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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
________________________________
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1999.
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ________ to ________.
Commission File Number 0-18655
EXPONENT, INC.
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(Exact name of registrant as specified in its charter)
Delaware 77-0218904
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(State or other jurisdiction of (IRS employer identification no.)
incorporation or organization)
149 Commonwealth Drive, Menlo Park, California 94025
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(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (650) 326-9400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
- -----------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No__
-
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant (based on the closing sale price of the Common Stock as reported on
the NASDAQ National Market on March 17, 2000, was approximately $34,281,388.
For purposes of this determination, shares of Common Stock held by each officer
and director and by each person who owns 5% or more of the outstanding Common
Stock have been excluded in that such persons may be deemed to be affiliates.
This determination of affiliate status is not necessarily a conclusive
determination for other purposes.
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The number of shares of the issuer's Common Stock outstanding as of March 17,
2000 was 6,698,815.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Registrant's Annual Report to Stockholders for its fiscal
year ended December 31, 1999, are incorporated by reference in Parts II and
IV of this Form 10-K to the extent stated herein.
(2) Portions of the Registrant's definitive Proxy Statement for the
Registrant's 2000 Annual Meeting of Stockholders to be held on May 1, 2000,
are incorporated by reference into Part III of this Form 10-K.
FORWARD-LOOKING STATEMENTS
This Report contains, and incorporates by reference, certain forward-
looking statements (as such term is defined in the Private Securities Litigation
Reform Act of 1995, and the rules promulgated pursuant to the Securities Act of
1933, as amended, and the Securities Exchange Act of 1934, as amended thereto
under) that are based on the beliefs of the Company's management, as well as
assumptions made by and information currently available to the Company's
management. Such forward-looking statements are subject to the safe harbor
created by the Private Securities Litigation Reform Act of 1995. When used in
this document and in the documents incorporated herein by reference, the words
"anticipate," "believe," "estimate," "expect" and similar expressions, as they
relate to the Company or its management, are intended to identify such forward-
looking statements. Such statements reflect the current views of the Company or
its management with respect to future events and are subject to certain risks,
uncertainties and assumptions. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect, the
Company's actual results, performance, or achievements could differ materially
from those expressed in, or implied by, any such forward-looking statements.
Factors that could cause or contribute to such material differences include
those discussed elsewhere in this Report and in the documents incorporated
herein by reference. The inclusion of such forward-looking information should
not be regarded as a representation by the Company or any other person that the
future events, plans, or expectations contemplated by the Company will be
achieved. The Company undertakes no obligation to release publicly any updates
or revisions to any such forward-looking statements that may reflect events or
circumstances occurring after the date of this Report.
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PART I
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Item 1. Business
GENERAL
Exponent, Inc., incorporated in Delaware in 1989 ("Exponent", and, together
with its subsidiaries, the "Company"), is a multidisciplinary organization of
scientists, physicians, engineers and business consultants performing in-depth
scientific research and analysis in over 50 technical disciplines. The Company's
services include analysis of product development or product recall, regulatory
compliance, discovery of potential problems related to products, people or
property and impending litigation.
During fiscal 1996, the Company entered into the epidemiology arena with
the acquisition of Exponent Health Group, Inc. ("EHG"), formerly named
Environmental Health Strategies, Inc., on August 1, 1996. EHG provides
epidemiology advice and services on a wide variety of topics, including
occupational and environmental health, pharmaceutical and medical device issues,
and health-related consumer product safety.
During fiscal 1997, the Company continued implementing its strategy of
growth and diversification through the acquisition of Exponent Environmental
Group, Inc. ("EEG"), formerly named Performance Technologies, Inc., on May 16,
1997. EEG is a scientific and engineering consulting firm specializing in
providing scientific solutions for complex environmental problems.
In addition, the Company acquired BCS Wireless, Inc. ("BCS") on January 4,
1997. BCS is a firm that specializes in the installation and maintenance of
wireless communication networks. During 1999, a decision was made to divest BCS
because the Company's management believes the subsidiary is no longer a
strategic fit for the Company.
The Company sold one of its subsidiaries PLG, Inc. ("PLG") in the third
quarter of fiscal 1997. The Company sold PLG based on management's assessment
that the services PLG provided were no longer complementary to the Company's
core business practice areas.
CLIENTS
General
The Company serves clients in manufacturing, transportation, utilities,
energy, insurance, government, health, environmental and other sectors of the
economy. During 1999, 1998 and 1997 the Company provided services representing
approximately 20%, 29% and 29%, respectively of the Company's gross revenues
from continuing operations were derived from professional services provided to
clients, organizations and insurers related to the transportation industry.
Many of the Company's engagements are initiated by lawyers or insurance
companies whose clients anticipate or are engaged in litigation over an
alleged failure of their products, equipment or services. The Company has seen
its services in failure prevention and technology evaluation grow as the
technological complexity of products has increased over the years.
Pricing and Terms of Engagements
The Company provides its services on either a fixed-price basis or on a
"time and expenses" basis, charging hourly rates for each staff member involved
in a project based on his or her skill and experience.
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The Company's standard rates for professionals range from $30 to $700 per hour.
The Company's engagement agreements typically provide for monthly billing,
require payment of the Company's invoices within 30 days of receipt, permit
clients to terminate an engagement at any time and generally grant the Company
ownership of intellectual property developed by the Company in the course of the
engagement. Clients normally agree to indemnify Exponent's work and its
personnel against liabilities arising out of the use or application of the
results of the Company's work or recommendations.
SERVICES
The Company provides services in the following practice areas:
. Biomechanics . Industrial Structures
. Civil . Information Management
. Data Analysis . Marine and Aviation
. Electrical . Materials Science and Mechanical
. Environmental Design Analysis
. Health . Technology Development
. Health Risk . Thermal Sciences
. Human Factors . Vehicle Evaluation and Testing
. Hydrology . Visual Communications
Biomechanics
Biomechanics uses engineering and science to determine how people become
injured and to determine what injuries can be expected when people are exposed
to a certain incident or environment. The analyses encompasses: claimed injury,
injury mechanisms and injury prevention; effectiveness of restraint systems;
ergonomic design evaluation; low-speed and high-speed automotive collisions,
cardiovascular devices; helmet effectiveness; occupational injuries;
recreational sports injuries; evaluation of implant designs; cardiovascular
medicine and failure; and human body dynamics.
Civil
Civil engineering investigates all types of structural, geotechnical,
geological, geomechanical, construction and building problems, from major
catastrophes to simple performance failures. The scientific investigation of
these events provides a thorough assessment of damage, as well as expert
analysis of causation to be used for purposes of retrofit, repair, claims
adjustment or litigation. The analysis provides a comprehensive evaluation of
structural failures that include site condition and assessment surveys, advanced
theoretical and numerical modeling techniques, dynamic testing and analysis,
reliability and risk analysis, material testing, and repair solutions.
Earthquake engineering encompasses safety and damage assessment, seismic
analysis and design, post-earthquake reconnaissance and field inspection of all
types of structures, analysis of earthquake ground motion, investigation of
structural failures, development of remedial repairs and mitigation measures,
investigation protocol development and disaster management services.
Geotechnical, geological, geomechanical engineering and groundwater
hydrology encompasses problems with soil, rock and fluids as they related to the
structures
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that they support. Applied earth sciences analysis encompasses problems
associated with landslides, earthwork construction, foundations, retaining
walls, oil-well distress, tunnels and pipelines.
Structural engineering encompasses comprehensive evaluations, including
state-of-the-art structural analyses, site condition and assessment surveys,
dynamic testing and vibration measurement, computer animated reconstruction,
reliability and risk analyses, advanced theoretical and numeric modeling, due
diligence consulting and component or material testing. Once the root cause of
the failure is known, and when the extent and severity of the distress is fully
assessed, optimal repair options are recommended.
Data Analysis
Data analysis quantifies how machines, vehicles, consumer products and
components behave in the real world to directly measure risk. Most of the risk
analysis is based on information from in-house databases of over 350 million
computerized records, one of the world's largest collections of accident and
incident records. The analysis encompasses: accident data analysis; automotive
safety design and evaluations; database development; epidemiological research
and analysis; fire risk, property loss and insurability; health risk assessment
and epidemiology; safety assessment; statistical modeling and analysis; survey
design and analysis; system reliability and failure probability; work injury;
and consumer product safety.
Electrical
Electrical encompasses accident reconstruction, component and printed
circuit board failure analysis, electrical system design analysis, equipment
failure investigation, and patent evaluation and infringement review. Typical
investigations include: automotive electronics; printed circuit boards;
telecommunication electronics; semiconductor devices; power supplies and
batteries; prototypes; transportation systems; electric power systems;
electric equipment and energy conservation equipment and interruptible power
systems.
Environmental
Environmental includes ecological and human health risk assessment; air
quality evaluation; site investigation and liability management; natural
resource damage assessment; and water resources and quality management.
Air quality evaluation encompasses accident reconstruction; air quality
management; chemical release analyses; combustion calculations and modeling;
computer modeling of plume dynamics; statistical analyses; visualization,
animation, and geographic information systems; indoor air quality assessment;
risk analyses; uncertainty evaluation; expert testimony and litigation support.
Site investigation and liability management encompasses site assessments;
remedial investigations/feasibility studies; Resource Conservation and Recovery
Act facility investigation/corrective measure studies; natural attenuation
studies; groundwater and surface water modeling; bench scale testing; transport
and fate analysis; air quality monitoring; bio availability studies; sediment
investigations; remedial alternatives analysis; remediation/redevelopment
oversight; and economic analysis.
Water resources and water quality management encompasses groundwater,
surface water, and vadose-zone analyses; environmental transport and fate
analyses; natural attenuation and degradation studies; river and reservoir water
quality analyses; groundwater remedial investigations; watershed and basin-scale
hydrological modeling and management; site-specific hydrology and geochemical
evaluations;
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flood and stormwater planning and management; sediment transport analyses; dam
failure analyses; and water supply reliability and resource planning and
management.
Health
Health services provide solutions to complex health problems from client
consultation to clinical trials, health care evaluations, literature reviews and
epidemiological studies. Health research includes reproductive effects, cancer,
injuries and health effects from workplace exposures, pharmacoepidemiolgy, and
infectious disease control. Epidemiology, exposure assessment and occupational
medicine expertise is used to evaluate occupational and environmental health
issues. Decision analysis, cost-benefit, risk-benefit, and outcome analysis is
applied to assist health care companies in evaluating health care and with
strategic planning and technology assessment.
Epidemiology is the science of studying disease within a population.
Through the principles of epidemiology, analyses are performed on the
interaction of host, agent and environment to reach conclusions about the
causes and occurrence of disease in human populations. Epidemiology services
encompass designing and conducting occupational and environmental studies to
evaluate the health effects of community and workplace exposures, work-related
disease and injury; conducting decision analysis for alternative forms of
medical treatments; designing, conducting, and interpreting clinical trials;
consulting on product safety; and evaluating quality of health care.
Healthcare evaluation provides various approaches to accreditation, program
evaluation and cost-effectiveness analyses. These approaches encompass
statistical analysis; survey design and analysis; accreditation applications;
cost-effectiveness analysis; performance indicators; accreditation requirements;
outcome measurements; disease management; quality improvement; clinical practice
guidelines; and program evaluation.
Medical technology assessments provide a comprehensive and independent
assessment of medical devices and technologies. These assessments encompass
clinical indications; materials selection; technology (engineering) review; FDA
and other regulatory hurdles; target condition epidemiology (size of U.S. and
worldwide market); pricing and reimbursement issues; cost effectiveness;
complications and/or failure modes (liability); marketing strategy; and
competing technologies.
Health Risk
Health risk assessments and related analyses are a critical component of
many environmental regulatory decisions. The results of such analyses help
determine the need for and nature of remedial actions at hazardous waste sites,
support the derivation of cleanup levels, and assist in permitting new
facilities and developing closure plans for solid waste management units and
facilities that are going out of service. Human health toxicology services
encompass comprehensive multi-pathway risk assessments; screening-level risk
evaluations; derivation of risk-based cleanup levels; deterministic and
probabilistic exposure assessments; toxicity assessments and data evaluation;
risk assessment strategy development and review; research and development to
address sources of uncertainty; bio availability studies; fish consumption
surveys and studies; and toxic tort, class action and general litigation
support.
Human Factors
Analysis of human behavior and the limitations and capabilities of people
as they use a product or participate in an activity can provide a better
understanding of how accidents occur. The impact of warning labels, other safety
information, and training on changing human behavior and reducing accidents is
an active area of ongoing research. Human factors services encompasses the
development of warnings and safety information for consumer, medical, and work-
related products; analysis of the role of warnings in
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particular accidents; use of injury/illness data to identify human behavior
associated with accidents; use of risk analysis to quantify the safety of a
product or activity; measurement of illuminance, luminance, and noise levels in
work environments; measurement of human motor performance such as jumping
ability, variation in gait, finger pinch strength and visual-motor control;
testing of people's knowledge of hazards and comprehension of safety
information; and analysis of user reaction to complex information and control
systems.
Hydrology
Hydrology is the science of water, its properties, phenomena, and
distribution over the earth's surface. Exponent's hydrology services include the
analysis of flood retention facilities (levees, dams, etc.) and the evaluation
of the effects of flood water inundation on different types of structures. The
services also extend to investigating the cause of hillside movement, slope
erosion, and other soil movement that may be associated with flooding which may
include distinguishing between damage due to catastrophe and damage that has
been caused by or is related to long-term deterioration, foundation settlement,
slope movement, initial construction defects, or normal expected behavior of a
structure over time. In addition the hydrology practice provides property
damage assessment, geotechnical services, as well as helps develop remedial
repairs to address flood related distress. The hydrology services further
include the development of master plans of drainage to enable cities to
coordinate all aspects of their flood control and surface water needs. This
master drainage plan considers all types of storms and their attendant runoff
and provides for safe transport of the waters off site.
Industrial Structures
The Company has developed an expertise in powerplant and industrial
chimneys, not only as a designer, but also as a consultant for maintenance and
repair issues. The Industrial Structures practice has developed "close to
reality" computer programs, which are frequently used for design of chimneys and
other concrete towers that combine a high degree of safety with superior
economics.
Information Management
Information management covers information systems technology, technical
consulting, and application. Services encompass access to one of the largest
private collections of computerized accident and incident data bases in the
world; providing design and installation of customized reports and automated
queries; design and execution of complex queries and technical information in a
particular field, including suggestions for primary research. These services
help to simplify preliminary research and risk analyses by offering access over
the Internet in a streamlined approach to help organizations react quickly to
new circumstances and unanticipated demands.
Marine and Aviation
Aviation analysis includes engineering analyses and design reviews,
accident reconstruction and testing for aircraft, aircraft structures, systems
and auxiliary equipment, as well as spacecraft, satellites and rockets.
Services encompass accident reconstruction; fire cause and origin analysis and
prevention; aerodynamics analysis; materials and corrosion evaluation; aircraft
system testing and evaluation; performance and control calculations; computer
simulation; regulatory analysis; design evaluation; risk analysis and service
life assessment; and wind tunnel testing.
Marine services perform independent engineering analysis and design review,
accident reconstruction and testing for ships, marine structures, offshore
platforms, and auxiliary marine equipment. Other services encompass marine
materials and corrosion evaluation; sea-states and weather characterization;
regulatory compliance review; structural design and fabrication process review;
risk analysis and service life assessment; shipyard management and operations
review; fire cause and origin analysis and prevention; structural assessment;
management and oversight of vessel construction; and evaluation of the
environmental impact of marine industrial operations and incidents.
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Materials Science and Mechanical Design Analysis
Materials science and engineering is the science of understanding how and
why materials fail in medical, automotive, construction, recreational, and other
environments. Areas of expertise include metallurgists, polymer scientists, and
ceramists. Services encompass accident reconstruction; fatigue and fracture
mechanics analysis; fractography; adhesion and coating evaluation; joining and
welding evaluation; bulk and surface chemical analysis; laboratory testing of
metals, plastics, ceramics and glasses; composites (fiberglass, sheet molding
compound and carbon) evaluation; life assessment; corrosion assessment; defect
detection and effect investigation; material characterization, selection and
compatibility assessment; environmental effect assessment; microscopy;
experimental stress analysis; non-destructive evaluation; and fabrication and
material processing.
Mechanical design analysis covers a broad range of services, from
engineering mechanics, energy, risk management and reliability to safety and
process risk management.
Engineering mechanics involves the evaluation of loads on a system or
product, from medical devices to commercial aircraft. Projects range from
modeling fluid flow characteristics in a system to predicting the remaining
lifetime of structures and components and to establishing design and operating
envelopes for processes and technologies. Services encompass
component/structure lifetime prediction; material constitutive modeling,
testing, and evaluation; damage assessment; non-destructive evaluation; stress
analysis; design review; finite element analysis; blast and explosion; failure
modes and effects analysis; structural, thermal, and fluid dynamics analysis;
vibration evaluation and rotating equipment; fracture mechanics; medical device
assessment; and impact and penetration.
Energy services encompass creation of innovative maintenance management of
existing electric power plant equipment and systems; assisting power plant
owners and investors in modernization/expansion programs and new plant
development; component and plant condition assessments; and reliability analyses
and economic optimization.
Risk management and reliability focuses on the areas of industrial hazard
assessment, mitigation and prevention, operational reliability, safety hazards,
product quality, and economic risks and benefits. Risk assessments and accident
analysis are performed for the construction, operation, and servicing of
manufacturing plants, processing and storage facilities, and transportation
systems. Techniques used encompass fault-tree and event-tree analysis; failure
modes and effects analysis; operational performance evaluation; statistical
analysis; and probabilistic risk assessments.
Safety and process risk management is the effective way to address safety
issues in chemical and petrochemical industries that store, handle, or process
toxic or flammable materials in quantities that, if released, could have a major
impact on workers, nearby communities, or facilities. These events can have
significant life-safety, environmental, legal, regulatory, and financial
consequences. Services encompass process hazards analysis; mechanical integrity
assessment; determination of blast overpressures and structural assessments;
failure/accident investigation; offshore platform hazards analysis; consequence
modeling; and quantitative risk assessment.
Technology Development
Technology Development draws on our multidisciplinary engineering,
testing, failure analysis and prevention expertise, to help military
organizations identify commercial off-the-shelf technologies which reduce
development time and cost without sacrificing reliability. The group also
develops integrated prototypes, qualify production processes and initiate
upgraded modules as new technologies emerge.
Thermal Sciences
Fires, explosions and toxic chemical services encompass fire cause, origin,
and propagation analysis; combustion and explosion investigations; arson
investigations; chemical reactions and kinetics assessment; chemical processes
review; fire protection evaluation; site investigation and documentation; smoke
and plume propagation modeling; heat transfer and thermodynamics analysis; fluid
mechanics
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evaluation; heating and cooling equipment design reviews; and full-scale fire
and explosion testing. The information gained from these analyses provides
clients with a means of assessing preventative measures related to the design of
their products as well as evaluating failures when they occur.
Vehicle Evaluation and Testing
Vehicle evaluation and testing covers design analysis, component testing,
and accident reconstruction. Projects have included automobiles, buses, trucks,
vans, bicycles, trailers, motorcycles, trains, forklifts, tractors, cranes,
mining and construction equipment, all terrain vehicles, and golf carts.
Services encompass accident reconstruction; product validation testing; crash
testing; component testing and evaluation; design analysis; occupant
kinematics and injury analysis; vehicle handling analysis and testing; human
performance assessment; instrumentation and data analysis; risk analysis; fire
causation analysis; and product development.
Visual Communication
Visual communication means the generation, development, and production of
visual concepts. Pictures are relied upon - whether printed, displayed on a
computer, projected onto a screen, or presented as virtual reality - to reveal
and explain what words alone cannot. The products include animation, graphics,
multimedia, photography, and video. Services encompass charts, graphs and
tables; electronic imaging and enhancement; computer animation; photogrammetry;
concept generation and development; site and studio photography; court boards,
laser disks, and CD-ROMs; slides, prints, and overhead transparencies; custom
photographic processing; stereo and high-speed photography; video and post-
production; and interactive presentations.
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COMPETITION
The marketplace for the Company's services is fragmented and the Company
faces different sources of competition in providing its various services. In
addition, the services the Company provides to some of its clients can be
performed in-house by those clients. However, because of liability and
independence concerns, clients who have the capability to perform such services
themselves often retain the Company or other independent consultants.
In each of the foregoing areas, the Company believes that the principal
competitive factors are technical capability and breadth of services, ability to
deliver services on a timely basis, professional reputation, knowledge of the
litigation process, and the ability to offer fixed fee pricing. Although the
Company believes it generally competes favorably in each of these areas, some of
the Company's competitors may be able to provide services acceptable to the
clients at significantly lower prices.
The Company generally believes that the barriers to entry in particular
areas of engineering expertise are low and that for many of its technical
disciplines, competition is increasing. In addition, the Company expects that
as a result of these low barriers, competition may become more intense in other
aspects of its business. In response to competitive forces in the marketplace,
the Company continues to explore new markets for its various technical
disciplines.
EMPLOYEES
As of December 31, 1999, the Company's continuing operations employed
approximately 653 full-time and part time employees, including approximately 378
engineering and scientific staff, 127 technical support staff, and 148
administrative and support staff.
The Company's future success depends on its continuing ability to attract
and retain highly qualified technical and managerial personnel. Competition for
such personnel is intense, and there can be no assurance that the Company will
be able to retain its key managerial and technical employees or that it will be
able to attract, assimilate or retain other highly qualified technical and
managerial personnel in the future.
EXECUTIVE OFFICERS
The executive officers of the Company and their ages as of March 30, 2000
are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Michael R. Gaulke 54 President, Chief Executive Officer and Director
Subbaiah V. Malladi, Ph.D. 53 Chief Technical Officer and Director
Roger L. McCarthy, Ph.D. 51 Chairman of the Board of Exponent Failure Analysis
Associates, Inc. and Director
Richard L. Schlenker, Jr. 34 Chief Financial Officer and Corporate Secretary
</TABLE>
Executive officers of the Company are appointed by the Board of Directors
and serve at the discretion of the Board or until the appointment of their
successors. There is no family relationship between any of the directors and
officers of the Company.
Mr. Gaulke joined the Company in September 1992, as Executive Vice
President and Chief
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Financial Officer. He was named President in March 1993, and he was appointed as
a member of the Board of Directors of the Company in January 1994. He assumed
his current role of President and Chief Executive Officer in June of 1996. From
November 1988 to September 1992, Mr. Gaulke served as Executive Vice President
and Chief Financial Officer at Raynet Corporation, a subsidiary of Raychem
Corporation. Prior to joining Raynet, Mr. Gaulke was Executive Vice President
and Chief Financial Officer of Spectra Physics, Inc., where he was employed from
1979 to 1988. From 1972 to 1979, Mr. Gaulke served as a consultant with McKinsey
& Company. Mr. Gaulke is a member of the Board of Directors of RockShox, Inc.;
serves on the Board of Trustees of the Palo Alto Medical Foundation; and the
Board of Advisors of the Whitehead Institute. Mr. Gaulke received a MBA (1972)
in Marketing and Operations from Stanford University Graduate School of
Business and a BS (1968) in Electrical Engineering from Oregon State
University.
Subbaiah V. Malladi, Ph.D., joined Exponent Failure Analysis Associates,
Inc. (FaAA) in 1982 as a Senior Engineer, becoming a Senior Vice President in
January 1988 and a Corporate Vice President of FaAA in September 1993. In
October 1998, Dr. Malladi was appointed Chief Technical Officer of the Company.
Dr. Malladi has also served as a director of the Company from March 1991 through
September 1993. He was re-appointed as a director in April of 1996 and has
remained on the Board since this date. He received a Ph.D. (1980) in
Mechanical Engineering from the California Institute of Technology, M.Tech
(1972) in Mechanical Engineering from the Indian Institute of Technology, B.E.
(1970) in Mechanical Engineering from SRI Venkateswara University, India and
B.S. (1966) in Physics, Chemistry and Mathematics from Osmania University,
India. Dr. Malladi is a Registered Professional Mechanical Engineer in the
State of California, and a member of the following professional organizations:
American Institute of Aeronautics and Astronautics; American Association for the
Advancement of Science; Combustion Institute; and National Fire Protection
Association.
Roger L. McCarthy, Ph.D., joined the Company in August 1978. Currently,
Dr. McCarthy is a director of the Company and Chairman of the Board of the
Company's principal operating subsidiary Exponent Failure Analysis Associates,
Inc. (FaAA). From June 1996 to October 1998, he served as Chief Technical
Officer of both the Company and FaAA, director of the Company and Chairman of
the Board of FaAA. He has been a director of the Company since 1989 and a
director of FaAA since 1980. He was Chief Executive Officer of the Company and
FaAA from 1989 to June 1996. He also served as Chairman and President of the
Company from 1989 to March 1993. Dr. McCarthy received his Ph.D. (1977), Mech.E.
(1975), and S.M. (1973) from Massachusetts Institute of Technology, and his
B.S.E. (1972) in Mechanical Engineering and A.B. (1972) in Philosophy from the
University of Michigan. Dr. McCarthy is a Registered Professional Engineer in
the states of California and Arizona and a member of the following professional
organizations: American Society of Metals; American Society of Mechanical
Engineers (ASME); Safety Engineering and Risk Analysis Division of ASME; Society
of Automotive Engineers; American Society for Testing and Materials; Human
Factors and Ergonomics Society; National Society of Professional Engineers;
American Society of Heating, Refrigeration and Air-Conditioning Engineers;
National Fire Protection Association; American Welding Society; National Safety
Council; Society for Risk Analysis; American Statistical Association.
Richard L. Schlenker, Jr. joined the Company in 1990. Mr. Schlenker is the
Chief Financial Officer and Corporate Secretary for the Company. He was
appointed Chief Financial Officer in July 1999 and was appointed Secretary of
the Company in November 1997. Mr. Schlenker was the Director of Corporate
Development from 1998 until his appointment as CFO. He was the Manager of
Corporate Development from 1996 until 1998. From 1993 to 1996, Mr. Schlenker was
a Business Manager at Exponent Failure Analysis Associates, Inc. (FaAA) where
he managed the business activities for multiple consulting practices within
FaAA. Prior to 1993 he held several different positions in finance and
accounting within the Company. Mr. Schlenker holds a B.S. in Finance from the
University of Southern California.
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Item 2. Properties
The Company's headquarters office facilities consist of a 153,738 square
foot building, with office and laboratory space located on a 6.3-acre tract of
land owned by the Company in Menlo Park, California, and an adjacent 27,000
square feet of leased warehouse storage space. The Company's primary facility
is subject to a revolving reducing mortgage note. The note is subject to two
interest rate options of either prime less 1.5% or the fixed LIBOR plus 1.25%
with a term option of one month, two months, three months, six months, nine
months, or twelve months. At December 31, 1999, there was $3.6 million in
principal amount outstanding on the mortgage note.
The Company's Test and Engineering Center occupies 147 acres in Maricopa
County, Arizona. The Company leases this land from the state of Arizona under a
30-year lease agreement that expires in January 2028. In September 1999,
the Company completed construction of a new Indoor Test Facility at the Phoenix
Test and Engineering Center. In fiscal 2000, the Company expects to complete
construction of an engineering and test preparation building at the Phoenix Test
and Engineering Center.
In addition, the Company leases office, warehouse and laboratory space in
18 other separate locations in 15 states as well as in Germany. During fiscal
1999, the Company closed down its offices in Moscow and Poland.
Leases for these offices, warehouse and laboratory facilities have terms
generally ranging between one to ten years. Aggregate lease payments in fiscal
1999 for all leased properties were approximately $3,048,000.
Item 3. Legal Proceedings.
From time to time, the Company has been named as a defendant in actions
arising out of its business. The Company is not currently engaged in any such
litigation that management believes would have a material adverse impact on the
Company if resolved adversely to the Company.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
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Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The information required by this item is incorporated by reference to the
section entitled "Quarterly Stock Data" in the Company's Annual Report to
Stockholders for the year ended December 31, 1999 (the "1999 Annual Report").
An excerpt from the 1999 Annual Report containing this information has been
filed as Exhibit 13.1 to this Annual Report on Form 10-K.
Item 6. Selected Financial Data
The information required by this item is incorporated by reference to the
section entitled "Financial Summary" in the 1999 Annual Report. An excerpt
from the 1999 Annual Report containing this information has been filed as
Exhibit 13.1 to this Annual Report on Form 10-K.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
With the exception of the discussion below regarding factors affecting
operating results and the market price of stock, the information required by
this item is incorporated by reference to the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
the 1999 Annual Report. An excerpt from the Annual Report to the Stockholders
containing this information has been filed as Exhibit 13.1 to this Annual
Report on Form 10-K.
12
<PAGE>
FACTORS AFFECTING OPERATING RESULTS AND MARKET PRICE OF STOCK
Exponent operates in a rapidly changing environment that involves a number
of uncertainties, some of which are beyond the Company's control. These
uncertainties include, but are not limited to, those mentioned elsewhere in this
report, and the following:
Attraction and Retention of Key Employees
The Company's business involves the delivery of professional services and
is labor-intensive. The Company's success depends in large part upon its
ability to attract, retain and motivate highly qualified technical and
managerial personnel. Qualified personnel are in great demand and are likely to
remain a limited resource for the foreseeable future. There can be no assurance
that the Company can continue to attract sufficient numbers of highly qualified
technical and managerial personnel and to retain existing employees. The loss
of a significant number of the Company's employees could have a material adverse
impact on the Company, including its ability to secure and complete engagements.
Customer Concentration
The Company currently derives, and believes that it will continue to
derive, a significant portion of its revenues from clients, organizations and
insurers related to the transportation industry. Transportation industry related
engagements accounted for approximately 20% of the Company's gross revenues for
the fiscal year ended December 31, 1999. The loss of any large client,
organization or insurer related to the transportation industry could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Regulation
Public concern over health, safety and preservation of the environment has
resulted in the enactment of a broad range of environmental laws and regulations
by local, state and federal lawmakers and agencies. These laws and the
implementing regulations affect nearly every industry, as well as the agencies
of federal, state and local governments charged with their enforcement. To the
extent changes in such laws, regulations and enforcement or other factors
significantly reduce the exposures of manufacturers, owners, service providers
and others to liability, the demand for environmental services may be
significantly reduced.
Competition
The markets for the Company's services are highly competitive. In addition,
there are relatively low barriers to entry into the Company's markets and the
Company has faced, and expects to continue to face, additional competition from
new entrants into its markets. Competitive pressure could reduce the market
acceptance of the Company's services and result in price reductions that could
have a material adverse effect on the Company's business, financial condition
and results of operations.
Absence of Backlog
Revenues are primarily derived from services provided in response to client
request or events that occur without notice, and engagements, generally billed
on a "time and expenses" basis, are terminable at any time by clients. As a
result, backlog at any particular time is small in relation to the Company's
quarterly or annual revenues and is not a reliable indicator of revenues for any
future periods. Revenues and operating margins for any particular quarter are
generally affected by staffing mix, resource requirements and timing and size of
engagements.
13
<PAGE>
Other Income
The Company currently subleases excess facilities, primarily in its Menlo
Park, California headquarters, that have lease terms that expire within the 2000
- - 2003 time periods. In fiscal 1999 and 1998, miscellaneous rental income
associated with these facilities amounted to approximately 16% and 33%,
respectively of income from continuing operations before income taxes. The sale
of one of these excess facilities in May 1999 will reduce the amount of
future rental income, however much of the impact of this reduction will be
offset by corresponding reductions in facility operating costs and interest
expense. Should the remaining subleases not be extended, renewed or have their
term options exercised, the loss of additional miscellaneous rental income could
have a material adverse effect on the Company's operating results.
Variability of Quarterly Financial Results
Variations in the Company's revenues and operating results occur from time
to time as a result of a number of factors, such as the significance of client
engagements commenced and completed during a quarter, the number of working days
in a quarter, employee hiring and utilization rates, and integration of
companies acquired. Because a high percentage of the Company's expenses,
particularly personnel and facilities related, are relatively fixed in advance
of any particular quarter, a variation in the timing of the initiation or the
completion of client assignments, at or near the end of any quarter, can cause
significant variations in operating results from quarter to quarter.
Item 7(A) Quantitative and Qualitative Disclosure About Market Risk
The Company is exposed to some interest rate risk associated with the
Company's long-term debt obligation on the Company's headquarters building.
Effective February 1, 1999, the Company refinanced its headquarters building
under a new financing agreement. The new mortgage note consists of a revolving
reducing note, secured by the Company's headquarters building, with a borrowing
amount up to $30.0 million. The $30 million revolving reducing note is subject
to automatic annual reductions in the amount available to be borrowed of
approximately $1.3 million to $2.1 million per year until January 31, 2008. As
of December 31, 1999, $26.4 million was available to be borrowed. Any
outstanding amounts on the revolving reducing note are due and payable in full
on January 31, 2009. The Company may from time to time during the term of the
note borrow, partially or wholly repay its outstanding borrowings and re-borrow
up to the maximum principal amounts, subject to the reductions in availability
contained in the note. The note is also subject to two interest rate options of
either prime less 1.5% or the fixed LIBOR plus
14
<PAGE>
1.25% with a term option of one month, two months, three months, six months,
nine months, or twelve months. Interest will be paid on a monthly basis.
Principal amounts subject to the prime interest rate may be repaid at any time
without penalty. Principal amounts subject to the fixed LIBOR rate may also be
repaid at any time but are subject to a prepayment penalty if paid before the
fixed rate term or additional interest if paid after the fixed rate term.
The Company also entered into a line of credit agreement with a borrowing
amount up to $5.0 million. The $5.0 million line of credit is subject to two
interest rate options of either the prime rate in effect from time to time, or a
fixed rate determined by the bank to be 2.75% above LIBOR, with a term option of
one month, two months, three months, six months, nine months or twelve months.
The line of credit agreement expires on February 15, 2000. The Company does not
intend to renew the line of credit portion of its financing agreement.
The company's general policy for selecting among the interest rate options
and related terms will be to minimize interest expense. However, given the
risk of interest rate fluctuations, the Company cannot be certain that the
lowest rate option will always be obtained, therefore, consistently minimizing
the Company's interest expense. No sensitivity analysis was performed on the
Company's exposure to interest rate fluctuations, however, given the historical
low volatility of both the Prime and LIBOR interest rates, the Company believes
any exposure would be minimal.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements of the Company are incorporated by
reference to the 1999 Annual Report, where such information appears under the
captions "Consolidated Balance Sheets," "Consolidated Statements of Operations,"
"Consolidated Statements of Comprehensive Income (Loss)," "Consolidated
Statements of Stockholders' Equity," "Consolidated Statements of Cash Flows,"
"Notes to Consolidated Financial Statements," and "Independent Auditors' Report"
on pages 14 through 29 of such report. An excerpt from the Annual Report to the
Stockholders containing this information has been filed as Exhibit 13.1 to this
Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
15
<PAGE>
PART III
- --------
Item 10. Directors and Executive Officers of the Registrant
The information required by this item is incorporated by reference to the
Company's definitive Proxy Statement for its 2000 Annual Meeting of Stockholders
(the "Proxy Statement") relating to the section entitled "Proposal No. 1:
Election of Directors" and "Other Information Compliance with Section 16(a) of
the Exchange Act." See item 1 for information regarding the executive officers
of the Company.
