jose as soon as possible after
Landlord's approval of the Shell Plans and Specifications. The Building Shell
shall be deemed substantially complete ("Substantially Complete") when the
Building Shell has been substantially completed in accordance with the Shell
Plans and Specifications, as evidenced by the issuance of a certificate of
occupancy or its equivalent by the appropriate governmental authority for the
Building Shell, and the issuance of a certificate by Tenant's Architect
certifying that the Building Shell has been completed in accordance with the
Shell Plans and Specifications.
I. DOCUMENTS. Tenant shall at all times keep one (1)
complete set of all contract documents (i.e., approved drawings, shop and
setting drawings, specifications, samples, addenda and change orders) current
and in good order on the job site. Such documents shall be available for
review by representatives of Landlord, its consultants and any public officials
at any time. Record drawings marked with all changes made during the job shall
be kept on the job site by Tenant. Upon acceptance of the work, the record
document print set shall be immediately forwarded to Tenant's Architect for
changes to the originals. The changes shall be noted on the originals and one
(1) mylar reproducible set of the originals shall be forwarded to Landlord.
Landlord shall be provided with two (2) copies of these specifications.
J. LANDLORD OVERHEAD & PROFIT. As compensation to Tenant's
general contractor, the Building Shell costs shall include an overhead and
profit amount approximately equal to 3% percent (3%) plus general conditions of
the amount of the approved final pricing of the Building Shell. Except as
provided herein, Tenant shall not be entitled to any other fee or payment from
Landlord in connection with Tenant's use of a general contractor.
K. INSURANCE/INDEMNITY. Tenant shall indemnify, protect,
defend and hold Landlord harmless from and against all liability, cost,
expense, or damage (including, without limitation, attorneys fees) arising
from: (i) the construction of the Building Shell; (ii) any design, engineering,
or construction defects or failure to properly construct the Building Shell; or
(iii) any construction defects or failure to properly construct the Building
Shell or the Tenant Improvements. Landlord's review and approval of any plans,
specifications, or any other documents shall not relieve Tenant from Tenant's
obligations under the foregoing indemnification. Tenant shall procure (as a
cost of the Building Shell) and keep in effect from the execution date of this
Lease until the termination of this Lease a "Broad Form" liability insurance
policy in the amount of Three Million Dollars
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<PAGE> 10
($3,000,000.00), insuring all of Tenant's activities with respect to the
Building and Premises, including Tenant's indemnity obligations under this
Article 7.K. In addition, Tenant shall procure (as a cost of the Building
Shell) builder's risk insurance, insuring the Building Shell and Tenant
Improvement for their full replacement cost while the Building and Tenant
Improvements are under construction, and until the date that the fire insurance
policy described in Article 12 of the Lease is in full force and effect.
L. PUNCHLIST ITEMS. After the Building Shell is Substantially
Complete, Tenant shall immediately correct any construction defect or other
"punchlist" item which Landlord brings to Tenant's attention. All such work
shall be performed in a manner designed to cause the least possible
interruption to Tenant and Tenant's activities on the Premises.
M. OTHER WORK BY TENANT. All work not within the scope of work
normally constructed by the construction trades employed on the Building and
not described in the Shell Plans and Specifications or Tenant Improvement
Plans, such as furniture, telephone equipment, telephone wiring and office
equipment work, shall be furnished and installed by Tenant.
N. Intentionally left blank.
O. PERMITS. Landlord shall cooperate fully with Tenant and
execute all documents within five (5) days of any request by Tenant, in
connection with Tenant's efforts to obtain all necessary permits from the City
of San Jose respecting Tenant's use of the Building.
P. PARKING LOT. Tenant, at Landlord's sole cost and expense,
shall construct a parking lot, with a minimum of approximately 600 parking
spaces, on the Premises in the location set forth in Exhibit "C". Tenant shall
cause the parking lot to comply in all respects with all applicable
governmental rules, regulations, and orders, and shall create a sufficient
number of parking spaces to comply with all governmental requirements in
connection with the Building.
Q. TANK FARM. Landlord shall not develop any portion of the
"tank farm pad" as set forth in Exhibit "C", without the prior written consent
of Tenant. Tenant shall have the right at any time to construct a tank farm,
designed by Tenant, on the tank farm pad.
8. ACCEPTANCE OF POSSESSION AND COVENANTS TO SURRENDER: Tenant
agrees on Expiration Date, or on the sooner termination of this Lease, to
surrender the Building Shell to Landlord in good condition and repair,
reasonable wear and tear, actions of Landlord or
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Landlord's Parties, or damage due to casualty excepted. "Good Condition" shall
mean that the interior walls of all office and warehouse areas, the floors of
all office and warehouse areas, all suspended ceilings and carpeting will be
cleaned and free of any major defacements. Tenant on or before the Expiration
Date or sooner termination of this Lease, shall remove all its personal
property and trade fixtures from the Premises, and all property and fixtures
not so removed shall be deemed to be abandoned by Tenant. Tenant shall
ascertain from Landlord at the time Tenant desires to make any Alteration
(including Permitted Alterations), whether Landlord desires to have such
Alteration removed at the Expiration Date or to cause Tenant to surrender the
Alteration to Landlord. If Landlord so notifies Tenant in writing within
fifteen (15) days after Tenant's notice to Landlord that Tenant intends to
alter the Building, then Tenant shall remove such Alteration, as Landlord may
require in such written notice, and shall repair and restore said Building or
such part or parts thereof before the Expiration Date at Tenant's sole cost and
expense. If Landlord has not provided Tenant with such written notice within
said fifteen (15) day period, then Tenant shall have no obligation to remove
such Alteration from the Premises upon the Expiration Date or earlier
termination of this Lease. Notwithstanding the terms of this Article 8, Tenant
shall not have an obligation to remove any Tenant Improvements installed prior
to the first anniversary of the Commencement Date from the Premises at any
time.
9. USES PROHIBITED: Tenant shall not commit, or suffer to be
committed, any waste upon the said Premises, or any nuisance, or allow any sale
by auction upon the Premises, or allow the Premises to be used for any unlawful
purpose, or place any loads upon the floor, walls, or ceiling which endanger
the structure, or use any machinery or apparatus which will in any manner
vibrate or shake the Premises. Except for materials which may be stored in the
enclosed tank farm area outside the Building, no materials, supplies,
equipment, finished products or semi-finished products, raw materials or
articles of any nature or any waste materials, refuse, scrap or debris shall be
stored upon or permitted to remain on any portion of the Premises outside of
the Building proper without Landlord's prior approval, which approval shall not
be unreasonably withheld.
10. ALTERATIONS AND ADDITIONS: Except for those improvements
installed prior to the first anniversary of the Commencement Date and Permitted
Alterations (as defined below), Tenant shall not make, or suffer to be made,
any alteration or addition to the said Premises ("Alterations"), or any part
thereof, without (i) the written consent of Landlord first had and obtained,
which consent shall not be unreasonably withheld or delayed, and (ii)
delivering to Landlord the proposed architectural and structural plans, if any,
for all such Alterations. After having obtained Landlord's consent, Tenant
agrees that it shall not proceed to make such Alterations until Tenant has
obtained all required governmental approvals and permits. Tenant further
agrees to provide Landlord (i) written notice of the anticipated start date and
actual start date of the work, and (ii) a complete set of half-size (15" X 21")
vellum as-built drawings. All Alterations shall be constructed in compliance
with applicable buildings codes and laws. Alterations which are not to be
deemed as trade fixtures shall include heating, lighting, electrical systems,
air conditioning,
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partitioning, carpeting, or any other installation which has become affixed to
the Premises. All Alterations shall be maintained, replaced or repaired by
Tenant at Tenant's sole cost and expense, except as provided in Section 11
below. Notwithstanding the above, Tenant shall have the right to remove any
trade fixtures, furniture, or process equipment paid for by Tenant from the
Premises at the expiration of the Lease, which items shall include, without
limitation, the items set forth in Exhibit "E" attached hereto and incorporated
herein by this reference.
Notwithstanding the foregoing, Tenant shall have the right,
without the prior written consent of Landlord, to make certain alterations,
additions or improvements (the "Permitted Alterations") which (i) do not affect
the Building systems or structural components of the Building and (ii) which
cost less, on an individual basis, than One Hundred Fifty Thousand Dollars
($150,000), provided that each such Permitted Alteration is otherwise performed
in accordance with the terms of this Section 10. Ownership of any Alterations,
Permitted Alterations or Tenant Improvements paid for by Tenant shall remain in
Tenant throughout the Term of this Lease, and Tenant shall be entitled to the
benefit of any depreciation or other tax benefits arising therefrom, provided
that Landlord shall, upon the Expiration Date or earlier termination of the
Term hereof, become the owner of any Alterations or Tenant Improvements made to
the Premises which, pursuant to the terms of this Lease, are left on the
Premises by Tenant. Tenant shall give Landlord at least ten (10) days' prior
written notice of any Alteration or Permitted Alteration so that Landlord can
post a notice of non-responsibility with respect thereto.
11. MAINTENANCE OF PREMISES:
A. TENANT'S OBLIGATIONS: Tenant shall, at its sole cost,
keep and maintain and repair and said Premises and appurtenances and every part
hereof, including but not limited to, roof membrane, glazing, sidewalks,
parking areas, telephone, plumbing, electrical and HVAC systems, and all the
Tenant Improvements in good and sanitary order, condition, and repair. Tenant
shall enter into a service contract with a licensed air-conditioning and
heating contractor which contract shall provide for maintenance of all air
conditioning and heating equipment at the Premises in accordance with general
industry practices. Tenant shall pay the cost of all air-conditioning heating,
and elevator equipment repairs which are either excluded from such service
contract or any existing equipment warranties. All wall surfaces and floor
tile are to be maintained in an as good a condition as when Tenant took
possession free of holes, gouges, or defacements, except for damage resulting
from normal wear and tear, casualty or other acts of God, Landlord, Landlord's
agents, employees, contractors or invitees ("Landlord Parties") In no event,
however, shall Tenant's obligation to repair under this subsection extend to
(i) damage and repairs covered under any insurance policy carried by Landlord
in connection with the Building; (ii) damage caused in whole or in part by the
negligence or willful misconduct of Landlord or Landlord's agents, employees,
invitees or licensees, (iii) reasonable wear and tear; (iv) conditions covered
under any warranties of contractors; or (v) damage by fire and other
casualties, or acts of governmental authorities, or acts of God and the
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elements.
Tenant shall also be responsible, at its sole cost and expense for the
preventive maintenance of the membrane of the roof, which responsibility shall
be deemed properly discharged if (i) Tenant contracts with a licensed roof
contractor who is reasonably satisfactory to both Tenant and Landlord, at
Tenant's sole cost, to inspect the roof membrane at least every six (6) months,
with the first inspection due the sixth (6th) month after the Commencement
Date, and (ii) Tenant performs, at Tenant's sole cost, all preventive
maintenance recommendations made by such contractor within a reasonable time
after such recommendations are made. Such preventive maintenance might include
acts such as clearing storm gutters and drains, removing debris from the roof
membrane, trimming trees overhanging the roof membrane, applying coating
materials to seal roof penetrations, repairing blisters, and other routine
measures. Tenant make available for Landlord's inspection such preventive
maintenance contracts and paid invoices for the recommended work. Tenant
agrees, at its expense, to water, maintain and replace, when necessary, any
shrubbery and landscaping. Nothing herein shall require either Landlord or
Tenant to replace any Tenant Improvements.
B. LANDLORD'S OBLIGATIONS: Landlord at its sole cost and
expense, and without reimbursement of all or any such costs from Tenant, shall
(i) maintain in good condition, order, and repair, and replace as and when
necessary the structural portions of the building including: the foundation,
exterior walls, structure and structural members, and roof structure of the
Building; and (ii) repair and damage caused by the acts or omissions of
Landlord or Landlord's Parties. Subject to the obligations of Tenant to provide
periodic inspections and perform maintenance of the membrane of the roof in
accordance with the provisions set forth in Article 11.A above, Landlord shall
also replace as and when necessary, the membrane of the roof. Tenant may give
Landlord notice of any repairs or replacements that are required of Landlord
under the terms of this Lease and Landlord shall proceed forthwith to effect
the same with reasonable diligence. In the event of an emergency Tenant shall
be empowered to undertake immediate repairs of such nature as would be
Landlord's responsibility and notify Landlord promptly after such repairs have
been undertaken.
12. HAZARD INSURANCE:
A. TENANT'S USE: Tenant shall not use, or permit said
Premises, or any part thereof, to be used, for any purpose other than that for
which the said Premises are hereby leased; and no use shall be made or
permitted to be made of the said Premises, nor acts done, which will cause a
cancellation of any insurance policy covering said Building, or any part
thereof, nor shall Tenant sell or permit to be kept, used or sold, in or about
said Premises, any article which may be prohibited by the standard form of fire
insurance policies. Tenant shall (subject to the provisions of Article 17 as
to Alterations required which are not a result of Tenant's specific use), at
its sole cost and expense, comply with any and all reasonable requirements,
pertaining to said Premises, of any insurance organization or company,
necessary for the maintenance of reasonable fire and public liability
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insurance, covering said Premises and appurtenances.
B. LANDLORD'S LIABILITY INSURANCE. Landlord shall procure and
maintain during the Term of this Lease a policy of (i) commercial general
liability insurance having a combined single limit for bodily injury and
property damage of not less than One Million Dollars ($1,000,000.00) per
occurrence; and (ii) a general aggregate insurance in an amount of not less
than Five Million Dollars ($5,000,000.00). The policy shall provide coverage
for blanket contractual liability (except for the negligence or willful
misconduct of the non-insured party) premises and personal injury coverage.
Landlord shall furnish to Tenant prior to the Commencement Date, and thereafter
within thirty (30) days prior to the expiration of each such policy, a
certificate of insurance issued by the insurance carrier of each policy of
insurance carried hereunder.
C. PROPERTY INSURANCE: Landlord agrees to purchase and keep
in force fire, and extended coverage ("All Risk" excluding earthquake)
insurance covering the Premises pursuant to the provisions of Article 10) in
amounts not less than the replacement cost of said Premises as mutually
determined by Landlord and Tenant. Tenant agrees to pay to the Landlord as
additional rent, on demand, the full cost of said insurance as evidenced by
insurance billings to the Landlord, and in the event of damage covered by said
insurance which does not result in a termination of this Lease , the amount of
any deductible under such policy, provided such deductible is not greater than
$20,000.00. Payment shall be due to Landlord within ten (10) days after
written invoice to Tenant. It is understood and agreed that Tenant's
obligation under this Article will be prorated to reflect the commencement and
termination dates of this Lease.
Notwithstanding the forgoing, Tenant shall have the right to
provide the hazard insurance for the Premises provided (i) Tenant can obtain
such insurance at a more favorable rate than Landlord; (ii) the form of
coverage and insurer are satisfactory to Landlord and its lender; (iii)
Landlord and its lender are named as additional insured; (iv) such insurance
provides that it may not be subject to cancellation or change except after at
least thirty (30) days written notice to Landlord; and (v) Tenant has delivered
to Landlord a certificate of insurance and additional insured endorsement
evidencing such policy is in effect.
E. TENANT'S INSURANCE: In addition, Tenant agrees to insure
its personal property, the Tenant Improvements, any Alterations not owned by
Landlord pursuant to the terms of Article 10 and to obtain worker's
compensation and public liability and property damage insurance for occurrences
within the Premises with combined limits for bodily injury and property damage
of not less than $1,000,000 per occurrence and a general aggregate limit of not
less than $5,000,000.00. Tenant shall name Landlord and Landlord's lender as
an additional insured, shall deliver a copy of the policies and renewal
certificates to Landlord. All such policies shall provide for thirty (30)
days' prior written notice to Landlord of any cancellation, termination, or
reduction in coverage.
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D. WAIVER: Landlord and Tenant hereby waive any and all
rights each may have against the other on account of any loss or damage
occasioned to the Landlord or the Tenant as the case may be, or to the Premises
or its contents, and which may arise from any risk covered by their respective
insurance policies (or which would have been covered had such insurance
policies been maintained in accordance with this Lease), as set forth above.
The parties shall obtain from their respective insurance companies a waiver of
any right of subrogation which said insurance company may have against the
Landlord or the Tenant, as the case may be.
E. GENERAL: Insurance required hereunder shall be written by
companies licensed to do business in the state in which the Premises are
located and have a General Policyholder's rating of at least A8 (or such higher
rating as may be required by a lender having a lien on the Property) as set
forth in the most current issue of Best's Insurance Guide. All insurance shall
expressly provide that such policies shall not be cancelable or subject to
reduction of coverage or otherwise be subject to modification except after
thirty (30) days prior written notice to any other party named as additional
insureds.
13. TAXES: Tenant shall be liable for, and shall pay prior to
delinquency, all taxes and assessments levied against personal property and
trade or business fixtures, and agrees to pay, as additional rental, all real
estate taxes and assessment installments (special or general) or other
impositions or charges which may be levied on the Premises, upon the occupancy
of the Premises and including any substitute or additional charges which may be
imposed during, or applicable to the Lease Term including real estate tax
increases due to a sale or other transfer of the Premises, as they appear on
the City and County tax bills during the Lease Term, and as they become due.
It is understood and agreed that Tenant's obligation under this Article will be
prorated to reflect the Commencement and Expiration Dates. If, at any time
during the Lease Term a tax, excise on rents, business license tax, or any
other tax, however described, is levied or assessed against Landlord, as a
substitute or addition in whole or in part for taxes assessed or imposed on
land or Buildings, Tenant shall pay and discharge his pro rata share of such
tax or excise on rents or other tax before it becomes delinquent. In the event
that a tax is placed, levied, or assessed against Landlord and the taxing
authority takes the position that the Tenant cannot pay and discharge his pro
rata share of such tax on behalf of the Landlord, then at the sole election of
the Landlord, the Landlord may increase the rental charged hereunder by the
exact amount of such tax and Tenant shall pay such increase as additional rent
hereunder. Landlord hereby grants to Tenant the right to contest, on behalf
and in the name of Landlord, all taxes and assessments which are imposed upon
the Premises; Landlord agrees to cooperate fully with Tenant and to execute all
documents requested by Tenant, in connection with any such contest. If by
virtue of any application or proceeding brought by Landlord results a reduction
in the assessed value of the Building during the Lease Term, Tenant agrees to
reimburse Landlord its reasonable, actual third party out of pocket costs
incurred by Landlord in connection with such application or proceeding.
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Notwithstanding the foregoing, the following shall not constitute
real estate taxes for the purposes of this Lease, and nothing contained herein
shall be deemed to require Tenant to pay any of the following: (i) any state,
local, federal, personal or corporate income tax measured by the income of
Landlord; (ii) any estate or inheritance taxes; (iii) any franchise, succession
or transfer taxes; (iv) interest on taxes or penalties resulting from
Landlord's failure to pay taxes, except to the extent such failure is due to
Tenant's failure to pay such taxes to Landlord when provided under this Lease;
(v) any assessments for public improvements or any taxes initiated by Landlord
which are essentially payments to a governmental agency for the right to make
improvements to the Building or surrounding area, to the extent such
assessments are not in effect as of the Execution Date and have not received
the prior written consent of Tenant; and (vi) any environmental tax, surcharge
or other fee affecting the Premises due to Landlord's activities with respect
to Hazardous Materials, as opposed to general, areawide taxes or surcharges
with respect to the remediation or testing for Hazardous Materials. If any
assessments affecting the Premises are payable in installments and Landlord
should prepay such assessments in advance of the date such installments would
become due, Tenant shall be solely responsible for the portion of such
assessment that would have normally come due as an installment, unless
consented to by Tenant in writing.
Notwithstanding anything to the contrary contained in this Lease,
Landlord shall pay, and Tenant shall have no responsibility for, any real
property taxes resulting from any change in ownership, sale, or other transfer
of the Premises or Building during the initial Term of the Lease to the extent
that such amount reflects an assessed valuation of the Premises in excess of
one hundred fifty percent (150%) of the "Commencement Date Valuation." The
"Commencement Date Valuation" shall mean the assessed valuation of the Premises
(as improved with the Building) as determined by the Santa Clara County
Assessor, as of the first date after the Commencement Date that the Santa Clara
County Assessor reassesses the Premises based on the completion of construction
of the Building and Tenant Improvements.
14. UTILITIES: Tenant shall pay directly to the providing utility
all water, gas, heat, light, power, telephone and other utilities supplied to
the Premises. Except for any damages resulting from the negligence, willful
misconduct, or breach of contract by Landlord, or its agents, or contractors
Landlord shall not be liable for a loss of or injury to property, however
occurring, through or in connection with or incidental to furnishing or failure
to furnish any utilities to the Premises and Tenant shall not be entitled to
abatement or reduction of any portion of the Base Monthly Rent so long as any
failure to provide and furnish the utilities to the Premises is due to a cause
beyond the Landlord's reasonable control, and is not the result of the
negligence, willful misconduct, or breach of contract by Landlord, or its
agents, or contractors.
In the event of any interruption in utilities or services to be
provided to the Premises, Tenant's rights and remedies shall be as follows: (i)
if such interruption is due to a failure of Tenant to pay the providing utility
when due, Base Rent due hereunder shall not be abated and Landlord
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shall have no liability to Tenant whatsoever as a result of such interruption;
(ii) if such interruption is due to the actions of Landlord or Landlord's
Parties, the Base Rent hereunder shall be equitably abated as of the time such
interruption commenced and Landlord shall be liable to Tenant for loss or injury
to property and Tenant's business as a result thereof; (iii) if such
interruption is due to the failure of the providing utility to provide such
utility or service to the Premises and such interruption continues for more than
ninety (90) continuous days, then Tenant shall be entitled to terminate this
Lease by delivery of written notice to Landlord within five (5) days following
the expiration of such ninety (90) day period; and (iv) if such interruption is
due to an event of damage or destruction, the rights of the parties hereunder
shall be as described in Section 28 below.
15. This paragraph intentionally left blank
16. FREE FROM LIENS: Except for obligations arising from the
construction of the Building Shell , Tenant Improvements, and parking lot,
Tenant shall keep the Premises free from any liens arising out of any work
performed, materials furnished, or obligations incurred by Tenant. Landlord
shall keep the Premises free from any liens arising out of any work performed,
materials furnished, or obligations incurred in connection with the Building
Shell, Tenant Improvements, or parking lot. In the event Tenant fails to
discharge or bond over any such lien within thirty (30) days after receiving
notice of the filing, Landlord shall be entitled to discharge such lien at
Tenant's expense and all resulting costs incurred by Landlord, including
reasonable attorney's fees shall be due from Tenant as additional rent.
17. COMPLIANCE WITH GOVERNMENTAL REGULATIONS: Tenant shall, at its
sole cost and expense, comply with all of the requirements of all Municipal,
State and Federal authorities now in force, or which may hereafter be in force,
which are imposed as a result of Tenant's particular and specific use of the
Premises, and shall faithfully observe in the use of the Premises all Municipal
ordinances and State and Federal statutes now in force or which may hereafter
be in force. The judgment of any court of competent jurisdiction, or the
admission of Tenant in any action or proceeding against Tenant, whether
Landlord be a party thereto or not, that Tenant has violated any such ordinance
or statute in the use of the Premises, shall be conclusive of that fact as
between Landlord and Tenant. In the event an Alteration is required to the
Building Shell by any law, rule, ordinance or decision not in effect as of the
Commencement Date of this Lease which is not imposed as a result of Tenant's
particular and specific use of the Premises (whether pursuant to Article 12 or
this Article 17), Tenant shall only be required to pay that portion of the cost
equal to the product of such total cost multiplied by a fraction, the numerator
of which is the number of months remaining in the Lease Term, the denominator
of which is the useful life (in months) of the Alteration.
18. TOXIC WASTE AND ENVIRONMENTAL DAMAGE:
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A. LANDLORD'S RESPONSIBILITY: Landlord represents and
warrants to Tenant that, except as disclosed in the attached environmental
studies dated June 18, 1990, July 2, 1990, and July 25, 1994, to the best of
its knowledge the Premises and the Building, as of the Commencement Date, do
not contain any chemicals, toxic or hazardous gaseous, liquid or solid
materials or waste, including without limitation, material or substance having
characteristics of ignitability, corrosivity, reactivity, or extraction
procedure toxicity or substances or materials which are listed on any of the
Environmental Protection Agency's list of hazardous wastes or which are
identified in Section 66680 through 66685 of Title 22 of the California
Administrative Code, 42 U.S.C. Sections 9601, et seq., 49 U.S.C. Sections
1801, et seq., 42 U.S.C. Sections 6901, et seq., or California Health and
Safety Code Section 25117, as the same may be amended from time to time
("Hazardous Materials"). Landlord shall indemnify, protect, defend and hold
Tenant harmless from and against all liability, cost, damage and expense
(including, without limitation attorneys' fees) arising from either: (i) the
failure of the representation and warranty contained in the immediately
preceding sentence; (ii) the presence of any Hazardous Materials on or about
the Premises on or prior to the Commencement Date; or (iii) the presence,
release, storage or use of Hazardous Materials on the Premises during the Term
by any party other than Tenant, Tenant's agents, employees, contractors or
invitees ("Tenant's Parties").
B. TENANT'S RESPONSIBILITY: Landlord hereby approves
Tenant's use on or about the Premises of Hazardous Materials used by Tenant in
connection with Tenant's business. Tenant represents and warrants that Tenant
will (i) adhere to all reporting and inspection requirements imposed by
Federal, State, County or Municipal laws, ordinances or regulations and will
make available for inspection by Landlord a copy of any such reports or agency
inspections, (ii) obtain and make available for inspection by Landlord copies
of all necessary permits required for the use and handling Hazardous Materials
on the Premises, (iii) enforce Hazardous Materials handling and disposal
practices consistent with industry standards, (iv) surrender the Premises free
from any Hazardous Materials arising from Tenant's bringing, using, permitting,
generating, emitting or disposing of Hazardous Materials, and (v) properly
close the facility with regard to Hazardous Materials including the removal or
decontamination of any process piping, mechanical ducting, storage tanks,
containers, or trenches which have come become contaminated with Hazardous
Materials and obtain a closure certificate from the local administering agency
prior to the Expiration Date to the extent required by Law.
C. TENANT'S INDEMNITY REGARDING HAZARDOUS MATERIALS: Tenant
shall comply, at its sole cost, with all laws pertaining to, and shall
indemnify and hold Landlord harmless from any claims, liabilities, costs or
expenses incurred or suffered by Landlord arising from such bringing, using,
permitting, generating, emitting or disposing of Hazardous Materials on the
Premises by Tenant or Tenant's Parties. Tenant's indemnification and hold
harmless obligations include, without limitation, (i) claims, liability, costs
or expenses resulting from or based upon administrative, judicial
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(civil or criminal) or other action, legal or equitable, brought by any private
or public person under common law or under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA"), the Resource
Conservation and Recovery Act of 1980 ("RCRA") or any other Federal, State,
County or Municipal law, ordinance or regulation, (ii) claims, liabilities,
costs or expenses pertaining to the identification, monitoring, cleanup,
containment, or removal of Hazardous Materials from soils, riverbeds or
aquifers including the provision of an alternative public drinking water
source, and (iii) all reasonable costs of defending such claims.
D. ACTUAL RELEASE BY TENANT: Tenant agrees to notify Landlord
upon learning of any lawsuits which relate to, or orders which relate to the
remedying of, the actual release by Tenant or Tenant's Parties of Hazardous
Materials on or into the soils or groundwater at or under the Premises. Tenant
shall also provide to Landlord all notices required by Section 25359.7(b) of
the Health and Safety Code and all other notices required by law to be given to
Landlord in connection with Hazardous Materials. Without limiting the
foregoing, Tenant shall also deliver to Landlord, within twenty (20) days after
receipt thereof, any written notices from any governmental agency alleging a
material violation of, or material failure to comply with, any federal, state
or local laws, regulations, ordinances or orders, the violation of which of
failure to comply with, poses a foreseeable and material risk of contamination
of the groundwater or injury to humans (other than injury solely to Tenant, its
agents and employees within the Improvements on the Property).
In the event of any release on or into the Premises or into the
soil or groundwater under the Premises of any Hazardous Materials used,
treated, stored or disposed of by Tenant, Tenant agrees to comply, at its sole
cost and expense, with all laws, regulations, ordinances and orders of any
federal, state or local agency relating to the monitoring or remediation of
such Hazardous Materials. In the event of any such release of Hazardous
Materials, Tenant agrees to meet and confer with Landlord and its Lender to
attempt to eliminate and mitigate any financial exposure to such Lender and
resultant exposure to Landlord under California Code of Civil Procedure section
736(b) as a result of such release and promptly to take reasonable monitoring,
cleanup and remedial steps given, inter alia, the historical uses to which the
Property has and continues to be used, the risks to public health posed by the
release, the then available technology and the costs of remediation, cleanup
and monitoring, consistent with acceptable customary practices for the type and
severity of such contamination and all applicable laws. Nothing in the preceding
sentence shall eliminate, modify or reduce the obligation of Tenant under
Article 18.B of this Lease to indemnify and hold Landlord harmless from any
claims liabilities, costs or expenses incurred or suffered by Landlord as
provided in Article 18.B of this Lease. Tenant shall provide Landlord prompt
written notice of Tenant's monitoring, cleanup and remedial steps. Tenant shall
have the right, at Tenant's expense and in Tenant's name, to contest or object
in good faith to any alleged violation by Tenant of any applicable law relating
to the use of Hazardous Materials by appropriate legal proceedings which are not
prejudicial to Landlord's rights if (i) Tenant shall have demonstrated to
Landlord's satisfaction that such legal proceedings shall conclusively operate
to prevent enforcement prior to
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final determination of any such proceedings. In the event that, by
non-performance of any such items, the Premises is subject to imminent loss or
forfeiture, Tenant shall perform any such act required by the relevant
governmental authority.
In the absence of an order of any federal, state or local
governmental or quasi-governmental agency relating to the cleanup, remediation
or other response action required by applicable law, any dispute arising
between Landlord and Tenant concerning Tenant's obligation to Landlord under
this Article D concerning the Level, method, and manner of cleanup, remediation
or response action required in connection with such a release of Hazardous
Materials shall be resolved by mediation and/or arbitration pursuant to the
provisions of Article 47 of this Lease.
E. ENVIRONMENTAL MONITORING: Landlord and its agents shall
have the right, at Landlord's sole cost and expense, (unless Tenant is in
violation of this Article 18 in which event such monitoring shall be at
Tenant's expense) to inspect, investigate, sample and/or monitor the Premises,
including any air, soil, water, groundwater or other sampling or any other
testing, digging, drilling or analysis to determine whether Tenant is complying
with the terms of this Article 18. If Landlord discovers that Tenant is not in
compliance with the terms of this Article 18, any such reasonable costs
incurred by Landlord, including attorneys' and consultants' fees shall be due
and payable by Tenant to Landlord within thirty (30) days following Landlord's
written demand therefore.
19. INDEMNITY: As a material part of the consideration to be
rendered to Landlord, Tenant hereby waives all claims against Landlord for
damages to goods, wares and merchandise, and all other personal property in,
upon or about said Premises and for injuries to persons in or about said
Premises, from any cause except to the extent due to the negligence or willful
misconduct of Landlord or Landlord's Parties to the fullest extent permitted
by law, and Tenant shall indemnify and hold Landlord exempt and harmless from
any damage or injury to any person, or to the goods, wares and merchandise and
all other personal property of any person, arising from the use of the
Premises, Building, and/or Project by Tenant, its employees, contractors,
agents and invitees or from the failure of Tenant to keep the Premises in good
condition and repair, as herein provided, except to the extent due to the
negligence or willful misconduct of Landlord or Landlord's Parties. Further,
in the event Landlord is made party to any litigation due to the acts or
omission of Tenant, its employees, contractors, agents and invitees, Tenant
will indemnify and hold Landlord harmless from any such claim or liability
including Landlord's costs and expenses and reasonable attorney's fees incurred
in defending such claims.
Landlord shall defend, indemnify by counsel acceptable to Tenant,
protect Tenant, its officers, employees and agents harmless from and against
any liabilities, loss, cost, damage, injury or expense (including reasonable
attorneys' fees and court costs) arising out of or related to the willful
misconduct or negligence of Landlord or Landlord's Parties.
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20. ADVERTISEMENTS AND SIGNS: Tenant will not place or permit to be
placed, in, upon or about the exterior of the Building any signs which are
prohibited by the city or other governing authority. The Tenant will not
place, or permit to be placed, upon the exterior of the Building, any signs,
advertisements or notices without the written consent of the Landlord as to
type, size, design, lettering, coloring and location, and such consent will not
be unreasonably withheld. Any sign so placed on the exterior of the Building
shall be so placed upon the understanding and agreement that Tenant will remove
same at the termination of the tenancy herein created and repair any damage or
injury to the exterior of the Building caused thereby, and if not so removed by
Tenant then Landlord may have same so removed at Tenant's expense.
21. ATTORNEY'S FEES: In case a suit or alternative form of dispute
resolution should be brought for the possession of the Premises, for the
recovery of any sum due hereunder, or because of the breach of any other
covenant herein, the losing party shall pay to the prevailing party a
reasonable attorney's fee including the expense of expert witnesses,
depositions and court testimony as part of its costs which shall be deemed to
have accrued on the commencement of such action. In addition, the prevailing
party shall be entitled to recover all costs and expenses including reasonable
attorney's fees incurred by the prevailing party in enforcing any judgment or
award against the other party. The foregoing provision relating to
post-judgment costs is intended to be severable from all other provisions of
this Lease.
22. TENANT'S DEFAULT: The occurrence of any of the following shall
constitute a material default and breach of this Lease by Tenant: a) Any
failure by Tenant to pay the rental or to make any other payment required to be
made by Tenant hereunder, where such failure continues for ten (10) days after
Tenant's receipt of written notice thereof by Landlord to Tenant; b) A failure
by Tenant to observe and perform any other provision of this Lease to be
observed or performed by Tenant, where such failure continues for thirty (30)
days after Tenant's receipt of written notice thereof by Landlord; provided,
however, that if the nature of such default is such that the same cannot
reasonably be cured within such thirty (30) day period Tenant shall not be
deemed to be in default if Tenant shall within such period commence such cure
and thereafter diligently prosecute the same to completion; c) The making by
Tenant of any general assignment for the benefit of creditors; the filing by or
against Tenant of a petition to have Tenant adjudged a bankrupt or of a
petition for reorganization or arrangement under any law relating to bankruptcy
(unless, in the case of a petition filed against Tenant, the same is dismissed
after the filing); the appointment of a trustee or receiver to take possession
of substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where possession is not restored to Tenant within
ninety (90) days; or the attachment, execution or other judicial seizure of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where such seizure is not discharged within ninety (90)
days. The notice requirements set forth herein are in lieu of and not in
addition to the notices required by California Code of Civil Procedure Section
1161. Any notice given by Landlord to
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Tenant pursuant to California Civil Code 1161 with respect to any failure by
Tenant to pay rent under this Lease on or before the date the rent is due shall
provide Tenant with a period of no less than ten (10) days to pay such rent or
quit.
A. REMEDIES: In the event of any such default by Tenant,
then in addition to any other remedies available to Landlord at law or in
equity, Landlord shall have the immediate option to terminate this Lease and
all rights of Tenant hereunder by giving written notice of such intention to
terminate. In the event that Landlord shall elect to so terminate this Lease
then Landlord may recover from Tenant: a) the worth at the time of award of
any unpaid rent which had been earned at the time of such termination; plus b)
the worth at the time of award of the amount by which the unpaid rent which
would have been earned after termination until the time of award exceeds the
amount of such rental loss for the same period that Tenant proves could have
been reasonably avoided; plus c) the worth at the time of award of the amount
by which the unpaid rent for the balance of the Lease Term after the time of
award exceeds the amount of such rental loss that Tenant proves could be
reasonably avoided; plus d) any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, and e) at Landlord's election, such other amounts
in addition to or in lieu of the foregoing as may be permitted from time to
time by applicable California law. The term "rent", as used herein, shall be
deemed to be and to mean the minimum monthly installments of Base Monthly Rent
and all other sums required to be paid by Tenant pursuant to the terms of this
Lease, all other such sums being deemed to be additional rent due hereunder.
As used in (a) and (b) above, the "worth at the time of award" is to be
computed by allowing interest at the rate of the discount rate of the Federal
Reserve Bank of San Francisco plus five (5%) percent per annum. As used in (c)
above, the "worth at the time of award" is to be computed by discounting such
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of award plus one (1%) percent.
B. RIGHT TO RE-ENTER: In the event of any such default by
Tenant, Landlord shall also have the right, with or without terminating this
Lease, to re-enter the Premises and remove all persons and property from the
Premises; such property may be removed and stored in a public warehouse or
elsewhere at the cost of and for the account of Tenant and disposed of by
Landlord in any manner permitted by law.
C. ABANDONMENT: In the event of the vacation or abandonment
of the Premises by Tenant or in the event that Landlord shall elect to re-enter
as provided in Article 22.B above or shall take possession of the Premises
pursuant to legal proceeding or pursuant to any notice provided by law, then if
Landlord does not elect to terminate this Lease as provided in Article 22.A
above, then the provisions of California Civil Code Section 1951.4, (Landlord
may continue the lease in effect after Tenant's breach and abandonment and
recover rent as it becomes due, if Tenant has a right to sublet and assign,
subject only to reasonable limitations) as amended from time to time, shall
apply
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and Landlord may from time to time, without terminating this Lease, either
recover all rental as it becomes due or relet the Premises or any part thereof
for such term or terms and at such rental or rentals and upon such other terms
and conditions as Landlord in its sole discretion may deem advisable with the
right to make alterations and repairs to the Premises. In the event that
Landlord shall elect to so relet, then rentals received by Landlord from such
reletting shall be applied: first, to the payment of any indebtedness other
than Base Monthly Rent due hereunder from Tenant to Landlord; second, to the
payment of any cost of such reletting; third, to the payment of the cost of
any alterations and repairs to the Premises; fourth, to the payment of Base
Monthly Rent due and unpaid hereunder; and the residue, if any, shall be held
by Landlord and applied in payment of future Base Monthly Rent as the same may
become due and payable hereunder. Landlord shall have no obligation to relet
the Premises following a default if Landlord has other available space within
the Building or Project. Should that portion of such rentals received from
such reletting during any month, which is applied by the payment of rent
hereunder, be less than the rent payable during that month by Tenant hereunder,
then Tenant shall pay such deficiency to Landlord immediately upon demand
therefor by Landlord. Such deficiency shall be calculated and paid monthly.
Tenant shall also pay to Landlord, as soon as ascertained, any costs and
expenses incurred by Landlord in such reletting or in making such alterations
and repairs not covered by the rentals received from such reletting.
D. NO TERMINATION: No re-entry or taking possession of the
Premises by Landlord pursuant to 22.B or 22.C of this Article 22 shall be
construed as an election to terminate this Lease unless a written notice of
such intention be given to Tenant or unless the termination thereof be decreed
by a court of competent jurisdiction. Notwithstanding any reletting without
termination by Landlord because of any default by Tenant, Landlord may at any
time after such reletting elect to terminate this Lease for any such default.
23. SURRENDER OF LEASE: The voluntary or other surrender of this
Lease by Tenant, or a mutual cancellation thereof, shall not automatically
effect a merger of the Lease with Landlord's ownership of the Premises.
Instead, at the option of Landlord, Tenant's surrender may terminate all or any
existing sublease or subtenancies, or may operate as an assignment to Landlord
of any or all such subleases or subtenancies, thereby creating a direct
Landlord-Tenant relationship between Landlord and any subtenants.
24. HABITUAL DEFAULT: Deleted.
25. LANDLORD'S DEFAULT: In the event of Landlord's failure to
perform any of its covenants or agreements under this Lease, Tenant shall give
Landlord written notice of such failure and shall give Landlord thirty (30)
days to cure such failure; provided, however, that if the nature of such
default is such that the same cannot reasonably be cured within such thirty
(30) day period Landlord shall not be deemed to be in default if Landlord shall
within such period commence such
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cure and thereafter diligently prosecute the same to completion. In addition,
upon any such failure by Landlord, Tenant shall give notice by registered or
certified mail or national overnight courier service to any person or entity
with a security interest in the Premises ("Mortgagee") that has provided Tenant
with written notice (including such Mortgagee's address) of its interest in the
Premises, and shall provide such Mortgagee a period of thirty (30) days beyond
the cure period provided Landlord hereunder to cure such failure. Tenant shall
not make any prepayment of rent more than one (1) month in advance without the
prior written consent of such Mortgagee. Tenant waives any right under
California Civil Code Section 1950.7 or any other present or future law to the
collection of any payment or deposit from such Mortgagee or any purchaser at a
foreclosure sale of such Mortgagee's interest unless such Mortgagee or such
purchaser shall have actually received (or have credited to it) and not
refunded the applicable payment or deposit.
26. NOTICES: All notices, demands, requests, or consents required
to be given under this Lease shall be sent in writing by U.S. certified mail,
return receipt requested, national overnight courier service or by personal
delivery addressed to the party to be notified at the address for such party
specified in Article 1 of this Lease, or to such other place as the party to be
notified may from time to time designate by at least five (5) days prior notice
to the notifying party.
27. ENTRY BY LANDLORD: Upon 24 hours prior notice, Tenant shall
permit Landlord and his agents to enter into and upon said Premises at all
reasonable times subject to any security regulations of Tenant for the purposes
of (i) inspecting the same, (ii) maintaining the Premises, (iii) making
repairs, alterations or additions to the Premises, (iv) erecting additional
building(s) and improvements on the land where the Premises are situated, or on
adjacent land owned by Landlord, or (v) performing any obligations of the
Landlord under the Lease including remediation of hazardous materials if
determined to be the responsibility of Landlord, without any abatement or
reduction of rent or without any liability to Tenant for any loss of occupation
or quiet enjoyment of the Premises thereby occasioned. Tenant shall permit
Landlord and Landlord's Parties, at any time within one hundred eighty (180)
days prior to the Expiration Date, unless Tenant has exercised its option to
extend the term pursuant to Section 37.A (or at any time during the Lease if
Tenant is in default hereunder beyond the applicable cure period), to place
upon the Premises "For Lease" signs and exhibit the Premises to real estate
brokers and prospective tenants at reasonable hours. Landlord agrees that
Landlord and Landlord's Parties shall conduct all of their activities under
this Section 27 in a manner which minimizes the interruption to Tenant or
Tenant's activities on the Premises.
28. DESTRUCTION OF PREMISES:
A. DESTRUCTION BY AN INSURED CASUALTY: In the event of a
partial destruction of the Premises by a casualty for which Landlord has
received insurance proceeds sufficient to repair the damage or destruction
during the Lease Term from any cause, Landlord shall forthwith repair the
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same to the extent of such proceeds, provided such repairs can be made within
twelve (12) months from the date of destruction as reasonably determined by the
architect responsible for the reconstruction such determination to be made
within sixty (60) days of the date of destruction, and such partial destruction
shall in no way annul or void this Lease, except that Tenant shall be entitled
to a proportionate reduction of Base Monthly Rent while such repairs are being
made, such proportionate reduction to be based upon the extent to which the
making of such repairs shall interfere with the business carried on by Tenant in
the Premises. For purposes of this Article "partial destruction" shall mean
destruction of no greater than one-third (1/3) of the replacement cost of the
Premises, including the replacement cost of the Tenant Improvements paid for by
Landlord. In the event the Premises (i) are more than partially destroyed, or
(ii) the repairs cannot be made within twelve (12) months from the date of
destruction as reasonably determined by the architect responsible for the
reconstruction such determination to be made within sixty (60) days of the date
of destruction. Landlord shall not be required to restore Alterations or replace
Tenant's fixtures or personal property. In respect to any partial destruction
which Landlord is obligated to repair or may elect to repair under the terms of
this Article, the provision of Section 1932, Subdivision 2, and of Section 1933,
Subdivision 4, of the Civil Code of the State of California and any other
similarly enacted statute are waived by Tenant and the provisions of this
Article 28 shall govern in the case of such destruction. Any disputes between
Landlord and Tenant with respect to the degree of damage or destruction of the
Premises or the time necessary to rebuild shall be resolved by arbitration
pursuant to Section 47 of this Lease.
B. DESTRUCTION BY AN UNINSURED CASUALTY: In the event of a
total or partial destruction of the Premises by a casualty for which Landlord
has not received insurance proceeds sufficient to repair the damage or
destruction during the Lease Term and which would cost in excess of Two Hundred
Fifty Thousand and No/100 Dollars ($250,000.00) to repair, Landlord shall have
the option to terminate this Lease, unless Tenant agrees to contribute the
amount of such uninsured loss beyond the initial $250,000 to repair, which
amount shall be the sole obligation of Landlord. Further if the uninsured
damage can not be repaired within twelve (12) months from the date of
destruction as reasonably determined by the architect responsible for the
reconstruction such determination to be made within sixty (60) days of the date
of destruction, either Landlord or Tenant shall have the option to terminate
this lease.
C. DAMAGE OR DESTRUCTION AT END OF TERM: If the Building or
Premises is damaged or destroyed during the last twenty-four (24) months of the
Term of the Lease, and the Premises or Building cannot be fully repaired or
restored by Landlord within ninety (90) days after the date of the damage or
destruction, either Landlord or Tenant may terminate this Lease upon notice to
the other, provided, that Tenant may prevent Landlord's termination of this
Lease under this Section 28.C by exercising Tenant's right to extend the Lease
Term as described in Section 37.
29. ASSIGNMENT OR SUBLEASE:
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A. CONSENT BY LANDLORD: In the event Tenant desires to
assign this Lease or any interest therein including, without limitation, a
pledge, mortgage or other hypothecation, or sublet the Premises or any part
thereof, Tenant shall deliver to Landlord executed counterparts of any such
agreement and of all ancillary agreements with the proposed assignee or
subtenant, such assignee or subtenant's most recent financial statements, and
any additional information as reasonably required by Landlord to determine
whether it will consent to the proposed assignment or sublease. The notice
shall give the name and current address of the proposed assignee/subtenant,
proposed use of the Premises, rental rate and current financial statement; and
upon request to Tenant, Landlord shall be given additional information as
reasonably required by Landlord to determine whether it will consent to the
proposed assignment or sublease. Landlord shall then have a period of ten (10)
days following receipt of the foregoing agreement, statements and additional
information within which to notify Tenant in writing that Landlord elects (i)
to permit Tenant to assign or sublet such space to the named assignee/subtenant
on the terms and conditions set forth in the notice, or (ii) to refuse consent,
which consent shall not be unreasonably withheld or delayed. If Landlord
should fail to notify Tenant in writing of such election within said ten (10)
day period, Landlord shall be deemed to have elected option (i) above.
Landlord's consent (which must be in writing and in form reasonably
satisfactory to Landlord) to the proposed assignment or sublease shall not be
unreasonably withheld or delayed. Tenant shall not advertise or publicize the
availability of the Premises without prior notice to Landlord.
B. ASSIGNMENT OR SUBLETTING CONSIDERATION: If Tenant shall
assign, sublease or otherwise transfer all or any portion of the Premises to a
party other than Tenant Affiliate, Landlord and Tenant shall evenly divide any
rent or other consideration paid to Tenant in connection with such assignment,
sublease or other transfer which is in excess of the base rent due under this
Lease, after first deducting out for the Tenant's account the cost of (i)
broker's commissions paid by Tenant with regard to the transfer; (ii) legal
fees; (iii) the cost of improvements made to the Premises by Tenant at Tenant's
expense as of the date of such transfer, or any tenant improvements made by
Tenant at Tenant's expense for the purpose of transfer; (iv) the unamortized
portions of improvements made in the transferred area by Tenant for Tenant's
use during the original tenancy (to the extent such improvements have value to
the subtenant or assignee); (v) all rent paid by Tenant to Landlord while the
Premises were vacant prior to such transfer; and (vi) any other expenses
incurred by Tenant in effectuating the transfer. The terms of this section
shall survive the expiration or earlier termination of the Lease. The above
provision relating to the allocation of bonus rent are independently negotiated
terms of the Lease, constitute a material inducement for the Landlord to enter
into the Lease, and are agreed as between the parties to be commercially
reasonable. No assignment or subletting by Tenant shall relieve Tenant of any
obligation under this Lease. Any assignment or subletting which conflicts with
the provisions hereof shall be void.
C. NO RELEASE: Any assignment or sublease shall be made only
if and shall not be
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effective until the assignee or subtenant shall execute, acknowledge and
deliver to Landlord an agreement, in form and substance satisfactory to
Landlord, whereby the assignee or subtenant shall assume all of the obligations
of this Lease on the part of Tenant to be performed or observed and shall be
subject to all of the covenants, agreements, terms, provisions and conditions
contained in this Lease, except as expressly provided for therein.
Notwithstanding any such sublease or assignment and the acceptance of rent by
Landlord from any subtenant or assignee, Tenant and any guarantor shall and
will remain fully liable for the payment of the rent and additional rent due
hereunder, and to become due hereunder, for the performance of all of the
covenants, agreements, terms, provisions and conditions contained in this Lease
on the part of Tenant to be performed and for all acts and omissions of any
licensee, subtenant, assignee or any other person claiming under or through any
subtenant or assignee that shall be in violation of any of the terms and
conditions of this Lease, and any such violation shall be deemed to be a
violation by Tenant. Tenant shall further indemnify, defend and hold Landlord
harmless from and against any and all losses, liabilities, damages, costs and
expenses (including reasonable attorney fees) resulting from any claims that
may be made against Landlord by the proposed assignee or subtenant or by any
real estate brokers or other persons claiming a commission or similar
compensation in connection with the proposed assignment or sublease.
D. EFFECT OF DEFAULT: In the event of Tenant's default,
Tenant hereby assigns all rents due from any assignment or subletting to
Landlord as security for performance of its obligations under this Lease and
Landlord may collect such rents, except that Tenant may collect such rents
unless a default occurs as described in Article 22 and 24 above. The
termination of this Lease due to Tenant's default shall not automatically
terminate any assignment or sublease then in existence; at the election of
Landlord, such assignment or sublease shall survive the termination of this
Lease and, upon such election, the assignee or subtenant shall attorn to
Landlord and Landlord shall undertake the obligations of the Tenant under the
sublease or assignment; provided the Landlord shall not be liable for prepaid
rent, or security deposits not received by Landlord or other defaults of the
Tenant to the subtenant or assignee, or any acts or omissions of Tenant, its
agents, employees, contractors or invitees. Notwithstanding anything to the
contrary in this Lease, no event of default shall be deemed to have occurred by
virtue of any act or omission of any subtenant or assignee of Tenant, unless
Landlord has delivered to Tenant written notice of such act or omission, and
has given Tenant the period(s) of time specified in Article 22 to cure such
default.
E. EXCLUDED TRANSFERS: Tenant may assign this Lease or
sublet any portion of the Premises without Landlord's consent to any of the
following (i) any corporation which controls, is controlled by or under common
control with Tenant; (ii) any corporation resulting from the merger or
consolidation of Tenant if (a) the successor to Tenant has a net worth,
computed in accordance with generally accepted accounting principles, at least
equal to the greater of (1) the net worth of Tenant immediately prior to such
transfer or (2) the net worth of Tenant herein named on the date of
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this Lease, and (b) proof satisfactory to Landlord of such net worth shall have
been delivered to Landlord at least ten (10) days prior to the effective date
of any such transaction; (iii) any person or entity which acquires all of the
assets of Tenant as a going concern of the business that is being conducted on
the Premises (collectively, "Tenant Affiliate"), provided that such assignee
assumes in full the obligations of Tenant under the Lease.
30. CONDEMNATION: If any part of the Premises shall be taken for
any public or quasi-public use, under any statute or by right of eminent domain
or private purchase in lieu thereof, and only a part thereof remains which is
susceptible of occupation hereunder, this Lease shall as to the part so taken,
terminate as of the day before title shall vest in the condemnor or purchaser
("Vesting Date"), and the Base Monthly Rent payable hereunder shall be adjusted
so that the Tenant shall be required to pay for the remainder of the Lease Term
only such portion of such Base Monthly Rent as the value of the part remaining
after such taking bears to the value of the entire Premises prior to such
taking; but in such event Landlord and Tenant shall have the option to
terminate this Lease as of the Vesting Date. If all of the Premises, or such
part thereof be taken so that the remaining portion is unusable for Tenant's
business therein, as reasonably determined by Tenant, Tenant may terminate this
Lease as of Vesting Date. Landlord shall be entitled to any award paid for if
the Premises is wholly or partially condemned, except that Tenant shall have
the right to receive from either the condemning authority or Landlord, as
applicable, all proceeds and other compensation received in connection with
condemnation to the extent paid for (i) any Tenant Improvements or Alterations
made by or at the expense of Tenant; (ii) Tenant's loss of goodwill; (iii)
Tenant's relocation costs; and (iv) Tenant's loss of business and business
interruption. Tenant hereby waives the provisions of California Code of Civil
Procedures Section 1265.130 and any other similarly enacted statue are waived
by Tenant and the provisions of this Article 30 shall govern in the case of
such destruction.
31. EFFECTS OF CONVEYANCE: The term "Landlord" as used in this
Lease, means only the owner for the time being of the Premises so that, in the
event of any sale or other conveyance of the Premises, or in the event of a
master lease of the Premises, the Landlord shall be and hereby is entirely
freed and relieved of all covenants and obligations of the "Landlord"
hereunder, but only so long as the new Landlord expressly assumes in writing
all the obligations of Landlord under this Lease, and delivers to Tenant a
written agreement by which the new Landlord assumes such obligations, and it
shall be deemed and construed, without further agreement between the parties
and the purchaser at any such sale, or the master tenant of the Premises, that
the purchaser or master tenant of the Premises has assumed and agreed to carry
out any and all covenants and obligations of the Landlord hereunder arising
after the effective date of the transfer to the new Landlord. Such transferor
shall transfer and deliver Tenant's security deposit to the purchaser at any
such sale or the master tenant of the Premises, and thereupon the such
transferor shall be discharged from any further liability in reference thereto.
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32. SUBORDINATION: Simultaneously with the execution of this Lease,
Landlord shall deliver to Tenant a non-disturbance agreement from Landlord's
existing lender or lenders, if any, in form and substance acceptable to Tenant,
by which such lender or lenders agree not to disturb Tenant's possession of the
Premises so long as Tenant is not in material default of the terms of this
Lease beyond any applicable cure period at the time such lender or lenders
foreclose on the Premises. This Lease shall be subordinate to any future
ground lease, deed of trust, or other hypothecation for security only so long
as Landlord delivers to Tenant prior to the effective of such subordination a
written non-disturbance agreement, in form and substance acceptable to Tenant,
by which such Lender or other party agrees not to disturb Tenant's possession
of the Premises if Tenant is not in material default of Tenant's obligations
under this Lease beyond any applicable cure period at the time such party
becomes the fee owner of the Premises. Subject to the above, in the event
Landlord notifies Tenant in writing, this Lease shall be subordinate to any
ground Lease, deed of trust, or other hypothecation for security now or
hereafter placed upon the real property of which the Premises are a part and to
any and all advances made on the security thereof and to renewals,
modifications, replacements and extensions thereof. Tenant agrees to promptly
execute and deliver any documents which may be required to effectuate such
subordination.
33. WAIVER: The waiver by Landlord or Tenant of any breach of any
term, covenant or condition, herein contained shall not be deemed to be a
waiver of such term, covenant or condition or any subsequent breach of the same
or any other term, covenant or condition herein contained. The subsequent
acceptance of rent hereunder by Landlord shall not be deemed to be a waiver of
any preceding breach by Tenant of any term, covenant or condition of this
Lease, other than the failure of Tenant to pay the particular rental so
accepted, regardless of Landlord's knowledge of such preceding breach at the
time of acceptance of such rent. No payment by Tenant or receipt by Landlord
of a lesser amount than any installment of rent due shall be deemed to be other
than payment on account of the amount due. No delay or omission in the
exercise of any right or remedy by Landlord or Tenant shall impair such right
or remedy or be construed as a waiver thereof by the non-defaulting party. No
act or conduct of Landlord, including, without limitation, the acceptance of
keys to the Premises, shall constitute acceptance of the surrender of the
Premises by Tenant before the Expiration Date (only written notice from
Landlord to Tenant of acceptance shall constitute such acceptance of surrender
of the Premises). Landlord's consent to or approval of any act by Tenant which
require Landlord's consent or approvals shall not be deemed to waive or render
unnecessary Landlord's consent to or approval of any subsequent act by Tenant.
34. HOLDING OVER: Any holding over after the termination or
Expiration Date, shall be construed to be a tenancy from month to month,
terminable on thirty (30) days written notice from either party, and Tenant
shall pay Base Monthly Rent to Landlord at a rate equal to one hundred twenty
five percent (125%) of the Base Monthly Rent due in the month preceding the
termination or Expiration Date for the first two (2) months of any hold over
and one hundred fifty percent (150%) of
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the Base Monthly Rent thereafter plus all other amounts payable by Tenant
under this Lease. Any holding over shall otherwise be on the terms and
conditions herein specified, except those provisions relating to the Lease Term
and any options to extend or renew, which provisions shall be of no further
force and effect following the expiration of the applicable exercise period.
35. SUCCESSORS AND ASSIGNS: The covenants and conditions herein
contained shall, subject to the provisions of Article 29, apply to and bind the
heirs, successors, executors, administrators and assigns of all the parties
hereto; and all of the parties hereto shall be jointly and severally liable
hereunder.
36. ESTOPPEL CERTIFICATES: Tenant shall at any time during the
Lease Term, within ten (10) days following receipt of written notice from
Landlord, respond to any request by Landlord for a statement in writing
certifying (i) that this Lease is unmodified and in full force and effect (or,
if modified, stating the nature of such modification); (ii) the date to which
the rent and other charges are paid in advance, if any; (iii) acknowledging
that there are not, to Tenant's knowledge, any uncured defaults on the part of
Landlord hereunder or specifying such defaults if they are claimed; and (iv)
such other information as Landlord may reasonably request. Any such statement
may be conclusively relied upon by any prospective purchaser or encumbrancer of
the Premises. Tenant also agrees to provide the most current three (3) years
of audited financial statements within five (5) days of a request by Landlord
for Landlord's use in financing the Premises with commercial lenders.
37. OPTION TO EXTEND THE LEASE TERM:
A. GRANT AND EXERCISE OF OPTION: Landlord hereby grants to
Tenant, upon and subject to the terms and conditions set forth in this Article
37 four (4) options (the "Options") to extend the Lease Term for an additional
term (the "Option Term"), each Option Term shall be for a period of sixty (60)
months. Each such Option shall be exercised, if at all, by written notice to
Landlord no earlier than the date that is twenty four (24) months prior to the
Expiration Date but no later than the date that is twelve (12) months prior to
the Expiration Date. Thirteen (13) months prior to the Expiration Date
Landlord shall provide Tenant with a written notice of the fact that the Option
will expire in thirty (30) days. If Tenant exercises the Option, each of the
terms, covenants and conditions of this Lease except this Article shall apply
during the Option Term as though the expiration date of the Option Term was the
date originally set forth herein as the Expiration Date, provided that the Base
Monthly Rent to be paid by Tenant during the Option Term shall be the greater
of (i) the Base Monthly Rent payable on the Commencement Date, or (ii) ninety
five percent (95%) of the Fair Market Rental, as hereinafter defined, for the
Premises for the Option Term. Anything contained herein to the contrary
notwithstanding, if Tenant is in monetary or material non-monetary default
beyond any applicable cure period under any of the terms, covenants or
conditions of this Lease either at the time Tenant exercises the Option or at
any time thereafter prior to the commencement date of the Option Term, Landlord
shall have, in addition to all of Landlord's other rights and
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remedies provided in this Lease, the right to terminate the Option upon notice
to Tenant, in which event the expiration date of this Lease shall be and remain
the Expiration Date or the expiration of the then relevant Option Term. As
used herein, the term "Fair Market Rental" for the Premises shall mean the
rental and all other monetary payments including any escalations and
adjustments thereto (including without limitation Consumer Price Indexing) then
being obtained for leases of space comparable in age and quality to the
Premises in the locality of the Building that Landlord could obtain during the
Option Term from a third party desiring to lease the Premises for the Option
Term based upon the current use and other potential uses of the Premises. The
appraisers shall be instructed that the foregoing five percent (5%) discount is
intended to reduce comparable rents which include (i) brokerage commissions,
(ii) tenant improvement allowances, and (iii) vacancy costs, to account for the
fact that Landlord will not suffer such costs in the event Tenant exercises its
Option. The Fair Market Rental shall specifically exclude any additional
rental attributable to the value of the Tenant Improvements or Alterations paid
for by Tenant.
B. DETERMINATION OF FAIR MARKET RENTAL: If Tenant exercises
the Option, Landlord shall send to Tenant a notice setting forth the Fair
Market Rental for the Premises for the Option Term within thirty (30) days of
Tenant's exercise of the Option. If Tenant disputes Landlord's determination
of the Fair Market Rental for the Option Term, Tenant shall, within thirty (30)
days after the date of Landlord's notice setting forth the Fair Market Rental
for the Option Term, send to Landlord a notice stating that Tenant either (i)
elects to terminate its exercise of the Option, in which event the Option shall
lapse and this Lease shall terminate on the Expiration Date, or (ii) disagrees
with Landlord's determination of Fair Market Rental for the Option Term and
elects to resolve the disagreement as provided in Article 37.C below. If Tenant
does not send to Landlord a notice as provided in the previous sentence,
Landlord's determination of the Fair Market Rental shall be the basis for
determining the Base Monthly Rent to be paid by Tenant hereunder during the
Option Term. If Tenant elects to resolve the disagreement as provided in
Article 37.C below and such procedures shall not have been concluded prior to
the commencement date of the Option Term, Tenant shall pay as Base Monthly Rent
to Landlord the rent due hereunder during the month preceding the Expiration
Date. If the amount of Fair Market Rental as finally determined pursuant to
Article 37.C below is greater than Landlord's determination, Tenant shall pay
to Landlord the difference between the amount paid by Tenant and the he rent
due hereunder during the month preceding the Expiration Date within thirty (30)
days after the determination. If the Fair Market Rental as finally determined
in Article 37.C below is less than Landlord's determination, the difference
between the amount paid by Tenant and the Fair Market Rental as so determined
in Article 37.C below shall be credited against the next installments of rent
due from Tenant to Landlord hereunder.
C. RESOLUTION OF A DISAGREEMENT OVER THE FAIR MARKET RENTAL:
Any disagreement regarding the Fair Market Rental shall be resolved as follows:
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1. Within thirty (30) days after Tenant's response to
Landlord's notice to Tenant of the Fair Market Rental, Landlord and Tenant
shall meet no less than two (2) times, at a mutually agreeable time and place,
to attempt to resolve any such disagreement.
2. If within the thirty (30) day period referred to in
(i) above, Landlord and Tenant can not reach agreement as to the Fair Market
Rental, they shall each select one appraiser to determine the Fair Market
Rental. Each such appraiser shall arrive at a determination of the Fair Market
Rental and submit their conclusions to Landlord and Tenant within thirty (30)
days after the expiration of the thirty (30) day consultation period described
in (i) above.
3. If only one appraisal is submitted within the
requisite time period, it shall be deemed to be the Fair Market Rental. If
both appraisals are submitted within such time period, and if the two
appraisals so submitted differ by less than ten percent (10%) of the higher of
the two, the average of the two shall be the Fair Market Rental. If the two
appraisals differ by more than ten percent (10%) of the higher of the two, then
the two appraisers shall immediately select a third appraiser who shall within
thirty (30) days after his or her selection shall select one of the two (2)
existing determinations of Fair Market Rental as correct. This third
appraiser's conclusion shall be the Fair Market Rental.
4. All appraisers specified pursuant to this Article
shall be members of the American Institute of Real Estate Appraisers with not
less than five (5) years experience appraising office and industrial properties
in the Santa Clara Valley. Each party shall pay the cost of the appraiser
selected by such party and one-half of the cost of the third appraiser.
38. OPTIONS TO LEASE: Commencing upon lease execution, Tenant shall
have an option to lease from an affiliated partnership of Landlord (i) a
one-story building of approximately 120,000 square feet to be constructed on a
portion of the approximate 18.24 acre site across Automation Parkway from the
Premises; or (ii) a two-story building of approximately 100,000 square feet to
be constructed on the balance of the approximate 18.24 acre site across
Automation Parkway from the Premises, or (iii) both such buildings; on the
terms outlined in the agreement attached as Exhibit "F". The options to lease
must be exercised by Tenant prior to December 31, 1996.
39. TENANT'S RIGHT OF FIRST REFUSAL:
A. GRANT. Landlord hereby grants to Tenant a right of first
refusal during the Term of this Lease and any extension thereof to purchase the
Premises ("Right of First Refusal to Purchase").
B. COVENANTS OF LANDLORD. Landlord hereby covenants and
agrees with Tenant that if, during the Term of the Lease, Landlord shall
receive or solicit a bona fide offer from a prospective buyer to purchase
either the Premises, Landlord shall furnish Tenant with a copy of the proposed
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contract and notify Tenant of the intention of Landlord to accept the same
(the "Notice of Intention to Sell"). Such Notice of Intention to Sell shall
contain all material business terms on which Landlord intends to sell the
Premises. Landlord shall not sell the space in question to anyone other than
Tenant without first providing Tenant the opportunity to buy the space in
question upon the same terms and conditions described in the Notice of
Intention to Sell.
C. EXERCISE OF TENANT'S RIGHT OF FIRST REFUSAL TO PURCHASE.
Provided that Tenant is not in default under the terms and conditions of this
Lease beyond any applicable grace periods, Tenant may exercise Tenant's Right
of First Refusal to Purchase by providing Landlord with written notice thereof
within fifteen (15) days of Tenant's receipt of the Notice of Landlord's
Intention to Sell. If Tenant does not exercise its Right of First Offer to
Purchase within said fifteen (15) day period, then Landlord shall be relieved
of Landlord's obligation to offer the space identified in the Notice of
Intention to Sell to Tenant, except as provided for in Section 39.E below.
D. TERMS FOR RIGHT OF FIRST REFUSAL TO PURCHASE. In the
event that Tenant exercises Tenant's Right of First Refusal to Purchase,
Tenant's purchase shall be on all of the same terms and conditions as are
offered to a bona-fide third-party purchaser of the space identified in the
Notice of Intention to Sell.
E. CONTINUING RIGHT. In no event shall Tenant's failure to
exercise its Right of First Refusal to Purchase be deemed a waiver or
relinquishment by Tenant of Tenant's Right of First Refusal to Purchase should
(i) the space identified in the Notice of Intention to Sell be offered for sale
to a potential purchaser other than the purchaser specified in the Notice of
Landlord's Intention to Sell during the Term of this Lease or any extension
thereof, or (ii) the space identified in the Notice of Landlord's Intention to
Sell be offered for sale to any purchaser on terms different than those
specified in the Notice of Landlord's Intention to Sell during the Term of this
Lease or any extension thereof.
F. EXCLUSIVE NATURE OF OPTION. Landlord represents and
warrants to Tenant that no party other than Tenant has any option, right of
first offer or right of first refusal to purchase the Premises. Landlord
hereby covenants to Tenant that Landlord shall not grant an option to purchase,
right of first offer or right of first refusal to purchase the Premises during
the Term of this Lease or any extension thereof
G. SUCCESSORS AND ASSIGNS. Except as provided in this
paragraph 39.G, this Right of First Refusal to Purchase shall be binding on the
successors and assigns of Landlord and Tenant. This Right of First Refusal
shall not specifically not apply to (but shall survive the same and be binding
upon any purchaser or successor of such sale or foreclosure) (i) any transfer
of ownership of the Premises by a judicial foreclosure sale or sale pursuant to
a power of sale provision in any relevant deed of trust or mortgage lien
,transfers of the Building, or (ii) a "Sobrato Family Transfer".
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A Sobrato Family Transfer shall be a transfer of the Premises to (i) John A.
Sobrato and/or John M. Sobrato (individually and collectively "Sobrato"), (ii)
any immediate family member of Sobrato, (iii) any trust established, in whole
or in part, for the benefit of Sobrato and/or any immediate family member of
Sobrato, (iv) any partnership in which Sobrato or any immediate family member,
either directly or indirectly (e.g., through a partnership or corporate entity
or a trust) retains a general partner interest, and/or (v) any corporation
under the control, either directly or indirectly, by Sobrato or any immediate
family member of Sobrato.
40. RIGHT OF FIRST OPPORTUNITY TO LEASE: Commencing upon lease
execution, Tenant shall have the right of first opportunity to lease from
Landlord or its affiliated partnerships, a parcel of land on the terms and
conditions described in the agreement attached hereto as Exhibit "G" should
such property be acquired by Landlord or its affiliated partnerships. _
41. OPTIONS: Except with respect to any Tenant Affiliate, all
Options provided Tenant in this Lease are personal and granted to original
Tenant and are not exercisable by any third party should Tenant assign or
sublet (except for any assignment permitted by the third to last paragraph of
Article 29) all or a portion of its rights under this Lease, unless Landlord
consents to permit exercise of any option by any assignee or subtenant, in
Landlord's sole discretion. In the event that Tenant hereunder has any
multiple options to extend this Lease, a later option to extend the Lease
cannot be exercised unless the prior option to extend has been so exercised.
42. QUIET ENJOYMENT: Landlord covenants with Tenant for itself and
Landlord's successors that so long as no Event of Default on the part of Tenant
has occurred hereunder, (i) Tenant shall and may peaceably and quietly have,
hold and enjoy the Premises for the Term of this Lease, and any renewals or
extensions thereof; and (ii) neither Landlord, nor any party claiming under or
through Landlord, shall disturb the use or the occupancy of the Premises by
Tenant.
43. BROKERS: Landlord and Tenant each warrants and represents for
the benefit of the other that it has had no dealings with any real estate
broker or agent in connection with the negotiation of this Lease, except for CB
Madison, and that it knows of no other real estate broker or agent who is or
might be entitled to a real estate brokerage commission or finder's fee in
connection with this Lease. Each party shall indemnify and hold harmless the
other from and against any and all liabilities or expenses arising out of
claims made by any broker (other than CB Madison) or individual for commissions
or fees resulting from the actions of the indemnifying party in connection with
this Lease.
44. LANDLORD'S LIABILITY: If Tenant should recover a money
judgment against Landlord arising in connection with this Lease, the judgment
shall be satisfied only out of Landlord's interest in the Premises including
the improvements and real property and neither Landlord or any
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of its partners, officers, directors, agents, trustees, shareholders or
employees shall be liable personally for any deficiency. And furthermore,
Tenant expressly waives any and all rights to proceed against the individual
partners or the officers, directors or shareholders of any corporate partner,
except to the extent of their interest in said limited partnership.
Notwithstanding the foregoing, the following shall apply with
respect to claims by Tenant directly resulting from any and all defaults by
Landlord with respect to any of its obligations under (i) Section 18 with
respect to Hazardous Materials, or (ii) Section 28 with respect to destruction
to the Premises (collectively, the "Special Defaults"). In the event of any
Special Defaults, Tenant shall be entitled to seek recourse against any assets
of Landlord, and the recourse of Tenant against Landlord for any Special
Default shall not be limited to Landlord's interest in the Premises and the
rents and other forms of income originating therefrom.
45. AUTHORITY OF PARTIES: Landlord and Tenant represents and
warrants to each other that it is duly formed and in good standing and is duly
authorized to execute and deliver this Lease on behalf of said corporation or
partnership, as relevant, in accordance with a duly adopted resolution of the
Board of Directors of said corporation or in accordance with the by-laws of
said corporation, and that this Lease is binding upon said corporation or
partnership, as relevant in accordance with its terms. At either party's
request, the other party shall provide the requesting party with corporate
resolutions or other proof in a form acceptable to the requesting party,
authorizing the execution of the Lease.
46. TRANSPORTATION DEMAND MANAGEMENT PROGRAMS: Should a government
agency or municipality require Landlord to institute TDM (Transportation Demand
Management) facilities and/or program, Tenant hereby agrees that the cost of
TDM imposed facilities required on the Premises, including but not limited to
employee showers, lockers, cafeteria, or lunchroom facilities, shall be
included as Tenant Improvement Costs (unless such costs qualify for
amortization pursuant to Article 17) and any ongoing costs or expenses
associated with a TDM program, such as an on-site TDM coordinator, which are
required for the Premises and not provided by Tenant shall be provided by
Landlord with such costs being included as additional rent and reimbursed to
Landlord by Tenant.
47. DISPUTE RESOLUTION: Except for the failure by Tenant to timely
pay the Base Monthly Rent, any controversy, dispute, or claim of whatever
nature arising out of, in connection with, or in relation to the
interpretation, performance or breach of this agreement, including any claim
based on contract, tort, or statute, shall be resolved at the request of any
party to this agreement through a two-step dispute resolution process
administered by JAMS or another judicial and mediation service mutually
acceptable to the parties involving first mediation, followed, if necessary, by
final and binding arbitration administered by and in accordance with the then
existing rules and practice of the judicial and mediation service selected, and
judgment upon any award
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rendered by the arbitrator(s) may be entered by any State or Federal Court
having jurisdiction thereof.
48. MISCELLANEOUS PROVISIONS:
A. RENT: All monetary sums due from Tenant to Landlord under
this Lease, including, without limitation those referred to as "additional
rent", shall be deemed to be rent.
B. PERFORMANCE BY LANDLORD: If Tenant fails to perform any
obligation required under this Lease or by law or governmental regulation and
Tenant is not disputing such law or governmental regulation in accordance with
the terms of this Lease, Landlord, in its sole discretion may without notice
and without releasing Tenant from its obligations hereunder or waiving any
rights or remedies, perform such obligation, in which event Tenant shall pay
Landlord as additional rent all sums reasonably paid by Landlord in connection
with such substitute performance including interest as provided in Article 48.C
below within thirty (30) days following Landlord's written notice for such
payment.
C. INTEREST: All rent due hereunder (but not late charges
thereon), if not paid when due, shall bear interest at the reference rate of
Union Bank plus two percent (2%) accruing from the date due until the date paid
to Landlord.
D. RIGHTS AND REMEDIES: All rights and remedies hereunder
are cumulative and not alternative to the extent permitted by law and are in
addition to all other rights and remedies in law and in equity.
E. SURVIVAL OF INDEMNITIES: All indemnification, defense, and
hold harmless obligations of Landlord and Tenant under this Lease shall survive
the expiration or sooner termination of the Lease for a period of four (4)
years.
F. SEVERABILITY: If any term or provision of this Lease is
held unenforceable or invalid by a court of competent jurisdiction, the
remainder of the Lease shall not be invalidated thereby but shall be
enforceable in accordance with its terms, omitting the invalid or unenforceable
term.
G. CHOICE OF LAW: This Lease shall be governed by and
construed in accordance with California law. Venue shall be Santa Clara
County.
H. TIME: Time is of the essence hereunder.
I. ENTIRE AGREEMENT: This instrument contains all of the
agreements and conditions made between the parties hereto and may not be
modified orally or in any other manner other than
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by an agreement in writing signed by all of the parties hereto or their
respective successors in interest.
J. REPRESENTATIONS: Tenant acknowledges that neither
Landlord nor any of its employees or agents have made any agreements,
representations, warranties or promises with respect to the demised Premises or
with respect to present or future rents, expenses, operations, tenancies or any
other matter. Except as herein expressly set forth herein, Tenant relied on no
statement of Landlord or its employees or agents for that purpose.
K. HEADINGS: The headings or titles to the Articles of this
Lease are not a part of this Lease and shall have no effect upon the
construction or interpretation of any part thereof.
L. EXHIBITS: All exhibits referred to are attached to this
Lease and incorporated by reference.
M. APPROVALS: With respect to any consent of Landlord which
Tenant may request pursuant to the terms of this Lease, such consent shall not
be unreasonably withheld or delayed by Landlord. If Landlord fails to grant or
withhold such requested consent within five (5) business days after request by
Tenant, such consent shall be deemed granted.
N. RECORDATION. Within twenty (20) days following the
execution of this Lease, both Landlord and Tenant shall execute, acknowledge
and cause to be recorded in the Official Records of County of Santa Clara,
California a short form memorandum of this Lease in form reasonably acceptable
to Landlord and Tenant.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease on the day and
year first above written.
LANDLORD: Great Oaks Interests TENANT: Komag Incorporated
a California Limited Partnership a Delaware Corporation
By: By:
----------------------------- ----------------------------
Its: Its:
----------------------------- ----------------------------
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EXHIBIT "A" - PREMISES
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EXHIBIT "B" - FORMULA FOR DETERMINATION OF BASE MONTHLY RENT
After receipt from Tenant of the final pricing for the Building Shell, Landlord
shall determine Total Project Costs (as defined below) based on competitive
bids. During this period Landlord shall also solicit permanent loan quotes
from institutional lenders to determine the best available financing. Based on
these inputs Landlord shall then apply the following formula to determine the
Base Monthly Rent due under this Lease.
Base Monthly Rent shall be equal to one hundred twenty percent of (i) the
product of the (i) Total Project Costs as defined below and (ii) the best
non-participating ten (10) year fixed rate permanent loan constant available
prior to the start of construction of the Option Building. The determination
of which loan comprises the best available financing shall be made in good
faith by both Landlord and Tenant. The parties acknowledge that it is their
current intention that such amortization schedule shall be for a minimum period
of twenty (20) years and Landlord shall use its best efforts to obtain such
financing.
Total Project Costs shall be equal to the sum of (i) the value of the land
based on a land value of Eight and 54/100 Dollars ($8.54) per square foot, (ii)
payments by Landlord for labor and materials to contractors performing
construction work in connection with the Building, (iii) fees for building
permits, licenses, inspection, utility connections or extensions, and any other
fees imposed by governmental entities, (iv) fees of engineers, architects,
consultants and others providing professional services in connection with the
construction of the Building, (v) construction loan interest paid by Landlord
including interest on Landlord's equity with respect to the construction of the
Building, calculated at the reference rate charged by Union Bank plus one
percent (1%), (vi) loan fees payable for the construction and/or permanent loan
for the Building (vii) real property taxes and assessments levied against the
Property during the period the Building is constructed, (viii) liability and
builders risk insurance premiums paid by Landlord with respect to the
construction of the Building, (ix) real estate leasing commissions or fees
payable by Landlord with respect to the Building; and (x) the fee payable
with respect to the Building Shell to Tenant's general contractor for its
construction services.
For example, if Total Project Costs were $70 per square foot, and Landlord was
able to obtain a 7.75% loan with a 20 year amortization, the Base Monthly Rent
would be 120% X (70 X .008209), or 69c. per square foot.
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EXHIBIT "C" - SHELL PLANS AND SPECIFICATIONS
(sheet references to be attached)
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EXHIBIT "D" - BUILDING SHELL DEFINITION
The Building Shell includes the following items:
1. SITE WORK
a. Asphalt concrete paving, wheel stops, and striping.
b. Concrete sidewalks, curbs, gutter, driveway, approaches, and
planter walls.
c. Landscaping, landscape lighting, waterscape, and irrigation.
d. Underground utilities - water, gas, fire line, sanitary line
(including pump station if required), site storm drainage system, transformers
and primary and secondary electrical lines stubbed into building. The routing
of the underslab utilities shall be done as part of the Building Shell
construction if the location of the lines are determined prior to the pouring
of the floor slab.
e. Tank farm area of approximately 23,000 SF. The Building Shell
shall include the pad of such area and all structures related to the tank farm
shall be considered Tenant Improvements.
2. BUILDING STRUCTURE
Includes all elements necessary to provide for a completely waterproof Building
Shell with 28 foot clear height in the rear including but not limited to:
a. Concrete foundation and slab on grade including all reinforcing
steel and wire mesh including four loading docks.
b. Structural steel columns and beams.
c. Steel joist and girder second floor system with concrete and metal
deck (if multi-story building).
d. Wood panelized glulam roof structure or steel frame with metal deck
and rigid insulation with fiberglass built-up including roof drainage plumbing.
e. Glass, glazing and perimeter roll up or hollow metal doors
including normal passage hardware.
f. Concrete tilt up or plaster on metal stud framed exterior walls.
g. Exterior painting.
h. All city permits, fees, and taxes, connection charges related to
the Building Shell construction.
i. Main fire sprinkler grid.
j. All architectural and engineering costs related to the design of
the Building Shell.
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EXHIBIT "E" - TENANT'S TRADE FIXTURES
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EXHIBIT "F" - OPTION TO LEASE
This agreement ("Agreement") is made this fourth day of August, 1996 by and
between Sobrato Development Companies #871, a California limited partnership
having an address at 10600 N. De Anza Blvd., Suite 200, Cupertino, California
95014 ("Landlord") and Komag Incorporated, a Delaware corporation, whose
address is 275 S. Hillview Drive, Milpitas, CA 95035 ("Tenant").
RECITALS
A. As a material part of the consideration for Tenant entering into
the Lease with an affiliated partnership of Landlord, Great Oaks Interests,
Landlord is willing to grant to Tenant an option to lease (i) a one-story
building of approximately 120,000 square feet to be constructed on a portion of
the approximate 18.24 acre site across Automation Parkway from the Premises; or
(ii) a two-story building of approximately 100,000 square feet to be
constructed on the balance of the approximate 18.24 acre site across Automation
Parkway from the Premises, or (iii) both such buildings. Any building and
property leased pursuant to this Option is herein referred to as an "Option
Building". Such building(s) currently do not exist, but Landlord is willing,
subject to the conditions set forth herein, to construct the building(s) if
Tenant exercises such option to lease, all pursuant to the terms and conditions
set forth below. The final site area shall be based on an approximate 35%
floor area ratio.
B. The parties now wish to document the terms of such option to lease
an Option Building.
NOW, THEREFORE, in consideration of the execution of the Lease by both parties,
and in consideration of the mutual covenants set forth below, the parties agree
as follows:
1. GRANT OF OPTION. Landlord hereby grants to Tenant an option to
lease an Option Building (the "Option") subject to the terms and conditions set
forth in this Agreement.
2. TERM OF OPTION. Tenant shall be entitled, subject to paragraph
3 below, to exercise the Option at any time during the period commencing on the
Commencement Date of the Lease (as the Commencement Date is therein defined)
and ending on December 31, 1996. Such period shall herein be referred to as
the "Option Period".
3. EXERCISE OF OPTION. Tenant shall exercise the Option only by
delivery of written notice to Landlord within the Option Period of such
exercise ("Exercise Date"). Tenant shall be entitled to exercise the Option
only if at the time of such exercise Tenant is not then in default under the
terms of the Lease. In the event the Lease has been terminated for any reason,
this Option shall automatically terminate, this Option shall automatically
terminate.
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4. CONDITIONS PRECEDENT. Landlord's obligation to construct the
Option Building are expressly conditioned upon Landlord's ability within one
hundred twenty (120) days of the Exercise Date to (i) secure a commitment by
an institutional lender to make a fixed rate non-recourse non-participating
loan to Landlord in a minimum amount equal to eighty percent (80%) of Total
Project Costs (as defined below); and (ii) obtain all permits and governmental
approvals necessary for the construction of the Option Building. Landlord
shall use its best efforts to satisfy the conditions precedent described in
this Section 4.
5. LEASE OF THE OPTION BUILDING. Within thirty (30) days after
Tenant's exercise of the Option, Landlord and Tenant shall enter into a written
lease of the Option Building (the "Option Building Lease"). The Option
Building Lease shall be on the same terms as the Lease including, but not
limited to Tenant's Right of First Refusal described in Section 39 of the
Lease, except as follows:
(a) The Premises shall be Option Building. References in the
Lease format shall be changed in the Option Building Lease to refer to Option
Building.
(b) Landlord shall provide 3.5 parking spaces per 1,000 square
feet of leasable space within the Option Building.
(c) The term shall commence two (2) months following the date
the Option Building is Substantially Complete (including the Tenant
Improvements) ("Commencement Date"), and end on the tenth (10th) anniversary
thereof. The Option Building Lease shall provide Tenant the same options to
extend the term as those contained in the Lease.
(d) Base Monthly Rent shall be payable beginning on the
Commencement Date. Base Monthly Rent shall be determined pursuant to the
formula contained Exhibit "B" except the value of the Land ("Land Value") shall
be determined by the following formula.
Land Value shall be determined by taking the square footage of the
Option Building site multiplied by a land cost per square foot determined as
follows: Land cost per square foot shall be equal to the sum of (i) Nine and
No/100 Dollars ($9.00), and (ii) the product of Fifteen Cents 15c. times the
number of months elapsed between the Execution Date and the Exercise Date
through February 29, 1996 and (iii) the product of Twenty Five Cents 25c. times
the number of months, if any, elapsed from February 29, 1996 and the Exercise
Date from February 29, 1996 through the expiration of the Option Period. For
example, if the Execution Date is August 1, 1995, the Exercise Date is April 1,
1996, and the square footage of the site 435,600 square feet , the Land Value
would be: 435,600 sf * ($9.00 + (7 months * 15c.) + (2 months * 25c.)) =
$4,595,580.00
The Base Monthly Rent shall then be increased fourteen and 7/10
percent (14.7%) every forty two (42) months throughout the term of the Option
Building Lease.
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(e) The Lease shall be amended to extend the original Lease Term
so as to be co-terminus with the original term of Option Building Lease. The
rent for the Premises under the Lease during the extended term shall be at the
then payable rent subject to a 14.7% increase after the 126th month.
(f) Landlord, not Tenant, shall be responsible for the
construction of the Building Shell and Tenant Improvements. Section 7 of the
Lease shall be modified in the Option Building Lease to make the
responsibilities and obligations of Tenant, the responsibilities and
obligations of Landlord relative to the management of the construction process.
Landlord shall be entitled to a reasonable general contractor's fee and shall
be competitive based on the services provided by Landlord.
6. CONSTRUCTION OF SHELL AND TENANT IMPROVEMENTS.
(a) Within sixty (60) days after Tenant's exercise of the
Option, Landlord shall deliver to Tenant plans and specifications for
construction of the shell of Option Building (together called the "Shell
Plans"). The Shell Plans shall contemplate construction of a building shell of
a design similar to the building shell of the Premises.
(b) Within sixty (60) days after Tenant's receipt of the Shell
Plans, Tenant shall submit to Landlord, for Landlord's approval, Working
Drawings respecting Tenant Improvements that Tenant desires Landlord to
construct in the Option Building. Landlord shall commence construction of
Option Building as soon as reasonably possible after removal of the conditions
precedent outlined in paragraph 4, and continue diligently to construct the
same until completion thereof in accordance with the Shell Plans. All costs of
construction of the shell of Option Building shall be borne solely by Landlord.
The costs included within the shell construction shall be as set forth in
Exhibit "D" of the Lease. All costs of Tenant Improvements shall be borne solely
by Tenant.
7. MEMORANDUM OF OPTION. The parties shall record within twenty
(20) days after execution of this Agreement by both parties hereto a short form
memorandum of this Agreement in form reasonably satisfactory to both parties
against title to the property on which the Option Buildings would be
constructed.
8. SUCCESSORS. The Option provided Tenant in this Agreement is
personal and granted to original Tenant or Tenant Affiliate and are not
exercisable by any third party should Tenant assign or sublet all or a portion
of its rights under this Lease, unless Landlord consents to permit exercise of
any option by any assignee or subtenant, in Landlord's sole discretion. The
terms and provisions hereof shall be binding upon and inure to the benefit of
the successors and assigns of the parties hereto. In no event, however, shall
any lender be obligated to perform the terms this Option in the event of a
foreclosure of Landlord's interest in the Property.
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<PAGE> 46
9. QUITCLAIM DEED. In the event Tenant does not exercise the
Option within the Option Period or upon sooner termination of this Agreement,
then upon request to do so by Landlord, Tenant shall execute and acknowledge a
quitclaim deed transferring any right, title, or interest it may have in and to
the Property to Landlord or Landlord's designee. Such quitclaim deed shall be
in form reasonably designed to effectuate the foregoing and shall be delivered
by Tenant to Landlord within five (5) days following Tenant's receipt thereof
from Landlord.
IN WITNESS WHEREOF, the parties hereto have set their hands to this Agreement
as of the day and date first above written.
LANDLORD TENANT
Sobrato Development Companies #871, Komag Incorporated,
a California limited partnership a Delaware corporation
By: By:
--------------------------- ---------------------------
Its: General Partner Its:
---------------------------
Page 42
<PAGE> 47
SCHEDULE 1 - PROPERTY
Page 43
<PAGE> 48
EXHIBIT "G" - RIGHT OF FIRST OPPORTUNITY
This agreement ("Agreement") is made this fourth day of August, 1996 by and
between Sobrato Development Companies having an address at 10600 N. De Anza
Blvd., Suite 200, Cupertino, California 95014 ("Landlord") and Komag
Incorporated, a Delaware corporation, whose address is 275 S. Hillview Drive,
Milpitas, CA 95035 ("Tenant"). It is the intent that the terms and conditions
of this Agreement be binding on Landlord and any affiliate, subsidiary or
related entity controlled by Landlord owning the North Park Property (defined
below). Landlord and any affiliate, subsidiary or related entity controlled by
Landlord agrees to execute whatever documents are necessary to bind the
appropriate owner of the NorthPark Property.
RECITALS
A. As a material part of the consideration for Tenant entering into
the Lease with an affiliated partnership of Landlord, Great Oaks Interests,
Landlord is willing to grant to Tenant a right of first opportunity ("Right of
First Opportunity") to lease certain unimproved property North Park Space
located adjacent to North Park in San Jose, California and more particularly
described in Schedule "1" attached hereto.
B. The parties now wish to document the terms of such Right of First
Opportunity
A. GRANT. Landlord and Tenant acknowledge that, as of the
date of this Lease, Landlord does not own the "North Park Space"). Subject to
the terms of Agreement, Landlord grants to Tenant a Right of First Opportunity
.
B. COVENANTS OF LANDLORD. In consideration for the agreement
of Tenant to lease the Premises on the terms described herein, Landlord agrees
that, if Landlord were to purchase the North Park Space, Landlord would not
build any residential improvements thereon or otherwise develop or lease the
North Park Space without first complying with the terms of this Agrement.
Subject to the conditions precedent established by Section D below, if at any
time during the Term of this Lease or any extension thereof Landlord decides to
offer the North Park Space for lease to a bona fide third party, Landlord shall
first provide Tenant with a written notice ("Offer Notice") detailing (i) the
rent at which said North Park Space is being offered to the third party, (ii)
the rentable square footage and location thereof, (iii) the date the North Park
Space will become available and (iv) all other terms upon which Landlord
proposes to lease the North Park Space to Tenant.
C. EXERCISE OF TENANT'S RIGHT OF FIRST OPPORTUNITY. Subject
to the conditions precedent established by Section D below, Tenant may exercise
Tenant's Right of First Opportunity to lease the North Park Space described in
the Offer Notice by providing Landlord with written notice
Page 44
<PAGE> 49
("Acceptance Notice") thereof within fifteen (15) business days of Landlord's
delivery to Tenant of the Offer Notice. If Tenant does not exercise its Right
of First Opportunity within said fifteen (15) business day period, Landlord
shall be relieved of Landlord's obligation to lease the North Park Space
mentioned in the Offer Notice to Tenant and the provisions of this Agreement
shall not apply to Landlord.
D. CONDITIONS TO RIGHT OF FIRST OFFER. Notwithstanding
anything to the contrary in this Agreement, Landlord shall have no obligation
to provide Tenant with an Offer Notice, and Tenant shall have no right to
exercise Tenant's Right of First Opportunity, if Tenant is in default beyond
any applicable cure period under this Lease at the time Landlord seeks to lease
the Available Space in question.
E. NEGOTIATION PERIOD. In the event that Tenant exercises Tenant's
Right of First Opportunity, Landlord and Tenant shall meet within five (5) days
of Tenant's Acceptance Notice in order to enter into good faith negotiations to
discuss the terms on which Landlord would lease all or a portion of the North
Park Space to Tenant. If, within thirty (30) days after the date of Tenant's
Acceptance Notice, Landlord and Tenant have agreed upon terms on which Landlord
shall lease all or a portion of the North Park Space to Tenant, then the
parties hereto shall promptly enter into a lease (based on the form of this
Lease but inserting the relevant business terms) for such occupancy of the
North Park Space by Tenant. If Landlord and Tenant are not able to agree upon
terms on which Landlord shall lease all or a portion of the North Park Space to
Tenant within said thirty (30) day period, despite a good faith attempt to do
so, then Tenant's Right of First Opportunity shall terminate and neither party
shall have any further obligation to the other with respect to the North Park
Space, except as described in Section F below.
F. CONTINUING RIGHT. In no event shall Tenant's failure to
exercise its Right of First Opportunity to lease the North Park Space be deemed
a waiver or relinquishment by Tenant of (i) Tenant's Right of First Opportunity
with respect to portions of the North Park Space other than those discussed
earlier pursuant to the terms of Section E above, or (ii) Tenant's Right of
First Opportunity for the North Park Space should it subsequently become
available for lease again during the Term of this Lease or any extension
thereof.
G. TERMINATION. This Right of First Opportunity shall
automatically terminate upon (i) the expiration or sooner termination of the
Lease, or (ii) after December 31, 1996 unless Tenant has exercised it option to
lease both Option Buildings pursuant to Exhibit "F". Notwithstanding the
foregoing, Landlord's covenant not to build residential improvements on the
North Park Space shall remain in effect for the Lease Term and any extension
thereof.
Page 45
<PAGE> 50
LANDLORD TENANT
Sobrato Development Companies Komag Incorporated,
and its affiliated entities a Delaware corporation
By: By:
--------------------------- ---------------------------
Its: General Partner Its:
---------------------------
Page 46
<PAGE> 51
SCHEDULE 1 - NORTH PARK SPACE
Page 47
<PAGE> 1
EXHIBIT 10.11.12
KOMAG MATERIAL TECHNOLOGY, INC.
1995 STOCK OPTION PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1995 Stock Option Plan is intended to promote the interests of
Komag Material Technology, Inc., a Delaware corporation, by providing eligible
individuals with the opportunity to acquire a proprietary interest, or otherwise
increase their proprietary interest, in Komag, Incorporated, the Corporation's
parent company, through long-term option grants designed to provide them with
incentive to continue in the Corporation's service and contribute to the
financial success of both the Corporation and Komag, Incorporated.
Capitalized terms shall have the meanings assigned to such terms in
the attached Appendix.
II. ADMINISTRATION OF THE PLAN
A. The Plan shall be administered by the Compensation Committee of the
Board. Members of the Committee shall serve for such period of time as the Board
may determine and shall be subject to removal by the Board at any time.
B. The Compensation Committee as Plan Administrator shall have full
power and authority (subject to the provisions of the Plan) to establish such
rules and regulations as it may deem appropriate for proper administration of
the Plan and to make such determinations under, and issue such interpretations
of, the provisions of the Plan and any outstanding options thereunder as it may
deem necessary or advisable. Decisions of the Plan Administrator shall be final
and binding on all parties who have an interest in the Plan.
C. Service as Plan Administrator shall constitute service as a Board
member, and members of the Compensation Committee shall accordingly be entitled
to full indemnification and reimbursement as Board members for their service as
the Plan Administrator. No member of the Committee shall be liable for any act
or omission made in good faith with respect to the Plan or any option grants
thereunder.
<PAGE> 2
III. ELIGIBILITY
A. The persons eligible to receive option grants under the Plan are as
follows:
(i) Employees, and
(ii) consultants or other independent advisors who provide
services to the Corporation (or any Subsidiary).
B. The Plan Administrator shall have full authority to determine which
eligible persons are to receive option grants, the time or times when such
option grants are to be made, the number of shares to be covered by each such
grant, the time or times at which each option is to become exercisable, the
vesting schedule (if any) applicable to the option shares and the maximum term
for which the option is to remain outstanding.
IV. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of Komag Stock,
acquired by the Corporation through (i) direct purchase from Komag or (ii)
purchase on the open market. The maximum number of shares of Komag Stock which
may be issued over the term of the Plan shall not exceed Sixty Thousand (60,000)
shares.
B. Shares of Komag Stock subject to outstanding options under the Plan
shall be available for subsequent issuance under the Plan to the extent (i) the
options expire or terminate for any reason prior to exercise in full or (ii) the
options are cancelled in accordance with the cancellation-regrant provisions of
Article Two. All shares issued under the Plan, whether or not those shares are
subsequently repurchased by the Corporation pursuant to its repurchase rights
under the Plan, shall reduce on a share-for-share basis the number of shares of
Komag Stock available for subsequent issuance under the Plan. In addition,
should the exercise price of an option under the Plan be paid with shares of
Komag Stock, then the number of shares of Komag Stock available for issuance
under the Plan shall be reduced by the gross number of shares for which the
option is exercised, and not by the net number of shares of Komag Stock issued
to the holder of such option.
C. Should any change be made to the Komag Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Komag Stock, appropriate
adjustments shall be made to (i) the maximum number and/or class of securities
issuable under the Plan and (ii) the number and/or class of securities and the
exercise price per share in effect under each outstanding option in order to
prevent the dilution or enlargement of benefits thereunder. The adjustments
determined by the Plan Administrator shall be final, binding and conclusive.
2.
<PAGE> 3
ARTICLE TWO
OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
shall comply with the terms specified below. All options granted under the Plan
shall be Non-Statutory Options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than eighty-five percent (85%) of the Fair
Market Value per share of Komag Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise
of the option and shall, subject to the provisions of Section I of Article Three
and the documents evidencing the option, be payable in one or more of the forms
specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Komag Stock held for the requisite period
necessary to avoid a charge to either the Corporation's or Komag's earnings
for financial reporting purposes and valued at Fair Market Value on the
Exercise Date, or
(iii) through a special sale and remittance procedure
pursuant to which the Optionee shall concurrently provide irrevocable
instructions to (a) a Corporation-designated brokerage firm to effect the
immediate sale of the purchased shares and remit to the Corporation, out of
the sale proceeds available on the settlement date, sufficient funds to
cover the aggregate exercise price payable for the purchased shares plus
all applicable Federal, state and local income and employment taxes
required to be withheld by the Corporation by reason of such exercise and
(b) the Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale transaction.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
3.
<PAGE> 4
B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable at
such time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.
C. EFFECT OF TERMINATION OF SERVICE.
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of his or her cessation of Service or
death.
(i) Upon the Optionee's cessation of Service for any reason
other than death, the Optionee shall not have more than a twelve (12)-month
period (or such shorter period determined by the Plan Administrator and set
forth in the agreement evidencing such option) following the date of such
cessation of Service in which to exercise his or her outstanding options,
but in no event may any such option be exercised after the specified
expiration date of the option term.
(ii) Any option exercisable in whole or in part by the
Optionee at the time of death may be subsequently exercised by the personal
representative of the Optionee's estate or by the person or persons to whom
the option is transferred pursuant to the Optionee's will or in accordance
with the laws of descent and distribution. However, the right to exercise
such option shall lapse, and the option shall cease to be outstanding, upon
the earlier of (i) the first anniversary of the date of the optionee's
death or (ii) the specified expiration date of the option term.
(iii) During the applicable post-Service exercise period,
the option may not be exercised in the aggregate for more than the number
of shares for which the option is exercisable on the date of the Optionee's
cessation of Service. Upon the expiration of the applicable exercise period
or (if earlier) upon the expiration of the option term, the option shall
terminate and cease to be outstanding for any exercisable shares for which
the option has not been exercised. However, the option shall, immediately
upon the Optionee's cessation of Service, terminate and cease to be
outstanding with respect to any or all shares for which the option is not
otherwise at that time exercisable.
(iv) Should the Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee shall
terminate immediately and cease to be outstanding.
4.
<PAGE> 5
2. The Plan Administrator shall have complete discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
- extend the period of time for which the option is to remain
exercisable following the Optionee's cessation of Service from the
specified post-Service exercise period otherwise in effect for that option
to such greater period of time as the Plan Administrator shall deem
appropriate, but in no event beyond the expiration of the option term,
and/or
- permit the option to be exercised, during the applicable
post-Service exercise period, not only with respect to the number of shares
of Komag Stock for which such option is exercisable at the time of the
Optionee's cessation of Service but also with respect to one or more
additional installments for which the option would have become exercisable
had the Optionee continued in Service.
D. STOCKHOLDER RIGHTS. The holder of an option shall have no
stockholder rights with respect to the shares of Komag Stock subject to the
option until such person shall have exercised the option, paid the exercise
price and become a holder of record of the purchased shares.
E. REPURCHASE RIGHTS. The Plan Administrator shall have the discretion
to grant options which are exercisable for unvested shares of Komag Stock.
Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.
F. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, the option shall be exercisable only by the Optionee and shall not be
assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee's death.
II. CORPORATE TRANSACTION
A. In the event of any KMT Corporate Transaction, each outstanding
option under the Plan shall either be assumed by the successor corporation (or
parent thereof) or replaced with a comparable option to purchase shares of the
capital stock of the successor corporation (or parent thereof). In addition, all
repurchase rights outstanding under the Plan at the time of the KMT Corporate
Transaction shall be assigned to the successor corporation (or parent thereof)
in connection with such Corporate Transaction.
5.
<PAGE> 6
B. (i) In the event of any Komag Corporate Transaction, each
outstanding option under the Plan shall automatically accelerate so that each
such option shall, for the five (5) business days immediately prior to the
effective date of the Corporate Transaction, become fully exercisable for all
the shares of Komag Stock at the time subject to such option and may be
exercised for any or all of those shares as fully-vested shares of Komag Stock.
However, an outstanding option shall not so accelerate if and to the extent: (i)
such option is, in connection with the Komag Corporate Transaction, either to be
assumed by the successor corporation (or parent thereof) or to be replaced with
a comparable option to purchase shares of the capital stock of the successor
corporation (or parent thereof) or (ii) the acceleration of such option is
subject to other limitations imposed by the Plan Administrator at the time of
the option grant. The determination of option comparability under clause (i)
above shall be made by the Plan Administrator, and its determination shall be
final, binding and conclusive.
(ii) All repurchase rights outstanding under the Plan at the
time of the Komag Corporate Transaction shall also terminate automatically, and
the shares of Komag Stock subject to those terminated rights shall vest in full,
immediately prior to the consummation of such Corporate Transaction, except to
the extent: (i) those repurchase rights are to be assigned to the successor
corporation (or parent thereof) in connection with the Komag Corporate
Transaction or (ii) such accelerated vesting is precluded by other limitations
imposed by the Plan Administrator at the time the repurchase right is issued.
(iii) Immediately following the consummation of any Komag
Corporate Transaction, all outstanding options under the Plan shall terminate
and cease to be outstanding, except to the extent assumed by the successor
corporation (or parent thereof).
C. Each option which is assumed in connection with a KMT or Komag
Corporate Transaction shall be appropriately adjusted, immediately after such
Corporate Transaction, to apply to the number and class of securities which
would have been issuable to the Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction. Appropriate adjustments shall also be made to (i) the number and
class of securities available for issuance under the Plan following the
consummation of such Corporate Transaction and (ii) the exercise price payable
per share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same.
D. The grant of options shall in no way affect the right of the
Corporation or Komag to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
6.
<PAGE> 7
III. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Plan and to grant in
substitution new options covering the same or different number of shares of
Komag Stock but with an exercise price per share based on the Fair Market Value
per share of Komag Stock on the new option grant date.
7.
<PAGE> 8
ARTICLE THREE
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee to pay the option
exercise price by delivering a promissory note payable in one or more
installments. The terms of any such promissory note (including the interest rate
and the terms of repayment) shall be established by the Plan Administrator in
its sole discretion. Promissory notes may be authorized with or without security
or collateral. In all events, the maximum credit available to the Optionee may
not exceed the sum of (i) the aggregate option exercise price payable for the
purchased shares plus (ii) any Federal, state and local income and employment
tax liability incurred by the Optionee in connection with the option exercise.
II. TAX WITHHOLDING
The Corporation's obligation to deliver shares of Komag Stock upon the
exercise of options under the Plan shall be subject to the satisfaction of all
applicable Federal, state and local income and employment tax withholding
requirements.
III. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan shall become effective immediately upon adoption by the
Board. However, no options granted under the Plan may be exercised until the
Plan is approved by Komag, acting through the Komag Board, as the Corporation's
majority stockholder. Should such approval not be obtained within twelve (12)
months after the date of adoption, then all options previously granted under
this Plan shall terminate and cease to remain outstanding, and no further option
grants shall be made under the Plan.
B. The Plan shall terminate upon the earlier of (i) May 31, 2005 or
(ii) the date on which all shares available for issuance under the Plan shall
have been issued pursuant to the exercise of the options under the Plan. If the
date of termination is determined under clause (i) above, then all option grants
outstanding on such date shall thereafter continue to have force and effect in
accordance with the provisions of the documents evidencing such grants.
IV. AMENDMENT OF THE PLAN
The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects. However, no such amendment or
modification shall adversely affect the rights and obligations with respect to
options at the time outstanding under the Plan unless the Optionee consents to
such amendment or
8.
<PAGE> 9
modification. In addition, any amendment which would (i) materially increase the
maximum number of shares of Komag Stock issuable under the Plan, except for
permissible adjustments in the event of certain changes in the Corporation's
capitalization, (ii) materially modify the eligibility requirements for Plan
participation or (iii) materially increase the benefits accruing to Plan
participants shall require the approval of Komag, acting through the Komag
Board, if Komag is at the time the Corporation's majority stockholder.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
of Komag Stock under the Plan shall be used for general corporate purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any option and the
issuance of any shares of Komag Stock upon the exercise of any option shall be
subject to the procurement by both the Corporation and Komag of all approvals
and permits required by regulatory authorities having jurisdiction over the
Plan, the options and the shares of Komag Stock issued pursuant to it.
B. No shares of Komag Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Komag Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Komag Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee any right to
continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Subsidiary
employing or retaining such person) or of the Optionee, which rights are hereby
expressly reserved by each, to terminate such person's Service at any time for
any reason, with or without cause.
9.
<PAGE> 10
APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CODE shall mean the Internal Revenue Code of 1986, as amended.
C. CORPORATION shall mean Komag Material Technology, Inc., a Delaware
corporation.
D. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Subsidiary), subject to the control and direction of the
employer entity as to both the work to be performed and the manner and method of
performance.
E. EXERCISE DATE shall mean the date on which the option is exercised
either by written notice delivered to the Corporation or through the interactive
response system established with a Corporation-designated brokerage firm.
F. FAIR MARKET VALUE per share of Komag Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) If the Komag Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Komag Stock on the date in question, as such price is
reported by the National Association of Securities Dealers on the Nasdaq
National Market or any successor system. If there is no closing selling
price for the Komag Stock on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding date for
which such quotation exists.
(ii) If the Komag Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price per
share of Komag Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the Komag
Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price for the
Komag Stock on the date in question, then the Fair Market Value shall be
the closing selling price on the last preceding date for which such
quotation exists.
G. KMT CORPORATE TRANSACTION shall mean any of the following
transactions to which the Corporation is a party:
A-1.
<PAGE> 11
(i) a merger or acquisition in which the Corporation is not
the surviving entity, except for a transaction the principal purpose of
which is to change the State of incorporation,
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation, or
(iii) any reverse merger in which the Corporation is the
surviving entity.
H. KOMAG shall mean Komag, Incorporated, a Delaware corporation, in
its capacity as the owner of securities possessing fifty percent (50%) or more
of the total combined voting power of the Corporation's outstanding securities.
I. KOMAG BOARD shall mean the Board of Directors of Komag.
J. KOMAG CORPORATE TRANSACTION shall mean any of the following
stockholder-approved transactions effected while Komag is the owner of
securities possessing fifty percent (50%) or more of the total combined voting
power of the Corporation's outstanding securities:
(i) a merger or acquisition in which Komag is not the
surviving entity, except for a transaction the principal purpose of which
is to change the State of incorporation,
(ii) the sale, transfer or other disposition of all or
substantially all of Komag's assets, or
(iii) any reverse merger in which Komag is the surviving
entity.
K. KOMAG STOCK shall mean shares of Komag common stock.
L. KOMAG SUBSIDIARY shall mean any corporation (other than Komag or
the Corporation) in an unbroken chain of corporations beginning with Komag,
provided each corporation (other than the last corporation) in the unbroken
chain owns, at the time of the determination, stock possessing fifty percent
(50%) or more of the total combined voting power of all classes of stock in one
of the other corporations in such chain.
M. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee, any unauthorized use or disclosure
by such person of confidential information or trade secrets of the Corporation
(or any Subsidiary) or Komag, or any other intentional misconduct by such person
adversely affecting the
A-2.
<PAGE> 12
business or affairs of the Corporation (or any Subsidiary) or Komag in a
material manner. The foregoing definition shall not be deemed to be inclusive of
all the acts or omissions which the Corporation (or any Subsidiary) may consider
as grounds for the dismissal or discharge of any Optionee or other person in the
Service of the Corporation (or any Subsidiary).
N. 1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.
O. NON-STATUTORY OPTION shall mean an option not intended to satisfy
the requirements of Code Section 422.
P. OPTIONEE shall mean any person to whom an option is granted under
the Plan.
Q. PLAN shall mean the Corporation's 1995 Stock Option Plan, as set
forth in this document.
R. PLAN ADMINISTRATOR shall mean the Compensation Committee of the
Board acting in its capacity as administrator of the Plan.
S. SERVICE shall mean the Optionee's performance of services for the
Corporation (or any Subsidiary) in the capacity of an Employee or a consultant
or independent advisor, except to the extent otherwise specifically provided in
the documents evidencing the option grant. An Optionee shall also be deemed to
be engaged in such Service for any period of time the Optionee performs such
services for Komag or any Komag Subsidiary, provided Komag is at the time the
owner of securities possessing fifty percent (50%) or more of the total combined
voting power of the Corporation's outstanding securities.
T. STOCK EXCHANGE shall mean either the American Stock Exchange or the
New York Stock Exchange.
U. SUBSIDIARY shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain. However, any subsidiary of the Corporation which has
adopted a stock option, stock bonus, or other stock plan shall not be a
Subsidiary for purposes of this Plan.
A-3.
<PAGE> 1
EXHIBIT 10.11.13
KOMAG MATERIAL TECHNOLOGY, INC.
SAVINGS AND DEFERRED PROFIT-SHARING PLAN
First Plan Restatement
Effective January 1, 1993
and Later Amended and
Restated May 9, 1994
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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PAGE
<S> <C>
ARTICLE I DEFINITIONS
1.1 "Accounts".................................................................................. 1
1.2 "Administrator"............................................................................. 1
1.3 "Affiliated Company"........................................................................ 1
1.4 "Beneficiary"............................................................................... 2
1.5 "Break in Service".......................................................................... 2
1.6 "Code"...................................................................................... 2
1.7 "Company Contributions"..................................................................... 2
1.8 "Company"................................................................................... 2
1.9 "Compensation".............................................................................. 2
1.10 "Discretionary Contributions"............................................................... 3
1.11 "Discretionary Contribution Account"........................................................ 3
1.12 "Deferred Compensation Account"............................................................. 3
1.13 "Deferred Profit-Sharing Program"
1.14 "Directors"................................................................................. 4
1.15 "Disability"................................................................................ 4
1.16 "Effective Date"............................................................................ 4
1.17 "Eligible Earnings"
1.18 "Eligible Employee"......................................................................... 6
1.19 "Employee".................................................................................. 6
1.20 "Employment Date"........................................................................... 6
1.21 "ERISA"..................................................................................... 6
1.22 "Family Member"............................................................................. 7
1.23 "Fiduciary"................................................................................. 7
1.24 "Forfeiture"................................................................................ 7
1.25 "Funds"..................................................................................... 7
1.26 "Highly Compensated Employee"............................................................... 7
1.27 "Hour of Service"........................................................................... 9
1.28 "Investment Manager"........................................................................ 9
1.29 "Leased Employee"........................................................................... 9
1.30 "Matching Contribution"..................................................................... 9
1.31 "Matching Contribution Account"............................................................. 9
1.32 "Non-Highly Compensated Work Force"......................................................... 9
1.33 "Participant"............................................................................... 9
1.34 "Participating Company".................................................................... 10
1.35 "Plan"...................................................................................... 10
1.36 "Plan Quarter".............................................................................. 10
1.37 "Plan Year"................................................................................. 10
1.38 "Profits"................................................................................... 10
1.39 "Qualified Domestic Relations Order......................................................... 10
1.40 "Qualified Participant"..................................................................... 10
1.41 "Regulations"............................................................................... 10
1.42 "Retirement"................................................................................ 10
1.43 "Roll-Over Account"......................................................................... 11
1.44 "Salary Deferral Program"
1.45 "Section 401(k) Contribution"
1.46 "Section 401(k) Election"................................................................... 11
</TABLE>
i.
<PAGE> 3
<TABLE>
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1.47 "Severance Date"............................................................................ 11
1.48 "Severance Period".......................................................................... 11
1.49 "Trust Agreement"........................................................................... 11
1.50 "Trustee"................................................................................... 11
1.51 "Trust Fund"................................................................................ 11
1.52 "Valuation Date"............................................................................ 11
1.53 "Vesting Service"........................................................................... 11
1.54 Additional Terms............................................................................ 11
ARTICLE II SERVICE DEFINITIONS
2.1 Break in Service............................................................................ 13
2.2 Hour of Service............................................................................. 13
2.3 Employment Date............................................................................. 13
2.4 Service..................................................................................... 14
2.5 Severance Date.............................................................................. 15
2.6 Severance Period............................................................................ 17
2.7 Vesting Service............................................................................. 17
ARTICLE III PARTICIPATION
3.1 Eligibility Rules........................................................................... 18
3.2 Cessation and Resumption of Participation................................................... 19
3.3 Suspended Participation..................................................................... 19
ARTICLE IV SECTION 401(K) ELECTIONS
4.1 Section 401(k) Election..................................................................... 20
4.2 Application................................................................................. 20
4.3 Filing Period............................................................................... 20
4.4 Modification/Termination.................................................................... 21
4.5 Absences.................................................................................... 21
4.6 Limitation.................................................................................. 22
4.7 Excess 401(k) Contributions................................................................. 23
4.8 Excess Dollar Deferrals..................................................................... 25
4.9 Supplemental Section 401(k) Election........................................................ 26
ARTICLE V SECTION 401(K) CONTRIBUTIONS
5.1 Contributions............................................................................... 28
5.2 Allocation.................................................................................. 28
ARTICLE VI MATCHING CONTRIBUTIONS
6.1 Matching Contributions...................................................................... 29
6.2 Allocation of Matching Contributions........................................................ 30
6.3 Remittance to Trustee....................................................................... 30
6.4 Form of Contribution........................................................................ 30
ARTICLE VII LIMITATIONS ON MATCHING CONTRIBUTIONS/
AGGREGATE CONTRIBUTIONS.................................................................................... 31
7.1 Limitation.................................................................................. 31
7.2 Remedial Action Through Interaction with
Article IV.................................................................................. 32
7.3 Aggregate Limitation........................................................................ 33
7.4 Remedial Action............................................................................. 33
</TABLE>
ii.
<PAGE> 4
<TABLE>
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ARTICLE VIII DISCRETIONARY CONTRIBUTIONS/FORFEITURES............................................................ 36
8.1 Discretionary Contributions................................................................. 36
8.2 Remittance to Trustee....................................................................... 37
8.3 Allocation of Discretionary Contributions and
Forfeitures................................................................................. 37
8.4 Discretionary Contribution Accounts......................................................... 38
ARTICLE IX LIMITATIONS ON ALLOCATIONS
9.1 Definitions................................................................................. 39
9.2 Limitation on Annual Addition............................................................... 39
9.3 Remedial Action............................................................................. 40
9.4 Reallocation of Forfeitures................................................................. 41
ARTICLE X INVESTMENT OF CONTRIBUTIONS
10.1 Funds....................................................................................... 43
ARTICLE XI VALUATION OF ACCOUNTS
11.1 Adjustment of Accounts...................................................................... 45
11.2 Allocation of Investment Experience......................................................... 45
11.3 Value of Accounts........................................................................... 45
ARTICLE XII TRUST AGREEMENT
12.1 Trust Agreement............................................................................. 47
12.2 Inconsistent Provisions..................................................................... 47
ARTICLE XIII RIGHT TO BENEFITS
13.1 Disability, Retirement or Death............................................................. 48
13.2 Other Termination of Employment............................................................. 48
13.3 Forfeitures................................................................................. 49
13.4 Transfer of Accounts........................................................................ 50
13.5 Beneficiary Designation..................................................................... 51
13.6 Additional Vesting Service.................................................................. 52
ARTICLE XIV DISTRIBUTION OF BENEFITS
14.1 Time of Distribution........................................................................ 53
14.2 Form of Distribution........................................................................ 56
14.3 Death Before Full Distribution.............................................................. 56
14.4 Deferred Distribution....................................................................... 56
ARTICLE XV WITHDRAWALS
15.1 Conditions.................................................................................. 58
15.2 No Other Resources Reasonably Available..................................................... 59
15.3 Written Request Required.................................................................... 59
15.4 Penalty Tax................................................................................. 60
ARTICLE XVI ADMINISTRATION OF THE PLAN
16.1 Plan Administrator.......................................................................... 61
16.2 Delegation of Duties........................................................................ 61
16.3 Administrative Procedures................................................................... 62
16.4 Duties of Other Fiduciaries................................................................. 62
16.5 Investment Responsibility................................................................... 62
</TABLE>
iii.