Item 11. Executive Compensation
The information required by this item is incorporated by reference to the
section entitled "Executive Officer Compensation" of the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference to the
section entitled "Stock Ownership" of the Proxy Statement.
Item 13. Certain Relationships and Related Transactions
Not applicable.
PART IV
- -------
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this Annual Report on Form 10-
K.
1. Financial Statements
The following consolidated financial statements of Exponent, Inc. and
subsidiaries and the Independent Auditors' Report are incorporated by
reference to the 1999 Annual Report:
Consolidated Statements of Operations for the years ended December 31,
1999, January 1, 1999 and January 2, 1998;
Consolidated Statements of Comprehensive Income (Loss) for the years
ended December 31, 1999, January 1, 1999 and January 2, 1998;
Consolidated Balance Sheets as of December 31, 1999 and January 1,
1999;
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1999, January 1, 1999 and January 2, 1998;
Consolidated Statements of Cash Flows for the years ended December 31,
1999, January 1, 1999 and January 2, 1998; and
Notes to consolidated financial statements.
2. Financial Statement Schedules
The following financial statement schedule of Exponent, Inc. for the
years ended December 31, 1999, January 1, 1999 and January 2, 1998 is
filed as part of this Report on Form 10-K and should be read in
conjunction with the Consolidated Financial Statements of Exponent,
Inc.
Description
-----------
16
<PAGE>
Schedule II Valuation and qualifying accounts
Schedules other than those listed above have been omitted since they
are either not required, not applicable, or the information is
otherwise included.
3. Exhibits
The following exhibits are filed as part of, or incorporated by
reference into (as indicated parenthetically), this Annual Report on
Form 10-K:
Exhibit Number Description
-------------- -----------
3.1 Restated Certificate of Incorporation of the Company
(incorporated by reference to the Company's Registration
Statement on Form S-1 as filed on June 25, 1990, registration
number 33-35562).
3.2 Amended and Restated Bylaws of the Company (incorporated by
reference to the Company's Registration statement on Form S-1
as filed on June 25, 1990, registration number 33-35562).
4.1 Specimen copy of Common Stock Certificate of the Company
(incorporated by reference to the Company's Registration
Statement on Forms S-1 as filed on June 25, 1990, registration
number 33-35562).
*10.1 1989 Stock Option Plan for Subbaiah. V. Malladi (incorporated
by reference to the Company's Registration Statement on Form S-
1 as filed on June 25, 1990, registration number 33-35562).
*10.2 Stock Option Agreement, dated May 30, 1989, between the Company
and Subbaiah V. Malladi (incorporated by reference to the
Company's Registration Statement on Form S-1 as filed on
June 25, 1990, registration number 33-35562).
*10.3 Stock Option Agreement dated June 22, 1990, between the Company
and Subbaiah V. Malladi (incorporated by reference to the
Company's Registration Statement on Form S-1 as filed on
June 25, 1990, registration number 33-35562).
*10.4 1990 Stock Option and Rights Plan, as amended through March 31,
1993 (incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended May 28, 1993).
*10.5 Form of Incentive Stock Option Agreement under the 1990 Stock
Option and Rights Plan (incorporated by reference to the
Company's Registration Statement on Form S-1 as filed on
June 25, 1990, registration number 33-35562).
*10.6 Form of Nonqualified Stock Option Agreement under the 1990
Stock Option and Rights Plan (incorporated by reference to the
Company's Registration Statement on Form S-1 as filed on
June 25, 1990, registration number 33-35562).
*10.7 Form of Indemnification Agreement entered into or proposed to
be entered into
17
<PAGE>
between the Company and its officers and
directors (incorporated by reference to the Company's
Registration Statement on Form S-1 as filed on June 25, 1990,
registration number 33-35562).
*10.8 Form of Agreement between the Company and non-employee members
of the Board of Directors, dated March 25, 1991, regarding
exchange of rights to receive shares for nonqualified stock
options (incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended May 31, 1991).
*10.9 Form of Nonqualified Stock Option Agreement between the
Registrant and non-employee members of the Board of Directors
dated March 25, 1991 (incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 1991).
*10.10 1991 Restricted Stock Plan (incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 1991).
*10.11 Amendment to Incentive Stock Option Agreement between the
Company and Subbaiah V. Malladi, dated June 27, 1991
(incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1991).
*10.12 Form of Incentive Stock Option Agreement, between the
Registrant and optionees under the 1990 Stock Option and Rights
Plan, relative to replacement of outstanding options
(incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1991).
*10.13 Form of Nonqualified Stock Option Agreement, between the
Registrant and non-employee members of the Board of Directors,
relative to replacement of outstanding options (incorporated by
reference to the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1991).
*10.14 Amendment to Stock Option Agreement, between the Registrant and
Subbaiah V. Malladi, relative to repricing outstanding option
under 1989 Stock Option Plan for Malladi V. Subbaiah
(incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1991).
18
<PAGE>
*10.15 Form of Stock Option Agreement between the Company and
Subbaiah V. Malladi, relative to replacement of outstanding
option under 1990 Stock Option and Rights Plan (incorporated by
reference to the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1991).
10.16 Zarnowicka Elektrownia Gazowa, joint venture, dated September
8, 1994 (incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended December 30,
1994).
10.17 Acquisition agreement between Exponent Environmental Group,
Inc.(formerly named Performance Technologies, Incorporated) and
Exponent, Inc. (formerly the Failure Group, Inc.) dated May 16,
1997 (incorporated by reference to the Company's Form 8-K/A
filed on July 30, 1997 which was amendment number 1 to the
Company's Report on Form 8-K filed on May 30, 1997).
10.18 Exponent, Inc. 1998 Non Statutory Stock Option Plan dated
October 24, 1998 (incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended January 1,
1999).
10.19 Revolving reducing note with Wells Fargo Bank dated January 27,
1999.
10.20 Line of credit note with Wells Fargo Bank dated January 27,
1999.
10.21 Exponent, Inc. 401(k) Savings Plan dated March 1, 1998 and
restated effective January 2, 1999.
10.22 Exponent, Inc. Employee Stock Purchase Plan, amended and
restated March 23, 1999.
10.23 Exponent, Inc. 1999 Stock Option Plan.
*10.24 Exponent, Inc. 1999 Restricted Stock Plan.
13.1 Registrant's Annual Report to Stockholders for the fiscal year
ended December 31, 1999, pages 9 through 30.
19
<PAGE>
21.1 List of subsidiaries.
23.1 Consent of KPMG LLP, independent auditors.
27.1 Financial Data Schedule.
27.2 Restated 1998 Financial Data Schedule
27.3 Restated 1997 Financial Data Schedule
----------------------------------------------------------------------
* Indicates management compensatory plan, contract or arrangement.
(b) Reports on Form 8-K
None
20
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duty authorized.
Date: March 30, 2000 EXPONENT, INC.
(Registrant)
/s/ Michael R. Gaulke
-----------------------------------------------------
Michael R. Gaulke, Chief Executive Officer, President
and Director
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints as his attorney-in-fact, with full
power of substitution for him in any and all capacities, to sign any and all
amendments to this report on form 10-K, and to file the same, with the exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Michael R. Gaulke
______________________ Chief Executive Officer, President and Director March 30, 2000
Michael R. Gaulke
/s/ Richard L. Schlenker, Jr.
______________________ Chief Financial Officer and Corporate Secretary March 30, 2000
Richard L. Schlenker, Jr. (Principal Financial and Accounting Officer)
/s/ Roger L. McCarthy
______________________ Chairman of the Board of Exponent Failure Analysis March 30, 2000
Roger L. McCarthy Associates, Inc. and Director
/s/ Subbaiah V. Malladi
______________________ Chief Technical Officer and Director March 30, 2000
Subbaiah V. Malladi
/s/ Edward J. Keith
______________________ Chairman of the Board March 30, 2000
Edward J. Keith
/s/ Samuel H. Armacost
______________________ Director March 30, 2000
Samuel H. Armacost
/s/ Barbara M. Barrett
______________________ Director March 30, 2000
Barbara M. Barrett
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Jon R. Katzenbach
______________________ Director March 30, 2000
Jon R. Katzenbach
/s/ George T. Van Gilder
______________________ Director March 30, 2000
George T. Van Gilder
</TABLE>
22
<PAGE>
EXPONENT, INC.
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
Additions Deletions
--------- ---------
<S> <C> <C> <C> <C> <C>
Accounts
Balance at Provision Reduction Charged off Balance
Beginning of Charged to of Net of at End of
Year Expenses Provision Recoveries Year
----------------------------------------------------------------------------------------------
Year Ended December 31, 1999
Allowance for Doubtful Accounts $1,000 $2,727 ($3) ($2,197) $1,527
Year Ended January 1, 1999
Allowance for Doubtful Accounts $1,000 $2,167 $ - ($2,167) $1,000
Year Ended January 2, 1998
Allowance for Doubtful Accounts $1,500 $750 ($450) ($800) $1,000
</TABLE>
<PAGE>
EXHIBIT INDEX
The following exhibits are filed as part of, or incorporated by
reference into (as indicated parenthetically), the Annual Report on Form 10-K:
3.1 Restated Certificate of Incorporation of the Company
(incorporated by reference to the Company's Registration
Statement on Form S-1 as filed on June 25, 1990, registration
number 33-35562).
3.2 Amended and Restated Bylaws of the Company (incorporated by
reference to the Company's Registration statement on Form S-1
as filed on June 25, 1990, registration number 33-35562).
4.1 Specimen copy of Common Stock Certificate of the Company
(incorporated by reference to the Company's Registration
Statement on Forms S-1 as filed on June 25, 1990, registration
number 33-35562).
*10.1 1989 Stock Option Plan for Subbaiah. V. Malladi (incorporated
by reference to the Company's Registration Statement on Form S-
1 as filed on June 25, 1990, registration number 33-35562).
*10.2 Stock Option Agreement, dated May 30, 1989, between the Company
and Subbaiah V. Malladi (incorporated by reference to the
Company's Registration Statement on Form S-1 as filed on
June 25, 1990, registration number 33-35562).
*10.3 Stock Option Agreement dated June 22, 1990, between the Company
and Subbaiah V. Malladi (incorporated by reference to the
Company's Registration Statement on Form S-1 as filed on
June 25, 1990, registration number 33-35562).
*10.4 1990 Stock Option and Rights Plan, as amended through
March 31, 1993 (incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended May 28,
1993).
*10.5 Form of Incentive Stock Option Agreement under the 1990 Stock
Option and Rights Plan (incorporated by reference to the
Company's Registration Statement on Form S-1 as filed on
June 25, 1990, registration number 33-35562).
*10.6 Form of Nonqualified Stock Option Agreement under the 1990
Stock Option and Rights Plan (incorporated by reference to the
Company's Registration Statement on Form S-1 as filed on
June 25, 1990, registration number 33-35562).
*10.7 Form of Indemnification Agreement entered into or proposed to
be entered into between the Company and its officers and
directors (incorporated by reference to the Company's
Registration Statement on Form S-1 as filed on June 25, 1990,
registration number 33-35562).
<PAGE>
for the fiscal year ended May 31, 1991).
*10.8 Form of Agreement between the Company and non-employee members
of the Board of Directors, dated March 25, 1991, regarding
exchange of rights to receive shares for nonqualified stock
options (incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended May 31, 1991).
*10.9 Form of Nonqualified Stock Option Agreement between the
Registrant and non-employee members of the Board of Directors,
dated March 25, 1991 (incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 1991).
*10.10 1991 Restricted Stock Plan (incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 1991).
*10.11 Amendment to Incentive Stock Option Agreement between the
Company and Subbaiah V. Malladi, dated June 27, 1991
(incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1991).
*10.12 Form of Incentive Stock Option Agreement, between the
Registrant and optionees under the 1990 Stock Option and Rights
Plan, relative to replacement of outstanding options
(incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1991).
*10.13 Form of Nonqualified Stock Option Agreement, between the
Registrant and non-employee members of the Board of Directors,
relative to replacement of outstanding options (incorporated by
reference to the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1991).
*10.14 Amendment to Stock Option Agreement, between the Registrant and
Subbaiah V. Malladi, relative to repricing outstanding option
under 1989 Stock Option Plan for Malladi V. Subbaiah
(incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1991).
*10.15 Form of Stock Option Agreement between the Company and Subbaiah
V. Malladi, relative to replacement of outstanding option under
1990 Stock Option and Rights Plan (incorporated by reference to
the Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 1991).
<PAGE>
(incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended May 28, 1993).
10.16 Zarnowicka Elektrownia Gazowa, joint venture, dated September
8, 1994 (incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended December 30,
1994).
10.17 Acquisition agreement between Exponent Environmental Group,
Inc.(formerly named Performance Technologies, Incorporated) and
Exponent, Inc. (formerly the Failure Group, Inc.) dated May 16,
1997 (incorporated by reference to the Company's Form 8-K/A
filed on July 30, 1997 which was amendment number 1 to the
Company's Report on Form 8-K filed on May 30, 1997).
10.18 Exponent, Inc. 1998 Non Statutory Stock Option Plan dated
October 24, 1998 (incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended January 1,
1999).
10.19 Revolving reducing note with Wells Fargo Bank dated January 27,
1999.
10.20 Line of credit note with Wells Fargo Bank dated January 27,
1999.
10.21 Exponent, Inc. 401(k) Savings Plan dated March 1, 1998 and
restated effective January 2, 1999.
10.22 Exponent, Inc. Employee Stock Purchase Plan, as amended and
restated March 23, 1999.
10.23 Exponent, Inc. 1999 Stock Option Plan
10.24 Exponent, Inc. 1999 Restricted Stock Plan
13.1 Registrant's Annual Report to Stockholders for the fiscal year
ended December 31, 1999, pages 9 through 30.
21.1 List of subsidiaries.
23.1 Consent of KPMG LLP, independent auditors.
27.1 Financial Data Schedule
<PAGE>
27.2 Restated 1998 Financial Data Schedule
27.3 Restated 1997 Financial Data Schedule
---------------------------------------------------------------------
<PAGE>
EXHIBIT 10.19
REVOLVING REDUCING NOTE
$30,000,000.00 Palo Alto, California
January 27, 1999
FOR VALUE RECEIVED, the undersigned EXPONENT FAILURE ANALYSIS ASSOCIATES,
INC. ("Borrower") promises to pay to the order of WELLS FARGO BANK, NATIONAL
ASSOCIATION ("Bank") at its office at Peninsula RCBO, 400 Hamilton Avenue, Palo
Alto, CA 94301, or at such other place as the holder hereof may designate, in
lawful money of the United States of America and in immediately available funds,
the principal sum of Thirty Million Dollars ($30,000,000.00), or so much thereof
as may be advanced and be outstanding, with interest thereon, to be computed on
each advance from the date of its disbursement as set forth herein.
DEFINITIONS:
As used herein, the following terms shall have the meanings set forth after
each, and any other term defined in this Note shall have the meaning set forth
at the place defined:
(a) "Business Day" means any day except a Saturday, Sunday or any other
day on which commercial banks in California are authorized or required by law to
close.
(b) "Fixed Rate Term" means a period commencing on a Business Day and
continuing for one (1), two (2), three (3), six (6), or nine (9), or twelve (12)
months, as designated by Borrower, during which all or a portion of the
outstanding principal balance of this Note bears interest determined in relation
to LIBOR; provided however, that no Fixed Rate Term may be selected for a
principal amount less than Five Hundred Thousand Dollars ($500,000.00); and
provided further, that no Fixed Rate Term shall extend beyond the scheduled
maturity date hereof. If any Fixed Rate Term would end on a day which is not a
Business Day, then such Fixed Rate Term shall be extended to the next succeeding
Business Day.
(c) "LIBOR" means the rate per annum (rounded upward, if necessary, to the
nearest whole 1/8 of 1%)and determined pursuant to the following formula:
LIBOR = Base LIBOR
---------------------------------------
100% - LIBOR Reserve Percentage
(i) "Base LIBOR" means the rate per annum for United States dollar
deposits quoted by Bank as the Inter-Bank Market Offered Rate, with the
understanding that such rate is quoted by Bank for the purpose of calculating
effective rates of interest for loans making reference thereto, on the first day
of a Fixed Rate Term
<PAGE>
for delivery of funds on said date for a period of time approximately equal to
the number of days in such Fixed Rate Term and in an amount approximately equal
to the principal amount to which such Fixed Rate Term applies. Borrower
understands and agrees that Bank may base its quotation of the Inter-Bank Market
Offered Rate upon such offers or other market indicators of the Inter-Bank
Market as Bank in its discretion deems appropriate including, but not limited
to, the rate offered for U.S. dollar deposits on the London Inter-Bank Market.
(ii) "LIBOR Reserve Percentage" means the reserve percentage prescribed by
the Board of Governors of the Federal Reserve System (or any successor) for
"Eurocurrency Liabilities" (as defined in Regulation D of the Federal Reserve
Board, as amended), adjusted by Bank for expected changes in such reserve
percentage during the applicable Fixed Rate Term.
(d) "Prime Rate" means at any time the rate of interest most recently
announced within Bank at its principal office as its Prime Rate, with the
understanding that the Prime Rate is one of Bank's base rates and serves as the
basis upon which effective rates of interest are calculated for those loans
making reference thereto, and is evidenced by the recording thereof after its
announcement in such internal publication or publications as Bank may designate.
INTEREST:
(a) Interest. The outstanding principal balance of this Note shall bear
--------
interest (computed on the basis of a 360-day year, actual days elapsed) either
(i) at a fluctuating rate per annum one and one-half percent (1.5%) below the
Prime Rate in effect from time to time, or (ii) at a fixed rate per annum
determined by Bank to be one and one-quarter percent (1.25%) above LIBOR in
effect on the first day of the applicable Fixed Rate Term. When interest is
determined in relation to the Prime-Rate, each change in the rate of interest
hereunder shall become effective on the date each Prime Rate change is announced
within Bank. With respect to each LIBOR selection hereunder, Bank is hereby
authorized to note the date, principal amount, interest rate and Fixed Rate Term
applicable thereto and any payments made thereon on Bank's books and records
(either manually or by electronic entry) and/or on any schedule attached to this
Note, which notations shall be prima facie evidence of the accuracy of the
information noted.
(b) Selection of Interest Rate Options. At any time any portion of this
----------------------------------
Note bears interest determined in relation to LIBOR, it may be continued by
Borrower at the end of the Fixed Rate Term applicable thereto so that all or a
portion thereof bears interest determined in relation to the Prime Rate or to
LIBOR for a new Fixed Rate Term designated by Borrower. At any
-2-
<PAGE>
time any portion of this Note bears interest determined in relation to the Prime
Rate, Borrower may convert all or a portion thereof so that it bears interest
determined in relation to LIBOR for a Fixed Rate Term designated by Borrower. At
such time as Borrower requests an advance hereunder or wishes to select a LIBOR
option for all or a portion of the outstanding principal balance hereof, and at
the end of each Fixed Rate Term, Borrower shall give Bank notice specifying: (i)
the interest rate option selected by Borrower; (ii) the principal amount subject
thereto; and (iii) for each LIBOR selection, the length of the applicable Fixed
Rate Term. Any such notice may be given by telephone so long as, with respect to
each LIBOR selection, (A) Bank receives written confirmation from Borrower not
later than three (3) Business Days after such telephone notice is given, and (B)
such notice is given to Bank prior to 10:00 a.m., California time, on the first
day of the Fixed Rate Term. For each LIBOR option requested hereunder, Bank will
quote the applicable fixed rate to Borrower at approximately 10:00 a.m.,
California time, on the first day of the Fixed Rate Term. If Borrower does not
immediately accept the rate quoted by Bank, any subsequent acceptance by
Borrower shall be subject to a redetermination by Bank of the applicable fixed
rate; provided however, that if Borrower fails to accept any such rate by 11:00
a.m., California time, on the Business Day such quotation is given, then the
quoted rate shall expire and Bank shall have no obligation to permit a LIBOR
option to be selected on such day. If no specific designation of interest is
made at the time any advance is requested hereunder or at the end of any Fixed
Rate Term, Borrower shall be deemed to have made a Prime Rate interest selection
for such advance or the principal amount to which such Fixed Rate Term applied.
(c) Additional LIBOR Provisions.
---------------------------
(i) If Bank at any time shall determine that for any reason adequate and
reasonable means do not exist for ascertaining LIBOR, then Bank shall promptly
give notice thereof to Borrower. If such notice is given and until such notice
has been withdrawn by Bank, then (A) no new LIBOR option may be selected by
Borrower, and (B) any portion of the outstanding principal balance hereof which
bears interest determined in relation to LIBOR, subsequent to the end of the
Fixed Rate Term applicable thereto, shall bear interest determined in relation
to the Prime Rate.
(ii) If any law, treaty, rule, regulation or determination of a court or
governmental authority or any change therein or in the interpretation or
application thereof (each, a "Change in Law") shall make it unlawful for Bank
(A) to make LIBOR options available hereunder, or (B) to maintain interest rates
based on LIBOR, then in the former event, any obligation of Bank to make
available such unlawful LIBOR options shall immediately be
-3-
<PAGE>
cancelled, and in the latter event, any such unlawful LIBOR-based interest rates
then outstanding shall be converted, at Bank's option, so that interest on the
portion of the outstanding principal balance subject thereto is determined in
relation to the Prime Rate; provided however, that if any such Change in Law
shall permit any LIBOR-based interest rates to remain in effect until the
expiration of the Fixed Rate Term applicable thereto, then such permitted LIBOR-
based interest rates shall continue in effect until the expiration of such Fixed
Rate Term. Upon the occurrence of any of the foregoing events, Borrower shall
pay to Bank immediately upon demand such amounts as may be necessary to
compensate Bank for any fines, fees, charges, penalties or other costs incurred
or payable by Bank as a result thereof and which are attributable to any LIBOR
options made available to Borrower hereunder, and any reasonable allocation made
by Bank among its operations shall be conclusive and binding upon Borrower.
(iii) If any Change in Law or compliance by Bank with any request or
directive (whether or not having the force of law) from any central bank or
other governmental authority shall:
(A) subject Bank to any tax, duty or other charge with respect to any
LIBOR options, or change the basis of taxation of payments to Bank of
principal, interest, fees or any other amount payable hereunder
(except for changes in the rate of tax on the overall net income of
Bank); or
(B) impose, modify or hold applicable any reserve, special deposit,
compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances or
loans by, or any other acquisition of funds by any office of Bank; or
(C) impose on Bank any other condition;
and the result of any of the foregoing is to increase the cost to Bank of
making, renewing or maintaining any LIBOR options hereunder and/or to reduce any
amount receivable by Bank in connection therewith, then in any such case,
Borrower shall pay to Bank immediately upon demand such amounts as may be
necessary to compensate Bank for any additional costs incurred by Bank and/or
reductions in amounts received by Bank which are attributable to such LIBOR
options. In determining which costs incurred by Bank and/or reductions in
amounts received by Bank are attributable to any LIBOR options made available to
Borrower hereunder, any reasonable allocation made by Bank among its operations
shall be conclusive and binding upon Borrower.
(d) Payment of Interest. Interest accrued on this Note shall be payable
-------------------
on the last day of each month, commencing February 28, 1999.
-4-
<PAGE>
(e) Default Interest. From and after the maturity date of this Note, or
----------------
such earlier date as all principal owing hereunder becomes due and payable by
acceleration or otherwise, the outstanding principal balance of this Note shall
bear interest until paid in full at an increased rate per annum (computed on the
basis of a 360-day year, actual days elapsed) equal to four percent (4%) above
the rate of interest from time to time applicable to this Note.
BORROWING AND REPAYMENT:
(a) Borrowing and Repayment. Borrower may from time to time during the
-----------------------
term of this Note borrow, partially or wholly repay its outstanding borrowings,
and reborrow, subject to all of the limitations, terms and conditions of this
Note and of any document executed in connection with or governing this Note;
provided however, that the total outstanding borrowings under this Note shall
not at any time exceed the principal amount set forth above or such lesser
amount as shall at any time be available hereunder. The unpaid principal balance
of this obligation at any time shall be the total amounts advanced hereunder by
the holder hereof less the amount of principal payments made hereon by or for
any Borrower, which balance may be endorsed hereon from time to time by the
holder. The outstanding principal balance of this Note shall be due and payable
in full on January 31, 2009.
(b) Reductions in Availability. Notwithstanding the principal amount set
--------------------------
forth above, the maximum principal amount available under this Note shall be
reduced automatically and without further notice on each January 31, commencing
January 31, 2000, in accordance with the following schedule:
Date Amount of Reduction
---- -------------------
January 31, 2000 $1,250,077.66
January 32, 2001 $1,330,087.90
January 31, 2002 $1,415,219.13
January 31, 2003 $1,505,799.13
January 31, 2004 $1,602,176.61
January 31, 2005 $1,704,722.68
January 31, 2006 $1,813,832.11
January 31, 2007 $1,929,925.02
January 31, 2008 $2,053,448.35
If the outstanding principal balance of this Note on any such date is greater
than the new maximum principal amount then available hereunder, Borrower shall
make a principal reduction on this Note on such date in an amount sufficient to
reduce the then outstanding principal balance hereof to an amount not greater
than said new maximum principal amount.
-5-
<PAGE>
(c) Advances. Advances hereunder, to the total amount of the principal sum
--------
stated above, may be made by the holder at the oral or written request of (i)
Michael R. Gaulke, Terrence G. Boyle, Richard L. Schlenker or Jeanne L. Marzano,
any one acting alone, who are authorized to request advances and direct the
disposition of any advances until written notice of the revocation of such
authority is received by the holder at the office designated above, or (ii) any
person, with respect to advances deposited to the credit of any account of any
Borrower with the holder, which advances, when so deposited, shall be
conclusively presumed to have been made to or for the benefit of each Borrower
regardless of the fact that persons other than those authorized to request
advances may have authority to draw against such account. The holder shall have
no obligation to determine whether any person requesting an advance is or has
been authorized by any Borrower.
(d) Application of Payments. Each payment made on this Note shall be
-----------------------
credited first, to any interest then due and second, to the outstanding
principal balance hereof. All payments credited to principal shall be applied
first, to the outstanding principal balance of this Note which bears interest
determined in relation to the Prime Rate, if any, and second, to the outstanding
principal balance of this Note which bears interest determined in relation to
LIBOR, with such payments applied to the oldest Fixed Rate Term first.
PREPAYMENT:
(a) Prime Rate. Borrower may prepay principal on any portion of this Note
----------
which bears interest determined in relation to the Prime Rate at any time, in
any amount and without penalty.
(b) LIBOR. Borrower may prepay principal on any portion of this Note which
-----
bears interest determined in relation to LIBOR at any time and in the minimum
amount of Five Hundred Thousand Dollars ($500,000.00); provided however, that if
the outstanding principal balance of such portion of this Note is less than said
amount, the minimum prepayment amount shall be the entire outstanding principal
balance thereof. In consideration of Bank providing this prepayment option to
Borrower, or if any such portion of this Note shall become due and payable at
any time prior to the last day of the Fixed Rate Term applicable thereto by
acceleration or otherwise, Borrower shall pay to Bank immediately upon demand a
fee which is the sum of the discounted monthly differences for each month from
the month of prepayment through the month in which such Fixed Rate Term matures,
calculated as follows for each such month:
(i) Determine the amount of interest which would have accrued each month
---------
on the amount prepaid at the interest rate applicable to such amount
had it remained
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<PAGE>
outstanding until the last day of the Fixed Rate Term applicable
thereto.
(ii) Subtract from the amount determined in (i) above the amount of
--------
interest which would have accrued for the same month on the amount
prepaid for the remaining term of such Fixed Rate Term at LIBOR in
effect on the date of prepayment for new loans made for such term and
in a principal amount equal to the amount prepaid.
(iii) If the result obtained in (ii) for any month is greater than zero,
discount that difference by LIBOR used in (ii) above.
Each Borrower acknowledges that prepayment of such amount may result in Bank
incurring additional costs, expenses and/or liabilities, and that it is
difficult to ascertain the full extent of such costs, expenses and/or
liabilities. Each Borrower, therefore, agrees to pay the above-described
prepayment fee and agrees that said amount represents a reasonable estimate of
the prepayment costs, expenses and/or liabilities of Bank. If Borrower fails to
pay any prepayment fee when due, the amount of such prepayment fee shall
thereafter bear interest until paid at a rate per annum two percent (2%) above
the Prime Rate in effect from time to time (computed on the basis of a 360-day
year, actual days elapsed). Each change in the rate of interest on any such past
due prepayment fee shall become effective on the date each Prime Rate change is
announced within Bank.
EVENTS OF DEFAULT:
The occurrence of any of the following shall constitute an "Event of
Default" under this Note:
(a) The failure to pay any principal, interest, fees or other charges when
due hereunder or under any contract, instrument or document executed in
connection with this Note.
(b) The filing of a petition by or against any Borrower, any guarantor of
this Note or any general partner or joint venturer in any Borrower which is a
partnership or a joint venture (with each such guarantor, general partner and/or
joint venturer referred to herein as a "Third Party Obligor") under any
provisions of the Bankruptcy Reform Act, Title 11 of the United States Code, as
amended or recodified from time to time, or under any similar or other law
relating to bankruptcy, insolvency, reorganization or other relief for debtors;
the appointment of a receiver, trustee, custodian or liquidator of or for any
part of the assets or property of any Borrower or Third Party Obligor; any
Borrower or Third Party Obligor becomes insolvent, makes a general assignment
for the benefit of creditors or is generally
-7-
<PAGE>
not paying its debts as they become due; or any attachment or like levy on any
property of any Borrower or Third Party Obligor.
(c) The death or incapacity of any individual Borrower or Third Party
Obligor, or the dissolution or liquidation of any Borrower or Third Party
Obligor which is a corporation, partnership, joint venture or other type of
entity.
(d) Any default in the payment or performance of any obligation, or any
defined event of default, under any provisions of any contract, instrument or
document pursuant to which any Borrower or Third Party Obligor has incurred any
obligation for borrowed money, any purchase obligation, or any other liability
of any kind to any person or entity, including the holder.
(e) Any financial statement provided by any Borrower or Third Party
Obligor to Bank proves to be incorrect, false or misleading in any material
respect.
(f) Any sale or transfer of all or a substantial or material part of the
assets of any Borrower or Third Party Obligor other than in the ordinary course
of its business.
(g) Any violation or breach of any provision of, or any defined event of
default under, any addendum to this Note or any loan agreement, guaranty,
security agreement, deed of trust, mortgage or other document executed in
connection with or securing this Note.
MISCELLANEOUS:
(a) Remedies. Upon the sale, transfer, hypothecation, assignment or other
--------
encumbrance, whether voluntary, involuntary or by operation of law, of all or
any interest in any real property securing this Note, or upon the occurrence of
any Event of Default, the holder of this Note, at the holder's option, may
declare all sums of principal and interest outstanding hereunder to be
immediately due and payable without presentment, demand, notice of
nonperformance, notice of protest, protest or notice of dishonor, all of which
are expressly waived by each Borrower, and the obligation, if any, of the holder
to extend any further credit hereunder shall immediately cease and terminate.
Each Borrower shall pay to the holder immediately upon demand the full amount of
all payments, advances, charges, costs and expenses, including reasonable
attorneys' fees (to include outside counsel fees and all allocated costs of the
holder's in-house counsel), expended or incurred by the holder in connection
with the enforcement of the holder's rights and/or the collection of any amounts
which become due to the holder under this Note, and the prosecution or defense
of any action in any way related to this Note, including without limitation, any
action for declaratory relief, whether incurred at the trial or appellate level,
in an
-8-
<PAGE>
arbitration proceeding or otherwise, and including any of the foregoing incurred
in connection with any bankruptcy proceeding (including without limitation, any
adversary proceeding, contested matter or motion brought by Bank or any other
person relating to any Borrower or any other person or entity.
(b) Obligations Joint and Several. Should more than one person or entity
-----------------------------
sign this Note as a Borrower, the obligations of each such Borrower shall be
joint and several.
(c) Governing Law. This Note shall be governed by and construed in
-------------
accordance with the laws of the State of California.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the date
first written above.
EXPONENT FAILURE ANALYSIS ASSOCIATES, INC.
By: /s/ Michael R. Gaulke
-----------------------------------
Michael R. Gaulke
President & Chief Executive Officer
-9-
<PAGE>
EXHIBIT 10.20
WELLS FARGO BANK REVOLVING LINE OF CREDIT NOTE
- --------------------------------------------------------------------------------
$5,000,000.00 Palo Alto, California
January 27, 1999
FOR VALUE RECEIVED, the undersigned EXPONENT, INC. ("Borrower") promises to
pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank") at its
office at Peninsula RCBO, 400 Hamilton Avenue, Palo Alto, CA 94301, or at such
other place as the holder hereof may designate, in lawful money of the United
States of America and in immediately available funds, the principal sum of
$5,000,000.00, or so much thereof as may be advanced and be outstanding, with
interest thereon, to be computed on each advance from the date of its
disbursement as set forth herein.
DEFINITIONS:
As used herein, the following terms shall have the meanings set forth after
each, and any other term defined in this Note shall have the meaning set forth
at the place defined:
(a) "Business Day" any day except a Saturday, Sunday or any other day on
which commercial banks in California are authorized or required by law to close.
(b) "Fixed Rate Term" means a period commencing on a Business Day and
continuing for 1, 2 or 3, 6, 9 or 12 months, as designated by Borrower, during
which all or a portion of the outstanding principal balance of this 12 Note
bears interest determined in relation to LIBOR; provided however, that no Fixed
Rate Term may be selected for a principal amount less than $500,000.00; and
provided further, that no Fixed Rate Term shall extend beyond the scheduled
maturity date hereof. If any Fixed Rate Term would end on a day which is not a
Business Day, then such Fixed Rate Term shall be extended to the next succeeding
Business Day.
(c) "LIBOR" means the rate per annum (rounded upward, if necessary, to the
nearest whole 1/8 of 1%) determined by dividing Base LIBOR by a percentage equal
to 100% less any LIBOR Reserve Percentage.
(i) "Base LIBOR" means the rate per annum for United States dollar
deposits quoted by Bank as the Inter-Bank Market Offered Rate, with the
understanding that such rate is quoted by Bank for the purpose of calculating
effective rates of interest for loans making reference thereto, on the first day
of a Fixed Rate Term for delivery of funds on said date for a period of time
approximately equal to the number of days in such Fixed Rate Term and in an
amount approximately equal to the principal amount to which such Fixed Rate Term
applies. Borrower understands and agrees that Bank may base its quotation of the
Inter-Bank Market Offered Rate upon such offers or other market indicators of
the Inter-Bank Market as Bank in its discretion deems appropriate including, but
not limited to, the rate offered for U.S. dollar deposits on the London Inter-
Bank Market.