<PAGE> 5
<TABLE>
<S> <C>
16.6 Expenses.................................................................................... 63
16.7 Fiduciary Responsibilities.................................................................. 63
16.8 Liability................................................................................... 64
16.9 Indemnification............................................................................. 64
ARTICLE XVII AMENDMENTS TO THE PLAN
17.1 Power of Amendment.......................................................................... 65
ARTICLE XVIII TERMINATION OF PLAN OR
DISCONTINUANCE OF CONTRIBUTIONS............................................................................ 66
18.1 Power....................................................................................... 66
18.2 Effect of Termination....................................................................... 66
18.3 Effect of Discontinuance.................................................................... 67
18.4 Determination of Partial Termination........................................................ 67
ARTICLE XIX MISCELLANEOUS
19.1 SOURCE OF BENEFITS.......................................................................... 69
19.2 Satisfaction of Claims...................................................................... 69
19.3 Construction................................................................................ 69
19.4 Gender and Number........................................................................... 69
19.5 Applicable Law.............................................................................. 69
19.6 Alienation of Benefits...................................................................... 69
19.7 Return of Contributions..................................................................... 70
19.8 Merger of Plan.............................................................................. 70
19.9 Conditional Restatement..................................................................... 71
19.10 Limitation of Rights; Employment Relationship............................................... 71
19.11 No Escheat.................................................................................. 71
19.12 Leased Employees............................................................................ 72
19.13 Transfers from Other Qualified Plans........................................................ 72
19.14 No Reversion................................................................................ 73
ARTICLE XX BENEFIT CLAIMS
20.1 Claims Procedure............................................................................ 74
20.2 Denial of Benefits.......................................................................... 74
20.3 Review...................................................................................... 74
ARTICLE XXI QUALIFIED DOMESTIC RELATIONS ORDERS
21.1 Definitions................................................................................. 76
21.2 Notification................................................................................ 77
21.3 Procedures.................................................................................. 77
21.4 Payment..................................................................................... 77
ARTICLE XXII TOP-HEAVY RULES
22.1 Definitions................................................................................. 79
22.2 Top-Heavy Status............................................................................ 82
22.3 Minimum Benefit............................................................................. 83
ARTICLE XXIII LOANS
23.1 Loan Applications........................................................................... 85
23.2 Loan Terms.................................................................................. 85
23.3 Offset Rights............................................................................... 87
</TABLE>
iv.
<PAGE> 6
<TABLE>
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23.4 Liquidation of Account...................................................................... 87
23.5 Earmarked Investment........................................................................ 87
</TABLE>
v.
<PAGE> 7
INTRODUCTION
The Komag Material Technology, Inc. Savings and Deferred
Profit-Sharing Plan is hereby restated effective January 1, 1993 as (i) a
continuation of the Komag Material Technology, Inc. Deferred Savings Plan, a
salary deferral program under Section 401(k) of the Code, and (ii) a deferred
profit-sharing program under Section 401(a) of the Code. The salary deferral
program initially became effective as of July 1, 1991, and contributions to such
program are to be governed by the terms and conditions of Articles IV - VII. The
deferred profit-sharing program shall become effective as of January 1, 1993,
and contributions to such program are to be governed by the terms and conditions
of Article VIII. The purpose of this restatement is to conform the bring the
plan document into compliance with the final Treasury Regulations applicable to
tax-qualified plans under Code Sections 401(a) and 401(k) and to implement the
new deferred profit-sharing program.
ARTICLE I
DEFINITIONS
Whenever used in this Plan, the following terms shall have the
meanings indicated below:
1.1 "Accounts" shall mean one or more of the accounts maintained for a
Participant in accordance with the provisions of the Plan.
1.2 "Administrator" shall mean the person or entity appointed pursuant
to Section 16.1 to administer the Plan.
1.3 "Affiliated Company" shall mean (i) the Company, (ii) any other
corporation which is a member of a controlled group of corporations which
includes the Company, as determined in accordance with the ownership rules of
Section 1563 of the Code, without regard, however, to subsection (a)(4) or
(e)(3)(C) of such Section 1563, (iii) any other employer entity which is under
common control with the Company, as determined in accordance with Regulations
issued under Section 414(c) of the Code, (iv) any affiliated service group, as
determined under Section 414(m) of the Code, or (v) any other entity required to
be aggregated with the Company pursuant to Regulations issued under
Section 414(o) of the Code. For purposes of the limitation on benefits set forth
in Article IX, the determination of whether a corporation is an Affiliated
Company will be made only after substituting the phrase "more than fifty percent
(50%)" for the phrase "at least eighty percent (80%)" each place the latter
phrase appears in Section 1563(a)(1) of the Code.
<PAGE> 8
1.4 "Beneficiary" shall mean the person or persons entitled, in
accordance with Section 13.5, to receive benefits under the Plan following the
death of a Participant.
1.5 "Break in Service" shall have the meaning assigned to such term in
Section 2.1.
1.6 "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
1.7 "Company Contributions" shall mean any and all Matching
Contributions or Discretionary Contributions made to the Plan from time to time
by one or more Participating Companies pursuant to the provisions of Articles VI
and VIII.
1.8 "Company" shall mean Komag Material Technology, Inc. or any
successor corporation to all or a major portion of the assets or business of
Komag Material Technology, Inc. which shall by appropriate action adopt the
Plan.
1.9 "Compensation" shall mean (I) all current compensation, wages and
earnings paid to a Participant during the Plan Year, whether in cash or
property, for services performed while an Employee, but only to the extent such
compensation, wages and earnings constitute wages within the meaning of Code
Section 3401(a) which are reportable on Form W-2 or other compensation for which
the Participant must be furnished a written statement under Code Section 6041(d)
or 6051(a)(3), plus (II) any Section 401(k) Contributions made on the
Participant's behalf under this Plan and (III) any other elective pre-tax
contributions made on the Participant's behalf pursuant to salary deferral or
reduction arrangements maintained by one or more Affiliated Companies under
Sections 125, 401(k), 408(k) and 403(b) of the Code.
Compensation shall be relevant for certain designated purposes under
the Plan. Included among such purposes are: (i) the identification of Highly
Compensated Employees and (ii) the determination of whether the Section 401(k)
Contributions and the Company Contributions under the Plan discriminate in favor
of such Highly Compensated Employees. The following additional rules shall be
applicable in determining Compensation for these clause (i) and clause (ii)
specified purposes:
(A) Each Highly Compensated Employee who is either a five percent (5%)
owner or among the ten (10) highest-paid individuals on the basis of his/her own
Compensation shall, together with his/her Family Members, be treated as a single
Employee under the Plan, and the Compensation of such single Employee shall be
deemed to include the Compensation of such Highly Compensated Employee and
his/her Family Members.
2.
<PAGE> 9
(B) In addition to other applicable limitations set forth in the Plan,
and notwithstanding any other provision of the Plan to the contrary, for Plan
Years beginning on or after January 1, 1994, the annual Compensation of each
Employee taken into account under the Plan shall not exceed the OBRA '93 annual
compensation limit. The OBRA '93 annual compensation limit is $ 150,000, as
adjusted by the Commissioner of the Internal Revenue Service for increases in
the cost of living in accordance with Code Section 401(a)(17)(B). The cost-of-
living adjustment in effect for a calendar year applies to any period, not
exceeding 12 months, over which Compensation is determined (determination
period) beginning in such calendar year. If a determination period consists of
fewer than 12 months, the OBRA '93 annual compensation limit will be multiplied
by a fraction, the numerator of which is the number of months in the
determination period, and the denominator of which is 12.
(i) For Plan Years beginning on or after January 1, 1994, any
reference in the Plan to the limitation under Code Section 401(a)(17) shall mean
the OBRA '93 annual compensation limit set forth in this provision.
(ii) If Compensation for any prior determination period is taken
into account in determining an Employee's benefits accruing in the current Plan
Year, the Compensation for that prior determination period is subject to the
OBRA '93 annual compensation limit in effect for that prior determination
period. For this purpose, for determination periods beginning before the first
day of the first plan year beginning on or after January 1, 1994, the OBRA '93
annual compensation limit is $ 150,000.
(C) In applying the OBRA '93 annual compensation limitation above, any
Highly Compensated Employee who is either a five percent (5%) owner or among the
ten (10) highest-paid individuals on the basis of his/her own Compensation
shall, together with his/her spouse and any lineal descendants who have not
attained age nineteen (19) by the close of the Plan Year in question, be treated
as a single Employee under the Plan.
1.10 "Discretionary Contributions" shall mean the contributions to the
Plan made by one or more Participating Companies pursuant to the provisions of
Section 8.1.
1.11 "Discretionary Contribution Account" shall mean the Account
maintained for each Participant in accordance with Section 8.4.
1.12 "Deferred Compensation Account" shall have the meaning assigned
to such term in Section 5.2.
3.
<PAGE> 10
1.13 "Deferred Profit-Sharing Program" shall mean that portion of the
Plan pursuant to which Discretionary Contributions are to be made by the
Participating Companies and allocated to the Discretionary Contribution Accounts
of Qualified Participants, all in accordance with the terms and conditions of
Article VIII.
1.14 "Directors" shall mean the Board of Directors of the Company.
1.15 "Disability" shall mean the permanent incapacity of a
Participant, by reason of any physical or mental impairment or illness expected
to result in death or to continue for a period of not less than twelve (12)
consecutive months, to perform his/her usual duties for the Company or other
Affiliated Company employing him/her.
1.16 "Effective Date" shall, with respect to this restatement, mean
January 1, 1993 except as otherwise expressly provided herein.
1.17 "Eligible Earnings" shall, for purposes of the Section 401(k)
Contributions permitted under the Plan, mean (i) all direct and current cash
compensation, including commissions, overtime, double time, vacation pay,
advanced vacation pay, jury duty pay, bereavement or sick pay, retroactive pay,
Company or personal holiday pay, shift or other differentials, and all foreign
service/temporary assignment premiums or differentials, which a Participating
Company pays to an Eligible Employee while a Participant in the Plan, (ii) the
Section 401(k) Contributions made on behalf of such Eligible Employee for the
Plan Year, (iii) any amounts contributed by such Eligible Employee on a pre-tax
basis during the Plan Year pursuant to salary deferral or reduction arrangements
in effect with one or more Affiliated Companies under Code Section 125 or
408(k), (iv) any amounts paid to the Employee under any cash bonus or
non-deferred profit-sharing plan of the Company or any other Affiliated Company
and (v) any other special bonuses or other incentive-type payments. "Eligible
Earnings" shall, for purposes of the allocation of Discretionary Contributions
and Forfeitures under Section 8.3 of the Plan, mean (i) the base salary paid by
a Participating Company to an Eligible Employee while a Participant in the Plan,
(ii) the Section 401(k) Contributions made on behalf of such Eligible Employee
for the Plan Year, and (iii) any amounts contributed by such Eligible Employee
on a pre-tax basis during the Plan Year pursuant to salary deferral or reduction
arrangements in effect with one or more Affiliated Companies under Code Section
125 or 408(k). In no event, however, shall more than ($235,840.00) of Eligible
Earnings be taken into account per Employee for any Plan Year beginning on or
after January 1, 1993, (or $150,000 for Plan Years commencing on or after
January 1, 1994) or such other amount established by the Secretary of the
Treasury.
4.
<PAGE> 11
Under no circumstances shall the Eligible Earnings of any individual
include, whether for Section 401(k) Contribution or Company Contribution or
Forfeiture purposes, (i) any remuneration paid to the Employee prior to such
Employee's commencement of participation in the Deferred Profit-Sharing Program
(for purposes of applying the provisions of Article VIII) or prior to such
Employee's eligibility for participation in the Salary Deferral Program (for
purposes of applying the provisions of Articles IV -VII), (ii) any remuneration
paid in the form of reimbursed moving and relocation expenses or home mortgage
differential payments or any income reportable by reason of automobile
allowances provided by one or more Affiliated Companies, (iii) any income
realized upon exercise of non-qualified stock options or upon disqualifying
dispositions of stock acquired under incentive stock options, (iv) any income
recognized by the Employee under Section 79 of the Code by reason of group-term
life insurance coverage in excess of Fifty Thousand Dollars ($50,000.00), (v)
any Company Contributions made to this Plan, and (vi) any Affiliated Company
contributions made to any other pension, profit sharing, stock bonus, group
insurance or other employee welfare plan now or hereafter adopted.
The following additional rules shall be applicable in determining an
individual's Eligible Earnings under the Plan:
(A) Each Highly Compensated Employee who is either a five percent (5%)
owner or among the ten (10) highest-paid individuals on the basis of
Compensation (as determined under Section 1.9) shall, together with his/her
spouse and any lineal descendants who have not attained age nineteen (19) by the
close of the Plan Year in question, be treated as a single Employee unit under
the Plan, and the Eligible Earnings of such single Employee unit shall be deemed
to include the Eligible Earnings of such Highly Compensated Employee and his/her
spouse and lineal descendants who have not attained age nineteen (19) by the
close of such Plan Year.
(B) Not more than Two Hundred Thirty-Five Thousand Eight Hundred Forty
Dollars ($235,840.00) of Eligible Earnings shall be taken into account per
Employee unit under subparagraph (A) for any Plan Year beginning on or after
January 1, 1993, (or $150,000 for Plan Years commencing on or after January 1,
1994) or such other amount established by the Secretary of the Treasury).
(C) The Eligible Earnings determined for any single Employee unit
pursuant to subparagraphs (A) and (B) above shall be applied in the calculation
of (I) the aggregate amount of Section 401(k) Contributions (expressed as a
percentage of such Eligible Earnings) which the members of such Employee unit
may elect to be made on their behalf under the Plan and (II) the aggregate
amount of Company Contributions and Forfeitures which are to be allocated to
such members in accordance with Articles VI and VIII of the
5.
<PAGE> 12
Plan. The aggregate amount so calculated for each clause (I) and clause (II)
item shall be allocated among the members of the Employee unit in proportion to
their share of the Eligible Earnings taken into account for that unit. Each
member's share of such Eligible Earnings shall be in direct proportion to the
dollar amount of his/her individual Eligible Earnings prior to imposition of the
subparagraph (B) limitation above.
1.18 "Eligible Employee" shall mean each and every Employee of a
Participating Company for the period employed by that Participating Company.
However, there shall be excluded from the class of Eligible Employees for all
purposes under the Plan:
(i) any Employee whose terms and conditions of employment are
established under a collective bargaining agreement pursuant to which retirement
benefits have been the subject of good-faith bargaining,
(ii) any Employee who is a non-resident alien with no earned income
(within the meaning of Code Section 911(b)) from a Participating Company which
constitutes income from sources within the United States (within the meaning of
Code Section 861(a)(3)),
(iii) any Employee who works on a part-time basis of less than
thirty-two (32) Hours of Service per week per Plan Year,
(iv) any Employee who is a member of any other group or class of
Employees which the Board of Directors of any Participating Company determines,
pursuant to a policy which does not discriminate in favor of Highly Compensated
Employees, not to include as Eligible Employees under the Plan, and
(v) any Employee who has separated from active employment with the
Company or any other Affiliated Company by reason of Disability.
1.19 "Employee" shall mean (i) any person who is employed by any
Affiliated Company to render personal services and whose earnings constitute
wages under Section 3121(a) of the Code and (ii) any individual who performs
services for an Affiliated Company if such individual is required to be treated
as a Leased Employee under the provisions of Section 19.12 of the Plan.
1.20 "Employment Date" shall have the meaning assigned to such term in
Section 2.3.
1.21 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
6.
<PAGE> 13
1.22 "Family Member" shall mean, with respect to any Highly
Compensated Employee, such Employee's spouse, any lineal ascendant or descendant
of such Employee and the spouses of such lineal ascendants or descendants.
1.23 "Fiduciary" shall have the meaning assigned to such term in
Section 16.7.
1.24 "Forfeiture" shall mean that portion of a Discretionary
Contribution or Matching Contribution Account which is forfeited under Section
13.3 following the Participant's termination of Employee status. Only
Forfeitures from the Discretionary Contribution Accounts of Participants shall
be subject to reallocation to other Participants in accordance with Section 8.3.
1.25 "Funds" shall have the meaning assigned to such term in Section
10.1.
1.26 "Highly Compensated Employee" shall mean an Employee in Service
status who
(i) is, at any time during the Determination Period in effect for
the Plan Year, a five percent (5%) owner (as determined under Section 416(i)(1)
of the Code) of any Affiliated Company;
(ii) received aggregate Compensation for such Determination
Period in excess of Ninety-Six Thousand Three Hundred Sixty-Eight Dollars
($96,368.00);
(iii) received aggregate Compensation for such Determination
Period in excess of Sixty-Four Thousand Two Hundred Forty-Five Dollars
($64,245.00) and is a member of the Top-Paid Group for the same Determination
Period;
(iv) is an officer of any Affiliated Company and received
aggregate Compensation for the Determination Period in excess of fifty percent
(50%) of the amount in effect under Code Section 415(b)(1)(A) at the start of
such Determination Period; or
(v) is one of the one hundred (100) Employees whose Compensation
for the current Plan Year is the highest and either (A) is, at any time during
the current Plan Year, a five percent (5%) owner (as determined under Section
416(i)(1) of the Code) of any Affiliated Company or (B) would fall within
category (ii), (iii) or (iv) above for the current Plan Year if the current Plan
Year were substituted for the Determination Period in each of such categories.
7.
<PAGE> 14
The dollar amounts of aggregate Compensation specified in categories
(ii) and (iii) shall be automatically adjusted each Plan Year beginning after
January 1, 1993 to take into account increases in the cost of living, in
accordance with Regulations issued under Code Section 415(d).
The Determination Period in effect for each Plan Year shall be the
calendar year immediately preceding that Plan Year.
For purposes of category (iii) above, the term "Top-Paid Group" shall
mean the top twenty percent (20%) of all Employees (including any Leased
Employees treated as Employees pursuant to Section 19.12) when ranked on the
basis of the Compensation paid to such Employees for the Plan Year under
consideration. However, for purposes of calculating the number of Employees in
the Top-Paid Group, the following Employees shall be excluded:
a. Employees who have completed less than six (6) months of Service,
b. Employees who normally work less than seventeen and one-half
(17-1/2) hours per week,
c. Employees who normally work six (6) months or less during the
Determination Period,
d. Employees who have not attained age twenty-one (21),
e. Employees who have incurred a Severance Date prior to the start of
the particular Determination Period or Plan Year under consideration, and
f. Employees who are excluded from the definition of Eligible Employee
under Section 1.18 by reason of subparagraph (ii) thereof.
For purposes of category (iv) above, the number of officers to be
treated as Highly Compensated Employees shall not exceed the lesser of (A) fifty
(50) Employees or (B) ten percent (10%) of all Employees, disregarding any
Employees excluded in determining the Top Paid Group as provided in
subparagraphs a through f above.
The following two additional rules shall be in effect for determining
whether an Employee is a member of the group of Highly Compensated Employees for
any Plan Year under consideration:
1. If an Employee is a Family Member of a five percent (5%) owner or
any of the ten (10) highest-paid individuals in the group of Highly-Compensated
Employees for the Plan Year under consideration, then such Employee shall not be
considered a
8.
<PAGE> 15
separate Employee, and any Compensation paid to such individual shall be treated
as Compensation paid to such five percent (5%) owner or such top ten (10)
Highly-Compensated Employee.
2. A former Employee who separates from Service (whether actually or
constructively) shall continue to be treated as a Highly-Compensated Employee if
(A) such Employee was a Highly-Compensated Employee at any time during the Plan
Year in which his/her Severance Date occurs or (B) such Employee was a
Highly-Compensated Employee at any time after attainment of age fifty-five (55).
Leased Employees who are not to be treated as Employees pursuant to
the provisions of Section 19.12 shall not be treated as Employees for purposes
of this Section 1.26.
For purposes of this Section 1.26, the Compensation of each Employee
shall be determined on an aggregate basis as if all the Affiliated Companies
were a single employer entity paying such Compensation. All other determinations
under this Section 1.26 shall be made in accordance with Code Section 414(q) and
the Regulations thereunder.
1.27 "Hour of Service" shall have the meaning assigned to such term in
Section 2.2.
1.28 "Investment Manager" shall have the meaning assigned to such term
in Section 16.5.
1.29 "Leased Employee" shall have the meaning assigned to such term in
Section 19.12.
1.30 "Matching Contribution" shall mean the contributions made to the
Plan by one or more Participating Companies pursuant to the provisions of
Section 6.1.
1.31 "Matching Contribution Account" shall mean the Account maintained
for each Participant in accordance with Section 6.2.
1.32 "Non-Highly Compensated Work Force" shall, for purposes of
Section 19.12, mean the aggregate number of individuals (other than Highly
Compensated Employees) who are either (A) actual full-time Employees of one or
more Affiliated Companies with at least one year of Service under Section 2.4 or
(B) Leased Employees under Section 19.12 (determined without regard to the
exclusion provided by the last sentence thereof).
1.33 "Participant" shall mean each Eligible Employee who participates
in the Deferred Profit-Sharing Program and/or Salary Deferral Program in
accordance with the provisions of the Plan.
9.
<PAGE> 16
1.34 "Participating Company" shall mean the Company and any other
Affiliated Company which adopts the Plan with the approval of the Administrator.
Subject to the Administrator's approval, an Affiliated Company may elect to
participate in only the salary deferral program in effect under Articles IV-VII
of the Plan or in only the deferred profit-sharing program in effect under
Article VIII of the Plan. In such event, the Affiliated Company shall be a
Participating Company only with respect to the particular program elected under
the Plan. The Participating Companies in the Plan, as of the Effective Date, are
listed in attached Schedule A.
1.35 "Plan" shall mean the Komag Material Technology, Inc. Savings and
Deferred Profit-Sharing Plan, as set forth in this document and in amendments
from time to time made hereto.
1.36 "Plan Quarter" shall mean the three (3)-month period coincident
with each calendar quarter.
1.37 "Plan Year" shall mean the twelve (12)-month period coincident
with each calendar year. Effective January 1, 1993, Plan Year shall mean the
52-53 week period ending on the Sunday closest to December 31 each calendar
year.
1.38 "Profits" shall mean, for purposes of funding any and all
Discretionary Contributions to be made to this Plan, the current or accumulated
earnings and profits of each individual Affiliated Company, as determined for
financial accounting purposes in accordance with generally accepted accounting
principles, before deduction of the following amounts for the then current
fiscal year: (i) Federal and State income or franchise taxes and (ii) any
Discretionary Contributions made to this Plan.
1.39 "Qualified Domestic Relations Order" shall have the meaning
assigned to such term in Section 21.1(d).
1.40 "Qualified Participant" shall, with respect to the Participant's
entitlement to a Section 401(k) Contribution for any payroll period, have the
meaning assigned to such term in Section 5.1; shall, with respect to the
Participant's entitlement to any Matching Contribution for the Plan Year, have
the meaning assigned to such term in Section 6.1; and shall, with respect to the
Participant's entitlement to an allocation of any Discretionary Contribution (or
Forfeiture) for each six (6)-month fiscal period in effect under the Plan, have
the meaning assigned to such term in Section 8.3.
1.41 "Regulations" shall mean the Treasury Regulations of the
Secretary of the Treasury, as issued from time to time.
1.42 "Retirement" shall mean the termination of Employee status on or
after the attainment of age sixty-five (65).
10.
<PAGE> 17
1.43 "Roll-Over Account" shall mean the special account maintained for
any Participant for whom a roll-over contribution is made to this Plan in
accordance with Section 19.13.
1.44 "Salary Deferral Program" shall mean the portion of the Plan
pursuant to which Section 401(k) Contributions and Matching Contributions are to
be made on behalf of Qualified Participants in accordance with the terms and
conditions of Article IV - VIII.
1.45 "Section 401(k) Contribution" shall have the meaning assigned to
such term in Section 4.1.
1.46 "Section 401(k) Election" shall have the meaning assigned to such
term in Section 4.1.
1.47 "Severance Date" shall have the meaning assigned to such term in
Section 2.5.
1.48 "Severance Period" shall have the meaning assigned to such term
in Section 2.6.
1.49 "Trust Agreement" shall mean the agreement referred to in
Article XII.
1.50 "Trustee" shall mean the person or persons appointed in
accordance with Article XII.
1.51 "Trust Fund" shall mean all assets held by the Trustee pursuant
to the terms of the Trust Agreement.
1.52 "Valuation Date" shall mean the last business day of each Plan
Quarter and such other date or dates as may be designated by the Administrator
for the valuation of Accounts.
1.53 "Vesting Service" shall have the meaning assigned to such term in
Section 2.7.
1.54 Additional Terms. The following items shall have the meanings
assigned to them in the specific sections of the Plan indicated:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Annual Addition 9.1(a)
Excess Combined Contributions 7.4(b)
Excess Dollar Deferral 4.8(c)
Excess 401(k) Contributions 4.7(b)
Family Group 4.6(b)
Key Employee 22.1(a)
Komag 3.1(c)
Komag Qualified Plan l3.1(c)
Limitation Year 9.1(b)
</TABLE>
11.
<PAGE> 18
<TABLE>
<S> <C>
Maternity Leave 2.5(c)
Other Plan 9.1(a)
Paternity Leave 2.5(c)
Plan Loans 23.2(b)
Remuneration 9.1(c)
Required Beginning Date 14.1(d)
Eligible Rollover Distribution 14.5(b)
Eligible Retirement Plan 14.5(b)
Distributee 14.5(b)
Direct Rollover 14.5(b)
Spouse 13.5(f)
Top-Heavy 22.2
Top-Heavy Contribution 22.3(b)
Top-Heavy Contributions Account 22.3(e)
</TABLE>
12.
<PAGE> 19
ARTICLE II
SERVICE DEFINITIONS
2.1 Break in Service. The term "Break in Service" shall mean a
Severance Period of sixty (60) consecutive months or more.
2.2 Hour of Service. The term "Hour of Service" shall mean (i) an hour
for which an Employee is paid or entitled to payment by an Affiliated Company
for the performance of duties, (ii) an hour for which an Employee is paid or
entitled to payment by an Affiliated Company for a period during which no duties
are performed (whether or not the employment relationship has terminated) on
account of vacation, holiday, illness, incapacity (including Disability),
layoff, jury duty, military duty or leave of absence, and (iii) an hour (to the
extent not already credited under clause (i) or (ii) above) for which back pay
for the Employee is awarded or agreed to by an Affiliated Company, irrespective
of mitigation of damages. However, any hour for which an Employee is directly or
indirectly paid under a plan maintained by an Affiliated Company solely to
comply with applicable worker's compensation, unemployment compensation or
disability insurance laws or solely to reimburse the Employee for medical or
medically related expenses incurred by the Employee shall not be counted as an
Hour of Service.
The number of Hours of Service to be credited for periods during which
the Employee performs no duties and the crediting of Hours of Service to
specific Plan Years shall be determined by the Administrator in accordance with
subsections (b) and (c) of Department of Labor Regulations *2530.200b-2.
However, not more than five hundred one (501) Hours of Service shall be credited
to an Employee for any single continuous period during which the Employee
performs no duties.
2.3 Employment Date. The term "Employment Date" shall mean the date on
which the Employee first renders an Hour of Service for an Affiliated Company.
However, should an Employee incur a Severance Date and thereafter return to
Service, the following special rules shall be in effect for determining the
Employment Date of such Employee:
(a) Should such Employee incur a Break in Service prior to the
completion of at least twelve (12) months of Service, then such Employee shall,
upon resumption of Service, be treated as a new Employee for eligibility and
vesting purposes, and his/her Employment Date shall be the first day following
such Severance Period on which he/she next renders an Hour of Service.
13.
<PAGE> 20
(b) Should such Employee incur a Severance Period of twelve (12)
consecutive months or more but not otherwise be charged with a new Employment
Date pursuant to the provisions of subparagraph (a) above, then such Employee
shall retain his/her prior Service credits for eligibility and vesting purposes,
but the applicable Employment Date under Section 2.3 of such Employee shall, for
purposes of accruing future Service credits upon his/her resumption of Service,
be adjusted to the first day following such Severance Period on which the
Employee next renders an Hour of Service.
2.4 Service. The term "Service" shall mean the Participant's
period or periods of employment with the Company or any other Affiliated
Company. Each such period shall begin with the Participant's Employment Date (as
adjusted from time to time under Section 2.3) and end with the first Severance
Date thereafter which marks the start of a Severance Period of twelve (12)
consecutive months or more. Any Severance Period of less than twelve (12)
consecutive months shall be included within the Participant's period of Service.
Accordingly, the overall Service of the Participant shall be comprised of the
period of employment (whether or not continuous) commencing on his/her initial
Employment Date (or his/her new Employment Date under subparagraph (a) of
Section 2.3) and ending with his/her final Severance Date, but there shall be
excluded from Service any intervening Severance Period of twelve (12)
consecutive months or more. In addition, the following special rules shall be
applicable to the determination of the Participant's overall period of Service:
(i) If any pension or profit-sharing plan maintained by a
corporation, partnership, proprietorship or other business entity which becomes
a Participating Company or is merged into, consolidated with, or all or a
substantial part of the assets of which are acquired by, any Participating
Company is deemed under Section 414(a)(1) of the Code and the applicable
Regulations to be a "predecessor plan" to this Plan, then Service shall include,
for each participant in such predecessor plan, all periods of employment
rendered by such person prior to the acquisition or affiliation which are
required to be taken into account for eligibility and vesting purposes under the
predecessor plan.
(ii) To the extent subparagraph (i) is not otherwise applicable,
Service shall include, for each employee of a corporation, partnership,
proprietorship or other business entity which is merged into, consolidated with,
or all or a substantial part of the assets of which are acquired by, any
Participating Company, such periods of employment rendered by such person to the
predecessor employer prior to the acquisition or affiliation as the
14.
<PAGE> 21
Administrator shall deem appropriate; provided such determination shall not
discriminate in favor of Highly Compensated Employees.
(iii) The Participant's overall period of Service shall be
divided into one or more months of Service on the basis that each thirty (30)
days of Service (whether or not completed consecutively) equals one full month
of Service, and for every twelve (12) months of Service (as so calculated)
rendered by the Participant, he/she shall be credited with one full year of
Service.
2.5 Severance Date.
(a) The term "Severance Date" shall mean the earlier of (i) the date
on which the Employee quits, dies, retires or is discharged or (ii) the date
which is twelve (12) months after the commencement date of any other absence
from employment with an Affiliated Company; provided, however, that layoffs,
approved leaves of absence and Maternity and Paternity Leaves shall be governed
by the specific provisions of paragraphs (b), (c) and (d) of this Section 2.5.
(b) An Employee who is absent from active employment by reason of a
leave of absence approved by the Affiliated Company employing him/her shall not
incur a Severance Date during the period of the leave, provided such Employee
returns to active employment with an Affiliated Company within thirty (30) days
after the expiration date of the period for which such leave of absence is
authorized or (if applicable) prior to the expiration date of any longer period
of time for which the reemployment rights of the Employee are protected by law.
Leaves of absence may be approved, in accordance with a uniform and
non-discriminatory policy, for reasons of health, governmental service, military
duty or other purpose. Except as otherwise provided in Section 2.4(iii), should
the Employee fail to return to active employment with an Affiliated Company
within the applicable time period following the termination of the leave, then
such Employee shall (unless such failure is occasioned by reason of Retirement,
death or Disability) be deemed to have incurred a Severance Date as of the
earliest of (i) the date which is twelve (12) months after the commencement of
such leave of absence, (ii) the date on which the authorized period of such
leave expires, or (iii) the date on which the Employee quits or is discharged.
If the Employee fails to return to active employment within the applicable time
period by reason of his/her death, Disability or Retirement, then such Employee
shall be deemed to have incurred a Severance Date as of the date of such death,
Disability or Retirement.
(c) An Employee who remains absent from active employment by reason of
a Maternity or Paternity Leave (as defined below) shall be deemed to incur a
Severance Date upon the earlier of (i) the date which is twenty-four (24) months
after the
15.
<PAGE> 22
commencement of the Maternity or Paternity Leave or (ii) the date on which the
Employee quits, dies or retires; provided, however, that solely for purposes of
calculating Vesting Service under Section 2.7, only the first twelve (12) months
of such Maternity or Paternity Leave shall be taken into account as Service and
the next twelve (12) months of such Maternity or Paternity Leave shall be
considered neither a period of Service nor a Severance Period. In the event the
Maternity or Paternity Leave also constitutes an approved leave of absence under
Section 2.5(b), then the provisions of Section 2.5(b), to the extent they
provide more favorable Service credits to the Employee than the corresponding
provisions of this Section 2.5(c), shall be controlling.
For purposes of this Section 2.5(c), a Maternity or Paternity Leave is
any absence of the Employee, whether or not approved under Section 2.5(b), which
is directly attributable to and caused by:
(i) such Employee's pregnancy,
(ii) the birth of a child of such Employee,
(iii) the placement of a child with such Employee in connection
with the Employee's adoption of such child, or
(iv) the care of such child for a period beginning with such
birth or placement.
The Administrator may, as a condition to the Employee's qualification
for the special benefits provided under this Section 2.5(c), require the
Employee to provide written confirmation and other substantiation as follows:
(1) on or before the commencement of the leave, that the
absence will qualify as a Maternity or Paternity Leave in accordance with the
criteria specified in clauses (i) through (iv) above, and
(2) on or before the completion of the leave, the number of
days for which the Maternity or Paternity Leave was in fact incurred for one or
more of the causes specified in clauses (i) through (iv) above.
(d) An Employee who is absent from active employment by reason of a
temporary layoff shall not incur a Severance Date during the period of such
layoff, provided such Employee returns to active employment with an Affiliated
Company within thirty (30) days after the date the Employee is recalled to
employment. If the Employee fails to return to active employment prior to the
expiration of such thirty (30)-day period or if the Employee is not recalled to
employment within twelve (12) months after the commencement date of the layoff,
then such Employee shall be deemed
16.
<PAGE> 23
to have incurred a Severance Date as of the earliest of (i) the date which is
twelve (12) months after the commencement date of the layoff, (ii) the date of
the recall or (iii) the date the Employee quits, dies, retires or is discharged.
2.6 Severance Period. The term "Severance Period" shall mean the
period commencing with the Employee's Severance Date and ending with the date on
which such Employee next performs an Hour of Service.
2.7 Vesting Service. The term "Vesting Service" shall mean the
Employee's overall period of Service measured from his/her applicable Employment
Date under Section 2.3 (including Service rendered prior to the Effective Date)
and ending with his/her final Severance Date; provided, however, that there
shall not be included within such Vesting Service any Severance Period or
Periods of twelve (12) consecutive months or more. The Employee's period of
Vesting Service shall be divided into one or more months of Vesting Service on
the basis that each thirty (30) days of Vesting Service (whether or not
completed consecutively) equals one full month of Vesting Service, and for each
twelve (12) months of Vesting Service (as so calculated) rendered by the
Employee, he/she shall be credited with one year of Vesting Service. HOWEVER,
ALL VESTING SERVICE CREDITED UNDER THE PLAN SHALL BE SUBJECT TO THE FOLLOWING
RULE: UNDER NO CIRCUMSTANCES SHALL SERVICE RENDERED BY A PARTICIPANT AFTER A
BREAK IN SERVICE BE TAKEN INTO ACCOUNT IN DETERMINING THE PERCENTAGE TO WHICH
THE PARTICIPANT IS VESTED IN THAT PORTION OF HIS/HER DISCRETIONARY CONTRIBUTION
OR MATCHING CONTRIBUTION ACCOUNT (INCLUDING ALLOCATED FORFEITURES) ATTRIBUTABLE
TO DISCRETIONARY OR MATCHING CONTRIBUTIONS WHICH ACCRUED PRIOR TO SUCH BREAK IN
SERVICE.
The duration of any Break in Service, whether for purposes of this
Section 2.7 or Section 2.3 above, shall be measured from the Severance Date in
effect for the Employee pursuant to Section 2.5 (including the special
provisions of Section 2.5(c)).
17.
<PAGE> 24
ARTICLE III
PARTICIPATION
3.1 Eligibility Rules.
(a) Every Eligible Employee shall become a Participant in the Plan
in accordance with the following provisions:
1. Each Eligible Employee who is currently participating in the
Salary Deferral Program on the January 1, 1993 Effective Date of this plan
restatement shall continue as a Participant in such Salary Deferral Program.
2. Each Eligible Employee who has completed at least six (6)
months of Service prior to January 1, 1993 shall become a Participant in the
Deferred Profit-Sharing Program on the January 1, 1993 Effective Date.
3. Every other Eligible Employee shall become a Participant in the
Deferred Profit-Sharing Program immediately upon completion of six (6) months of
Service and shall be eligible for participation in the Salary Deferral Program
on the first day of the first Plan Quarter following completion of at least six
(6) months of Service.
(b) Should the individual not be an Eligible Employee on the
applicable commencement date for participation under subparagraph (a) above,
then such individual shall not become a Participant in the Deferred
Profit-Sharing Plan, nor be eligible for participation in the Salary Deferral
Program, until the first day thereafter on which he/she is in fact an Eligible
Employee.
(c) Should an individual leave the employ of Komag, Incorporated,
a Delaware corporation ("Komag") (or any other company or entity affiliated with
Komag for purposes of the Komag Savings and Deferred Profit-Sharing Plan (the
"Komag Qualified Plan")) at a time when Komag owns fifty percent (50%) or more
(but less than eighty percent (80%)) of the Company's outstanding voting stock
and transfer directly to Eligible Employee status under this Plan, without any
intervening period of other employment, then such individual shall, for purposes
of satisfying the Service requirements specified in subparagraphs (a) and (b)
above, be credited under this Plan with the same period of eligibility service
with which such individual is credited under the Komag Qualified Plan
immediately prior to his/her transfer to Eligible Employee status. Accordingly,
if such individual is credited with at least six (6) months of service for
eligibility purposes under the Komag Qualified Plan at the time of transfer to
Eligible
18.
<PAGE> 25
Employee status under this Plan, then such individual shall immediately become
eligible for participation in the Salary Deferral Program and the Deferred
Profit-Sharing Program under this Plan.
3.2 Cessation and Resumption of Participation. Every Eligible
Employee who becomes a Participant shall continue to participate in the Plan
until his/her Accounts shall have been distributed under Article XIV or
forfeited under Section 13.3. However, no further Section 401(k) or Company
Contributions or Forfeitures shall be allocated to the Accounts of a Participant
after the Participant ceases to be an Eligible Employee, other than any
allocations required to be made pursuant to Sections 5.2, 6.2 and 8.3 for the
Plan Year in which such cessation of Eligible Employee status occurs. A former
Participant who resumes Eligible Employee status after his/her Accounts have
been distributed or forfeited shall become a Participant again on the first day
following such resumption of Eligible Employee status; provided, however, that
Section 401(k) Contributions shall not resume on behalf of such Participant
prior to the first day of the first Plan Quarter following his/her resumption of
Eligible Employee status.
3.3 Suspended Participation. A Participant who ceases to be an
Eligible Employee but who does not separate from Service shall become a
suspended Participant. Unless an applicable collective bargaining agreement
otherwise provides, no Section 401(k) Contributions or Company Contributions or
Forfeitures shall be allocated to the Accounts of such Participant which are
based on his/her Compensation for such suspension period. However, such
Participant shall continue to accrue Vesting Service during the suspension
period.
19.
<PAGE> 26
ARTICLE IV
SECTION 401(K) ELECTIONS
4.1 Section 401(k) Election. Each individual eligible for
participation in the Salary Deferral Program may file a Section 401(k) Election
with the Administrator indicating his/her election to have the Participating
Company employing him/her (i) reduce his/her Eligible Earnings each pay period
by a specified dollar amount or specified percentage (in any increment of one
percent (1%)) up to the maximum dollar amount or percentage permitted by the
Administrator for the Plan Year, but in no event more than Eight Thousand Nine
Hundred Ninety-Four Dollars ($8,994.00) in the aggregate per calendar year, and
(ii) contribute the specified amount to the Plan as a Section 401(k)
Contribution on his/her behalf under Section 5.1. Section 401(k) Contributions
shall not include any amounts deferred pursuant to the Salary Deferral Program
which are properly distributed pursuant to Section 8.3 as excess Annual
Additions. The dollar limitation of clause (i) shall be automatically adjusted
each calendar year after the 1992 calendar year to the extent permitted under
Code Section 402(g) and the Regulations issued thereunder.
4.2 Application. Each individual eligible for participation in the
Salary Deferral Program may make a Section 401(k) Election by filing the
prescribed application form with the Administrator. The application shall
specify the dollar or percentage reduction in such individual's Eligible
Earnings (up to the annual dollar maximum) and shall authorize the Participating
Company employing such Participant to deduct the specified amount from his/her
Eligible Earnings each pay period and pay the same into the Trust Fund on
his/her behalf.
4.3 Filing Period. The initial Section 4.2 application may be filed,
within the period designated by the Administrator, prior to the date the
individual first becomes eligible for participation in the Salary Deferral
Program in accordance with Section 3.1 and shall become effective as of the
first day of the first payroll period coinciding with or next following such
eligibility date, whereupon such individual shall become an actual Participant
in the Salary Deferral Program. An individual who does not file the Section 4.2
application during the first application period for which he/she is eligible may
subsequently file such application at any time thereafter, and the Section
401(k) Election of such individual shall become effective as of the first day of
the first Plan Quarter following the date the Section 4.2 application is filed,
whereupon such individual shall become an actual Participant in the Salary
Deferral Program. In no event
20.
<PAGE> 27
shall the Section 401(k) Election be effective for any Eligible Earnings paid to
the individual prior to the date he/she becomes an actual Participant in the
Salary Deferral Program.
4.4 Modification/Termination.
(a) The Section 401(k) Election of a Participant in the Salary
Deferral Program shall remain in effect until modified or terminated in
accordance with the provisions of subparagraphs (b) and (c) below.
(b) The Participant may modify the Section 401(k) Election in
effect for him/her at the time by filing the prescribed modification form with
the Administrator. In the form the Participant shall indicate the new dollar
amount or percentage (subject to the annual dollar maximum) by which his/her
Eligible Earnings are to be reduced and the corresponding increase or decrease
in the Section 401(k) Contributions to be made on his/her behalf. The
modification shall become effective as of the first day of the first Plan
Quarter following the date the form is filed.
(c) The Participant may terminate his/her Section 401(k) Election
at any time upon written notice to the Administrator, and the termination shall
become effective as of the first day of the first payroll period beginning not
later than fifteen (15) days after the date such notice is filed. The Section
401(k) Election of a Participant shall automatically terminate upon his/her
cessation of Eligible Employee status, and a new Section 401(k) Election for
such Participant shall not subsequently become effective prior to the first day
of the first Plan Quarter following his/her resumption of Eligible Employee
status.
4.5 Absences. The Section 401(k) Election of a Participant shall be
automatically suspended as of the first day of the first payroll period
following the commencement of an authorized but unpaid leave of absence under
Section 2.5(b), an unpaid Maternity or Paternity Leave under Section 2.5(c) or a
layoff under Section 2.5(d). Should the Participant return from such leave of
absence as an Eligible Employee, then his/her Section 401(k) Election shall be
automatically reinstated, effective as of the first day of the first Plan
Quarter following such return, at the rate in effect at the time the leave of
absence commenced, unless the Participant makes a new Section 401(k) Election
under this Article IV prior to the date of such reinstatement.
21.
<PAGE> 28
4.6 Limitation. (a) The Section 401(k) Contributions allocable to the
Deferred Compensation Accounts of Participants for any Plan Year must satisfy
one of the deferral percentage tests specified below:
(i) The actual deferral percentage (as defined below) for
Eligible Employees who are among the group of Highly Compensated Employees for
such Plan Year must not be more than the product of (i) the actual deferral
percentage for all other Eligible Employees as a group and (ii) 1.25; or
(ii) The actual deferral percentage for Eligible Employees who are
among the group of Highly Compensated Employees for such Plan Year must not be
more than two (2) percentage points greater than the actual deferral percentage
for the remaining Eligible Employees, and the actual deferral percentage for
Eligible Employees within such group of Highly Compensated Employees must not be
more than the product of (i) the actual deferral percentage for the remaining
Eligible Employees and (ii) 2.0.
(b) For purposes of making the calculations required under this
Section 4.6, the following provisions shall be in effect:
(i) The actual deferral percentage for any group of Eligible
Employees shall be the average of the ratios (calculated separately for each
Eligible Employee in such group) of (i) the aggregate amount of Section 401(k)
Contributions actually allocated for the Plan Year to the Deferred Compensation
Account of each Eligible Employee in such group to (ii) the Compensation paid to
such Eligible Employee for the Plan Year.
(ii) The actual deferral percentage for each Highly Compensated
Employee who is either a five percent (5%) owner or among the ten (10)
highest-paid individuals (based on his/her own Compensation) shall be deemed to
be the actual deferral percentage for all members of the Family Group of which
such Highly Compensated Employee is a member. The Family Group shall include
such Highly Compensated Employee plus all other Eligible Employees who are
Family Members of such individual. Accordingly, the Section 401(k) Contributions
made on behalf of the members of such Family Group and the Compensation of each
such Family Member shall be added together in calculating the actual deferral
percentage for such Highly Compensated Employee, as if all Eligible Employees
within such Family Group were one Highly Compensated Employee, and those members
of the Family Group who are not themselves Highly Compensated Employees shall
not be taken into account for purposes of determining the actual deferral
percentage for the Plan Year for all Eligible Employees who are not Highly
Compensated Employees.
(iii) If a Highly Compensated Employee participating in this Plan
is also eligible for the same Plan Year
22.
<PAGE> 29
to participate in another cash or deferred arrangement maintained by any
Affiliated Company, then the actual deferral percentage of such Highly
Compensated Employee shall be determined under this Section 4.6 by treating all
the cash or deferred arrangements in which he/she is eligible to participate as
one arrangement.
(c) If this Plan and any other plan or plans maintained by any
Affiliated Company are treated as a single plan for purposes of Code Section
401(a)(4) or 410(b), then the actual deferral percentage for each group of
Eligible Employees shall be calculated under this Section 4.6 by treating the
cash or deferred arrangements under this Plan and such other plan or plans as a
single arrangement.
4.7 Excess 401(k) Contributions.
(a) If the Section 401(k) Contributions otherwise allocable to the
Deferred Compensation Accounts of Participants for the Plan Year would not
satisfy one of the deferral percentage tests specified in Section 4.6, then
either or both of the remedial actions set forth in subparagraphs (a) and (b)
below shall be taken.
(i) The Administrator may, by unilateral action effected at any
time during the Plan Year, reduce the Section 401(k) Elections of one or more
Participants who are among the group of Highly Compensated Employees to the
maximum deferral percentage permissible for such Participant or Participants
without contravention of the requirement that the aggregate Section 401(k)
Contributions made on behalf of all Participants who are Highly Compensated
Employees satisfy one of the deferral percentage tests of Section 4.6.
(ii) The Excess 401(k) Contributions made for the Plan Year on
behalf of Participants who are among the group of Highly Compensated Employees
shall be distributed to them (together with any income allocable to such Excess
Contributions) as a current cash payment, subject to all applicable withholding
taxes, prior to the close of the immediately succeeding Plan Year. [In order for
the Company to avoid an excise tax under Section 4979 of the Code, such
distribution would have to be made within two and one-half (2-1/2) months after
the close of the Plan Year.]
(b) For purposes of subparagraph (a) above, the term "Excess
401(k) Contribution" shall mean for each Highly Compensated Employee the amount
by which (i) the Section 401(k) Contributions (expressed as a percentage of
Compensation) actually credited for the Plan Year to his/her Deferred
Compensation Account exceeds (ii) the maximum deferral percentage permissible
for such individual without contravention of the requirement that the aggregate
Section 401(k) Contributions on behalf of all Participants who are Highly
Compensated Employees satisfy one of
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the deferral percentage tests of Section 4.6. The clause (ii) percentage
applicable to each Highly Compensated Employee shall be determined in accordance
with the following process: first, the actual deferral percentage for the Highly
Compensated Employee with the highest such percentage shall be reduced until
such reduced percentage equals the greater of (A) the actual deferral percentage
required in order to allow the actual deferral percentage for all Highly
Compensated Employees to satisfy the limitation of Section 4.6 or (B) the actual
deferral percentage of the Highly Compensated Employee with the next highest
percentage; then, the process shall be repeated in the order of the actual
deferral percentages for the Highly Compensated Employees, beginning with the
Employee with the next highest percentage, until the limitation of Section 4.6
is satisfied for the aggregate Section 401(k) Contributions made on behalf of
all Highly Compensated Employees.
(c) Any distributions which are to be made pursuant to this
Section 4.7 shall be effected in compliance with the following provisions:
(i) The distribution to the affected Highly Compensated Employees
shall be made in proportion to their share of Excess 401(k) Contributions for
the Plan Year.
(ii) The income allocable to the Excess 401(k) Contribution shall
be calculated by multiplying (A) the income allocable to the Participant's
Deferred Compensation Account for the Plan Year for which such contribution is
made by (B) a fraction the numerator of which is the Excess 401(k) Contribution
made on the Participant's behalf for such Plan Year and the denominator of which
is the balance credited to the Deferred Compensation Account of such Participant
on the last day of such Plan Year, decreased by the earnings and increased by
the losses allocable to such Account for the Plan Year.
(iii) The amount of Excess 401(k) Contributions shall be reduced
by any Excess Dollar Deferrals previously distributed to the Participant under
Section 4.8(a) for his/her taxable year coincident with such Plan Year.
(iv) The Excess 401(k) Contribution, together with the income
thereon, distributed to the Participant shall, at the time of such distribution,
be deducted from the Participant's Deferred Compensation Account.
(v) Should the actual deferral percentage of a Highly Compensated
Employee be determined on the basis of the Compensation and Section 401(k)
Contributions of the Family Group pursuant to Section 4.6(b)(ii), then the
Excess 401(k) Contribution of such Highly Compensated Employee shall be
determined and distributed as follows: first, the Excess 401(k) Contribution
attributable to the Family Group shall be determined by adding
24.
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together the Section 401(k) Contributions and the Compensation, respectively, of
all Family Members whose Section 401(k) Contributions and Compensation are taken
into account in calculating the actual deferral percentage of such Highly
Compensated Employee pursuant to Section 4.6(b)(ii); and then the Excess 401(k)
Contribution so determined shall be allocated among those Family Members in
proportion to the Section 401(k) Contributions of each Family Member and
distributed to them in accordance with such allocation.
4.8 Excess Dollar Deferrals.
(a) If any Participant in this Plan also participates in any other
Code Section 401(k) arrangement maintained by one or more Affiliated Companies,
then this Plan and such other arrangement shall, for purposes of applying the
maximum dollar limitation of Section 4.1 to such Participant, be treated as a
single Code Section 401(k) arrangement. Accordingly, the total amount of Code
Section 401(k) contributions made on behalf of such Participant under this Plan
and any such other arrangement shall in each calendar year be limited to the
applicable dollar amount in effect for such calendar year under Section 4.1.
(b) In the event that (A) any Participant in this Plan also
participates in any other Code Section 401(k) arrangement maintained by entities
unrelated to the Affiliated Companies and (B) the Section 401(k) Contributions
otherwise allocable to the Participant's Deferred Compensation Account under
this Plan would, when added to the Code Section 401(k) contributions made on
his/her behalf for the same calendar year under such other arrangement, exceed
the applicable dollar limitation in effect for that calendar year under Section
4.1, then either or both of the remedial actions set forth in subparagraphs (i)
and (ii) below shall be taken.
(i) The Administrator may, by unilateral action effected at any
time during the calendar year, reduce the Section 401(k) Election of such
Participant to the maximum deferral percentage permissible for such Participant
so that his/her aggregate Section 401(k) Contributions for the calendar year
ending with the Plan Year will not exceed the applicable dollar limitation set
forth in Section 4.1.
(ii) The Excess Dollar Deferral made for the Plan Year on behalf
of such Participant shall be distributed (together with any income allocable to
such Excess Dollar Deferral) as a current cash payment, subject to all
applicable withholding taxes, within three and one-half (3-1/2) months after the
close of the Plan Year.
(c) For purposes of this Section 4.8, the term "Excess Dollar
Deferral" shall mean the amount by which the Section 401(k) Contributions made
on behalf of the Participant during the
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calendar year coincidental with the Plan Year, when added to the other Code
Section 401(k) contributions made on his/her behalf under any Section 401(k)
arrangement maintained by entities unrelated to the Affiliated Companies under
this Plan, exceed the applicable dollar maximum set forth in Section 4.1.
However, no Section 401(k) Contributions under this Plan which become Excess
Dollar Deferrals for a particular calendar year by reason of any Code Section
401(k) contributions made on behalf of the Participant under such other
arrangement shall be distributed from this Plan, unless the Participant provides
the Administrator with written notice of (i) the amount of the Code Section
401(k) contributions made on his/her behalf under the other arrangement for the
same calendar year and (ii) the amount of the Section 401(k) Contributions under
this Plan which he/she wishes to have distributed as an Excess Dollar Deferral
hereunder. Such notice must be given to the Administrator no later than March 1
of the immediately succeeding calendar year.
(d) The Excess Dollar Deferral, together with the income thereon,
distributed to the Participant shall, at the time of such distribution, be
deducted from the Participant's Deferred Compensation Account.
(e) The income allocable to the Excess Dollar Deferral shall be
calculated by multiplying (A) the income allocable to the Participant's Deferred
Compensation Account for the Plan Year coincidental with the calendar year for
which such contribution is made by (B) a fraction the numerator of which is the
Excess Dollar Deferral made on the Participant's behalf for such calendar year
and the denominator of which is the balance credited to the Deferred
Compensation Account of such Participant on the last day of the Plan Year
coincidental with such calendar year, decreased by the earnings and increased by
the losses allocable to the Account for such Plan Year.
(f) The amount of Excess Dollar Deferrals shall be reduced by any
Excess 401(k) Contributions previously distributed to the Participant under
Section 4.7(b) for such Plan Year. Excess Dollar Deferrals shall be treated as
Annual Additions under Section 8.1 of the Plan, unless such amounts are
distributed no later than the first April 15 following the close of the
Participant's taxable year.
4.9 Supplemental Section 401(k) Election. Should the Administrator
determine, prior to the close of the Plan Year, that additional Section 401(k)
Contributions may be made on behalf of one or more Participants without
contravention of the requirement that the aggregate Section 401(k) Contributions
for Participants who are among the group of Highly Compensated Employees satisfy
one of the deferral percentage tests of Section 4.7 for such Plan Year, then:
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<PAGE> 33
(i) the Administrator may, in its discretion, permit each such
Participant to file a supplemental Section 401(k) Election for such Plan Year
directing the Participating Company employing him/her to reduce his/her Eligible
Earnings for one or more remaining pay periods within such Plan Year by an
additional specified amount, and
(ii) the Participating Company employing such individual shall
effect the requested reduction and shall for such Plan Year make an additional
Section 401(k) Contribution on behalf of such individual in the amount
specified.
27.
<PAGE> 34
ARTICLE V
SECTION 401(K) CONTRIBUTIONS
5.1 Contributions.
(a) Each Participating Company shall make a Section 401(k)
Contribution each payroll period on behalf of each Qualified Participant. For
purposes of the Section 401(k) Contribution, a Participant shall be considered a
Qualified Participant if:
(i) such Participant is an Eligible Employee during the payroll
period for which the Section 401(k) Contribution is to be made;
(ii) such Participant has Eligible Earnings for such payroll
period from the Participating Company making the Section 401(k) Contribution;
and
(iii) such Participant has a valid Section 401(k) Election in
effect for such payroll period.
(b) The Section 401(k) Contribution on behalf of each Qualified
Participant shall be equal each payroll period to the amount by which the
Eligible Earnings otherwise payable to such Participant for such payroll period
by the Participating Company is reduced in accordance with the Section 401(k)
Election in effect for such Participant.
(c) Section 401(k) Contributions shall be paid directly to the
Trustee in cash, either in one lump sum at the end of each month or in a series
of equal or unequal payments at the end of each payroll period within such
month.
5.2 Allocation. The Administrator shall maintain a Deferred
Compensation Account for each Participant which shall be credited with all
Section 401(k) Contributions made on the Participant's behalf. Such Account
shall be adjusted periodically to reflect the Participant's share of the
earnings and losses of the Trust Fund attributable to the Section 401(k)
Contributions credited to the Account. Each Participant shall at all times have
a fully-vested and non-forfeitable interest in his/her Deferred Compensation
Account.
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ARTICLE VI
MATCHING CONTRIBUTIONS
6.1 Matching Contributions.
(a) Each Participating Company may, in its sole discretion and
without any obligation to do so, make a Matching Contribution each Plan Quarter
on behalf of each Qualified Participant. For purposes of any such Matching
Contribution, a Participant shall be considered a Qualified Participant if:
(i) such Participant has a valid Section 401(k) Election in
effect at any time during the Plan Quarter for which the Matching
Contribution is to be made;
(ii) the Participating Company has made one or more Section
401(k) Contributions on behalf of such Participant for the Plan Quarter for
which the Matching Contribution is to be made; and
(iii) such Participant (A) is an Eligible Employee on the last day
of the Plan Quarter for which the Matching Contribution is to be made, (B)
has ceased Eligible Employee status during such Plan Quarter by reason of
Retirement, death or Disability or (C) has during such Plan Quarter
transferred directly from Eligible Employee status under this Plan, without
any intervening period of other employment, to the employ of Komag (or any
other company or entity affiliated with Komag for purposes of the Komag
Qualified Plan) at a time when Komag owns fifty percent (50%) or more of
the Company's outstanding voting stock and is an eligible employee (within
the meaning of such term under the Komag Qualified Plan) at the end of such
Plan Quarter.
(b) The Matching Contribution made on behalf of each Qualified
Participant for a particular Plan Quarter shall be equal to that percentage of
the Section 401(k) Contributions allocated to such Participant's Deferred
Compensation Account for the Plan Quarter which the Administrator determines to
be the appropriate percentage match for such Plan Quarter, subject to a maximum
Matching Contribution per Participant of One Hundred Twenty-Five Dollars
($125.00) per Plan Quarter.
(c) The Administrator will announce the percentage match to be in
effect for each Plan Quarter of a particular Plan Year prior to the start of
that Plan Year.
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<PAGE> 36
6.2 Allocation of Matching Contributions. The Administrator shall
maintain a Matching Contribution Account for each Participant which shall be
credited with all Matching Contributions made on the Participant's behalf
pursuant to the provisions of Section 6.1. Such Account shall be adjusted
periodically to reflect the Participant's share of the gains and losses of the
Trust Fund attributable to the Matching Contributions credited to the Account.
Each Participant shall vest in his/her Matching Contribution in accordance with
the provisions of Article XIII.
6.3 Remittance to Trustee. Each Participating Company shall make
its required Matching Contribution for the Plan Quarter directly to the Trustee
within the time limits prescribed under applicable State and Federal tax laws
for the current deductibility thereof.
6.4 Form of Contribution. The Matching Contribution made by each
Participating Company shall be in the form of a cash contribution.
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ARTICLE VII
LIMITATIONS ON MATCHING CONTRIBUTIONS/
AGGREGATE CONTRIBUTIONS
7.1 Limitation.
(a) The Matching Contributions allocable for the Plan Year to the
Accounts of Eligible Employees who are among the group of Highly Compensated
Employees must satisfy one of the contribution percentage tests specified below:
(i) The contribution percentage (as defined below) for such
Highly Compensated Employees must not be more than the product of (i) the
contribution percentage for all other Eligible Employees as a group and
(ii) 1.25; or
(ii) The contribution percentage for the Highly Compensated
Employees must not be more than two (2) percentage points greater than the
contribution percentage for the remaining Eligible Employees, and the
contribution percentage for such Highly Compensated Employees must not
exceed the product of (i) the contribution percentage for the remaining
Eligible Employees and (ii) 2.0.
(b) For purposes of making the calculations required under this
Section 7.1, the following provisions shall be in effect:
(i) The contribution percentage for any group of Eligible
Employees shall be the average of the ratios (calculated separately for
each Eligible Employee in such group) of (i) the aggregate amount of
Matching Contributions actually allocated for the Plan Year to the Account
of each Eligible Employee in such group to (ii) the Compensation received
by such Eligible Employee during the Plan Year.
(ii) The contribution percentage of a Highly Compensated Employee
who is either a five percent (5%) owner or among the ten (10) highest-paid
individuals (based on his/her own Compensation) shall be equal to the
contribution percentage of all members of the Family Group of which such
Highly Compensated Employee is a member. The Family Group shall include
such Highly Compensated Employee plus all other Eligible Employees who are
Family Members of such individual. Accordingly, the Matching Contribution
made on behalf of the members of the Family Group and the Compensation of
each such Family Member shall be taken into account in determining the
contribution percentage for the Eligible Employees in such group as if the
Family Group were one Highly Compensated Employee, and members of the
Family Group who are not Highly Compensated Employees shall not be taken
into account for
31.
<PAGE> 38
purposes of determining the contribution percentages for all Eligible
Employees who are not Highly Compensated Employees.
(iii) If a Highly Compensated Employee participating in this Plan
is also eligible for the same Plan Year to participate in any other plan or
plans maintained by an Affiliated Company to which after-tax employee
contributions, matching employer contributions or qualified non-elective
employer contributions are made, then the contribution percentage for such
individual shall be calculated under this Section 7.1 by treating this Plan
and such other plan or plans as a single plan.
(iv) If this Plan and any other plan or plans maintained by an
Affiliated Company to which after-tax employee contributions, matching
employer contributions or qualified non-elective employer contributions are
made are to be treated as a single plan for purposes of Code Section
410(a)(4) or 410(b), then the contribution percentage for each group of
Eligible Employees shall be calculated under this Section 7.1 by treating
this Plan and such other plan or plans as a single plan.
7.2 Remedial Action Through Interaction with Article IV.
(a) In the event that one or more dollars of Section 401(k)
Contributions are distributed to a Participant as an Excess Section 401(k)
Contribution under Section 4.7 or as an Excess Dollar Deferral under Section
4.8, then the Participant shall not be entitled to any Matching Contribution on
the Section 401(k) Contributions so distributed. Accordingly, any Matching
Contribution which may have previously been made upon the distributed Section
401(k) Contributions shall be deducted from the Participant's Matching Account,
together with the income allocable to such deducted contributions, and shall be
applied to fund any future Matching Contributions required pursuant to the
provisions of Section 6.2.
(b) By reason of such interaction between the distribution of
Excess Section 401(k) Contributions and Excess Dollar Deferrals and the
deduction of the Matching Contributions thereon from the Participant's Matching
Account, compliance with the Section 4.6 limitations of the Plan applicable to
the Participant's Section 401(k) Contributions shall automatically assure
compliance with the Section 7.1 limitations of the Plan applicable to the
Matching Contributions which may be allocated for the Plan Year to the Matching
Accounts of Participants who are among the group of Highly Compensated
Employees. However, should the contribution percentage of any Highly Compensated
Employee who participates in both this Plan and any other plan maintained by one
or more Affiliated Companies to which after-tax employee contributions or
matching employer contributions are made for the
32.
<PAGE> 39
same Plan Year exceed the applicable limitation of Section 7.1, then the
remedial action provided under such other plan shall be taken, in addition to
the action required under this Plan, to assure that the contribution percentage
for such Highly Compensated Employee does not cause the Section 7.1 limitation
to be exceeded for such Plan Year.
(c) The income allocable to any Matching Contributions which are
deducted from the Matching Contribution Account of a Highly Compensated Employee
pursuant to the remedial provisions of this Section 7.2(c) shall be calculated
by multiplying (A) the income allocable to the Matching Contribution Account for
the Plan Year for which such Matching Contributions are made by (B) a fraction
the numerator of which is the Matching Contributions to be deducted from such
Account and the denominator of which is the balance credited to such Account on
the last day of such Plan Year, decreased by the earnings and increased by the
losses allocable to such Account for the Plan Year.
7.3 Aggregate Limitation. The Section 401(k) Contributions and the
Matching Contributions for the Plan Year allocable to the Accounts of
Participants who are among the group of Highly Compensated Employees must on an
aggregate basis satisfy one of the following alternative tests:
(i) The sum of the actual deferral percentage (as defined in
Section 4.6) and the contribution percentage (as defined in Section 7.1) for the
group of Highly Compensated Employees must not for such Plan Year exceed the sum
of (A) the product of 1.25 and the greater of (x) the actual deferral percentage
for the group of non-Highly Compensated Employees or (y) the contribution
percentage for the group of non-Highly Compensated Employees and (B) two
percentage points plus the lesser of the percentage determined under clause (x)
or (y) above, but in no event may the amount determined under this clause (B)
exceed two hundred percent (200%) of the lesser of such clause (y) or (z)
percentage; or
(ii) The sum of the actual deferral percentage and the
contribution percentage for the group of Highly Compensated Employees must not
for such Plan Year exceed the sum of (A) the product of 1.25 and the lesser of
(x) the actual deferral percentage for the group of non- Highly Compensated
Employees or (y) the contribution percentage for the group of non-Highly
Compensated Employees and (B) two (2) percentage points plus the greater of the
percentage determined under clause (x) or (y) above, but in no event may the
amount determined under this clause (B) exceed 200% of the greater of such
clause (x) or (y) percentage.
7.4 Remedial Action. If the Matching Contributions and Section 401(k)
Contributions otherwise allocable for the Plan Year to the Accounts of Highly
Compensated Employees would not when
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combined satisfy one of the aggregate percentage tests specified in Section 7.3,
then the following provisions shall become applicable:
(a) Within two and one-half (2-1/2) months after the close of the
Plan Year, the Excess Combined Contributions made for such Plan Year on behalf
of one or more Participants who are among the group of Highly Compensated
Employees, together with any income allocable to such Excess Combined
Contributions, shall be reduced to zero, first through the deduction and
distribution from the Deferred Compensation Accounts of such Participants of any
Section 401(k) Contributions (together with the income allocable thereto) for
such Plan Year which are not otherwise entitled to any Matching Contribution for
that Plan Year, and then through the simultaneous (i) deduction and distribution
from their Deferred Compensation Accounts of a portion of their Section 401(k)
Contributions (together with the income allocable thereto) for such Plan Year
which are entitled to a Matching Contribution for that Plan Year and (ii)
deduction from their Matching Contribution Accounts of the Matching
Contributions (together with the income allocable thereto) made on those
deducted and distributed Section 401(k) Contributions.
(b) The term "Excess Combined Contributions" shall mean for each
Highly Compensated Employee the amount by which the (I) Matching Contributions
and the Section 401(k) Contributions (expressed as a percentage of Compensation)
actually credited for the Plan Year to his/her Accounts, determined after any
remedial actions required by Sections 4.7 and 7.2 have been taken, exceeds (II)
the maximum combined percentage permissible for such individual without
contravention of the requirement that the combined Matching Contributions and
Section 401(k) Contributions satisfy the aggregate percentage test of Section
7.3. The clause (II) percentage applicable to each Highly Compensated Employee
shall be determined in accordance with the following process: first, the
combined contribution percentage for the Highly Compensated Employee with the
highest such percentage shall be reduced until such reduced percentage equals
the greater of (A) the aggregate percentage required in order to allow the
combined Matching Contributions and Section 401(k) Contributions on behalf of
all Highly Compensated Employees to satisfy the limitations of Section 7.3 or
(B) the combined contribution percentage of the Highly Compensated Employee with
the next highest percentage; then, the process shall be repeated in the order of
the combined contribution percentage for the Highly Compensated Employees,
beginning with the Employee with the next highest percentage, until the
limitation of Section 7.3 is satisfied for the combined Matching Contributions
and Section 401(k) Contributions made on behalf of all Highly Compensated
Employees.
(c) Remedial action under subparagraph (a) above shall be effected
with respect to the Highly Compensated Employees
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<PAGE> 41
in proportion to their Excess Combined Contributions for the Plan Year.
(d) The income allocable to any Section 401(k) Contributions
deducted from the Participant's Deferred Compensation Account pursuant to
subparagraph (a) above and the income allocable to any Matching Contributions
deducted from his/her Matching Contribution Account shall be determined in
accordance with the same income allocation procedures in effect under Section
4.7(c) and Section 7.2(c), respectively, and shall be deducted from the
Participant's Deferred Compensation Account and Matching Contribution Account
concurrently with the remedial subparagraph (a) action.
(e) Any Matching Contributions deducted from the Participant's
Matching Contribution Account pursuant to the provisions of Section 7.2 or 7.4
shall nevertheless be treated as an Annual Addition under Section 9.2 for the
Plan Year for which such Matching Contributions are made. All such Matching
Contributions deducted from the Matching Contributions Accounts of Participants
pursuant to Section 7.2 or Section 7.4 shall be applied to the satisfaction of
future Matching Contributions required under Section 6.1.
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ARTICLE VIII
DISCRETIONARY CONTRIBUTIONS/FORFEITURES
8.1 Discretionary Contributions.
(a) For each six (6)-month fiscal period for which this Plan is in
effect, the Directors shall determine the aggregate amount to be contributed for
that fiscal period as Discretionary Contributions to this Plan. The Directors
shall have complete discretion in determining the aggregate amount of the
Discretionary Contribution to be made for each six (6)-month fiscal period.
Discretionary Contributions may vary from fiscal period to period, and there may
be no such Discretionary Contributions for one or more such fiscal periods. The
first (6)-month fiscal period for which a Discretionary Contribution may be made
each Plan Year shall be coincident with the first two fiscal quarters within
that Plan Year, and the second such six (6)-fiscal month period shall be
coincident with the last two fiscal quarters within such Plan Year.
(b) Once the Directors determine the aggregate dollar amount of
the Discretionary Contribution to be made to this Plan for any six (6)-month
fiscal period, then each Participating Company in this Plan shall be required to
contribute, solely out of its current or accumulated Profits, a portion of that
Discretionary Contribution to this Plan for allocation to the Qualified
Participants (within the meaning of Section 8.3) employed by that Participating
Company for all or part of that fiscal period. Such portion shall be determined
by multiplying the aggregate Discretionary Contribution for the fiscal period by
a fraction, the numerator of which is the aggregate Eligible Earnings which the
Participating Company paid to the Section 8.3 Qualified Participants for the
fiscal period for which such Discretionary Contribution is made and the
denominator of which is the total amount of Eligible Earnings paid to all
Qualified Participants under this Plan for that fiscal period.
(c) To the extent any Participating Company lacks sufficient
Profits to make the Discretionary Contribution required of it under subparagraph
(b) for any fiscal period, the other Affiliated Companies participating in this
Plan shall, out of their respective Profits, make the contribution on behalf of
the Qualified Participants employed by such Participating Company. In no event,
however, may any Affiliated Company contribute more than the amount determined
by multiplying the portion of the Discretionary Contribution for which the
Participating Company lacks sufficient Profits by a fraction the numerator of
which is the Affiliated Company's Profits at the end of the fiscal period for
which the contribution is to be made (determined immediately prior to such
contribution but after any other Code Section 404-deductible contribution made
by that Affiliated Company to this Plan for such fiscal period) and the
denominator of which is total
36.
<PAGE> 43
Profits of all the Affiliated Companies at the end of such fiscal period
(determined immediately prior to the contribution but after any other Code
Section 404-deductible contributions made by those Affiliated Companies to this
Plan for such fiscal period).
(d) The initial semi-annual Discretionary Contribution under this
Plan is to be made for the six (6)-month fiscal period coincidental with the
first two fiscal quarters of the 1993 Plan Year and shall be allocated (in
accordance with Section 8.3) to the Discretionary Contribution Accounts of
Qualified Participants in proportion to their Eligible Earnings for that six
(6)-month fiscal period. The allocation to any Qualified Participant who has
completed six (6) months of Service prior to the January 1, 1993 effective date
of the Deferred Profit-Sharing Program shall be based on his/her Eligible
Earnings for the entire six (6)-month fiscal period. The allocation to any
Qualified Participant who first completes six (6) months of Service after
January 1, 1993 but before the end of the six (6)-month fiscal period
coincidental with the first two fiscal quarters of the 1993 Plan Year shall be
based on his/her Eligible Earnings for the period which begins with the date on
which her/she completes the six (6)-months of Service requirement and ends on
the last day of that six (6)-month fiscal period.
8.2 Remittance to Trustee. Each semi-annual Discretionary Contribution
shall be paid directly to the Trustee within the time limits prescribed under
applicable State and Federal tax laws for the current deductibility thereof.
8.3 Allocation of Discretionary Contributions and Forfeitures.
(a) For purposes of this Section 8.3, the term "Qualified
Participant" shall mean, with respect to the particular six (6)-month fiscal
period for which the semi-annual Discretionary Contribution is made, a
Participant:
(i) who is an Eligible Employee on the last day of such six
(6)-month fiscal period, or
(ii) who has ceased Employee status during such six (6)-month
fiscal period by reason of Retirement, Disability or death, or
(iii) who has during such six (6)-month fiscal period transferred
directly from Eligible Employee status under this Plan, without any
intervening period of other employment, to the employ of Komag (or any
other company or entity affiliated with Komag for purposes of the Komag
Qualified Plan) at a time when Komag owns fifty percent (50%)
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or more (but less than eighty percent (80%)) of the Company's outstanding
voting stock and is an eligible employee (for the purposes of the Komag
Qualified Plan) on the last day of such six (6)-month fiscal period.
The Eligible Earnings of a Qualified Participant under clause
(iii) shall NOT include any salary, earnings or other compensation earned for
service rendered after the individual ceases to be an Eligible Employee of a
Participating Company under this Plan.
(b) Subject to the limitations of Section 9.2, each semi-annual
Discretionary Contribution made by a Participating Company shall be allocated by
the Administrator, as of the last day of the six (6)-month fiscal period for
which such contribution is made, to the Discretionary Contribution Accounts of
all Qualified Participants employed by the contributing Participating Company
during that fiscal period. The allocation shall be in the proportion which the
Eligible Earnings paid to each such Qualified Participant by the contributing
Participating Company for such six (6)-month fiscal period bears to the
aggregate Eligible Earnings paid to all such Qualified Participants by that
Participating Company for such fiscal period.
(c) Subject to the limitations of Section 9.2, the Forfeitures (if
any) incurred during each six (6)-month fiscal period in effect under this Plan
from the Discretionary Contribution Accounts of terminating Participants shall
be re-allocated, as of the last day of that fiscal period, among the
Discretionary Contribution Accounts of all Qualified Participants in this Plan
in the same proportion as the Eligible Earnings paid to each Qualified
Participant for such fiscal period bears to the aggregate Eligible Earnings paid
to all Qualified Participants in this Plan for that period. However, any
Forfeitures incurred by Participants who cease Employee status in connection
with a reduction in workforce shall be applied solely to the payment of future
Matching Contributions required under Section 6.1 and shall not be allocated to
Qualified Participants pursuant to this Section 8.3(c).
8.4 Discretionary Contribution Accounts. The Administrator shall
maintain a Discretionary Contribution Account in the name of each Participant
and shall credit such Account with the Participant's allocable share of any
Discretionary Contributions and Forfeitures under Section 8.3. Such Account
shall be adjusted periodically to reflect the Participant's share of the
earnings, gains and losses of the Trust Fund attributable to the Discretionary
Contributions and Forfeitures credited to the Account. Each Participant shall
vest in his/her Discretionary Contribution Account in accordance with the
provisions of Article XIII.
38.
<PAGE> 45
ARTICLE IX
LIMITATIONS ON ALLOCATIONS
9.1 Definitions. For purposes of this Article IX, the following terms
shall have the meanings indicated:
(a) "Annual Addition" shall mean for any Limitation Year (i) the
aggregate amount of Company Contributions, Forfeitures and Section 401(k)
Contributions credited to a Participant's Accounts under this Plan, (ii) the
aggregate amount of any Affiliated Company contributions and forfeitures
allocated to the Participant's accounts under any other defined contribution
plans to which one or more Affiliated Companies contribute (collectively, the
"Other Plan"), (iii) the aggregate amount of after-tax employee contributions
made by the Participant to any Other Plan, (iv) any amounts allocated on the
Participant's behalf to an individual medical account (as defined in Code
Section 415(l)(2)) that is part of a defined benefit plan maintained by any
Affiliated Company, and (v) any amounts derived from contributions paid or
accrued after December 31, 1985, in taxable years ending after such date, that
are attributable to post-retirement medical benefits allocated to the separate
account of the Participant as a Key Employee (as defined in Section 22.1(a)
below) under any welfare benefit fund (as defined in Code Section 419(e))
maintained by any Affiliated Company.
(b) "Limitation Year" shall mean the twelve (12)-month period
coincident with the Plan Year or any other consecutive twelve (12)-month period
from time to time adopted by the Directors by duly approved resolution.
(c) "Remuneration" shall mean the Compensation paid to the
Participant for the Limitation Year, adjusted, however, to exclude the following
items for such Limitation Year: (I) any Section 401(k) Contributions made on
such individual's behalf under this Plan and (II) any other elective pre-tax
contributions made on his/her behalf pursuant to salary deferral or reduction
arrangements maintained by one or more Affiliated Companies under Code Sections
125, 401(k), 408(k) and 403(b).
9.2 Limitation on Annual Addition. The total Annual Addition to a
Participant's Accounts under this Plan and any Other Plan shall not for any
Limitation Year exceed the lesser of (i) Thirty Thousand Dollars ($30,000.00)
(or, if greater, one-fourth (1/4) of the dollar limitation in effect under Code
Section 415(b)(1)(A)) or (ii) twenty-five percent (25%) of the Participant's
Remuneration for the Limitation Year. The dollar limitation of clause (i) shall
be automatically adjusted for each Limitation Year beginning after December 31,
1993, to take into account cost of living increases permitted under Section
415(d) of the Code and Regulations issued thereunder. The clause (ii)
39.
<PAGE> 46
limitation shall not apply to any contribution for medical benefits (within the
meaning of Code Section 401(h) or Code Section 419(A)(f)(2)) which is otherwise
treated as an Annual Addition.
9.3 Remedial Action. If the Annual Addition with respect to the
Accounts of any Participant under this Plan and any Other Plan would for any
Limitation Year exceed the limitations imposed by Section 9.2, then the
following reductions to such Annual Addition shall be made, in the order
indicated and to the extent necessary to eliminate such excess:
(a) First, the Participant's after-tax employee contributions
under any Other Plan shall be refunded.
(b) Then, any Section 401(k) Contributions made on the
Participant's behalf for the Plan Year coincident with such Limitation Year
which were not entitled to a Matching Contribution under Section 6.1 shall be
distributed to the Participant as a current cash payment, subject to applicable
withholding taxes.
(c) Next, any Section 401(k) Contributions made on the
Participant's behalf for the Plan Year coincident with such Limitation Year
which were entitled to a Matching Contribution under Section 6.1 shall be
distributed to the Participant as a current cash payment, subject to applicable
withholding taxes, and no Matching Contributions shall be made with respect to
the distributed Section 401(k) Contributions. Accordingly, the Matching
Contributions for such Plan Year are to be reduced as follows:
A. To the extent Matching Contributions have not already been made
under the Plan on the Participant's behalf, the reduction shall be effected by
making an appropriate reduction in the aggregate amount of Matching
Contributions required for such Plan Year to take into account the distributed
Section 401(k) Contributions no longer eligible for a match under Section 6.1.
B. To the extent Matching Contributions have already been allocated to
the Participant's Matching Account for the Plan Year coincident with such
Limitation Year, such Matching Contributions (to the extent attributable to the
distributed Section 401(k) Contributions) shall be withdrawn from the Account
and reapplied to the satisfaction of any Matching Contributions still to be made
on behalf of other Participants for such Plan Year. Any Matching Contributions
withdrawn from the Matching Account and not so reapplied shall be held
unallocated in a suspense account and shall be used to reduce the Matching
Contributions required to be made for each succeeding Plan Year until the
suspense account is reduced to zero. No profits or losses attributable to the
assets of the Trust Fund shall be allocated to the suspense account, nor shall
any contributions to the Plan (other than Section 401(k) Contributions) be made
by the
40.
<PAGE> 47
Participating Companies while there is an outstanding balance in such suspense
account. Upon the termination of the Plan, any outstanding balance in the
suspense account shall revert to the Company.
(d) Then, the Participant's allocable share of Forfeitures under
this Plan shall be subject to disposition in accordance with the provisions of
Section 9.4.
(e) Then, the Participant's share of the semi-annual Discretionary
Contributions (if any) for the Plan Year coincident with such Limitation Year
shall be reduced. The reduction shall be effected by (A) assuming, for purposes
of the Section 8.3 allocation for such Plan Year, that the Participant's
Eligible Earnings for each six (6)-month fiscal period within the Plan Year are
at a sufficiently reduced level to avoid an allocation of Discretionary
Contributions for such Plan Year which would otherwise be in excess of the
applicable Section 9.2 limitation and (B) making an appropriate reduction in the
semi-annual Discretionary Contributions to be allocated to the Participant for
such Plan Year. Such reduction shall have no effect upon any other Qualified
Participant's allocable share of the semi-annual Discretionary Contributions for
such Plan Year.
(f) Finally, the Participant's allocable share of employer
contributions and forfeitures under any Other Plan shall be subject to reduction
or other disposition in accordance with the applicable provisions of such Other
Plan.
9.4 Reallocation of Forfeitures. Should a Participant's allocable
share of Forfeitures for the Limitation Year exceed the amount which may be
allocated to his/her Accounts in accordance with Section 9.2, then such excess
shall be allocated and re-allocated, as of the close of that Limitation Year,
solely to the Discretionary Accounts of all other Qualified Participants in this
Plan in proportion to their Eligible Earnings for the six (6)-month fiscal
period ending on the last day of such Limitation Year, to the extent such
allocation or reallocation will not cause the Section 9.2 limits to be exceeded
in such Limitation Year. Any amount not so allocated as of the close of such
Limitation Year shall be credited to a suspense account and shall be allocated,
as of the last day of June and December in each succeeding Limitation Year,
solely to the Discretionary Accounts of all Qualified Participants in this Plan
in accordance with the procedure specified in Section 8.3(c), to the extent the
allocation will not cause the Section 9.2 limits to be exceeded in any such
Limitation Year. The Participating Companies in this Plan shall not, for any
Plan Year (other than the Plan Year in which the excess Forfeitures arise), make
any Matching or Discretionary Contributions or Section 401(k) Contributions to
this Plan if there is an
41.
<PAGE> 48
outstanding balance in the suspense account as of the close of the Limitation
Year coincident with such Plan Year. Under no circumstances shall the suspense
account participate in the periodic allocation of earnings, gains and losses of
the Trust Fund pursuant to Section 11.2.
42.
<PAGE> 49
ARTICLE X
INVESTMENT OF CONTRIBUTIONS
10.1 Funds.
(a) The assets of the Plan shall be invested by the Trustee in
accordance with the provisions of the Trust Agreement as in effect from time to
time under Section 12.1.
(b) The Administrator shall have the authority to establish one or
more investment funds ("Funds") from time to time under the Plan with different
investment objectives and varying degrees of risk and potential for
appreciation.
Such Funds if established may include (without limitation): a
guaranteed investment fund, a fixed income fund, an equity fund, an index fund,
a balanced fund and a money-market fund. If a guaranteed investment fund is
established, such fund shall be invested primarily in insurance or annuity
contracts issued by insurance companies which provide for the preservation of
principal and a guaranteed rate of return over a prescribed period. If a fixed
income fund is established, it will be invested and reinvested primarily in (i)
fixed-income securities with a maturity in excess of one year, such as bonds,
notes, governmental obligations, certificates of deposit insured by governmental
agencies, (ii) participating interests in commingled funds of a similar
character or (iii) guaranteed-interest contracts issued by one or more insurance
companies qualified to do business in the State of California. If an equity fund
is established, it will be invested and reinvested primarily in common stock,
preferred stock, debt instruments convertible into common stock, stock warrants
and other stock rights, put or call options or any other security or instrument
evidencing an equity interest in any business or enterprise, foreign or
domestic, or in participating interests in commingled funds of similar
character. If an index fund is established, it will be invested and reinvested
primarily in a broad range of common stocks which match one or more indexes of
publicly traded common stocks such as the Standard & Poor's 500 Index, the Dow
Jones Index or the New York Stock Exchange Index or in participating interests
in one or more commingled funds invested in any such index. If a balanced fund
is established, it will be invested in a balanced portfolio of (i) equity
securities or instruments convertible into equity, with the objective of
long-term capital appreciation, and (ii) fixed-income debt instruments, such as
corporate bonds and governmental obligations, designed to provide interest
income and relative stability of principal. If a money market fund is
established, it will be invested and reinvested primarily in fixed-income
securities with a maturity of one year or less or in participating interests in
commingled funds of a similar character.
43.
<PAGE> 50
(c) Should the Administrator establish separate investment funds under
the Plan in accordance with Section 10.1(b), then the Participants may, in the
Administrator's discretion, be granted the right to direct the investment of
their Accounts in one or more of such investment funds, in such percentages as
each Participant shall designate, provided that any such direction shall be made
at such time, in accordance with such procedures and subject to such limitations
as the Administrator shall establish.
44.
<PAGE> 51
ARTICLE XI
VALUATION OF ACCOUNTS
11.1 Adjustment of Accounts. As of each Valuation Date, the Trustee
shall determine the net fair market value of (i) all of the assets in each of
the Funds in effect under Section 10.1 and (ii) all other assets of the Trust
Fund (other than (I) any Section 401(k), Matching or Discretionary Contributions
made as of such Valuation Date and (II) any payments of principal or interest
made on outstanding Article XXIII loans since the preceding Valuation Date), and
the Trustee shall then report such values to the Administrator. The
Administrator shall adjust each Account first to reflect any allocations made
to, or any distributions or withdrawals made from or Forfeitures incurred by,
such Account since the immediately preceding Valuation Date, to the extent not
previously credited or charged thereto and then to reflect the investment
experience allocable to each Account in accordance with Section 11.2. If an
allocation of Section 401(k), Matching or Discretionary Contributions or
Forfeitures is to be made to the Accounts as of the same Valuation Date, then
the adjustments required under this Article XI shall be made prior to such
allocation.
11.2 Allocation of Investment Experience. As of each Valuation Date,
the Administrator shall adjust each Account invested in one or more Funds under
Section 10.1 to reflect increases or decreases in the value of such Funds which
have occurred for the period since the immediately preceding Valuation Date. The
adjustment shall be effected by crediting each Account at the time invested in a
particular Fund with that portion of the net increase or decrease in the fair
market value of such Fund which is in the same proportion as the amount of the
Account invested in that Fund as of the current Valuation Date (after all
required adjustments under Section 11.1 have been made for such Valuation Date
and appropriately weighted for any Section 401(k) Contributions or Company
Contributions allocated to such Account during the Plan Quarter ending with such
Valuation Date) bears to the aggregate amount of all Accounts (as so adjusted)
invested in that Fund at such time. Increases or decreases in the fair market
value of any other assets of the Trust Fund required to be valued under Section
11.1, together with any gains or losses attributable to such assets, shall be
allocated to all Accounts at the time invested in such assets, in proportion to
the amount of each Account invested in each such asset as of the immediately
preceding Valuation Date. Payments of principal and interest on outstanding
Article XXIII loans shall be specially allocated as earmarked investments
pursuant to the procedures of Section 23.4.
11.3 Value of Accounts. The value of each Account of a Participant on
any particular date in question shall be deemed to be the net credit balance of
the Account on the Valuation Date
45.
<PAGE> 52
coincident with or immediately preceding the date such value is to be
determined, increased by any contributions allocated to, or decreased by any
distributions or withdrawals made from or Forfeitures incurred by, such Account
after such Valuation Date but before the actual date on which the value of the
Account is to be determined. The Participant shall receive a written statement
of the value of his/her Deferred Compensation Account at not less than
semi-annual intervals each Plan Year and shall receive a written statement of
the aggregate value of his/her Matching and Discretionary Contribution Accounts
at least once each Plan Year.
46.
<PAGE> 53
ARTICLE XII
TRUST AGREEMENT
12.1 Trust Agreement. The Directors may, directly or through a
delegated committee of one or more members of Company management, select and
appoint a Trustee to hold the assets of the Plan. The Company shall, on behalf
of itself and all other Participating Companies, enter into a Trust Agreement
with such Trustee to provide for the investment, management and control of the
Plan assets. The Trust Agreement shall be a part of the Plan, and the Trust Fund
shall be administered by the Trustee in accordance with the terms and provisions
of the Trust Agreement.
During such time or times when there is no Trustee, the assets of the
Plan shall be held by one or more insurance companies qualified to do business
in the State of California.
12.2 Inconsistent Provisions. To the extent the provisions of the Plan
and any Trust Agreement in effect under the Plan may prove to be inconsistent or
otherwise in conflict with respect to the rights, duties or obligations of the
Trustee, the provisions of the Trust Agreement shall control.
47.
<PAGE> 54
ARTICLE XIII
RIGHT TO BENEFITS
13.1 Disability, Retirement or Death.
(a) A Participant who ceases to be an Employee by reason of
Retirement or Disability shall have a fully-vested and non-forfeitable right to
all his/her Accounts and his/her allocable share (if any) under Section 8.3 of
the Discretionary Contributions and Forfeitures for the Plan Year in which such
Retirement or Disability occurs. A Participant shall also have a fully-vested
and non-forfeitable right to all his/her Accounts upon the attainment of age
sixty-five (65).
(b) Should a Participant die while an Employee, his/her
Beneficiary shall have a fully-vested and non-forfeitable right to all the
Accounts of such Participant and his/her allocable share (if any) under Section
8.3 of the Discretionary Contributions and Forfeitures for the Plan Year in
which the Participant's death occurs.
13.2 Other Termination of Employment.
(a) If the provisions of Section 13.1 are not otherwise applicable
to the Participant at the time of his/her cessation of Employee status, then
such Participant shall have a fully-vested and non-forfeitable right to:
(i) 100% of his/her Deferred Compensation Account;
(ii) the vested percentage (determined pursuant to Section
13.2(b)) of his/her Matching Contribution Account (including the vested
percentage of his/her allocable share (if any) under Section 6.1 of the Matching
Contribution made for the Plan Year in which such cessation of Employee status
occurs);
(iii) the vested percentage of his/her Discretionary Contribution
Account, as determined pursuant to Section 13.2(c); and
(iv) the vested percentage of his/her Top-Heavy Contribution
Account (if any) under Section 22.3, as determined pursuant to Section 13.2(b).
48.
<PAGE> 55
(b) The percentage to which a Participant is vested in his/her
Matching Contribution Account and his/her Top-Heavy Contribution Account (if
any) shall be determined on the basis of his/her years of Vesting Service in
accordance with the schedule below:
<TABLE>
<CAPTION>
Years of Vesting Service Vested % of Account
------------------------ -------------------
<S> <C>
Less than 1 0%
1 but less than 2 25%
2 but less than 3 50%
3 but less than 4 75%
4 years or more 100%
</TABLE>
(c) The percentage to which a Participant is vested in his/her
Discretionary Contribution Account shall be determined on the basis of his/her
years of Vesting Service in accordance with the schedule below:
<TABLE>
<CAPTION>
Years of Vesting Service Vested % of Account
------------------------ -------------------
<S> <C>
Less than 1 0%
1 but less than 2 20%
2 but less than 3 40%
3 but less than 4 60%
4 but less than 5 80%
5 years or more 100%
</TABLE>
13.3 Forfeitures.
(a) Should a Participant (i) incur a Severance Date and thereby
cease to be an Employee prior to the time he/she is one hundred percent (100%)
vested in his/her Matching or Discretionary Contribution Account and (ii)
thereafter receive a distribution of the entire vested portion of such Account
by reason of such cessation of Employee status, then the entire unvested portion
of the Account shall be forfeited at the time the distribution is made. Any
Forfeitures from the Matching Contribution Account shall be applied to reduce
future Matching Contributions under Section 6.1, and any Forfeitures from the
Discretionary Contribution Account shall be re-allocated, as of the June 30 or
December 31 coincident with or immediately following the date on which such
Forfeitures are incurred, to the Discretionary Contribution Accounts of all
other Qualified Participants in this Plan in accordance with the procedure
specified in Section 8.3(c). However, any Forfeitures incurred by Participants
who cease Employee status in connection with a reduction in workforce shall be
applied solely to the payment of future Matching Contributions required under
Section 6.1 and shall not be allocated to Qualified Participants pursuant to
Section 8.3(c).
49.
<PAGE> 56
(b) Should the Participant incur a Severance Date prior to vesting
in any portion of his/her Matching or Discretionary Contribution Account, then
such Participant shall, immediately upon his/her cessation of Employee status,
be deemed to receive a distribution of the 0% vested balance of each such
Account, and the entire unvested portion of each such Account shall be
immediately forfeited.
(c) Should a Participant (i) receive (or be deemed to receive) a
distribution from the vested portion of his/her Matching Contribution or
Discretionary Contribution Account and thereby incur a Forfeiture of all or part
of the balance in accordance with the provisions of Section 13.3(a) and (ii)
thereafter resume Employee status prior to the incurrence of a Break in Service
under Section 2.1, then such Account shall be restored to the full amount
credited to it at the time the vested portion was distributed, provided and only
if the following conditions are satisfied:
(i) the Participant repays to the Plan the full amount
previously distributed to him/her from the Account;
(ii) the repayment is effected prior to the earlier of (A) the
fifth anniversary of the date of the Participant's resumption of Employee status
or (B) the Participant's incurrence of a Break in Service; and
(iii) the repayment is made while the Participant is still in
Employee status.
The funds for effecting the restoration of the Account shall be drawn
first from the Forfeitures for the Plan Year in which the Participant effects
the repayment of his/her prior distribution and then from a special contribution
to the Plan made by the Participating Company which last employed such
Participant.
The amount contributed to the Account for the purpose of effecting
such restoration shall not be considered to be part of the Annual Addition to
the Accounts of such Participant for the Plan Year of restoration or any
subsequent Plan Year.
13.4 Transfer of Accounts. Should a Participant (i) incur a Break in
Service under Section 2.1 and (ii) subsequently resume Employee status prior to
the distribution of the entire vested balance of his/her Matching or
Discretionary Contribution Account, then further distributions from such Account
shall be suspended until the Participant subsequently qualifies for another
distribution or withdrawal from the Plan. The undistributed vested balance of
the Account shall, upon the
50.
<PAGE> 57
Participant's resumption of Employee status, be transferred to his/her Deferred
Compensation Account in which the Participant shall at all times have a
fully-vested and non-forfeitable interest.
13.5 Beneficiary Designation.
(a) Each Participant shall, at the time he/she becomes a
Participant, designate one or more persons as Beneficiary. The designation shall
be made on the form prescribed by the Administrator and shall, subject to the
provisions of Section 13.5(b), become effective when filed with the
Administrator. A Participant may from time to time, subject to the provisions of
Section 13.5(b), change his/her Beneficiary by filing a new designation form
with the Administrator.
(b) Should the Participant designate a person other than (or in
addition to) his/her Spouse as the Beneficiary of his/her Accounts or otherwise
change a valid Beneficiary designation in effect for such Accounts, then such
designation or change shall not be effective unless it complies in all respects
with the following requirements:
(i) the Participant's Spouse executes a written consent to the
particular Beneficiary designation (or otherwise executes an instrument
expressly acknowledging such Spouse's right to limit such consent to a specific
Beneficiary but nevertheless authorizes Beneficiary designations by the
Participant without any further requirement of Spousal consent);
(ii) such written consent acknowledges the effect such
designation (or authorization) will have upon the benefits otherwise payable to
the Spouse under the Plan; and
(iii) such written consent is witnessed by a Plan representative
or notary public.
A written consent under this Section 13.5 shall be binding only on the
Spouse executing such consent.
(c) Should the Participant designate a person other than (or in
addition to) his/her Spouse as Beneficiary and not obtain the spousal consent to
such designation required under Section 13.5(b), then any benefits payable under
the Plan upon the Participant's death shall be paid entirely to the
Participant's surviving Spouse.
(d) Should the Participant die without having any
effectively-designated surviving Beneficiary, then the Beneficiary shall be the
Spouse of the Participant, if then living. If there is no surviving Spouse, then
the Beneficiary shall be the Participant's children then living. If there are no
such living
51.
<PAGE> 58
children, then the Beneficiary shall be the parents of the Participant. If there
are no such living parents, then the Beneficiary shall be the estate of the
Participant.
(e) Notwithstanding the foregoing provisions of this Section 13.5,
the consent of the Participant's Spouse shall not be required for the
Participant's designation of any Beneficiary whose right to receive benefits
under the Plan is contingent upon the Participant's Spouse dying before the
Participant.
(f) For purposes of this Section 13.5, the Participant's Spouse
shall mean the person to whom the Participant is married on the date of his
death; provided, however, that the person to whom the Participant may have been
formerly married shall be treated as his Spouse to the extent provided pursuant
to a Qualified Domestic Relations Order under Article XXI.
13.6 Additional Vesting Service. Should the Participant cease Employee
status and transfer directly, without any intervening period of other
employment, to the employ of Komag (or any other company or entity affiliated
with Komag for purposes of the Komag Qualified Plan) at a time when Komag owns
fifty percent (50%) or more (but less than eighty percent (80%)) of the
outstanding voting stock of the Company, then the Participant shall, for
purposes of Section 13.2, be credited with additional Vesting Service under this
Plan for any service with Komag (or any other such affiliated company or entity)
for which the Participant is credited with vesting service under the terms of
the Komag Qualified Plan, as in effect at that time. Vesting credit for such
service shall continue with respect to any Accounts maintained for such
Participant under this Plan until the earlier of (i) the date the Participant
becomes one hundred percent (100%) vested in all of his/her Accounts under this
Plan on the basis of his/her combined Vesting Service under this Plan and the
Komag Qualified Plan or (ii) the date the entire vested balance credited to
his/her Accounts under this Plan is distributed pursuant to Article XIV of this
Plan. Should a Participant who transfers directly to the employ of Komag (or any
other company or entity affiliated with Komag for purposes of the Komag
Qualified Plan) subsequently cease such employment by reason of Retirement or
Disability (determined as if such individual had continued in Employee status
under this Plan) or die while in such employment, then any outstanding balance
at the time credited to such Participant's Accounts under this Plan shall become
fully-vested and non-forfeitable.
52.
<PAGE> 59
ARTICLE XIV
DISTRIBUTION OF BENEFITS
14.1 Time of Distribution.
(a) The benefits to which a Participant or his/her Beneficiary
becomes entitled in accordance with Article XIII shall be paid at such time as
the Participant shall specify in his/her written election to the Administrator.
Not less than thirty (30) days, nor more than ninety (90) days, prior to the
date specified for the distribution, the Participant shall be provided with
written information relating to his/her right to defer such distribution in
accordance with the guidelines of this Section 14.1. In no event shall any
distribution be made to the Participant prior to attainment of age sixty-five
(65), unless the Participant's written consent to such distribution is obtained
not more than ninety (90) days prior to the distribution date. However, if the
aggregate vested balance credited to the Accounts of the Participant is Three
Thousand Five Hundred Dollars ($3,500.00) or less at the time of distribution,
then such Accounts shall be distributed as soon as administratively practicable
following the close of the Plan Quarter in which the Participant ceases Employee
status, and the Participant's consent shall not be required for such
distribution. In addition, no consent shall be required in connection with the
distribution of benefits under the Plan to the Beneficiary of a deceased
Participant or the alternate payee under a Qualified Domestic Relations Order
issued to the Plan.
(b) Should a Participant who ceases Employee status with an
aggregate vested Account balance in excess of Three Thousand Five Hundred
Dollars ($3,500.00) consent to a distribution of his/her benefits under the Plan
prior to attainment of age sixty-five (65), then such distribution shall
commence at the time specified in his/her written election under Section
14.1(a).
(c) Should a Participant cease Employee status with an aggregate
vested Account balance in excess of Three Thousand Five Hundred Dollars
($3,500.00) and fail to provide the Administrator with a written designation of
the commencement date for distribution of such balance, then the distribution
shall commence within sixty (60) days after the close of the Plan Year in which
the Participant attains age sixty-five (65) or (if later) ceases Employee
status.
(d) All benefit distributions under the Plan, whether or not the
Participant has designated a contrary commencement date in his/her written
election to the Administrator, must commence no later than the first day of
April following the close of the calendar year in which the Participant attains
age seventy and one-half (70-1/2) (the "Required Beginning Date"), and the
53.
<PAGE> 60
Participant's consent shall not be required in connection with such
distribution. If the Participant has not otherwise received the distribution of
his/her Accounts prior to such Required Beginning Date, then the unpaid balance
credited to the Accounts on the Required Beginning Date shall be distributed in
accordance with the proposed Regulations under Code Section 401(a)(9), including
the minimum distribution incidental benefit requirements of Section
1.401(a)(9)-2 of such Regulations. Accordingly, in determining the minimum
amount to be distributed to such Participant in each calendar year following the
calendar year in which the Participant attains age seventy and one-half
(70-1/2), the minimum distribution rules of Code Section 401(a)(9) and the
proposed Regulations thereunder shall apply as follows and shall supersede any
other distribution provisions to the contrary in the Plan:
(i) The minimum amount distributed each calendar year must not
be less than the quotient obtained by dividing the adjusted vested balance of
the Participant's Accounts (as valued in accordance with subparagraph (ii)
below) by the applicable life expectancy in effect for the Participant, reduced
by one for each calendar year which elapses since the date such life expectancy
is last calculated in accordance with subparagraph (iii) below.
(ii) The adjusted vested balance of the Participant's Accounts
for the first minimum distribution year (the calendar year in which the
Participant attains age seventy and one-half (70-1/2) shall be the value of such
Accounts as of the last Valuation Date in the calendar year immediately
preceding the start of such distribution year. The adjusted vested balance of
the Participant's Accounts for the second minimum distribution year shall be the
value of such Accounts as of the last Valuation Date in the calendar year
immediately preceding the start of such distribution year, reduced by the amount
of the required distribution for the first minimum distribution year, to the
extent paid to the Participant in the second distribution year on or before the
Required Beginning Date. The adjusted vested balance of the Participant's
Accounts for each succeeding minimum distribution year shall be the value of
such Accounts as of the last Valuation Date in the calendar year immediately
preceding the start of that distribution year. The value of the Accounts will in
all instances be increased for any Section 401(k) or Company Contributions or
Forfeitures allocated to, and will be reduced by any distributions, withdrawals
or Forfeitures from, the Accounts after the applicable Valuation Date and prior
to the start of the minimum distribution year to which such Valuation Date
relates.
(iii) The applicable life expectancy shall be either the life
expectancy of the Participant or the joint life and last survivor expectancy of
such Participant and his/her designated Beneficiary, if the distribution is to
be made over such joint life and last survivor expectancy. The life expectancies
of the
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Participant and his/her Beneficiary (if any) shall initially be calculated on
the basis of their attained ages on their respective birthdays in the calendar
year in which the Participant attains age seventy and one-half (70-1/2), and the
return multiples in Tables V and VI of Section 1.72-9 of the Regulations shall
be utilized in the determination of the applicable life expectancy period.
Unless the designated Beneficiary is the Participant's Spouse, neither the life
expectancy of the Participant nor the life expectancy of the Beneficiary shall
be recalculated during the minimum distribution period. However, if the
designated Beneficiary is the Participant's Spouse, then their life expectancies
shall be recalculated annually during the minimum distribution period on the
basis of the attained ages of the Participant and such Spouse in each succeeding
calendar year, provided and only if the Participant elects such recalculation in
writing prior to the first required distribution under this Section 14.1(d).
Such election shall be irrevocable for the entire minimum distribution period,
and in the absence of such election there shall not be any recalculation of life
expectancies.
(iv) If the designated Beneficiary is, as of the Required
Beginning Date, someone other than the Participant's Spouse, then the applicable
life expectancy period to be in effect for the Participant during his lifetime
shall not exceed the period determined through use of the applicable divisor
under the table set forth in Regulation Section 1.401(a)(9)-2 (Q&A 4).
(v) The first calendar year for which a minimum distribution
shall be required under this Section 13.1(d) shall be the calendar year in which
the Participant attains age seventy and one-half (70-1/2), and such distribution
shall be made no later than the Required Beginning Date. Each subsequent minimum
distribution shall be made no later than the last day of the calendar year for
which such distribution is required, with the first such subsequent distribution
to be made no later than December 31 of the calendar year immediately following
the calendar year in which the Participant attains age seventy and one-half
(70-1/2).
(vi) Upon the Participant's subsequent cessation of Employee
status for any reason (including death), the unpaid vested balance credited to
his/her Accounts shall be distributed in one lump sum payment within sixty (60)
days thereafter.
(e) Should a Participant cease Employee status in connection with (i)
the sale or disposition (other than to an Affiliated Company) of substantially
all of the assets used by a Participating Company in the trade or business in
which such Participant is employed or (ii) the sale or disposition (other than
to an Affiliated Company) of the Participating Company employing such
Participant, then the vested balance of such Participant's
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Accounts may be distributed, within sixty (60) days after the effective date of
the clause (i) or clause (ii) sale or disposition, in the form of a lump sum
payment upon such Participant's written request, provided (A) the Participant
continues in employment with the entity acquiring the assets in a clause (i)
sale or disposition or with the Participating Company subject to the clause (ii)
sale or disposition and (B) one or more Affiliated Companies continue this Plan
after such sale or disposition.
14.2 Form of Distribution. Except for any required minimum
distributions made pursuant to Section 14.1(d), all benefits shall be
distributed under the Plan in the form of a lump-sum payment.
14.3 Death Before Full Distribution. If a Participant dies prior to
the time the entire vested portion of his/her Accounts shall have been
distributed, then the vested unpaid balance of the Accounts shall be distributed
to his/her Beneficiary in one lump sum not later than sixty (60) days after the
close of the Plan Year in which the Participant's death occurs.
14.4 Deferred Distribution. If the distribution under this Article XIV
is to be deferred after the Participant's cessation of Employee status, then
his/her Accounts shall remain part of the general Trust Fund, subject to
investment in accordance with his/her applicable directives under Section 10.1,
and shall be periodically adjusted under Section 11.2 for their allocable share
of the investment gains and losses of the Trust Fund.
14.5 Rollovers.
(a) This Section applies to distributions made on or after January
1, 1993. Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a Distributee's election under this Article, a Distributee may
elect, at the time and in the manner prescribed by the Administrator, to have
any portion of an Eligible Rollover Distribution paid directly to an Eligible
Retirement Plan specified by the Distributee in a Direct Rollover.
(b) Definitions.
(i) An Eligible Rollover Distribution shall mean any
distribution of all or any portion of the balance to the credit of the
Distributee, except that an Eligible Rollover Distribution does not include: any
distribution that is one of a series of substantially equal periodic payments
(not less frequently than annually) made for the life (or life expectancy) of
the Distributee or the joint lives (or joint life expectancies) of the
Distributee and the Distributee's designated beneficiary, or for a specified
period of ten years or more; any distribution to the extent such distribution is
required under Code Section
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401(a)(9); and the portion of any distribution that is not includable in gross
income (determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities).
(ii) An Eligible Retirement Plan shall mean 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.
(iii) A Distributee includes an Employee or former Employee.
In addition, the Employee's or former Employee's surviving spouse and the
Employee's or former Employee's spouse or former spouse who is the alternate
payee under a qualified domestic relations order, as defined in Code Section
414(p), are Distributees with regard to the interest of the spouse or former
spouse.
(iv) A Direct Rollover shall mean a payment by the Plan to the
Eligible Retirement Plan specified by the Distributee.
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ARTICLE XV
WITHDRAWALS
15.1 Conditions. The Administrator may, in its sole discretion,
establish a program of withdrawals on the terms and conditions set forth in this
Article XV. Should the Administrator establish such a program, the Administrator
may permit a Participant to withdraw up to one hundred percent (100%) of the
Section 401(k) Contributions credited to his/her Deferred Compensation Account
(but no portion of the earnings thereon), provided and only if (i) the
Participant has attained age fifty-nine and one-half fifty-nine (59-1/2) or (ii)
the Participant furnishes the Administrator with satisfactory proof that the
amount to be withdrawn will be used solely and exclusively for one or more of
the purposes listed below and that the Participant does not have other
reasonably available funds for such purpose(s). The events which may, in the
Administrator's discretion, qualify for a hardship withdrawal under this Section
15.1 shall be limited to the following:
(a) the purchase (excluding mortgage payments) of a principal
residence for the Participant;
(b) the payment of tuition and educational fees to be incurred for
the next twelve (12) months in connection with the post-secondary educational
needs of the Participant, his/her spouse, children or other dependents;
(c) the payment of expenses to prevent the eviction of the
Participant from his/her principal residence or foreclosure on a mortgage
secured by the Participant's principal residence;
(d) the payment of expenses incurred or to be incurred in order to
obtain medical care described in Code Section 213(d) for the Participant,
his/her spouse or dependents for which reimbursement by way of insurance or
otherwise is not available; or
(e) the payment of funeral expenses incurred as the result of the
death of the Participant's spouse, child or other dependent.
The Plan Administrator may in the future add to the list of events
which qualify for a hardship withdrawal under this Section 15.1. In making its
determination whether an event constitutes a hardship event, the Administrator
shall take into consideration relevant pronouncements by the Internal Revenue
Service. An event may constitute a hardship notwithstanding that it results from
a foreseeable or voluntarily-incurred transaction.
In no event may the requested withdrawal exceed the amount necessary
to satisfy the financial obligations resulting
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from the hardship plus the income taxes and penalty taxes imposed on the amount
withdrawn. Upon the Participant's receipt of a hardship withdrawal, his/her
Section 401(k) Contributions shall automatically be suspended for twelve (12)
months.
15.2 No Other Resources Reasonably Available. A Participant who makes
a hardship withdrawal request must represent in writing that his/her immediate
and heavy financial need cannot be relieved through utilization of the following
resources:
(1) Reimbursement. Through reimbursement or compensation by
insurance or otherwise.
(2) Liquidation. By reasonable liquidation of the Participant's
assets, to the extent such liquidation would not itself cause an immediate and
heavy financial need. For this purpose, the Participant's assets are deemed to
include those assets of the Participant's spouse and minor children that are
reasonably available to the Participant.
(3) Cessation of Contributions. By cessation of Section 401(k)
Contributions to this Plan or after-tax employee contributions under any other
plan of deferred compensation.
(4) Other Plan Funds. By other distributions or loans (nontaxable
at the time of borrowing) from plans maintained by the Affiliated Companies or
any other employer, including any plan loans for which the Participant is at the
time eligible pursuant to the provisions of Article XXIII.
(5) Borrowing. By borrowing from commercial sources on reasonable
commercial terms.
15.3 Written Request Required. Any Participant wishing to make a
withdrawal under any program implemented under this Article XV shall file a
written request with the Administrator on the prescribed form, including (if
applicable) a financial statement furnished by the Participant which
demonstrates his/her inability to satisfy the immediate and heavy financial
burden with other assets or income available to the Participant. To the extent
there is more than one Fund at the time maintained under Section 10.1 for the
investment of Plan assets, the withdrawal shall be effected through the
proportionate liquidation of each investment at the time held in the
Participant's Deferred Compensation Account. In connection with a hardship
withdrawal, the amount requested to be withdrawn shall only become payable if
the Administrator determines that the conditions for such a withdrawal have been
satisfied and approves the requested withdrawal. To the extent any withdrawal
request under this Article XV is approved by the Administrator, the withdrawal
shall be promptly paid in one lump sum cash payment.
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Participants who have attained age fifty-nine and one-half (59-1/2)
may not effect withdrawals under this Article XV in non-hardship situations at
intervals more frequently than once per Plan Quarter.
15.4 Penalty Tax. All withdrawals by a Participant prior to the
attainment of age fifty-nine and one-half (59-1/2) are subject to a ten percent
(10%) penalty tax under the Federal tax laws, unless the withdrawn funds are
used solely for the payment of medical expenses deductible under Section 213 of
the Code.
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ARTICLE XVI
ADMINISTRATION OF THE PLAN
16.1 Plan Administrator. The Company shall be the "administrator" of
the Plan within the meaning of ERISA. Except as otherwise expressly provided
herein, the Company as Administrator shall have the exclusive authority and
responsibility for all matters in connection with the operation and
administration of the Plan. The Administrator shall have full discretionary
authority to administer and interpret the Plan, including discretionary
authority to determine eligibility for participation and benefit payments under
the Plan. The Administrator shall: (a) be responsible for the compilation and
maintenance of all records necessary in connection with the Plan; (b) compute
and authorize the payment of all benefits as they become payable under the Plan;
(c) decide questions relating to the eligibility of Employees to become
Participants, the computation of Service credits and the determination of
benefit entitlements hereunder; (d) be responsible, to the extent provided in
the Trust Agreement, for instructing the Trustee, either directly or through
delegation to an Investment Committee, with respect to the investment and
reinvestment of the Trust Fund and have the authority, exercisable at its
discretion, to select and appoint an Investment Manager in accordance with
Section 16.5; (e) engage such legal, actuarial, accounting and other
professional and clerical services as may be necessary or proper; (f) establish
a funding policy and method for the Plan which is consistent with the objectives
of the Plan and takes into account both the short-term needs of the Plan for
liquidity and its long-term needs for investment growth, and communicate the
funding policy and method to the Trustee, the Investment Committee or any
Investment Manager appointed pursuant to Section 16.5 in order that the Trustee,
the Investment Committee and the Investment Manager may coordinate the
investment policies of the Trust Fund with such funding policy and method; (g)
interpret this instrument and make and publish such uniform and
non-discriminatory rules for administration of the Plan as are not inconsistent
with the provisions of this instrument; and (h) establish and maintain
reasonable procedures under Article XXI for determining the qualified status of
domestic relations orders directing the Plan to pay benefits to persons other
than Participants and their Beneficiaries.
16.2 Delegation of Duties. The Administrator may from time to time, by
vote of the Directors, delegate any right, power or duty with respect to the
operation and administration of the Plan to one or more committees, individuals
or entities. However, unless otherwise specifically indicated by vote of the
Directors, the Administrator shall have sole responsibility for performing the
duties imposed by Sections 3405(c)(2), 6690, 6652(e), 6692 and 6652(f) of the
Code and Section 502(c) of ERISA and any other specific statutory duty under the
Code or ERISA. If the
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Administrator delegates any right, power or duty to any person, such person may
from time to time further delegate such rights, powers and duties to any other
person. If any right, power or duty is delegated to more than one person, such
persons may from time to time allocate among themselves any such right, power or
duty. Any such allocation and delegation shall be reviewed at least annually by
the Administrator and shall be terminable upon such notice as the Administrator,
in its sole discretion, deems reasonable and prudent.
16.3 Administrative Procedures.
(a) The Administrator shall keep records of its actions. If there
is more than one person jointly performing any duties delegated by the
Administrator, such persons shall act by agreement of the majority, either by
vote at a meeting or by written resolution without a meeting, and no such person
shall have the right to act on any matter relating solely to his/her own
interests in the Plan.
(b) All written instruments and notices required to be filed with
the Administrator shall be deemed to be filed upon delivery to the Administrator
or its designate, provided the instrument or notice is in the form prescribed by
the Administrator.
(c) Any person performing any of the duties of the Administrator
may resign by filing a written resignation with the Directors.
16.4 Duties of Other Fiduciaries. The Directors shall have the
authority and responsibility to amend or terminate the Plan, to select the
Trustee or any successor Trustee, and to appoint one or more committees and
delegate to such committees any or all of the rights, powers or duties of the
Administrator. The Trustee is the named fiduciary with the authority and
responsibility to invest, manage and control the assets of the Trust Fund in
accordance with the provisions of the Trust Agreement. Any Investment Manager
appointed pursuant to Section 16.5 shall have the exclusive authority and
responsibility to invest, manage and control the portion of the Trust Fund
assigned to it.