(ii) "LIBOR Reserve Percentage" means the reserve percentage
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for "Eurocurrency Liabilities" (as defined in Regulation D of the
Federal Reserve Board, as amended), adjusted by Bank for expected changes in
such reserve percentage during the applicable Fixed Rate Term.
(d) "Prime Rate" means at any time the rate of interest most recently
announced within Bank at its principal office as its Prime Rate, with the
understanding that the Prime Rate is one of Bank's base rates and serves as the
basis upon which effective rates of interest are calculated for those loans
making reference thereto, and is evidenced by the recording thereof after its
announcement in such internal publication or publications as Bank may designate.
INTEREST:
(a) Interest. The outstanding principal balance of this Note shall bear
--------
interest (computed on the basis of a 360-day year, actual days elapsed) either
(i) at a fluctuating rate per annum equal to the Prime Rate in effect from time
to time, or (ii) at a fixed rate per annum determined by Bank to be 2.75000%
above LIBOR in effect on the first day of the applicable Fixed Rate Term. When
interest is determined in relation to the Prime Rate, each change in the rate of
interest hereunder shall become effective on the date each Prime Rate change is
announced within Bank. With respect to each LIBOR selection option selected
hereunder, Bank is hereby authorized to note the date, principal amount,
interest rate and Fixed Rate Term applicable thereto and any payments made
thereon on Bank's books and records (either manually or by electronic entry)
and/or on any schedule attached to this Note, which notations shall be prima
facie evidence of the accuracy of the information noted.
(b) Selection of Interest Rate Options. At any time any portion of this
----------------------------------
Note bears interest determined in relation to LIBOR, it may be continued by
Borrower at the end of the Fixed Rate Term applicable thereto so that all or a
portion thereof bears interest determined in relation to the Prime Rate or to
LIBOR for a new Fixed Rate Term designated by Borrower. At any time any portion
of this Note bears interest determined in relation to the Prime Rate, Borrower
may convert all or a portion thereof so that it bears interest determined in
relation to LIBOR for a Fixed Rate Term designated by Borrower. At such time as
Borrower requests an advance hereunder or wishes to select a LIBOR option for
all or a portion of the outstanding principal balance hereof,
Page 1
<PAGE>
and at the end of each Fixed Rate Term, Borrower shall give Bank notice
specifying: (i) the interest rate option selected by Borrower; (ii) the
principal amount subject thereto; and (iii) for each LIBOR selection, the length
of the applicable Fixed Rate Term. Any such notice may be given by telephone so
long as, with respect to each LIBOR selection, (A) Bank receives written
confirmation from Borrower not later than 3 Business Days after such telephone
notice is given, and (B) such notice is given to Bank prior to 10:00 a.m.,
California time, on the first day of the Fixed Rate Term. For each LIBOR option
requested hereunder, Bank will quote the applicable fixed rate to Borrower at
approximately 10:00 a.m., California time, on the first day of the Fixed Rate
Term. If Borrower does not immediately accept the rate quoted by Bank, any
subsequent acceptance by Borrower shall be subject to a redetermination by Bank
of the applicable fixed rate; provided however, that if Borrower fails to accept
any such rate by 11:00 a.m., California time, on the Business Day such quotation
is given, then the quoted rate shall expire and Bank shall have no obligation to
permit a LIBOR option to be selected on such day. If no specific designation of
interest is made at the time any advance is requested hereunder or at the end of
any Fixed Rate Term, Borrower shall be deemed to have made a Prime Rate interest
selection for such advance or the principal amount to which such Fixed Rate Term
applied.
(c) Additional LIBOR Provisions.
---------------------------
(i) If Bank at any time shall determine that for any reason adequate
and reasonable means do not exist for ascertaining LIBOR, then Bank shall
promptly give notice thereof to Borrower. If such notice is given and until such
notice has been withdrawn by Bank, then (A) no new LIBOR option may be selected
by Borrower, and (B) any portion of the outstanding principal balance hereof
which bears interest determined in relation to LIBOR, subsequent to the end of
the Fixed Rate Term applicable thereto, shall bear interest determined in
relation to the Prime Rate.
(ii) If any law, treaty, rule, regulation or determination of a court
or governmental authority or any change therein or in the interpretation or
application thereof (each, a "Change in Law") shall make it unlawful for Bank
(A) to make LIBOR options available hereunder, or (B) to maintain interest rates
based on LIBOR, then in the former event, any obligation of Bank to make
available such unlawful LIBOR options shall immediately be cancelled, and in the
latter event, any such unlawful LIBOR-based interest rates then outstanding
shall be converted, at Bank's option, so that interest on the portion of the
outstanding principal balance subject thereto is determined in relation to the
Prime Rate; provided however, that if any such Change in Law shall permit any
LIBOR-based interest rates to remain in effect until the expiration of the Fixed
Rate Term applicable thereto, then such permitted LIBOR-based interest rates
shall continue in effect until the expiration of such Fixed Rate Term. Upon the
occurrence of any of the foregoing events, Borrower shall pay to Bank
immediately upon demand such amounts as may be necessary to compensate Bank for
any fines, fees, charges, penalties or other costs incurred or payable by Bank
as a result thereof and which are attributable to any LIBOR options made
available to Borrower hereunder, and any reasonable allocation made by Bank
among its operations shall be conclusive and binding upon Borrower.
(iii) If any Change in Law or compliance by Bank with any request or
directive (whether or not having the force of law) from any central bank or
other governmental authority shall:
(A) subject Bank to any tax, duty or other charge with respect to any
LIBOR options, or change the basis of taxation of payments to Bank of
principal, interest, fees or any other amount payable hereunder
(except for changes in the rate of tax on the overall net income of
Bank); or
(B) impose, modify or hold applicable any reserve, special deposit,
compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances or
loans by, or any other acquisition of funds by any office of Bank; or
(C) impose on Bank any other condition;
and the result of any of the foregoing is to increase the cost to Bank of
making, renewing or maintaining any LIBOR options hereunder and/or to reduce any
amount receivable by Bank in connection therewith, then in any such case,
Borrower shall pay to Bank immediately upon demand such amounts as may be
necessary to compensate Bank for any additional costs incurred by Bank and/or
reductions in amounts received by Bank which are attributable to such LIBOR
options. In determining which costs incurred by Bank and/or reductions in
amounts received by Bank are attributable to any LIBOR options made available to
Borrower hereunder, any reasonable allocation made by Bank among its operations
shall be conclusive and binding upon Borrower.
(d) Payment of Interest. Interest accrued on this Note shall be payable
-------------------
on the 15th day of each month, commencing February 15, 1999.
(e) Default Interest. From and after the maturity date of this Note, or
----------------
such earlier date as all principal owing hereunder becomes due and payable by
acceleration or otherwise, the outstanding principal balance of this Note shall
bear interest until paid in full at an increased rate per annum (computed on the
basis of a 360-day year, actual days elapsed) equal to 4% above the rate of
interest from time to time applicable to this Note.
BORROWING AND REPAYMENT:
(a) Borrowing and Repayment. Borrower may from time to time during the
-----------------------
term of this Note borrow, partially or wholly repay its outstanding borrowings,
and reborrow, subject to all of the limitations, terms and
Page 2
<PAGE>
conditions of this Note and of any document executed in connection with or
governing this Note; provided however, that the total outstanding borrowings
under this Note shall not at any time exceed the principal amount stated above.
The unpaid principal balance of this obligation at any time shall be the total
amounts advanced hereunder by the holder hereof less the amount of principal
payments made hereon by or for any Borrower, which balance may be endorsed
hereon from time to time by the holder. The outstanding principal balance of
this Note shall be due and payable in full on February 15, 2000.
(b) Advances. Advances hereunder, to the total amount of the principal
--------
sum available hereunder, may be made by the holder at the oral or written
request of (i) Michael R. Gaulke or Terence G. Boyle or Richard L. Schlenker or
Jeanne L. Marzano, any one acting alone, who are authorized to request advances
and direct the disposition of any advances until written notice of the
revocation of such authority is received by the holder at the office designated
above, or (ii) any person, with respect to advances deposited to the credit of
any account of any Borrower with the holder, which advances, when so deposited,
shall be conclusively presumed to have been made to or for the benefit of each
Borrower regardless of the fact that persons other than those authorized to
request advances may have authority to draw against such account. The holder
shall have no obligation to determine whether any person requesting an advance
is or has been authorized by any Borrower.
(c) Application of Payments. Each payment made on this Note shall be
-----------------------
credited first, to any interest then due and second, to the outstanding
principal balance hereof. All payments credited to principal shall be applied
first, to the outstanding principal balance of this Note which bears interest
determined in relation to the Prime Rate, if any, and second, to the outstanding
principal balance of this Note which bears interest determined in relation to
LIBOR, with such payments applied to the oldest Fixed Rate Term first.
PREPAYMENT:
(a) Prime Rate. Borrower may prepay principal on any portion of this Note
----------
which bears interest determined in relation to the Prime Rate at any time, in
any amount and without penalty.
(b) LIBOR. Borrower may prepay principal on any portion of this Note
-----
which bears interest determined in relation to LIBOR at any time and in the
minimum amount of $100,000.00; provided however, that if the outstanding
principal balance of such portion of this Note is less than said amount, the
minimum prepayment amount shall be the entire outstanding principal balance
thereof. In consideration of Bank providing this prepayment option to Borrower,
or if any such portion of this Note shall become due and payable at any time
prior to the last day of the Fixed Rate Term applicable thereto by acceleration
or otherwise, Borrower shall pay to Bank immediately upon demand a fee which is
the sum of the discounted monthly differences for each month from the month of
prepayment through the month in which such Fixed Rate Term matures, calculated
as follows for each such month:
(i) Determine the amount of interest which would have accrued each month
---------
on the amount prepaid at the interest rate applicable to such amount had it
remained outstanding until the last day of the Fixed Rate Term applicable
thereto.
(ii) Subtract from the amount determined in (i) above the amount of
--------
interest which would have accrued for the same month on the amount prepaid for
the remaining term of such Fixed Rate Term at LIBOR in effect on the date of
prepayment for new loans made for such term and in a principal amount equal to
the amount prepaid.
(iii) If the result obtained in (ii) for any month is greater than zero,
discount that difference by LIBOR used in (ii) above.
Each Borrower acknowledges that prepayment of such amount may result in Bank
incurring additional costs, expenses and/or liabilities, and that it is
difficult to ascertain the full extent of such costs, expenses and/or
liabilities. Each Borrower, therefore, agrees to pay the above-described
prepayment fee and agrees that said amount represents a reasonable estimate of
the prepayment costs, expenses and/or liabilities of Bank. If Borrower fails to
pay any prepayment fee when due, the amount of such prepayment fee shall
thereafter bear interest until paid at a rate per annum 2.000% above the Prime
Rate in effect from time to time (computed on the basis of a 360-day year,
actual days elapsed). Each change in the rate of interest on any such past due
prepayment fee shall become effective on the date each Prime Rate change is
announced within Bank.
EVENTS OF DEFAULT:
The occurrence of any of the following shall constitute an "Event of Default"
under this Note:
(a) The failure to pay any principal, interest, fees or other charges
when due hereunder or under any contract, instrument or document executed in
connection with this Note.
(b) The filing of a petition by or against any Borrower, any guarantor of
this Note or any general partner or joint venturer in any Borrower which is a
partnership or a joint venture (with each such guarantor, general partner and/or
joint venturer referred to herein as a "Third Party Obligor") under any
provisions of the Bankruptcy Reform Act, Title 11 of the United States Code, as
amended or recodified from time to time, or under any similar or other law
relating to bankruptcy, insolvency, reorganization or other relief for debtors;
the appointment of a receiver, trustee, custodian or liquidator of or for any
part of the assets or property of any Borrower or Third Party Obligor; any
Borrower or Third Party Obligor becomes insolvent, makes a general assignment
for the benefit of creditors or is generally not paying its debts as they become
due; or any
Page 3
<PAGE>
attachment or like levy on any property of any Borrower or Third Party Obligor.
(c) The death or incapacity of any individual Borrower or Third Party
Obligor, or the dissolution or liquidation of any Borrower or Third Party
Obligor which is a corporation, partnership, joint venture or other type of
entity.
(d) Any default in the payment or performance of any obligation, or any
defined event of default, under any provisions of any `contract, instrument or
document pursuant to which any Borrower or Third Party Obligor has incurred any
obligation for borrowed money, any purchase obligation, or any other liability
of any kind to any person or entity, including the holder.
(e) Any financial statement provided by any Borrower or Third Party
Obligor to Bank proves to be incorrect, false or misleading in any material
respect.
(f) Any sale or transfer of all or a substantial or material part of the
assets of any Borrower or Third Party Obligor other than in the ordinary course
of its business.
(g) Any violation or breach of any provision of, or any defined event of
default under, any addendum to this Note or any loan agreement, guaranty,
security agreement, deed of trust, mortgage or other document executed in
connection with or securing this Note.
MISCELLANEOUS:
(a) Remedies. Upon the occurrence of any Event of Default, the holder of
--------
this Note, at the holder's option, may declare all sums of principal and
interest outstanding hereunder to be immediately due and payable without
presentment, demand, notice of nonperformance, notice of protest, protest or
notice of dishonor, all of which are expressly waived by each Borrower, and the
obligation, if any, of the holder to extend any further credit hereunder shall
immediately cease and terminate. Each Borrower shall pay to the holder
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of the holder's in-house counsel), expended
or incurred by the holder in connection with the enforcement of the holder's
rights and/or the collection of any amounts which become due to the holder under
this Note, and the prosecution or defense of any action in any way related to
this Note, including without limitation, any action for declaratory relief,
whether incurred at the trial or appellate level, in an arbitration proceeding
or otherwise, and including any of the foregoing incurred in connection with any
bankruptcy proceeding (including without limitation, any adversary proceeding,
contested matter or motion brought by Bank or any other person) relating to any
Borrower or any other person or entity.
(b) Obligations Joint and Several. Should more than one person or entity
-----------------------------
sign this Note as a Borrower, the obligations of each such Borrower shall be
joint and several.
(c) Governing Law. This Note shall be governed by and construed in
-------------
accordance with the laws of the state of California.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the date
first written above.
EXPONENT, INC.
By: /s/ [ILLEGIBLE]^^
-------------------------
Title: President & CEO
------------------------
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EXHIBIT 10.21
EXPONENT, INC. 401(k) SAVINGS PLAN
Original Effective Date: March 1, 1988
Restatement Effective Date: January 2, 1999
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
(650) 493-9300
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TABLE OF CONTENTS
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INTRODUCTION.................................................................................................................. 1
ARTICLE II DEFINITIONS........................................................................................................ 2
2.1 Account..................................................................................................... 2
2.2 Adjustment Factor........................................................................................... 2
2.3 Administrator............................................................................................... 2
2.4 Beneficiary................................................................................................. 2
2.5 Board....................................................................................................... 2
2.6 Break in Service............................................................................................ 2
2.7 Code........................................................................................................ 3
2.8 Committee................................................................................................... 3
2.9 Company..................................................................................................... 3
2.10 Compensation................................................................................................ 3
2.11 Contributions............................................................................................... 4
2.12 Disability.................................................................................................. 4
2.13 Early Retirement............................................................................................ 4
2.14 Earnings.................................................................................................... 4
2.15 Effective Date.............................................................................................. 4
2.16 Eligible Employees.......................................................................................... 5
2.17 Employee.................................................................................................... 6
2.18 Employer.................................................................................................... 6
2.19 Employer Mandatory Contributions............................................................................ 6
2.20 Employer Matching Contributions............................................................................. 7
2.21 Employment Commencement Date................................................................................ 7
2.22 Entry Date.................................................................................................. 7
2.23 ERISA....................................................................................................... 7
2.24 Highly Compensated Employee................................................................................. 7
2.25 Hour of Service............................................................................................. 8
2.26 Leased Employee............................................................................................. 9
2.27 Non-Highly Compensated Employee............................................................................. 9
2.28 Normal Retirement........................................................................................... 9
2.29 Participant................................................................................................. 9
2.30 Participating Employer...................................................................................... 9
2.31 Plan........................................................................................................ 10
2.32 Plan Year................................................................................................... 10
2.33 Qualified Matching Contributions............................................................................ 10
2.34 Qualified Nonelective Contributions......................................................................... 10
2.35 Reemployment Commencement Date.............................................................................. 10
2.36 Regulations................................................................................................. 10
2.37 Rollover Contributions...................................................................................... 10
2.38 Salary Deferral Contributions............................................................................... 10
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2.39 Section 415 Compensation.................................................................................... 11
2.40 Severance Date.............................................................................................. 11
2.41 Spouse or Surviving Spouse.................................................................................. 11
2.42 Trust....................................................................................................... 12
2.43 Trust Agreement............................................................................................. 12
2.44 Trustee..................................................................................................... 12
2.45 Valuation Date.............................................................................................. 12
2.46 Year of Service............................................................................................. 12
2.47 Other Definitions........................................................................................... 12
ARTICLE III ELIGIBILITY....................................................................................................... 15
3.1 Participation............................................................................................... 15
3.2 Reemployment................................................................................................ 15
3.3 Change in Employment Status................................................................................. 15
3.4 Enrollment of Participant................................................................................... 15
3.5 Erroneous Participation..................................................................................... 15
ARTICLE IV CONTRIBUTIONS...................................................................................................... 17
4.1 Salary Deferral Contributions............................................................................... 17
4.2 Employer Matching Contributions and Qualified Matching Contributions........................................ 17
4.3 Employer Mandatory Contributions and Qualified Nonelective Contributions.................................... 18
4.4 Limitations on Contributions................................................................................ 19
4.5 Time and Manner of Payment of Contributions................................................................. 19
4.6 Receipt of Assets from Another Plan......................................................................... 19
ARTICLE V ACCOUNTS............................................................................................................ 20
5.1 Participant's Accounts...................................................................................... 20
5.2 Allocation of Contributions................................................................................. 21
5.3 Allocation of Earnings...................................................................................... 21
5.4 Section 415 Limitations..................................................................................... 21
5.5 Discrimination Testing of Salary Deferral Contributions..................................................... 27
5.6 Distribution of Excess Elective Deferrals................................................................... 31
5.7 Discrimination Testing of Employer Matching Contributions................................................... 33
5.8 Corrective Procedure for Discriminatory Matching Contributions.............................................. 35
ARTICLE VI VESTING AND DISTRIBUTION OF ACCOUNTS............................................................................... 38
6.1 Vested Interest............................................................................................. 38
6.2 Forfeitures................................................................................................. 39
6.3 Early Retirement............................................................................................ 40
6.4 Normal Retirement........................................................................................... 40
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6.5 Disability.................................................................................................. 40
6.6 Death Benefits.............................................................................................. 40
6.7 Termination of Employment................................................................................... 41
6.8 Commencement of Distribution................................................................................ 41
6.9 Special Distribution Rules for Salary Deferral Contributions and Qualified Nonelective Contributions........ 43
6.10 Direct Rollovers and Withholding............................................................................ 43
6.11 Form of Benefit............................................................................................. 44
6.12 Minimum Distribution Requirements........................................................................... 44
6.13 Distribution to Minor or Incompetent........................................................................ 49
6.14 Beneficiary Designation..................................................................................... 49
6.15 Spousal Consent............................................................................................. 49
6.16 Location of Participant or Beneficiary Unknown.............................................................. 50
6.17 Hardship Distributions...................................................................................... 50
6.18 Loans....................................................................................................... 52
6.19 In-Service Withdrawals at and After Age Fifty-Nine and One-Half (59 1/2).................................... 53
6.20 Form of Distribution........................................................................................ 53
ARTICLE VII ADMINISTRATION.................................................................................................... 54
7.1 Allocation of Administrative Responsibilities............................................................... 54
7.2 Powers and Duties of the Administrator...................................................................... 54
7.3 Powers and Duties of the Committee.......................................................................... 55
7.4 Discretion of the Administrator and the Committee........................................................... 56
7.5 Reallocation or Delegation of Responsibility................................................................ 56
7.6 Committee Appointment and Governance........................................................................ 56
7.7 Domestic Relations Orders................................................................................... 59
ARTICLE VIII LEAVES OF ABSENCE AND TRANSFERS.................................................................................. 62
8.1 Military Leave of Absence................................................................................... 62
8.2 Other Leaves of Absence..................................................................................... 62
8.3 Transfers................................................................................................... 62
ARTICLE IX TRUST PROVISIONS................................................................................................... 64
ARTICLE X FEES AND EXPENSES................................................................................................... 65
ARTICLE XI AMENDMENT, TERMINATION OR MERGER................................................................................... 66
11.1 Amendment................................................................................................... 66
11.2 Termination................................................................................................. 66
11.3 Merger...................................................................................................... 67
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ARTICLE XII ADOPTION OF PLAN BY RELATED ENTITIES.............................................................................. 68
12.1 Adoption of the Plan........................................................................................ 68
12.2 Withdrawal.................................................................................................. 68
ARTICLE XIII CLAIMS PROCEDURE................................................................................................. 69
13.1 Right to File Claim......................................................................................... 69
13.2 Denial of Claim............................................................................................. 69
13.3 Claim Review Procedure...................................................................................... 69
ARTICLE XIV TOP-HEAVY PROVISIONS.............................................................................................. 71
14.1 Purpose..................................................................................................... 71
14.2 Definitions................................................................................................. 71
14.3 Minimum Allocation.......................................................................................... 73
ARTICLE XV MISCELLANEOUS...................................................................................................... 75
15.1 Legal or Equitable Action................................................................................... 75
15.2 Indemnification............................................................................................. 75
15.3 No Enlargement of Plan Rights............................................................................... 75
15.4 No Enlargement of Employment Rights......................................................................... 75
15.5 Interpretation.............................................................................................. 75
15.6 Governing Law............................................................................................... 76
15.7 Non-Alienation of Benefits.................................................................................. 76
15.8 No Reversion................................................................................................ 76
15.9 Conflict.................................................................................................... 77
15.10 Severability................................................................................................ 77
15.11 Conditional Restatement..................................................................................... 77
APPENDIX A - GUIDELINES FOR ANNUITY FORMS OF DISTRIBUTION..................................................................... A1
A.1 Definitions................................................................................................. A1
A.2 Qualified Joint and Survivor Annuity........................................................................ A2
A.3 Qualified Preretirement Survivor Annuity.................................................................... A3
A.4 Election of Optional Forms of Benefit....................................................................... A4
A.5 Special Payment Date........................................................................................ A6
A.6 Timing of Death Distribution................................................................................ A6
A.7 Spousal Consent............................................................................................. A7
APPENDIX B - FORM OF BENEFIT DISTRIBUTIONS FOR PARTICIPANTS COMMENCING PARTICIPATION BEFORE JANUARY 2, 1999................... B1
B.1 Automatic Form of Distribution.............................................................................. B1
B.2 Optional Forms of Distribution.............................................................................. B1
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APPENDIX C - MERGER OF PERFORMANCE TECHNOLOGIES, INC. SAVINGS PLAN............................................................ C1
C.1 Transfer of Account Balances................................................................................ C1
C.2 Amount of Account Balance................................................................................... C1
C.3 Investment of Account Balance............................................................................... C1
C.4 Service Credit.............................................................................................. C1
C.5 Vesting..................................................................................................... C1
C.6 Protected Benefits.......................................................................................... C2
APPENDIX D - MERGER OF THE EXPONENT, INC. EMPLOYEE PENSION PLAN............................................................... D1
D.1 Transfer of Account Balances................................................................................ D1
D.2 Amount of Account Balance................................................................................... D1
D.3 Investment of Account Balance............................................................................... D1
D.4 Service Credit.............................................................................................. D1
D.5 Protected Benefits.......................................................................................... D1
D.6 FaAA Protected Benefits..................................................................................... D3
D.7 In-Service Withdrawals Prohibited........................................................................... D3
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ARTICLE I
---------
INTRODUCTION
------------
Exponent, Inc. maintains the Exponent, Inc. 401(k) Savings Plan, consisting
of the following provisions, for the exclusive benefit of Participants and their
Beneficiaries (and for defraying reasonable administrative expenses of the
Plan). The Plan was originally established effective as of March 1, 1988 as The
Failure Group, Inc. 401(k) Savings Plan, and the Plan has been subsequently
renamed, and amended and restated on several occasions. The Company further
amends and restates the Plan, in its entirety, effective as of January 2, 1999
(except as otherwise stated herein).
Effective as of July 1, 1999, the Performance Technologies, Incorporated
Savings Plan was merged with and into the Plan. Effective as of June 30, 1994,
the Exponent, Inc. Employee Pension Plan (formerly named The Failure Group, Inc.
Employee Pension Plan) was merged with and into the Plan. Previously, effective
as of December 30, 1994, The Failure Analysis Associates Employee Pension Plan
was merged with and into the Exponent, Inc. Employee Pension Plan. In all cases,
the protected benefits have been preserved, as set forth in the Appendices
attached hereto, for purposes of complying with Code Section 411(d)(6).
The Plan is intended to be a tax-qualified profit sharing plan and related
tax-exempt trust under Code Sections 401(a) and 501(a), and is intended to
include a tax-qualified cash or deferred arrangement under Code Section 401(k)
and is intended to provide for the possibility that a matching contribution
arrangement under Code Section 401(m) may be implemented at a later date. The
Plan is also intended to provide participant-directed investment accounts in
compliance with ERISA Section 404(c).
<PAGE>
ARTICLE II
----------
DEFINITIONS
-----------
Wherever used in this Plan, the following terms shall have the meanings
indicated below, unless a different meaning is plainly required by the context
or if such term is defined differently for particular groups of Participants in
one or more of the Appendices. The singular shall include the plural, unless the
context indicates otherwise. Headings of sections are used for convenience of
reference only, and in case of conflict, the text of the Plan, rather than such
headings, shall control.
2.1 Account. "Account" means a Participant's interest in the Trust, which
-------
may consist of any or all of the following: Salary Deferral Contributions
Account, Employer Mandatory Contributions Account, Employer Matching
Contributions Account, Qualified Matching Contributions Account, Qualified
Nonelective Contributions Account, Rollover Contributions Account, PTI Plan
Account, Pension Plan Account, FaAA Plan Account, and such other Account(s) as
the Administrator shall determine. Reference to Account herein shall include
reference to any or all of the above-mentioned accounts, as applicable.
2.2 Adjustment Factor. "Adjustment Factor" means the cost-of-living
-----------------
adjustment factor prescribed by the Secretary of the Treasury under Code Section
415(d), as applied to such items and in such manner as the Secretary of the
Treasury shall provide from time to time.
2.3 Administrator. "Administrator" means, within the meaning of ERISA
-------------
Section 3(16)(A), the Company, which also shall be a named fiduciary within the
meaning of ERISA Section 402(a)(2).
2.4 Beneficiary. "Beneficiary" means the person or entity who is entitled
-----------
to receive benefits payable from the Plan on account of a Participant's death.
(For purposes of complying with certain contracts that the Company has entered
into with the City of San Francisco, "Beneficiary" includes, without limitation,
a domestic partner of the Participant to the extent the Participant designates
such individual as his or her Beneficiary, in accordance with the
Administrator's procedures.)
2.5 Board. "Board" means the Board of Directors of the Company.
-----
2.6 Break in Service. "Break in Service" means:
----------------
(a) A Plan Year during which an Employee does not complete more than
five hundred (500) Hours of Service. Solely for purposes of determining whether
a Break in Service for participation and vesting purposes has occurred in a
computation period, an individual who is absent on account of maternity or
paternity leave (as described below), or on account of an authorized leave of
absence (as described in Section 8.1 or 8.2), shall receive credit for the Hours
of Service which would otherwise have been credited to such individual but for
such absence, or in any case in which such hours cannot be determined, eight (8)
Hours of Service for each day of such absence.
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(b) For purposes of paragraph (a) above, "maternity or paternity
leave" means a period during which an Employee is absent because of (i) the
pregnancy of the Employee, (ii) the birth of a child of the Employee, (iii) the
placement of a child with the Employee in connection with the Employee's
adoption of the child, or (iv) the caring for a child by the Employee
immediately after the birth or placement of the child.
2.7 Code. "Code" means the Internal Revenue Code of 1986, as amended from
----
time to time, and applicable valid Regulations issued thereunder.
2.8 Committee. "Committee" means the Exponent, Inc. 401(k) Savings Plan
---------
Committee which shall assist in the day-to-day administration of the Plan
pursuant to Section 7.3.
2.9 Company. "Company" means Exponent, Inc.
-------
2.10 Compensation. "Compensation" subject to paragraphs (a) through (c)
------------
below, means all of an Employee's base salary or wages, including Excellence
Awards, overtime, vacation pay, holiday pay, severance paid in lieu of notice,
and accrued vacation pay paid as a result of termination of employment.
Compensation shall also include any amount which is contributed by the Employer
pursuant to a salary deferral agreement and which is not includable in the gross
income of the Employee under Code Section 125, 402(e)(3), 402(h) or 403(b).
Compensation shall exclude bonuses and reimbursements for moving and relocation
expenses and all other forms of remuneration not specifically named herein.
(a) Compensation shall include only that compensation which is
actually paid or made available to the Employee during the Plan Year.
(b) The annual Compensation of each Employee that is taken into
account under the Plan shall not exceed One Hundred Sixty Thousand Dollars
($160,000), as adjusted by the Adjustment Factor. The Adjustment Factor in
effect for a calendar year applies to any period, not exceeding twelve (12)
months, over which Compensation is determined (the "Determination Period")
beginning in such calendar year. If a Determination Period consists of fewer
than twelve (12) months, the One Hundred Sixty Thousand Dollars ($160,000)
annual Compensation limit shall be multiplied by a fraction, the numerator of
which is in the number of months in the Determination Period, and the
denominator of which is twelve (12). If Compensation for any prior Determination
Period is taken into account in determining an Employee's benefits accruing in
the current Plan Year, then the Compensation for that prior Determination Period
is subject to the annual Compensation limit in effect for that prior
Determination Period.
(c) The determination of the amount of Compensation shall be made by
the Participating Employer (or its designee) by which the Employee is employed,
in accordance with the records of the Participating Employer, and shall be
conclusive.
2.11 Contributions. "Contributions" means Salary Deferral Contributions,
-------------
Employer Mandatory Contributions, Employer Matching Contributions, Qualified
Matching Contributions, and Qualified Nonelective Contributions.
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2.12 Disability. "Disability" means the mental or physical inability of a
----------
Participant to perform his or her normal job as evidenced by the certificate of
a medical examiner satisfactory to the Committee certifying that the Participant
is disabled under the standards of the Company's long-term disability plan or
upon an adjudication by the Social Security Administration that the Participant
is disabled within the meaning of the Social Security Act.
2.13 Early Retirement. Except as may be specified in one or more of the
----------------
Appendices, this Plan does not provide for an Early Retirement.
2.14 Earnings. "Earnings" means (a) interest, dividends, rents,
--------
royalties, net realized and unrealized gains and losses and other income, less
(b) fees, commissions, insurance premiums and other expenses.
2.15 Effective Date. "Effective Date" means January 2, 1999, except as
--------------
otherwise provided herein; provided, however, that any provision of the Plan
required as a result of the Small Business Job Protection Act of 1996, the
Taxpayer Relief Act of 1997, the Uruguay Round Agreements Act of 1994, the
Uniformed Services Employment and Reemployment Rights Act of 1994 or any other
applicable legislation, shall be effective as of the date specified in such
legislation.
2.16 Eligible Employees. "Eligible Employees" means all Employees of each
------------------
Participating Employer, except:
(a) individuals who are classified as hourly Employees by the
Employer;
(b) individuals who are classified as Temporary Employees by the
Employer. "Temporary Employees" means individuals who are employed for short-
term assignments, other than Employees who are credited with one thousand
(1,000) Hours of Service in the twelve (12) consecutive month period measured
from the date the Employee completes his or her first Hour of Service or any
Plan Year which begins after the date the Employee completes his or her first
Hour of Service;
(c) Leased Employees;
(d) Employees who are non-resident aliens (within the meaning of
Code Section 7701(b)(1)(B)) and who receive no earned income (within the meaning
of Code Section 911(d)(2)) from the Employer which constitutes income from
sources within the United States (within the meaning of Code Section 861(a)(3));
(e) Employees who are covered by a collective bargaining agreement
between a union and the Employer or any employers' association under which
retirement benefits were the subject of good faith bargaining, unless the
agreement specifically provides for coverage of such Employees under the Plan;
(f) individuals who are classified as Consultants by the Employer,
whether or not such classification is upheld upon governmental or judicial
review. "Consultants" means individuals
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(who may also be referred to as independent contractors) who have specialized
knowledge or special skills and are retained to provide advice or assistance to
the Employer and who are not Employees of the Employer;
(g) individuals who are classified as Agency Workers by the Employer,
whether or not such classification is upheld upon governmental or judicial
review. "Agency Workers" means individuals who are employed pursuant to a
written agreement with an agency or other third party for a specific job
assignment or project;
(h) individuals who are classified as Interns by the Employer.
"Interns" means individuals enrolled in a college and/or university, employed by
the Employer and designated as Interns by the Employer. An Employee who meets
the foregoing criteria shall be classified as an Intern even if he or she does
not receive academic course credit from his or her college or university based
upon the Intern's term of employment;
(i) individuals who are Reclassified Employees. "Reclassified
Employees" means Employees who were not initially classified by the Employer as
Employees, but who were subsequently reclassified as Employees by a federal,
state or local group, organization or agency, or a court;
(j) individuals who are parties to an agreement that provides that
they shall not be eligible to participate in the Plan, whether or not such
agreement is upheld upon governmental or judicial review; or
(k) individuals who are not on the United States payroll of the
Employer.
2.17 Employee. "Employee" means any person who is employed by, and
--------
designated as an employee, by the Employer, or who is a Leased Employee. If,
however, Leased Employees constitute less than twenty percent (20%) of the non-
highly compensated workforce (within the meaning of Code Section
414(n)(5)(C)(ii)), then the term "Employee" shall not include those Leased
Employees who are covered by a money purchase pension plan providing:
(a) a non-integrated employer contribution rate of at least ten
percent (10%) of compensation, as defined in Code Section 415(c)(3), but
including amounts contributed pursuant to a salary reduction agreement which are
excludable from the individual's gross income under Code Section 125, 402(e)(3),
402(h), 403(b), or 408(p);
(b) immediate participation; and
(c) full and immediate vesting.
2.18 Employer. "Employer" means: (a) the Company; (b) any other
--------
corporation which is a member of a controlled group of corporations (as defined
under Code Section 414(b)) which includes the Company; (c) any trade or business
(whether or not incorporated) which is under common control (as defined under
Code Section 414(c)) with the Company; (d) any organization
-5-
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(whether or not incorporated) which is a member of an affiliated service group
(as defined under Code Section 414(m)) which includes the Company; and (e) any
other organization or entity which is required to be aggregated with the Company
pursuant to Code Section 414(o). For purposes of the calculation of Annual
Additions as set forth in Section 5.4, the determination of whether any entity
is an Employer shall be made in accordance with Code Section 415(h).