16.5 Investment Responsibility. The Administrator may assume the
responsibility to instruct and direct the Trustee with respect to the investment
and reinvestment of the Trust Fund, to the extent and in the manner provided in
the Trust Agreement and in accordance with the funding policy established by the
Administrator. The Administrator may, alternatively, delegate to an Investment
Committee appointed by the Directors any or all of its investment authority
hereunder. The Administrator (or the Investment Committee if so delegated) may
also appoint one or more
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Investment Managers who shall have the exclusive power to direct the Trustee to
invest and reinvest the portion of the Trust Fund assigned to such Investment
Manager, to the extent and in the manner provided in the Trust Agreement and the
written agreement between the Administrator (or the Investment Committee) and
such Investment Manager and in accordance with the funding policy established by
the Administrator. The Investment Manager must be a person who (a) is registered
as an investment adviser under the Investment Advisers Act of 1940 or any
successor statute, (b) is a bank as defined in that Act, or (c) is an insurance
company qualified to manage, acquire or dispose of any assets of the Plan under
the laws of more than one state. Any Investment Manager selected by the
Administrator (or the Investment Committee) shall acknowledge in writing to the
Administrator on a form prescribed by the Administrator that such person is a
fiduciary with respect to the Plan.
16.6 Expenses. All necessary and proper expenses incurred in the
administration of the Plan shall be paid from the Trust Fund, to the extent not
paid for by the Participating Companies. The Participating Companies shall pay
such expenses as may be specified from time to time by the Administrator.
16.7 Fiduciary Responsibilities. Each person serving as or performing
the duties of Administrator, Trustee, or Investment Manager and any other person
to whom any fiduciary responsibility with respect to the Plan is allocated shall
be a "Fiduciary" of the Plan. Each Fiduciary shall discharge his/her duties and
responsibilities with respect to the Plan:
(a) solely in the interest of the Participants and Beneficiaries;
(b) for the exclusive purpose of providing benefits to
Participants and their Beneficiaries and defraying reasonable expenses of
administering the Plan;
(c) 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;
(d) to the extent any authority and responsibility is allocated to
him/her, by diversifying the investments of the Trust Fund so as to minimize the
risk of large losses, unless under the circumstances it is clearly prudent not
to do so; and
(e) in accordance with the Plan and the Trust Agreement to the
extent such provisions are consistent with ERISA.
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16.8 Liability. Each Fiduciary under the Plan shall be solely
responsible for his/her own acts or omissions. No Fiduciary shall have any
liability for a breach of fiduciary responsibility of another Fiduciary with
respect to the Plan unless he/she participates knowingly in such breach,
knowingly undertakes to conceal such breach, has actual knowledge of such breach
and fails to take reasonable remedial action to remedy such breach or, through
his/her negligence in performing his/her own specific fiduciary responsibilities
which give rise to his/her status as a Fiduciary, has enabled such other
Fiduciary to commit a breach of the latter's fiduciary responsibilities.
16.9 Indemnification. The Company shall indemnify and hold harmless
the Directors, the members of any committee appointed by the Directors and
delegated one or more powers, rights or duties of the Administrator under the
Plan, and any other person to whom any fiduciary duty or responsibility with
respect to the Plan is allocated or delegated pursuant to Section 16.2 from and
against any and all liabilities, claims, demands, costs and expenses, including
attorneys' fees, arising out of an alleged breach in the performance of their
fiduciary obligations under the Plan and under ERISA, other than such
liabilities, claims, demands, costs and expenses as may result from the gross
negligence or willful misconduct of such persons. The Company shall have the
right, but not the obligation, to conduct the defense of such persons in any
proceeding to which this Section 16.9 applies. The Company may satisfy its
obligations under this Section 16.9 in whole or in part through the purchase of
a policy or policies of insurance providing equivalent protection.
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ARTICLE XVII
AMENDMENTS TO THE PLAN
17.1 Power of Amendment. The Directors reserve the power at any time
or times to amend, either prospectively or retroactively, the provisions of the
Plan to any extent and in any manner they shall deem advisable. The Directors
may delegate such power, in whole or in part, to one or more committees
(comprised of officers or other managerial personnel of the Company) which are
delegated administrative responsibilities under the Plan. Upon delivery of the
instrument of amendment to the Trustee and each Participating Company, such
amendment shall become effec tive in accordance with its terms as to all
Participants and all other persons having or claiming any interest under the
Plan. However, no such amendment shall operate to (i) cause any part of the
Trust Fund to revert to or be recoverable by any Affiliated Company or to be
used for, or diverted to, purposes other than the exclusive benefit of
Participants and their Beneficiaries; (ii) reduce the then outstanding balances
in the Accounts of Participants; (iii) cause or effect any discrimination in
favor of Highly Compensated Employees; or (iv) change the duties,
responsibilities or liabilities of the Trustee hereunder without the written
consent of such Trustee.
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ARTICLE XVIII
TERMINATION OF PLAN OR
DISCONTINUANCE OF CONTRIBUTIONS
18.1 Power. Each Participating Company intends to make contributions
to the Plan indefinitely, but no Participating Company shall be under any
obligation or liability whatsoever to continue its contributions to the Plan or
to maintain the Plan for any given length of time. Any Participating Company
may, in its sole discretion, discontinue contributions at any time without any
liability whatsoever for such action. In addition, the Plan may be partially or
completely terminated at any time, and no Participating Company shall thereby
incur any liability by reason of such action.
18.2 Effect of Termination. If the Plan is terminated completely or if
there is a partial termination of the Plan with respect to the Employees of one
or more Participating Companies, all amounts credited to the Accounts of the
affected Participants shall immediately vest in full and become non-forfeitable,
and in no event shall any part of the Trust Fund revert to or revest in the
Participating Companies except as herein provided. The Administrator shall, in
accordance with Article XI, have the assets of the Trust Fund and the individual
Accounts of all affected Participants valued as of the date of termination and,
after satisfying current obligations of the Plan and setting aside funds for
anticipated future obligations of the Trust Fund, including (but not limited to)
the Trustee's compensation and expenses, shall (in accordance with Article XI)
allocate to all Accounts outstanding on the date of termination the net increase
or decrease in the fair market value of the Trust Fund since the immediately
preceding Valuation Date (excluding, however, any Section 401(k), Contributions
and any Company Contributions or Forfeitures for the Plan Year of termination,
which are to be allocated in accordance with Sections 5.2, 6.2 and 8.3
respectively). Any unallocated balance in the Section 9.4 suspense account at
the time of plan termination shall be allocated (to the extent permissible under
Section 9.2) to the Accounts of all Qualified Participants in this Plan who are
entitled under Section 8.3(c) to an allocation of Forfeitures for the six
(6)-month fiscal period in which such plan termination occurs, with such
allocation to be in proportion to the Eligible Earnings paid to each such
Participant for that fiscal period. Upon a complete termination of the Plan, any
remaining balance in the Section 9.4 suspense account shall be returned to one
or more Participating Company or Companies designated by the Directors.
The Trustee shall pay to each Participant for whom the termination is
effective (or his/her Beneficiary) the net value of his/her Accounts in
accordance with the written directives of the Administrator. However, should the
Participating Company or
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Companies employing such Participants not dissolve or cease all operations as of
the date of Plan termination, then the Deferred Compensation Accounts of such
Participants shall not be distributed pursuant to the provisions of this Section
18.2, but shall continue to be held in trust for subsequent distribution in
accordance with Articles XIII and XIV of the Plan, unless (i) the Participant
consents to an immediate lump sum distribution of such Account and (ii) no other
successor defined contribution plan is established or maintained by the Company
or any other Affiliated Company.
18.3 Effect of Discontinuance. In the event the Board of Directors of
any Participating Company decides to discontinue further contributions to the
Plan, the duties of the Administrator shall continue as before, and the
provisions of the Plan (other than the provisions relating to contributions by
such Participating Company) shall remain in force with respect to the
employee-Participants of that Participating Company. The Trust Fund shall also
remain in existence, and all the provisions of the Trust Fund (other than
provisions relating to contributions by such Participating Company) shall
continue in effect. Any unallocated balance in the Section 9.4 suspense account
at the time contributions are discontinued shall be allocated (to the extent
permissible under Section 9.2) to the Discretionary Contribution Accounts of all
Qualified Participants in this Plan entitled under Section 8.3(c) to an
allocation of Forfeitures for the six (6)-month fiscal period in which such
discontinuance occurs, with such allocation to be in proportion to the Eligible
Earnings paid to each such Participant for that fiscal period. The remaining
balance in such suspense account, if any, shall continue to be allocated at six
(6)-month fiscal intervals, as of June 30 and December 31 in each subsequent
Plan Year (to the extent permissible under Section 9.2), to the Discretionary
Contribution Accounts of all Qualified Participants in this Plan entitled under
Section 8.3(c) to a share of Forfeitures for each such six (6)-month fiscal
period, until the balance in the suspense account is reduced to zero. Any other
unallocated funds existing at the date of discontinuance (other than any Section
401(k) Contributions and any Company Contributions and Forfeitures, which are to
be allocated in accordance with Sections 5.2, 6.2 and 8.3, respectively) shall
be allocated to all Accounts outstanding on such date in accordance with Article
XI. Should there be a complete discontinuance of contributions to the Plan by
all the Participating Companies, then all amounts credited to the Accounts of
Participants in accordance with the provisions of this Section 18.3 shall become
fully vested and non-forfeitable.
18.4 Determination of Partial Termination. For purposes of this
Article XVIII, a partial termination of the Plan shall be deemed to occur only
if there is a determination, either made or agreed to by the Administrator or
made by the Internal Revenue Service and upheld by a decision of a court of
final jurisdiction, that a particular event or transaction which has transpired
(including the sale or transfer of all or substantially all of the
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assets of a Participating Company or the cessation of operations at one or more
of its facilities) constitutes a partial termination within the meaning of
Section 411(d)(3)(A) of the Code.
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ARTICLE XIX
MISCELLANEOUS
19.1 SOURCE OF BENEFITS. ALL BENEFITS PAYABLE UNDER THE PLAN SHALL BE
PAID SOLELY FROM THE TRUST FUND, AND THE PARTICIPATING COMPANIES ASSUME NO
LIABILITY OR RESPONSIBILITY FOR SUCH BENEFIT PAYMENTS.
19.2 Satisfaction of Claims. Any payment to a Participant or his/her
legal representative or Beneficiary, in accordance with the terms of this Plan
and the Trust Agreement, shall to the extent thereof be in full satisfaction of
all claims with respect to such payment which such person may have against the
Plan, the Trustee, the Administrator (or its delegate), any Investment Manager
and all Participating Companies, any of whom may require the Participant or
his/her legal representative or Beneficiary, as a condition precedent to such
payment, to execute a receipt and release therefor in such form as shall be
determined by the Administrator.
19.3 Construction. The headings and subheadings of this instrument are
inserted for convenience of reference only and are not to be considered in the
construction of the Plan.
19.4 Gender and Number. Whenever used in the Plan, the masculine
gender shall include the feminine gender and vice versa and the singular shall
include the plural, unless the context indicates otherwise.
19.5 Applicable Law. The Plan shall be construed, administered and
governed in all respects in accordance with ERISA and other pertinent Federal
laws and in accordance with the laws of the State of California to the extent
not preempted by ERISA; provided, however, that if any provision is susceptible
of more than one interpretation, such interpretation shall be given thereto as
is consistent with the Plan being a qualified employees' profit-sharing plan and
Section 401(k) salary deferral program within the meaning of the Code. If any
provision of this Plan shall be held by a court of competent jurisdiction to be
invalid or unenforceable, the remaining provisions of the Plan shall continue to
be fully effective.
19.6 Alienation of Benefits. Except as otherwise required by law, no
person entitled to any benefits under the Plan shall have the right to alienate,
hypothecate or encumber his/her interest in such benefits, and such benefits
shall not in any way be subject to the claims of his/her creditors or liable to
attachment, execution or other process of law (other than (A) Federal tax levies
and executions on Federal tax judgments, (B) payments made from the Accounts of
a Participant in satisfaction of the rights of alternate payees pursuant to a
Qualified Domestic Relations Order
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under Article XXI) or (C) the enforcement of any security interests or offset
rights applicable to the Deferred Compensation Account or Roll-Over Account of a
Participant pursuant to the loan provisions of Article XXIII).
19.7 Return of Contributions. Assets held in the Trust Fund must be
held for the exclusive benefit of the Participants and their Beneficiaries, and
such assets may never revert to or inure to the benefit of Participating
Companies except under the following conditions:
(a) Each contribution made under this Plan is hereby made
expressly conditional upon the current deductibility of such contribution under
Code Section 404. Accordingly, to the extent the Internal Revenue Service shall
deny a deduction for any such contribution made by a Participating Company, the
amount of the contribution for which no deduction is allowed shall be returned
to the Participating Company within one year after such disallowance.
(b) If, within one year after making a contribution to the Plan, a
Participating Company or the Administrator certifies that such contribution was
made under mistake of fact, the Trustee shall upon the direction of the
Administrator before the expiration of such year return such contribution to the
Participating Company.
(c) Any Forfeitures remaining in the Section 9.4 suspense account
upon the complete termination of the Plan shall be returned by the Trustee to
one or more Participating Companies in this Plan in accordance with Section
18.2.
If the contributions to be refunded under subparagraph (a) or (b) are
Section 401(k) Contributions, then such contributions, together with the
earnings thereon, shall not be refunded to the Participating Companies but shall
be paid as a direct cash bonus to the Participants on whose behalf such Section
401(k) Contributions were made. Such payment shall be subject to the
satisfaction of all applicable Federal and state tax withholding requirements.
19.8 Merger of Plan. There shall not occur any merger or consolidation
of the Plan with, or transfer of assets or liabilities from the Plan to, any
other retirement plan qualified under Section 401 of the Code, unless each
Participant shall be entitled to receive from the surviving or transferee plan a
benefit immediately after the merger, consolidation or transfer (if such plan
were then terminated) which is equal to or greater than the benefit such
Participant would have been entitled to receive under this Plan had this Plan
been terminated immediately prior to such merger, consolidation or transfer.
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19.9 Conditional Restatement. The Plan is hereby restated on the
express condition that it will be considered by the Internal Revenue Service as
continuing to qualify under Sections 401(a) and 401(k) of the Code. In the event
the Internal Revenue Service determines that the Plan as restated does not so
qualify under the Code, the Plan shall be of no effect, and all Section 401(k)
Contributions made by the Participating Companies on the basis of this restated
plan document, together with the earnings thereon, shall be paid directly to the
Participants for whom such contributions were made, and such payment shall be
subject to the satisfaction of all applicable Federal and State tax withholding
requirements. All Matching or Discretionary Contributions made by the
Participating Companies on the basis of this restated plan document, together
with any earnings thereon, shall be returned to the Participating Companies
within one year after the date of the adverse Internal Revenue Service
determination. The Directors, however, may (but shall not be required to do so)
make any retroactive amendments to the Plan which the Internal Revenue Service
may require as a condition for its determination that the Plan as restated
continues to qualify under Sections 401(a) and 401(k) of the Code.
19.10 Limitation of Rights; Employment Relationship. Neither the
establishment of the Plan and the Trust Fund, nor any modifications thereof, nor
the creation of any fund or account, nor the payment of any benefits hereunder,
shall be construed so as to grant any Participant or other person any legal or
equitable right against the Participating Companies or the Trustee, except as
provided in the Plan or the Trust Agreement. IN NO EVENT SHALL ANYTHING
CONTAINED IN THE PLAN OR THE TRUST AGREEMENT BE CONSTRUED TO GIVE ANY EMPLOYEE
THE RIGHT TO BE RETAINED IN THE SERVICE OR EMPLOY OF THE COMPANY OR ANY OTHER
AFFILIATED COMPANY FOR ANY PERIOD OF SPECIFIC DURATION, AND THE EMPLOYEE MAY BE
DISCHARGED AT ANY TIME, WITH OR WITHOUT CAUSE.
19.11 No Escheat. If the Accounts of a Participant would otherwise,
pursuant to the provisions of applicable law, escheat to any State by reason of
the Administrator's inability to locate the Participant and effect the
distribution of his/her Accounts within the specified time period under the
applicable escheat provision, then the Accounts of such Participant shall be
immediately forfeited and shall, as of the last day of the Plan Year of
forfeiture, be reallocated as a Forfeiture to the Discretionary Contribution
Accounts of Qualified Participants in accordance with Section 8.3. Should the
Participant or his/her Beneficiary subsequently file a claim for benefits with
the Administrator, the Participating Company which last employed such
Participant shall contribute to the Plan sufficient funds to restore the vested
balance of the forfeited Accounts and distribution of the restored balance shall
be effected as soon as reasonably practicable thereafter.
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19.12 Leased Employees. Any Leased Employee shall be treated as an
Employee (but not an Eligible Employee) of the Affiliated Company which is the
recipient of his/her services. However, any contributions or benefits provided
by the leasing organization, to the extent attributable to services performed
for the recipient Affiliated Company, shall be treated as provided by such
recipient Affiliated Company.
For purposes of this Section 19.12, the term "Leased Employee" means
any person (other than an actual Employee of the recipient Affiliated Company)
who has, pursuant to any agreement between the recipient Affiliated Company and
any other person (the "leasing organization"), performed services for the
recipient Affiliated Company (or any related entity determined in accordance
with Section 414(n)(6) of the Code) on a substantially full-time basis for a
period of at least one (1) year (as determined in accordance with the applicable
provisions of proposed Regulation Section 1.414(n)-1(b)(10)), and such services
are of a type historically performed by employees in the business field of the
recipient Affiliated Company (or such related entity). Upon completion of such
year of service, the Leased Employee shall be treated as an Employee (but not as
an Eligible Employee) for all purposes of the Plan, and his/her years of Service
shall include the entire period for which the Leased Employee has performed
services for the recipient Affiliated Company, subject to the applicable
break-in-service provisions of this Plan.
In no event, however, shall a Leased Employee be treated as an
Employee if (A) such Leased Employee is covered by a money purchase pension plan
providing (i) a non-integrated employer contribution rate of at least ten
percent (10%) of Compensation (as determined in accordance with the guidelines
set forth in the first paragraph of Section 1.9 of this Plan), (ii) immediate
participation, and (iii) full and immediate vesting and (B) the total number of
Leased Employees does not constitute more than twenty percent (20%) of the
Non-Highly Compensated Work Force.
19.13 Transfers from Other Qualified Plans.
(a) The Administrator may authorize the Trustee to accept a transfer
to this Plan, by or on behalf of any person who is (or who is about to become) a
Participant in this Plan, of funds which represent (i) all or a portion of the
assets credited to such person's account under any other defined contribution
plan satisfying the applicable qualification requirements of Code Section
401(a), whether such assets are held by a trustee, insurance company, custodian
or otherwise, or (ii) the assets of any individual retirement account
established as a rollover account under Code Section 402(a)(5) for a qualified
plan distribution previously made to such person and credited solely with
amounts eligible for rollover to this Plan in accordance with Code Section
408(d)(3)(ii). Any amount so transferred to this Plan shall be
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credited to the Roll-Over Account maintained for such person under this Plan,
and such Roll-Over Account shall be periodically adjusted in accordance with the
provisions of Article XI to reflect its allocable share of the earnings, gains
and losses of the Trust Fund.
(b) Under no circumstances shall there be transferred to this Plan any
assets of any qualified plan under Code Section 401(a) which is required to
provide annuity distributions to terminating participants pursuant to the
provisions of Code Section 401(a)(11).
19.14 No Reversion. The assets of the Plan must be held for the
exclusive benefit of the Participants and their Beneficiaries, and such assets
may never revert to or inure to the benefit of the Participating Companies,
except to the limited extent provided under Sections 18.2 and 19.7.
73.
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ARTICLE XX
BENEFIT CLAIMS
20.1 Claims Procedure. Should any Participant or Beneficiary believe
he/she is entitled to a benefit from the Plan which differs from the benefit
determined by the Administrator, such Participant or Beneficiary may file a
written claim for benefits with the Administrator. Each claim shall be acted
upon and approved or disapproved within ninety (90) days following its receipt.
20.2 Denial of Benefits. In the event any claim for benefits is
denied, in whole or in part, the Administrator shall notify the claimant in
writing of such denial and of his/her right to a review by the Administrator and
shall set forth, in a manner calculated to be understood by the claimant,
specific reasons for such denial, specific references to pertinent Plan
provisions on which the denial is based, a description of any additional
material or information necessary to perfect the claim, an explanation of why
such material or information is necessary, and an explanation of the Plan's
review procedure.
20.3 Review.
(a) Any person whose claim for benefits is denied in whole or in
part may appeal to the Administrator for a full and fair review of the decision
by submitting to the Administrator, within ninety (90) days after receiving from
the Administrator written notice of such denial, a written statement:
(i) requesting a review by the Administrator of his/her claim
for benefits;
(ii) setting forth all of the grounds upon which the request
for review is based and any facts in support thereof; and
(iii) setting forth any issues or comments which the claimant
deems pertinent to his/her claim.
(b) The Administrator shall act upon each such claim within sixty
(60) days after receipt of the claimant's request for review by the
Administrator, unless special circumstances require an extension of time for
processing. If such an extension is required, written notice of the extension
shall be furnished to the claimant within the initial sixty (60)-day period, and
a decision shall be rendered as soon as possible, but not later than one hundred
twenty (120) days after receipt of the initial request for review. The
Administrator shall make a full and fair review of each such claim and any
written materials submitted by the claimant or any Participating Company in
connection therewith
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and may require the Participating Company or the claimant to submit such
additional facts, documents, or other evidence as the Administrator may, in its
sole discretion, deem necessary or advisable in making such a review. On the
basis of its review, the Administrator shall make an independent determination
of the claimant's eligibility for benefits under the Plan. The decision of the
Administrator on any benefit claim shall be final and conclusive upon all
persons.
(c) In the event the Administrator denies an appeal in whole or in
part, the Administrator shall give written notice of such decision to the
claimant, setting forth in a manner calculated to be understood by the claimant
the specific reasons for such denial and specific reference to the pertinent
Plan provisions on which the decision of the Administrator was based.
75.
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ARTICLE XXI
QUALIFIED DOMESTIC RELATIONS ORDERS
21.1 Definitions. For purposes of applying the provisions of this
Article XXI, the following definitions shall be in effect:
(a) "Alternate Payee" shall mean any spouse, former spouse, child
or other dependent of a Participant for whom a Domestic Relations Order
specifies the right to receive all or a portion of the benefits otherwise
payable under the Plan to such Participant.
(b) "Domestic Relations Order" shall mean any judgment, decree or
order (including approval of a property settlement agreement) which provides or
otherwise conveys, pursuant to applicable State domestic relations laws
(including community property laws), child support, alimony payments or marital
property rights to an Alternate Payee.
(c) "Earliest Retirement Age" shall mean, with respect to any
Participant, the earlier of (i) the date on which the Participant is entitled to
a distribution from the Plan or (ii) the later of (A) the date the Participant
will attain age fifty (50) or (B) the earliest date the Participant would be
entitled to a distribution of benefits under the Plan were he/she to cease
Employee status.
(d) "Qualified Domestic Relations Order" shall mean any Domestic
Relations Order which satisfies the following three requirements:
(i) such Order establishes (or otherwise recognizes the
existence of) the right of an Alternate Payee to receive all or a portion of the
benefits otherwise payable under the Plan to a Participant;
(ii) such Order specifies (A) the name and last known mailing
address of the Participant, (B) the name and mailing address of each Alternate
Payee covered by such Order, (C) the amount or percentage of the Participant's
benefits under the Plan payable to each such Alternate Payee or the manner in
which such amount or percentage is to be calculated, and (D) the number of
payments or the duration of the pay-out period to which the Order applies; and
(iii) such Order does not require the Plan to (A) provide any
type or form of benefit or option not otherwise available under the Plan, (B)
provide increased benefits under the Plan or (C) pay benefits to an Alternate
Payee which are required
76.
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to be paid to another Alternate Payee pursuant to any Qualified Domestic
Relations Orders previously issued to the Plan.
A Domestic Relations Order shall not be considered to be in violation
of the requirement of clause (A) of subparagraph (iii) above merely because such
Order requires the payment of benefits to an Alternate Payee on or after the
date the Participant attains the Earliest Retirement Age, whether or not such
Participant actually ceases Employee status on or before such date. Accordingly,
such payments shall be made as if the Participant ceased Employee status on the
date on which benefits are to enter pay status under the Order.
21.2 Notification. Upon receipt of a Domestic Relations Order, the
Administrator shall promptly notify the affected Participant and the Alternate
Payee of the receipt of such Order and the procedures established by the
Administrator for determining whether such Order satisfies the requirements for
recognition as a Qualified Domestic Relations Order. Such notice shall also
advise the Alternate Payee of his/her right to designate a representative to
receive communications from the Administrator concerning the disposition of the
Domestic Relations Order. Within a reasonable time after providing such
notification, the Administrator shall, pursuant to such procedures, determine
whether or not the Order is a Qualified Domestic Relations Order and shall
notify the Participant and each Alternate Payee (or his/her representative) of
such determination.
21.3 Procedures. The Administrator shall establish reasonable
procedures for determining the qualified status of Domestic Relations Orders and
for effecting distributions pursuant to all such Orders which are determined to
be Qualified Domestic Relations Orders. Such procedures shall be reviewed
periodically by the Administrator to determine whether they remain reasonable
and efficient and comply with applicable requirements of ERISA, the Code and
Regulations issued thereunder.
21.4 Payment.
(a) During the period in which the qualified status of a Domestic
Relations Order is being determined, the Administrator shall defer the payment
of all Plan benefits affecting the Participant which are in dispute and shall
segregate, in a separate Account maintained under the Plan, all amounts which
would otherwise be payable to the Alternate Payee during such period were the
Order determined to be a Qualified Domestic Relations Order.
(b) If the Administrator determines, within eighteen (18) months
after the date the first payment to the Alternate Payee would otherwise be
required pursuant to the terms of the Order, that such Order is a Qualified
Domestic Relations
77.
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Order, then the Administrator shall authorize the payment of the entire balance
of the segregated Account (including any earnings thereon) to the person or
persons entitled thereto. Such payment shall be made in any form in which
benefits under the Plan may be distributed to Participants or their
Beneficiaries.
(c) If the Administrator determines, within such eighteen
(18)-month period under subparagraph (b) above, that such Order is not a
Qualified Domestic Relations Order, or if the qualified status of such Order
cannot be determined prior to the expiration of such eighteen (18)-month period,
then the Administrator shall authorize the payment of the segregated Account
(including any earnings thereon) to the person or persons who would have been
entitled to the amounts credited to such Account had the Order not been issued.
If such person is the Participant, then the Account shall remain part of the
Trust Fund and shall not be distributed until the Participant becomes entitled
to benefits under the Plan in accordance with the provisions of Article XIII or
XV. Should there be a subsequent determination that the Order is in fact a
Qualified Domestic Relations Order, then such determination shall be applied on
a prospective basis only.
78.
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ARTICLE XXII
TOP-HEAVY RULES
22.1 Definitions. For purposes of this Article XXII, the following
terms shall have the meanings indicated:
(a) "Key Employee" shall mean for any Plan Year any Employee or
former Employee (or Beneficiary of any deceased Employee) who is (as of the
Determination Date for such Plan Year), or who was at any time during any of the
four (4) Plan Years ended immediately prior to the Plan Year in which such
Determination Date occurs:
(i) an officer of an Affiliated Company who received aggregate
annual Compensation (for the same Plan Year he/she was such an officer) which
was in excess of fifty percent (50%) of the maximum dollar limitation in effect
for such Plan Year under Section 415(b)(1)(A) of the Code,
(ii) one of the ten (10) Employees owning (actually or
constructively under Section 318 of the Code) the largest percentage interest in
any Affiliated Company, provided such individual owns more than a one-half
percent (1/2%) interest in such Affiliated Company and his/her aggregate
Compensation for the same Plan Year is greater than the maximum dollar
limitation in effect for such Plan Year under Section 415(c)(1)(A) of the Code,
(iii) a five percent (5%) owner of any Affiliated Company, or
(iv) a one percent (1%) owner of any Affiliated Company who
received aggregate annual Compensation for the same Plan Year in excess of
$150,000.00.
The determination of Key Employee status shall be made pursuant to the criteria
set forth in Code Section 416(i) and the Regulations issued thereunder.
Ownership interests shall be determined in accordance with the attribution rules
of Section 318 of the Code.
If the number of officers which would otherwise be taken into account
under clause (i) for any Plan Year exceed ten percent (10%) of the total number
of Employees of all the Affiliated Companies, then the number of such officers
actually qualifying as Key Employees under clause (i) for such Plan Year shall
be limited to that number of officers, not in excess of ten percent (10%) of
such total number of Employees, selected from the group of all Employees
determined to be officers at any time during the five (5) Plan Year period
ending with the Determination Date for the current Plan Year, who received the
highest annual Compensation for any Plan Year (during such five (5)-year period)
for which they were officers.
79.
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For purposes of clause (ii) above, should two (2) Employees own the
same percentage interest in one or more Affiliated Companies, then the Employee
having the greater aggregate annual Compensation for the Plan Year shall be
deemed to own the larger percentage interest.
(b) "Top-Heavy Ratio" shall mean that fraction the numerator of
which is the sum of the account balances of all Key Employees under this Plan
(and, if this Plan is part of a Required Aggregation Group or a Permissive
Aggregation Group, the sum of (I) the account balances of all Key Employees
under all other defined contribution plans (within such Required or Permissive
Aggregation Group) maintained by one or more Affiliated Companies and (II) the
present value of the accrued benefits of all Key Employees under all defined
benefit plans (within such Required or Permissive Aggregation Group) maintained
by one or more Affiliated Companies), and the denominator of which is the sum of
the account balances of all Participants under this Plan (and, if this Plan is
part of a Required Aggregation Group or a Permissive Aggregation Group, the sum
of (I) the account balances of all Participants under all other defined
contribution plans (within such Required or Permissive Aggregation Group)
maintained by one or more Affiliated Companies and (II) the present value of the
accrued benefits of all Participants under all defined benefit plans (within
such Required or Permissive Aggregation Group) maintained by one or more
Affiliated Companies).
In determining the Top-Heavy Ratio, the following rules shall apply:
(i) The value of such account balances and the present value
of such accrued benefits shall be determined as of the most recent Top-Heavy
Valuation Date within the twelve (12)-month period ending on the Determination
Date. Each account balance so determined shall be adjusted for (I) the amount of
any contributions made after such Top-Heavy Valuation Date but on or before the
Determination Date or, with respect to defined contribution plans subject to
Code Section 412, (II) the amount of any contributions to be allocated as of a
date on or before the Determination Date though not yet required to be actually
contributed. Except as otherwise provided in subparagraph (ii) below or in the
Regulations issued under Section 416(g)(3) of the Code, the value of each such
account balance or accrued benefit shall also include all distributions made
from such account or made with respect to such accrued benefit during the five
(5) Plan-Year period ending on the Determination Date. The present value of each
accrued benefit under a defined benefit plan shall be determined as if the
individual ceased Employee status as of the Top-Heavy Valuation Date and shall
be calculated in accordance with the actuarial assumptions in effect for such
purpose under the defined benefit plan under which such benefit is payable. The
accrued benefit of an Employee other than a Key Employee shall be
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determined under the method, if any, that uniformly applies for accrual purposes
under all defined benefit plans maintained by one or more Affiliated Companies
or if there is no such method, as if such benefit accrued not more rapidly than
the slowest accrual rate permitted under Section 411(b)(1)(C).
(ii) Should there be effected a transfer from one qualified
plan to another (by rollover or plan-to-plan transfer) which is (A) incident to
a plan merger or consolidation or incident to a plan division, (B) made between
two plans maintained by the same employer (as determined pursuant to the
aggregation rules of Section 414(b), (c) or (m) of the Code) or (C) otherwise
not initiated by the Employee, then the Participant's accrued benefit or account
balance under the transferee plan shall include any amount attributable to such
transfer which is received or accepted by such plan on or before the
Determination Date, and the transferor plan shall not be required to include
such amount in the Participant's accrued benefit or account balance as of such
Determination Date or any date thereafter. With respect to any rollover or
plan-to-plan transfer not otherwise described in the preceding sentence, the
Participant's accrued benefit or account balance under the transferor plan shall
include any amount distributed or transferred by such plan, and the transferee
plan shall not be required to include, as part of the Participant's accrued
benefit or account balance, any amount attributable to the assets received in
such transfer if accepted after December 31, 1983, but such transferee plan
shall be required to include the assets received in such transfer in the
calculation of the Participant's accrued benefit or account balance if such
assets were accepted prior to January 1, 1984.
(iii) No accrued benefit or account balance of a Participant
or Beneficiary shall be taken into account for purposes of calculating the
Top-Heavy Ratio if the Participant has not been an Employee during the five (5)
Plan-Year period ending with the Determination Date for a particular Plan Year,
and no accrued benefit or account balance of a Participant or Beneficiary shall
be taken into account for purposes of calculating the Top-Heavy Ratio if the
Participant (A) is a Non-Key-Employee during the Plan Year and (B) was a Key
Employee for any prior Plan Year.
(iv) When two or more plans constitute a Required Aggregation
Group or a Permissive Aggregation Group, the present value of the accrued
benefits or the value of the account balances (as adjusted for distributions to
Key Employees and all Employees for the relevant five (5) Plan-Year period)
shall be determined separately for each plan on the basis of the determination
date in effect for that plan. The plans are then to be aggregated by adding
together the results obtained for each plan as of the determination date falling
within the same calendar year as the determination dates for all the other
aggregated plans.
81.
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(v) The calculation of the Top-Heavy Ratio shall be made in
accordance with Section 416 of the Code and the Regulations issued thereunder.
(c) "Required Aggregation Group" means a group of plans consisting
of (1) this Plan and any other qualified plan of one or more Affiliated
Companies (including a simplified employee pension plan) in which at least one
Key Employee participates and (2) any other qualified plan of the Affiliated
Companies which enables any plan described in clause (1) above to meet the
requirements of Sections 401(a)(4) or 410 of the Code.
(d) "Permissive Aggregation Group" means a group of plans
consisting of the Required Aggregation Group plus any other plan of the
Affiliated Companies which, when considered together with the Required
Aggregation Group, would continue to satisfy the requirements of Sections
401(a)(4) and 410 of the Code.
(e) "Compensation" shall have the meaning assigned to such term in
the first paragraph of Section 1.9 and shall be applied on an aggregate basis as
if all the Affiliated Companies were a single employer entity paying such
Compensation.
(f) "Determination Date" shall, for each Plan Year in effect under
this restatement, mean the last day of the immediately preceding Plan Year.
(g) "Top-Heavy Valuation Date" shall mean the Valuation Date
coincident with or immediately preceding the Determination Date.
(h) "Non-Key-Employee" shall mean any Employee who is not a Key
Employee and shall include any Employee who is a former Key Employee.
(i) "Top-Heavy Contribution" shall have the meaning assigned to
such term in Section 22.3(b).
(j) "Remuneration" shall have the meaning assigned to such term in
Section 9.1(c) and shall be applied on an aggregate basis as if all the
Affiliated Companies were a single employer entity paying such Remuneration.
22.2 Top-Heavy Status. This Plan shall be considered "Top Heavy" with
respect to any Plan Year if, as of the Determination Date for such Plan Year,
any of the following conditions exists:
(a) The Top-Heavy Ratio for this Plan exceeds sixty percent (60%)
and this Plan is not part of any Required Aggregation Group.
82.
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(b) This Plan is part of a Required Aggregation Group but not part
of a Permissive Aggregation Group and the Top-Heavy Ratio for the Required
Aggregation Group exceeds sixty percent (60%).
(c) This Plan is part of a Required Aggregation Group and also
part of one or more Permissive Aggregation Groups and the Top-Heavy Ratio for
each Permissive Aggregation Group exceeds sixty percent (60%).
22.3 Minimum Benefit.
(a) For each Plan Year the Plan is Top-Heavy, each Participating
Company shall make a Top-Heavy Contribution on behalf of each Qualified
Participant employed by such Participating Company. For purposes of the
Top-Heavy Contribution, a Participant shall be considered a Qualified
Participant if such individual is a Non-Key-Employee who continues in Employee
status through the last day of such Plan Year. The Top-Heavy Contribution shall
be made on behalf of such a Qualified Participant even though that individual
may not otherwise be entitled to receive a Matching Contribution for the Plan
Year by reason of his/her Participant's failure to make any Section 401(k)
Contributions to the Plan for that Plan Year.
(b) The Top Heavy Contribution on behalf of each Qualified
Participant shall be in a minimum amount which, when added to such Participant's
allocable share of (I) the Company Contributions and Forfeitures under Articles
VI and VIII for such Plan Year and (II) the employer contributions and
forfeitures under any Other Plan, shall be a percentage of his/her Remuneration
at least equal to the lesser of (a) three percent (3%) or (b) the percentage of
Remuneration represented by the aggregate amount of Section 401(k)
Contributions, Company Contributions and Forfeitures under this Plan and all
Affiliated Company contributions and forfeitures under any Other Plan which is
allocated for such Plan Year to the Accounts of the Key Employee for whom such
aggregate percentage is the highest for such Plan Year, taking into account only
the first One Hundred and Fifty Thousand Dollars ($150,000.00) of his/her
Remuneration (subject to future cost-of-living adjustments pursuant to Code
Section 415(d)(2)).
(c) Section 401(k) Contributions made by Non-Key Employees shall
not count towards satisfying the minimum Top-Heavy Contribution to Non-Key
Employees. However, Section 401(k) Contributions made by Key Employees shall
count in determining the largest percentage of contributions and forfeitures
allocated to Key Employees. Matching Contributions made on behalf of Non-Key
Employees may, at the option of the Administrator, be used to satisfy the
Top-Heavy Contribution amount allocated to Non-Key Employees. However, to the
extent Matching Contributions are utilized for this purpose they cannot be used
to satisfy the
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deferral percentage test of Section 4.6 or the contribution percentage test of
Section 7.1 and must meet the nondiscrimination requirements of Code Section
401(a)(4).
(d) The Top-Heavy Contributions shall be paid to the Trustee as
soon as possible after the end of the Plan Year for which such contributions are
made, but in any event within the time limits prescribed under applicable State
and Federal tax laws for the current deductibility thereof.
(e) The Administrator shall maintain a Top-Heavy Contribution
Account for each Participant which shall be credited with all Top-Heavy
Contributions made on the Participant's behalf pursuant to the provisions of
this Section 22.3. Such Account shall be adjusted periodically to reflect the
Participant's share of the earnings, gain and losses of the Trust Fund
attributable to the Top-Heavy Contributions credited to the Account. Each
Participant shall vest in his/her Top-Heavy Contribution Account in accordance
with Article XIII.
84.
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ARTICLE XXIII
LOANS
23.1 Loan Applications. Except as provided below, each Participant or
other "party in interest" (as defined in Section 3(14) of ERISA) who has an
interest in the outstanding balance of any Deferred Compensation Account or
Roll-Over Account under the Plan may submit a written application to the
Administrator for a loan from the Plan in an amount not in excess of the maximum
amount allowable under Section 23.2(a). The Administrator shall act on each loan
application in a uniform and non-discriminatory manner. The Administrator shall
not reject any application on the basis of the applicant's age or sex but may
make distinctions on the basis of the applicant's credit worthiness and
financial need.
23.2 Loan Terms. Upon approval of any application under Section 23.1,
the Administrator shall direct the Trustee to make a loan to the applicant in
accordance with the following provisions:
(a) The minimum amount an individual may borrow is One Thousand
Dollars ($1,000.00), or such smaller amount as the Administrator shall establish
from time to time. The Administrator may establish as a condition of the loan
program that an individual may not have more than one (or such greater number as
the Administrator may establish from time to time) loan outstanding under the
Plan at any time.
(b) The maximum amount of the loan shall not (when added to the
outstanding balance of all other loans ("Plan Loans") made to the applicant
under this Plan or any other defined benefit or defined contribution plan to
which any Affiliated Company contributes) exceed the lesser of:
(i) Fifty Thousand Dollars ($50,000.00) (less the excess of
(I) the highest principal amount in the aggregate outstanding under any other
Plan Loans to the applicant during the immediately preceding twelve (12) months
over (II) the aggregate principal amount outstanding under the other Plan Loans
on the date the new loan is made); or
(ii) fifty percent (50%) of the vested balance credited to
such applicant's Accounts at the time the loan is made (determined pursuant to
the valuation provisions of Section 11.3).
In no event shall the amount loaned to the applicant exceed one
hundred percent (100%) of the balance credited to the Deferred Compensation
Account (or any Roll-Over Account maintained for the applicant) at the time the
loan is made, less any earmarked investments credited to such Account under
Section 23.4.
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(c) The cost of processing the loan application shall be deducted
from the Deferred Compensation Account or Roll-Over Account, unless paid
directly by the applicant.
(d) The loan shall be evidenced by the applicant's promissory note
in the amount of the loan, made payable to the order of the Trustee.
(e) The loan shall have a fixed term not in excess of five (5)
years (or ten (10) years if the proceeds of the loan to a Participant are
applied to the acquisition of real estate which is to serve as his/her primary
residence), subject to acceleration upon the occurrence of (i) the applicant's
failure to pay any installment of principal or interest when due, (ii) the
applicant's qualification for an immediate distribution from the Plan or, if the
applicant is a Participant, his/her cessation of Employee status, (iii) the
filing of bankruptcy proceedings by or against the applicant, the assignment of
the applicant's assets for the benefit of his/her creditors or the appointment
of a receiver for the applicant's assets, or any other similar event of
acceleration specified in the promissory note.
(f) The loan shall bear a market rate of interest, payable at
least annually. Such market rate shall be determined on the basis of the
interest rates charged for similar-purpose loans by banks and other reputable
financial institutions selected by the Administrator as representative lenders.
(g) The loan shall be adequately secured through the conveyance to
the Trust of a security interest in fifty percent (50%) of the applicant's
right, title and interest in and to his/her Accounts under the Plan.
(h) The loan shall be repayable through level amortization
payments over the term of the loan. Such payments shall be effected through (i)
periodic payroll deductions from the Participant-applicant's salary and other
cash earnings each payroll period the loan is outstanding or (ii) periodic cash
installments (payable at least quarterly) whenever payroll deductions are not
possible.
(i) The remaining terms and conditions of the loan and related
documentation shall be established by the Administrator.
(j) The provisions of this Article XXIII and loans made hereunder
shall be interpreted and construed so as to prevent any such loan from being
treated as a taxable distribution under Code Section 72(p).
86.
<PAGE> 93
23.3 Offset Rights. If the borrower is the Participant, then no
distributions or withdrawals shall be effected from his/her Accounts at any time
after his/her cessation of Employee status, unless and until all loans under
this Article XXIII, together with the interest thereon, have been repaid in
full, including repayment effected as a direct offset against such distribution
or withdrawal. While the Participant remains in Employee status, no
distributions or withdrawals under the Plan (other than a hardship withdrawal
for which the Participant may qualify pursuant to the provisions of Article XV)
shall be made to him/her while any loan to such Participant remains outstanding
under this Article XXIII. Should any other person become entitled to a
distribution under the Plan at a time when one or more Article XXIII loans to
such person remain outstanding, then the unpaid balance of such loans shall
become immediately due and payable, up to an amount equal to the amount to be
distributed to him/her under the Plan. The Trustee shall, accordingly, collect
such accelerated indebtedness by withholding it from and offsetting it against
the amount to be distributed. To the extent any Qualified Domestic Relations
Order requires payment to an Alternate Payee at a time when a loan is
outstanding to the Participant from whose Account the Order requires payment,
the terms of such Order shall control.
23.4 Liquidation of Account. The proceeds for each loan under the Plan
shall be obtained by liquidating a portion of each investment at the time held
in the Deferred Compensation Account (or any Roll-Over Account) in which the
applicant has an interest, with the amount so liquidated to be in the same
proportion as the market value of each such investment bears to the total market
value of all investments held in the Account.
23.5 Earmarked Investment. All Article XXIII loans from the Deferred
Compensation Account or Roll-Over Account shall constitute an earmarked
investment of the Account. Accordingly, such Account shall at the time the loan
is made be divided into two subaccounts. Subaccount One shall be credited with
the amount loaned from the Account and shall not share in the investment gains
or losses of the Trust Fund under Article XI. Subaccount Two shall be credited
with that portion of the Account which is not loaned to the applicant (including
payments of interest and principal made on the loan) and shall be periodically
adjusted under Section 11.2 for its allocable share of the investment gains and
losses of the Trust Fund. To the extent the Deferred Compensation Account has an
earmarked investment under this Section 23.5, then all Section 401(k)
Contributions thereafter allocated to such Account shall be credited to
Subaccount Two, where they shall remain until they become the subject of a
subsequent loan under this Article XXIII.
87.
<PAGE> 94
IN WITNESS WHEREOF, the Company has caused this Plan to be executed by
its duly-authorized officer as of the 29th day of December, 1994.
KOMAG MATERIAL TECHNOLOGY, INC.
By: /s/ Timothy Starkey
---------------------------
Title: President
------------------------
88.
<PAGE> 95
SCHEDULE A
PARTICIPATING COMPANIES
I. SECTION 401(K) DEFERRAL PROGRAM
Komag Material Technology, Inc.
II. DEFERRED PROFIT-SHARING PROGRAM
Komag Material Technology, Inc.
<PAGE> 1
EXHIBIT 10.11.14
KOMAG, INCORPORATED
RESTATED SAVINGS AND DEFERRED PROFIT-SHARING PLAN
Effective January 1, 1990
and Later Amended and
Restated Effective January 1, 1994
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 "Accounts" . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 "Administrator" . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 "Affiliated Company" . . . . . . . . . . . . . . . . . . . . . . 1
1.4 "Beneficiary" . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.5 "Break in Service" . . . . . . . . . . . . . . . . . . . . . . . 1
1.6 "Code" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.7 "Company Contributions" . . . . . . . . . . . . . . . . . . . . 2
1.8 "Company" . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.9 "Compensation" . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.10 "Discretionary Contributions" . . . . . . . . . . . . . . . . . 3
1.11 "Discretionary Contribution Account" . . . . . . . . . . . . . . 3
1.12 "Deferred Compensation Account" . . . . . . . . . . . . . . . . 3
1.13 "Deferred Profit-Sharing Program" . . . . . . . . . . . . . . . 3
1.14 "Directors" . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.15 "Disability" . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.16 "Effective Date" . . . . . . . . . . . . . . . . . . . . . . . . 3
1.17 "Eligible Earnings" . . . . . . . . . . . . . . . . . . . . . . 3
1.18 "Eligible Employee" . . . . . . . . . . . . . . . . . . . . . . 5
1.19 "Employee" . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.20 "Employment Date" . . . . . . . . . . . . . . . . . . . . . . . 6
1.21 "ERISA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.22 "Family Member" . . . . . . . . . . . . . . . . . . . . . . . . 6
1.23 "Fiduciary" . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.24 "Forfeiture" . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.25 "Funds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.26 "Highly Compensated Employee" . . . . . . . . . . . . . . . . . 6
1.27 "Hour of Service" . . . . . . . . . . . . . . . . . . . . . . . 8
1.28 "Investment Manager" . . . . . . . . . . . . . . . . . . . . . . 8
1.29 "Leased Employee" . . . . . . . . . . . . . . . . . . . . . . . 8
1.30 "Matching Contribution" . . . . . . . . . . . . . . . . . . . . 8
1.31 "Matching Contribution Account" . . . . . . . . . . . . . . . . 8
1.32 "Non-Highly Compensated Work Force" . . . . . . . . . . . . . . 8
1.33 "Operating Profits" . . . . . . . . . . . . . . . . . . . . . . 9
1.34 "Participant" . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.35 "Participating Company" . . . . . . . . . . . . . . . . . . . . 9
1.36 "Plan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.37 "Plan Quarter" . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.38 "Plan Year" . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.39 "Profits" . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
i.
<PAGE> 3
<TABLE>
<S> <C>
1.40 "Qualified Domestic Relations Order" . . . . . . . . . . . . . . 10
1.41 "Qualified Participant" . . . . . . . . . . . . . . . . . . . . 10
1.42 "Regulations" . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.43 "Retirement" . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.44 "Salary Deferral Program" . . . . . . . . . . . . . . . . . . . 10
1.45 "Section 401(k) Contribution" . . . . . . . . . . . . . . . . . 10
1.46 "Section 401(k) Election" . . . . . . . . . . . . . . . . . . . 10
1.47 "Severance Date" . . . . . . . . . . . . . . . . . . . . . . . . 10
1.48 "Severance Period" . . . . . . . . . . . . . . . . . . . . . . . 10
1.49 "Trust Agreement" . . . . . . . . . . . . . . . . . . . . . . . 10
1.50 "Trustee" . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.51 "Trust Fund" . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.52 "Valuation Date" . . . . . . . . . . . . . . . . . . . . . . . . 11
1.53 "Vesting Service" . . . . . . . . . . . . . . . . . . . . . . . 11
1.54 Additional Terms . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE II SERVICE DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . 12
2.1 Break in Service . . . . . . . . . . . . . . . . . . . . . . . . 12
2.2 Hour of Service . . . . . . . . . . . . . . . . . . . . . . . . 12
2.3 Employment Date . . . . . . . . . . . . . . . . . . . . . . . . 12
2.4 Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.5 Severance Date . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.6 Severance Period . . . . . . . . . . . . . . . . . . . . . . . . 15
2.7 Vesting Service . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE III PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.1 Eligibility Rules . . . . . . . . . . . . . . . . . . . . . . . 17
3.2 Cessation and Resumption of Participation . . . . . . . . . . . 18
3.3 Suspended Participation . . . . . . . . . . . . . . . . . . . . 18
3.4 Salary Continuation Period . . . . . . . . . . . . . . . . . . . 18
ARTICLE IV SECTION 401(k) ELECTIONS . . . . . . . . . . . . . . . . . . . . 19
4.1 Section 401(k) Election . . . . . . . . . . . . . . . . . . . . 19
4.2 Application . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.3 Filing Period . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.4 Modification/Termination . . . . . . . . . . . . . . . . . . . . 20
4.5 Absences . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.6 Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.7 Excess 401(k) Contributions . . . . . . . . . . . . . . . . . . 22
4.8 Excess Dollar Deferrals . . . . . . . . . . . . . . . . . . . . 23
4.9 Supplemental Section 401(k) Election . . . . . . . . . . . . . . 25
ARTICLE V SECTION 401(k) CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . 26
5.1 Contributions . . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
ii.
<PAGE> 4
<TABLE>
<S> <C>
5.2 Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE VI MATCHING CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . 27
6.1 Matching Contributions . . . . . . . . . . . . . . . . . . . . . 27
6.2 Allocation of Matching Contributions . . . . . . . . . . . . . . 28
6.3 Remittance to Trustee . . . . . . . . . . . . . . . . . . . . . 28
6.4 Form of Contribution . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE VII LIMITATIONS ON MATCHING CONTRIBUTIONS/
AGGREGATE CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.1 Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.2 Remedial Action Through Interaction with Article IV . . . . . . 30
7.3 Aggregate Limitation . . . . . . . . . . . . . . . . . . . . . . 31
7.4 Remedial Action . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE VIII DISCRETIONARY CONTRIBUTIONS/FORFEITURES . . . . . . . . . . . . 33
8.1 Discretionary Contributions . . . . . . . . . . . . . . . . . . 33
8.2 Remittance to Trustee . . . . . . . . . . . . . . . . . . . . . 34
8.3 Form of Contribution . . . . . . . . . . . . . . . . . . . . . . 34
8.4 Allocation of Discretionary Contributions and Forfeitures . . . 34
8.5 Discretionary Contribution Accounts . . . . . . . . . . . . . . 35
ARTICLE IX LIMITATIONS ON ALLOCATIONS . . . . . . . . . . . . . . . . . . . 36
9.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.2 Limitation on Annual Addition . . . . . . . . . . . . . . . . . 36
9.3 Remedial Action . . . . . . . . . . . . . . . . . . . . . . . . 37
9.4 Reallocation of Forfeitures . . . . . . . . . . . . . . . . . . 38
ARTICLE X INVESTMENT OF CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . 39
10.1 Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE XI VALUATION OF ACCOUNTS . . . . . . . . . . . . . . . . . . . . . . 41
11.1 Adjustment of Accounts . . . . . . . . . . . . . . . . . . . . . 41
11.2 Allocation of Investment Experience . . . . . . . . . . . . . . 41
11.3 Value of Accounts . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE XII TRUST AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . 43
12.1 Trust Agreement . . . . . . . . . . . . . . . . . . . . . . . . 43
12.2 Inconsistent Provisions . . . . . . . . . . . . . . . . . . . . 43
ARTICLE XIII RIGHT TO BENEFITS . . . . . . . . . . . . . . . . . . . . . . . 44
13.1 Disability, Retirement or Death . . . . . . . . . . . . . . . . 44
13.2 Other Termination of Employment . . . . . . . . . . . . . . . . 44
13.3 Forfeitures . . . . . . . . . . . . . . . . . . . . . . . . . . 45
</TABLE>
iii.
<PAGE> 5
<TABLE>
<S> <C>
13.4 Transfer of Accounts . . . . . . . . . . . . . . . . . . . . . . 46
13.5 Beneficiary Designation . . . . . . . . . . . . . . . . . . . . 46
13.6 Additional Vesting Service . . . . . . . . . . . . . . . . . . . 47
ARTICLE XIV DISTRIBUTION OF BENEFITS . . . . . . . . . . . . . . . . . . . . 49
14.1 Time of Distribution . . . . . . . . . . . . . . . . . . . . . . 49
14.2 Form of Distribution . . . . . . . . . . . . . . . . . . . . . . 51
14.3 Death Before Full Distribution . . . . . . . . . . . . . . . . . 51
14.4 Deferred Distribution . . . . . . . . . . . . . . . . . . . . . 51
14.5 Rollovers . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
ARTICLE XV WITHDRAWALS . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
15.1 Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
15.2 No Other Resources Reasonably Available . . . . . . . . . . . . 54
15.3 Written Request Required . . . . . . . . . . . . . . . . . . . . 54
15.4 Penalty Tax . . . . . . . . . . . . . . . . . . . . . . . . . . 55
ARTICLE XVI ADMINISTRATION OF THE PLAN . . . . . . . . . . . . . . . . . . . 56
16.1 Plan Administrator . . . . . . . . . . . . . . . . . . . . . . . 56
16.2 Delegation of Duties . . . . . . . . . . . . . . . . . . . . . . 56
16.3 Administrative Procedures . . . . . . . . . . . . . . . . . . . 57
16.4 Duties of Other Fiduciaries . . . . . . . . . . . . . . . . . . 57
16.5 Investment Responsibility . . . . . . . . . . . . . . . . . . . 57
16.6 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
16.7 Fiduciary Responsibilities . . . . . . . . . . . . . . . . . . . 58
16.8 Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
16.9 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . 58
ARTICLE XVII AMENDMENTS TO THE PLAN . . . . . . . . . . . . . . . . . . . . 59
17.1 Power of Amendment . . . . . . . . . . . . . . . . . . . . . . . 59
ARTICLE XVIII TERMINATION OF PLAN OR
DISCONTINUANCE OF CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . 59
18.1 Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
18.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . 60
18.3 Effect of Discontinuance . . . . . . . . . . . . . . . . . . . . 60
18.4 Determination of Partial Termination . . . . . . . . . . . . . . 61
ARTICLE XIX MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . 62
19.1 SOURCE OF BENEFITS . . . . . . . . . . . . . . . . . . . . . . . 62
19.2 Satisfaction of Claims . . . . . . . . . . . . . . . . . . . . . 62
19.3 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . 62
19.4 Gender and Number . . . . . . . . . . . . . . . . . . . . . . . 62
19.5 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . 62
</TABLE>
iv.
<PAGE> 6
<TABLE>
<S> <C>
19.6 Alienation of Benefits . . . . . . . . . . . . . . . . . . . . . 62
19.7 Return of Contributions . . . . . . . . . . . . . . . . . . . . 63
19.8 Merger of Plan . . . . . . . . . . . . . . . . . . . . . . . . . 63
19.9 Conditional Restatement . . . . . . . . . . . . . . . . . . . . 63
19.10 Limitation of Rights; Employment Relationship . . . . . . . . . 64
19.11 No Escheat . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
19.12 Leased Employees . . . . . . . . . . . . . . . . . . . . . . . . 64
19.13 Transfers from Other Qualified Plans . . . . . . . . . . . . . . 65
19.14 No Reversion . . . . . . . . . . . . . . . . . . . . . . . . . . 65
ARTICLE XX BENEFIT CLAIMS . . . . . . . . . . . . . . . . . . . . . . . . . 66
20.1 Claims Procedure . . . . . . . . . . . . . . . . . . . . . . . . 66
20.2 Denial of Benefits . . . . . . . . . . . . . . . . . . . . . . . 66
20.3 Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
ARTICLE XXI QUALIFIED DOMESTIC RELATIONS ORDERS . . . . . . . . . . . . . . 68
21.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 68
21.2 Notification . . . . . . . . . . . . . . . . . . . . . . . . . . 69
21.3 Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
21.4 Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
ARTICLE XXII TOP-HEAVY RULES . . . . . . . . . . . . . . . . . . . . . . . . 71
22.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 71
22.2 Top-Heavy Status . . . . . . . . . . . . . . . . . . . . . . . . 74
22.3 Minimum Benefit . . . . . . . . . . . . . . . . . . . . . . . . 74
ARTICLE XXIII LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
23.1 Loan Applications . . . . . . . . . . . . . . . . . . . . . . . 76
23.2 Loan Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
23.3 Offset Rights . . . . . . . . . . . . . . . . . . . . . . . . . 77
23.4 Liquidation of Account . . . . . . . . . . . . . . . . . . . . . 78
23.5 Earmarked Investment . . . . . . . . . . . . . . . . . . . . . . 78
</TABLE>
v.
<PAGE> 7
INTRODUCTION
The Komag, Incorporated Savings and Deferred Profit-Sharing Plan
is hereby restated in its entirety effective January 1, 1994 in order to bring
the Plan into compliance with final Treasury Regulations applicable to
tax-qualified plans under Code Sections 401(a) and 401(k). The Plan was
previously restated effective July 1, 1992 as a combined salary deferral program
under Section 401(k) of the Code and deferred profit-sharing plan under Section
401(a) of the Code. The salary deferral program became effective on July 1,
1990, and contributions to such program are governed by the terms and conditions
of Articles IV - VII. The deferred profit-sharing program became effective as of
January 1, 1990, and contributions to such program are governed by the terms and
conditions of Article VIII.