2.19 Employer Mandatory Contributions. "Employer Mandatory Contributions"
--------------------------------
means Employer Contributions made by a Participating Employer under this Plan in
accordance with Section 4.3.
2.20 Employer Matching Contributions. "Employer Matching Contributions"
-------------------------------
means Employer Contributions made by a Participating Employer under this Plan on
account of Salary Deferral Contributions in accordance with Section 4.2.
2.21 Employment Commencement Date. "Employment Commencement Date" means
----------------------------
the date on which an Employee first performs an Hour of Service for the
Employer, within the meaning of Department of Labor Regulation Section
2530.200b-2(a).
2.22 Entry Date. "Entry Date" means the first day of any Plan Year and
----------
each business day of the Company during the Plan Year.
2.23 ERISA. "ERISA" means the Employee Retirement Income Security Act of
-----
1974, as amended from time to time, and applicable valid Regulations issued
thereunder.
2.24 Highly Compensated Employee.
---------------------------
(a) "Highly Compensated Employee" means, for any Plan Year, an
Employee in active service who meets any of the following criteria:
(i) is, at any time during the current Plan Year or the
immediately preceding Plan Year, a five percent (5%) owner (as determined under
Code Section 416(i)(1)) of an Employer; or
(ii) received aggregate Section 415 Compensation for the
immediately preceding Plan Year in excess of Eighty Thousand Dollars ($80,000),
as adjusted by the Adjustment Factor, and is a member of the Top-Paid Group for
that immediately preceding Plan Year.
(b) For purposes of this Section, the following provisions shall
apply:
(i) A former Employee shall be treated as a Highly Compensated
Employee if:
(A) such Employee was a Highly Compensated Employee when
such Employee separated from service; or
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(B) such Employee was a Highly Compensated Employee at any
time after attaining age fifty-five (55).
(ii) The term "Top-Paid Group" means the top twenty percent
(20%) of all Employees (including any Leased Employees treated as Employees)
when ranked on the basis of the Section 415 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 Plan Year under consideration;
(D) Employees who have not attained age twenty-one (21) as
of the last day of the Plan Year under consideration; and
(E) Employees who are non-resident aliens (within the
meaning of Code Section 7701(b)(1)(B)) and who receive no earned income (within
the meaning of Code Section 911(d)(2)) from the Employer which constitutes
income from sources within the United States (within the meaning of Code Section
861(a)(3)).
(c) For purposes of this Section, the Section 415 Compensation of
each Employee shall be determined on an aggregate basis as if all Employers were
a single employer entity paying such Section 415 Compensation. All other
determinations under this Section shall be made in accordance with Code Section
414(q).
2.25 Hour of Service. "Hour of Service" means:
---------------
(a) Each hour for which an Employee is directly or indirectly paid or
entitled to payment of wages by an Employer for the performance of duties and
for reasons other than the performance of duties; provided, however, that:
(i) no more than five hundred and one (501) Hours of Service
shall be credited on account of any single continuous period during which no
duties are performed; and
(ii) no Hours of Service shall be credited if payment was made
or due:
(A) under a plan maintained solely for the purpose of
complying with applicable workers' compensation, unemployment compensation or
disability insurance laws; or
-7-
<PAGE>
(B) solely as reimbursement for medical or medically-
related expenses incurred by the Employee.
(b) An Employee on a leave of absence (pursuant to Section 8.1 or
8.2) shall be credited with Hours of Service equal to the number of regularly-
scheduled working hours included in the period of such leave (subject to
paragraph (a)(i)).
(c) "Hours of Service" shall, for an Employee, include each hour for
which back pay, irrespective of mitigation of damages, has been either awarded
or agreed to by the Employer (such Hours of Service shall be credited for the
periods to which the award or agreement pertains rather than the periods in
which the award, agreement, or payment is made); provided, however, Hours of
Service shall not be credited under this paragraph to the extent such credit
would duplicate any hours credited above.
(d) Hours of Service shall be credited for employment with any
Employer, and shall be calculated in accordance with Department of Labor
Regulation Sections 2530.200b-2(b) and (c).
2.26 Leased Employee. "Leased Employee" means any individual who,
---------------
pursuant to an agreement between the Employer and any other individual, has
performed services for the Employer (or for the Employer and related individuals
determined in accordance with Code Section 414(n)(6)) ("Recipient Employer") on
a substantially full-time basis for a period of at least one (1) year, and such
services are performed under the primary direction of or control by the
Recipient Employer.
2.27 Non-Highly Compensated Employee. "Non-Highly Compensated Employee"
-------------------------------
means an Employee who is not a Highly Compensated Employee.
2.28 Normal Retirement. "Normal Retirement" means the date on which a
-----------------
Participant attains age fifty-nine and one-half (59 1/2).
2.29 Participant. "Participant" means a current or former Eligible
-----------
Employee or other individual for whom an Account is or could be maintained under
the Plan.
2.30 Participating Employer. "Participating Employer" means the Company
----------------------
and any other Employer that adopts the Plan for the benefit of its Eligible
Employees pursuant to Section 12.1.
2.31 Plan. "Plan" means the Exponent, Inc. 401(k) Savings Plan, as set
----
forth herein and in amendments from time to time made hereto.
2.32 Plan Year. "Plan Year" means the Company's fiscal year, that is, the
---------
twelve (12) consecutive-month period beginning each year on the Saturday which
falls closest to the last day of December, and ending each year on the Friday
which falls closest to the last day of December.
-8-
<PAGE>
2.33 Qualified Matching Contributions. "Qualified Matching Contributions"
--------------------------------
means discretionary Participating Employer Contributions under this Plan or any
other tax-qualified plan of the Employer, which may be treated as Salary
Deferral Contributions for purposes of the ADP test made in accordance with
Section 4.2.
2.34 Qualified Nonelective Contributions. "Qualified Nonelective
-----------------------------------
Contributions" means discretionary Participating Employer Contributions under
this Plan or any other tax-qualified plan of the Employer, which may be treated
as Salary Deferral Contributions for purposes of the ADP test, or as Employer
Matching Contributions for purposes of the ACP test, in accordance with Section
4.3.
2.35 Reemployment Commencement Date. "Reemployment Commencement Date"
------------------------------
means the first date, following a Severance Date, on which an Employee again
performs one (1) Hour of Service for the Employer.
2.36 Regulations. "Regulations" means the Income Tax Regulations as
-----------
prescribed by the Secretary of the Treasury from time to time under the Code.
2.37 Rollover Contributions. "Rollover Contributions" means
----------------------
contributions under this Plan in accordance with Section 4.6.
2.38 Salary Deferral Contributions. "Salary Deferral Contributions" means
-----------------------------
Participating Employer Contributions under this Plan, made in accordance with
Section 4.1.
2.39 Section 415 Compensation. "Section 415 Compensation" means, except
------------------------
as set forth below, wages, salaries, and fees for professional services and
other amounts received (without regard to whether or not an amount is paid in
cash) for personal services actually rendered in the course of employment with
the Employer maintaining the Plan to the extent that the amounts are includable
in gross income (including, but not limited to, commissions paid to
salespersons, compensation for services on the basis of a percentage of profits,
commissions on insurance premiums, tips, reimbursements, bonuses, fringe
benefits, and reimbursements or other expense allowances under a nonaccountable
plan (as described in Regulation Section 1.62-2(c)). Section 415 Compensation
includes any elective deferrals (as defined in Code Section 402(g)(3)), and any
amount contributed or deferred by the Employer at the election of the Employee
and not includable in the gross income of the Employee by reason of Code Section
125 or 457.
Section 415 Compensation shall not include the following:
(a) Employer contributions to a plan of deferred compensation that
are not includable in the Employee's gross income for the taxable year in which
contributed, or Employer contributions under a simplified employee pension plan
to the extent such contributions are deductible by the Employee, or any
distributions from a plan of deferred compensation;
-9-
<PAGE>
(b) amounts realized from the exercise of a non-qualified stock
option, or when restricted stock (or property) held by the Employee either
becomes freely transferable or is no longer subject to a substantial risk of
forfeiture;
(c) amounts realized from the sale, exchange or other disposition of
stock acquired under a qualified stock option; and
(d) other amounts which received special tax benefits, or
contributions made by the Employer (whether or not under a salary reduction
agreement) towards the purchase of an annuity contract described in Code Section
403(b) (whether or not the contributions are actually excludable from the gross
income of the Employee).
2.40 Severance Date. "Severance Date" means the first to occur of (a) the
--------------
date that an Employee terminates employment with the Employer because he or she
quits, is discharged, dies or retires, or (b) for purposes of distributions, the
date that an Employee is determined to have a Disability.
2.41 Spouse or Surviving Spouse. "Spouse" or "Surviving Spouse" means,
--------------------------
except as may be specified in one or more of the Appendices, the spouse or
surviving spouse of a Participant; provided, however, that a former spouse shall
be treated as the spouse or surviving spouse to the extent provided under a
Qualified Domestic Relations Order as described in Section 7.7.
2.42 Trust. "Trust" means the assets held in the trust maintained under
-----
Article IX.
2.43 Trust Agreement. "Trust Agreement" means the separate agreement
---------------
entered into by and between the Company and the Trustee pursuant to which the
Trust is held, administered and distributed.
2.44 Trustee. "Trustee" means the person(s) or entity named in the Trust
-------
Agreement, or any successor or successors thereto, and designated by the Company
to act as trustee of the Trust, in accordance with Article IX.
2.45 Valuation Date. "Valuation Date" means the last day of each Plan
--------------
Year and such other date(s) as the Administrator may designate from time to
time.
2.46 Year of Service. "Year of Service" means a Plan Year during which an
---------------
Employee is credited with at least one thousand (1,000) Hours of Service.
(a) For purposes of determining Years of Service and Breaks in
Service for purposes of eligibility and vesting, the initial computation period
is the twelve (12) consecutive-month period beginning on the Employee's
Employment Commencement Date.
(b) Succeeding twelve (12) consecutive-month periods commence with
the first Plan Year which commences prior to the first anniversary of the
Employee's Employment Commencement Date regardless of whether the Employee is
entitled to be credited with one
-10-
<PAGE>
thousand (1,000) Hours of Service during the initial computation period. An
Employee who is credited with one thousand (1,000) Hours of Service in both the
initial computation period and the first Plan Year which commences prior to the
first anniversary of the Employee's initial computation period shall be credited
with two (2) Years of Service for purposes of eligibility to participate and
vesting.
2.47 Other Definitions. In addition to the definitions contained in this
-----------------
Section, the following terms are defined in the specified Section below:
Section Term
------- ----
5.5(a)(i) Actual Deferral Percentage ("ADP")
5.7(a)(i) Actual Contribution Percentage ("ACP")
5.7(a)(ii) Aggregate Limit
7.7(a)(i) Alternate Payee
5.4(a)(i) Annual Additions
A.1(a) Annuity Contract
A.1(b) Annuity Starting Date
6.12(a)(i) Applicable Life Expectancy
5.7(a)(iii) Average ACP
5.5(a)(ii) Average ADP
5.7(a)(iv) Contribution Percentage Amount
5.4(a)(ii) Defined Benefit Fraction
5.4(a)(iii) Defined Contribution Dollar Limitation
5.4(a)(iv) Defined Contribution Fraction
6.12(a)(ii) Designated Beneficiary
14.2(a) Determination Date
14.2(b) Determination Period
6.10(a)(i) Direct Rollover
6.10(a)(ii) Distributee
6.12(a)(iii) Distribution Calendar Year
7.7(a)(ii) Domestic Relations Order or Order
5.6(a)(i) Elective Deferrals
5.7(a)(v) Eligible Participant
6.10(a)(iii) Eligible Retirement Plan
6.10(a)(iv) Eligible Rollover Distribution
5.5(a)(iii) Excess 401(k) Contributions
5.4(a)(v) Excess Amount
5.6(a)(ii) Excess Elective Deferrals
5.7(a)(vi) Excess Matching Contributions
5.1(i) FaAA Plan Account
6.12(a)(iv) Five Percent Owner
6.17 Hardship
5.4(a)(vi) Highest Average Compensation
7.3(b) Investment Manager
-11-
<PAGE>
A.1(c) Joint and Last Survivor Life Expectancy
14.2(c) Key Employee
6.12(a)(v), A.1(d) Life Expectancy
5.4(a)(vii) Limitation Year
7.6(b) Member A, Member B, Member C, Member D, and
Members
2.6(b) Maternity and Paternity Leave
5.4(a)(viii) Maximum Permissible Amount
14.2(d) Non-Key Employee
5.4(a)(ix) Other Plan
5.1(g) PTI Plan Account
6.12(a)(vi) Participant's Benefit
5.1(h) Pension Plan Account
14.2(e) Permissive Aggregation Group
5.4(a)(x) Projected Annual Benefit
11.3, C.6, D.5 Protected Benefits
7.7(a)(iii) Qualified Domestic Relations Order
A.1(e) Qualified Joint and Survivor Annuity
A.1(f) Qualified Preretirement Survivor Annuity
2.26 Recipient Employer
14.2(f) Required Aggregation Group
A.1(g) Required Beginning Date
7.7(d)(i) Segregated Amounts
6.15(a) Spousal Consent
A.1(i) Straight Life Annuity
14.2(g) Top-Heavy Plan
14.2(h) Top-Heavy Ratio
2.24(b)(ii) Top-Paid Group
14.2(i) Valuation Date
-12-
<PAGE>
ARTICLE III
-----------
ELIGIBILITY
-----------
3.1 Participation. Each individual who was a Participant in the Plan on
-------------
the day before the Effective Date and is an Eligible Employee on the Effective
Date, shall automatically continue as a Participant on the Effective Date. Each
other Eligible Employee shall become a Participant in the Plan on the Entry Date
coinciding with or next following his or her Employment Commencement Date, or if
later, the date that he or she attains age twenty-one (21).
3.2 Reemployment. If either a Participant, or an Eligible Employee who
------------
has satisfied the age requirement of Section 3.1 terminates employment with a
Participating Employer and is thereafter reemployed by the Employer as an
Eligible Employee, then such Employee shall become a Participant in the Plan as
of the later of his or her Reemployment Commencement Date or the Entry Date on
which he or she could have first become a Participant in the Plan.
3.3 Change in Employment Status. If a Participant ceases to be an
---------------------------
Eligible Employee, then such Employee shall be reinstated as a Participant upon
again becoming an Eligible Employee. If, however, an Employee who is not, and
has never been, an Eligible Employee becomes an Eligible Employee, then such
Employee shall become a Participant in the Plan upon on the Entry Date
coincident with or next following the later of the date on which he or she (a)
becomes an Eligible Employee, or (b) satisfies the age requirement set forth in
Section 3.1.
3.4 Enrollment of Participant. Each Eligible Employee shall comply with
-------------------------
such enrollment procedures as the Administrator may prescribe from time to time
and shall make available to the Administrator and the Trustee any information
they may request. By virtue of his or her participation in the Plan, an Eligible
Employee agrees, on his or her behalf and on behalf of all individuals who may
make any claim arising out of, relating to, or resulting from that Eligible
Employee's participation in the Plan, to be bound by all provisions of the Plan,
the Trust Agreement and other related agreements.
3.5 Erroneous Participation.
-----------------------
(a) If Salary Deferral Contributions are erroneously made on behalf
of an individual who is not eligible to participate in the Plan, then such
Salary Deferral Contributions plus Earnings thereon shall be distributed to that
individual as soon as administratively feasible after discovery of such error.
(b) If a Rollover Contribution is erroneously made by an individual
who is not eligible to make a Rollover Contribution, then such Rollover
Contribution plus Earnings thereon shall be distributed to that individual as
soon as administratively feasible after discovery of such error.
-13-
<PAGE>
(c) If any Contributions (other than Salary Deferral Contributions,
as set forth in paragraph (a)) are erroneously made on behalf of an individual
who is not entitled to such Contributions, then such erroneously made
Contributions shall be forfeited and: first, returned to the Participating
-----
Employer in accordance with Section 15.8, to the extent such Contribution
constitutes a mistake of fact; second, used to pay administrative expenses of
------
the Plan for the Plan Year in which the error is discovered; third, to offset
-----
the Employer's obligation to make Employer Mandatory Contributions for the Plan
Year in which the error occurs; and fourth, to allocate as Employer Matching
------
Contributions for the Plan Year in which the error occurs.
-14-
<PAGE>
ARTICLE IV
----------
CONTRIBUTIONS
-------------
4.1 Salary Deferral Contributions.
-----------------------------
(a) Subject to the limitations of Sections 5.4 and 5.5, an Eligible
Employee who has satisfied the age requirement in Section 3.1 may elect, in
accordance with the procedures established from time to time by the
Administrator, to have a portion of his or her Compensation contributed to his
or her Salary Deferral Contributions Account. The Participant's election shall
specify the amount of his or her Compensation to be contributed, which amount
shall not be less than one percent (1%) and not more than fifteen percent (15%)
of the Participant's Compensation for payroll period; provided, however, in no
event shall the dollar amount contributed on behalf of such Participant for any
calendar year exceed the limit prescribed under Code Section 402(g)(5) (Ten
Thousand Dollars ($10,000) in 1999). A Participant may elect to increase,
decrease or discontinue Salary Deferral Contributions in such manner and at such
time as the Administrator shall specify from time to time.
(b) For purposes of the Plan, and with respect to Salary Deferral
Contributions made on behalf of any Participant, such Salary Deferral
Contributions shall be allocated to the Participant's Salary Deferral
Contributions Account as of a given date within the Plan Year and shall relate
to Compensation that would have been received by the Participant in the Plan
Year but for the Participant's election to defer such Compensation.
4.2 Employer Matching Contributions and Qualified Matching Contributions.
--------------------------------------------------------------------
(a) The Company may elect, subject to the provisions of paragraphs
(b) and (c), that Participating Employers shall make Employer Matching
Contributions to the Trust for any Plan Year. All Employer Matching
Contributions shall be made in such amount, manner, form, and at such time, as
prescribed by the Company from time to time. All such Employer Matching
Contributions shall be allocated to the Employer Matching Contributions Accounts
of all Participants who are actively employed by the Employer on the last day of
the Plan Year or who are not actively employed on the last day of the Plan Year
solely due to Normal Retirement, Early Retirement, Disability or death.
(b) The Employer may further elect to make an additional Matching
Contribution, to be allocated as of the last day of the Plan Year to
Participants as an end of the year adjustment to take into account any changes
in Compensation or Participant Salary Deferral elections which may have occurred
during the Plan Year. The amount of this additional Employer Matching
Contribution shall be equal to the difference, if any, between (i) the Employer
Matching Contributions allocated to the Participant pursuant to paragraph (a),
and (ii) an Employer Matching Contribution determined pursuant to any applicable
formula which the Company may elect, but based on a Participant's Compensation
and Salary Deferral Contributions for the Plan Year. This additional Employer
Matching Contribution, if any, shall be allocated to the Employer Matching
Contributions Account
-15-
<PAGE>
of all the Participants specified by the Company from time to time of all
Participants actively employed by the Employer on the last day of the Plan Year,
or not actively employed by the Employer on the last day of the Plan Year due to
attainment of Normal Retirement Age, Disability or death.
(c) Employer Matching Contributions which would otherwise be made on
behalf of a Participant may be reduced to the extent necessary to comply with
the limitations of Sections 4.4, 5.4, 5.5 and 5.7, and the Employer shall have
no obligation to contribute such amounts to the Trust.
(d) The Administrator may elect to treat all or a portion of Employer
Matching Contributions for a Plan Year as Qualified Matching Contributions for
purposes of the ADP test.
(e) For all purposes under the Plan, Employer Matching Contributions
or Qualified Matching Contributions shall be subject to the distribution
limitations of Article VI. Amounts allocated to a Participant's Qualified
Matching Contributions Account shall not be eligible for hardship distribution
under Section 6.17.
4.3 Employer Mandatory Contributions and Qualified Nonelective
----------------------------------------------------------
Contributions.
- -------------
(a) The Participating Employers will make Employer Mandatory
Contributions to Participants employed by any Participating Employer designated
by the Company. The Employer Mandatory Contributions shall be seven percent (7%)
of each eligible Participant's Compensation, subject to Section 5.4, for that
Plan Year.
(b) For Plan Years beginning prior to December 29, 2001, the Employer
Mandatory Contributions for each Plan Year shall be allocated among the Employer
Mandatory Contributions Accounts of all eligible Participants who are credited
with one (1) Year of Service during the last two (2) Plan Years. For Plan Years
beginning on and after December 30, 2001, the Employer Mandatory Contributions
for each Plan Year shall be allocated among the Employer Mandatory Contributions
Accounts of all eligible Participants who are credited with one (1) Year of
Service. Notwithstanding the foregoing, an Employee who incurs a Disability
during the Plan Year or whose employment with the Employer terminates as a
result of death or Normal Retirement shall, for purposes of this Section, be
deemed to have completed one (1) Year of Service during that Plan Year.
(c) The Company may elect to treat all or a portion of Employer
Mandatory Contributions for a Plan Year as Qualified Nonelective Contributions
for purposes of the ADP test and/or the ACP test.
(d) The Employer may, with respect to a Plan Year, allocate Qualified
Nonelective Contributions to such Participants and in such a manner as it
deems necessary or appropriate to satisfy the requirements of the Plan.
-16-
<PAGE>
(e) For all purposes of the Plan, Employer Mandatory Contributions
and Qualified Nonelective Contributions shall be subject to the distribution
limitations of Article VI. Amounts allocated to a Participant's Qualified
Nonelective Contributions Account shall not be eligible for hardship
distribution under Section 6.17.
4.4 Limitations on Contributions. Contributions for any Plan Year shall
----------------------------
not exceed the maximum amount allowable as a deduction to the Employer under the
provisions of Code Section 404. Notwithstanding the preceding sentence, to the
extent necessary to provide Top Heavy minimum allocations, the Employer shall
make Contributions, even if such Contributions exceed the amount deductible to
the Employer under the provisions of Code Section 404.
4.5 Time and Manner of Payment of Contributions. Contributions shall be
-------------------------------------------
paid to the Trustee in such manner and at such time as determined by the
Administrator, subject to the timing requirements of applicable law.
4.6 Receipt of Assets from Another Plan.
-----------------------------------
(a) If directed by the Administrator, the Trustee shall accept a
transfer of assets for the benefit of an Eligible Employee or group of Eligible
Employees. Such assets shall be (i) received directly from the trustee of a tax-
qualified plan under Code Section 401(a) and related tax-exempt trust under Code
Section 501(a); (ii) received from the Eligible Employee in accordance with Code
Section 402(c) or 501(a); (iii) received from the Eligible Employee in
accordance with Code Section 402(c) or 408(d)(3); or (iv) transferred in the
form of a Direct Rollover from another tax-qualified plan.
(b) Amounts attributable to elective contributions (as defined in
Regulation Section 1.401(k)-1(g)(3)), including amounts treated as elective
contributions which are transferred in a plan-to-plan transfer, shall be subject
to the distribution limitations provided in Regulation Section 1.401(k)-1(d).
-17-
<PAGE>
ARTICLE V
---------
ACCOUNTS
--------
5.1 Participant's Accounts. The following separate Accounts, if
----------------------
applicable, shall be maintained for each Participant:
(a) Salary Deferral Contributions. A Participant's Salary Deferral
-----------------------------
Contributions Account shall be credited with all amounts attributable to
Salary Deferral Contributions pursuant to Section 4.1.
(b) Employer Mandatory Contributions. A Participant's Employer
--------------------------------
Mandatory Contributions Account shall be credited with all amounts attributable
to Employer Mandatory Contributions pursuant to Section 4.3.
(c) Employer Matching Contributions. A Participant's Employer
-------------------------------
Matching Contributions Account shall be credited with all amounts attributable
to Employer Matching Contributions pursuant to Section 4.2.
(d) Qualified Matching Contributions. A Participant's Qualified
--------------------------------
Matching Contributions Account shall be credited with all amounts attributable
to Qualified Matching Contributions pursuant to Section 4.2.
(e) Qualified Nonelective Contributions. A Participant's Qualified
-----------------------------------
Nonelective Contributions Account shall be credited with all amounts
attributable to Qualified Nonelective Contributions pursuant to Section 4.3.
(f) Rollover Contributions. A Participant's Rollover Contributions
----------------------
shall be credited with all amounts transferred to the Plan pursuant to Section
4.6.
(g) PTI Plan Account. A Participant's PTI Plan Account shall be
----------------
behalf of each Participant whose account balance was transferred from the
Performance Technologies, Incorporated Savings Plan to this Plan pursuant to the
merger of that plan with and into this Plan.
(h) Pension Plan Account. A Participant's Pension Plan Account
--------------------
shall be maintained on behalf of each Participant whose account balance was
transferred from The Failure Group, Inc. Employee Pension Plan to this Plan
pursuant to the merger of that plan with and into this Plan.
(i) FaAA Plan Account. A Participant's FaAA Plan Account shall be
-----------------
maintained on behalf of each Participant whose account balance was transferred
from The Failure Analysis Associates Employee Pension Plan to this Plan pursuant
to the merger of that plan with and into this Plan.
-18-
<PAGE>
(j) Other Accounts. Such other Account(s) as the Administrator
--------------
shall deem necessary or appropriate.
5.2 Allocation of Contributions. As of each Valuation Date, the
---------------------------
Administrator shall allocate to the Accounts of each Participant the
Contributions made on his or her behalf, and, if applicable, the Rollover
Contributions, since the preceding Valuation Date.
5.3 Allocation of Earnings.
----------------------
(a) As of each Valuation Date, the Trustee shall determine the net
fair market value of all assets of the Trust, and the Trustee shall then report
such value to the Administrator. The Administrator shall adjust each Account:
first, to reflect any allocations made to, or any distributions or withdrawals
- -----
made from, such Account since the immediately preceding Valuation Date, to the
extent not previously credited or charged thereto, and second, to reflect the
------
Earnings allocable to each Account in accordance with paragraph (b) below. If an
allocation of Contributions and/or Rollover Contributions is to be made to the
Accounts as of the same Valuation Date, then the adjustments required under this
Section shall be made prior to such allocation.
(b) The Administrator shall maintain a separate record of all
Earnings of the Trust attributable to each Participant's Account. Each
Participant's Account shall be credited or charged with the Earnings
attributable to the investments in such Account over the relevant period as of
each Valuation Date.
5.4 Section 415 Limitations.
-----------------------
(a) Definitions.
-----------
(i) Annual Additions. "Annual Additions" means, with respect
----------------
to each Participant, the sum of the following amounts for the Limitation Year:
(A) Employer contributions;
(B) Employee contributions;
(C) forfeitures;
(D) amounts allocated, after March 31, 1984, to the
Participant's individual medical account (as defined in Code Section 415(l)(2)),
which is part of a pension or annuity plan maintained by the Employer;
(E) amounts derived from contributions paid or accrued
after December 31, 1985, in taxable years ending after such date, which are
attributable to post-retirement medical benefits, allocated to the separate
account of a Key Employee (as defined in Code Section 19A(d)(3)) and under a
welfare benefit fund (as defined in Code Section 419(e)) maintained by the
Employer; and
-19-
<PAGE>
(F) any Excess Amount applied under paragraph (e)(iv) in
the Limitation Year to reduce Employer contributions.
(ii) Defined Benefit Fraction. "Defined Benefit Fraction"
------------------------
means a fraction, the numerator of which is the sum of the Participant's
Projected Annual Benefits under all the defined benefit plans (whether or not
terminated) maintained by the Employer, and the denominator of which is the
lesser of one hundred twenty-five percent (125%) of the dollar limitation
determined for the Limitation Year under Code Sections 415(b) and (d) or one
hundred forty percent (140%) of the Highest Average Compensation, as adjusted by
the Adjustment Factor. Notwithstanding the above, if the Participant was a
participant as of the first day of the first Limitation Year beginning after
December 31, 1986, in one or more defined benefit plans maintained by the
Employer which were in existence on May 6, 1986, the denominator of this
fraction will not be less than one hundred twenty-five percent (125%) of the sum
of the annual benefits under such plans which the Participant had accrued as of
the close of the last Limitation Year beginning before January 1, 1987,
disregarding any changes in the terms and conditions of that plan after May 5,
1986. The preceding sentence shall apply only if the defined benefit plans
individually and in the aggregate satisfied the requirements of Code Section 415
for all Limitation Years beginning before January 1, 1987.
(iii) Defined Contribution Dollar Limitation. "Defined
--------------------------------------
Contribution Dollar Limitation" means Thirty Thousand Dollars ($30,000), as
adjusted by the Adjustment Factor.
(iv) Defined Contribution Fraction. "Defined Contribution
-----------------------------
Fraction" means a fraction, the numerator of which is the sum of the Annual
Additions to the Participant's account under all the defined contribution plans
(whether or not terminated) maintained by the Employer for the current and all
prior Limitation Years (including the Annual Additions attributable to the
Participant's nondeductible Employee contributions to all defined benefit plans,
whether or not terminated, maintained by the Employer, and the Annual Additions
attributable to all welfare benefit funds (as defined in Code Section 419(e))
and individual medical accounts (as defined in Code Section 415(1)(2))
maintained by the Employer), and the denominator of which is the sum of the
maximum Annual Additions for the current and all prior Limitation Years of the
Participant's service with the Employer (regardless of whether a defined
contribution plan was maintained by the Employer).
(v) Excess Amount. "Excess Amount" means the amount of
-------------
Annual Additions which, if credited to a Participant's Account for a Limitation
Year, would exceed the Maximum Permissible Amount.
(vi) Highest Average Compensation. "Highest Average
----------------------------
Compensation" means the average Section 415 Compensation for the three (3)
consecutive years of service with the Employer that produces the highest
average.
(vii) Limitation Year. "Limitation Year" means the twelve (12)
---------------
- -consecutive- month period ending on the last day of the Plan Year. All tax-
qualified plans maintained by the Employer must use the same Limitation Year. If
the Limitation Year is amended
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<PAGE>
to a different twelve (12)-consecutive-month period, the new Limitation Year
must begin on a date within the Limitation Year in which the amendment is made
effective.
(viii) Maximum Permissible Amount. "Maximum Permissible
--------------------------
Amount" means the maximum Annual Addition contributed or allocated to a
Participant's Account under the Plan for any Limitation Year which shall not
exceed the lesser of:
(A) the Defined Contribution Dollar Limitation, or
(B) twenty-five percent (25%) of the Participant's
Section 415 Compensation for the Limitation Year. The Section 415 Compensation
limitation shall not apply to any contribution for medical benefits (within the
meaning of Code Section 401(h) or 419A(f)(2)) which is otherwise treated as an
Annual Addition under Code Section 415(1)(1) or 419A(d)(2). If a short
Limitation Year is created because of an amendment changing the Limitation Year
to a different twelve (12)-consecutive-month period, the Maximum Permissible
Amount will not exceed the Defined Contribution Dollar Limitation multiplied by
the following fraction:
Number of months in the short Limitation Year
---------------------------------------------
12
(ix) Other Plan. "Other Plan" means any other defined
----------
contribution plan to which contributions are or have been made on behalf of
Participants in this Plan by one or more members of the controlled group of
corporations (as determined in accordance with the ownership rules of Code
Section 1563, without regard however, to Code Section 1563(a)(4) or
1563(e)(3)(C)) and any other employer entity which constitutes an affiliated
service group or is required to be aggregated with the Employer pursuant to Code
Section 414(c), 414(m) or 414(o).
(x) Projected Annual Benefit. "Projected Annual Benefit"
------------------------
means the annual retirement benefit (adjusted to an actuarially equivalent
straight life annuity if such benefit is expressed in a form other than a
straight life annuity or qualified joint and survivor annuity) to which the
Participant would be entitled under the terms of a plan assuming:
(A) the Participant will continue employment until
normal retirement age under that plan (or current age, if later), and
(B) the Participant's Section 415 Compensation for the
current Limitation Year and all other relevant factors used to determine
benefits under that plan will remain constant for all future Limitation Years.
(b) Participation in this Plan. If the Participant does not
--------------------------
participate in, and has never participated in, another tax-qualified plan
maintained by the Employer, or a welfare benefit fund (as defined in Code
Section 419(e)) maintained by the Employer, or an individual medical account (as
defined in Code Section 415(l)(2)) maintained by the Employer which provides an
Annual Addition, then the amount of Annual Additions which may be credited to
the Participant's Account for any Limitation Year shall not exceed the lesser of
the Maximum Permissible Amount or
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<PAGE>
any other limitation contained in the Plan. If the Contributions that would
otherwise be contributed or allocated to the Participant's Account would cause
the Annual Additions for the Limitation Year to exceed the Maximum Permissible
Amount, then the amount contributed or allocated shall be reduced so that the
Annual Additions for the Limitation Year equal the Maximum Permissible Amount.
(i) Timing. Prior to determining the Participant's actual
------
Section 415 Compensation for the Limitation Year, the Employer may determine the
Maximum Permissible Amount for a Participant on the basis of a reasonable
estimation of the Participant's Section 415 Compensation for the Limitation
Year.
(ii) Actual Compensation. As soon as is administratively
-------------------
feasible after the end of the Limitation Year (or within such other period as
applicable for a Participant who terminates employment and requests a
distribution from the Plan), the Maximum Permissible Amount for the Limitation
Year shall be determined on the basis of the Participant's actual Section 415
Compensation for the Limitation Year.
(iii) Disposition of Excess Amount. If an Excess Amount exists
----------------------------
for one or more Participants under this Plan and any Other Plan for a
Limitation Year, as a result of (i) a reasonable error in determining the amount
of Salary Deferral Contributions that may be made with respect to any
Participant under the limits of this Section, (ii) an allocation of forfeitures,
(iii) a reasonable error in estimating a Participant's annual Section 415
Compensation, or (iv) other facts and circumstances with respect to which the
provisions of Regulation Section 1.415-6(b)(6) are available, then the Excess
Amount shall be disposed of in the following manner, in the order specified
below and to the extent necessary to eliminate such excess:
(A) First, all or the necessary portion of after-tax
-----
employee contributions (including, if applicable, gains thereon) made by the
Participant for the Limitation Year under any Other Plan shall be refunded to
the Participant;
(B) Then, all or the necessary portion of Salary
----
Deferral Contributions (including, if applicable, the gains thereon) made on the
Participant's behalf which were not the subject of any Employer Matching
---
Contributions shall be distributed to the Participant as a current cash payment,
subject to applicable Federal and state withholding taxes;
(C) Then, all or the necessary portion of Salary
----
Deferral Contributions (including, if applicable, the gains thereon) made on the
Participant's behalf which were entitled to Employer Matching Contributions
shall be distributed to the Participant as a current cash payment, subject to
applicable Federal and state withholding taxes, and no Employer Matching
Contributions shall be made with respect to the distributed Salary Deferral
Contributions. Accordingly, the Participant's Employer Matching Contributions
for such Plan Year are to be reduced as follows:
(1) To the extent the Employer Matching
Contributions have not already been made to the Plan on the Participant's
---
behalf, the reduction shall be effected by
-22-
<PAGE>
making an appropriate reduction in the aggregate amount of Employer Matching
Contributions required for such Plan Year to take into account the distributed
Salary Deferral Contributions no longer eligible for Employer Matching
Contributions; or
(2) To the extent the Employer Matching Contributions have
already been allocated to the Participant's Employer Matching Contributions
Account for the Plan Year coincident with such Limitation Year, then such
Employer Matching Contributions (to the extent attributable to the distributed
Salary Deferral Contributions) shall, together with the Earnings thereon (if
applicable), be withdrawn from the Participant's Employer Matching Contributions
Account and used for any Employer Matching Contributions still to be made on
behalf of other Participants eligible for Employer Matching Contributions for
such Plan Year. Any Employer Matching Contributions withdrawn from the
Participant's Employer Matching Contributions Account and not utilized shall be
held unallocated in a suspense account and shall be used to reduce future
Contributions for each succeeding Plan Year until the suspense account is
reduced to zero (0). No Earnings attributable to the assets of the Trust shall
be allocated to the suspense account, nor shall any Contributions to the Plan
(other than Salary Deferral Contributions) be made by the Employer 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
Employer or, if applicable, the Participating Employer who made such Employer
Matching Contributions to the Plan;
(D) Then, all or the necessary portion of the Participant's
----
share of the Employer Mandatory Contributions (if any) for the Plan Year
coincident with the Limitation Year shall be reduced. Accordingly, the Employer
shall make a corresponding reduction in the Employer Mandatory Contributions
required for such Plan Year; and
(E) Finally, all or the necessary portion of the Participant's
-------
allocable share of contributions and forfeitures under any Other Plan (other
than set forth in paragraph (i) above) shall be reduced in accordance with the
applicable provisions of such Other Plan.
(c) Participation in this Plan and any Other Plan. This Section
---------------------------------------------
applies if, in addition to this Plan, the Participant is covered under another
defined contribution plan maintained by the Employer, a welfare benefit fund (as
defined in Code Section 419(e)) maintained by the Employer, or an individual
medical account (as defined in Code Section 415(l)(2)) maintained by the
Employer which provides an Annual Addition during any Limitation Year. In such
case, the Annual Additions which may be credited to a Participant's Account
under this Plan for any such Limitation Year will not exceed the Maximum
Permissible Amount reduced by the Annual Additions credited to that
Participant's account under the Other Plans and welfare benefit funds for the
same Limitation Year. If the Annual Additions with respect to the Participant
under Other Plans and welfare benefit funds maintained by the Employer are less
than the Maximum Permissible Amount and the Employer Contribution that would
otherwise be contributed or allocated to the Participant's Account under this
Plan would cause the Annual Additions for the Limitation Year to exceed this
limitation, then the amount contributed or allocated shall be reduced so that
the Annual Additions under all
-23-
<PAGE>
such plans and funds for the Limitation Year shall equal the Maximum Permissible
Amount. If the Annual Additions with respect to the Participant under such Other
Plans and welfare benefit funds in the aggregate are equal to or greater than
the Maximum Permissible Amount, then no amount shall be contributed or allocated
to the Participant's Account under this Plan for the Limitation Year.
(i) Timing. Prior to determining the Participant's actual Section
------
415 Compensation for the Limitation Year, the Employer may determine the Maximum
Permissible Amount for a Participant in the manner described in paragraph
(b) above.
(ii) Actual Compensation. As soon as is administratively feasible
-------------------
after the end of the Limitation Year, the Maximum Permissible Amount for the
Limitation Year shall be determined on the basis of the Participant's actual
Section 415 Compensation for the Limitation Year.
(iii) Disposition of Excess Amount. If, as a result of (A) a
----------------------------
reasonable error in determining the amount of Salary Deferral Contributions that
may be made with respect to any Participant under the limits of this Section;
(B) an allocation of forfeitures; (C) a reasonable error in estimating a
Participant's annual Section 415 Compensation; or (D) other facts and
circumstances with respect to which the provisions of Regulation Section 1.415-
6(b)(6) are available, a Participant's Annual Additions under this Plan and such
other plans would result in an Excess Amount for a Limitation Year, then the
Excess Amount shall be deemed to consist of the Annual Additions last allocated,
except that Annual Additions attributable to a welfare benefit fund or
individual medical account shall be deemed to have been allocated first
regardless of the actual allocation date.
(iv) Determination of Excess Amount. If an Excess Amount was
------------------------------
allocated to a Participant on an allocation date of this Plan which coincides
with an allocation date of another plan, the Excess Amount attributed to this
Plan shall be the product of,
(A) the total Excess Amount allocated as of such date,
multiplied by
(B) the ratio of (1) the Annual Additions allocated to the
Participant for the Limitation Year as of such date under this Plan to (2) the
total Annual Additions allocated to the Participant for the Limitation Year as
of such date under this and all other defined contribution plans.
(C) Any Excess Amount attributed to this Plan shall be disposed
in the manner described in paragraph (e) above.
(d) Integration with Defined Benefit Plan. For Plan Years ending on or
-------------------------------------
before December 31, 1999, if the Employer maintains, or at any time maintained,
a tax-qualified defined benefit plan covering any Participant in this Plan, the
sum of the Participant's Defined Benefit Fraction and Defined Contribution
Fraction shall not exceed one (1.0) in any Limitation Year. The
-24-
<PAGE>
Annual Additions which may be credited to the Participant's Account under this
Plan for any Limitation Year shall be limited in accordance with the provisions
of paragraph (b) above.
5.5 Discrimination Testing of Salary Deferral Contributions.
-------------------------------------------------------
(a) Definitions.
-----------
(i) Actual Deferral Percentage ("ADP"). "Actual Deferral
----------------------------------
Percentage" or "ADP" means:
(A) with respect to each Participant, a percentage,
calculated as the sum of the amount of (1) Salary Deferral Contributions, (2)
Qualified Matching Contributions, and (3) Qualified Nonelective Contributions,
made on behalf of such Eligible Employee for the Plan Year (and allocated for
purposes of the ADP test), divided by such Employee's Section 415 Compensation
for that Plan Year. If Participant makes no Salary Deferral Contributions, and
no Qualified Matching or Qualified Nonelective Contributions are taken into
account with respect to the Participant, then the ADP of the Participant shall
be zero (0); and
(B) the ADP for any Participant who is a Highly
Compensated Employee for the Plan Year and who is eligible to have Salary
Deferral Contributions (and Qualified Nonelective or Qualified Matching
Contributions, or both, if treated as Salary Deferral Contributions for purposes
of the ADP test) allocated to his or her account under two or more arrangements
described in Code Section 401(k) that are maintained by the Employer, shall be
determined as if such Salary Deferral Contributions (and, if applicable, such
Qualified Nonelective Contributions or Qualified Matching Contributions, or
both) were made under a single arrangement. If a Highly Compensated Employee
participates in two (2) or more cash or deferred arrangements that have
different plan years, then all cash or deferred arrangements ending with or
within the same calendar year shall be treated as a single arrangement.
Notwithstanding the foregoing, certain plans shall be treated as separate if
mandatorily disaggregated pursuant to Code Section 401(k).
(ii) Average ADP. "Average ADP" means the average (expressed
-----------
as a percentage) of the ADPs for all Participants in the relevant group.
(iii) Excess 401(k) Contributions. "Excess 401(k)
---------------------------
Contributions" means, with respect to any Plan Year, the excess of (A) the
aggregate amount of Employer Contributions actually taken into account in
computing the ADPs of Highly Compensated Employees for such Plan Year, over (B)
the maximum amount of such Contributions permitted by the ADP test. Excess
401(k) Contributions shall be treated as Annual Additions under the Plan for the
Plan Year that such Contributions were allocated to the affected Participant's
Account.
(b) ADP. The anti-discrimination requirements of Code Section 401
---
(k)(3) provide that in each Plan Year one of the following ADP tests must be
met:
(i) the Average ADP for Participants who are Highly Compensated
Employees for the Plan Year shall not exceed the prior Plan Year's Average ADP
for Eligible
-25-
<PAGE>
Employees who were Non-Highly Compensated Employees for the prior Plan Year
multiplied by one and twenty-five one-hundredths (1.25); or
(ii) the Average ADP for Participants who are Highly Compensated
Employees for the Plan Year shall not exceed the prior Plan Year's Average ADP
for Participants who were Non-Highly Compensated Employees for the prior Plan
Year multiplied by two (2), provided that the ADP for Participants who are
Highly Compensated Employees does not exceed the Average ADP for Participants
who were Non-Highly Compensated Employees for the prior Plan Year by more than
two (2) percentage points or such lesser amount as the Secretary of the Treasury
shall prescribe to prevent the multiple use of this alternative limitation with
respect to any Highly Compensated Employee.
(c) Corrective Procedure.
--------------------
(i) Correction of Excess 401(k) Contributions. The
-----------------------------------------
Administrator may take any and all steps it deems necessary or appropriate to
ensure compliance with the limitations of paragraph (b) above. Such steps shall
include, without limitation, one or any combination of the following:
(A) restrict the amount of Salary Deferral Contributions on
behalf of Highly Compensated Employees;
(B) distribute Excess 401(k) Contributions to the Highly
Compensated Employees who made such Excess 401(k) Contributions, pursuant to
paragraph (c)(v) below; and/or
(C) treat Employer Matching Contributions or Employer
Mandatory Contributions, as applicable, as Qualified Matching Contributions or
Qualified Nonelective Contributions, respectively. The amount of Qualified
Matching Contributions and/or Qualified Nonelective Contributions made under
this Plan and taken into account as Salary Deferral Contributions for purposes
of calculating the ADP test, subject to such other requirements as may be
prescribed by the Secretary of the Treasury, shall be such Qualified Matching
Contributions and/or Qualified Nonelective Contributions as are needed to meet
the ADP test.
(ii) Calculation of Excess 401(k) Contributions. The amount of
------------------------------------------
Excess 401(k) Contributions for Highly Compensated Employees for a Plan Year
shall be calculated by the following method, under which the ADP of the Highly
Compensated Employee with the highest ADP is reduced to the extent required to
enable the Plan to satisfy the ADP test or to cause such Highly Compensated
Employee's ADP to equal the ADP of the Highly Compensated Employee with the next
highest ADP:
(A) the Salary Deferral Contributions of the Highly
Compensated Employee with the highest ADP shall be reduced; such reduction shall
continue, as necessary, until such Highly Compensated Employee's ADP equals that
(those) of the Highly Compensated Employee(s) with the second highest ADP(s);
-26-
<PAGE>
(B) following the application of paragraph (A), if it is
still necessary to reduce Highly Compensated Employees' Salary Deferral
Contributions, the Contributions of (or allocations on behalf of, if applicable)
Highly Compensated Employees with the highest and second highest ADPs shall be
reduced, as necessary, until such Employees' ADP equals that of the Highly
Compensated Employee(s) with the third highest ADP(s);
(C) following the application of paragraph (B), if it is
still necessary to reduce Highly Compensated Employees' Salary Deferral
Contributions, the procedure, the beginning of which is described in paragraphs
(A) and (B) above, shall continue until no further reductions are necessary; and
(D) amounts determined pursuant to paragraphs (A) through
(C) above shall be combined. The resulting sum shall be the Excess 401(k)
Contributions, and the portion of the total to be allocated to each affected
Highly Compensated Employee shall be determined pursuant to paragraph (iii)
below.
(iii) Allocation of Excess 401(k) Contributions. The amount of
-----------------------------------------
Excess 401(k) Contributions to be allocated to a Highly Compensated Employee for
a Plan Year shall be determined by the following method:
(A) the Salary Deferral Contributions of the Highly
Compensated Employee(s) with the highest dollar amount of Salary Deferral
Contributions shall be reduced, as necessary, until either such Highly
Compensated Employee's dollar amount of Salary Deferral Contributions equals
that of the Highly Compensated Employee(s) with the next highest dollar
amount(s) of Salary Deferral Contributions, or until no unallocated Excess
401(k) Contributions remain;
(B) following the application of the preceding paragraph
(A), if unallocated Excess 401(k) Contributions remain, then Salary Deferral
Contributions of the Highly Compensated Employees with the highest and second
highest dollar amount(s) of Salary Deferral Contributions shall be reduced, as
necessary, until either such Highly Compensated Employees' dollar amount of
Salary Deferral Contributions equal those of the Highly Compensated Employee(s)
with the third highest dollar amount(s) of Salary Deferral Contributions, or
until no unallocated Excess 401(k) Contributions remain;
(C) following the application of the preceding paragraph
(B), if unallocated Excess 401(k) Contributions remain, then the procedure, the
beginning of which is described in paragraphs (A) and (B), shall continue until
no further reductions are necessary; and
(D) Excess 401(k) Contributions in an amount equal to the
reduction of Salary Deferral Contributions determined in paragraphs (A) through
(C) above with respect to a Highly Compensated Employee shall be allocated to
that Highly Compensated Employee and, as determined by the Administrator,
distributed pursuant to paragraph (v) below.
-27-
<PAGE>
(iv) Character of Excess 401(k) Contributions. The Excess
----------------------------------------
401(k) Contributions of a Highly Compensated Employee shall be deemed to consist
of Contributions and allocations as determined according to the following order:
(A) first, the Highly Compensated Employee's Excess
-----
401(k) Contributions shall be deemed to consist of Salary Deferral Contributions
if any, which exceed the highest rate or amount at which Salary Deferral
Contributions are matched; provided, however, such Contributions shall be offset
by any Excess Salary Deferrals distributable to the Employee pursuant to Section
5.6; and
(B) second, the Highly Compensated Employee's Excess
------
401(k) Contributions shall be deemed to consist of (1) any Salary Deferral
Contributions and any Employer Matching Contributions and Qualified Matching
Contributions, each in proportion to the Highly Compensated Employee's total
Salary Deferral Contributions, Employer Matching Contributions, and Qualified
Matching Contributions for the Plan Year; provided, however, any Salary Deferral
Contributions characterized as Excess 401(k) Contributions under this paragraph
shall be offset by any Excess Salary Deferrals distributable to the Employee
pursuant to Section 5.6 and not taken into account under paragraph (b)(i) above.
(v) Distribution of Excess 401(k) Contributions. If,
-------------------------------------------
pursuant to paragraph (c)(i)(B) above, the Administrator elects to distribute
Excess 401(k) Contributions, which shall then be treated as Annual Additions
(adjusted for Earnings) to Highly Compensated Employees, then the Administrator
shall make such distributions in accordance with the following timing
restrictions:
(A) on or before the date which falls two and one-half (2 1/2)
months after the last day of the Plan Year for which such Excess 401(k)
Contributions were made, to avoid liability for the Federal excise tax
(currently, equal to ten percent (10%) of the undistributed Excess 401(k)
Contributions) and state excise tax, if applicable, which will be imposed on
Excess 401(k) Contributions distributed after such date;
(B) in the event of a complete termination of the Plan during
the Plan Year in which there are Excess 401(k) Contributions, such distributions
shall be made and as soon as administratively feasible after the date of
termination of the Plan, but in no event later than the close of the twelve
(12)-month period immediately following such termination; and
(C) in any event, such Excess 401(k) Contributions shall be
distributed before the last day of the Plan Year next following the Plan Year
for which such Excess 401(k) Contributions were made.
(vi) Compliance. Any adjustments to the Non-Highly Compensated
----------
Employee Average ADP for the prior Plan Year shall be made in accordance with
Internal Revenue Service Notice 98-1 and any subsequent binding guidance or
legislation.
-28-
<PAGE>
(vii) Adjustment for Earnings. After the Administrator has
-----------------------
determined the aggregate amount and character of Excess 401(k) Contributions to
be distributed to a given Highly Compensated Employee, that amount shall be
adjusted for Earnings. Excess 401(k) Contributions shall be adjusted for any
Earnings up to the date of distribution. The Earnings allocable to Excess 401(k)
Contributions shall be calculated by the Administrator using any reasonable
method for computing the Earnings allocable to Excess 401(k) Contributions;
provided, however, that the method shall not violate Code Section 401(a)(4), and
that the method shall be used consistently for all Participants, for all
corrective distributions under the Plan for the Plan Year, and for allocating
Earnings to Participants' Accounts.
(d) Special Rules.
-------------
(i) Computation of Section 415 Compensation. For purposes of
---------------------------------------
this Section, a Participant's Section 415 Compensation for the entire Plan Year
shall be included, whether or not he or she made Salary Deferral Contributions
for the entire Plan Year.
(ii) Coordination with Distribution of Excess Elective
-------------------------------------------------
Deferrals. After calculation of an amount to be distributed to a Participant
- ---------
pursuant to the procedures discussed in paragraphs (b)(iii) and (iv) above, if
the Participant in question has also made Excess Elective Deferrals during the
calendar year ended within or coincident with the Plan Year, the amount actually
distributed to that Participant shall be adjusted to take into account such
Excess Elective Deferrals pursuant to Section 5.6.
(iii) Aggregation of Plans. For purposes of determining whether
--------------------
a plan satisfies the ADP test in paragraph (a), all elective contributions that
are made under two or more plans that are aggregated for purposes of Code
Section 401(a)(4) or 410(b) (other than Code Section 410(b)(2)(A)(ii)) shall be
treated as made under a single plan. If two (2) or more plans are permissively
aggregated for purposes of Code Section 401(k), then the aggregated plans shall
also satisfy Code Sections 401(a)(4) and 410(b) as though they were a single
plan. For Plan Years beginning after December 31, 1989, two (2) or more plans
may be aggregated in order to satisfy Code Section 401(k) only if they have the
same plan year and use the same ADP testing method. Any adjustments to the ADP
of Non-Highly Compensated Employees for the prior Plan Year shall be made in
accordance with Internal Revenue Service Notice 98-1 and any superseding binding
guidance or legislation.
5.6 Distribution of Excess Elective Deferrals.
-----------------------------------------
(a) Definitions.
-----------
(i) "Elective Deferrals" means with respect to any calendar
year, any amount allocated to a Participant's Salary Deferral Contributions
Account pursuant to Section 4.1, and any contributions made on behalf of such
Participant pursuant to an election to defer under any qualified cash or
deferred compensation arrangement described in Code Section 401(k), any
simplified employee pension cash or deferred arrangement as described in Code
Section 402(h)(1)(B), any eligible deferred compensation plan under Code Section
457, any plan as
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<PAGE>
described in Code Section 501(c)(18), and any contributions made on the behalf
of a Participant for the purchase of an annuity contract under Code Section
403(b) pursuant to a salary reduction agreement. Elective Deferrals shall not
include any deferrals properly distributed as excess Annual Additions.
(ii) "Excess Elective Deferrals" means those Elective Deferrals
that exceed the dollar limitation under Code Section 402(g) and any Earnings
allocable thereto. Excess Elective Deferrals not distributed pursuant to Section
5.4 shall be treated as Annual Additions under the Plan.
(b) Notification by Participant of Excess Elective Deferrals. A
--------------------------------------------------------
Participant may assign to the Plan any Excess Elective Deferrals made during a
taxable year of the Participant by notifying the Administrator in writing of the
amount of such Excess Elective Deferral to be assigned to the Plan on or before
March 1/st/ of the year following the close of the Participant's taxable year in
which the Excess Elective Deferrals were made. A Participant is automatically
deemed to have notified the Administrator of to the extent he or she has Excess
Elective Deferrals arising from Salary Deferral Contributions made to the Plan
and any Other Plan of the Employer.
(c) Reimbursement of Excess Elective Deferrals and Forfeiture of
------------------------------------------------------------
Related Matching Contributions. Excess Elective Deferrals shall be distributed
- ------------------------------
to the Participant no later than April 15/th/ of the calendar year following the
year in which the Excess Elective Deferrals were made. Employer Matching
Contributions made on account of such Excess Elective Deferrals shall be
forfeited as soon as administratively feasible thereafter and applied to reduce
future Employer Contributions.
(d) Determination of Earnings. Excess Salary Deferrals and Employer
-------------------------
Matching Contributions attributable thereto shall be adjusted for any Earnings
through the end of the taxable year of the Participant for which such Excess
Salary Deferrals and Employer Matching Contributions were made. Excess Salary
Deferrals and Employer Matching Contributions attributable thereto shall also be
adjusted for any Earnings for the period from the beginning of the subsequent
taxable year through the date of distribution on a basis determined by the
Administrator to be as accurate as is administratively feasible (the "gap
period"). Furthermore, the Earnings allocable to such Excess Salary Deferrals
and Employer Matching Contributions shall be calculated by the Administrator
using any reasonable method for computing Earnings, provided that the method
shall not violate Code Section 401(a)(4), shall be used consistently for all
Participants and for all corrective distributions under the Plan for the Plan
Year, and shall be used by the Administrator for allocating Earnings to
Participants' Accounts.
5.7 Discrimination Testing of Employer Matching Contributions.
---------------------------------------------------------
(a) Definitions.
-----------
(i) Actual Contribution Percentage ("ACP"). "Actual
--------------------------------------
Contribution Percentage" or "ACP" means:
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<PAGE>
(A) with respect to each Participant, the Participant's
Contribution Percentage Amount divided by such Employee's Section 415
Compensation for that Plan Year;
(B) if, however, (1) a Participant makes no Salary
Deferral Contributions, and as a result, no Employer Matching Contributions are
made on behalf of such Participant for the Plan Year; and (2) no Qualified
Nonelective Contributions are taken into account with respect to the
Participant, then the ACP of the Participant shall be zero (0).
(ii) Aggregate Limit. "Aggregate Limit" means the sum of (A)
---------------
one hundred twenty-five percent (125%) of the greater of the Average ADP of the
Non-Highly Compensated Employees for the prior Plan Year or the Average ACP of
Non-Highly Compensated Employees under the Plan subject to Code Section 401(m)
for the Plan Year beginning with or within the prior Plan Year of the cash or
deferred arrangement, and (B) the lesser of two hundred percent (200%) or two
(2) plus the lesser of such Average ADP or Average ACP. "Lesser" is substituted
for "greater" in (A) above, and "greater" is substituted for "lesser" after "two
(2) plus the" in (B) above, if it would result in a larger Aggregate Limit.
(iii) Average ACP. "Average ACP" means the average of the ACPs
-----------
of the Eligible Participants in a group.
(iv) Contribution Percentage Amount. "Contribution Percentage
------------------------------
Amount" means the sum of the Employer Matching Contributions and Qualified
Matching Contributions made under the Plan on behalf of a Participant for the
Plan Year. In addition, to the extent elected by the Administrator for purposes
of calculating the ACP tests, "Contribution Percentage Amount" may also include
Qualified Nonelective Contributions, Salary Deferral Contributions, and/or pre-
tax and/or qualified nonelective contributions under Other Plans of the Employer
(subject to such requirements as may be prescribed by the Secretary of the
Treasury); provided, however, the amount of Qualified Nonelective Contributions,
Salary Deferral Contributions and/or pre-tax contributions under Other Plans of
the Employer used in calculating the ADP test may not be used in calculating the
ACP test. Such Contribution Percentage Amount shall not include Employer
Matching Contributions that are forfeited either to correct Excess Employer
Matching Contributions or because the Contributions to which they relate are
Excess Elective Deferrals and the Employer Matching Contributions attributable
thereto, or Excess 401(k) Contributions.
(v) Eligible Participant. "Eligible Participant" means any
--------------------
Employee who is eligible to make a Salary Deferral Contribution (if the Employer
takes such Contributions into account in the calculation of the ACP), or to
receive Employer Matching Contributions (including forfeitures) or Qualified
Matching Contributions.
(vi) Excess Matching Contributions. "Excess Matching
-----------------------------
Contributions" means with respect to any Plan Year, the excess of (A) the
aggregate amount of Employer Contributions actually taken into account in
computing the Average ACP of Highly Compensated Employees for such Plan Year,
over (B) the maximum amount of such Contributions permitted by the ACP test.
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(b) ACP Test. One of the following tests shall be satisfied for each
--------
Plan Year (except as provided in paragraphs (c) and (d) below):
(i) the Average ACP for Participants who are Highly
Compensated Employees for such Plan Year shall not exceed the prior Plan Year's
Average ACP for Participants who were Non-Highly Compensated Employees for the
prior Plan Year multiplied by one and twenty-five one-hundredths (1.25); or
(ii) the Average ACP for Participants who are Highly
Compensated Employees for such Plan Year shall not exceed the prior Plan Year's
Average ACP for Participants who were Non-Highly Compensated Employees for the
prior Plan Year multiplied by two (2); provided, however, that the Average ACP
for Participants who are Highly Compensated Employees does not exceed the
Average ACP for Participants who were Non-Highly Compensated Employees for the
prior Plan Year by more than two (2) percentage points or such lesser amount as
the Secretary of the Treasury shall prescribe to prevent the multiple use of
this alternative limitation with respect to any Highly Compensated Employee.
(c) Multiple Use. If one or more Highly Compensated Employee(s)
------------
participate in both a cash or deferred arrangement and a plan subject to the ACP
test maintained by the Employer and the sum of the Average ADP and Average ACP
of such Highly Compensated Employee(s) subject to either or both tests exceed(s)
the Aggregate Limit, then the Average ACP of such Highly Compensated Employee(s)
who also participate(s) in a cash or deferred arrangement shall be reduced in
the manner described in Section 5.5(c) so that the limit is not exceeded. The
amount by which each Highly Compensated Employee's Contribution Percentage
Amount is reduced shall be treated as an Excess Matching Contribution. The ADP
and ACP of the Highly Compensated Employees are determined after any corrections
required to meet ADP and ACP tests and are deemed to be the maximum permitted
under such tests for the Plan Year. Multiple use does not occur if either the
Average ADP or Average ACP of the Highly Compensated Employees does not exceed
one and twenty-five hundredths (1.25) multiplied by the Average ADP and Average
ACP of the Non-Highly Compensated Employees.
(d) Special Rules.
-------------
(i) For purposes of this Section, the ACP for any Participant
who is eligible to have Contribution Percentage Amount allocated to his or her
account under two or more plans described in Code Section 401(a), or
arrangements described in Code Section 401(k) that are maintained by the
Employer, shall be determined as if the total of such Contribution Percentage
Amount was made under each plan. If a Highly Compensated Employee participates
in two or more cash or deferred arrangements that have different plan years, all
cash or deferred arrangements ending with or within the same calendar year shall
be treated as a single arrangement. Notwithstanding the foregoing, certain plans
shall be treated as separate if mandatorily disaggregated pursuant to Code
Section 401(m).
(ii) In the event that this Plan satisfies the requirements of
Code Section 401(m), 401(a)(4) or 410(b) only if aggregated with one or more
other plans, or if one or
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more other plans satisfy the requirements of any such Code Section only if
aggregated with this Plan, then this Section shall be applied by determining the
Contribution Percentage of Participants as if all such plans were a single plan.
Any adjustments to the Non-Highly Compensated Employee Average ACP for the prior
Plan Year shall be made in accordance with Internal Revenue Service Notice 98-1
and any subsequent binding guidance or legislation. Plans may be aggregated in
order to satisfy Code Section 401(m) only if they have the same Plan Year.
For purposes of determining the ACP test. Employer Matching Contributions
and Qualified Nonelective Contributions are considered made for a Plan Year if
made no later than the end of the twelve (12)-month period beginning on the day
after the close of the Plan Year.
5.8 Corrective Procedure for Discriminatory Matching Contributions.
--------------------------------------------------------------
(a) The Administrator shall have the power to take any and all steps
it deems necessary or appropriate to ensure compliance with the limitations
described in Section 5.7, including without limitation, the following:
(i) to distribute vested Excess Matching Contributions to
Highly Compensated Employees who received such allocations, pursuant to
paragraph (c) below;
(ii) to treat that portion of Excess Matching Contributions
which consist of unvested allocations of Employer Matching Contributions to the
Employer Matching Contributions Accounts of Highly Compensated Employees as
amounts to be reallocated, pursuant to paragraph (d) below; and
(iii) to limit the amount of Employer Matching Contributions
allocated to the Employer Matching Contributions Accounts of Highly Compensated
Employees.
(b) Notwithstanding any contrary provisions in this Plan, if,
pursuant to paragraph (a)(i) or (ii) above, the Administrator elects to
distribute or reallocate Excess Matching Contributions (adjusted for Earnings),
then the Administrator shall take such action (i) on or before the date which
falls two and one-half (2 1/2) months after the last day of the Plan Year for
which such Excess Matching Contributions were made, if the Employer wishes to
avoid liability for the Federal excise tax (currently, equal to ten percent
(10%) of undistributed and unreallocated Excess Matching Contributions) and
state excise tax, if applicable, which will be imposed on Excess Matching
Contributions distributed or reallocated after such date, but (ii) in any event,
before the last day of the Plan Year next following the Plan Year for which such
Contributions were made.
(c) Determination of Amount of Excess Matching Contributions. The
--------------------------------------------------------
amount of Excess Matching Contributions for Highly Compensated Employees for a
Plan Year shall be determined by the following method, to enable the Plan to
satisfy the ACP test:
(i) the allocations of Employer Matching Contributions of the
Highly Compensated Employee with the highest Contribution Percentage shall be
reduced, as necessary,
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until such Employee's Contribution Percentage equals those of the Highly
Compensated Employee(s) with the second highest Contribution Percentage(s);
(ii) following the application of paragraph (i), if it is still
necessary to reduce Highly Compensated Employees' allocations of Employer
Matching Contributions, then the Contributions of Highly Compensated Employees
with the highest and second highest Contribution Percentages shall be reduced,
as necessary, until each affected Employee's Contribution Percentage equals that
(those) of the Highly Compensated Employee(s) with the third highest
Contribution Percentage(s);
(iii) following the application of paragraph (ii), if it is
still necessary to reduce Highly Compensated Employees' allocations of Employer
Matching Contributions, then the procedure, the beginning of which is described
in paragraphs (i) and (ii), shall continue until no further reductions are
necessary; and
(iv) amounts determined pursuant to paragraphs (i) through
(iii) shall be combined. The resulting sum shall be the Excess Matching
Contributions, and the portion of the total to be allocated to each affected
Highly Compensated Employee shall be determined pursuant to paragraph (d) below.
(d) Allocation of Excess Matching Contributions. The amount of Excess
-------------------------------------------
Matching Contributions to be allocated to a Highly Compensated Employee for a
Plan Year shall be determined by the following method to enable the Plan to
satisfy the ACP test:
(i) the allocations of Employer Matching Contributions of the
Highly Compensated Employee(s) with the highest dollar amount of Employer
Matching Contributions shall be reduced, as necessary, until either such
Employee's dollar amount of Employer Matching Contributions equals those of the
Highly Compensated Employee(s) with the second highest dollar amount of Employer
Matching Contributions or until no unallocated Excess Matching Contributions
remain;
(ii) following the application of paragraph (i), if unallocated
Excess Matching Contributions remain, Employer Matching Contributions of Highly
Compensated Employees with the highest and second highest dollar amount of
Employer Matching Contributions shall be reduced, as necessary, until either
each affected Employee's dollar amount of Employer Matching Contributions equals
that (those) of the Highly Compensated Employee(s) with the third highest dollar
amount of Employer Matching Contributions, or until no unallocated Excess
Matching Contributions remain;
(iii) following the application of paragraph (ii), if
unallocated Excess Matching Contributions remain, the procedure, the beginning
of which is outlined in paragraphs (i) and (ii), shall continue until no further
reductions are necessary; and
(iv) Excess Matching Contributions in an amount equal to the
reductions of Employer Matching Contributions determined in paragraphs (i)
through (iii) above with respect to a
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<PAGE>
Highly Compensated Employee shall be allocated to that Highly Compensated
Employee and, as determined by the Administrator, distributed pursuant to
paragraph (e) below.
(e) Distribution of Excess Matching Contributions. After the
---------------------------------------------
procedure outlined in paragraph (d) above is completed, all amounts of Excess
Matching Contributions shall be distributed to the respective Highly Compensated
Employees to whose Accounts the Excess Matching Contributions were made.
(f) Adjustment for Earnings. After the Administrator has determined
-----------------------
the aggregate amount and character of Excess Matching Contributions to be
distributed to a given Highly Compensated Employee, the amount to be distributed
shall be adjusted to reflect Earnings. The Earnings to be distributed shall be
calculated by the Administrator using any reasonable method for computing
Earnings allocable to Excess Matching Contributions; provided, however, that the
method shall not violate Code Section 401(a)(4), and shall be used consistently
for all Participants and for all corrective distributions under the Plan for the
Plan Year, and for allocating Earnings to Participants' Accounts.
(g) Special Rule. Any amount distributed to a Highly Compensated
------------
Employee pursuant to this Section shall not be subject to any of the consent
rules for Participants and Spouses contained in Article VI or any Appendix.
Similarly, any such distribution shall not make that Employee liable for the
Federal taxes applicable to early withdrawals under Code Section 72(t) or excess
distributions under Code Section 4981A.
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<PAGE>
ARTICLE VI
----------
VESTING AND DISTRIBUTION OF ACCOUNTS
------------------------------------
6.1 Vested Interest.
---------------
(a) A Participant's interest in his or her Salary Deferral
Contributions Account, Qualified Matching Contributions Account, Qualified
Nonelective Contributions Account, Rollover Contributions Account, Pension Plan
Account and FaAA Plan Account shall be at all times fully vested and
nonforfeitable.
(b) If a Participant, with a PTI Plan Account, was employed by the
Company on December 31, 1998, then such Participant's PTI Plan Account shall be
at all times fully vested and nonforfeitable. If, however, a Participant with a
PTI Plan Account terminated employment with the Company prior to December 31,
1998, then such Participant's vested interest in his or her PTI Plan Account
shall be determined according to the vesting schedule in Appendix C.
(c) If a Participant was employed by the Company, or any other
Participating Employer who is designated by the Board to participate in making
Employer Mandatory Contributions, on January 1, 1999, then such Participant's
interest in his or her Employer Mandatory Contribution Account, if any, shall be
at all times fully vested and nonforfeitable.
(d) A Participant's interest in his or her Employer Matching
Contributions Account and, if the Participant's Employment Commencement Date was
after January 1, 1999, then his or her Employer Mandatory Contributions Account
shall be fully vested and nonforfeitable at the Participant's Normal Retirement,
death, Disability, or upon termination of the Plan. A Participant's interest in
his or her Employer Matching Contributions Account and Employer Mandatory
Contributions Account (to the extent not fully vested in paragraph (c) above)
which is not fully vested shall be subject to the following vesting schedule:
Years of Service Vested Percentage
---------------- -----------------
Less than 1 year 0%
1 year but less than 2 years 20%
2 years but less than 3 years 40%
3 years but less than 4 years 60%
4 years but less than 5 years 80%
5 years or more 100%
(e) In the case of an Employee who has five (5) consecutive one (1)-
year Breaks in Service, all Years of Service after such Breaks in Service shall
be disregarded for the purpose of the vesting schedule with respect to the
Participant's Employer Matching Contributions Account and Employer Mandatory
Contributions Account balances that accrued before such Breaks in Service, but
both pre-break and post-break service shall count for the purposes of vesting
such Account
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<PAGE>
balances after such Breaks in Service. In the case of an Employee who does not
have five (5) consecutive one (1)-year Breaks in Service, both the pre-break and
post-break service shall count in vesting both the pre-break and post-break
Employer Matching Contributions Account and Employer Mandatory Contributions
Account balances.