ARTICLE I
DEFINITIONS
Whenever used in this Plan, the following terms shall have the
meanings indicated below:
1.1 "Accounts" shall mean one or more of the accounts maintained
for a Participant in accordance with the provisions of the Plan.
1.2 "Administrator" shall mean the person or entity appointed
pursuant to Section 16.1 to administer the Plan.
1.3 "Affiliated Company" shall mean (i) the Company, (ii) any
other corporation which is a member of a controlled group of corporations which
includes the Company, as determined in accordance with the ownership rules of
Section 1563 of the Code, without regard, however, to subsection (a)(4) or
(e)(3)(C) of such Section 1563, (iii) any other employer entity which is under
common control with the Company, as determined in accordance with Regulations
issued under Section 414(c) of the Code, (iv) any affiliated service group, as
determined under Section 414(m) of the Code, or (v) any other entity required to
be aggregated with the Company pursuant to Regulations issued under Section
414(o) of the Code. For purposes of the limitation on benefits set forth in
Article 9, the determination of whether a corporation is an Affiliated Company
will be made only after substituting the phrase "more than 50 percent" for the
phrase "at least 80 percent" each place the latter phrase appears in Section
1563(a)(1) of the Code.
1.4 "Beneficiary" shall mean the person or persons entitled, in
accordance with Section 13.5, to receive benefits under the Plan following the
death of a Participant.
1.5 "Break in Service" shall have the meaning assigned to such
term in Section 2.1.
<PAGE> 8
1.6 "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
1.7 "Company Contributions" shall mean any and all Matching
Contributions or Discretionary Contributions made to the Plan from time to time
by one or more Participating Companies pursuant to the provisions of Articles VI
and VIII.
1.8 "Company" shall mean Komag, Incorporated or any successor
corporation to all or a major portion of the assets or business of Komag,
Incorporated which shall by appropriate action adopt the Plan.
1.9 "Compensation" shall mean (I) all current compensation, wages
and earnings paid to a Participant during the Plan Year, whether in cash or
property, for services performed while an Employee, but only to the extent such
compensation, wages and earnings constitute wages within the meaning of Code
Section 3401(a) which are reportable on Form W-2 or other compensation for which
the Participant must be furnished a written statement under Code Section 6041(d)
or 6051(a)(3), plus (II) any Section 401(k) Contributions made on the
Participant's behalf under this Plan and (III) any other elective contributions
made on the Participant's behalf pursuant to salary deferral or reduction
arrangements maintained by one or more Affiliated Companies under Sections 125,
401(k), 408(k) and 403(b) of the Code.
Not more than Two Hundred Twenty Eight Thousand Eight Hundred
Sixty Dollars ($228,860.00) of Compensation shall be taken into account per
Employee for any Plan Year beginning on or after January 1, 1992, subject,
however, to future cost-of-living adjustments authorized from time to time
pursuant to Code Section 415(d). In addition to any other applicable limitations
set forth in the Plan and notwithstanding any other provisions of the Plan to
the contrary, for Plan Years beginning on or after January 1, 1994, the annual
dollar amount of Compensation taken into account under the Plan per Employee
shall not exceed One Hundred Fifty Thousand Dollars ($150,000.00), as adjusted
from time to time for increases in the cost-of-living in accordance with Code
Section 401(a)(17)(B). The cost-of-living adjustment in effect for a calendar
year shall apply to any period (not exceeding twelve (12) months) over which
Compensation is to be determined (the "determination period") beginning in such
calendar year. Should the determination period consist of less than twelve (12)
months, then the annual compensation limit shall be multiplied by a fraction,
the numerator of which is the number of months in the determination period and
the denominator of which is twelve (12). For Plan Years beginning on or after
January 1, 1994, any reference in the Plan to the limitation under Code Section
401(a)(17) shall mean the annual compensation limit set forth above.
Compensation shall be relevant for certain designated purposes
under the Plan. Included among such purposes are: (i) the identification of
Highly Compensated Employees and (ii) the determination of whether the Section
401(k) Contributions and the Company Contributions under the Plan discriminate
in favor of such Highly Compensated
2.
<PAGE> 9
Employees. The following additional rules shall be applicable in determining
Compensation for these clause (i) and clause (ii) specified purposes:
(A) Each Highly Compensated Employee who is either a five percent
(5%) owner or among the ten (10) highest-paid individuals on the basis of
his/her own Compensation shall, together with his/her Family Members, be treated
as a single Employee under the Plan, and the Compensation of such single
Employee shall be deemed to include the Compensation of such Highly Compensated
Employee and his/her Family Members.
(B) In applying the $228,860.00 or $150,000 limitation above, as
applicable, any Highly Compensated Employee who is either a five percent (5%)
owner or among the ten (10) highest-paid individuals on the basis of his/her own
Compensation shall, together with his/her spouse and any lineal descendants who
have not attained age nineteen (19) by the close of the Plan Year in question,
be treated as a single Employee under the Plan.
1.10 "Discretionary Contributions" shall mean the contributions to
the Plan made by one or more Participating Companies pursuant to the provisions
of Section 8.1.
1.11 "Discretionary Contribution Account" shall mean the Account
maintained for each Participant in accordance with Section 8.5.
1.12 "Deferred Compensation Account" shall have the meaning
assigned to such term in Section 5.2.
1.13 "Deferred Profit-Sharing Program" shall mean that portion of
the Plan pursuant to which Discretionary Contributions are to be made by the
Participating Companies and allocated to the Discretionary Contribution Accounts
of Qualified Participants, all in accordance with the terms and conditions of
Article VIII.
1.14 "Directors" shall mean the Board of Directors of the Company.
1.15 "Disability" shall mean the permanent incapacity of a
Participant, by reason of any physical or mental impairment or illness expected
to result in death or to continue for a period of not less than twelve (12)
consecutive months, to perform his/her usual duties for the Company or other
Affiliated Company employing him/her.
1.16 "Effective Date" shall, except as otherwise expressly
provided herein, mean January 1, 1994.
1.17 "Eligible Earnings" shall, for purposes of the Section 401(k)
Contributions permitted under the Plan, mean (i) all direct and current cash
compensation, including commissions, overtime, double time, vacation pay,
advanced vacation pay, jury duty pay, bereavement or sick pay, retroactive pay,
Company or personal holiday pay, shift or other differentials, and all foreign
service/temporary assignment premiums or differentials,
3.
<PAGE> 10
which a Participating Company pays to an Eligible Employee while a Participant
in the Plan, (ii) the Section 401(k) Contributions made on behalf of such
Eligible Employee for the Plan Year, and (iii) any amounts contributed by such
Eligible Employee on a pre-tax basis during the Plan Year pursuant to salary
deferral or reduction arrangements in effect with one or more Affiliated
Companies under Code Section 125 or 408(k). "Eligible Earnings" shall, for
purposes of the allocation of Discretionary Contributions and Forfeitures under
Section 8.4 of the Plan, mean the base salary paid by a Participating Company to
an Eligible Employee while a Participant in the Plan.
Under no circumstances shall the Eligible Earnings of any
individual include, whether for Section 401(k) Contribution or Company
Contribution or Forfeiture purposes, (i) any remuneration paid to the Employee
prior to such Employee's commencement of participation in the Deferred
Profit-Sharing Program (for purposes of applying the provisions of Article VIII)
or prior to such Employee's eligibility for participation in the Salary Deferral
Program (for purposes of applying the provisions of Articles IV - VII), (ii) any
remuneration paid in the form of reimbursed moving and relocation expenses or
home mortgage differential payments or any income reportable by reason of
automobile allowances provided by one or more Affiliated Companies, (iii) any
income realized upon exercise of non-qualified stock options or upon
disqualifying dispositions of stock acquired under incentive stock options, (iv)
any income recognized by the Employee under Section 79 of the Code by reason of
group-term life insurance coverage in excess of Fifty Thousand Dollars
($50,000.00), (v) any amounts paid to the Employee under the Company's
Management Bonus Plan (or its successor) or Cash Profit-Sharing Plan (or its
successor), (vi) any other special bonuses or other incentive-type payments,
(vii) any Company Contributions made to this Plan, and (viii) any Affiliated
Company contributions made to any other pension, profit sharing, stock bonus,
group insurance or other employee welfare plan now or hereafter adopted.
The following additional rules shall be applicable in determining
an individual's Eligible Earnings under the Plan:
(A) Each Highly Compensated Employee who is either a five percent
(5%) owner or among the ten (10) highest-paid individuals on the basis of
Compensation (as determined under Section 1.9) shall, together with his/her
spouse and any lineal descendants who have not attained age nineteen (19) by the
close of the Plan Year in question, be treated as a single Employee unit under
the Plan, and the Eligible Earnings of such single Employee unit shall be deemed
to include the Eligible Earnings of such Highly Compensated Employee and his/her
spouse and lineal descendants who have not attained age nineteen (19) by the
close of such Plan Year.
(B) Not more than Two Hundred Twenty Eight Thousand Eight Hundred
Sixty Dollars ($228,860.00) of Eligible Earnings shall be taken into account per
Employee unit under subparagraph (A) for any Plan Year beginning on or after
January 1, 1992, subject, however, to future cost-of-living adjustments
authorized from time to time pursuant
4.
<PAGE> 11
to Code Section 415(d). In addition to any other applicable limitations set
forth in the Plan and notwithstanding any other provisions of the Plan to the
contrary, for Plan Years beginning on or after January 1, 1994, the annual
dollar amount of Eligible Earnings taken into account under the Plan per
Employee shall not exceed the limitation under Code Section 401(a)(17).
(C) The Eligible Earnings determined for any single Employee unit
pursuant to subparagraphs (A) and (B) above shall be applied in the calculation
of (I) the Section 401(k) Contributions (expressed as a percentage of such
Eligible Earnings) which the members of such Employee unit may elect to be made
on their behalf under the Plan and (II) the Company Contributions and
Forfeitures which are to be allocated to such members in accordance with
Articles VI and VIII of the Plan. Accordingly, for purposes of such
calculations, the Eligible Earnings determined for such Employee unit shall be
allocated among the members in proportion to the dollar amount of their
individual Eligible Earnings prior to imposition of the subparagraph (B)
limitation above.
1.18 "Eligible Employee" shall mean each and every Employee of a
Participating Company. However, there shall be excluded from the class of
Eligible Employees for all purposes under the Plan:
(i) any Employee whose terms and conditions of employment
are established under a collective bargaining agreement pursuant to which
retirement benefits have been the subject of good-faith bargaining,
(ii) any Employee who is a non-resident alien with no
earned income (within the meaning of Code Section 911(b)) from a Participating
Company which constitutes income from sources within the United States (within
the meaning of Code Section 861(a)(3)),
(iii) any Employee who works on a part-time basis of less
than thirty-two (32) Hours of Service per week per Plan Year,
(iv) any Employee who is a member of any other group or
class of Employees which the Board of Directors of any Participating Company
determines, pursuant to a policy which does not discriminate in favor of Highly
Compensated Employees, not to include as Eligible Employees under the Plan, and
(v) any Employee who has separated from active employment
with the Company or any other Affiliated Company by reason of Disability.
1.19 "Employee" shall mean (i) any person who is employed by any
Affiliated Company to render personal services and whose earnings constitute
wages under Section 3121(a) of the Code and (ii) any individual who performs
services for an Affiliated
5.
<PAGE> 12
Company if such individual is required to be treated as a Leased Employee under
the provisions of Section 19.12 of the Plan.
1.20 "Employment Date" shall have the meaning assigned to such
term in Section 2.3.
1.21 "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended from time to time.
1.22 "Family Member" shall mean, with respect to any Highly
Compensated Employee, such Employee's spouse, any lineal ascendant or descendant
of such Employee and the spouses of such lineal ascendants or descendants.
1.23 "Fiduciary" shall have the meaning assigned to such term in
Section 16.7.
1.24 "Forfeiture" shall mean that portion of a Discretionary
Contribution or Matching Contribution Account which is forfeited under Section
13.3 following the Participant's termination of Employee status. Only
Forfeitures from the Discretionary Contribution Accounts of Participants shall
be subject to reallocation to other Participants in accordance with Section 8.4.
1.25 "Funds" shall have the meaning assigned to such term in
Section 10.1.
1.26 "Highly Compensated Employee" shall mean an Employee in
Service status who
(i) is, at any time during the Determination Period in
effect for the Plan Year, a five percent (5%) owner (as determined under Section
416(i)(1) of the Code) of any Affiliated Company;
(ii) received aggregate Compensation for such
Determination Period in excess of Seventy Five Thousand Dollars ($75,000.00);
(iii) received aggregate Compensation for such
Determination Period in excess of Fifty Thousand Dollars ($50,000.00) and is a
member of the Top-Paid Group for the same Determination Period;
(iv) is an officer of any Affiliated Company and received
aggregate Compensation for the Determination Period in excess of fifty percent
(50%) of the amount in effect under Code Section 415(b)(1)(A) at the start of
such Determination Period; or
(v) is one of the one hundred (100) Employees whose
Compensation for the current Plan Year is the highest and either (A) is, at any
time during the current
6.
<PAGE> 13
Plan Year, a five percent (5%) owner (as determined under Section 416(i)(1) of
the Code) of any Affiliated Company or (B) would fall within category (ii),
(iii) or (iv) above for the current Plan Year if the current Plan Year were
substituted for the Determination Period in each of such categories.
The dollar amounts of aggregate Compensation specified in
categories (ii) and (iii) shall be automatically adjusted each Plan Year
beginning after December 31, 1987 to take into account increases in the cost of
living, in accordance with Regulations issued under Code Section 415(d).
The Determination Period in effect for each Plan Year shall be the
calendar year immediately preceding that Plan Year.
For purposes of category (iii) above, the term "Top-Paid Group"
shall mean the top twenty percent (20%) of all Employees (including any Leased
Employees treated as Employees pursuant to Section 19.12) when ranked on the
basis of the Compensation paid to such Employees for the Plan Year under
consideration. However, for purposes of calculating the number of Employees in
the Top-Paid Group, the following Employees shall be excluded:
a. Employees who have completed less than six (6) months of
Service,
b. Employees who normally work less than 17-1/2 hours per week,
c. Employees who normally work six (6) months or less during the
Determination Period,
d. Employees who have not attained age 21,
e. Employees who have incurred a Severance Date prior to the start
of the Plan Year under consideration, and
f. Employees who are excluded from the definition of Eligible
Employee under Section 1.18 by reason of subparagraph (ii) thereof.
For purposes of category (iv) above, the number of officers to be
treated as Highly Compensated Employees shall not exceed the lesser of
(A) fifty (50) Employees or (B) ten percent (10%) of all Employees, disregarding
any Employees excluded in determining the Top Paid Group as provided in
subparagraphs a through f above.
The following two additional rules shall be in effect for
determining whether an Employee is a member of the group of Highly Compensated
Employees for any Plan Year under consideration:
7.
<PAGE> 14
1. If an Employee is a Family Member of a five percent (5%) owner
or any of the ten (10) highest-paid individuals in the group of
Highly-Compensated Employees for the Plan Year under consideration, then such
Employee shall not be considered a separate Employee, and any Compensation paid
to such individual shall be treated as Compensation paid to such five percent
(5%) owner or such top ten (10) Highly-Compensated Employee.
2. A former Employee who separates from Service (whether actually
or constructively) shall continue to be treated as a Highly-Compensated Employee
if (A) such Employee was a Highly-Compensated Employee at any time during the
Plan Year in which his/her Severance Date occurs or (B) such Employee was a
Highly-Compensated Employee at any time after attainment of age fifty-five (55).
Leased Employees who are not to be treated as Employees pursuant
to the provisions of Section 19.12 shall not be treated as Employees for
purposes of this Section 1.26.
For purposes of this Section 1.26, the Compensation of each
Employee shall be determined on an aggregate basis as if all the Affiliated
Companies were a single employer entity paying such Compensation. All other
determinations under this Section 1.26 shall be made in accordance with Code
Section 414(q) and the Regulations thereunder.
1.27 "Hour of Service" shall have the meaning assigned to such
term in Section 2.2.
1.28 "Investment Manager" shall have the meaning assigned to such
term in Section 16.5.
1.29 "Leased Employee" shall have the meaning assigned to such
term in Section 19.12.
1.30 "Matching Contribution" shall mean the contributions made to
the Plan by one or more Participating Companies pursuant to the provisions of
Section 6.1.
1.31 "Matching Contribution Account" shall mean the Account
maintained for each Participant in accordance with Section 6.2.
1.32 "Non-Highly Compensated Work Force" shall, for purposes of
Section 19.12, mean the aggregate number of individuals (other than Highly
Compensated Employees) who are either (A) actual full-time Employees of one or
more Affiliated Companies with at least one year of Service under Section 2.4 or
(B) Leased Employees under Section 19.12 (determined without regard to the
exclusion provided by the last sentence thereof).
8.
<PAGE> 15
1.33 "Operating Profits" shall mean the consolidated earnings and
profits of Komag and the other Affiliated Companies for the fiscal year
coincident with the Plan Year, as determined for financial accounting purposes
in accordance with generally accepted accounting principles, adjusted to
exclude: (i) income or franchise taxes for such fiscal year, (ii) any
Discretionary or Matching Contributions made to this Plan for the Plan Year
coincidental with such fiscal year, (iii) any matching contributions made by
Dastek, Inc. (and any companies affiliated with Dastek, Inc.) to the Dastek,
Inc. Deferred Savings Plan, (iv) any amounts accrued by the Affiliated Companies
pursuant to the Komag, Incorporated Management Bonus Plan (or its successor) or
the Komag, Incorporated Cash Profit Sharing Plan (or its successor) for such
fiscal year, (v) any bonus or other incentive payment accrued by the Affiliated
Companies for such fiscal year, (vi) all items of income, gain, loss or expense
for such fiscal year determined by the Directors to be extraordinary or unusual
in nature and not incurred or realized in the ordinary course of business,
whether or not such items would otherwise be considered to be extraordinary in
accordance with the standards established by Opinion No. 30 of the Accounting
Principles Board, and (vii) any profit or loss attributable to the business
operations of any entity acquired by an Affiliated Company during such fiscal
year.
1.34 "Participant" shall mean each Eligible Employee who
participates in the Deferred Profit-Sharing Program and/or Salary Deferral
Program in accordance with the provisions of the Plan.
1.35 "Participating Company" shall mean the Company and any other
Affiliated Company which adopts the Plan with the approval of the Administrator.
Subject to the Administrator's approval, an Affiliated Company may elect to
participate in only the salary deferral program in effect under Articles IV-VII
of the Plan or in only the deferred profit-sharing program in effect under
Article VIII of the Plan. In such event, the Affiliated Company shall be a
Participating Company only with respect to the particular program elected under
the Plan. The Participating Companies in the Plan, as of the Effective Date, are
listed in attached Schedule A.
1.36 "Plan" shall mean the Komag, Incorporated Savings and
Deferred Profit-Sharing Plan, as set forth in this document and in amendments
from time to time made hereto.
1.37 "Plan Quarter" shall mean the three (3)-month period
coincident with each calendar quarter.
1.38 "Plan Year" shall mean the 52-53 week period ending on the
Sunday closest to December 31 each calendar year.
1.39 "Profits" shall mean, for purposes of any and all
Discretionary Contributions made to the Plan, current or accumulated earnings
and profits, as determined for financial accounting purposes in accordance with
generally accepted accounting
9.
<PAGE> 16
principles, but before deduction of the following amounts for the then current
fiscal year: (i) income or franchise taxes and (ii) any Discretionary or
Matching Contributions made to this Plan.
1.40 "Qualified Domestic Relations Order" shall have the meaning
assigned to such term in Section 21.1(d).
1.41 "Qualified Participant" shall, with respect to the
Participant's entitlement to a Section 401(k) Contribution for any payroll
period, have the meaning assigned to such term in Section 5.1; shall, with
respect to the Participant's entitlement to any Matching Contribution for the
Plan Year, have the meaning assigned to such term in Section 6.1; and shall,
with respect to the Participant's entitlement to an allocation of any
Discretionary Contribution (or Forfeiture) for each six (6)-month fiscal period
in effect under the Plan, have the meaning assigned to such term in Section 8.4.
1.42 "Regulations" shall mean the Treasury Regulations of the
Secretary of the Treasury, as issued from time to time.
1.43 "Retirement" shall mean the termination of Employee status on
or after the attainment of age 65.
1.44 "Salary Deferral Program" shall mean the portion of the Plan
pursuant to which Section 401(k) Contributions and Matching Contributions are to
be made on behalf of Qualified Participants in accordance with the terms and
conditions of Article IV - VIII.
1.45 "Section 401(k) Contribution" shall have the meaning assigned
to such term in Section 4.1.
1.46 "Section 401(k) Election" shall have the meaning assigned to
such term in Section 4.1.
1.47 "Severance Date" shall have the meaning assigned to such term
in Section 2.5.
1.48 "Severance Period" shall have the meaning assigned to such
term in Section 2.6.
1.49 "Trust Agreement" shall mean the agreement referred to in
Article XII.
1.50 "Trustee" shall mean the person or persons appointed in
accordance with Article XII.
1.51 "Trust Fund" shall mean all assets held by the Trustee
pursuant to the terms of the Trust Agreement.
10.
<PAGE> 17
1.52 "Valuation Date" shall mean the last business day of each
Plan Quarter and such other date or dates as may be designated by the
Administrator for the valuation of Accounts.
1.53 "Vesting Service" shall have the meaning assigned to such
term in Section 2.7.
1.54 Additional Terms. The following items shall have the
meanings assigned to them in the specific sections of the Plan indicated:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Annual Addition 9.1(a)
Direct Rollover 14.5
Distributee 14.5
Eligible Retirement Plan 14.5
Eligible Rollover Distribution 14.5
Excess Combined Contributions 7.4(b)
Excess Dollar Deferral 4.8(b)
Excess 401(k) Contribution 4.7(b)
Family Group 4.6(c)
Fiduciary 16.7
Key Employee 22.1(a)
Limitation Year 9.1(b)
Maternity Leave 2.5(c)
Other Plan 9.1(a)
Paternity Leave 2.5(c)
Plan Loans 23.2(b)
Remuneration 9.01(c)
Required Beginning Date 13.1(c)
Rollover Account 14.5
Spouse 13.5(f)
Top-Heavy 22.2
Top-Heavy Contribution 22.3
Top-Heavy Contributions Account 22.3
</TABLE>
11.
<PAGE> 18
ARTICLE II
SERVICE DEFINITIONS
2.1 Break in Service. The term "Break in Service" shall mean a
Severance Period of sixty (60) consecutive months or more.
2.2 Hour of Service. The term "Hour of Service" shall mean (i) an
hour for which an Employee is paid or entitled to payment by an Affiliated
Company for the performance of duties, (ii) an hour for which an Employee is
paid or entitled to payment by an Affiliated Company for a period during which
no duties are performed (whether or not the employment relationship has
terminated) on account of vacation, holiday, illness, incapacity (including
Disability), layoff, jury duty, military duty or leave of absence, and (iii) an
hour (to the extent not already credited under clause (i) or (ii) above) for
which back pay for the Employee is awarded or agreed to by an Affiliated
Company, irrespective of mitigation of damages. However, any hour for which an
Employee is directly or indirectly paid under a plan maintained by an Affiliated
Company solely to comply with applicable worker's compensation, unemployment
compensation or disability insurance laws or solely to reimburse the Employee
for medical or medically related expenses incurred by the Employee shall not be
counted as an Hour of Service.
The number of Hours of Service to be credited for periods during
which the Employee performs no duties and the crediting of Hours of Service to
specific Plan Years shall be determined by the Administrator in accordance with
subsections (b) and (c) of Department of Labor Regulations $2530.200b-2. Except
as otherwise provided in Section 2.3 of the Plan, however, not more than 501
Hours of Service shall be credited to an Employee for any single continuous
period during which the Employee performs no duties.
2.3 Employment Date. The term "Employment Date" shall mean the
date on which the Employee first renders an Hour of Service for an Affiliated
Company. However, should an Employee incur a Severance Date and thereafter
return to Service, the following special rules shall be in effect for
determining the Employment Date of such Employee:
(a) Should such Employee incur a Break in Service prior to the
completion of at least twelve (12) months of Service, then such Employee shall,
upon resumption of Service, be treated as a new Employee for eligibility and
vesting purposes, and his/her Employment Date shall be the first day following
such Severance Period on which he/she next renders an Hour of Service.
(b) Should such Employee incur a Severance Period of twelve (12)
consecutive months or more but not otherwise be charged with a new Employment
Date
12.
<PAGE> 19
pursuant to the provisions of subparagraph (a) above, then such Employee shall
retain his/her prior Service credits for eligibility and vesting purposes, but
the applicable Employment Date under Section 2.3 of such Employee shall, for
purposes of accruing future Service credits upon his/her resumption of Service,
be adjusted to the first day following such Severance Period on which the
Employee next renders an Hour of Service.
2.4 Service. The term "Service" shall mean the Participant's
period or periods of employment with the Company or any other Affiliated
Company. Each such period shall begin with the Participant's Employment Date (as
adjusted from time to time under Section 2.3) and end with the first Severance
Date thereafter which marks the start of a Severance Period of twelve (12)
consecutive months or more. Any Severance Period of less than twelve (12)
consecutive months shall be included within the Participant's period of Service.
Accordingly, the overall Service of the Participant shall be comprised of the
period of employment (whether or not continuous) commencing on his/her initial
Employment Date (or his/her new Employment Date under subparagraph (a) of
Section 2.3) and ending with his/her final Severance Date, but there shall be
excluded from Service any intervening Severance Period of twelve (12)
consecutive months or more. In addition, the following special rules shall be
applicable to the determination of the Participant's overall period of Service:
(i) If any pension or profit-sharing plan maintained by a
corporation, partnership, proprietorship or
other business entity which becomes a Participating Company or is merged into,
consolidated with, or all or a substantial part of the assets of which are
acquired by, any Participating Company is deemed under Section 414(a)(1) of the
Code and the applicable Regulations to be a "predecessor plan" to this Plan,
then Service shall include, for each participant in such predecessor plan, all
periods of employment rendered by such person prior to the acquisition or
affiliation which are required to be taken into account for eligibility and
vesting purposes under the predecessor plan.
(ii) To the extent subparagraph (i) is not otherwise
applicable, Service shall include, for each employee of a corporation,
partnership, proprietorship or other business entity which is merged into,
consolidated with, or all or a substantial part of the assets of which are
acquired by, any Participating Company, such periods of employment rendered by
such person to the predecessor employer prior to the acquisition or affiliation
as the Administrator shall deem appropriate; provided such determination shall
not discriminate in favor of Highly Compensated Employees.
(iii) The Participant's overall period of Service shall be
divided into one or more months of Service on the basis that each thirty (30)
days of Service (whether or not completed consecutively) equals one full month
of Service, and for every twelve (12)
13.
<PAGE> 20
months of Service (as so calculated) rendered by the Participant, he/she shall
be credited with one full year of Service.
2.5 Severance Date.
(a) The term "Severance Date" shall mean the earlier of (i) the
date on which the Employee quits, dies, retires or is discharged or (ii) the
date which is twelve (12) months after the commencement date of any other
absence from employment with an Affiliated Company; provided, however, that
layoffs, approved leaves of absence and Maternity and Paternity Leaves shall be
governed by the specific provisions of paragraphs (b), (c) and (d) of this
Section 2.5.
(b) An Employee who is absent from active employment by reason of
a leave of absence approved by the Affiliated Company employing him/her shall
not incur a Severance Date during the period of the leave, provided such
Employee returns to active employment with an Affiliated Company within thirty
(30) days after the expiration date of the period for which such leave of
absence is authorized or (if applicable) prior to the expiration date of any
longer period of time for which the reemployment rights of the Employee are
protected by law. Leaves of absence may be approved for reasons of health,
governmental service, military duty or other purpose. Except as otherwise
provided in Section 2.4, should the Employee fail to return to active employment
with an Affiliated Company within the applicable time period following the
termination of the leave, then such Employee shall (unless such failure is
occasioned by reason of Retirement, death or Disability) be deemed to have
incurred a Severance Date as of the earliest of (i) the date which is twelve
(12) months after the commencement of such leave of absence, (ii) the date on
which the authorized period of such leave expires, or (iii) the date on which
the Employee quits or is discharged. If the Employee fails to return to active
employment within the applicable time period by reason of his/her death,
Disability or Retirement, then such Employee shall be deemed to have incurred a
Severance Date as of the date of such death, Disability or Retirement.
(c) An Employee who remains absent from active employment by
reason of a Maternity or Paternity Leave (as defined below) shall be deemed to
incur a Severance Date upon the earlier of (i) the date which is twenty-four
(24) months after the commencement of the Maternity or Paternity Leave or (ii)
the date on which the Employee quits, dies or retires; provided, however, that
solely for purposes of calculating Vesting Service under Section 2.7, only the
first twelve (12) months of such Maternity or Paternity Leave shall be taken
into account as Service and the next twelve (12) months of such Maternity or
Paternity Leave shall be considered neither a period of Service nor a Severance
Period. In the event the Maternity or Paternity Leave also constitutes an
approved leave of absence under Section 2.5(b), then the provisions of Section
2.5(b), to the extent they provide more favorable Service credits to the
Employee than the corresponding provisions of this Section 2.5(c), shall be
controlling.
14.
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For purposes of this Section 2.5(c), a Maternity or Paternity
Leave is any absence of the Employee, whether or not approved under Section
2.5(b), which is directly attributable to and caused by:
(i) such Employee's pregnancy,
(ii) the birth of a child of such Employee,
(iii) the placement of a child with such Employee in
connection with the Employee's adoption of such child, or
(iv) the care of such child for a period beginning with such
birth or placement.
The Administrator may, as a condition to the Employee's
qualification for the special benefits provided under this Section 2.5(c),
require the Employee to provide written confirmation and other substantiation as
follows:
(1) on or before the commencement of the leave, that the
absence will qualify as a Maternity or Paternity Leave in accordance with the
criteria specified in clauses (i) through (iv) above, and
(2) on or before the completion of the leave, the number
of days for which the Maternity or Paternity Leave was in fact incurred for one
or more of the causes specified in clauses (i) through (iv) above.
(d) An Employee who is absent from active employment by reason of
a temporary layoff shall not incur a Severance Date during the period of such
layoff, provided such Employee returns to active employment with an Affiliated
Company within thirty (30) days after the date the Employee is recalled to
employment. If the Employee fails to return to active employment prior to the
expiration of such thirty (30) day period or if the Employee is not recalled to
employment within twelve (12) months after the commencement date of the layoff,
then such Employee shall be deemed to have incurred a Severance Date as of the
earliest of (i) the date which is twelve (12) months after the commencement date
of the layoff, (ii) the date of the recall or (iii) the date the Employee quits,
dies, retires or is discharged.
2.6 Severance Period. The term "Severance Period" shall mean the
period commencing with the Employee's Severance Date and ending with the date on
which such Employee next performs an Hour of Service.
2.7 Vesting Service. The term "Vesting Service" shall mean the
Employee's overall period of Service measured from his/her applicable Employment
Date under Section 2.3 (including Service rendered prior to the Effective Date)
and ending with his/her final
15.
<PAGE> 22
Severance Date; provided, however, that there shall not be
included within such Vesting Service any Severance Period or Periods of twelve
(12) consecutive months or more. The Employee's period of Vesting Service shall
be divided into one or more months of Vesting Service on the basis that each
thirty (30) days of Vesting Service (whether or not completed consecutively)
equals one full month of Vesting Service, and for each twelve (12) months of
Vesting Service (as so calculated) rendered by the Employee, he/she shall be
credited with one year of Vesting Service. HOWEVER, ALL VESTING SERVICE CREDITED
UNDER THE PLAN SHALL BE SUBJECT TO THE FOLLOWING RULE: UNDER NO CIRCUMSTANCES
SHALL SERVICE RENDERED BY A PARTICIPANT AFTER A BREAK IN SERVICE BE TAKEN INTO
ACCOUNT IN DETERMINING THE PERCENTAGE TO WHICH THE PARTICIPANT IS VESTED IN THAT
PORTION OF HIS/HER DISCRETIONARY CONTRIBUTION OR MATCHING CONTRIBUTION ACCOUNT
(INCLUDING ALLOCATED FORFEITURES) ATTRIBUTABLE TO DISCRETIONARY OR MATCHING
CONTRIBUTIONS WHICH ACCRUED PRIOR TO SUCH BREAK IN SERVICE.
The duration of any Break in Service, whether for purposes of this
Section 2.7 or Section 2.3 above, shall be measured from the Severance Date in
effect for the Employee pursuant to Section 2.5 (including the special
provisions of Section 2.5(c)).
16.
<PAGE> 23
ARTICLE III
PARTICIPATION
3.1 Eligibility Rules.
(a) Every Eligible Employee who is a Participant in the Plan on
the Effective Date of this restatement shall continue to participate in both the
Deferred Profit-Sharing Program and the Salary Deferral Program in accordance
with the provisions of this restatement. Every other Eligible Employee shall
become a Participant in the Deferred Profit-Sharing Program immediately upon
completion of six (6) months of Service and shall be eligible for participation
in the Salary Deferral Program on the first day of the first Plan Quarter
following completion of at least six (6) months of Service.
(b) Should the individual not be an Eligible Employee on the
applicable commencement date for participation under subparagraph (a) above,
then such individual shall not become a Participant in the Deferred
Profit-Sharing Plan, nor be eligible for participation in the Salary Deferral
Program, until the first day thereafter on which he/she is in fact an Eligible
Employee.
(c) Should an individual leave the employ of Komag Material
Technology, Inc. (or any other company or entity affiliated with Komag Material
Technology, Inc. within the meaning of such term under Section 1.3 of the Komag
Material Technology, Inc. Deferred Savings Plan) at a time when the Company owns
fifty percent (50%) or more of the outstanding voting stock of Komag Material
Technology, Inc. and transfer directly to Eligible Employee status under this
Plan, without any intervening period of other employment, then such individual
shall, for purposes of satisfying the applicable Service requirement specified
in subparagraph (a) above, be immediately credited with the same period of
eligibility service with which such individual is credited under the Komag
Material Technology, Inc. Deferred Savings Plan immediately prior to his/her
transfer to Eligible Employee status. Accordingly, if such individual is
credited with at least six (6) months of service for eligibility purposes under
the Komag Material Technology, Inc. Deferred Savings Plan at the time of
transfer to Eligible Employee status under this Plan, then such individual shall
be immediately eligible for participation in both the Salary Deferral Program
and the Deferred Profit-Sharing Program under this Plan.
(d) Should an individual leave the employ of Dastek, Inc. (or any
other company or entity affiliated with Dastek, Inc. within the meaning of such
term under Section 1.3 of the Dastek, Inc. Deferred Savings Plan) at a time when
the Company owns fifty percent (50%) or more of the outstanding voting stock of
Dastek, Inc. and transfer directly to Eligible Employee status under this Plan,
without any intervening period of other employment, then such individual shall,
for purposes of satisfying the applicable Service requirement specified in
subparagraph (a) above, be credited under this Plan with the same period of
eligibility service with which such individual is credited under the Dastek,
Inc.
17.
<PAGE> 24
Deferred Savings Plan immediately prior to his/her transfer to Eligible Employee
status. Accordingly, if such individual is credited with at least six (6) months
of service for eligibility purposes under the Dastek, Inc. Deferred Savings Plan
at the time of transfer to Eligible Employee status under this Plan, then such
individual shall be immediately eligible for participation in the Salary
Deferral and Deferred Profit-Sharing Programs in effect under this Plan.
3.2 Cessation and Resumption of Participation. Every Eligible
Employee who becomes a Participant shall continue to participate in the Plan
until his/her Accounts shall have been distributed under Article XIV or
forfeited under Section 13.3. However, no further Section 401(k) or Company
Contributions or Forfeitures shall be allocated to the Accounts of a Participant
after the Participant ceases to be an Eligible Employee, other than any
allocations required to be made pursuant to Sections 5.2, 6.2 and 8.4 for the
Plan Year in which such cessation of Eligible Employee status occurs. A former
Participant who resumes Eligible Employee status after his/her Accounts have
been distributed or forfeited shall become a Participant again on the first day
following such resumption of Eligible Employee status; provided, however, that
Section 401(k) Contributions shall not resume on behalf of such Participant
prior to the first day of the first Plan Quarter following his/her resumption of
Eligible Employee status.
3.3 Suspended Participation. A Participant who ceases to be an
Eligible Employee but who does not separate from Service shall become a
suspended Participant. Unless an applicable collective bargaining agreement
otherwise provides, no Section 401(k) Contributions or Company Contributions or
Forfeitures shall be allocated to the Accounts of such Participant which are
based on his/her Eligible Earnings for such suspension period. However, such
Participant shall continue to accrue Vesting Service during the suspension
period.
3.4 Salary Continuation Period. A Participant who ceases active
Employee status but who is otherwise to receive salary continuation payments for
a specified period after which he/she is not expected to return to active
Employee status shall not be treated as a Participant during the salary
continuation period. Accordingly, no Section 401(k) Contributions and no Company
Contributions or Forfeitures shall be allocated to the Accounts of such
individual on the basis of his/her salary continuation payments, and such
individual shall not accrue any additional Vesting Service during the salary
continuation period.
18.
<PAGE> 25
ARTICLE IV
SECTION 401(K) ELECTIONS
4.1 Section 401(k) Election. Each individual eligible for
participation in the Salary Deferral Program may file a Section 401(k) Election
with the Administrator indicating his/her election to have the Participating
Company employing him/her (i) reduce his/her Eligible Earnings each pay period
by a specified dollar amount or specified percentage (in any increment of one
(1)%) up to the maximum dollar amount or percentage permitted by the
Administrator for the Plan Year, but in no event more than Nine Thousand Two
Hundred Forty Dollars ($9,240.00) in the aggregate per calendar year, and (ii)
contribute the specified amount to the Plan as a Section 401(k) Contribution on
his/her behalf under Section 5.1. Section 401(k) Contributions shall not include
any amounts deferred pursuant to the Salary Deferral Program which are properly
distributed pursuant to Section 9.3 as excess Annual Additions. The dollar
limitation of clause (i) shall be automatically adjusted each calendar year
after the 1995 calendar year to the extent permitted under Code Section 402(g)
and the Regulations issued thereunder.
4.2 Application. Each individual eligible for participation in the
Salary Deferral Program may make a Section 401(k) Election by filing the
prescribed application form with the Administrator. The application shall
specify the dollar or percentage reduction in such individual's Eligible
Earnings (up to the annual dollar maximum) and shall authorize the Participating
Company employing such Participant to deduct the specified amount from his/her
Eligible Earnings each pay period and pay the same into the Trust Fund on
his/her behalf.
4.3 Filing Period. The initial Section 4.2 application may be
filed, within the period designated by the Administrator, prior to the date the
individual first becomes eligible for participation in the Salary Deferral
Program in accordance with Section 3.1 and shall become effective as of the
first day of the first payroll period coinciding with or next following such
eligibility date, whereupon such individual shall become an actual Participant
in the Salary Deferral Program. An individual who does not file the Section 4.2
application during the first application period for which he/she is eligible may
subsequently file such application at any time thereafter, and the Section
401(k) Election of such individual shall become effective as of the first day of
the first Plan Quarter following the date the Section 4.2 application is filed,
whereupon such individual shall become an actual Participant in the Salary
Deferral Program. In no event shall the Section 401(k) Election be effective for
any Eligible Earnings paid to the individual prior to the date he/she becomes an
actual Participant in the Salary Deferral Program.
19.
<PAGE> 26
4.4 Modification/Termination.
(a) The Section 401(k) Election of a Participant in the Salary
Deferral Program shall remain in effect until modified or terminated in
accordance with the provisions of subparagraphs (b) and (c) below.
(b) The Participant may modify the Section 401(k) Election in
effect for him/her at the time by filing the prescribed modification form with
the Administrator. In the form the Participant shall indicate the new dollar
amount or percentage (subject to the annual dollar maximum) by which his/her
Eligible Earnings are to be reduced and the corresponding increase or decrease
in the Section 401(k) Contributions to be made on his/her behalf. The
modification shall become effective as of the first day of the first Plan
Quarter following the date the form is filed.
(c) The Participant may terminate his/her Section 401(k) Election
at any time upon written notice to the Administrator, and the termination shall
become effective as of the first day of the first payroll period beginning not
later than fifteen (15) days after the date such notice is filed. The Section
401(k) Election of a Participant shall automatically terminate upon his/her
cessation of Eligible Employee status, and a new Section 401(k) Election for
such Participant shall not subsequently become effective prior to the first day
of the first Plan Quarter following his/her resumption of Eligible Employee
status.
4.5 Absences. The Section 401(k) Election of a Participant shall
be automatically suspended as of the first day of the first payroll period
following the commencement of an authorized but unpaid leave of absence under
Section 2.5(b), an unpaid Maternity or Paternity Leave under Section 2.5(c) or a
layoff under Section 2.5(d). Should the Participant return from such leave of
absence as an Eligible Employee, then his/her Section 401(k) Election shall be
automatically reinstated, effective as of the first day of the first Plan
Quarter following such return, at the rate in effect at the time the leave of
absence commenced, unless the Participant makes a new Section 401(k) Election
under this Article IV prior to the date of such reinstatement.
4.6 Limitation. (a) The Section 401(k) Contributions allocable to
the Deferred Compensation Accounts of Participants for any Plan Year must
satisfy one of the deferral percentage tests specified below:
(i) The actual deferral percentage (as defined below) for
Eligible Employees who are among the group of Highly Compensated Employees for
such Plan Year must not be more than the product of (i) the actual deferral
percentage for all other Eligible Employees as a group and (ii) 1.25; or
(ii) The actual deferral percentage for Eligible Employees
who are among the group of Highly Compensated Employees for such Plan Year must
not be more
20.
<PAGE> 27
than two (2) percentage points greater than the actual deferral percentage for
the remaining Eligible Employees, and the actual deferral percentage for
Eligible Employees within such group of Highly Compensated Employees must not be
more than the product of (i) the actual deferral percentage for the remaining
Eligible Employees and (ii) 2.0.
(b) For purposes of making the calculations required under this
Section 4.6, the following provisions shall be in effect:
(i) The actual deferral percentage for any group of
Eligible Employees shall be the average of the ratios (calculated separately for
each Eligible Employee in such group) of (i) the aggregate amount of Section
401(k) Contributions actually allocated for the Plan Year to the Deferred
Compensation Account of each Eligible Employee in such group to (ii) the
Compensation paid to such Eligible Employee for the Plan Year.
(ii) The actual deferral percentage for each Highly
Compensated Employee who is either a five percent (5%) owner or among the ten
(10) highest-paid individuals (based on his/her own Compensation) shall be
deemed to be the actual deferral percentage for all members of the Family Group
of which such Highly Compensated Employee is a member. The Family Group shall
include such Highly Compensated Employee plus all other Eligible Employees who
are Family Members of such individual. Accordingly, the Section 401(k)
Contributions made on behalf of the members of such Family Group and the
Compensation of each such Family Member shall be added together in calculating
the actual deferral percentage for such Highly Compensated Employee, as if all
Eligible Employees within such Family Group were one Highly Compensated
Employee, and those members of the Family Group who are not themselves Highly
Compensated Employees shall not be taken into account for purposes of
determining the actual deferral percentage for the Plan Year for all Eligible
Employees who are not Highly Compensated Employees.
(iii) If a Highly Compensated Employee participating in
this Plan is also eligible for the same Plan Year to participate in another cash
or deferred arrangement maintained by any Affiliated Company, then the actual
deferral percentage of such Highly Compensated Employee shall be determined
under this Section 4.6 by treating all the cash or deferred arrangements in
which he/she is eligible to participate as one arrangement.
(c) If this Plan and any other plan or plans maintained by any
Affiliated Company are treated as a single plan for purposes of Code Section
401(a)(4) or 410(b), then the actual deferral percentage for each group of
Eligible Employees shall be calculated under this Section 4.6 by treating the
cash or deferred arrangements under this Plan and such other plan or plans as a
single arrangement.
21.
<PAGE> 28
4.7 Excess 401(k) Contributions.
(a) If the Section 401(k) Contributions otherwise allocable to the
Deferred Compensation Accounts of Participants for the Plan Year would not
satisfy one of the deferral percentage tests specified in Section 4.6, then
either or both of the remedial actions set forth in subparagraphs (a) and (b)
below shall be taken.
(i) The Administrator may, by unilateral action effected
at any time during the Plan Year, reduce the Section 401(k) Elections of one or
more Participants who are among the group of Highly Compensated Employees to the
maximum deferral percentage permissible for such Participant or Participants
without contravention of the requirement that the aggregate Section 401(k)
Contributions made on behalf of all Participants who are Highly Compensated
Employees satisfy one of the deferral percentage tests of Section 4.6.
(ii) The Excess 401(k) Contributions made for the Plan
Year on behalf of Participants who are among the group of Highly Compensated
Employees shall be distributed to them (together with any income allocable to
such Excess Contributions) as a current cash payment, subject to all applicable
withholding taxes, prior to the close of the immediately succeeding Plan Year.
[In order for the Company to avoid an excise tax under Section 4979 of the Code,
such distribution would have to be made within 2 1/2 months after the close of
the Plan Year.]
(b) For purposes of subparagraph (a) above, the term "Excess
401(k) Contribution" shall mean for each Highly Compensated Employee the amount
by which (i) the Section 401(k) Contributions (expressed as a percentage of
Compensation) actually credited for the Plan Year to his/her Deferred
Compensation Account exceeds (ii) the maximum deferral percentage permissible
for such individual without contravention of the requirement that the aggregate
Section 401(k) Contributions on behalf of all Participants who are Highly
Compensated Employees satisfy one of the deferral percentage tests of Section
4.6. The clause (ii) percentage applicable to each Highly Compensated Employee
shall be determined in accordance with the following process: first, the actual
deferral percentage for the Highly Compensated Employee with the highest such
percentage shall be reduced until such reduced percentage equals the greater of
(A) the actual deferral percentage required in order to allow the actual
deferral percentage for all Highly Compensated Employees to satisfy the
limitation of Section 4.6 or (B) the actual deferral percentage of the Highly
Compensated Employee with the next highest percentage; then, the process shall
be repeated in the order of the actual deferral percentages for the Highly
Compensated Employees, beginning with the Employee with the next highest
percentage, until the limitation of Section 4.6 is satisfied for the aggregate
Section 401(k) Contributions made on behalf of all Highly Compensated Employees.
(c) Any distributions which are to be made pursuant to this
Section 4.7 shall be effected in compliance with the following provisions:
22.
<PAGE> 29
(i) The distribution to the affected Highly Compensated
Employees shall be made in proportion to their share of Excess 401(k)
Contributions for the Plan Year.
(ii) The income allocable to the Excess 401(k)
Contribution shall be calculated by multiplying (A) the income allocable to the
Participant's Deferred Compensation Account for the Plan Year for which such
contribution is made by (B) a fraction the numerator of which is the Excess
401(k) Contribution made on the Participant's behalf for such Plan Year and the
denominator of which is the balance credited to the Deferred Compensation
Account of such Participant on the last day of such Plan Year, decreased by the
earnings and increased by the losses allocable to such Account for the Plan
Year.
(iii) The amount of Excess 401(k) Contributions shall be
reduced by any Excess Dollar Deferrals previously distributed to the Participant
under Section 4.8(a) for his/her taxable year coincident with such Plan Year.
(iv) The Excess 401(k) Contribution, together with the
income thereon, distributed to the Participant shall, at the time of such
distribution, be deducted from the Participant's Deferred Compensation Account.
(v) Should the actual deferral percentage of a Highly
Compensated Employee be determined on the basis of the Compensation and Section
401(k) Contributions of the Family Group pursuant to Section 4.6(b)(ii), then
the Excess 401(k) Contribution of such Highly Compensated Employee shall be
determined and distributed as follows: first, the Excess 401(k) Contribution
attributable to the Family Group shall be determined by adding together the
Section 401(k) Contributions and the Compensation, respectively, of all Family
Members whose Section 401(k) Contributions and Compensation are taken into
account in calculating the actual deferral percentage of such Highly Compensated
Employee pursuant to Section 4.6(b)(ii); and then the Excess 401(k) Contribution
so determined shall be allocated among those Family Members in proportion to the
Section 401(k) Contributions of each Family Member and distributed to them in
accordance with such allocation.
4.8 Excess Dollar Deferrals.
(a) If any Participant in this Plan also participates in any other
Code Section 401(k) arrangement maintained by one or more Affiliated Companies,
then this Plan and such other arrangement shall, for purposes of applying the
maximum dollar limitation of Section 4.1 to such Participant, be treated as a
single Code Section 401(k) arrangement. Accordingly, the total amount of Code
Section 401(k) contributions made on behalf of such Participant under this Plan
and any such other arrangement shall in each calendar year be limited to the
applicable dollar amount in effect for such calendar year under Section 4.1.
23.
<PAGE> 30
(b) In the event that (A) any Participant in this Plan also
participates in any other Code Section 401(k) arrangement maintained by entities
unrelated to the Affiliated Companies and (B) the Section 401(k) Contributions
otherwise allocable to the Participant's Deferred Compensation Account under
this Plan, would, when added to the Code Section 401(k) contributions made on
his/her behalf for the same calendar year under such other arrangement, exceed
the applicable dollar limitation in effect for that calendar year under Section
4.1, then either or both of the remedial actions set forth in subparagraphs (i)
and (ii) below shall be taken.
(i) The Administrator may, by unilateral action effected
at any time during the calendar year, reduce the Section 401(k) Election of such
Participant to the maximum deferral percentage permissible for such Participant
so that his/her aggregate Section 401(k) Contributions for the calendar year
ending with the Plan Year will not exceed the applicable dollar limitation set
forth in Section 4.1.
(ii) The Excess Dollar Deferral made for the Plan Year on
behalf of such Participant shall be distributed (together with any income
allocable to such Excess Dollar Deferral) as a current cash payment, subject to
all applicable withholding taxes, within three and one-half (3-1/2) months after
the close of the Plan Year.
(c) For purposes of this Section 4.8, the term "Excess Dollar
Deferral" shall mean the amount by which the Section 401(k) Contributions made
on behalf of the Participant during the calendar year coincidental with the Plan
Year, when added to the other Code Section 401(k) contributions made on his/her
behalf under any Section 401(k) arrangement maintained by entities unrelated to
the Affiliated Companies under this Plan, exceed the applicable dollar maximum
set forth in Section 4.1. However, no Section 401(k) Contributions under this
Plan which become Excess Dollar Deferrals for a particular calendar year by
reason of any Code Section 401(k) contributions made on behalf of the
Participant under such other arrangement shall be distributed from this Plan,
unless the Participant provides the Administrator with written notice of (i) the
amount of the Code Section 401(k) contributions made on his/her behalf under the
other arrangement for the same calendar year and (ii) the amount of the Section
401(k) Contributions under this Plan which he/she wishes to have distributed as
an Excess Dollar Deferral hereunder. Such notice must be given to the
Administrator no later than March 1 of the immediately succeeding calendar year.
(d) The Excess Dollar Deferral, together with the income thereon,
distributed to the Participant shall, at the time of such distribution, be
deducted from the Participant's Deferred Compensation Account.
(e) The income allocable to the Excess Dollar Deferral shall be
calculated by multiplying (A) the income allocable to the Participant's Deferred
Compensation Account for the Plan Year coincidental with the calendar year for
which such contribution is made by (B) a fraction the numerator of which is the
Excess Dollar Deferral made on the
24.
<PAGE> 31
Participant's behalf for such calendar year and the denominator of which is the
balance credited to the Deferred Compensation Account of such Participant on the
last day of the Plan Year coincidental with such calendar year, decreased by the
earnings and increased by the losses allocable to the Account for such Plan
Year.
(f) The amount of Excess Dollar Deferrals shall be reduced by any
Excess 401(k) Contributions previously distributed to the Participant under
Section 4.7(b) for such Plan Year. Excess Dollar Deferrals shall be treated as
Annual Additions under Section 9.1 of the Plan, unless such amounts are
distributed no later than the first April 15 following the close of the
Participant's taxable year.
4.9 Supplemental Section 401(k) Election. Should the Administrator
determine, prior to the close of the Plan Year, that additional Section 401(k)
Contributions may be made on behalf of one or more Participants without
contravention of the requirement that the aggregate Section 401(k) Contributions
for Participants who are among the group of Highly Compensated Employees satisfy
one of the deferral percentage tests of Section 4.7 for such Plan Year, then:
(i) the Administrator may, in its discretion, permit each
such Participant to file a supplemental Section 401(k) Election for such Plan
Year directing the Participating Company employing him/her to reduce his/her
Eligible Earnings for one or more remaining pay periods within such Plan Year by
an additional specified amount, and
(ii) the Participating Company employing such individual
shall effect the requested reduction and shall for such Plan Year make an
additional Section 401(k) Contribution on behalf of such individual in the
amount specified.
25.
<PAGE> 32
ARTICLE V
SECTION 401(K) CONTRIBUTIONS
5.1 Contributions.
(a) Each Participating Company shall make a Section 401(k)
Contribution each payroll period on behalf of each Qualified Participant. For
purposes of the Section 401(k) Contribution, a Participant shall be considered a
Qualified Participant if:
(i) such Participant is an Eligible Employee during the
payroll period for which the Section 401(k) Contribution is to be made;
(ii) such Participant has Eligible Earnings for such
payroll period from the Participating Company making the Section 401(k)
Contribution; and
(iii) such Participant has a valid Section 401(k) Election
in effect for such payroll period.
(b) The Section 401(k) Contribution on behalf of each Qualified
Participant shall be equal each payroll period to the amount by which the
Eligible Earnings otherwise payable to such Participant for such payroll period
by the Participating Company is reduced in accordance with the Section 401(k)
Election in effect for such Participant.
(c) Section 401(k) Contributions shall be paid directly to the
Trustee in cash, either in one lump sum at the end of each month or in a series
of equal or unequal payments at the end of each payroll period within such
month.
5.2 Allocation. The Administrator shall maintain a Deferred
Compensation Account for each Participant which shall be credited with all
Section 401(k) Contributions made on the Participant's behalf. Such Account
shall be adjusted periodically to reflect the Participant's share of the
earnings and losses of the Trust Fund attributable to the Section 401(k)
Contributions credited to the Account. Each Participant shall at all times have
a fully-vested and non-forfeitable interest in his/her Deferred Compensation
Account.
26.
<PAGE> 33
ARTICLE VI
MATCHING CONTRIBUTIONS
6.1 Matching Contributions.
(a) Each Participating Company may, in its sole discretion and
without any obligation to do so, make a Matching Contribution each Plan Quarter
on behalf of each Qualified Participant. For purposes of any such Matching
Contribution, a Participant shall be considered a Qualified Participant if:
(i) such Participant has a valid Section 401(k) Election
in effect at any time during the Plan Quarter for which the Matching
Contribution is to be made;
(ii) the Participating Company has made one or more
Section 401(k) Contributions on behalf of such Participant for the Plan Quarter
for which the Matching Contribution is to be made; and
(iii) such Participant (A) is an Eligible Employee on the
last day of the Plan Quarter for which the Matching Contribution is to be made,
or (B) has ceased Eligible Employee status during such Plan Quarter by reason of
Retirement, death or Disability, or (C) has during such Plan Quarter transferred
directly from Eligible Employee status under this Plan, without any intervening
period of other employment, to the employ of Komag Material Technology, Inc. (or
any other company or entity affiliated with Komag Material Technology, Inc.
within the meaning of such term under Section 1.3 of the Komag Material
Technology, Inc. Deferred Savings Plan) at a time when the Company owns fifty
percent (50%) or more of the outstanding voting stock of Komag Material
Technology, Inc. and is an eligible employee (within the meaning of such term
under Section 1.14 of the Komag Material Technology, Inc. Deferred Savings Plan)
at the end of such Plan Quarter, or (D) has during such Plan Quarter transferred
directly from Eligible Employee status under this Plan, without any intervening
period of other employment, to the employ of Dastek, Inc. (or any other company
or entity affiliated with Dastek, Inc. within the meaning of such term under
Section 1.3 of the Dastek, Inc. Deferred Savings Plan) at a time when the
Company owns fifty percent (50%) or more of the outstanding voting stock of
Dastek, Inc. and is an eligible employee (within the meaning of such term under
Section 1.14 of the Dastek, Inc. Deferred Savings Plan) at the end of such Plan
Quarter.
(b) The Matching Contribution made on behalf of each Qualified
Participant for a particular Plan Quarter shall be equal to that percentage of
the Section 401(k) Contributions allocated to such Participant's Deferred
Compensation Account for the Plan Quarter which the Administrator determines to
be the appropriate percentage match for such Plan Quarter, subject to any
specified dollar maximum per Participant.
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(c) The Administrator will announce the percentage match to be in
effect for each Plan Quarter of a particular Plan Year prior to the start of
that Plan Year.
6.2 Allocation of Matching Contributions. The Administrator shall
maintain a Matching Contribution Account for each Participant which shall be
credited with all Matching Contributions made on the Participant's behalf
pursuant to the provisions of Section 6.1. Such Account shall be adjusted
periodically to reflect the Participant's share of the gains and losses of the
Trust Fund attributable to the Matching Contributions credited to the Account.
Each Participant shall vest in his/her Matching Contribution in accordance with
the provisions of Article XIII.
6.3 Remittance to Trustee. Each Participating Company shall make
its required Matching Contribution for the Plan Quarter directly to the Trustee
within the time limits prescribed under applicable State and Federal tax laws
for the current deductibility thereof.
6.4 Form of Contribution. Subject to the approval of the
Directors, one or more Participating Companies may make their Matching
Contributions for one or more Plan Quarters in shares of the Company's common
stock rather than in cash. If any Matching Contribution is made in shares of the
Company's common stock, such shares shall be valued at the average of the
closing selling prices per share of such common stock for the ten (10) trading
days ending immediately prior to the date on which such shares are contributed
to the Plan.
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ARTICLE VII
LIMITATIONS ON MATCHING CONTRIBUTIONS/
AGGREGATE CONTRIBUTIONS
7.1 Limitation.
(a) The Matching Contributions allocable for the Plan Year to the
Accounts of Eligible Employees who are among the group of Highly Compensated
Employees must satisfy one of the contribution percentage tests specified below:
(i) The contribution percentage (as defined below) for
such Highly Compensated Employees must not be more than the product of (i) the
contribution percentage for all other Eligible Employees as a group and (ii)
1.25; or
(ii) The contribution percentage for the Highly
Compensated Employees must not be more than two (2) percentage points greater
than the contribution percentage for the remaining Eligible Employees, and the
contribution percentage for such Highly Compensated Employees must not exceed
the product of (i) the contribution percentage for the remaining Eligible
Employees and (ii) 2.0.
(b) For purposes of making the calculations required under this
Section 7.1, the following provisions shall be in effect:
(i) The contribution percentage for any group of Eligible
Employees shall be the average of the ratios (calculated separately for each
Eligible Employee in such group) of (i) the aggregate amount of Matching
Contributions actually allocated for the Plan Year to the Account of each
Eligible Employee in such group to (ii) the Compensation received by such
Eligible Employee during the Plan Year.
(ii) The contribution percentage of a Highly Compensated
Employee who is either a five percent (5%) owner or among the ten (10)
highest-paid individuals (based on his/her own Compensation) shall be equal to
the contribution percentage of all members of the Family Group of which such
Highly Compensated Employee is a member. The Family Group shall include such
Highly Compensated Employee plus all other Eligible Employees who are Family
Members of such individual. Accordingly, the Matching Contribution made on
behalf of the members of the Family Group and the Compensation of each such
Family Member shall be taken into account in determining the contribution
percentage for the Eligible Employees in such group as if the Family Group were
one Highly Compensated Employee, and members of the Family Group who are not
Highly Compensated Employees shall not be taken into account for purposes of
determining the contribution percentages for all Eligible Employees who are not
Highly Compensated Employees.
29.
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(iii) If a Highly Compensated Employee participating in
this Plan is also eligible for the same Plan Year to participate in any other
plan or plans maintained by an Affiliated Company to which after-tax employee
contributions, matching employer contributions or qualified non-elective
employer contributions are made, then the contribution percentage for such
individual shall be calculated under this Section 7.1 by treating this Plan and
such other plan or plans as a single plan.
(iv) If this Plan and any other plan or plans maintained
by an Affiliated Company to which after-tax employee contributions, matching
employer contributions or qualified non-elective employer contributions are made
are to be treated as a single plan for purposes of Code Section 410(a)(4) or
410(b), then the contribution percentage for each group of Eligible Employees
shall be calculated under this Section 7.1 by treating this Plan and such other
plan or plans as a single plan.
7.2 Remedial Action Through Interaction with Article IV.
(a) In the event that one or more dollars of Section 401(k)
Contributions are distributed to a Participant as an Excess Section 401(k)
Contribution under Section 4.7 or as an Excess Dollar Deferral under Section
4.8, then the Participant shall not be entitled to any Matching Contribution on
the Section 401(k) Contributions so distributed. Accordingly, any Matching
Contribution which may have previously been made upon the distributed Section
401(k) Contributions shall be deducted from the Participant's Matching Account,
together with the income allocable to such deducted contributions, and shall be
applied to fund any future Matching Contributions required pursuant to the
provisions of Section 6.2.
(b) By reason of such interaction, together with the income
allocable to such deducted contributions, between the distribution of Excess
Section 401(k) Contributions and Excess Dollar Deferrals and the deduction of
the Matching Contributions thereon from the Participant's Matching Account,
compliance with the Section 4.6 limitations of the Plan applicable to the
Participant's Section 401(k) Contributions shall automatically assure compliance
with the Section 7.1 limitations of the Plan applicable to the Matching
Contributions which may be allocated for the Plan Year to the Matching Accounts
of Participants who are among the group of Highly Compensated Employees.
However, should the contribution percentage of any Highly Compensated Employee
who participates in both this Plan and any other plan maintained by one or more
Affiliated Companies to which after-tax employee contributions or matching
employer contributions are made for the same Plan Year exceed the applicable
limitation of Section 6.1, then the remedial action provided under such other
plan shall be taken, in addition to the action required under this Plan, to
assure that the contribution percentage for such Highly Compensated Employee
does not cause the Section 7.1 limitation to be exceeded for such Plan Year.
(c) The income allocable to any Matching Contributions which are
deducted from the Matching Contribution Account of a Highly Compensated Employee
pursuant to
30.
<PAGE> 37
the remedial provisions of this Section 7.2(c) shall be calculated by
multiplying (A) the income allocable to the Matching Contribution Account for
the Plan Year for which such Matching Contributions are made by (B) a fraction
the numerator of which is the Matching Contributions to be deducted from such
Account and the denominator of which is the balance credited to such Account on
the last day of such Plan Year, decreased by the earnings and increased by the
losses allocable to such Account for the Plan Year.
7.3 Aggregate Limitation. The Section 401(k) Contributions and the
Matching Contributions for the Plan Year allocable to the Accounts of
Participants who are among the group of Highly Compensated Employees must on an
aggregate basis satisfy one of the following alternative tests:
(i) The sum of the actual deferral percentage (as defined
in Section 4.6) and the contribution percentage (as defined in Section 7.1) for
the group of Highly Compensated Employees must not for such Plan Year exceed the
sum of (A) the product of 1.25 and the greater of (i) the actual deferral
percentage for the group of non-Highly Compensated Employees or (ii) the
contribution percentage for the group of non-Highly Compensated Employees and
(B) two percentage points plus the lesser of the percentage determined under
clause (i) or (ii) above, but in no event may the amount determined under this
clause (B) exceed 200% of the lesser of the clause (i) or (ii) percentage above.
(ii) The sum of the actual deferral percentage and the
Contribution Percentage for the group of Highly Compensated Employees must not
for such Plan Year exceed the sum of (A) the product of 1.25 and the lesser of
(i) the actual deferral percentage for the group of non-Highly Compensated
Employees or (ii) the Contribution Percentage for the group of non- Highly
Compensated Employees and (B) two percentage points plus the greater of the
percentage determined under clause (i) or (ii) above, but in no event may the
amount determined under this clause (B) exceed 200% of the greater of the clause
(i) or (ii) percentage above.
7.4 Remedial Action. If the Matching Contributions and Section
401(k) Contributions otherwise allocable for the Plan Year to the Accounts of
Highly Compensated Employees would not when combined satisfy one of the
aggregate percentage tests specified in Section 7.4, then the following
provisions shall become applicable:
(a) Within two and one-half (2-1/2) months after the close
of the Plan Year, the Excess Combined Contributions made for such Plan Year on
behalf of one or more Participants who are among the group of Highly Compensated
Employees, together with any income allocable to such Excess Combined
Contributions, shall be reduced to zero, first through the deduction and
distribution from the Deferred Compensation Accounts of such Participants of any
Section 401(k) Contributions (together with the income allocable thereto) for
such Plan Year which are not otherwise entitled to any Matching Contribution for
that Plan Year, and then through the simultaneous (i) deduction and distribution
from their Deferred Compensation Accounts of a portion of their Section 401(k)
Contributions
31.
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(together with the income allocable thereto) for such Plan Year which are
entitled to a Matching Contribution for that Plan Year and (ii) deduction from
their Matching Contribution Accounts of the Matching Contributions (together
with the income allocable thereto) made on those deducted and distributed
Section 401(k) Contributions.
(b) The term "Excess Combined Contributions" shall mean for each
Highly Compensated Employee the amount by which the (I) Matching Contributions
and the Section 401(k) Contributions (expressed as a percentage of Compensation)
actually credited for the Plan Year to his/her Accounts, determined after any
remedial actions required by Sections 4.7 and 7.2 have been taken, exceeds (II)
the maximum combined percentage permissible for such individual without
contravention of the requirement that the combined Matching Contributions and
Section 401(k) Contributions satisfy the aggregate percentage test of Section
7.4. The clause (II) percentage applicable to each Highly Compensated Employee
shall be determined in accordance with the following process: first, the
combined aggregate percentage for the Highly Compensated Employee with the
highest such percentage shall be reduced until such reduced percentage equals
the greater of (A) the aggregate percentage required in order to allow the
combined Matching Contributions and Section 401(k) Contributions on behalf of
all Highly Compensated Employees to satisfy the limitations of Section 7.4 or
(B) the combined contribution percentage of the Highly Compensated Employee with
the next highest percentage; then, the process shall be repeated in the order of
the combined contribution percentage for the Highly Compensated Employees,
beginning with the Employee with the next highest percentage, until the
limitation of Section 7.4 is satisfied for the combined Matching Contributions
and Section 401(k) Contributions made on behalf of all Highly Compensated
Employees.
(c) Remedial action under subparagraph (a) above shall be effected
with respect to the Highly Compensated Employees in proportion to their Excess
Combined Contributions for the Plan Year.
(d) The income allocable to any Section 401(k) Contributions
deducted from the Participant's Deferred Compensation Account pursuant to
subparagraph (a) above and the income allocable to any Matching Contributions
deducted from his/her Matching Contribution Account shall be determined in
accordance with the same income allocation procedures in effect under Section
4.7(c) and Section 7.2(c), respectively, and shall be deducted from the
Participant's Deferred Compensation Account and Matching Contribution Account
concurrently with the remedial subparagraph (a) action.
(e) Any Matching Contributions deducted from the Participant's
Matching Contribution Account pursuant to the provisions of Section 7.2 or
Section 7.4 shall nevertheless be treated as an Annual Addition under Section
9.2 for the Plan Year for which such Matching Contributions are made. All such
Matching Contributions deducted from the Matching Contribution Accounts of
Participants pursuant to Section 7.2 or Section 7.4 shall be applied to the
satisfaction of future Matching Contributions required under Section 6.1.
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ARTICLE VIII
DISCRETIONARY CONTRIBUTIONS/FORFEITURES
8.1 Discretionary Contributions.
(a) For each six (6)-month fiscal period for which the Plan is in
effect, the Directors shall determine the portion (if any) of the Operating
Profits for that six (6)-months fiscal period which is to be contributed to the
Plan as the Discretionary Contribution for that fiscal period. The Directors
shall have complete discretion in specifying the percentage of the Operating
Profits for each six (6)-month fiscal period which is to serve as the
Discretionary Contribution to this Plan for that period. Such percentage may
vary from fiscal period to period, and there may be no such Discretionary
Contribution for one or more such fiscal periods. Discretionary Contributions
may, in the sole discretion of the Directors, be made for one or more fiscal
periods for which there are no Operating Profits. The first (6)-month fiscal
period for which a Discretionary Contribution may be made each Plan Year shall
be coincident with the first two (2) fiscal quarters within that Plan Year, and
the second such six (6)-fiscal month period shall be coincident with the last
two (2) fiscal quarters with that Plan Year.
(b) Once the Directors establish the percentage of Operating
Profits for the six (6)-month fiscal period which is to serve as the
Discretionary Contribution to be made for that period, each Participating
Company shall be required to contribute, solely out of its current or
accumulated Profits, a portion of that Discretionary Contribution to this Plan
for allocation to the Qualified Participants (within the meaning of Section 8.4)
employed by that Participating Company for all or part of that fiscal period.
Such portion shall be determined by multiplying the aggregate Discretionary
Contribution for the fiscal period by a fraction, the numerator of which is the
aggregate Eligible Earnings which such Participating Company paid to Qualified
Participants for the fiscal period for which such Discretionary Contribution is
made and the denominator of which is the total amount of Eligible Earnings paid
to all Qualified Participants under this Plan for that fiscal period.
(c) To the extent any Participating Company lacks sufficient
Profits to make the Discretionary Contribution required of it under subparagraph
(b) for any fiscal period, the other Affiliated Companies participating in this
Plan shall, out of their respective Profits, make the contribution on behalf of
the Qualified Participants employed by such Participating Company. In no event,
however, may any Affiliated Company contribute more than the amount determined
by multiplying the portion of the Discretionary Contribution for which the
Participating Company lacks sufficient Profits by a fraction the numerator of
which is the Affiliated Company's Profits at the end of the fiscal period for
which the contribution is to be made (determined immediately prior to such
contribution but after any other Code Section 404-deductible contributions made
by that Affiliated Company to this Plan for such fiscal period) and the
denominator of which is total Profits of all the Affiliated Companies at the end
of such fiscal period (determined immediately prior to the
33.
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contribution but after any other Code Section 404-deductible contributions made
by those Affiliated Companies to this Plan for such fiscal period).
8.2 Remittance to Trustee. Each semi-annual Discretionary
Contribution shall be paid directly to the Trustee within the time limits
prescribed under applicable State and Federal tax laws for the current
deductibility thereof.
8.3 Form of Contribution. Subject to the approval of the
Directors, one or more Participating Companies may make their semi-annual
Discretionary Contributions in shares of the Company's common stock rather than
in cash. If any Discretionary Contribution is made in shares of the Company's
common stock, such shares shall be valued at the average of the closing selling
price per share of such common stock for the ten (10) trading days ending
immediately prior to the date on which such shares are contributed to the Plan.
8.4 Allocation of Discretionary Contributions and Forfeitures.
(a) For purposes of this Section 8.4, the term "Qualified
Participant" shall mean, with respect to the particular six (6) month fiscal
period for which the semi-annual Discretionary Contribution is made, a
Participant:
(i) who is an Eligible Employee on the last day of such
six (6) month fiscal period, or
(ii) who has ceased Employee status during such six (6)
month fiscal period by reason of Retirement, Disability or death, or
(iii) who has during such six (6) month fiscal period
transferred directly from Eligible Employee status under this Plan, without any
intervening period of other employment, to the employ of Komag Material
Technology, Inc. (or any other company or entity affiliated with Komag Material
Technology, Inc. within the meaning of such term under Section 1.3 of the Komag
Material Technology, Inc. Deferred Savings Plan) at a time when the Company owns
fifty percent (50%) or more of the outstanding voting stock of Komag Material
Technology, Inc. and is an eligible employee (within the meaning of such term
under Section 1.14 of the Komag Material Technology, Inc. Deferred Savings Plan)
on the last day of such six (6) month fiscal period, or
(iv) who has during such six (6) month fiscal period
transferred directly from Eligible Employee status under this Plan, without any
intervening period of other employment, to the employ of Dastek, Inc. (or any
other company or entity affiliated with Dastek, Inc. within the meaning of such
term under Section 1.3 of the Dastek, Inc. Deferred Savings Plan) at a time when
the Company owns fifty percent (50%) or more of the outstanding voting stock of
Dastek Inc. and is an eligible employee (within the meaning
34.
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of such term under Section 1.14 of the Dastek, Inc. Deferred Savings Plan) on
the last day of such six (6) month fiscal period.
(b) Subject to the limitations of Section 9.2, each semi-annual
Discretionary Contribution made by a Participating Company shall be allocated by
the Administrator, as of the last day of the six (6) month fiscal period for
which such contribution is made, to the Discretionary Contribution Accounts of
all Qualified Participants employed by the contributing Participating Company
during that fiscal period. The allocation shall be in the proportion which the
Eligible Earnings paid to each such Qualified Participant by the contributing
Participating Company for such six (6) month fiscal period bears to the
aggregate Eligible Earnings paid to all such Qualified Participants by that
Participating Company for such fiscal period.
(c) Subject to the limitations of Sections 9.2 and 13.3(c), the
Forfeitures (if any) incurred during the Plan Year from the Discretionary
Contribution Accounts of terminating Participants shall be aggregated and
allocated annually by the Administrator, as of the last day of such Plan Year,
among the Discretionary Contribution Accounts of all Qualified Participants in
the proportion which the Eligible Earnings paid to each Qualified Participant
for such Plan Year bears to the aggregate Eligible Earnings paid to all
Qualified Participants for that Plan Year.
8.5 Discretionary Contribution Accounts. The Administrator shall
maintain a Discretionary Contribution Account in the name of each Participant
and shall credit such Account with the Participant's allocable share of any
Discretionary Contributions and Forfeitures under Section 8.4. Such Account
shall be adjusted periodically to reflect the Participant's share of the
earnings, gains and losses of the Trust Fund attributable to the Discretionary
Contributions and Forfeitures credited to the Account. Each Participant shall
vest in his/her Discretionary Contribution Account in accordance with the
provisions of Article XIII.
35.
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ARTICLE IX
LIMITATIONS ON ALLOCATIONS
9.1 Definitions. For purposes of this Article IX, the following
terms shall have the meanings indicated:
(a) "Annual Addition" shall mean for any Limitation Year (i) the
aggregate amount of Company Contributions, Forfeitures and Section 401(k)
Contributions credited to a Participant's Accounts under this Plan, (ii) the
aggregate amount of any Affiliated Company contributions and forfeitures
allocated to the Participant's accounts under any other defined contribution
plans to which one or more Affiliated Companies contribute (collectively, the
"Other Plan"), (iii) the aggregate amount of after-tax employee contributions
made by the Participant to any Other Plan, (iv) any amounts allocated on the
Participant's behalf to an individual medical account (as defined in Code
Section 415(l)(2)) that is part of a defined benefit plan maintained by any
Affiliated Company, and (v) any amounts derived from contributions paid or
accrued after December 31, 1985, in taxable years ending after such date, that
are attributable to post-retirement medical benefits allocated to the separate
account of the Participant as a Key Employee (as defined in Section 22.1(a)
below) under any welfare benefit fund (as defined in Code Section 419(e))
maintained by any Affiliated Company.
(b) "Limitation Year" shall mean the twelve (12)-month period
coincident with the Plan Year or any other consecutive 12-month period from time
to time adopted by the Directors by duly approved resolution.
(c) "Remuneration" shall mean the Compensation paid to the
Participant for the Limitation Year, adjusted, however, to exclude the following
items for such Limitation Year: (I) any Section 401(k) Contributions made on
such individual's behalf under this Plan and (II) any other elective
contributions made on his/her behalf pursuant to salary deferral or reduction
arrangements maintained by one or more Affiliated Companies under Code Sections
125, 401(k), 408(k) and 403(b).
9.2 Limitation on Annual Addition. The total Annual Addition to a
Participant's Accounts under this Plan and any Other Plan shall not for any
Limitation Year exceed the lesser of (i) $30,000 (or, if greater, one-fourth
(1/4) of the dollar limitation in effect under Code Section 415(b)(1)(A)) or
(ii) twenty-five percent (25%) of the Participant's Remuneration for the
Limitation Year. The dollar limitation of clause (i) shall be automatically
adjusted for each Limitation Year beginning after December 31, 1993, to take
into account cost of living increases permitted under Section 415(d) of the Code
and Regulations issued thereunder. The clause (ii) limitation shall not apply to
any contribution for medical benefits (within the meaning of Code Section 401(h)
or Code Section 419(A)(f)(2)) which is otherwise treated as an Annual Addition.
36.
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9.3 Remedial Action. If the Annual Addition with respect
to the Accounts of any Participant under this Plan and any Other Plan would for
any Limitation Year exceed the limitations imposed by Section 9.2, then the
following reductions to such Annual Addition shall be made, in the order
indicated and to the extent necessary to eliminate such excess:
(a) First, the Participant's after-tax employee contributions
under any Other Plan shall be refunded.
(b) Then, any Section 401(k) Contributions made on the
Participant's behalf for the Plan Year coincident with such Limitation Year
which were not entitled to a Matching Contribution under Section 6.1 shall be
distributed to the Participant as a current cash payment, subject to applicable
withholding taxes.
(c) Next, any Section 401(k) Contributions made on the
Participant's behalf for the Plan Year coincident with such Limitation Year
which were entitled to a Matching Contribution under Section 6.1 shall be
distributed to the Participant as a current cash payment, subject to applicable
withholding taxes, and no Matching Contributions shall be made with respect to
the distributed Section 401(k) Contributions. Accordingly, the Matching
Contributions for such Plan Year are to be reduced as follows:
A. To the extent Matching Contributions have not already been made
under the Plan on the Participant's behalf, the reduction shall be effected by
making an appropriate reduction in the aggregate amount of Matching
Contributions required for such Plan Year to take into account the distributed
Section 401(k) Contributions no longer eligible for a match under Section 6.1.
B. To the extent Matching Contributions have already been
allocated to the Participant's Matching Account for the Plan Year coincident
with such Limitation Year, such Matching Contributions (to the extent
attributable to the distributed Section 401(k) Contributions) shall be withdrawn
from the Account and reapplied to the satisfaction of any Matching Contributions
still to be made on behalf of other Participants for such Plan Year. Any
Matching Contributions withdrawn from the Matching Account and not so reapplied
shall be held unallocated in a suspense account and shall be used to reduce the
Matching Contributions required to be made for each succeeding Plan Year until
the suspense account is reduced to zero. No profits or losses attributable to
the assets of the Trust Fund shall be allocated to the suspense account, nor
shall any contributions to the Plan (other than Section 401(k) Contributions) be
made by the Participating Companies while there is an outstanding balance in
such suspense account. Upon the termination of the Plan, any outstanding balance
in the suspense account shall revert to the Company.
(d) Then, the Participant's allocable share of Forfeitures under
this Plan shall be subject to disposition in accordance with the provisions of
Section 9.4.
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(e) Then, the Participant's share of the semi-annual Discretionary
Contributions (if any) for the Plan Year coincident with such Limitation Year
shall be reduced. The reduction shall be effected by (A) assuming, for purposes
of the Section 8.4 allocation for such Plan Year, that the Participant's
Eligible Earnings for each six (6) month fiscal period within the Plan Year are
at a sufficiently reduced level to avoid an allocation of Discretionary
Contributions for such Plan Year which would otherwise be in excess of the
applicable Section 9.2 limitation and (B) making an appropriate reduction in the
aggregate Discretionary Contributions to be allocated to the Participant for
such Plan Year. Such reduction shall have no effect upon any other Qualified
Participant's allocable share of the semi-annual Discretionary Contributions for
such Plan Year.
(f) Finally, the Participant's allocable share of employer
contributions and forfeitures under any Other Plan shall be subject to reduction
or other disposition in accordance with the applicable provisions of such Other
Plan.
9.4 Reallocation of Forfeitures. Should a Participant's allocable
share of Forfeitures for the Limitation Year exceed the amount which may be
allocated to his/her Accounts in accordance with Section 9.2, then such excess
shall be allocated and reallocated, as of the close of that Limitation Year, to
the Discretionary Accounts of all other Qualified Participants in accordance
with Section 8.4, to the extent such allocation or reallocation will not cause
the Section 9.2 limits to be exceeded in such Limitation Year. Any amount not so
allocated as of the close of such Limitation Year shall be credited to a
suspense account and shall be allocated, as of the last day of June and December
in each succeeding Limitation Year, to the Discretionary Accounts of all
Qualified Participants pursuant to Section 8.4, to the extent the allocation
will not cause the Section 9.2 limits to be exceeded in any such Limitation
Year. The Participating Companies shall not, for any Plan Year (other than the
Plan Year in which the excess Forfeitures arise), make any Matching or
Discretionary Contributions or Section 401(k) Contributions if there is an
outstanding balance in the suspense account as of the close of the Limitation
Year coincident with such Plan Year. Under no circumstances shall the suspense
account participate in the periodic allocation of earnings, gains and losses of
the Trust Fund pursuant to Section 11.2.
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ARTICLE X
INVESTMENT OF CONTRIBUTIONS
10.1 Funds.
(a) The assets of the Plan shall be invested by the Trustee in
accordance with the provisions of the Trust Agreement as in effect from time to
time under Section 12.1. Assets of the Plan attributable to Matching
Contributions or Discretionary Contributions may be invested in whole or in part
in shares of the Company's common stock, but in no event may the Deferred
Compensation Account of any Participant be invested in such shares.
(b) The Administrator shall have the authority to establish one or
more investment funds ("Funds") from time to time under the Plan with different
investment objectives and varying degrees of risk and potential for
appreciation.
Such Funds if established may include (without limitation): a
guaranteed investment fund, a fixed income fund, a Company common stock fund, an
equity fund, an index fund, a balanced fund and a money-market fund. If a
guaranteed investment fund is established, such fund shall be invested primarily
in insurance or annuity contracts issued by insurance companies which provide
for the preservation of principal and a fixed rate of return over a prescribed
period. If a fixed income fund is established, it will be invested and
reinvested primarily in (i) fixed-income securities with a maturity in excess of
one year, such as bonds, notes, governmental obligations, certificates of
deposit insured by governmental agencies, (ii) participating interests in
commingled funds of a similar character or (iii) guaranteed-interest contracts
issued by one or more insurance companies qualified to do business in the State
of California. If a Company common stock fund is established, it will be
invested primarily in shares of the Company's common stock and will be available
only for the Matching Contribution and Discretionary Contribution Accounts of
Participants. If an equity fund is established, it will be invested and
reinvested primarily in common stock, preferred stock, debt instruments
convertible into common stock, stock warrants and other stock rights, put or
call options or any other security or instrument evidencing an equity interest
in any business or enterprise, foreign or domestic, or in participating
interests in commingled funds of similar character. If an index fund is
established, it will be invested and reinvested primarily in a broad range of
common stocks which match one or more indexes of publicly traded common stocks
such as the Standard & Poor's 500 Index, the Dow Jones Index or the New York
Stock Exchange Index or in participating interests in one or more commingled
funds invested in any such index. If a balanced fund is established, it will be
invested in a balanced portfolio of (i) equity securities or instruments
convertible into equity, with the objective of long-term capital appreciation,
and (ii) fixed-income debt instruments, such as corporate bonds and governmental
obligations, designed to provide interest income and relative stability of
principal. If a money market fund is established,
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it will be invested and reinvested primarily in fixed-income securities with a
maturity of one year or less or in participating interests in commingled funds
of a similar character.
(c) Should the Administrator establish separate investment funds
under the Plan in accordance with Section 10.1(b), then the Participants may, in
the Administrator's discretion, be granted the right to direct the investment of
their Accounts in one or more of such investment funds, in such percentages as
each Participant shall designate, provided that any such direction shall be made
at such time, in accordance with such procedures and subject to such limitations
as the Administrator shall establish.
(d) Should a Company common stock fund be established, then
directed investments into such fund by Participants subject to the short-swing
trading restrictions of Section 16(b) of the Securities Exchange Act of 1934 and
the subsequent liquidation of those investments at the directive of such
Participants shall be subject to appropriate restrictions established by the
Administrator to assure that the acquisition and disposition of shares of the
Company's common stock under the Plan are exempt transactions for Section 16(b)
short-swing liability purposes.
40.
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ARTICLE XI
VALUATION OF ACCOUNTS
11.1 Adjustment of Accounts. As of each Valuation Date, the
Trustee shall determine the net fair market value of (i) all of the assets in
each of the Funds in effect under Section 10.1 and (ii) all other assets of the
Trust Fund (other than (I) any Section 401(k), Matching or Discretionary
Contributions made as of such Valuation Date and (II) any payments of principal
or interest made on outstanding Article XXIII loans since the preceding
Valuation Date), and the Trustee shall then report such values to the
Administrator. The Administrator shall adjust each Account first to reflect any
allocations made to, or any distributions or withdrawals made from or
Forfeitures incurred by, such Account since the immediately preceding Valuation
Date, to the extent not previously credited or charged thereto and then to
reflect the investment experience allocable to each Account, in accordance with
Section 11.2. If an allocation of Section 401(k), Matching or Discretionary
Contributions or Forfeitures is to be made to the Accounts as of the same
Valuation Date, then the adjustments required under this Article XI shall be
made prior to such allocation.
11.2 Allocation of Investment Experience. As of each Valuation
Date, the Administrator shall adjust each Account invested in one or more Funds
under Section 10.1 to reflect increases or decreases in the value of such Funds
which have occurred for the period since the immediately preceding Valuation
Date. The adjustment shall be effected by crediting each Account at the time
invested in a particular Fund with that portion of the net increase or decrease
in the fair market value of such Fund which is in the same proportion as the
amount of the Account invested in that Fund as of the current Valuation Date
(after all required adjustments under Section 11.1 have been made for such
Valuation Date and appropriately weighted for any Section 401(k) Contributions
or Company Contributions allocated to such Account during the Plan Quarter
ending with such Valuation Date) bears to the aggregate amount of all Accounts
(as so adjusted) invested in that Fund at such time. Increases or decreases in
the fair market value of any other assets of the Trust Fund required to be
valued under Section 11.1, together with any gains or losses attributable to
such assets, shall be allocated to all Accounts at the time invested in such
assets, in proportion to the amount of each Account invested in each such asset
as of the immediately preceding Valuation Date. Payments of principal and
interest on outstanding Article XXIII loans shall be specially allocated as
earmarked investments pursuant to the procedures of Section 23.4.
11.3 Value of Accounts. The value of each Account of a Participant
on any particular date in question shall be deemed to be the net credit balance
of the Account on the Valuation Date coincident with or immediately preceding
the date such value is to be determined, increased by any contributions
allocated to, or decreased by any distributions or withdrawals made from or
Forfeitures incurred by, such Account after such Valuation Date but before the
actual date on which the value of the Account is to be determined.
41.
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The Participant shall receive a written statement of the value of his/her
Deferred Compensation Account at not less than semi-annual intervals each Plan
Year and shall receive a written statement of the aggregate value of his/her
Matching and Discretionary Contribution Accounts at least once each Plan Year.
42.
<PAGE> 49
ARTICLE XII
TRUST AGREEMENT
12.1 Trust Agreement. The Directors may, directly or through a
delegated committee of one or more members of Company management, select and
appoint a Trustee to hold the assets of the Plan, and the Company shall, on
behalf of itself and all other Participating Companies, enter into a Trust
Agreement with the Trustee to provide for the investment, management and control
of the Plan assets. The Trust Agreement shall be a part of the Plan, and the
Trust Fund shall be administered by the Trustee in accordance with the terms and
provisions of the Trust Agreement.
During such time or times when there is no Trustee, the assets of
the Plan shall be held by one or more insurance companies qualified to do
business in the State of California.
12.2 Inconsistent Provisions. To the extent the provisions of the
Plan and any Trust Agreement in effect under the Plan may prove to be
inconsistent or otherwise in conflict with respect to the rights, duties or
obligations of the Trustee, the provisions of the Trust Agreement shall control.
43.
<PAGE> 50
ARTICLE XIII
RIGHT TO BENEFITS
13.1 Disability, Retirement or Death.
(a) A Participant who ceases to be an Employee by reason of
Retirement or Disability shall have a fully-vested and non-forfeitable right to
all his/her Accounts and his/her allocable share (if any) under Section 8.4 of
the Discretionary Contributions and Forfeitures for the Plan Year in which such
Retirement or Disability occurs.
(b) Should a Participant die while an Employee, his/her
Beneficiary shall have a fully-vested and non- forfeitable right to all the
Accounts of such Participant and his/her allocable share (if any) under Section
8.4 of the Discretionary Contributions and Forfeitures for the Plan Year in
which the Participant's death occurs.
13.2 Other Termination of Employment.
(a) If the provisions of Section 13.1 are not otherwise applicable
to the Participant at the time of his/her cessation of Employee status, then
such Participant shall have a fully-vested and non-forfeitable right to:
(i) 100% of his/her Deferred Compensation Account;
(ii) the vested percentage (determined pursuant to Section
13.2(b)) of his/her Matching Contribution Account (including the vested
percentage of his/her allocable share (if any) under Section 6.1 of the Matching
Contribution made for the Plan Year in which such cessation of Employee status
occurs);
(iii) the vested percentage of his/her Discretionary
Contribution Account, as determined pursuant to Section 13.2(b); and
(iv) the vested percentage of his/her Top-Heavy
Contribution Account (if any) under Section 22.3, as determined pursuant to
Section 13.2(b).
(b) The percentage to which a Participant is vested in his/her
Matching Contribution Account, his/her Discretionary Contribution Account and
his/her Top-Heavy Contribution Account (if any) shall be determined on the basis
of his/her years of Vesting Service in accordance with the schedule below:
44.
<PAGE> 51
<TABLE>
<CAPTION>
Years of Vesting Service Vested % of Account
------------------------ -------------------
<S> <C>
Less than 1 0%
1 but less than 2 20%
2 but less than 3 40%
3 but less than 4 60%
4 but less than 5 80%
5 years or more 100%
</TABLE>
13.3 Forfeitures.
(a) Should a Participant (i) incur a Severance Date and thereby
cease to be an Employee prior to the time he/she is one hundred percent (100%)
vested in his/her Matching or Discretionary Contribution Account and (ii)
thereafter receive a distribution of the entire vested portion of such Account
by reason of such cessation of Employee status, then the entire unvested portion
of the Account shall be forfeited at the time the distribution is made. Any
Forfeitures from the Matching Contribution Account shall be applied to reduce
future Matching Contributions under Section 6.1, and any Forfeitures from the
Discretionary Contribution Account shall be allocated, as of the close of the
Plan Year in which such Forfeitures are incurred, to the Discretionary
Contribution Accounts of all Qualified Participants in accordance with Section
8.4. Should the Participant incur a Severance Date prior to vesting in any
portion of his/her Matching or Discretionary Contribution Account, then such
Participant shall, immediately upon his/her cessation of Employee status, be
deemed to receive a distribution of the 0% vested balance of each such Account,
and the entire unvested portion of each such Account shall be immediately
forfeited.
(b) Should a Participant (i) receive (or be deemed to receive) a
distribution from the vested portion of his/her Matching Contribution or
Discretionary Contribution Account and thereby incur a Forfeiture of all or part
of the balance in accordance with the provisions of Section 13.3(a) and (ii)
thereafter resume Employee status prior to the incurrence of a Break in Service
under Section 2.1, then such Account shall be restored to the full amount
credited to it at the time the vested portion was distributed, provided and only
if the following conditions are satisfied:
(i) the Participant repays to the Plan the full amount
previously distributed to him/her from the Account;
(ii) the repayment is effected prior to the earlier of (A)
the fifth anniversary of the date of the Participant's resumption of Employee
status or (B) the Participant's incurrence of a Break in Service; and
(iii) the repayment is made while the Participant is still
in Employee status.
45.
<PAGE> 52
The funds for effecting the restoration of the Account shall be
drawn first from the Forfeitures for the Plan Year in which the Participant
effects the repayment of his/her prior distribution and then from a special
contribution to the Plan made by the Participating Company which last employed
such Participant.
The amount contributed to the Account for the purpose of effecting
such restoration shall not be considered to be part of the Annual Addition to
the Accounts of such Participant for the Plan Year of restoration or any
subsequent Plan Year.
(c) Amounts forfeited from the Discretionary Contribution Account
in accordance with paragraph (a) of this Section 13.3 shall thereafter be
allocated, as of the close of the Plan Year in which the Forfeiture is incurred,
to the Discretionary Contribution Accounts of Qualified Participants in
accordance with the provisions of Section 8.4. However, any and all Forfeitures
incurred by Participants who cease Employee status in connection with a
reduction in workforce shall be applied to the payment of future Matching
Contributions and shall not be allocated to Qualified Participants pursuant to
Section 8.4.
13.4 Transfer of Accounts. Should a Participant (i) incur a Break
in Service under Section 2.1 and (ii) subsequently resume Employee status prior
to the distribution of the entire vested balance of his/her Matching or
Discretionary Contribution Account, then further distributions from such Account
shall be suspended until the Participant subsequently qualifies for another
distribution or withdrawal from the Plan. The undistributed vested balance of
the Account shall, upon the Participant's resumption of Employee status, be
transferred to his/her Deferred Compensation Account in which the Participant
shall at all times have a fully-vested and non-forfeitable interest.
13.5 Beneficiary Designation.
(a) Each Participant shall, at the time he/she becomes a
Participant, designate one or more persons as Beneficiary. The designation shall
be made on the form prescribed by the Administrator and shall, subject to the
provisions of Section 13.5(b), become effective when filed with the
Administrator. A Participant may from time to time, subject to the provisions of
Section 13.5(b), change his/her Beneficiary by filing a new designation form
with the Administrator.
(b) Should the Participant designate a person other than (or in
addition to) his/her Spouse as the Beneficiary of his/her Accounts or otherwise
change a valid Beneficiary designation in effect for such Accounts, then such
designation or change shall not be effective unless it complies in all respects
with the following requirements:
(i) the Participant's Spouse executes a written consent to
the particular Beneficiary designation (or otherwise executes an instrument
expressly acknowledging such Spouse's right to limit such consent to a specific
Beneficiary but
46.
<PAGE> 53
nevertheless authorizes Beneficiary designations by the Participant without any
further requirement of Spousal consent);
(ii) such written consent acknowledges the effect such
designation (or authorization) will have upon the benefits otherwise payable to
the Spouse under the Plan; and
(iii) such written consent is witnessed by a Plan
representative or notary public.
A written consent under this Section 13.5 shall be binding only on
the Spouse executing such consent.
(c) Should the Participant designate a person other than (or in
addition to) his/her Spouse as Beneficiary and not obtain the spousal consent to
such designation required under Section 13.5(b), then any benefits payable under
the Plan upon the Participant's death shall be paid entirely to the
Participant's surviving Spouse.
(d) Should the Participant die without having any
effectively-designated surviving Beneficiary, then the Beneficiary shall be the
Spouse of the Participant, if then living. If there is no surviving Spouse, then
the Beneficiary shall be the Participant's children then living. If there are no
such living children, then the Beneficiary shall be the parents of the
Participant. If there are no such living parents, then the Beneficiary shall be
the estate of the Participant.
(e) Notwithstanding the foregoing provisions of this Section 13.5,
the consent of the Participant's Spouse shall not be required for the
Participant's designation of any Beneficiary whose right to receive benefits
under the Plan is contingent upon the Participant's Spouse dying before the
Participant.
(f) For purposes of this Section 13.5, the Participant's Spouse
shall mean the person to whom the Participant is married on the date of his
death; provided, however, that the person to whom the Participant may have been
formerly married shall be treated as his Spouse to the extent provided pursuant
to a Qualified Domestic Relations Order under Article XXI.
13.6 Additional Vesting Service. The following special vesting
service provisions shall be in effect for Employees who transfer employment
between Komag and Komag Material Technology, Inc. and for Employees who transfer
employment between Komag and Dastek, Inc.:
(a) Should the Participant cease Employee status and transfer
directly, without any intervening period of other employment, to the employ of
Komag Material Technology, Inc. (or any other company or entity affiliated with
Komag Material
47.
<PAGE> 54
Technology, Inc. within the meaning of such term under Section 1.3 of the Komag
Material Technology, Inc. Deferred Savings Plan) at a time when the Company owns
fifty percent (50%) or more of the outstanding voting stock of Komag Material
Technology, Inc., then the Participant shall, for purposes of Section 13.2, be
credited with additional Vesting Service under this Plan for any and all service
with Komag Material Technology, Inc. (or other affiliated company) for which the
Participant is credited with vesting service under the terms of the Komag
Material Technology, Inc. Deferred Savings Plan, as in effect at that time.
Vesting credit for such service shall continue under this Plan until the earlier
of (i) the date the Participant becomes one hundred percent (100%) vested in all
of his/her Accounts under this Plan on the basis of his/her combined Vesting
Service under this Plan and the Komag Material Technology, Inc. Deferred Savings
Plan or (ii) the date the entire vested balance credited to his/her Accounts
under this Plan is distributed pursuant to Article XIV of this Plan. Should a
Participant who transfers directly to the employ of Komag Material Technology,
Inc. (or any other company or entity affiliated with Komag Material Technology,
Inc.) cease such employment by reason of Retirement or Disability (determined as
if such individual had continued in Employee status under this Plan) or die
while in such employment, then such Participant's Accounts under this Plan shall
become fully-vested and non-forfeitable.
(b) Should the Participant cease Employee status and transfer
directly, without any intervening period of other employment, to the employ of
Dastek, Inc. (or any other company or entity affiliated with Dastek, Inc. within
the meaning of such term under Section 1.3 of the Dastek, Inc. Deferred Savings
Plan) at a time when the Company owns fifty percent (50%) or more of the
outstanding voting stock of Dastek, Inc., then the Participant shall, for
purposes of Section 13.2, be credited with additional Vesting Service under this
Plan for any and all service with Dastek, Inc. (or other affiliated company) for
which the Participant is credited with vesting service under the terms of the
Dastek, Inc. Deferred Savings Plan, as in effect at that time. Vesting credit
for such service shall continue under this Plan until the earlier of (i) the
date the Participant becomes one hundred percent (100%) vested in all of his/her
Accounts under this Plan on the basis of his/her combined Vesting Service under
this Plan and the Dastek, Inc. Deferred Savings Plan or (ii) the date the entire
vested balance credited to his/her Accounts under this Plan is distributed
pursuant to Article XIV of this Plan. Should a Participant who transfers
directly to the employ of Dastek, Inc. (or any other company or entity
affiliated with Dastek, Inc.) cease such employment by reason of Retirement or
Disability (determined as if such individual had continued in Employee status
under this Plan) or die while in such employment, then such Participant's
Accounts under this Plan shall become fully-vested and non-forfeitable.
48.
<PAGE> 55
ARTICLE XIV
DISTRIBUTION OF BENEFITS
14.1 Time of Distribution.
(a) The benefits to which a Participant or his/her Beneficiary
becomes entitled in accordance with Article XIII shall be paid at such time as
the Participant shall specify in his/her written election to the Administrator.
Not less than thirty (30) days, nor more than ninety (90) days, prior to the
date specified for the distribution, the Participant shall be provided with
written information relating to his/her right to defer such distribution in
accordance with the guidelines of this Section 14.1. The Participant may waive
the initial thirty (30)-day period by written election. In no event shall any
distribution be made to the Participant prior to attainment of age sixty-five
(65), unless the Participant's written consent to such distribution is obtained
not more than ninety (90) days prior to the distribution date. However, should
the aggregate vested balance credited to the Participant's Accounts not be in
excess of $3,500 at the time of distribution, then such Accounts shall be
distributed as soon as administratively practicable following the close of the
Plan Quarter in which the Participant ceases Employee status, and the
Participant's consent shall not be required for such distribution. In addition,
no consent shall be required in connection with the distribution of benefits
under the Plan to the Beneficiary of a deceased Participant or the alternate
payee under a Qualified Domestic Relations Order issued to the Plan.
(b) Should a Participant cease Employee status with an aggregate
vested Account balance in excess of $3,500 and fail to provide the Administrator
with a written designation of the commencement date for distribution of such
balance, then the distribution shall commence within sixty (60) days after the
close of the Plan Year in which the Participant attains age 65 or (if later)
ceases Employee status.
(c) All benefit distributions under the Plan, whether or not the
Participant has designated a contrary commencement date in his/her written
election to the Administrator, must commence no later than the first day of
April following the close of the calendar year in which the Participant attains
age 70-1/2.
(d) All benefit distributions under the Plan, whether or not the
Participant has designated a contrary commencement date in his/her written
election to the Administrator, must commence no later than the first day of
April following the close of the calendar year in which the Participant attains
age 70-1/2 (the "Required Beginning Date"), and the Participant's consent shall
not be required in connection with such distribution. If the Participant has not
otherwise received the distribution of his/her Accounts prior to such Required
Beginning Date, then the unpaid balance credited to the Accounts on the Required
Beginning Date shall be distributed in accordance with the proposed Regulations
under Code Section 401(a)(9), including the minimum distribution incidental
benefit requirements of Section 1.401(a)(9)-2 of such Regulations. Accordingly,
in determining the
49.
<PAGE> 56
minimum amount to be distributed to such Participant in each calendar year
following the calendar year in which the Participant attains age 70-1/2, the
minimum distribution rules of Code Section 401(a)(9) and the proposed
Regulations thereunder shall apply as follows and shall supersede any other
distribution provisions to the contrary in the Plan:
(i) The minimum amount distributed each calendar year must
not be less than the quotient obtained by dividing the adjusted vested balance
of the Participant's Accounts (as valued in accordance with subparagraph (ii)
below) by the applicable life expectancy in effect for the Participant, reduced
by one for each calendar year which elapses since the date such life expectancy
is last calculated in accordance with subparagraph (iii) below.
(ii) The adjusted vested balance of the Participant's
Accounts for the first minimum distribution year (the calendar year in which the
Participant attains age 70-1/2) shall be the value of such Accounts as of the
last Valuation Date in the calendar year immediately preceding the start of such
distribution year. The adjusted vested balance of the Participant's Accounts for
the second minimum distribution year shall be the value of such Accounts as of
the last Valuation Date in the calendar year immediately preceding the start of
such distribution year, reduced by the amount of the required distribution for
the first minimum distribution year, to the extent paid to the Participant in
the second distribution year on or before the Required Beginning Date. The
adjusted vested balance of the Participant's Accounts for each succeeding
minimum distribution year shall be the value of such Accounts as of the last
Valuation Date in the calendar year immediately preceding the start of that
distribution year. The value of the Accounts will in all instances be increased
for any Section 401(k) or Company Contributions or Forfeitures allocated to, and
will be reduced by any distributions, withdrawals or Forfeitures from, the
Accounts after the applicable Valuation Date and prior to the start of the
minimum distribution year to which such Valuation Date relates.
(iii) The applicable life expectancy shall be either the
life expectancy of the Participant or the joint life and last survivor
expectancy of such Participant and his/her designated Beneficiary, if the
distribution is to be made over such joint life and last survivor expectancy.
The life expectancies of the Participant and his/her Beneficiary (if any) shall
initially be calculated on the basis of their attained ages on their respective
birthdays in the calendar year in which the Participant attains age 70-1/2, and
the return multiples in Tables V and VI of Section 1.72-9 of the Regulations
shall be utilized in the determination of the applicable life expectancy period.
Unless the designated Beneficiary is the Participant's Spouse, neither the life
expectancy of the Participant nor the life expectancy of the Beneficiary shall
be recalculated during the minimum distribution period. However, if the
designated Beneficiary is the Participant's Spouse, then their life expectancies
shall be recalculated annually during the minimum distribution period on the
basis of the attained ages of the Participant and such Spouse in each succeeding
calendar year, provided and only if the Participant elects such recalculation in
writing prior to the first required distribution under this Section 14.1(d).
Such election shall be irrevocable for
50.
<PAGE> 57
the entire minimum distribution period, and in the absence of such election
there shall not be any recalculation of life expectancies.
(iv) If the designated Beneficiary is, as of the Required
Beginning Date, someone other than the Participant's Spouse, then the applicable
life expectancy period to be in effect for the Participant during his lifetime
shall not exceed the period determined through use of the applicable divisor
under the table set forth in Regulation $1.401(a)(9)-2 (Q&A 4).
(v) The first calendar year for which a minimum
distribution shall be required under this Section 13.1(d) shall be the calendar
year in which the Participant attains age 70-1/2, and such distribution shall be
made no later than the Required Beginning Date. Each subsequent minimum
distribution shall be made no later than the last day of the calendar year for
which such distribution is required, with the first such subsequent distribution
to be made no later than December 31 of the calendar year immediately following
the calendar year in which the Participant attains age 70-1/2.
(vi) Upon the Participant's subsequent cessation of
Employee status for any reason (including death), the unpaid vested balance
credited to his/her Accounts shall be distributed in one lump sum payment within
sixty (60) days thereafter.
14.2 Form of Distribution. All benefits shall be distributed under
the Plan in the form of a lump-sum payment.
14.3 Death Before Full Distribution. If a Participant dies prior
to the time the entire vested portion of his/her Accounts shall have been
distributed, then the vested unpaid balance of the Accounts shall be distributed
to his/her Beneficiary in one lump sum not later than sixty (60) days after the
close of the Plan Year in which the Participant's death occurs.
14.4 Deferred Distribution. If the distribution under this Article
XIV is to be deferred after the Participant's cessation of Employee status, then
his/her Accounts shall remain part of the general Trust Fund, subject to
investment in accordance with his/her applicable directives under Section 10.1,
and shall be periodically adjusted under Section 11.2 for their allocable share
of the investment gains and losses of the Trust Fund.
14.5 Rollovers.
(a) This Section applies to distributions made on or after January
1, 1993. Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a Distributee's election under this Article, a Distributee may
elect, at the time and in the manner prescribed by the Administrator, to have
any portion of an Eligible Rollover Distribution paid directly in a Direct
Rollover to an Eligible Retirement Plan specified by the Distributee.
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(b) Definitions.
(i) An Eligible Rollover Distribution shall mean any
distribution of all or any portion of the balance to the credit of the
Distributee, except that an Eligible Rollover Distribution does not include: any
distribution that is one of a series of substantially equal periodic payments
(not less frequently than annually) made for the life (or life expectancy) of
the Distributee or the joint lives (or joint life expectancies) of the
Distributee and the Distributee's designated beneficiary, or for a specified
period of ten (10) years or more; any distribution to the extent such
distribution is required under Code Section 401(a)(9); and the portion of any
distribution that is not includable in gross income (determined without regard
to the exclusion for net unrealized appreciation with respect to employer
securities).
(ii) An Eligible Retirement Plan shall mean 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.
(iii) A Distributee includes an Employee or former
Employee. In addition, the Employee's or former Employee's surviving spouse and
the Employee's or former Employee's spouse or former spouse who is the alternate
payee under a qualified domestic relations order, as defined in Code Section
414(p), are Distributees with regard to the interest of the spouse or former
spouse.
(iv) A Direct Rollover shall mean a payment by the Plan to
the Eligible Retirement Plan specified by the Distributee.
52.
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ARTICLE XV
WITHDRAWALS
15.1 Conditions. The Administrator may, in its sole discretion,
establish a program of withdrawals on the terms and conditions set forth in this
Article XV. Should the Administrator establish such a program, the Administrator
may permit a Participant to withdraw up to one hundred percent (100%) of the
Section 401(k) Contributions credited to his/her Deferred Compensation Account
(but no portion of the earnings thereon), provided and only if (i) the
Participant has attained age fifty-nine and one-half (59-1/2) or (ii) the
Participant furnishes the Administrator with satisfactory proof that the amount
to be withdrawn will be used solely and exclusively for one or more of the
purposes listed below and that the Participant does not have other reasonably
available funds for such purpose(s). The events which may, in the
Administrator's discretion, qualify for a hardship withdrawal under this Section
15.1 shall be limited to the following:
(a) the purchase (excluding mortgage payments) of a principal
residence for the Participant;
(b) the payment of tuition and educational fees to be incurred for
the next twelve (12) months in connection with the post-secondary educational
needs of the Participant, his/her spouse, children or other dependents;
(c) the payment of expenses to prevent the eviction of the
Participant from his/her principal residence or foreclosure on a mortgage
secured by the Participant's principal residence;
(d) the payment of expenses incurred or to be incurred in order to
obtain medical care described in Code Section 213(d) for the Participant or
his/her spouse or dependents for which reimbursement by way of insurance or
otherwise is not available; or
(e) the payment of funeral expenses incurred as the result of the
death of the Participant's spouse, child or other dependent.
The Plan Administrator may in the future add to the list of events
which qualify for a hardship withdrawal under this Section 15.1. In making its
determination whether an event constitutes a hardship event, the Administrator
shall take into consideration relevant pronouncements by the Internal Revenue
Service. An event may constitute a hardship notwithstanding that it results from
a foreseeable or voluntarily-incurred transaction.
In no event may the requested withdrawal exceed the amount
necessary to satisfy the financial obligations resulting from the hardship plus
the income taxes and
53.
<PAGE> 60
penalty taxes imposed on the amount withdrawn. Upon the Participant's receipt of
a hardship withdrawal, his/her Section 401(k) Contributions shall automatically
be suspended for twelve (12) months.
15.2 No Other Resources Reasonably Available. A Participant who
makes a hardship withdrawal request must represent in writing that his/her
immediate and heavy financial need cannot be relieved through utilization of the
following resources:
(1) Reimbursement. Through reimbursement or compensation
by insurance or otherwise.
(2) Liquidation. By reasonable liquidation of the
Participant's assets, to the extent such liquidation would not itself cause an
immediate and heavy financial need. For this purpose, the Participant's assets
are deemed to include those assets of the Participant's spouse and minor
children that are reasonably available to the Participant.
(3) Cessation of Contributions. By cessation of Section
401(k) Contributions to this Plan or after-tax employee contributions under any
other plan of deferred compensation.
(4) Other Plan Funds. By other distributions or loans
(nontaxable at the time of borrowing) from plans maintained by the Affiliated
Companies or any other employer, including any plan loans for which the
Participant is at the time eligible pursuant to the provisions of Article XXIII.
(5) Borrowing. By borrowing from commercial sources on
reasonable commercial terms.
15.3 Written Request Required. Any Participant wishing to make a
withdrawal under any program implemented under this Article XV shall file a
written request with the Administrator on the prescribed form, including (if
applicable) a financial statement furnished by the Participant which
demonstrates his/her inability to satisfy the immediate and heavy financial
burden with other assets or income available to the Participant. To the extent
there is more than one Fund at the time maintained under Section 10.1 for the
investment of Plan assets, the withdrawal shall be effected through the
proportionate liquidation of each investment at the time held in the
Participant's Deferred Compensation Account. In connection with a hardship
withdrawal, the amount requested to be withdrawn shall only become payable if
the Administrator determines that the conditions for such a withdrawal have been
satisfied and approves the requested withdrawal. To the extent any withdrawal
request under this Article XV is approved by the Administrator, the withdrawal
shall be promptly paid in one lump sum cash payment.
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Participants who have attained age fifty-nine and one-half
(59-1/2) may not effect withdrawals under this Article XV in non-hardship
situations at intervals more frequently than once per Plan Quarter.
15.4 Penalty Tax. All withdrawals by a Participant prior to the
attainment of age 59-1/2 are subject to a ten percent (10%) penalty tax under
the Federal tax laws, unless the withdrawn funds are used solely for the payment
of medical expenses deductible under Section 213 of the Code.
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ARTICLE XVI
ADMINISTRATION OF THE PLAN
16.1 Plan Administrator. The Company shall be the "administrator"
of the Plan within the meaning of ERISA. Except as otherwise expressly provided
herein, the Company as Administrator shall have the exclusive authority and
responsibility for all matters in connection with the operation and
administration of the Plan. The Administrator shall have full discretionary
authority to administer and interpret the Plan, including discretionary
authority to determine eligibility for participation and benefit payments under
the Plan. The Administrator shall: (a) be responsible for the compilation and
maintenance of all records necessary in connection with the Plan; (b) compute
and authorize the payment of all benefits as they become payable under the Plan;
(c) decide questions relating to the eligibility of Employees to become
Participants, the computation of Service credits and the determination of
benefit entitlements hereunder; (d) be responsible, to the extent provided in
the Trust Agreement, for instructing the Trustee, either directly or through
delegation to an Investment Committee, with respect to the investment and
reinvestment of the Trust Fund and have the authority, exercisable at its
discretion, to select and appoint an Investment Manager in accordance with
Section 16.5; (e) engage such legal, actuarial, accounting and other
professional and clerical services as may be necessary or proper; (f) establish
a funding policy and method for the Plan which is consistent with the objectives
of the Plan and takes into account both the short-term needs of the Plan for
liquidity and its long-term needs for investment growth, and communicate the
funding policy and method to the Trustee, the Investment Committee or any
Investment Manager appointed pursuant to Section 16.5 in order that the Trustee,
the Investment Committee and the Investment Manager may coordinate the
investment policies of the Trust Fund with such funding policy and method; (g)
interpret this instrument and make and publish such rules for administration of
the Plan as are not inconsistent with the provisions of this instrument; and (h)
establish and maintain reasonable procedures under Article XXI for determining
the qualified status of domestic relations orders directing the Plan to pay
benefits to persons other than Participants and their Beneficiaries.
16.2 Delegation of Duties. The Administrator may from time to
time, by vote of the Directors, delegate any right, power or duty with respect
to the operation and administration of the Plan to one or more committees,
individuals or entities. However, unless otherwise specifically indicated by
vote of the Directors, the Administrator shall have sole responsibility for
performing the duties imposed by Sections 3405(c)(2), 6690, 6652(e), 6692 and
6652(f) of the Code and Section 502(c) of ERISA and any other specific statutory
duty under the Code or ERISA. If the Administrator delegates any right, power or
duty to any person, such person may from time to time further delegate such
rights, powers and duties to any other person. If any right, power or duty is
delegated to more than one person, such persons may from time to time allocate
among themselves any such right, power or duty. Any such allocation and
delegation shall be reviewed at least annually by
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the Administrator and shall be terminable upon such notice as the Administrator,
in its sole discretion, deems reasonable and prudent.
16.3 Administrative Procedures.
(a) The Administrator shall keep records of its actions. If there
is more than one person jointly performing any duties delegated by the
Administrator, such persons shall act by agreement of the majority, either by
vote at a meeting or by written resolution without a meeting, and no such person
shall have the right to act on any matter relating solely to his/her own
interests in the Plan.
(b) All written instruments and notices required to be filed with
the Administrator shall be deemed to be filed upon delivery to the Administrator
or its designate, provided the instrument or notice is in the form prescribed by
the Administrator.
(c) Any person performing any of the duties of the Administrator
may resign by filing a written resignation with the Directors.
16.4 Duties of Other Fiduciaries. The Directors shall have the
authority and responsibility to amend or terminate the Plan, to select the
Trustee or any successor Trustee, and to appoint one or more committees and
delegate to such committees any or all of the rights, powers or duties of the
Administrator. The Trustee is the named fiduciary with the authority and
responsibility to invest, manage and control the assets of the Trust Fund in
accordance with the provisions of the Trust Agreement. Any Investment Manager
appointed pursuant to Section 16.5 shall have the exclusive authority and
responsibility to invest, manage and control the portion of the Trust Fund
assigned to it.
16.5 Investment Responsibility. The Administrator may assume the
responsibility to instruct and direct the Trustee with respect to the investment
and reinvestment of the Trust Fund, to the extent and in the manner provided in
the Trust Agreement and in accordance with the funding policy established by the
Administrator. The Administrator may, alternatively, delegate to an Investment
Committee appointed by the Directors any or all of its investment authority
hereunder. The Administrator (or the Investment Committee if so delegated) may
also appoint one or more Investment Managers who shall have the exclusive power
to direct the Trustee to invest and reinvest the portion of the Trust Fund
assigned to such Investment Manager, to the extent and in the manner provided in
the Trust Agreement and the written agreement between the Administrator (or the
Investment Committee) and such Investment Manager and in accordance with the
funding policy established by the Administrator. The Investment Manager must be
a person who (a) is registered as an investment adviser under the Investment
Advisers Act of 1940 or any successor statute, (b) is a bank as defined in that
Act, or (c) is an insurance company qualified to manage, acquire or dispose of
any assets of the Plan under the laws of more than one state. Any Investment
Manager selected by the Administrator (or the Investment
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Committee) shall acknowledge in writing to the Administrator on a form
prescribed by the Administrator that such person is a fiduciary with respect to
the Plan.