(f) If the Plan is amended in any way that directly or indirectly
affects the computation of the Participant's nonforfeitable percentage, or if
the Plan is deemed amended by an automatic change to a Top-Heavy vesting
schedule, then each Participant who is credited with three (3) Years of Service
and whose Account would have vested more rapidly prior to the amendment, may
irrevocably elect during the election period to have the nonforfeitable
percentage of his or her Account calculated without regard to such amendment.
For purposes of this Section, the election period shall begin the date the
amendment is adopted, and shall end on the date sixty (60) days after the latest
of (i) the date the amendment is adopted, (ii) the date the amendment becomes
effective, or (iii) the date the Participant is issued written notice of the
amendment by the Participating Employer or the Administrator.
6.2 Forfeitures.
-----------
(a) If a Participant is required to take a distribution pursuant to
Section 6.8 (the "cash-out rule"), then following the Participant's Severance
Date, the Participant shall receive a distribution of the value of the entire
vested portion of his or her Account balance in accordance with Sections 6.8
through 6.11. The nonvested portion of the Participant's Account balance shall
be treated as a forfeiture as of the earlier of (i) the date on which the
distribution occurs, or (ii) the last day of the Plan Year in which the
Participant incurs five (5) consecutive one (1)-year Breaks in Service. For
purposes of this Section, if the value of a Participant's vested Account balance
is zero (0), then the Participant shall be deemed to have received a
distribution of such vested Account balance.
(b) If a Participant has the option to elect and does elect to
receive the value of his or her vested Account balance following his or her
Severance Date in accordance with the requirements of Section 6.8, then the
nonvested portion of the Participant's Account balance shall be treated as a
forfeiture as of the earlier of (i) the date on which the distribution occurs,
or (ii) the last day of the Plan Year in which the Participant incurs five (5)
consecutive one (1)-year Breaks in Service.
(c) If a Participant has the option to elect and does not elect to
receive the value of his or her vested Account balance following his or her
Severance Date in accordance with the requirements of Section 6.8, then the
nonvested portion of the Participant's Account balance shall be treated as a
forfeiture as of the last day of the Plan Year in which the Participant incurs
five (5) consecutive one (1)-year Breaks in Service.
(d) If a Participant is not fully vested in his or her Account, and
that Participant receives a distribution in accordance with the requirements of
Section 6.8 and then resumes employment with a Participating Employer, then that
Participant's Employer Matching Contributions Account and Employer Mandatory
Contributions Account balances shall be restored
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<PAGE>
to the amount on the date of distribution; provided, however, the Participant
repays to the Plan the full amount of the distribution attributable to Employer
Matching Contributions and Employer Mandatory Contributions before the earlier
of five (5) years after the Participant's Reemployment Commencement Date, or the
date the Participant incurs five (5) consecutive one (1)-year Breaks in Service
following the date of the distribution. If a Participant is deemed to receive a
distribution pursuant to paragraph (a) above, and the Participant resumes
employment covered under the Plan before the date the Participant incurs five
(5) consecutive one (1)-year Breaks in Service, then, upon the Participant's
Reemployment Commencement Date, the Employer Matching Contributions Account and
Employer Mandatory Contributions Account balances of the Participant shall be
restored to the amount on the date of such deemed distribution.
(e) Any amounts forfeited pursuant to this Section, Section 5.4 or
Section 5.8 shall be applied first, to restore Accounts pursuant to paragraph
-----
(d) above, second to reduce the Participating Employers' obligations to make
------
Mandatory Contributions, third to reduce the Participating Employers'
-----
obligation to make Employer Matching Contributions, and fourth, to pay
------
administrative expenses under the Plan.
6.3 Early Retirement. Except as may be specified in one or more of the
----------------
Appendices, the Plan does not provide for any Early Retirement. If an Appendix
provides for Early Retirement, then a Participant may retire as of any day on or
after his or her Early Retirement. In such event, the Participant's Account
shall be distributed in accordance with the applicable Appendix.
6.4 Normal Retirement. A Participant may retire as of any day on or after
-----------------
his or her Normal Retirement. In such event, the Participant's Account shall be
distributed in accordance with Sections 6.8 through 6.12 or, if applicable, the
Appendices.
6.5 Disability. If a Participant terminates employment with a
----------
Participating Employer due to Disability, then the Participant's Account shall
be distributed in accordance with Sections 6.8 through 6.12 or, if applicable,
the Appendices.
6.6 Death Benefits. If a Participant or former Participant dies before the
--------------
entire vested balance of his or her Account has been distributed, then the
vested balance in his or her Account shall be paid to the Participant's
Beneficiary in accordance with Sections 6.8 through 6.12 or, if applicable, the
Appendices.
6.7 Termination of Employment. Following a Participant's Severance Date,
-------------------------
the Participant's Account shall be valued in accordance with the Administrator's
procedures, and distributed in accordance with Sections 6.8 through 6.12 or, if
applicable, the Appendices.
6.8 Commencement of Distribution.
----------------------------
(a) Subject to Sections 6.9 through 6.12 below, following a
Participant's Severance Date, the Participant's Account shall be distributed at
a date designated by the Administrator, which designation (except as provided
below) shall be determined in accordance with the Administrator's procedures.
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<PAGE>
(b) Effective for distributions made prior to March 22, 1999:
(i) if the Participant's vested Account balance does not
exceed Five Thousand Dollars ($5,000) at the time of distribution (or at the
time any prior distribution), then the Participant shall receive a lump sum
distribution of the entire vested portion of such Account balance and the
nonvested portion shall be treated as a forfeiture; or
(ii) if the Participant's vested Account balance exceeds Five
Thousand Dollars ($5,000) at the time of distribution (or at the time of any
prior distribution), then the Participant, or if the Participant is deceased,
the Participant's Spouse must consent in writing prior to the distribution.
(c) Effective for distributions made on or after March 22, 1999:
(i) if the Participant's vested Account balance does not
exceed Five Thousand Dollars ($5,000) at the time of distribution, then the
Participant shall receive a lump sum distribution of the entire vested portion
of such Account balance and the nonvested portion shall be treated as a
forfeiture; or
(ii) if the Participant's vested Account balance exceeds Five
Thousand Dollars ($5,000) at the time of distribution, then the Participant, or
if the Participant is deceased, the Participant's Spouse, must consent in
writing prior to the distribution.
(iii) Notwithstanding the foregoing, if a Participant has begun
to receive a distribution pursuant to an optional form of benefit under which at
least one (1) scheduled periodic distribution is still payable, and if the value
of the Participant's vested Account balance exceeded Five Thousand Dollars
($5,000) at the time of the first distribution under that optional form of
benefit, then the remaining value of the Participant's vested Account balance
may not be distributed without the written consent of the Participant, or if the
Participant is deceased, the Participant's Spouse.
(d) If consent is required for a distribution, then the Participant,
or if the Participant is deceased, the Participant's Spouse, must consent in
writing to the distribution before it may be made and within the ninety (90)-day
period ending on the first day on which all of the events have occurred that
entitle the Participant to such benefit (the "Annuity Starting Date"). If the
Participant or, if applicable, the Participant's Spouse, consents to the
distribution, such distribution shall include all of the Participant's vested
Account balance. If the Participant or, if applicable, the Participant's Spouse,
does not consent in writing to the distribution, then the Participant's vested
Account balance shall be held in the Trust until the maximum period permitted
under paragraph (e) below. If consent to a distribution is required hereunder,
then at least thirty (30) days and not more than ninety (90) days prior to the
Annuity Starting Date the Administrator shall provide the Participant or, if
applicable, the Participant's Spouse with a notice of the right to elect
immediate distribution or the right to defer distribution until the
Participant's Normal Retirement.
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<PAGE>
(e) Unless the Participant elects otherwise by providing the
Administrator with an executed written notice specifying the Participant's
benefit under the Plan and the commencement date for distribution of the
Participant's Account, then distribution to a Participant shall commence no
later than sixty (60) days following the close of the Plan Year in which occurs
the latest of:
(i) the date the Participant attains Normal Retirement;
(ii) the tenth (10th) anniversary of the date on which the
Participant first commences participation in the Plan; or
(iii) the Participant's Severance Date.
Notwithstanding the foregoing, the failure of a Participant (and/or, where
applicable, the Participant's Spouse) to consent to a distribution while a
benefit is immediately distributable within the meaning of this Section, shall
be deemed to be an election to defer commencement of payment of any benefit.
(f) Spousal Consent shall be required for distributions.
Notwithstanding the foregoing, and if the normal form of distribution specified
in any of the Appendices is a Qualified Joint and Survivor Annuity, then only
the affected Participant (and not his or her Spouse) need consent to the
commencement of a distribution in the form of a Qualified Joint and Survivor
Annuity. Neither the consent of the Participant nor the Participant's Spouse
shall be required to the extent that a distribution is required to satisfy Code
Section 401(a)(9) or 415. In addition, upon termination of this Plan, to the
extent the Plan does not offer an annuity option (purchased from a commercial
provider) and if the Employer does not maintain another defined contribution
plan (other than an employee stock ownership plan as defined in Code Section
4975(e)(7)), then the Participant's Account balance shall, without the
Participant's consent, be distributed in a single lump sum to the Participant.
However, if the Employer maintains another defined contribution plan (other than
an employee stock ownership plan as defined in Code Section 4975(e)(7)), then
the Participant's Account balance shall be transferred, without the
Participant's consent, to the other plan if the Participant does not consent to
an immediate distribution.
(g) Notwithstanding anything to the contrary in the Plan,
distribution of each Participant's Account shall begin no later than the
Participant's Required Beginning Date regardless of whether the Participant has
consented to such a distribution.
(h) If a distribution is one for which Code Sections 401(a)(11) and
417 do not apply, then such distribution may commence less than thirty (30) days
after the notice required under Regulation Section 1.411(a)-11(c) is given,
provided that: (i) the Administrator informs the Participant that the
Participant has a right to a period of at least thirty (30) days after receiving
the notice to consider the decision of whether or not to elect a distribution
(and, if applicable, a particular distribution option); and (ii) the
Participant, after receiving the notice, affirmatively elects a distribution and
waives the thirty (30)-day period by written notice.
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<PAGE>
6.9 Special Distribution Rules for Salary Deferral Contributions and
----------------------------------------------------------------
Qualified Nonelective Contributions. Salary Deferral Contributions and Qualified
- -----------------------------------
Nonelective Contributions, including Earnings thereon, shall also, as determined
by the Board, be eligible for distribution upon:
(a) the transfer by the Employer to any other employer of
substantially all of the assets (within the meaning of Code Section 409(d)(2))
used by the Employer in a trade or business, but only with respect to
Participants who continue employment with the other employer who acquired such
assets; or
(b) the transfer by the Employer of such Employer's interest in a
subsidiary (within the meaning of Code Section 409(d)(2)) to any other employer,
but only with respect to Participants who continue employment with such
transferred subsidiary, and so long as the Company maintains this Plan.
6.10 Direct Rollovers and Withholding.
--------------------------------
(a) Definitions.
-----------
(i) Direct Rollover. "Direct Rollover" means an Eligible
---------------
Rollover Distribution paid directly to an Eligible Retirement Plan for the
benefit of a Distributee.
(ii) Distributee. "Distributee" means a Participant, a
-----------
Surviving Spouse of a deceased Participant, or a Spouse entitled to payment
under a Qualified Domestic Relations Order.
(iii) Eligible Retirement Plan. "Eligible Retirement Plan"
------------------------
means:
(A) with respect to any Distributee, an individual
retirement account described in Code Section 408(a) or an individual retirement
annuity (other than an endowment contract) described in Code Section 408(b); and
(B) in addition to paragraph (A) above and solely with
respect to a Distributee who is a Participant or a Spouse entitled to payment
under a Qualified Domestic Relations Order, a qualified trust described in Code
Section 401(a) or an annuity plan described in Code Section 403(a).
(iv) Eligible Rollover Distribution. "Eligible Rollover
------------------------------
Distribution" means any distribution of all or any portion of the balance
credited to the Account of a Distributee, except that an Eligible Rollover
Distribution shall not include: (A) 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; (B) any
distribution to the extent such distribution is required under Code Section
401(a)(9); and (C) the portion of any distribution that is not includable in
gross income.
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<PAGE>
(b) General Rule. If the Distributee of any Eligible Rollover
------------
Distribution from the Plan elects to have all or a specified portion of the
Eligible Rollover Distribution paid directly to an Eligible Retirement Plan, and
specifies the Eligible Retirement Plan to which the Eligible Rollover
Distribution is to be paid, then the Eligible Rollover Distribution shall be
paid to that Eligible Retirement Plan in a Direct Rollover.
6.11 Form of Benefit.
---------------
(a) Normal Form of Benefit. Unless specified in one or more of the
----------------------
Appendices, benefits shall be paid to the Participant or the Participant's
Beneficiary in the form of a single lump sum, unless the Participant elects
otherwise.
(b) Optional Forms of Benefit. The Participant may elect
-------------------------
substantially-equal annual installments over either (i) life of the Participant
or the joint lives of the Participant and his or her Beneficiary; or (ii) a
specified period of years which shall not exceed the Life Expectancy of the
Participant or the joint Life Expectancies of the Participant and his or her
Beneficiary, provided, however, Life Expectancy(ies) shall not be recalculated.
6.12 Minimum Distribution Requirements.
---------------------------------
(a) Definitions.
-----------
(i) Applicable Life Expectancy. "Applicable Life Expectancy"
--------------------------
means the Life Expectancy (or joint and last survivor expectancy) calculated
using the attained age of the Participant (or designated Beneficiary) as of the
Participant's (or designated Beneficiary's) birthday in the applicable calendar
year reduced by one (1) for each calendar year which has elapsed since the date
Life Expectancy was first calculated. If Life Expectancy is being recalculated,
the Applicable Life Expectancy shall be the Life Expectancy as so recalculated.
The applicable calendar year shall mean the first Distribution Calendar Year, or
if Life Expectancy is being recalculated, the calendar year for which the
distribution amount is being calculated.
(ii) Designated Beneficiary. "Designated Beneficiary" means the
----------------------
individual who is designated as the Beneficiary under the Plan in accordance
with Code Section 401(a)(9).
(iii) Distribution Calendar Year. "Distribution Calendar Year"
--------------------------
means a calendar year for which a minimum distribution is required. For
distributions beginning before the Participant's death, the first distribution
calendar year shall mean the calendar year immediately preceding the calendar
year which contains the Participant's Required Beginning Date. For distributions
beginning after the Participant's death, the first distribution calendar year
shall mean the calendar year in which distributions are required to begin
pursuant to Code Section 401(a)(9).
(iv) Five Percent Owner. "Five Percent Owner" means a
------------------
Participant who, for purposes of this Section, is a five percent owner as
defined in Code Section 416(i) (determined in accordance with Code Section 416
but without regard to whether the Plan is Top-Heavy) at any time
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during the Plan Year ending with or within the calendar year in which such
Participant attains age sixty-six and one-half (66 1/2) or any subsequent Plan
Year.
(v) Life Expectancy. "Life Expectancy" means that for purposes
---------------
of this Section, life expectancy and joint and last survivor expectancy computed
by use of the expected return multiples in Tables V and VI of Regulations
Section 1.72-9. Life Expectancies shall not be recalculated annually.
(vi) Participant's Benefit. "Participant's Benefit" means:
---------------------
(A) the Participant's Account balance as of the last
Valuation Date in the calendar year immediately preceding the distribution
calendar year increased by the amount of any Contributions, or Rollover
Contributions or forfeitures allocated to the Participant's Account balance as
of dates in the valuation calendar year after the Valuation Date and decreased
by distributions made in the valuation calendar year after the Valuation Date.
(B) for purposes of paragraph (A) above, if any portion
of the minimum distribution for the first distribution calendar year is made in
the second distribution calendar year on or before the Required Beginning Date,
then the amount of the minimum distribution made in the second distribution
calendar year shall be treated as if it had been made in the immediately
preceding distribution calendar year.
(vii) Required Beginning Date. "Required Beginning Date" means:
-----------------------
(A) for Five Percent Owners, the first day of April
-------------------
following the later of:
(1) the calendar year in which the Participant
attains age seventy and one-half (70 1/2), or
(2) the earlier of the calendar year with or within
which ends the Plan Year in which the Participant becomes a Five Percent Owner,
or the calendar year in which the Participant's Severance Date occurs.
Once begun, distributions to a Five Percent Owner
under this Section must continue to be distributed, even if the Participant
ceases to be a Five Percent Owner in a subsequent year.
(B) for Non-Five Percent Owners:
-----------------------
(1) Participants who are not Five Percent Owners,
---------------------------------------------
but who attain age seventy and one-half (70 1/2) prior to January 1, 1996. The
- -------------------------------------------------------------------------
first day of April of the calendar year following the calendar year in which the
Participant attains age seventy and one-half (70 1/2).
-43-
<PAGE>
(2) Participants who are not Five Percent Owners and
------------------------------------------------
who attain age seventy and one-half (70 1/2) between January 1, 1996 and
- ------------------------------------------------------------------------
December 31, 1998. The first day of April of the calendar year following the
- -----------------
calendar year in which the later of attainment of age seventy and one-half (70
1/2) or the Participant's Severance Date occurs; provided, however, that an
Employee whose Severance Date has not occurred may irrevocably elect, in
writing, to defer distribution until that Employee's Severance Date.
(3) Participants who are not Five Percent Owners and
------------------------------------------------
who attain age seventy and one-half (70 1/2) after December 31, 1998. The date
- --------------------------------------------------------------------
on which occurs the Participant's Severance Date.
(b) General Rules.
-------------
(i) Subject to Section 6.8 and any applicable Appendix, the
requirements of this Section shall apply to any distribution of a Participant's
interest and will take precedence over any inconsistent provision of this Plan.
(ii) All distributions required under this Section shall be
determined and made in accordance with the proposed Regulations under Code
Section 401(a)(9), including the minimum distribution incidental benefit
requirement of proposed Regulation Section 1.401(a)(9)-2.
(iii) If a Participant dies after payments have begun, then his
or her remaining vested Account balance, if any, must be distributed to his or
her Beneficiary at least as rapidly as under the method of distribution elected
by the Participant.
(iv) If the Participant dies before distribution of his or her
interest begins, distribution of the Participant's entire interest shall be
completed by December 31 of the calendar year containing the fifth (5th)
anniversary of the Participant's death except to the extent that an election is
made to receive distributions in accordance with paragraphs (A) or (B) below:
(A) if any portion of the Participant's interest is
payable to a Beneficiary, then distributions may be made over the life or over a
period certain not greater than the Life Expectancy of the Beneficiary
commencing on or before December 31 of the calendar year immediately following
the calendar year in which the Participant died;
(B) if the Beneficiary is the Participant's Surviving
Spouse, then the date distributions are required to begin in accordance with
paragraph (A) above shall not be earlier than the later of (1) December 31 of
the calendar year immediately following the calendar year in which the
Participant died, and (2) December 31 of the calendar year in which the
Participant would have attained age seventy and one-half (70 1/2).
If the Participant has not made an election pursuant
to this paragraph (B) by the time of his or her death, the Participant's
Beneficiary must elect the method of distribution no later than the earlier of
(1) December 31 of the calendar year in which distributions would be required to
begin under this Section, or (2) December 31 of the calendar year which
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<PAGE>
contains the fifth (5th) anniversary of the date of death of the Participant. If
the Participant has no Beneficiary, or if the Beneficiary does not elect a
method of distribution, then distribution of the Participant's entire interest
must be completed by December 31 of the calendar year containing the fifth (5th)
anniversary of the Participant's death.
For purposes of this paragraph (iv), if the Surviving
Spouse dies after the Participant, but before payments to such Surviving Spouse
begin, the provisions of paragraph (iv), with the exception of paragraph (B)
herein, shall be applied as if the Surviving Spouse were the Participant.
(v) For the purposes of this Section, distribution of a
Participant's interest is considered to begin on the Participant's Required
Beginning Date (or, if paragraph (B) above is applicable, the date distribution
is required to begin to the Surviving Spouse pursuant to paragraph (A) above).
If distribution in the form of an annuity (pursuant to an Appendix attached
hereto) irrevocably commences to the Participant before the Required Beginning
Date, the date distribution is considered to begin is the date distribution
actually commences.
(vi) As of any subsequent valuation date, the Administrator,
with the consent of the Participant (or, if applicable, his or her Beneficiary),
may cause the amount then credited to the Account of the Participant to be paid
in a lump sum.
(c) Required Beginning Date. The entire interest of a Participant
-----------------------
shall be distributed or begin to be distributed no later than the Participant's
Required Beginning Date regardless of whether the Participant specified a
contrary commencement date in his or her written election.
(d) Limits on Distribution Periods. As of the first distribution
------------------------------
calendar year, distributions, if not made in a single-sum, shall only be made
over one of the following periods (or a combination thereof):
(i) the life of the Participant;
(ii) the life of the Participant and a Designated Beneficiary;
(iii) a period certain not extending beyond the Life Expectancy
of the Participant; or
(iv) a period certain not extending beyond the joint and last
survivor expectancy of the Participant and a Designated Beneficiary.
(e) Determination of Amount to be Distributed Each Year. If the
---------------------------------------------------
Participant's interest is to be distributed in a form other than a single sum,
then the following minimum distribution rules shall apply on or after the
Required Beginning Date:
-45-
<PAGE>
(i) Individual Account.
------------------
(A) If a Participant's Benefit is to be distributed over
(1) a period not extending beyond the Life Expectancy of the Participant or the
joint life and last survivor expectancy of the Participant and the Participant's
Designated Beneficiary, or (2) a period not extending beyond the Life Expectancy
of the Designated Beneficiary, then the amount required to be distributed for
each calendar year, beginning with distributions for the first Distribution
Calendar Year, shall be at least equal to the quotient obtained by dividing the
Participant's Benefit by the Applicable Life Expectancy.
(B) The amount to be distributed each year, beginning
with distributions for the first Distribution Calendar Year shall not be less
than the quotient obtained by dividing the Participant's Benefit by the lesser
of (1) the Applicable Life Expectancy, or (2) if the Participant's Spouse is not
the Designated Beneficiary, the applicable divisor determined from the table set
forth in Q&A-4 of proposed Regulation Section 1.401(a)(9)-2. Distributions after
the death of the Participant shall be distributed using the Applicable Life
Expectancy in paragraph (A) above as the relevant divisor without regard to
proposed Regulation Section 1.401(a)(9)-2.
(C) The minimum distribution required for the
Participant's first Distribution Calendar Year shall be made on or before the
Participant's Required Beginning Date. The minimum distribution for other
Distribution Calendar Years, including the minimum distribution for the
Distribution Calendar Year in which the Employee's Required Beginning Date
occurs, shall be made on or before December 31 of that Distribution Calendar
Year.
(ii) Other Forms. If the Participant's Benefit is distributed
-----------
in the form of an annuity purchased from an insurance company, distributions
thereunder shall be made in accordance with the requirements of Code Section
401(a)(9) and the proposed Regulations thereunder. Any Annuity Contract from
this Plan (as defined in Appendix A) shall be nontransferable.
6.13 Distribution to Minor or Incompetent. If any individual to whom a
------------------------------------
benefit is payable under the Plan is a minor, or if the Administrator determines
that any individual to whom a benefit is payable under the Plan is incompetent
to receive such payment or to give a valid release thereof, then the
Administrator may direct that such distribution be paid to the legal guardian,
or if none, to a parent of such minor or incompetent, or a responsible adult
with whom the minor or incompetent resides, or to a custodian for a minor under
the Uniform Transfers to Minors Act (or other statutes of similar import), if
permitted by the laws of the state in which the minor or incompetent resides.
Payment to the legal guardian, parent or custodian of a minor Beneficiary shall
fully discharge the Trustee, Administrator and Plan from liability on account
thereof.
6.14 Beneficiary Designation. If the Participant is married, the
-----------------------
Beneficiary shall be the Participant's Surviving Spouse and no written
designation is required. However, a Participant may designate a Beneficiary
other than the Participant's Spouse; provided, however: (a) the Participant's
Spouse consents in writing to such designation and to the form thereof (on a
form acceptable to the Administrator); (b) such Beneficiary designation may not
be changed without Spousal Consent (or
-46-
<PAGE>
the consent of the Spouse expressly permits changes in the beneficiary
designation by the Participant without any requirement of further consent by the
Spouse); and (c) the Spouse's consent acknowledges the effect of such
Beneficiary designation and is witnessed by a Plan representative or a notary
public. Such Spousal Consent shall not be required if it is established to the
satisfaction of the Administrator that the consent required under the preceding
sentence cannot be obtained because there is no Spouse, the Spouse cannot be
located, or such other circumstances as the Secretary of the Treasury may by
Regulations prescribe. If, at the time of the Participant's death, the
Participant has no Surviving Spouse or designated Beneficiary, then the
Beneficiary shall be the individual representative of the Participant's estate.
A Participant's Beneficiary shall be bound by the terms and conditions of the
Plan.
6.15 Spousal Consent.
---------------
(a) Requirement of Consent. Each Participant shall obtain the consent
----------------------
of his or her Spouse, if any ("Spousal Consent"), to an in-service withdrawal,
beneficiary designation, loan, and/or distribution. Spousal Consent shall not be
required if the Participant establishes to the satisfaction of the Administrator
that the consent of the Spouse cannot be obtained because there is no Spouse or
the Spouse cannot be located. The consent of the Participant's Spouse shall not
be required to the extent that a distribution is required to satisfy Code
Section 401(a)(9) or 415. A Spouse's consent shall not be valid with respect to
any other Spouse.
(b) Form of Consent.
---------------
(i) Spousal Consent shall be made in writing and witnessed by
a Plan representative or notary public. The Spouse shall have the right, which
can be waived, to limit his or her consent only to a specific form of
distribution or withdrawal, beneficiary designation, or loan. If the Spouse
elects to waive his or her right to any of the above, then the Spouse shall
acknowledge the effect of such waiver, including that: (A) the Spouse had the
right to limit his or her consent; (B) the Spouse voluntarily waived this right;
and (C) the Spouse understands the effect such consent has upon any benefits
otherwise payable to him or her under the Plan.
(ii) Unless the consent of the Spouse expressly permits the
Participant to elect any and all future distributions, withdrawals, loans, or
beneficiary designations without a requirement of further consent by that
Spouse, then the Spouse's consent shall be limited to that specific election.
Spousal Consent may be revoked at any time prior to the date on which a
distribution is actually made.
(c) Timing of Consent. Spousal Consent to an in-service withdrawal,
-----------------
loan or distribution shall be made within the ninety (90) days preceding the
date of the in-service withdrawal, loan or distribution.
6.16 Location of Participant or Beneficiary Unknown. If a Participant or
----------------------------------------------
Beneficiary who is entitled to a distribution cannot be located and the
Administrator has made reasonable efforts to locate the Participant or
Beneficiary, then the Participant's or Beneficiary's interest shall be forfeited
and used: first, to restore any amounts previously forfeited under this Section;
-----
second, to
- ------
-47-
<PAGE>
pay administrative expenses of the Plan for the Plan Year in which the
forfeiture occurs; third, to offset the Employer's obligation to make Employer
-----
Mandatory Contributions for the Plan Year in which the forfeiture occurs; and
fourth, to allocate as Employer Matching Contributions for the Plan Year in
- ------
which the forfeiture occurs. If the Participant or Beneficiary makes a written
claim for the Account subsequent to the forfeiture, then the Employer shall
cause the Account to be reinstated.
6.17 Hardship Distributions.
----------------------
(a) Upon hardship of a Participant, the Trustee shall, upon the
direction of the Administrator, make a distribution from the Participant's
Rollover Contributions Account, Salary Deferral Contributions Account (not
including earnings) and Employer Matching Contributions Account, in that order.
A Participant shall be entitled to a hardship distribution only if the
distribution is both (i) made on account of an immediate and heavy financial
need of the Participant (as defined in paragraph (b)), and (ii) is necessary to
satisfy such financial need (as defined in paragraph (c)). The Participant shall
furnish the Administrator with satisfactory proof that the hardship distribution
meets the requirements of paragraphs (b) and (c).
(b) An immediate and heavy financial need shall be deemed to include
any one or more of the following:
(i) expenses incurred or necessary for medical care described
in Code Section 213(d) for the Participant, his or her Spouse, or any dependents
of the Participant (as defined in Code Section 152);
(ii) costs (excluding mortgage payments) relating to the
purchase of a principal residence for the Participant;
(iii) payment of tuition, related educational fees and room and
board expenses, for up to the next twelve (12) months of post-secondary
education for the Participant, his or her Spouse, children, or dependents (as
defined in Code Section 152); or
(iv) payments necessary to prevent the eviction of the
Participant from his or her principal residence or foreclosure on the mortgage
or deed of trust on that principal residence.
(c) A distribution shall be considered as necessary to satisfy an
immediate and heavy financial need of the Participant only if:
(i) the Participant has obtained all distributions, other than
hardship distributions, and all nontaxable loans under all plans maintained by
the Employer;
(ii) the Participant is prohibited from making Salary Deferral
Contributions to this Plan for twelve (12) months after the receipt of the
hardship distribution. In addition, the Participant must agree to stop making
elective contributions and employee contributions to all other plans of the
Employer (to the extent permissible under the terms of such plan) for at least
twelve (12) months after receipt of the hardship distribution;
-48-
<PAGE>
(iii) the distribution is not in excess of the amount of an
immediate and heavy financial need (including amounts necessary to pay any
federal, state or local income taxes or penalties reasonably anticipated to
result from the distribution); and
(iv) all plans maintained by the Employer limit the
Participant's elective contributions for the taxable year immediately following
the taxable year of the hardship distribution to the applicable limit under Code
Section 402(g) for such taxable year, less the amount of such Participant's
elective contributions for the taxable year of the hardship distribution.
(d) A Participant shall be required to obtain Spousal Consent prior
to receiving a hardship distribution.
(e) If a Participant receives a distribution under this Section from
his or her partially vested Employer Matching Contributions Account, at any
relevant time following the hardship distribution, the Participant's vested
interest in his or her Employer Matching Contributions Account shall be
calculated in accordance with the following formula: X = P (AB + D) - D. For
purposes of the formula in the preceding paragraph, "P" is the Participant's
current vesting percentage at the relevant time, "AB" is the value of the
Participant's Employer Matching Contributions Account at the relevant time, and
"D" is the amount of the distribution.
6.18 Loans.
-----
(a) The Administrator may direct the Trustee to make loans to
Participants who are Employees and/or Beneficiaries who are parties in interest
(as defined in ERISA Section 3(14)), provided that:
(i) such loans are available to all such Participants and
Beneficiaries on a reasonably equivalent basis;
(ii) such loans are not made available to Highly Compensated
Employees, officers or shareholders in an amount greater than the amount made
available to other Employees;
(iii) such loans bear a reasonable rate of interest;
(iv) such loans are adequately secured; and
(v) a Participant's or Beneficiary's aggregate outstanding
loans shall not exceed the lesser of (A) fifty percent (50%) of the present
value of the Participant's or Beneficiary's vested Account, or (B) Fifty
Thousand Dollars ($50,000) (reduced by the excess, if any, of (1) the highest
principal amount of the aggregate outstanding loans at any time during the
immediately preceding twelve (12) months, over (2) the aggregate principal
amount outstanding under such loans on the date the new loan is made.)
(b) A Participant shall obtain Spousal Consent in order to use his or
her Account balance as security for the loan.
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<PAGE>
(c) In the event of default, foreclosure on the note and attachment
of security shall not occur until a distributable event occurs under the Plan.
(d) Notwithstanding any contrary provision of this Plan, the portion
of the Participant's vested Account balance used as a security interest held by
the Plan by reason of a loan outstanding to the Participant shall be taken into
account for purposes of determining the amount of the Account balance payable at
the time of distribution, but only if the reduction is used as repayment of the
loan. If less than one hundred percent (100%) of the Participant's vested
Account balance (determined without regard to the preceding sentence) is payable
to the Surviving Spouse, then the Account balance shall be adjusted by first
-----
reducing the vested Account balance by the amount of the security used as
repayment of the loan, and then determining the benefit payable to the Surviving
----
Spouse.
(e) All such loans shall be subject to ERISA, the Code, and such
terms and conditions not inconsistent therewith (and subject to this Section) as
determined by the Administrator.
(f) The Administrator shall adopt written policies and guidelines
which establish and detail the terms of Plan loans hereunder, and which shall be
deemed a part of this Plan. Such policies and guidelines may be amended by the
Administrator from time to time.
6.19 In-Service Withdrawals at and After Age Fifty-Nine and One-Half (59
-------------------------------------------------------------------
1/2).
----
(a) A Participant may, once in every twelve (12)-consecutive-month
period, withdraw all or a portion of the vested portion of his or her Accounts
(excluding amounts held in the Participant's Pension Plan Account and FaAA Plan
Account, if any) at any time subsequent to attainment of age fifty-nine and one-
half (59 1/2); provided, however, that the Participant shall obtain Spousal
Consent for such withdrawal.
(b) If a Participant receives a distribution under this Section from
his or her partially vested Employer Mandatory Contributions Account, and/or
Employer Matching Contributions Account at any relevant time following the
distribution, the Participant's vested interest in his or her Employer Mandatory
Contributions Account and/or Employer Matching Contributions Account shall be
calculated in accordance with the following formula: X = P (AB + D) - D. For
purposes of this formula, "P" is the Participant's current vesting percentage at
the relevant time, "AB" is the value of the Participant's Employer Matching
Contributions Account and/or Employer Mandatory Contributions Account at the
relevant time, and "D" is the amount of the distribution.
6.20 Form of Distribution. Distributions shall be in the form of cash,
--------------------
except as otherwise provided in the Appendices attached hereto.
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<PAGE>
ARTICLE VII
-----------
ADMINISTRATION
--------------
7.1 Allocation of Administrative Responsibilities. The Plan shall be
---------------------------------------------
administered by the Administrator and the Committee, as constituted in
accordance with Section 7.6. The Administrator and the Committee shall
administer the Plan in accordance with its terms, solely in the interests of
Participants and their Beneficiaries, and for the exclusive purposes of
providing benefits to Participants and their Beneficiaries (and for defraying
the reasonable expenses of administering the Plan).
7.2 Powers and Duties of the Administrator. The Administrator shall have
--------------------------------------
all the powers, duties and responsibilities necessary or appropriate to
administer the Plan (other than powers, duties and responsibilities specifically
reserved to the Committee), including without limitation, the following powers
and duties:
(a) to determine all issues relating to the eligibility of Employees
to become Participants, provided that any determination shall be subject to
review pursuant to Section 7.3(h);
(b) to compute and certify to the Trustee the amount of each Company
Contribution payable to the Trust on behalf of Participants;
(c) to interpret the Plan with respect to the calculation of
contributions on behalf of Participants (including determining Hours of Service,
Compensation, and Years of Service and the allocation of Contributions pursuant
to Section 4.3);
(d) to compute and certify to the Trustee the amount and forms of
benefits payable to Participants or their Beneficiaries;
(e) to direct disbursements by the Trustee from the Trust;
(f) to establish and communicate a funding policy to the Trustee and
any Investment Manager appointed pursuant to Section 7.3(b) which will enable it
to comply with the provisions of the Plan.
(g) to make and publish rules for the administration of the Plan as
are not inconsistent with the provisions of the Plan and the policies
established by the Committee or Trustee in those areas where the Committee or
Trustee has exclusive responsibility;
(h) to assist the Company in complying with the reporting and
disclosure requirements of ERISA, including (but not limited to) preparing for
filing by the Company annual reports with the applicable government agencies,
furnishing summary annual reports to Participants, and assisting the Trustee in
the preparation of any tax returns required for the Trust and tax reporting
forms required in connection with distributions to Participants; and
-51-
<PAGE>
(i) to do all other things necessary or convenient to effect the
intent and purposes, whether or not such powers and duties are specifically set
forth in the Plan; provided, however, that such powers and duties shall not
infringe upon any power, duty or responsibility specifically reserved to the
Committee.
7.3 Powers and Duties of the Committee. The Committee shall have all the
----------------------------------
powers, duties and responsibilities necessary to administer the Plan (other than
powers, duties and responsibilities specifically reserved to the Administrator)
including, without limitation, the following:
(a) to direct the Trustee, in accordance with Article IX, as to the
establishment of investment funds and the investment of the Plan assets held in
the investment funds, and to establish rules or procedures regarding the terms
and conditions under which Participants may select among the investment funds;
(b) to appoint one or more "Investment Manager(s)" (as defined in
ERISA Section 3(38));
(c) to employ or engage such agents and Employees, investment
counsel, legal counsel and accountants, and to procure or obtain such supplies
and services as the Committee may require in carrying out the provisions of this
Plan;
(d) to make and publish rules for the administration of the Plan as
are not inconsistent with the provisions of the Plan and the policies
established by the Administrator or Trustee in those areas where the
Administrator or Trustee has exclusive responsibility;
(e) from time to time advise and consult with the Administrator with
respect to its exercise of the powers and duties delegated to it pursuant to
Section 7.2;
(f) from time to time advise and consult with the Company with
respect to its exercise of the powers and duties reserved to it pursuant to the
terms of the Plan;
(g) at least annually, to report to the Participants with respect to
such matters as the Committee deems appropriate regarding the administration and
investments of the Plan or the performance of its duties and responsibilities
under the Plan;
(h) to establish a claims review procedure, and to review and decide
all appeals of benefit claim denials or other decisions rendered by the
Administrator pursuant to Sections 7.2(a) and 13.3, and
(i) to interpret the Plan (except to the extent such power is
specifically reserved to the Administrator) and the Trust Agreement; and any
such interpretation shall, to the extent permitted by ERISA Section 502(a), be
binding upon the Administrator, the Company, the Trustee, all active, inactive,
former, retired or terminated Participants, their Beneficiaries, the successors,
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<PAGE>
assigns, heirs and personal representatives of all of them, and every other
person directly or indirectly interested in the Plan.
7.4 Discretion of the Administrator and the Committee. Subject to Article
-------------------------------------------------
VII and the allocation of duties under the Plan, the Administrator and the
Committee shall have, as provided in Section 7.2 and 7.3 respectively, the sole
and absolute discretion to construe and interpret the provisions of the Plan,
and any issue arising out of, relating to, or resulting from the administration
or operation of the Plan. Any interpretation and/or construction by the
Administrator and/or the Committee shall be final and binding on all parties
(including, without limitation, any Participating Employer, Participant,
Beneficiary or their successors or assigns). When making a determination or
calculation, the Administrator and/or the Committee shall, in their sole and
absolute discretion, be entitled to rely upon information furnished by the
Participating Employer, third party administrators, vendors, Participants,
Beneficiaries, or other persons.
7.5 Reallocation or Delegation of Responsibility. The Administrator and,
--------------------------------------------
by a unanimous vote of all Members, the Committee may agree to reallocate among
them any of the duties, powers or responsibilities initially allocated to either
of them under the terms of the Plan. The Administrator or the Committee may
delegate to any other person or persons (including, but not limited to, one or
more designated Members) the authority to discharge or carry out their duties,
powers or responsibilities. Any such reallocation or designation must comply
with ERISA Section 404(a)(1).
7.6 Committee Appointment and Governance.
------------------------------------
(a) Establishment and Indemnification. The Administrator has
---------------------------------
established the Committee to discharge some of the duties of the Administrator
under the Plan. The Committee and each of its members shall be indemnified by
the Employer to the extent set forth in Section 15.2.
(b) Appointment. The Committee shall consist of four (4) members
-----------
(each a "Member"). In accordance with this Section 7.6, the Company shall
appoint two (2) Members, Member A, and Member B and the Participants shall elect
two (2) Members, Member C and Member D. (Members A, B, C and D shall
collectively be referred to as the "Members".) Member A shall serve as the Chair
of the Committee. Only Employees shall be eligible to serve as Members of the
Committee.
(c) Participant Elections of Member C and Member D. Only Participants
----------------------------------------------
who are Employees shall be eligible to vote. For purposes of electing Member C,
each Participant shall be entitled to cast one vote. For purposes of electing
Member D, each Participant shall be entitled to cast votes equal to the number
of dollars credited to his or her Account, calculated as of the last day of the
Plan Year preceding the date of the election.
(d) Resignation, Vacancies and Removal. Any Member may resign at any
----------------------------------
time by giving written notice of his or her resignation to the Company and the
other Members.
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<PAGE>
(i) A vacancy with respect to Member A or Member B shall be
filled in accordance with paragraph (b) above. A vacancy with respect to Member
C or Member D shall be filled in accordance with paragraph (e) below.
(ii) Members A and B shall serve as Members until they resign
or are removed by the Company. The Company may remove Member A or B at any time
for any reason by filing written notice of such removal with the Committee.
(iii) The initial term of Member C shall be two (2) years,
thereafter, Member C shall serve for a period of four (4) years. Member D shall
serve for a period of four (4) years. Prior to the expiration of their
respective terms, Member C and Member D may be removed upon the written petition
of a majority of the Participants then entitled to elect a successor Member C or
Member D as provided in paragraph (c) and (e), which removal shall be effective
as of the seventh (7th) day following the certification of the results of the
election of the successor.
(iv) In the case of any petition for the removal of Member C or
Member D, the petition for removal shall be presented to the Committee. The
effectiveness of the petition, the persons entitled to sign their names thereon
and the number of votes entitled to be cast by Participants shall be determined
by the non-affected Members in accordance with paragraph (e) below. Any
Participant or Member may examine the petition and request a review of such
determination within five (5) days thereof. Such review shall be made by a
majority vote of the non-affected Members.
(e) Election Procedures. In the event of the death, incapacity,
-------------------
removal, resignation or upon the expiration of the term of service of Member C
or Member D, his or her successor shall be elected under the following
procedure:
(i) The non-affected Members shall certify the effectiveness
of any resignation or petition for the removal of such Member, or the
incapacity, death or expiration of the term of service of the Member. The
Committee shall thereupon give notice that a vacancy exists in the office of
such Member by prominently posting written notice thereof at places customarily
used by the Company for employer-employee notices. Any Participant eligible to
vote in the election of the Member may place a name in nomination by notifying
the Committee in writing within ten (10) days of the date on which such notice
is posted. At the expiration of such ten (10) day period, the Committee shall
prepare a ballot in such form as it shall deem appropriate containing the names
of each person who has been nominated and who has indicated to the Committee his
or her willingness to serve as a Member; provided, however, that the Committee
shall not place on the ballot the name of any person who is prohibited from
serving under ERISA Section 411 or any other provision of applicable law or of
the Plan or the Trust Agreement. The Committee may require any individual who
desires to serve as a Member to furnish such information as it may reasonably
require in order to satisfy the requisites of the preceding sentence.
(ii) The Committee shall distribute the ballots to those
Participants eligible to vote either by personal delivery or by first class mail
addressed to the Participant's last known address. The ballot shall include a
statement stating the location where ballots will be received and
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<PAGE>
the deadline for casting ballots. The deadline shall be a date selected by the
Committee which falls not less than ten (10) nor more than fifteen (15) days
after the date of distribution. In the case of ballots distributed by mail,
distribution shall be deemed to occur on the date of mailing. A ballot shall be
deemed to be cast on the date and at the time of its actual receipt by the
Committee at the location designated on the ballot.
(iii) Votes shall be credited in the manner specified in
paragraph (c) above. The candidate receiving the largest number of votes cast
shall be the winner. There shall be no run-off except in the case of a tie vote.
Votes may be cast only for candidates whose names appear on the ballot. Votes
for any write-in candidate shall be disregarded.
(iv) In the event that elections for the office of Member C and
Member D are being held concurrently, an individual may be a candidate for both
offices. In the event that such an individual receives the largest number of
votes cast for both offices, the individual shall be deemed to be elected to
serve as Member D and the candidate for Member C who received the next highest
number of votes shall be deemed elected to serve as Member C.
(v) The non-affected Members shall certify to the remaining
Member(s) the results of such election, as soon as is reasonably possible
thereafter, and the successor Member(s) shall commences serving seven (7) days
after such certification is received.
(f) Committee Voting. Any action of the Committee shall be
----------------
determined by vote or other affirmative expression of a majority of its Members.
However, no Member shall vote on any question in which he or she has any direct
or indirect interest, unless such direct or indirect interest results merely
from his or her being a Participant in the Plan and is not materially different
from the interest that other Participants in the Plan have in the question. In
the event that any vote shall result in a tie, such tie shall be broken by the
decision of Member A.
(g) Amendment Restrictions. Without the written consent of both
----------------------
Members C and D, the Company (1) shall have no power to amend or modify the
provisions of this Section 7.6 or Section 7.3 or 7.4, and (2) shall not cause or
permit account balances maintained under this Plan to be transferred to or
merged with any other plan, program, fund or arrangement (whether or not tax-
qualified) of the Company or any related company, unless the portion of the
successor plan that consists of the transferred or merged accounts is subject to
restrictions that are identical (except for appropriate section numbering and
cross-reference changes) to those imposed by the Sections listed in paragraph
(a) above.
7.7 Domestic Relations Orders.
-------------------------
(a) Definitions.
-----------
(i) Alternate Payee. "Alternate Payee" means any Spouse,
---------------
former Spouse, child or other dependent (within the meaning of Code Section 152)
of a Participant who is recognized by a Domestic Relations Order as having a
right to receive any immediate or deferred payment of all or a portion of the
balance credited to a Participant's Account under the Plan.
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(ii) Domestic Relations Order or Order. "Domestic Relations
---------------------------------
Order" or "Order" means 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.
(iii) Qualified Domestic Relations Order. "Qualified Domestic
----------------------------------
Relations Order" means any Domestic Relations Order that meets the following
requirements:
(A) such Order establishes (or otherwise recognizes the
existence of) the right of an Alternate Payee to receive all or a portion of the
vested balance credited to a Participant's Account under the Plan;
(B) such Order specifies (1) the name and last known
mailing address of the Participant, (2) the name and last known mailing address
of each Alternate Payee covered by such Order, (3) the amount or percentage of
the Participant's vested account balance under the Plan payable to each such
Alternate Payee or the manner in which such amount or percentage is to be
calculated, and (4) any other requirement set forth in ERISA Section 206(d)(3)
or Code Section 414(p); and
(C) such Order does not require the Plan to (1) provide any
type or form of benefit or option not otherwise available to the Participant
under the Plan, (2) provide increased benefits not otherwise payable to the
Participant under the Plan, or (3) 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 with respect to the Participant's
Account under the Plan.
(b) Notification. Upon receipt of a Domestic Relations Order, the
------------
Administrator shall promptly notify the affected Participant and each 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 such Participant and Alternate Payee of his or 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 or her
representative) of such determination.
(c) 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.
(d) Payment.
-------
(i) During the period in which the qualified status of a
Domestic Relations Order is pending, the Administrator shall defer the payment
of all Plan benefits affecting
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the Participant which are in dispute and shall separately account for all
amounts which would otherwise be payable to the Alternate Payee (the "Segregated
Amounts") during such period were the Order determined to be a Qualified
Domestic Relations Order.
(ii) If the Administrator determines, within eighteen (18)
months after the date the first payment to the Alternate Payee would otherwise
be required to be made pursuant to the terms of the Order, that such Order is a
Qualified Domestic Relations Order, then the Administrator shall establish a
separate Account to hold the Segregated Amounts (including any Earnings thereon)
on behalf of such Alternate Payee and such Alternate Payee shall then be treated
as a Participant for purposes of such Account. To the extent such Qualified
Domestic Relations Order provides for the payment of the entire balance of the
Segregated Amounts (including any Earnings thereon) to the Alternate Payee prior
to the Participant's Severance Date, then the Administrator shall make such
payment in accordance with such Order, even though the affected Participant's
Severance Date has not occurred. Such payment shall be made as if the
Participant's Severance Date occurred on the date on which benefits are to enter
pay status under the Order. Notwithstanding the foregoing, payment to the
Alternate Payee shall not be deferred beyond the date distribution to the
Participant or (in the event of death) his or her Beneficiary is made or
commenced.
(iii) If the Administrator determines, within such eighteen (18)
month period under paragraph (ii) 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 Amounts (including
any Earnings thereon) to the individual or individuals who would have been
entitled to receive such Segregated Amounts under the Plan had the Order not
been issued. If such individual is the Participant, then the previously
Segregated Amounts shall remain part of the Trust and shall not be distributed
until the Participant becomes entitled to benefits under the Plan in accordance
with the provisions of Article VI or any applicable Appendix. 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.
(e) Hold Procedures. Notwithstanding any contrary Plan provision,
---------------
prior to the receipt of a Domestic Relations Order, the Administrator may, place
a hold (as defined below) upon such portion of a Participant's Account, at such
time and for such reasonable period of time as the Administrator may determine,
if the Administrator receives notice that (1) a Domestic Relations Order is
being sought by the Participant, his or her Spouse, former Spouse, child or
other dependent (within the meaning of Code Section 152), and (2) the
Participant's Account is likely to be a source of payment under such Order. For
purposes of this paragraph, a "hold" means that no withdrawals, loans or other
distributions may be made with respect to a Participant's Account. The
Administrator shall notify a Participant if a hold is placed upon his or her
Account pursuant to this paragraph.
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ARTICLE VIII
------------
LEAVES OF ABSENCE AND TRANSFERS
-------------------------------
8.1 Military Leave of Absence. An Employee who leaves the employment of
-------------------------
the Employer for military service in the Armed Forces of the United States, as
defined in the Uniformed Services Employment and Reemployment Rights Act of 1994
("USERRA"), shall, for all purposes of the Plan, be considered as having been in
the employment of the Employer, with the time of the Participant's service in
the military credited to his or her service under the Plan; provided, however,
that upon such Employee being discharged from the military service of the United
States, the Employee must apply for reemployment with the Employer and take all
other necessary action to be entitled to, and to be otherwise eligible for, re-
employment rights, as provided by USERRA or any similar law from time to time in
force. Notwithstanding any provision of this Plan to the contrary,
contributions, benefits and service credit with respect to qualified military
service shall be provided in accordance with Code Section 414(u).
8.2 Other Leaves of Absence. For all purposes of this Plan, an Employee
-----------------------
on an Employer-approved leave of absence not described in Section 8.1 shall be
considered as having continued in the employment of the Employer for the period
of such leave, provided that the Employee returns to the active employment of
the Employer before or at the expiration of such leave.
8.3 Transfers.
---------
(a) In the event that:
(i) a Participant is transferred to employment with an Employer
that is not a Participating Employer, or to employment with an Employer in a
status other than as an Eligible Employee;
(ii) an individual is transferred from employment with an
Employer that is not a Participating Employer or from other employment; an
individual is transferred from service with the Employer in a status other than
as an Eligible Employee to employment with the Employer as an Eligible Employee;
or
(iv) an individual was employed by an Employer that is not a
Participating Employer, terminated his or her employment and was subsequently
employed by the Employer as an Eligible Employee;
(b) then the following provisions shall apply:
(i) transfer to employment with: (A) an Employer that is not a
Participating Employer or (B) the Employer not as an Eligible Employee, shall
not be considered
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termination of employment with the Employer, and such transferred individual
shall continue to be entitled to the benefits provided in the Plan, as modified
by this Section;
(ii) any employment with an Employer which is not a
Participating Employer or with the Employer not as an Eligible Employee will be
deemed to be employment by the Employer;
(iii) no amounts earned from an Employer at a time when it is not
a Participating Employer or from the Employer not as an Employee shall
constitute Compensation hereunder;
(iv) no service for an Employer at a time when such individual
was not an Employee shall be counted for purposes of eligibility and vesting
hereunder, unless agreed to by the Company or required pursuant to a closing
agreement entered into by the Employer and the Internal Revenue Service;
(v) termination of employment with an Employer which is not a
Participating Employer by an individual entitled to benefits under this Plan
(other than to transfer to employment with another Employer) shall be considered
as termination of employment with the Employer; and
(vi) all other terms and provisions of this Plan shall fully
apply to such individual and to any benefits to which he or she may be entitled
hereunder.
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ARTICLE IX
----------
TRUST PROVISIONS
----------------
The Administrator may at any time select and appoint a Trustee to hold all
or a portion of the assets of the Trust, and the Company shall, on its behalf
and on behalf of all Participating Employers, enter into a Trust Agreement.
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ARTICLE X
---------
FEES AND EXPENSES
-----------------
All reasonable fees and expenses of the Administrator, the Committee and/or
the Trustee incurred in the performance of their duties hereunder or under the
Trust shall be charged against Participants' Accounts in such manner as the
Trustee reasonably determines, unless the Employer elects to pay such fees and
expenses.
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ARTICLE XI
----------
AMENDMENT, TERMINATION OR MERGER
--------------------------------
11.1 Amendment.
---------
(a) The Company shall have full power and authority to amend the
provisions of the Plan, subject to Section 7.6(g), for any reason, at any time,
either prospectively or retroactively, to such extent and in such manner as the
Company shall deem advisable, in accordance with its normally established
procedures. The Company may delegate such power, subject to Section 7.6(g), in
whole or in part, to one or more committees (comprised of officers or other
managerial personnel of the Employer) to whom administrative responsibilities
may be delegated under the Plan.
(b) The Board delegates to the Committee or any individual or
committee appointed by the Administrator the full power and authority to adopt
and to provide a certificate evidencing the execution of any amendment to the
Plan, subject to Section 7.6(g), which satisfies one of the following
requirements:
(i) the amendment is designed to clarify any provision of the
Plan;
(ii) the amendment is designed to bring the Plan into
compliance with applicable law;
(iii) the amendment is designed to ensure the continued tax-
qualified status of the Plan; or
(iv) the amendment does not have a significant financial impact
on the Employer.
(c) An amendment shall become effective, in accordance with its
terms as to all Participants and all other persons having or claiming an
interest under the Plan, upon the effective date specified in the instrument
evidencing such amendment. However, no such amendment shall operate to: (i)
cause any part of the Trust to revert to or be recoverable by the Employer or to
be used for, or diverted to, purposes other than the exclusive benefit of
Participants and their Beneficiaries (or for defraying the reasonable
administrative expenses of the Plan); (ii) reduce the then outstanding balances
in the Accounts of Participants; (iii) cause or effect any discrimination in
favor of Highly Compensated Employees; (iv) change the duties, responsibilities
or liabilities of the Trustee hereunder without the written consent of such
Trustee; or (v) affect, reduce or eliminate any benefits which are protected
benefits pursuant to Code Section 411(d)(6).
11.2 Termination. The Company may terminate this Plan at any time for any
-----------
reason by resolution adopted by the Board, but the Trust may not thereby be
diverted from the exclusive benefit of the Participants, their Beneficiaries,
survivors or estates (other than for defraying the reasonable administrative
expenses of the Plan), nor revert to the Employer, nor may any change be
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made to a previously allocated contribution. Upon termination or partial
termination of the Plan or complete discontinuance of Employer Contributions
under the Plan, the Accounts of each affected Participant shall be
nonforfeitable. The Administrator shall distribute each Participant's Accounts
to the Participant pursuant to Sections 6.8 through 6.11 as soon as
administratively feasible after the termination.
11.3 Merger.
------
(a) The Board delegates to the Administrator, or any individual or
committee appointed by the Administrator the full power and authority, subject
to Section 7.6(g), to effect from time to time, upon such terms and conditions
deemed appropriate, the merger of any and all tax-qualified defined contribution
plans and related tax-exempt trusts maintained by entities acquired by the
Company into the Plan and Trust and to take any and all such action, and
prepare, execute, and deliver all such documents as may be necessary or
advisable to effect any and all such plan and trust mergers.
(b) Except as otherwise provided in Section 7.6(g), nothing contained
herein shall prevent the merger or consolidation of the Plan with, or transfer
of assets or liabilities of the Plan to, another plan meeting the requirements
of Code Section 401(a) or the transfer to the Plan of assets or liabilities of
another such plan so qualified under the Code. Any such merger, consolidation or
transfer shall be accompanied by the transfer of such existing records and
information as may be necessary to properly allocate such assets among
Participants, including without limitation any tax or other information
necessary for the Participants or persons administering the plan which is
receiving such assets. The terms of such merger, consolidation or transfer must
be such that (if the Plan had then terminated), the requirements of this Article
would be satisfied and each Participant (or, if applicable, his or her
Beneficiary) would receive a benefit immediately after the merger, consolidation
or transfer equal to or greater than the benefit he or she would have received
if the Plan had terminated immediately before the merger, consolidation or
transfer. Notwithstanding any provision in this Plan to the contrary, any
amounts transferred to the Plan as a result of such merger, consolidation or
transfer shall, to the extent the benefits accrued under the transferor plan are
protected benefits under Code Section 411(d)(6) ("Protected Benefits"), be
preserved under this Plan, and shall not in any way be affected, reduced or
eliminated.
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ARTICLE XII
-----------
ADOPTION OF PLAN BY RELATED ENTITIES
------------------------------------
12.1 Adoption of the Plan. An Employer may become a Participating Employer
--------------------
with the approval of the Company.
12.2 Withdrawal. A Participating Employer may withdraw from the Plan at any
----------
time for any reason by giving advance written notice of its intention to
withdraw to the Company and to the Administrator. Upon receipt of such
withdrawal notice, the Trustee shall set aside from the Trust such cash,
securities and other property as it shall deem to be equal in value to the
Participating Employer's equitable share. If the Plan is to be terminated with
respect to the Participating Employer, then the amount set aside shall be
administered according to Article IX and the Trust Agreement. If the Plan is not
to be terminated with respect to the Participating Employer, then the Trustee
shall turn over the Participating Employer's equitable share to a trustee
designated by the Participating Employer, and the cash, securities and other
property shall thereafter be held and invested as a separate trust of the
Participating Employer and shall be used and applied according to the terms of a
new trust agreement between the Participating Employer and the trustee so
designated. Neither the segregation of the Trust assets upon the withdrawal of a
Participating Employer nor the execution of a new trust agreement shall operate
to permit any part of the assets of the Trust to be used for or diverted to
purposes other than for the exclusive benefit of Participants and Beneficiaries
(or for defraying the reasonable administrative expenses of the Plan).
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ARTICLE XIII
------------
CLAIMS PROCEDURE
----------------
13.1 Right to File Claim. Every Participant or Beneficiary shall be
-------------------
entitled to file with the Administrator a written claim for benefits under the
Plan.
13.2 Denial of Claim.
---------------
(a) If the claim is denied by the Administrator, in whole or in part,
the claimant shall be furnished within ninety (90) days after the
Administrator's receipt of the claim (or within one hundred eighty (180) days
after such receipt if special circumstances require an extension of time) a
written notice of denial of such claim containing the following:
(i) specific reason or reasons for denial;
(ii) specific reference to pertinent Plan provisions on which
the denial is based;
(iii) a description of any additional material or information
necessary for the claimant to perfect the claim, and an explanation of why the
material or information is necessary; and
(iv) an explanation of the claims review procedure.
(b) If written notice of the denial of such claim is not furnished
within the time period prescribed under paragraph (a), then the claim shall be
deemed denied.
13.3 Claim Review Procedure.
----------------------
(a) Review may be requested at any time within sixty (60) days
following the date the claimant received written notice of the denial of his or
her claim. For purposes of this Section, any action required or authorized to be
taken by the claimant may be taken by a representative authorized in writing by
the claimant to act on his or her behalf. The Administrator (or the Committee
for claims relating to the Employer Mandatory Contributions Account, the Pension
Plan Account or the FaAA Plan Account) shall afford the claimant a full and fair
review of the decision denying the claim and, if so requested, shall:
(i) permit the claimant to review any documents that are
pertinent to the claim; and
(ii) permit the claimant to submit to the Administrator (or, if
applicable, the Committee) issues and comments in writing.
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(b) The decision on review by the Administrator (or, if applicable,
the Committee) shall be in writing and shall be issued within sixty (60) days
following receipt of the request for review. The period for decision may,
however, be extended up to one hundred twenty (120) days after such receipt if
the Administrator (or, if applicable, the Committee) determines that special
circumstances require extension. The decision on review shall include specific
reasons for the decision and specific references to the pertinent Plan
provisions on which the decision of the Administrator (or, if applicable, the
Committee) is based.
(c) If the decision on review by the Administrator (or, if
applicable, the Committee) is not furnished within the time period prescribed
under paragraph (b), then the claim shall be deemed denied on review.
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ARTICLE XIV
-----------
TOP-HEAVY PROVISIONS
--------------------
14.1 Purpose. This Article is intended to insure that the Plan complies
-------
with Code Section 416. If the Plan is or becomes Top-Heavy in any Plan Year, the
provisions of this Article shall supersede any conflicting provision in the
Plan.
14.2 Definitions. For purposes of this Article, the following definitions
-----------
shall apply:
(a) Determination Date. "Determination Date" means for any Plan Year,
------------------
the last day of the preceding Plan Year.
(b) Determination Period. "Determination Period" means the Plan Year
--------------------
containing the Determination Date and the four (4) preceding Plan Years.
(c) Key Employee. "Key Employee" means any Employee or former
------------
Employee (and the Beneficiaries of such Employee) who at any time during the
determination period was (i) an officer of the Employer if such individual's
annual Section 415 Compensation exceeds fifty percent (50%) of the dollar
limitation in effect under Code Section 415(b)(1)(A); (ii) an owner (or
considered an owner under Code Section 318) of one of the ten (10) largest
interests in the Employer if such individual's Section 415 Compensation exceeds
one hundred percent (100%) of the dollar limitation in effect under Code Section
415(c)(1)(A); (iii) a five percent (5%) owner of the Employer; or (iv) a one
percent (1%) owner of the Employer who has an annual Section 415 Compensation of
more than One Hundred Fifty Thousand Dollars ($150,000). For purposes of this
Section, the determination of Section 415 Compensation shall be based only on
Section 415 Compensation which is actually paid. A determination of who
constitutes a Key Employee shall be made in accordance with Code Section
416(i)(1).
(d) Non-Key Employee. "Non-Key Employee" means any Employee who is
----------------
not a Key Employee, including Employees who are former Key Employees.
(e) Permissive Aggregation Group. "Permissive Aggregation Group"
----------------------------
means the Required Aggregation Group of plans, plus any other plan or plans of
the Employer which, when considered as a group with the Required Aggregation
Group, would continue to satisfy the requirements of Code Sections 401(a)(4) and
410.
(f) Required Aggregation Group. "Required Aggregation Group" means:
--------------------------
(i) each tax-qualified plan of the Employer in which at least
one (1) Key Employee participates or participated at any time during the
Determination Period (regardless of whether the plan has terminated); and
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(ii) any other tax-qualified plan of the Employer which enables
a plan described in paragraph (i) above to meet the requirements of Code Section
401(a)(4) or 410.
(g) Top-Heavy Plan. "Top-Heavy Plan" means this Plan, if for any Plan
--------------
Year any of the following conditions exists:
(i) if the Top-Heavy Ratio for this Plan exceeds sixty percent
(60%) and this Plan is not part of any Required Aggregation Group or Permissive
Aggregation Group of plans;
(ii) if this Plan is a part of a Required Aggregation Group of
plans but not part of a Permissive Aggregation Group and the Top-Heavy Ratio for
the Permissive Aggregation Group exceeds sixty percent (60%); or
(iii) if this Plan is a part of a Required Aggregation Group and
part of a Permissive Aggregation Group of plans and the Top-Heavy Ratio for the
Permissive Aggregation Group exceeds sixty percent (60%).
(h) Top-Heavy Ratio. "Top-Heavy Ratio" means:
---------------
(i) if the Employer maintains one or more defined contribution
plans (including any simplified employee pension plan) and the Employer has not
maintained any defined benefit plan which during the five (5) year period ending
on the Determination Date(s) has or has had accrued benefits, the Top-Heavy
Ratio for this Plan alone or for the Required or Permissive Aggregation Group as
appropriate is a fraction, the numerator of which is the sum of the Account
balances of all Key Employees as of the Determination Date(s) (including any
part of any Account balance distributed in the five (5) year period ending on
the Determination Date(s)), and the denominator of which is the sum of Account
balances (including any part of any Account balance distributed in the five (5)-
year period ending on the Determination Date(s)), both computed in accordance
with Code Section 416. Both the numerator and denominator of the Top-Heavy Ratio
are increased to reflect any contribution not actually made as of the
Determination Date, but which is required to be taken into account on that date
under Code Section 416.
(ii) if the Employer maintains one or more defined contribution
plans (including any simplified employee pension plan) and the Employer
maintains or has maintained one or more defined benefit plans which during the
five (5) year period ending on the Determination Date(s) has or has had any
accrued benefits, the Top-Heavy Ratio for any Required or Permissive Aggregation
Group as appropriate is a fraction, the numerator of which is the sum of Account
balances under the aggregated defined contribution plan or plans for all Key
Employees, determined in accordance with paragraph (i) above, and the present
value of accrued benefits under the aggregated defined benefit plan or plans for
all Key Employees as of the Determination Date(s), and the denominator of which
is the sum of Account balances under the aggregated defined contribution plan or
plans for all participants, determined in accordance with paragraph (i) above,
and the present value of accrued benefits under the defined benefit plan or
plans for all participants as of the Determination Date(s), all determined in
accordance with Code Section 416. The accrued benefits under a defined benefit
plan in both the numerator and denominator of the Top-Heavy Ratio are
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increased for any distribution of an accrued benefit made in the five (5)-year
period ending on the Determination Date.
(iii) for purposes of paragraphs (i) and (ii) above, the value of
Account balances and the present value of accrued benefits shall be determined
as of the most recent Valuation Date that falls within or ends with the twelve
(12) month period ending on the Determination Date, except as provided in Code
Section 416 for the first and second plan years of a defined benefit plan. The
Account balances and accrued benefits of a participant (1) who is not a Key
Employee but who was a Key Employee in a prior year, or (2) who has not been
credited with at least one (1) Hour of Service with any Employer maintaining the
Plan at any time during the five (5)-year period ending on the Determination
Date shall be disregarded. The calculation of the Top-Heavy Ratio, and the
extent to which distributions, rollovers, and transfers are taken into account
shall be made in accordance with Code Section 416. When aggregating plans, the
value of Account balances and accrued benefits shall be calculated with
reference to the Determination Dates that fall within the same calendar year.
The accrued benefit of a Participant other than a Key
Employee shall be determined under (1) the method, if any, that uniformly
applies for accrual purposes under all defined benefit plans maintained by the
Employer, or (2) if there is no such method, as if such benefit accrued not more
rapidly than the slowest accrual rate permitted under the fractional rule of
Code Section 411(b)(1)(C).
(i) Valuation Date. "Valuation Date" means the last day of the Plan
--------------
Year, as of which Account balances or accrued benefits are valued for purposes
of calculating the Top-Heavy Ratio.
14.3 Minimum Allocation.
------------------
(a) Except as otherwise provided in paragraphs (b) and (c) below, in
any Plan Year that the Plan is Top-Heavy, Employer Contributions (other than
Salary Deferral Contributions and Employer Matching Contributions included in
the ADP, ACP and multiple use tests described in Sections 5.5 and 5.7) allocated
to the Accounts of each Participant who is a Non-Key Employee, shall be not less
than the lesser of (i) three percent (3%) of the Non-Key Employee's Section 415
Compensation, or (ii) in the case where the Employer has no defined benefit plan
which designates this Plan to satisfy Code Section 401, the largest percentage
of Contributions and forfeitures (if applicable), as a percentage of the first
One Hundred Sixty Thousand Dollars ($160,000) (as adjusted by the Adjustment
Factor) of Section 415 Compensation, allocated on behalf of any Key Employee for
that Plan Year. The minimum allocation shall be determined without regard to any
Social Security contribution. This minimum contribution shall be made even
though, under other provisions of the Plan, the Participant would not otherwise
be entitled to receive an allocation or would have received a lesser allocation
for the Plan Year because of (i) the Participant's failure to complete one
thousand (1,000) Hours of Service (or any equivalent provided in the Plan) or
(ii) Section 415 Compensation less than a stated amount.
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(b) The provisions in paragraph (a) above shall not apply to any
Participant who was not employed by the Employer on the last day of the Plan
Year.
(c) The provisions in paragraph (a) above shall not apply to any
Participant to the extent the Participant is covered under any other plan or
plans of the Employer.
(d) The minimum allocation required (to the extent required to be
nonforfeitable under Code Section 416(b)) may not be forfeited under Code
Section 411(a)(3)(B) or (D).
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ARTICLE XV
----------
MISCELLANEOUS
-------------
15.1 Legal or Equitable Action. If any legal or equitable action with
-------------------------
respect to the Plan is brought by or maintained against any individual, and the
results of such action are adverse to that individual, attorney's fees and all
other direct and indirect expenses and costs incurred by the Participating
Employer, the Administrator, the Committee, or the Trust of defending or
bringing such action shall be charged against the interest, if any, of such
individual under the Plan.
15.2 Indemnification. Each Participating Employer indemnifies and holds
---------------
harmless any of its Employees, officers and directors who may be fiduciaries of
the Plan, and the Administrator and each member of the Committee, from and
against any and all direct and indirect liabilities, demands, claims, losses,
taxes, costs, and expenses, including reasonable attorney's fees, arising out
of, relating to, or resulting from any action, inaction or conduct in their
official capacity in the administration of this Plan or Trust, or in their
defense if a Participating Employer fails to provide such defense; provided,
however, that the Administrator or the Member shall not be indemnified and held
harmless if his or her action, inaction or conduct arises out of, related to, or
results from his or her gross negligence or willful misconduct, or otherwise is
in willful violation of the law. The indemnification provisions of this Section
shall not relieve any fiduciary from any liability such individual may have
under ERISA for breach of a fiduciary duty. Each Participating Employer may
purchase insurance to satisfy its obligations under this Section 15.2.