16.6 Expenses. All necessary and proper expenses incurred in the
administration of the Plan shall be paid from the Trust Fund, to the extent not
paid for by the Participating Companies. The Participating Companies shall pay
such expenses as may be specified from time to time by the Administrator.
16.7 Fiduciary Responsibilities. Each person serving as or
performing the duties of Administrator, Trustee, or Investment Manager and any
other person to whom any fiduciary responsibility with respect to the Plan is
allocated shall be a "Fiduciary" of the Plan. Each Fiduciary shall discharge
his/her duties and responsibilities with respect to the Plan:
(a) solely in the interest of the Participants and Beneficiaries;
(b) for the exclusive purpose of providing benefits to
Participants and their Beneficiaries and defraying reasonable expenses of
administering the Plan;
(c) 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;
(d) to the extent any authority and responsibility is allocated to
him/her, by diversifying the investments of the Trust Fund so as to minimize the
risk of large losses, unless under the circumstances it is clearly prudent not
to do so; and
(e) in accordance with the Plan and the Trust Agreement to the
extent such provisions are consistent with ERISA.
16.8 Liability. Each Fiduciary under the Plan shall be solely
responsible for his/her own acts or omissions. No Fiduciary shall have any
liability for a breach of fiduciary responsibility of another Fiduciary with
respect to the Plan unless he/she participates knowingly in such breach,
knowingly undertakes to conceal such breach, has actual knowledge of such breach
and fails to take reasonable remedial action to remedy such breach or, through
his/her negligence in performing his/her own specific fiduciary responsibilities
which give rise to his/her status as a Fiduciary, has enabled such other
Fiduciary to commit a breach of the latter's fiduciary responsibilities.
16.9 Indemnification. The Company shall indemnify and hold
harmless the Directors, the members of any committee appointed by the Directors
and delegated one or more powers, rights or duties of the Administrator under
the Plan, and any other person to whom any fiduciary duty or responsibility with
respect to the Plan is allocated or delegated pursuant to Section 16.2 from and
against any and all liabilities, claims, demands,
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costs and expenses, including attorneys' fees, arising out of an alleged breach
in the performance of their fiduciary obligations under the Plan and under
ERISA, other than such liabilities, claims, demands, costs and expenses as may
result from the gross negligence or willful misconduct of such persons. The
Company shall have the right, but not the obligation, to conduct the defense of
such persons in any proceeding to which this Section 16.9 applies. The Company
may satisfy its obligations under this Section 16.9 in whole or in part through
the purchase of a policy or policies of insurance providing equivalent
protection.
ARTICLE XVII
AMENDMENTS TO THE PLAN
17.1 Power of Amendment. The Directors reserve the power at any
time or times to amend, either prospectively or retroactively, the provisions of
the Plan to any extent and in any manner they shall deem advisable. The
Directors may delegate such power, in whole or in part, to one or more
committees (comprised of officers or other managerial personnel of the Company)
which are delegated administrative responsibilities under the Plan. An amendment
shall become effective in accordance with its terms as to all Participants and
all other persons having or claiming any interest under the Plan upon execution
of the instrument of amendment. However, no such amendment shall operate to (i)
cause any part of the Trust Fund to revert to or be recoverable by any
Affiliated Company or to be used for, or diverted to, purposes other than the
exclusive benefit of Participants and their Beneficiaries; (ii) reduce the then
outstanding balances in the Accounts of Participants; (iii) cause or effect any
discrimination in favor of Highly Compensated Employees; or (iv) change the
duties, responsibilities or liabilities of the Trustee hereunder without the
written consent of such Trustee.
ARTICLE XVIII
TERMINATION OF PLAN OR
DISCONTINUANCE OF CONTRIBUTIONS
18.1 Power. Each Participating Company intends to make
contributions to the Plan indefinitely, but no Participating Company shall be
under any obligation or liability whatsoever to continue its contributions to
the Plan or to maintain the Plan for any given length of time. Any Participating
Company may, in its sole discretion, discontinue contributions at any time
without any liability whatsoever for such action. In addition, the Plan may be
partially or completely terminated at any time, and no Participating Company
shall thereby incur any liability by reason of such action.
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18.2 Effect of Termination. If the Plan is terminated completely
or if there is a partial termination of the Plan with respect to the Employees
of one or more Participating Companies, all amounts credited to the Accounts of
the affected Participants shall immediately vest in full and become
non-forfeitable, and in no event shall any part of the Trust Fund revert to or
revest in the Participating Companies except as herein provided. The
Administrator shall, in accordance with Article XI, have the assets of the Trust
Fund and the individual Accounts of all affected Participants valued as of the
date of termination and, after satisfying current obligations of the Plan and
setting aside funds for anticipated future obligations of the Trust Fund,
including (but not limited to) the Trustee's compensation and expenses, shall
(in accordance with Article XI) allocate to all Accounts outstanding on the date
of termination the net increase or decrease in the fair market value of the
Trust Fund since the immediately preceding Valuation Date (excluding, however,
any Section 401(k), Contributions and any Company Contributions or Forfeitures
for the Plan Year of termination, which are to be allocated in accordance with
Sections 5.2, 6.2 and 8.4 respectively). Any unallocated balance in the Section
9.4 suspense account at the date of termination shall be allocated (to the
extent permissible under Section 9.2) to the Accounts of all Qualified
Participants entitled under Section 8.4 to an allocation of Forfeitures for the
Plan Year of termination, with such allocation to be in proportion to the
Eligible Earnings paid to each such Participant for such Plan Year. Upon a
complete termination of the Plan, any remaining balance in the Section 9.4
suspense account shall be returned to the Participating Company or Companies
designated by the Directors.
The Trustee shall pay to each Participant for whom the termination
is effective (or his/her Beneficiary) the net value of his/her Accounts in
accordance with the written directives of the Administrator. However, should the
Participating Company or Companies employing such Participants not dissolve or
cease all operations as of the date of Plan termination, then the Deferred
Compensation Accounts of such Participants shall not be distributed pursuant to
the provisions of this Section 18.2, but shall continue to be held in trust for
subsequent distribution in accordance with Articles XIII and XIV of the Plan,
unless (i) the Participant consents to an immediate lump sum distribution of
such Account and (ii) no other successor defined contribution plan is
established or maintained by the Company or any other Affiliated Company.
18.3 Effect of Discontinuance. In the event the Board of Directors
of any Participating Company decides to discontinue further contributions to the
Plan, the duties of the Administrator shall continue as before, and the
provisions of the Plan (other than the provisions relating to contributions by
such Participating Company) shall remain in force with respect to the
employee-Participants of that Participating Company. The Trust Fund shall also
remain in existence, and all the provisions of the Trust Fund (other than
provisions relating to contributions by such Participating Company) shall
continue in effect. Any unallocated balance in the Section 9.4 suspense account
at the close of the Plan Year in which the discontinuance of contributions
occurs shall be allocated (to the extent permissible under Section 9.2) to the
Discretionary Contribution Accounts of all Qualified Participants entitled under
Section 8.4 to an allocation of Forfeitures for the Plan Year of
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discontinuance, with such allocation to be in proportion to the Eligible
Earnings paid to each such Participant for such Plan Year. The remaining balance
in such suspense account, if any, shall be allocated in each subsequent Plan
Year (to the extent permissible under Section 9.2) to the Discretionary
Contribution Accounts of all Qualified Participants entitled under Section 8.4
to a share of Forfeitures for such Plan Year, until the balance in the suspense
account is reduced to zero. Any other unallocated funds existing at the date of
discontinuance (other than any Section 401(k) Contributions and any Company
Contributions and Forfeitures, which are to be allocated in accordance with
Sections 5.2, 6.2 and 8.4, respectively) shall be allocated to all Accounts
outstanding on such date in accordance with Article XI. Should there be a
complete discontinuance of contributions to the Plan by all the Participating
Companies, then all amounts credited to the Accounts of Participants in
accordance with the provisions of this Section 18.3 shall become fully vested
and non-forfeitable.
18.4 Determination of Partial Termination. For purposes of this
Article XVIII, a partial termination of the Plan shall be deemed to occur only
if there is a determination, either made or agreed to by the Administrator or
made by the Internal Revenue Service and upheld by a decision of a court of
final jurisdiction, that a particular event or transaction which has transpired
(including the sale or transfer of all or substantially all of the assets of a
Participating Company or the cessation of operations at one or more of its
facilities) constitutes a partial termination within the meaning of Section
411(d)(3)(A) of the Code.
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ARTICLE XIX
MISCELLANEOUS
19.1 SOURCE OF BENEFITS. ALL BENEFITS PAYABLE UNDER THE PLAN SHALL
BE PAID SOLELY FROM THE TRUST FUND, AND THE PARTICIPATING COMPANIES ASSUME NO
LIABILITY OR RESPONSIBILITY FOR SUCH BENEFIT PAYMENTS.
19.2 Satisfaction of Claims. Any payment to a Participant or
his/her legal representative or Beneficiary, in accordance with the terms of
this Plan and the Trust Agreement, shall to the extent thereof be in full
satisfaction of all claims with respect to such payment which such person may
have against the Plan, the Trustee, the Administrator (or its delegate), any
Investment Manager and all Participating Companies, any of whom may require the
Participant or his/her legal representative or Beneficiary, as a condition
precedent to such payment, to execute a receipt and release therefor in such
form as shall be determined by the Administrator.
19.3 Construction. The headings and subheadings of this instrument
are inserted for convenience of reference only and are not to be considered in
the construction of the Plan.
19.4 Gender and Number. Whenever used in the Plan, the masculine
gender shall include the feminine gender and vice versa and the singular shall
include the plural, unless the context indicates otherwise.
19.5 Applicable Law. The Plan shall be construed, administered and
governed in all respects in accordance with ERISA and other pertinent Federal
laws and in accordance with the laws of the State of California to the extent
not preempted by ERISA; provided, however, that if any provision is susceptible
of more than one interpretation, such interpretation shall be given thereto as
is consistent with the Plan being a qualified employees' profit-sharing plan and
Section 401(k) salary deferral program within the meaning of the Code. If any
provision of this Plan shall be held by a court of competent jurisdiction to be
invalid or unenforceable, the remaining provisions of the Plan shall continue to
be fully effective.
19.6 Alienation of Benefits. Except as otherwise required by law,
no person entitled to any benefits under the Plan shall have the right to
alienate, hypothecate or encumber his/her interest in such benefits, and such
benefits shall not in any way be subject to claim of his/her creditors or liable
to attachment, execution or other process of law (other than (A) Federal tax
levies and executions on Federal tax judgments, (B) payments made from the
Accounts of a Participant in satisfaction of the rights of alternate payees
pursuant to a Qualified Domestic Relations Order under Article XXI) or (C) the
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enforcement of any security interests or offset rights applicable to the
Deferred Compensation Account of a Participant pursuant to the loan provisions
of Article XXIII).
19.7 Return of Contributions. Assets held in the Trust Fund must
be held for the exclusive benefit of the Participants and their Beneficiaries,
and such assets may never revert to or inure to the benefit of Participating
Companies except under the following conditions:
(a) Each contribution made under this Plan is hereby made
expressly conditional upon the current deductibility of such contribution under
Code Section 404. Accordingly, to the extent the Internal Revenue Service shall
deny a deduction for any such contribution made by a Participating Company, the
amount of the contribution for which no deduction is allowed shall be returned
to the Participating Company within one year after such disallowance.
(b) If, within one year after making a contribution to the Plan, a
Participating Company or the Administrator certifies that such contribution was
made under mistake of fact, the Trustee shall upon the direction of the
Administrator before the expiration of such year return such contribution to the
Participating Company.
(c) Any Forfeitures remaining in the Section 9.4 suspense account
upon the complete termination of the Plan shall be returned by the Trustee to
the Participating Companies in accordance with Section 18.2.
If the contributions to be refunded under subparagraph (a) or (b)
are Section 401(k) Contributions, then such contributions, together with the
earnings thereon, shall not be refunded to the Participating Companies but shall
be paid as a direct cash bonus to the Participants on whose behalf such Section
401(k) Contributions were made. Such payment shall be subject to the
satisfaction of all applicable Federal and state tax withholding requirements.
19.8 Merger of Plan. There shall not occur any merger or
consolidation of the Plan with, or transfer of assets or liabilities from the
Plan to, any other retirement plan qualified under Section 401 of the Code,
unless each Participant shall be entitled to receive from the surviving or
transferee plan a benefit immediately after the merger, consolidation or
transfer (if such plan were then terminated) which is equal to or greater than
the benefit such Participant would have been entitled to receive under this Plan
had this Plan been terminated immediately prior to such merger, consolidation or
transfer.
19.9 Conditional Restatement. The Plan is hereby restated on the
express condition that it will be considered by the Internal Revenue Service as
continuing to qualify under Sections 401(a) and 401(k) of the Code. In the event
the Internal Revenue Service determines that the Plan as so restated does not so
qualify under the Code, the Plan will be of no effect, and all Company
Contributions made by the Participating Companies,
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together with any earnings, on the basis of this restated Plan document will be
returned to the Participating Companies within one year after the date of the
adverse Internal Revenue Service determination. All Section 401(k) Contributions
made by the Participating Companies, together with the earnings thereon, on the
basis of this restated Plan document shall be paid directly to the Participants
on whose behalf such contributions were made, and such payment shall be subject
to the satisfaction of all applicable Federal and State tax withholding
requirements. The Directors, however, may (but shall not be required to do so)
make any retroactive amendments to the Plan which the Internal Revenue Service
may require as a condition for its determination that the Plan as restated
continues to qualify under Code Sections 401(a) and 401(k).
19.10 Limitation of Rights; Employment Relationship. Neither the
establishment of the Plan and the Trust Fund, nor any modifications thereof, nor
the creation of any fund or account, nor the payment of any benefits hereunder,
shall be construed so as to grant any Participant or other person any legal or
equitable right against the Participating Companies or the Trustee, except as
provided in the Plan or the Trust Agreement. IN NO EVENT SHALL ANYTHING
CONTAINED IN THE PLAN OR THE TRUST AGREEMENT BE CONSTRUED TO GIVE ANY EMPLOYEE
THE RIGHT TO BE RETAINED IN THE SERVICE OR EMPLOY OF THE COMPANY OR ANY OTHER
AFFILIATED COMPANY FOR ANY PERIOD OF SPECIFIC DURATION, AND THE EMPLOYEE MAY BE
DISCHARGED AT ANY TIME, WITH OR WITHOUT CAUSE.
19.11 No Escheat. If the Accounts of a Participant would
otherwise, pursuant to the provisions of applicable law, escheat to any State by
reason of the Administrator's inability to locate the Participant and effect the
distribution of his/her Accounts within the specified time period under the
applicable escheat provision, then the Accounts of such Participant shall be
immediately forfeited and shall, as of the last day of the Plan Year of
forfeiture, be reallocated as a Forfeiture to the Discretionary Contribution
Accounts of Qualified Participants in accordance with Section 8.4. Should the
Participant or his/her Beneficiary subsequently file a claim for benefits with
the Administrator, the Participating Company which last employed such
Participant shall contribute to the Plan sufficient funds to restore the vested
balance of the forfeited Accounts and distribution of the restored balance shall
be effected as soon as reasonably practicable thereafter.
19.12 Leased Employees. Any Leased Employee shall be treated as an
Employee (but not an Eligible Employee) of the Affiliated Company which is the
recipient of his/her services. However, any contributions or benefits provided
by the leasing organization, to the extent attributable to services performed
for the recipient Affiliated Company, shall be treated as provided by such
recipient Affiliated Company.
For purposes of this Section 19.12, the term "Leased Employee"
means any person (other than an actual Employee of the recipient Affiliated
Company) who has, pursuant to any agreement between the recipient Affiliated
Company and any other person (the "leasing organization"), performed services
for the recipient Affiliated Company (or the recipient Affiliated Company and
any related entity determined in accordance with
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Section 414(n)(6) of the Code) on a substantially full-time basis for a period
of at least one (1) year, and such services are of a type historically performed
by employees in the business field of the recipient Affiliated Company (or such
related entity). Upon completion of such year of service, the Leased Employee
shall be treated as an Employee (but not as an Eligible Employee) for all
purposes of the Plan, and his/her period of Service shall include the entire
period for which the Leased Employee has performed services for the recipient
Affiliated Company.
In no event, however, shall a Leased Employee be treated as an
Employee if (A) such Leased Employee is covered by a money purchase pension plan
providing (i) a non-integrated employer contribution rate of at least ten
percent (10%) of Compensation (as determined in accordance with the guidelines
set forth in the first paragraph of Section 1.9 of this Plan), (ii) immediate
participation, and (iii) full and immediate vesting and (B) the total number of
Leased Employees does not constitute more than twenty percent (20%) of the
Non-Highly Compensated Work Force.
19.13 Transfers from Other Qualified Plans. Notwithstanding any
other provision hereof, the Administrator may authorize the Trustee to accept a
transfer to this Plan of all or any part of the assets (whether held by a
trustee, insurance company, custodian or otherwise) of any other defined
contribution plan which satisfies the applicable requirements of Code Section
401(a) or 403(a) and which is maintained for the benefit of any persons who are
or are about to become Participants in this Plan. However, under no
circumstances shall there be transferred to this Plan any assets of any
qualified plan under Code Section 401(a) which is required to provide annuity
distributions to terminating participants pursuant to the provisions of Code
Section 401(a)(11).
19.14 No Reversion. The assets of the Plan must be held for the
exclusive benefit of the Participants and their Beneficiaries, and such assets
may never revert to or inure to the benefit of the Participating Companies,
except to the limited extent provided under Sections 18.2 and 19.7.
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ARTICLE XX
BENEFIT CLAIMS
20.1 Claims Procedure. Should any Participant or Beneficiary
believe he/she is entitled to a benefit from the Plan which differs from the
benefit determined by the Administrator, such Participant or Beneficiary may
file a written claim for benefits with the Administrator. Each claim shall be
acted upon and approved or disapproved within ninety (90) days following its
receipt.
20.2 Denial of Benefits. In the event any claim for benefits is
denied, in whole or in part, the Administrator shall notify the claimant in
writing of such denial and of his/her right to a review by the Administrator and
shall set forth, in a manner calculated to be understood by the claimant,
specific reasons for such denial, specific references to pertinent Plan
provisions on which the denial is based, a description of any additional
material or information necessary to perfect the claim, an explanation of why
such material or information is necessary, and an explanation of the Plan's
review procedure.
20.3 Review.
(a) Any person whose claim for benefits is denied in whole or in
part may appeal to the Administrator for a full and fair review of the decision
by submitting to the Administrator, within ninety (90) days after receiving from
the Administrator written notice of such denial, a written statement:
(i) Requesting a review by the Administrator of his/her
claim for benefits;
(ii) Setting forth all of the grounds upon which the
request for review is based and any facts in support thereof; and
(iii) Setting forth any issues or comments which the
claimant deems pertinent to his/her claim.
(b) The Administrator shall act upon each such claim within sixty
(60) days after receipt of the claimant's request for review by the
Administrator, unless special circumstances require an extension of time for
processing. If such an extension is required, written notice of the extension
shall be furnished to the claimant within the initial sixty (60)-day period, and
a decision shall be rendered as soon as possible, but not later than one hundred
twenty (120) days after receipt of the initial request for review. The
Administrator shall make a full and fair review of each such claim and any
written materials submitted by the claimant or any Participating Company in
connection therewith and may require the Participating Company or the claimant
to submit such additional facts, documents, or other evidence as the
Administrator may, in its sole discretion, deem necessary or advisable in
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making such a review. On the basis of its review, the Administrator shall make
an independent determination of the claimant's eligibility for benefits under
the Plan. The decision of the Administrator on any benefit claim shall be final
and conclusive upon all persons.
(c) In the event the Administrator denies an appeal in whole or in
part, the Administrator shall give written notice of such decision to the
claimant, setting forth in a manner calculated to be understood by the claimant
the specific reasons for such denial and specific reference to the pertinent
Plan provisions on which the decision of the Administrator was based.
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ARTICLE XXI
QUALIFIED DOMESTIC RELATIONS ORDERS
21.1 Definitions. For purposes of applying the provisions of this
Article XXI, the following definitions shall be in effect:
(a) "Alternate Payee" shall mean any spouse, former spouse, child
or other dependent of a Participant for whom a Domestic Relations Order
specifies the right to receive all or a portion of the benefits otherwise
payable under the Plan to such Participant.
(b) "Domestic Relations Order" shall mean any judgment, decree or
order (including approval of a property settlement agreement) which provides or
otherwise conveys, pursuant to applicable State domestic relations laws
(including community property laws), child support, alimony payments or marital
property rights to an Alternate Payee.
(c) "Earliest Retirement Age" shall mean, with respect to any
Participant, the earlier of (i) the date on which the Participant is entitled to
a distribution from the Plan or (ii) the later of (A) the date the Participant
will attain age fifty (50) or (B) the earliest date the Participant would be
entitled to a distribution of benefits under the Plan were he/she to cease
Employee status.
(d) "Qualified Domestic Relations Order" shall mean any Domestic
Relations Order which satisfies the following three requirements:
(i) such Order establishes (or otherwise recognizes the
existence of) the right of an Alternate Payee to receive all or a portion of the
benefits otherwise payable under the Plan to a Participant;
(ii) such Order specifies (A) the name and last known
mailing address of the Participant, (B) the name and mailing address of each
Alternate Payee covered by such Order, (C) the amount or percentage of the
Participant's benefits under the Plan payable to each such Alternate Payee or
the manner in which such amount or percentage is to be calculated, and (D) the
number of payments or the duration of the pay-out period to which the Order
applies; and
(iii) such Order does not require the Plan to (A) provide
any type or form of benefit or option not otherwise available under the Plan,
(B) provide increased benefits under the Plan or (C) pay benefits to an
Alternate Payee which are required to be paid to another Alternate Payee
pursuant to any Qualified Domestic Relations Orders previously issued to the
Plan.
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A Domestic Relations Order shall not be considered to be in
violation of the requirement of clause (A) of subparagraph (iii) above merely
because such Order requires the payment of benefits to an Alternate Payee on or
after the date the Participant attains the Earliest Retirement Age, whether or
not such Participant actually ceases Employee status on or before such date.
Accordingly, such payments shall be made as if the Participant ceased Employee
status on the date on which benefits are to enter pay status under the Order.
21.2 Notification. Upon receipt of a Domestic Relations Order, the
Administrator shall promptly notify the affected Participant and the Alternate
Payee of the receipt of such Order and the procedures established by the
Administrator for determining whether such Order satisfies the requirements for
recognition as a Qualified Domestic Relations Order. Such notice shall also
advise the Alternate Payee of his/her right to designate a representative to
receive communications from the Administrator concerning the disposition of the
Domestic Relations Order. Within a reasonable time after providing such
notification, the Administrator shall, pursuant to such procedures, determine
whether or not the Order is a Qualified Domestic Relations Order and shall
notify the Participant and each Alternate Payee (or his/her representative) of
such determination.
21.3 Procedures. The Administrator shall establish reasonable
procedures for determining the qualified status of Domestic Relations Orders and
for effecting distributions pursuant to all such Orders which are determined to
be Qualified Domestic Relations Orders. Such procedures shall be reviewed
periodically by the Administrator to determine whether they remain reasonable
and efficient and comply with applicable requirements of ERISA, the Code and
Regulations issued thereunder.
21.4 Payment.
(a) During the period in which the qualified status of a Domestic
Relations Order is being determined, the Administrator shall defer the payment
of all Plan benefits affecting the Participant which are in dispute and shall
segregate, in a separate Account maintained under the Plan, all amounts which
would otherwise be payable to the Alternate Payee during such period were the
Order determined to be a Qualified Domestic Relations Order.
(b) If the Administrator determines, within eighteen (18) months
after the date the first payment to the Alternate Payee would otherwise be
required pursuant to the terms of the Order, that such Order is a Qualified
Domestic Relations Order, then the Administrator shall authorize the payment of
the entire balance of the segregated Account (including any earnings thereon) to
the person or persons entitled thereto. Such payment shall be made in any form
in which benefits under the Plan may be distributed to Participants or their
Beneficiaries.
69.
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(c) If the Administrator determines, within such eighteen
(18)-month period under subparagraph (b) above, that such Order is not a
Qualified Domestic Relations Order, or if the qualified status of such Order
cannot be determined prior to the expiration of such eighteen (18)-month period,
then the Administrator shall authorize the payment of the segregated Account
(including any earnings thereon) to the person or persons who would have been
entitled to the amounts credited to such Account had the Order not been issued.
If such person is the Participant, then the Account shall remain part of the
Trust Fund and shall not be distributed until the Participant becomes entitled
to benefits under the Plan in accordance with the provisions of Article XIII or
XV. Should there be a subsequent determination that the Order is in fact a
Qualified Domestic Relations Order, then such determination shall be applied on
a prospective basis only.
70.
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ARTICLE XXII
TOP-HEAVY RULES
22.1 Definitions. For purposes of this Article XXII, the following
terms shall have the meanings indicated:
(a) "Key Employee" shall mean for any Plan Year any Employee or
former Employee (or Beneficiary of any deceased Employee) who is (as of the
Determination Date for such Plan Year), or who was at any time during any of the
four (4) immediately preceding Plan Years ended immediately prior to the Plan
Year in which such Determination Date occurs:
(i) an officer of an Affiliated Company who received
aggregate annual Compensation (for the same Plan Year he/she was such an
officer) which was in excess of fifty percent (50%) of the maximum dollar
limitation in effect for such Plan Year under Section 415(b)(1)(A) of the Code,
(ii) one of the ten (10) Employees owning (actually or
constructively under Section 318 of the Code) the largest percentage interest in
any Affiliated Company, provided such individual owns more than a 1/2% interest
in such Affiliated Company and his/her aggregate Compensation for the same Plan
Year is greater than the maximum dollar limitation in effect for such Plan Year
under Section 415(c)(1)(A) of the Code,
(iii) a five percent (5%) owner of any Affiliated Company,
or
(iv) a one percent (1%) owner of any Affiliated Company
who received aggregate annual Compensation for the same Plan Year in excess of
$150,000.00. The determination of Key Employee status shall be made pursuant to
the criteria set forth in Code Section 416(i) and the Regulations issued
thereunder. Ownership interests shall be determined in accordance with the
attribution rules of Section 318 of the Code.
If the number of officers which would otherwise be taken into
account under clause (i) for any Plan Year exceed ten percent (10%) of the total
number of Employees of all the Affiliated Companies, then the number of such
officers actually qualifying as Key Employees under clause (i) for such Plan
Year shall be limited to that number of officers, not in excess of ten percent
(10%) of such total number of Employees, selected from the group of all
Employees determined to be officers at any time during the five (5) Plan Year
period ending with the Determination Date for the current Plan Year, who
received the highest annual Compensation for any Plan Year (during such five
(5)-year period) for which they were officers.
71.
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For purposes of clause (ii) above, should two (2) Employees own
the same percentage interest in one or more Affiliated Companies, then the
Employee having the greater aggregate annual Compensation for the Plan Year
shall be deemed to own the larger percentage interest.
(b) "Top-Heavy Ratio" shall mean that fraction the numerator of
which is the sum of the account balances of all Key Employees under this Plan
(and, if this Plan is part of a Required Aggregation Group or a Permissive
Aggregation Group, the sum of (I) the account balances of all Key Employees
under all other defined contribution plans (within such Required or Permissive
Aggregation Group) maintained by one or more Affiliated Companies and (II) the
present value of the accrued benefits of all Key Employees under all defined
benefit plans (within such Required or Permissive Aggregation Group) maintained
by one or more Affiliated Companies, and the denominator of which is the sum of
the account balances of all Participants under this Plan (and, if this Plan is
part of a Required Aggregation Group or a Permissive Aggregation Group, the sum
of (I) the account balances of all Participants under all other defined
contribution plans (within such Required or Permissive Aggregation Group)
maintained by one or more Affiliated Companies and (II) the present value of the
accrued benefits of all Participants under all defined benefit plans (within
such Required or Permissive Aggregation Group) maintained by one or more
Affiliated Companies.
In determining the Top-Heavy Ratio, the following rules shall
apply:
(i) The value of such account balances and the present
value of such accrued benefits shall be determined as of the most recent
Top-Heavy Valuation Date within the twelve (12)-month period ending on the
Determination Date. Each account balance so determined shall be adjusted for (A)
the amount of any contributions made after such Top-Heavy Valuation Date but on
or before the Determination Date or, with respect to defined contribution plans
subject to Code Section 412, (B) the amount of any contributions to be allocated
as of a date on or before the Determination Date though not yet required to be
actually contributed. Except as otherwise provided in subparagraph (ii) below or
in the Regulations issued under Code Section 416(g)(3), the value of each such
account balance or accrued benefit shall also include all distributions made
from such account or made with respect to such accrued benefit during the five
(5) Plan-Year period ending on the Determination Date. The present value of each
accrued benefit under a defined benefit plan shall be determined as if the
individual ceased Employee status as of the Top-Heavy Valuation Date and shall
be calculated in accordance with the actuarial assumptions in effect for such
purpose under the defined benefit plan under which such benefit is payable. The
accrued benefit of an Employee other than a Key Employee shall be determined
under the method (if any) that uniformly applies for accrual purposes under all
defined benefit plans maintained by one or more Affiliated Companies or, if
there is no
72.
<PAGE> 79
such method, as if such benefit accrued not more rapidly than the slowest
accrual rate permitted under Code Section 411(b)(1)(E).
(ii) Should there be effected a transfer from one
qualified plan to another (by rollover or plan-to- plan transfer) which is (A)
incident to a plan merger or consolidation or incident to a plan division, (B)
made between two (2) plans maintained by the same employer (as determined
pursuant to the aggregation rules of Code Section 414(b), (c) or (m)) or (C)
otherwise not initiated by the Employee, then the Participant's accrued benefit
or account balance under the transferee plan shall include any amount
attributable to such transfer which is received or accepted by such plan on or
before the Determination Date, and the transferor plan shall not be required to
include such amount in the Participant's accrued benefit or account balance as
of such Determination Date or any date thereafter. With respect to any rollover
or plan-to-plan transfer not otherwise described in the preceding sentence, the
Participant's accrued benefit or account balance under the transferor plan shall
include any amount distributed or transferred by such plan, and the transferee
plan shall not be required to include, as part of the Participant's accrued
benefit or account balance, any amount attributable to the assets received in
such transfer if accepted after December 31, 1983, but such transferee plan
shall be required to include the assets received in such transfer in the
calculation of the Participant's accrued benefit or account balance if such
assets were accepted prior to January 1, 1984.
(iii) No accrued benefit or account balance of a
Participant or Beneficiary shall be taken into account for purposes of
calculating the Top-Heavy Ratio if the Participant has not been an Employee
during the five (5) Plan-Year period ending with the Determination Date for a
particular Plan Year, and no accrued benefit or account balance of a Participant
or Beneficiary shall be taken into account for purposes of calculating the
Top-Heavy Ratio if the Participant (A) is a Non-Key-Employee during the Plan
Year and (B) was a Key Employee for any prior Plan Year.
(iv) When two (2) or more plans constitute a Required
Aggregation Group or a Permissive Aggregation Group, the present value of the
accrued benefits or the value of the account balances (as adjusted for
distributions to Key Employees and all Employees for the relevant five (5)
Plan-Year period) shall be determined separately for each plan on the basis of
the determination date in effect for that plan. The plans are then to be
aggregated by adding together the results obtained for each plan as of the
determination date falling within the same calendar year as the determination
dates for all the other aggregated plans.
(v) The calculation of the Top-Heavy Ratio shall be made
in accordance with Code Section 416 and the Regulations issued thereunder.
(c) "Required Aggregation Group" means a group of plans consisting
of (1) this Plan and any other qualified plan of one or more Affiliated
Companies (including a simplified employee pension plan) in which at least one
Key Employee participates and
73.
<PAGE> 80
(2) any other qualified plan of the Affiliated Companies which enables any plan
described in clause (1) above to meet the requirements of Sections 401(a)(4) and
410 of the Code.
(d) "Permissive Aggregation Group" means a group of plans
consisting of the Required Aggregation Group plus any other plan of the
Affiliated Companies which, when considered together with the Required
Aggregation Group, would continue to satisfy the requirements of Sections
401(a)(4) and 410 of the Code.
(e) "Compensation" shall have the meaning assigned to such term in
the first paragraph of Section 1.9 and shall be applied on an aggregate basis as
if all the Affiliated Companies were a single employer entity paying such
Compensation.
(f) "Determination Date" for each Plan Year in effect under this
Restatement shall mean the last day of the immediately preceding Plan Year.
(g) "Top-Heavy Valuation Date" shall mean the Valuation Date
coincident with or immediately preceding the Determination Date.
(h) "Non-Key-Employee" shall mean any Employee who is not a Key
Employee and shall include any Employee who is a former Key Employee.
(i) "Top-Heavy Contribution" shall have the meaning assigned to
such term in Section 22.3.
(j) "Remuneration" shall have the meaning assigned to such term in
Section 9.1(c) and shall be applied on an aggregate basis as if all the
Affiliated Companies were a single employer entity paying such Remuneration.
22.2 Top-Heavy Status. This Plan shall be considered "Top Heavy"
with respect to any Plan Year if, as of the Determination Date for such Plan
Year, any of the following conditions exists:
(a) The Top-Heavy Ratio for this Plan exceeds sixty percent (60%)
and this Plan is not part of any Required Aggregation Group.
(b) This Plan is part of a Required Aggregation Group but not part
of a Permissive Aggregation Group and the Top-Heavy Ratio for the Required
Aggregation Group exceeds sixty percent (60%).
(c) This Plan is part of a Required Aggregation Group and also
part of one or more Permissive Aggregation Groups and the Top-Heavy Ratio for
each Permissive Aggregation Group exceeds sixty percent (60%).
22.3 Minimum Benefit.
74.
<PAGE> 81
(a) For each Plan Year the Plan is Top-Heavy, each Participating
Company shall make a Top-Heavy Contribution on behalf of each Qualified
Participant employed by such Participating Company. For purposes of the
Top-Heavy Contribution, a Participant shall be considered a Qualified
Participant if: (i) such Participant is a Non-Key-Employee and (ii) such
Participant has not ceased to be an Employee prior to the end of such Plan Year.
(b) The Top Heavy Contribution on behalf of each Qualified
Participant shall be in a minimum amount which, when added to such Participant's
allocable share of (I) the Company Contributions and Forfeitures under Articles
VI and VIII for such Plan Year and (II) the employer contributions and
forfeitures under any Other Plan, shall be a percentage of his/her Remuneration
at least equal to the lesser of (a) three percent (3%) or (b) the percentage of
Remuneration represented by the aggregate amount of Section 401(k)
Contributions, Company Contributions and Forfeitures under this Plan and all
employer contributions and forfeitures under any Other Plan which is allocated
for such Plan Year to the Accounts of the Key Employee for whom such aggregate
percentage is the highest for such Plan Year, taking into account only the first
$200,000 of his/her Remuneration (subject to a cost of living adjustment
pursuant to Code Section 415(d)(2)).
(c) Section 401(k) Contributions made by Non-Key Employees shall
not count towards satisfying the minimum Top-Heavy Contributions to Non-Key
Employees. If Matching Contributions under this Plan are utilized to satisfy
such minimum Top- Heavy Contribution, then the Matching Contributions for such
Plan Year must satisfy the non-discrimination standards of Code Section 401(a)
without regard to Code Section 401(m). Accordingly, the deferral percentage test
and the contribution percentage test of Section 7.1 of the Plan shall not be
applicable to such Matching Contributions.
(d) The Top-Heavy Contributions shall be paid to the Trustee as
soon as possible after the end of the Plan Year for which such contributions are
made, but in any event within the time limits prescribed under applicable State
and Federal tax laws for the current deductibility thereof.
(e) The Administrator shall maintain a Top-Heavy Contribution
Account for each Participant which shall be credited with all Top-Heavy
Contributions made on the Participant's behalf pursuant to the provisions of
this Section 22.3. Such Account shall be adjusted periodically to reflect the
Participant's share of the earnings, gain and losses of the Trust Fund
attributable to the Top-Heavy Contributions credited to the Account. Each
Participant shall vest in his/her Top-Heavy Contribution Account in accordance
with Article XIII.
75.
<PAGE> 82
ARTICLE XXIII
LOANS
23.1 Loan Applications. Except as provided below, each Participant
or other "party in interest" (as defined in Section 3(14) of ERISA) who has an
interest in the outstanding balance of any Deferred Compensation Account may
submit a written application to the Administrator for a loan from the Plan in an
amount not in excess of the maximum amount allowable under Section 23.2(a). The
Administrator shall not reject any application on the basis of the applicant's
age or sex but may make distinctions on the basis of the applicant's credit
worthiness and financial need.
23.2 Loan Terms. Upon approval of any application under Section
23.1, the Administrator shall direct the Trustee to make a loan to the applicant
in accordance with the following provisions:
(a) The minimum amount an individual may borrow is $1,000, or such
smaller amount as the Administrator shall establish from time to time. The
Administrator may establish as a condition of the loan program that an
individual may not have more than one (or such greater number as the
Administrator may establish from time to time) loan outstanding under the Plan
at any time.
(b) The maximum amount of the loan shall not (when added to the
outstanding balance of all other loans ("Plan Loans") made to the applicant
under this Plan or any other defined benefit or defined contribution plan to
which any Affiliated Company contributes) exceed the lesser of:
(i) $50,000 (less the excess of (I) the highest principal
amount in the aggregate outstanding under any other Plan Loans to the applicant
during the immediately preceding twelve (12) months over (II) the aggregate
principal amount outstanding under such Plan Loans on the date such loan is
made); or
(ii) fifty percent (50%) of the vested balance credited to
the Accounts of such applicant at the time the loan is made (as determined
pursuant to the valuation provisions of Section 11.3).
In no event, however, shall the amount loaned to the applicant
exceed one hundred percent (100%) of the balance credited to the Deferred
Compensation Account at the time the loan is made, less any earmarked
investments credited to such Account under Section 23.4.
(c) The cost of processing the loan application shall be deducted
from the Deferred Compensation Account or may, at the applicant's election, be
withheld from the amount borrowed.
76.
<PAGE> 83
(d) The loan shall be evidenced by the applicant's promissory note
in the amount of the loan, made payable to the order of the Trustee.
(e) The loan shall have a fixed term not in excess of five (5)
years (or ten (10) years if the proceeds of the loan to a Participant are
applied to the acquisition of real estate which is to serve as his/her primary
residence), subject to acceleration upon the occurrence of (i) the applicant's
failure to pay any installment of principal or interest when due, (ii) the
applicant's qualification for an immediate distribution from the Plan or, if the
applicant is a Participant, his/her cessation of Employee status, (iii) the
filing of bankruptcy proceedings by or against the applicant, the assignment of
the applicant's assets for the benefit of his/her creditors or the appointment
of a receiver for the applicant's assets, or any other similar event of
acceleration specified in the promissory note.
(f) The loan shall bear a market rate of interest, payable at
least quarterly. Such market rate shall be determined on the basis of the
interest rates charged for similar-purpose loans by banks and other reputable
financial institutions selected by the Administrator as representative lenders.
(g) The loan shall be adequately secured through the conveyance to
the Trust of a security interest in fifty percent (50%) of the applicant's
right, title and interest in and to his/her Accounts under the Plan.
(h) The loan shall be repayable through level amortization
payments over the term of the loan. Such payments shall be effected through (i)
periodic payroll deductions from the Participant-applicant's salary and other
cash earnings each payroll period the loan is outstanding or (ii) periodic cash
installments (payable at least quarterly) whenever payroll deductions are not
possible.
(i) The remaining terms and conditions of the loan and related
documentation shall be established by the Administrator.
(j) The provisions of this Article XXIII and loans made hereunder
shall be interpreted and construed so as to prevent any such loan from being
treated as a taxable distribution under Code Section 72(p).
23.3 Offset Rights. If the borrower is the Participant, then no
distributions or withdrawals shall be effected from his/her Accounts at any time
after his/her cessation of Employee status, unless and until all loans under
this Article XXIII, including interest thereon, have been repaid in full. While
the Participant remains in Employee status, no distributions or withdrawals
under the Plan (other than a hardship withdrawal for which the Participant may
qualify pursuant to the provisions of Article XV) shall be made to him/her while
any loan to such Participant remains outstanding under this Article XXIII.
Should any other person become entitled to a distribution under the Plan at a
time when one or more Article XXIII loans to such person remain outstanding,
then
77.
<PAGE> 84
the unpaid balance of such loans shall become immediately due and payable, up to
an amount equal to the amount to be distributed to him/her under the Plan. The
Trustee shall, accordingly, collect such accelerated indebtedness by withholding
it from and offsetting it against the amount to be distributed. To the extent
any Qualified Domestic Relations Order requires payment to an Alternate Payee at
a time when a loan is outstanding to the Participant from whose Account the
Order requires payment, the terms of such Order shall control.
23.4 Liquidation of Account. The proceeds for each loan under the
Plan shall be obtained by liquidating a portion of each investment at the time
held in the Deferred Compensation Account in which the applicant has an
interest, with the amount so liquidated to be in the same proportion as the
market value of each such investment bears to the total market value of all
investments held in the Account.
23.5 Earmarked Investment. All notes evidencing Article XXIII
loans from the Deferred Compensation Account shall constitute an earmarked
investment of that Account. Accordingly, such Account shall at the time the loan
is made be divided into two subaccounts. Subaccount One shall be credited with
the note and shall not share in the investment gains or losses of the Trust Fund
under Article XI. Subaccount Two shall be credited with that portion of the
Account which is not loaned to the applicant (including payments of interest and
principal made on the note) and shall be periodically adjusted under Section
11.2 for its allocable share of the investment gains and losses of the Trust
Fund. To the extent the Deferred Compensation Account has an earmarked
investment under this Section 23.5, then all Section 401(k) Contributions
thereafter allocated to such Account shall be credited to Subaccount Two, where
they shall remain until they become the subject of a subsequent loan under this
Article XXIII.
IN WITNESS WHEREOF, the Company has caused this Plan to be
executed by its duly-authorized officer on this 29th day of December 1994.
KOMAG, INCORPORATED
By: /s/ Kathryn McGann
Title: Vice President - Human Resources
78.
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SCHEDULE A
PARTICIPATING COMPANIES
I. SECTION 401(K) DEFERRAL PROGRAM
Komag, Incorporated
II. DEFERRED PROFIT-SHARING PROGRAM
Komag, Incorporated
<PAGE> 1
EXHIBIT 10.11.15
KOMAG, INCORPORATED
RESTATED SAVINGS AND DEFERRED PROFIT-SHARING PLAN
AMENDMENT NO. 1
The Komag, Incorporated Restated Savings and Deferred Profit-Sharing
Plan (the "Plan"), as adopted effective January 1, 1990 and subsequently
restated effective January 1, 1994, is hereby amended, effective as of January
1, 1995 except as set forth below, as follows:
1. The first and second sentences of Section 1.17 are hereby restated
effective as of January 1, 1996 to read as follows:
"`Eligible Earnings' shall, for purposes of the Section 401(k)
Contributions permitted under the Plan, mean (i) all direct and current
cash compensation, including amounts paid to the Employee under the
Company's Management Bonus Plan (or its successor), commissions, overtime,
double time, vacation pay, advanced vacation pay, jury duty pay,
bereavement or sick pay, retroactive pay, Company or personal holiday pay,
shift or other differentials, and all foreign service/temporary assignment
premiums or differentials, which a Participating Company pays to an
Eligible Employee while a Participant in the Plan, (ii) the Section 401(k)
Contributions made on behalf of such Eligible Employee for the Plan Year,
and (iii) any amounts contributed by such Eligible Employee on a pre-tax
basis during the Plan Year pursuant to salary deferral or reduction
arrangements in effect with one or more Affiliated Companies under Code
Section 125 or 408(k). `Eligible Earnings' shall, for purposes of the
allocation of Discretionary Contributions and Forfeitures under Section 8.4
of the Plan, mean the base salary paid by a Participating Company to an
Eligible Employee while a Participant in the Plan.
Under no circumstances shall the Eligible Earnings of any individual
include, whether for Section 401(k) Contribution or Company Contribution or
Forfeiture purposes, (i) any remuneration paid to the Employee prior to
such Employee's commencement of participation in the Deferred
Profit-Sharing Program (for purposes of applying the provisions of Article
VIII) or prior to such Employee's eligibility for participation in the
Salary Deferral Program (for purposes of applying the provisions of
Articles IV-VII), (ii) any remuneration paid in the form of reimbursed
moving and relocation expenses or home mortgage differential payments or
any income reportable by reason of automobile allowances provided by one or
more Affiliated Companies, (iii) any income realized upon exercise of
non-qualified stock options or upon disqualifying dispositions of stock
acquired under incentive stock options, (iv) any income recognized by the
Employee under Code Section 79 by reason of group-term life insurance
coverage in excess of Fifty Thousand Dollars ($50,000.00), (v) any amounts
paid to the Employee under the Company's Cash
<PAGE> 2
Profit-Sharing Plan (or its successor), (vi) any special bonuses or other
incentive-type payments, (vii) any Company Contributions made to this Plan,
and (viii) any Affiliated Company contributions made to any other pension,
profit sharing, stock bonus, group insurance or other employee welfare plan
now or hereafter adopted."
2. Section 1.18 is hereby restated to read as follows:
"'Eligible Employee' shall mean each and every Employee of a Participating
Company. However, there shall be excluded from the class of Eligible
Employees for all purposes under the Plan:
(i) any Employee whose terms and conditions of employment are
established under a collective bargaining agreement pursuant to which
retirement benefits have been the subject of good-faith bargaining,
(ii) any Employee who is a non-resident alien with no earned income
(within the meaning of Code Section 911(b)) from a Participating Company
which constitutes income from sources within the United States (within the
meaning of Code Section 861(a)(3)),
(iii) any Employee who has separated from active employment with the
Company or any other Affiliated Company by reason of Disability,
(iv) any Employee who is a Leased Employee,
(v) any Employee who is on salary continuation pay following cessation
of active Employee status, but who is not otherwise expected to resume
active Employee status upon the completion of the salary continuation
period, or
(vi) any Employee who is a member of any other group or class of
Employees which the Board of Directors of any Participating Company
determines, pursuant to a policy which does not discriminate in favor of
Highly Compensated Employees, not to include as Eligible Employees under
the Plan.
For purposes of this Section 1.18, the term "Leased Employee" shall
mean any person (other than an actual Employee of the recipient Affiliated
Company) who has, pursuant to any agreement between the recipient
Affiliated Company and any other person (the "leasing organization"),
performed services for the recipient Affiliated Company (or the recipient
Affiliated Company and any related entity determined in accordance with
Code Section 414(n)(6)) on a substantially full-time basis for a period of
at least one (1) year (as determined in accordance with the applicable
provisions of proposed Income Tax Regulations Section 1.414(n)-1(b)(10)),
and such services are of a type historically performed by employees in the
business field of the recipient Affiliated Company (or such related
entity). Upon completion of such year
2.
<PAGE> 3
of service (but subject to the special break-in-service provisions of
proposed Income Tax Regulations Section 1.414(n)-1(b)(13)), the Leased
Employee shall be treated as an Employee (but not as an Eligible Employee)
for all purposes of the Plan, and his/her period of Service shall include
the entire period for which the Leased Employee has performed services for
the recipient Affiliated Company, subject to the applicable
Break-in-Service provisions of this Plan. In no event, however, shall a
Leased Employee be treated as an Employee if (a) such Leased Employee is
covered by a money purchase pension plan providing (i) a non-integrated
employer contribution rate of at least ten percent (10%) of Compensation
(as determined in accordance with the guidelines set forth in the first
paragraph of Section 1.9), (ii) immediate participation, and (iii) full and
immediate vesting, and (b) the total number of Leased Employees does not
constitute more than twenty percent (20%) of the Non-Highly Compensated
Work Force."
3. Section 3.1(a) is hereby restated to read as follows:
"(a) Every Eligible Employee who is a Participant in the Plan on the
Effective Date of the 1994 restatement shall continue to participate in
both the Deferred Profit-Sharing Program and the Salary Deferral Program in
accordance with the provisions of the 1994 restatement. Every other
Eligible Employee who is regularly scheduled to complete at least 1,000
Hours of Service per Plan Year shall become a Participant in the Deferred
Profit-Sharing Program immediately upon completion of six (6) months of
Service and shall be eligible for participation in the Salary Deferral
Program on the first day of the first Quarter following completion of at
least six (6) months of Service. If an Eligible Employee is not regularly
scheduled to complete at least 1,000 Hours of Service per Plan Year, such
Employee shall become a Participant in the Deferred Profit-Sharing Program
immediately following his or her completion of 1,000 Hours of Service in
(a) the twelve (12) consecutive month period measured from the date the
Employee completes his or her first Hour of Service or (b) any Plan Year
which begins after the date the Employee completes his or her first Hour of
Service. If an Eligible Employee is not regularly scheduled to complete at
least 1,000 Hours of Service per Plan Year, such Employee shall be eligible
for participation in the Salary Deferral Program on the first day of the
first Quarter immediately following his or her completion of 1,000 Hours of
Service in (a) the twelve (12) consecutive month period measured from the
date the Employee completes his or her first Hour of Service or (b) any
Plan Year which begins after the date such Employee completes his or her
first Hour of Service."
3.
<PAGE> 4
4. Section 4.1 is hereby restated to read as follows:
"4.1 Section 401(k) Election.
(a) Salary Deferral Election. Each individual eligible for
participation in the Salary Deferral Program may file a Section 401(k) Election
with the Administrator indicating his/her election to have the Participating
Company employing him/her (i) reduce his/her Eligible Earnings each pay period
by a specified dollar amount or specified percentage (in any increment of one
percent (1%)) up to the maximum dollar amount or percentage permitted by the
Administrator for the Plan Year, but in no event more than Nine Thousand Two
Hundred Forty Dollars ($9,240.00) in the aggregate per calendar year, and (ii)
contribute the specified amount to the Plan as a Section 401(k) Contribution on
his/her behalf under Section 5.1.
(b) Bonus Election. Each individual eligible for participation in the
Salary Deferral Program may file a Bonus Election with the Administrator, at
such time(s) and in such manner as shall be determined by the Administrator,
indicating his/her election to have the Participating Company employing him/her
(i) reduce his/her Elective Bonus otherwise payable to him/her for such Plan
Year as a current cash bonus by a specified dollar amount or specified
percentage (in any increment of one percent (1%)) up to the maximum dollar
amount or percentage permitted by the Administrator for the Plan Year and (ii)
contribute the specified amount to the Plan as a Section 401(k) Contribution on
his/her behalf under Section 5.1. In no event, however, shall such Section
401(k) Contribution exceed the excess of (i) the dollar amount of Nine Thousand
Two Hundred Forty Dollars ($9,240.00) over (ii) the dollar amount of the Section
401(k) Contributions made on the Participant's behalf, pursuant to his/her
Section 401(k) Election under clause (a) above, during the calendar year
coincident with the Plan Year for which the Elective Bonus is payable. If a
timely election is not made under this Section 4.1(b), then the Elective Bonus
shall be distributed to the Participant as a current cash payment outside of the
Plan, subject to all applicable withholding taxes. The term 'Elective Bonus'
means the discretionary cash bonus payable to the Participant for his/her period
of Service during the Plan Year under the Management Bonus Plan.
(c) Section 401(k) Contributions shall not include any amounts
deferred pursuant to the Salary Deferral Program which are properly distributed
pursuant to Section 9.3 as excess Annual Additions. The dollar limitation of
clauses (a) and (b) of this Section 4.1 shall be automatically adjusted each
calendar year beginning after December 31, 1995, to the extent permitted under
Code Section 402(g) and the Regulations issued thereunder."
4.
<PAGE> 5
5. Section 4.7(a)(i) is hereby restated in its entirety to read as
follows:
"The Administrator may, by unilateral action effected at any time during the
Plan Year, reduce the Section 401(k) Elections or Bonus Elections of one or more
Participants who are among the group of Highly Compensated Employees to the
maximum deferral percentage permissible for such Participant or Participants
without contravention of the requirement that the aggregate Section 401(k)
Contributions made on behalf of all Participants who are Highly Compensated
Employees satisfy one of the deferral percentage tests of Section 4.6."
6. Section 6.1 is hereby restated in its entirety to read as follows:
"6.1 Matching Contributions.
(a) Each Participating Company may, in its sole discretion and
without any obligation to do so, make a Matching Contribution each Plan Quarter
on behalf of each Qualified Participant. For purposes of any such Matching
Contribution, a Participant shall be considered a Qualified Participant if:
(i) such Participant has a valid Section 401(k) Election
and/or Bonus Election in effect at any time during the Plan Quarter for which
the Matching Contribution is to be made;
(ii) the Participating Company has made one or more Section
401(k) Contributions on behalf of such Participant for the Plan Quarter for
which the Matching Contribution is to be made; and
(iii) such Participant (A) is an Eligible Employee on the
last day of the Plan Quarter for which the Matching Contribution is to be made,
or (B) has ceased Eligible Employee status during such Plan Quarter by reason of
Retirement, death or Disability, or (C) has during such Plan Quarter transferred
directly from Eligible Employee status under this Plan, without any intervening
period of other employment, to the employ of Komag Material Technology, Inc. (or
any other company or entity affiliated with Komag Material Technology, Inc.
within the meaning of such term under Section 1.3 of the Komag Material
Technology, Inc. Deferred Savings Plan) at a time when the Company owns fifty
percent (50%) or more of the outstanding voting stock of Komag Material
Technology, Inc. and is an eligible employee (within the meaning of such term
under Section 1.14 of the Komag Material Technology, Inc. Deferred Savings Plan)
at the end of such Plan Quarter.
(b) The Matching Contribution made on behalf of each Qualified
Participant for a particular Plan Quarter shall be equal to that percentage of
the Section 401(k) Contributions allocated to such Participant's Deferred
Compensation
5.
<PAGE> 6
Account for the Plan Quarter or the Plan Year which the Administrator determines
to be the appropriate percentage match for such Plan Quarter or Plan Year,
subject to any specified dollar maximum per Participant.
(c) The Administrator will announce the percentage match and any
specified dollar maximum per Participant to be in effect for each Plan Quarter
of a particular Plan Year, or for each Plan Year, prior to the start of that
Plan Year."
6.
<PAGE> 7
7. Except as modified by this Amendment No. 1, all the terms and
provisions of the Plan shall continue in full force and effect.
IN WITNESS WHEREOF, Komag, Incorporated has caused this instrument to
be executed on its behalf by its duly authorized officer as of the date set
forth above.
KOMAG, INCORPORATED
By /s/ Kathryn McGann
----------------------------
7.
<PAGE> 1
EXHIBIT 10.11.16
KOMAG, INCORPORATED
RESTATED SAVINGS AND DEFERRED PROFIT-SHARING PLAN
PLAN AMENDMENT NO. 2
THE KOMAG, INCORPORATED RESTATED SAVINGS AND DEFERRED PROFIT-SHARING
PLAN, as restated in its entirety effective January 1, 1994 and subsequently
amended effective January 1, 1995, is hereby further amended, effective January
1, 1995, as follows:
1. Section 1.33 of the Plan is hereby amended in its entirety to read
as follows:
"1.33 'Operating Profits' shall mean the Operating Media Income for
the fiscal year of the Company ending closest to the last day of each Plan Year
for which Discretionary Contributions are to be made under Article VIII.
Operating Media Income means the consolidated operating income of the Company
and the other Affiliated Companies for the fiscal year attributable to United
States and Malaysian media operations. Based on present business and accounting
policies, Operating Media Income shall include the operating income or loss
attributable to the Company and Komag USA (Malaysia) Sdn. and shall exclude
operating income or loss attributable to Komag Material Technology, Inc., Dastek
Holding Company and Dastek (M) Sdn. Bhd.
The calculation of Media Operating Income for each fiscal year
shall be in accordance with generally accepted accounting principles (including
FAS14) adjusted to exclude the following: (i) any Discretionary or Matching
Contributions made to this Plan for the Plan Year ending closest to the last day
of such fiscal year, (ii) any amounts accrued for such fiscal year under the
Komag, Incorporated Cash Profit Sharing Plan, (iii) all items of income, gain,
loss or expense for such fiscal year determined by the Compensation Committee of
the Company's Board of Directors to be extraordinary or unusual in nature and
not incurred or realized in the ordinary course of business, whether or not such
items would otherwise be considered to be extraordinary in accordance with the
standards established by Opinion No. 30 of the Accounting Principles Board, and
(iv) any profit or loss attributable to the business operations of any entity
acquired by the Company or any other Affiliated Company during such fiscal
year."
2. Except as modified by this Plan Amendment, all the terms and
provisions of the Komag, Incorporated Restated Savings and Deferred
Profit-Sharing Plan, as restated in its entirety effective January 1, 1994 and
subsequently amended effective January 1, 1995, shall continue in full force and
effect.
<PAGE> 2
IN WITNESS WHEREOF, KOMAG, INCORPORATED has caused this Plan
Amendment to be executed on its behalf by its duly-authorized officer on this
21st day of July 1995.
KOMAG, INCORPORATED
By: /s/ William L. Potts, Jr.
-------------------------------------------
Title: Vice President - Chief Financial Officer
2.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUL-03-1995
<PERIOD-END> OCT-01-1995
<EXCHANGE-RATE> 1
<CASH> 172,752
<SECURITIES> 28,936
<RECEIVABLES> 70,771
<ALLOWANCES> 3,116
<INVENTORY> 28,631
<CURRENT-ASSETS> 308,763
<PP&E> 485,623
<DEPRECIATION> 197,844
<TOTAL-ASSETS> 624,419
<CURRENT-LIABILITIES> 69,874
<BONDS> 0
<COMMON> 252
0
0
<OTHER-SE> 529,916
<TOTAL-LIABILITY-AND-EQUITY> 624,419
<SALES> 132,835
<TOTAL-REVENUES> 132,835
<CGS> 79,513
<TOTAL-COSTS> 79,513
<OTHER-EXPENSES> 18,099
<LOSS-PROVISION> 627
<INTEREST-EXPENSE> 528
<INCOME-PRETAX> 37,498
<INCOME-TAX> 9,373
<INCOME-CONTINUING> 30,399
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,399
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.21
</TABLE>