15.3 No Enlargement of Plan Rights. Each individual agrees, as a condition
-----------------------------
of participation in this Plan, that he or she shall look solely to the assets of
the Trust for the payment of any benefit under the Plan.
15.4 No Enlargement of Employment Rights. Nothing appearing in or done
-----------------------------------
pursuant to the Plan shall be construed to give any individual a legal or
equitable right or interest in the assets of the Trust or distribution therefrom
(except as expressly provided in the Plan), nor against any Participating
Employer (except as expressly provided herein), or to create or modify any
contract of employment between a Participating Employer and any Employee or to
obligate a Participating Employer to continue the services of any Employee.
15.5 Interpretation. The headings contained in this Plan or in an Appendix
--------------
hereto, and in the table of contents to the Plan are for reference purposes
only, and shall not affect in any way the meaning or interpretation of the Plan.
Any capitalized term used in any Appendix hereto, but not otherwise defined
therein, shall have the meaning assigned to such term in the Plan. The masculine
pronoun shall include the feminine pronoun or the singular the plural, where the
context so indicates.
15.6 Governing Law. This Plan shall be construed, administered and
-------------
governed in all respects in accordance with ERISA, the Code and other pertinent
Federal laws and, to the extent not preempted by ERISA, in accordance with the
laws of the State of California (irrespective of the choice of law principles of
the State of California as to all matters); provided, however, that if any
-71-
<PAGE>
provision is susceptible to more than one interpretation, such interpretation
shall be given thereto as is consistent with the Plan being a tax-qualified plan
and related tax-exempt trust under Code Sections 401(a) and 501(a),
respectively.
15.7 Non-Alienation of Benefits. None of the benefits, payments, proceeds
--------------------------
or claims of any Participant under the Plan shall be subject to any claim or any
creditor of any Participant, and, in particular, the same shall not be subject
to attachment or garnishment or other legal process by any creditor of any
Participant, nor shall any Participant have any right to alienate, anticipate,
commute, pledge, encumber or assign any of the benefits, payments or proceeds
which he ore she is or may be entitled to receive from the Plan, 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 Section 7.6;
(c) enforcement of any security interests or offset rights
applicable to the Account of a Participant pursuant to the loan provisions of
Section 6.18 or
(d) any offset of a Participant's Account under the Plan against an
amount the Participant is ordered to pay due to a judgement or settlement
described in Code Section 401(a)(13)(C).
15.8 No Reversion. Notwithstanding any contrary provision of the Plan
------------
(except as provided in Section 5.4), no part of the assets in the Trust shall
revert to the Employer, and no part of such assets, other than that amount
required to pay taxes or reasonable administrative expenses of the Plan, shall
be used for any purpose other than exclusive benefit of Employees or their
Beneficiaries. However, upon the Company's request, the Trustee shall return the
appropriate amount to a Participating Employer under any of the following
circumstances:
(a) the amount was all or part of an Employer Contribution which was
made as a result of a mistake of fact and the amount contributed is returned to
the Participating Employer within one (1) year after the date of the mistaken
payment; or
(b) the amount was all or part of an Employer Contribution which was
conditioned on its deductibility under Code Section 404 and this condition is
not satisfied, and the amount is returned to the Participating Employer within
one (1) year after the date on which the deduction was disallowed;
provided, however, any such excess amounts shall be reduced to the extent there
are negative Earnings attributable thereto.
15.9 Conflict. In the event of any conflict between the respective
--------
provisions of the Plan and the Trust Agreement relating to the rights,
obligations and duties of the Trustee, then the applicable provisions of the
Trust Agreement shall control. In all other cases, in the event of any
-72-
<PAGE>
conflict between the Plan and the terms of any contract or agreement issued
hereunder or with respect hereto, the Plan shall control.
15.10 Severability. If any provision of the Plan, or the application
------------
thereof to any individual or circumstance, is deemed invalid or unenforceable by
a court of competent jurisdiction, then the remainder of the Plan, or the
application of such term or provision to individuals or circumstances other than
those as to whom it is held invalid or unenforceable, shall not be affected
thereby, and each provision of the Plan shall be valid and enforceable to the
fullest extent permitted by law.
15.11 Conditional Restatement. This Plan is restated on the express
-----------------------
condition that it shall be considered by the Internal Revenue Service as
continuing to qualify under Code Sections 401(a), 401(k), 401(m) and 501(a). In
the event that the Internal Revenue Service determines that the Plan does not
continue to qualify under the Code, then the restatement of the Plan shall be of
no force or effect.
-73-
<PAGE>
EXECUTION PAGE
--------------
This Plan may be executed in counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
APPROVAL OF COMPANY
IN WITNESS WHEREOF, the Plan is hereby restated as of the Effective Date
and executed on this ___ day of December, 1999.
EXPONENT, INC.
By: ___________________________
Its: ___________________________
CONSENT OF COMMITTEE MEMBERS C AND D
IN WITNESS WHEREOF, the consent of Members C and D of the Committee, as
required by Section 3.2(B)(6) of the Pension Plan as in effect prior to its
merger with and into the Plan, and by Section 7.6(g) of the Plan, are hereby
given as of this ___ day of December, 1999, in order to approve the restated
Plan.
By: ___________________________
Committee Member C
By: ___________________________
Committee Member D
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<PAGE>
APPENDIX A
----------
GUIDELINES FOR ANNUITY FORMS OF DISTRIBUTION
The provisions of this Appendix A are intended to set forth the guidelines
for providing annuities as a form of distribution under the Plan. Annuities
shall only be offered to certain Participants (or Surviving Spouses or
Beneficiaries thereof, as applicable) to the extent required to comply with Code
Section 411(d)(6), as more specifically detailed in the subsequent Appendices.
A.1 Definitions.
-----------
For purposes of applying the provisions of the subsequent Appendices
(unless specified otherwise), as applicable, the following definitions shall be
in effect:
(a) Annuity Contract. "Annuity Contract" means a paid-up,
----------------
non-transferable annuity contract issued by an insurance company qualified to do
business in the State of California. Any annuity benefits to which a Participant
(or his or her Surviving Spouse or Beneficiary) is entitled under the Plan shall
be provided under an Annuity Contract purchased by the Administrator with the
balance credited to the Participant's Account at the time of such purchase. The
amount of such benefit shall be determined in accordance with the annuity
purchase rates in effect at the time for the Annuity Contract. The purchase of
the Annuity Contract shall be effected immediately prior to the date benefits
are to commence under the Plan, and the purchased Annuity Contract shall be
distributed to the Participant as soon as administratively feasible.
(b) Annuity Starting Date. "Annuity Starting Date" means the first
---------------------
day of the first period for which an amount is payable as an annuity or, in the
case of a benefit not payable in the form of an annuity, the first day on which
all the events have occurred which entitle the Participant (or his or her
Surviving Spouse or Beneficiary, as applicable) to such benefit.
(c) Joint and Last Survivor Life Expectancy. "Joint and Last
---------------------------------------
Survivor Life Expectancy" means the joint and last survivor life expectancy
calculated for the Participant and his or her Spouse or Beneficiary in
accordance with the expected return multiples in Table VI of Regulation Section
1.72-9. Unless otherwise elected by the Participant (or, if applicable, his or
her Spouse) prior to the time the distribution of benefits is required to begin
under the Plan, life expectancies shall be recalculated annually. Such election
shall be irrevocable as to the Participant (and his or her Spouse or
Beneficiary, if applicable) and shall apply to all subsequent years. However,
the life expectancy of a non-spouse Beneficiary shall not be recalculated.
(d) Life Expectancy. "Life Expectancy," for purposes of the
---------------
Appendices, means the life expectancy calculated for the Participant or his or
her Surviving Spouse or Beneficiary in accordance with the expected return
multiples in Table V of Regulation Section 1.72-9. Unless otherwise elected by
the Participant (or, if applicable, his or her Surviving Spouse) prior to the
time the distribution of benefits is required to begin under the Plan, life
expectancy shall be recalculated annually. Such election shall be irrevocable as
to the Participant (and his or her Surviving Spouse or
<PAGE>
Beneficiary, as applicable) and shall apply to all subsequent years. However,
the life expectancy of a non-spouse Beneficiary shall not be recalculated.
(e) Qualified Joint and Survivor Annuity. "Qualified Joint and
------------------------------------
Survivor Annuity" means an annuity for the life of the Participant with a
survivor annuity for the remaining life of the Surviving Spouse (or, to the
extent provided in a subsequent Appendix, the Beneficiary) equal to a specified
percentage of the annuity payable during the joint lives of the Participant and
his or her Spouse (or to the extent provided in a subsequent Appendix, the
Beneficiary). Such annuity shall be the actuarial equivalent of the balance
credited to the Participant's Account at the time the Annuity Contract is
purchased.
(f) Qualified Preretirement Survivor Annuity. "Qualified
----------------------------------------
Preretirement Survivor Annuity" means an annuity for the life of the Surviving
Spouse of a Participant who dies before his or her Annuity Starting Date which
is the actuarial equivalent of the balance credited to the Participant's Account
at the time the Annuity Contract is purchased.
(g) Required Beginning Date. "Required Beginning Date" shall have
-----------------------
the meaning assigned to such term in Section 6.12(a).
(h) Normal Retirement Age. "Normal Retirement Age" shall mean the age
---------------------
specified in Section 2.28.
(i) Straight Life Annuity. "Straight Life Annuity" means an annuity
---------------------
payable for the life of the Participant which is the actuarial equivalent of the
balance credited to the Participant's Account at the time the Annuity Contract
is purchased.
A.2 Qualified Joint and Survivor Annuity.
------------------------------------
(a) Written Explanation. If the balance credited to the Participant's
-------------------
Account at the time distribution is to commence exceeds Five Thousand Dollars
($5,000) (as prescribed in Sections 6.8(b) and (c)), then the Administrator
shall furnish to the Participant and his or her Spouse a written explanation of
the terms and conditions of the Qualified Joint and Survivor Annuity, including
the circumstances under which it will be provided. In addition, if the Qualified
Joint and Survivor Annuity is the automatic form of distribution, then the
written explanation shall also include: (i) the Participant's right to make, and
the effect of, an election to waive the Qualified Joint and Survivor Annuity;
(ii) the rights of the Spouse with respect to such election, including the
Spouse's right to limit his or her consent to a specific Beneficiary or a
specific form of benefit; and (iii) the right to revoke an election and the
effect of such a revocation. The Administrator shall furnish the written
explanation by a method reasonably calculated to reach the attention of the
Participant no less than thirty (30) days and no more than ninety (90) days
before the Annuity Starting Date.
(b) Request for Additional Information. After the written
----------------------------------
explanation of the Qualified Joint and Survivor Annuity is given, a Participant
or his or her Spouse may make a written request for additional information. Upon
receipt of the written request for additional information,
A-2
<PAGE>
the Administrator shall provide a written explanation in nontechnical language
which will explain the terms and conditions of the Qualified Joint and Survivor
Annuity and the financial effect upon the Participant's benefit (in terms of
dollars per benefit payment) of electing not to have benefits distributed in
accordance with the Qualified Joint and Survivor Annuity. The written
explanation must be personally delivered or mailed (first class mail, postage
prepaid) to the Participant and his/her Spouse within thirty (30) days after the
date of the written request. The Administrator need not comply with more than
one such request by a Participant or his or her Spouse.
(c) Election to Waive Qualified Joint and Survivor Annuity. An
------------------------------------------------------
election to waive the Qualified Joint and Survivor Annuity shall only be
required if such form of distribution is the automatic form, as specified in the
subsequent Appendices. Accordingly, to the extent applicable, an election to
waive the Qualified Joint and Survivor Annuity may not be made by the
Participant (and if the Participant is married on his or her Annuity Starting
Date, the Participant's Spouse (or, if either the Participant or the Spouse has
died, the survivor)) before the date he or she is provided with notice of the
ability to waive the Qualified Joint and Survivor Annuity. A Participant's (and,
if applicable, his or her Spouse) election to waive the Qualified Joint and
Survivor Annuity can be made during the ninety (90)-day period ending on the
Annuity Starting Date. Spousal consent shall be in the form and manner
prescribed in Section A.6(c).
A.3 Qualified Preretirement Survivor Annuity.
----------------------------------------
(a) Written Explanation. The Administrator shall furnish to the
-------------------
Participant a written explanation of the following: (i) the terms and conditions
of the Qualified Preretirement Survivor Annuity, including the circumstances
under which it will be provided; (ii) the Participant's right to make, and the
effect of, an election to waive the Qualified Preretirement Survivor Annuity;
(iii) the rights of the Spouse with respect to such election, including the
Spouse's right to limit his or her consent only to a specific Beneficiary; and
(iv) the right to make, and the effect of a revocation of an existing election.
The Administrator shall furnish the written explanation by a method reasonably
calculated to reach the attention of the Participant within the applicable
period. The applicable period for a Participant is whichever of the following
periods ends last:
(i) the period beginning one (1) year before the date the
individual becomes a Participant and ending one (1) year after such date; or
(ii) the period beginning one (1) year before the date the
Participant's Spouse is first entitled to a Qualified Preretirement Survivor
Annuity and ending one (1) year after such date.
If such notice is given before the period beginning with the first day of the
Plan Year in which the Participant attains age thirty-two (32) and ending with
the close of the Plan Year preceding the Plan Year in which the Participant
attains age thirty-five (35), then an additional notice shall be given within
such period. If a Participant ceases to be an Employee before attaining age
thirty-five (35), then an additional notice shall be given within the period
beginning one (1) year before the date the Participant ceases to be an Employee
and ending one (1) year after such date.
A-3
<PAGE>
(b) Request for Additional Information. After the written explanation
----------------------------------
of the Qualified Preretirement Survivor Annuity is given, a Participant or his
or her Spouse may make a written request for additional information. Upon
receipt of a timely request for additional information, the Administrator shall
provide a written explanation in nontechnical language which will explain the
terms and conditions of the Qualified Preretirement Survivor Annuity and the
financial effect upon the Spouse's benefit (in terms of dollars per benefit
payment) of electing not to have benefits distributed in accordance with the
Qualified Preretirement Survivor Annuity. The written explanation must be
personally delivered or mailed (first class mail, postage prepaid) to the
Participant or his or her Spouse within thirty (30) days from the date of the
written request. The Administrator need not comply with more than one such
request by a Participant or his or her Spouse.
(c) Election to Waive Qualified Preretirement Survivor Annuity. An
----------------------------------------------------------
election to waive the Qualified Preretirement Survivor Annuity may not be made
by the Participant before the date he or she is provided with the notice of the
ability to waive the Qualified Preretirement Survivor Annuity. A Participant's
election to waive the Qualified Preretirement Survivor Annuity which is made
before the first day of the Plan Year in which he or she reaches age thirty-five
(35) shall become invalid on such date. However, an election made by a
Participant after he or she ceases to be an Employee will not become invalid on
the first day of the Plan Year in which he or she reaches age thirty-five (35)
with respect to death benefits payable from his or her Account.
A.4 Election of Optional Forms of Benefit.
-------------------------------------
(a) Written Explanation. If the balance credited to the Participant's
-------------------
Account at the time distribution is to commence is in excess of Five Thousand
Dollars ($5,000) (as prescribed in Sections 6.8(b) and (c)), then the
Administrator shall furnish to the Participant and his or her Spouse a written
explanation of the optional forms of retirement benefit provided under the Plan,
including (without limitation): (i) the material features and relative values of
each automatic and optional form, in a manner which complies with the notice
requirements of Code Section 417(a)(3)), and (ii) the right of the Participant
and his or her Spouse to defer distribution until the benefit is no longer
immediately distributable.
(b) Election. The Administrator shall furnish the written explanation
--------
by a method reasonably calculated to reach the attention of the Participant no
less than thirty (30) days and no more than ninety (90) days before the Annuity
Starting Date. In addition, if the Qualified Joint and Survivor Annuity is the
automatic form of distribution and if the Participant should, after having
received the written explanation of the Qualified Joint and Survivor Annuity,
affirmatively elect a form of distribution other than the Qualified Joint and
Survivor Annuity or the Qualified Preretirement Survivor Annuity, then the
election shall be valid only if the consent requirements of paragraph (c) below
are met.
(c) Consent. If the Qualified Joint and Survivor Annuity is the
-------
automatic form of distribution, as specified in any of the subsequent
Appendices, then the following consent provisions are applicable:
A-4
<PAGE>
(i) Requirement of Consent. Any benefit which is immediately
----------------------
distributable or payable in a form other than a Qualified Joint and Survivor
Annuity or a Qualified Preretirement Survivor Annuity requires the written
consent of the Participant and his other Spouse prior to distribution. Spousal
consent will not be required if the Participant establishes to the satisfaction
of the Administrator that the consent of the Spouse cannot be obtained because
there is no Spouse or the Spouse cannot be located. Neither the consent of the
Participant nor the Participant's Spouse shall be required to the extent that a
distribution is required to satisfy Code Section 401(a)(9) or 415. A benefit is
immediately distributable if any part of the benefit could be distributed to the
Participant (or surviving Spouse) before the Participant attains (or would have
attained if not deceased) Normal Retirement Age or, if later, age sixty-two
(62).
(ii) Form of Consent. The consent of the Participant and, if
---------------
applicable his or her Spouse must be made in writing and witnessed by a Plan
representative or notary public. In the event the Spouse elects to waive the
Qualified Joint and Survivor Annuity and/or Qualified Preretirement Survivor
Annuity, then the Spouse shall have the right to limit such consent only to a
specific Beneficiary or a specific form of distribution. The Spouse can
relinquish one or both of those rights. The Spouse's consent must acknowledge
the effect of the waiver, including: (A) the Spouse had the right to limit his
or her consent only to a specific Beneficiary or, if applicable, to a specific
form of benefit; (B) the Spouse voluntarily relinquished one or both of those
rights; and (C) the Spouse understands the effect such consent has upon the
benefits which would otherwise be payable to him or her under the automatic
forms of benefit in effect under the Plan. Unless the consent of the Spouse
expressly permits designations by the Participant without a requirement of
further consent by that Spouse, the Spouse's consent shall be limited to the
form of benefit, if applicable, and the Beneficiary or Beneficiaries named in
the election. A Spouse's consent shall not be valid with respect to any other
Spouse. A Participant may revoke the prior election without his or her Spouse's
consent. However, any new election to receive a distribution in any form other
than in an automatic form, as specified in the subsequent Appendices, as
applicable, shall require spousal consent unless the Spouse's consent expressly
permits such election by the Participant without further consent by that Spouse.
The Spouse's consent may be revoked at any time within the Participant's
election period.
(iii) Timing of Consent. The consent of the Participant or his or
-----------------
her Spouse to a benefit which is immediately distributable must not be made
before the date the Participant and his or her Spouse are provided with the
notice of the ability to defer the distribution and the explanation of the
optional benefit forms. Not less than thirty (30) days nor more than ninety (90)
days prior to the date specified for distribution, the Participant (and, if
applicable, his or her Spouse) shall be provided with written information
relating to his or her right to defer such distribution in accordance with the
guidelines set forth in this Appendix.
A.5 Special Payment Date. The Participant may elect an Annuity Starting
--------------------
Date which is less than thirty (30) days after the written explanation under
Sections A.2 and A.3 is furnished to the Participant and his or her Spouse,
provided the following requirements are met: (i) the Administrator provides
information to the Participant clearly indicating that the Participant has a
right to at least a thirty (30)-day period in which to consider whether to waive
the Qualified Joint and
A-5
<PAGE>
Survivor Annuity and consent to another form of distribution; (ii) the
Participant is permitted to revoke an affirmative distribution election at least
until the Annuity Starting Date or, if later, at any time prior to the
expiration of the seven (7) day period beginning with the day after the
explanation of the Qualified Joint and Survivor Annuity is provided to the
Participant; (iii) the Annuity Starting Date must be a date after the date that
the explanation is provided to the Participant, but may be a date before the
date that an affirmative distribution election is made by the Participant; and
(iv) the distribution must not actually commence before the expiration of the
foregoing seven (7)-day period.
A.6 Timing of Death Distribution. Distribution shall generally be made at
----------------------------
such time and in such manner as set forth in Section 6.8, except as follows:
(a) If the Participant dies after distribution of his or her interest
has begun on his or her Required Beginning Date, then the remaining portion of
such interest shall continue to be distributed at least as rapidly as under the
method of distribution being used prior to the Participant's death.
(b) If the Participant dies before distribution of his or her
interest begins on his or her Required Beginning Date, then the election period
of the Beneficiary (including the Surviving Spouse) shall begin on the date the
Participant dies and end on the date benefits to such Beneficiary or Spouse must
begin pursuant to the provisions of this Section. Distribution of the
Participant's entire interest shall be completed by December 31 of the calendar
year containing the fifth (5th) anniversary of the Participant's death, except
to the extent that an election is made to receive distributions in accordance
with paragraph (b)(i) or (b)(ii) below:
(i) to the extent any portion of the Participant's interest is
payable to a Beneficiary, distribution may be made over the life or over a
period certain not greater than the Life Expectancy of that Beneficiary, with
such distribution to commence on or before December 31 of the calendar year
immediately following the calendar year in which the Participant died; or
(ii) to the extent the distribution is to be made to the
Participant's Surviving Spouse, the date such distribution must begin in
accordance with paragraph (b)(i) above shall not be earlier than the later of:
(iii) December 31 of the calendar year immediately following the
calendar year in which the Participant died, and
(iv) December 31 of the calendar year in which the Participant
would have attained age seventy and one-half (70 1/2).
(c) If the Participant has not made an election by his or her death,
the Participant's Beneficiary must elect the method of distribution no later
than the earlier of:
(i) December 31 of the calendar year in which distributions
would be required to begin under this Section, or
A-6
<PAGE>
(ii) December 31 of the calendar year containing the fifth (5th)
anniversary of the date of the Participant's death.
(d) If the Participant has no Beneficiary or if the Beneficiary does
not elect a method of distribution, then distribution of the Participant's
entire interest must be completed by December 31 of the calendar year containing
the fifth (5th) anniversary of the Participant's death.
(e) For purposes of paragraphs (b) and (c) above, if the Surviving
Spouse dies after the Participant but before payments to such Spouse begin, the
provisions of the applicable paragraph (b) or (c) shall be applied as if the
Surviving Spouse were the Participant.
A.7 Spousal Consent. All distributions from Plan Accounts that may be made
---------------
pursuant to one or more of the distributable events in Sections 6.9 through 6.19
and the applicable Appendices are subject to the Spousal Consent requirements
contained in Code Sections 411(a)(11) and 417.
A-7
<PAGE>
APPENDIX B
----------
FORM OF BENEFIT DISTRIBUTIONS FOR PARTICIPANTS COMMENCING
PARTICIPATION BEFORE JANUARY 2, 1999
The provisions of this Appendix B shall apply only to those Participants
who had an Account under the Plan before January 2, 1999, and shall, as
supplemented by Article VI and Appendix A, govern all distributions made to
those Participants (or their Surviving Spouses or Beneficiaries) from any
Account maintained on their behalf under the Plan, whether before, on, or after
January 2, 1999. Except for such Participants and Participants specified in the
subsequent Appendices, no other Participants (or Surviving Spouses or
Beneficiaries thereof) who begin participating in the Plan after January 1,
1999, shall be entitled to any of the benefit distribution forms provided under
this Appendix B.
B.1 Automatic Form of Distribution. The automatic form of distribution for
------------------------------
any Participant (or his or her Surviving Spouse or Beneficiaries) who had an
Account under the Plan before January 2, 1999 (other than as set forth in the
subsequent Appendices) shall be a single lump sum payment.
B.2 Optional Forms of Distribution. In lieu of the automatic form of
------------------------------
distribution provided under Section B.1 above, the Participant may, subject to
certain of the requirements of Sections A.2 through A.4, elect to receive the
benefit distribution in any of the following optional forms:
(a) Qualified Joint and 50% Survivor Annuity for any Participant and
his or her Beneficiary;
(b) Qualified Joint and 100% Survivor Annuity for any Participant and
his or her Beneficiary; or
(c) an Annuity Contract providing for a series of periodic cash
payments over a period certain of either five (5), ten (10) or fifteen (15)
years, as specified, that does not extend beyond the Participant's Life
Expectancy; provided, however, if the Participant dies before the expiration of
the period certain, payments shall continue for such period to the Participant's
Beneficiary.
For purposes of this Appendix B, "Life Expectancy" shall not be calculated after
the date that payment first commences.
<PAGE>
APPENDIX C
----------
MERGER OF PERFORMANCE TECHNOLOGIES, INC. SAVINGS PLAN
The Performance Technologies, Incorporated Savings Plan (the "PTI Plan")
was merged with and into the Exponent, Inc. 401(k) Savings Plan (the "Exponent
Plan"), effective on or about May 1, 1999 (the "Merger Date"). The merger of
the PTI Plan and the Exponent Plan was effected in accordance with the following
provisions:
C.1 Transfer of Account Balances. The outstanding account balances under
----------------------------
the PTI Plan were transferred to the Exponent Plan through a direct transfer
from the trust for the PTI Plan to the Trust for the Exponent Plan, effected on
the Merger Date.
C.2 Amount of Account Balance. The account balance credited to each
-------------------------
individual under the PTI Plan immediately prior to the Merger Date was credited
to the Account maintained for such individual under the Exponent Plan
immediately after the Merger Date. Accordingly, the Account balance maintained
under the Exponent Plan for each individual who was a participant in the PTI
Plan on the Merger Date was, immediately after the Merger Date, credited with a
dollar amount equal to that individual's account balance under the PTI Plan
immediately prior to the Merger Date.
C.3 Investment of Account Balance. The account balances transferred from
-----------------------------
the PTI Plan to the Exponent Plan were invested in accordance with each
Participant's new investment directive. In the absence of such directives, the
transferred account balances were invested in such fund(s) as the Administrator
deemed appropriate.
C.4 Service Credit. Each Participant in the Exponent Plan shall, for
--------------
eligibility and vesting purposes under the Exponent Plan, be credited with all
Service credited to such Participant for eligibility and vesting purposes under
the PTI Plan immediately prior to the Merger Date.
C.5 Vesting. The matching and discretionary contributions made by PTI on
-------
behalf of participants who held account balances in the PTI Plan as of the
Merger Date ("PTI Participants"), and who terminated employment with the
Employer prior to December 31, 1998, shall be subject to the following vesting
schedule:
Years of Service Vested Percentage
---------------- -----------------
Less than 1 year 0%
1 year but less than 2 years 20%
2 years but less than 3 years 40%
3 years but less than 4 years 60%
4 years but less than 5 years 80%
5 years or more 100%
<PAGE>
C.6 Protected Benefits. The terms and provisions of the Exponent Plan
------------------
shall govern the rights, benefits and entitlements of all Participants and any
other individuals who have an interest in any Account under the surviving
Exponent Plan. The terms and provisions of the PTI Plan shall, as of the Merger
Date, be extinguished and cease to have any force or effect. However, any
benefits accrued under the PTI Plan prior to the Merger Date shall, to the
extent those benefits are protected benefits under Code Section 411(d)(6) (the
"Protected Benefits"), be preserved under the Exponent Plan and shall not in any
way be affected, reduced or eliminated as a result of the merger of the PTI Plan
with and into the Exponent Plan. The Protected Benefits for PTI Participants who
held account balances in the PTI Plan as of the Merger Date shall include
(without limitation) the following:
(a) The automatic form of benefit distribution for a PTI Participant
who has a Spouse on, and does not die before, his or her Annuity Starting Date
shall be a Qualified Joint and 50% Survivor Annuity with installment refund.
(b) The automatic form of benefit distribution for a PTI Participant
who has a Spouse on, and dies before, his or her Annuity Starting Date shall be
a Qualified Preretirement Survivor Annuity with installment refund. The
Surviving Spouse may elect to have such benefit commence at any time prior to
the date the Participant would have attained age seventy and one-half (70 1/2)
and may also elect to receive the actuarial equivalent of such benefit in any of
the optional forms specified in this Section. If the Spouse dies before
commencement of the benefit distribution, the Spouse's Beneficiary shall receive
the benefit distribution.
(c) The automatic form of benefit distribution for any Participant
who is not married on, and does not die before, his or her Annuity Starting Date
is a Straight Life Annuity with installment refund.
(d) The automatic form of benefit distribution for any unmarried
Participant who dies before his or her Annuity Starting Date is a single lump
sum payment to the PTI Participant's Beneficiary.
(e) In addition to the optional forms of benefit distributions
specified in Section B.2, the following optional forms of benefit distributions
shall be offered to each PTI Participant on his or her Beneficiary, if
applicable; provided, however, option (ix) is not available to any Beneficiary:
(i) Straight Life Annuity;
(ii) Straight Life Annuity with a period certain of five (5)
years;
(iii) Straight Life Annuity with a period certain of ten (10)
years;
(iv) Straight Life Annuity with a period certain of fifteen (15)
years;
(v) Straight Life Annuity with an installment refund;
C-2
<PAGE>
(vi) Qualified Joint and 50% Survivor Annuity for any
Participant and his or her Beneficiary with installment refund;
(vii) Qualified Joint and 100% Survivor Annuity for any
Participant and his or her Beneficiary with installment refund;
(viii) an Annuity Contract for any fixed period of whole months
which is not less than sixty (60) and does not exceed the Joint and Last
Survivor Life Expectancy of the Participant and his or her Beneficiary;
provided, however, that the Joint and Last Survivor Life Expectancy shall not be
recalculated;
(ix) a series of substantially-equal annual installments with
any balance outstanding at the Participant's death payable to his or her
Beneficiary in a single lump sum (if the Participant elects this option he or
she may later elect any other option available hereunder); or
(x) a single lump sum.
(f) For purposes of determining when a PTI Participant is eligible
for "Early Retirement," "Early Retirement" means the first day of the month
after the PTI Participant elects Early Retirement, ceases to be an Employee, and
has attained age fifty-five (55).
(g) For purposes of defining "Disability" under the Exponent Plan,
"Disability" means that a PTI Participant is disabled as a result of sickness or
injury to the extent that he or she is prevented from engaging in any
substantial gainful activity, and is eligible for and receives a disability
under Title II of the Federal Social Security Act.
(h) For purposes of defining "Spouse" or "Surviving Spouse" under the
Exponent Plan, "Spouse" or "Surviving Spouse" means the spouse or surviving
spouse who has been continuously married to the Participant throughout the one
(1)-year period ending on the date of the Participant's death; provided,
however, that a former spouse shall be treated as the spouse or surviving spouse
to the extent provided under a Qualified Domestic Relations Order, as described
in Section 7.7.
C-3
<PAGE>
APPENDIX D
----------
MERGER OF THE EXPONENT, INC. EMPLOYEE PENSION PLAN
The Exponent, Inc. Employee Pension Plan (the "Pension Plan") was merged
with and into the Exponent, Inc. 401(k) Savings Plan (the "Exponent Plan"),
effective on or about May 1, 1999 (the "Merger Date"). The merger of the
Pension Plan and the Exponent Plan was effected in accordance with the following
provisions:
D.1 Transfer of Account Balances. The outstanding account balances under
----------------------------
the Pension Plan were transferred to the Exponent Plan through a direct transfer
from the trust for the Pension Plan to the Trust for the Exponent Plan, effected
on the Merger Date.
D.2 Amount of Account Balance. The account balance credited to each
-------------------------
individual under the Pension Plan ("Pension Participant") immediately prior to
the Merger Date was credited to the Account maintained for such individual under
the Exponent Plan immediately after the Merger Date. Accordingly, the Account
maintained under the Exponent Plan for each individual who was a Pension
Participant on the Merger Date was, immediately after the Merger Date, credited
with a dollar amount equal to that individual's account balance under the
Pension Plan immediately prior to the Merger Date.
D.3 Investment of Account Balance. The account balances transferred from
-----------------------------
the Pension Plan to the Exponent Plan were invested in accordance with each
Participant's new investment directive. In the absence of such directives, the
transferred account balances were invested in such fund(s) as the Administrator
deems appropriate.
D.4 Service Credit. Each Participant in the Exponent Plan shall, for
--------------
eligibility and vesting purposes under the Exponent Plan, be credited with all
Service credited to such Participant for eligibility and vesting purposes under
the Pension Plan immediately prior to the Merger Date.
D.5 Protected Benefits. The terms and provisions of the Exponent Plan
------------------
shall govern the rights, benefits and entitlements of all Participants and any
other individuals who have an interest in any Account under the surviving
Exponent Plan. The terms and provisions of the Pension Plan shall, as of the
Merger Date, be extinguished and cease to have any force or effect. However, any
benefits accrued under the Pension Plan prior to the Merger Date shall, to the
extent those benefits are protected benefits under Code Section 411(d)(6) (the
"Protected Benefits"), be preserved under the Exponent Plan and shall not in any
way be affected, reduced or eliminated as a result of the merger of the Pension
Plan with and into the Exponent Plan. The Protected Benefits for Pension
Participants who held account balances in the Pension Plan as of the Merger Date
shall include (without limitation) the following:
(a) The automatic form of benefit distribution for a Pension
Participant who has a Spouse on, and does not die before, his or her Annuity
Starting Date shall be a Qualified Joint and 50% Survivor Annuity;
<PAGE>
(b) The automatic form of benefit distribution for a Pension
Participant who has a Spouse on, and dies before, his or her Annuity Starting
Date shall be a Qualified Preretirement Survivor Annuity. The Surviving Spouse
may elect to have such benefit commence at any time prior to the date the
Participant would have attained age seventy and one-half (70 1/2) and may also
elect to receive the actuarial equivalent of such benefit in any of the optional
forms as specified in this Section;
(c) The automatic form of benefit distribution for any Participant
who is not married on, and does not die before, his or her Annuity Starting is a
Straight Life Annuity; and
(d) In addition to the optional forms of benefit distributions
specified in Section B.2, the following optional form of benefit distribution
shall be offered to Pension Participants:
(i) a single lump sum payment;
(ii) an Annuity Contract payable in substantially-equal annual
payments over the life of the Participant;
(iii) an Annuity Contract payable in annual payments over the
life of the Participant and his or her Beneficiary;
(iv) an Annuity Contract payable in substantially-equal annual
payments which shall not exceed the Life Expectancy of the Participant;
(v) an Annuity Contract payable in substantially-equal annual
payments which shall not exceed the Joint and Last Survivor Life Expectancy of
the Participant and his or her Beneficiary; or
(vi) a Qualified Joint and 100% Survivor Annuity (available only
for a Participant who has a Spouse and does not die before his or her Annuity
Starting Date).
(e) For purposes of defining "Disability" under the Exponent Plan,
"Disability" means the inability to engage in any substantial gainful activity
by reason of any medically determinable physical or mental impairment which can
be expected to result in death or to be of long-continued and indefinite
duration. Disability shall be determined by the Administrator, after
consideration of such evidence as it may require, including reports of such
physician or physicians as it may designate.
D.6 FaAA Protected Benefits. Effective as of December 30, 1994, the FaAA
-----------------------
Plan was merged with and into the Pension Plan. Therefore, in addition to those
benefits described above, the following Protected Benefit exists for
Participants who held account balances in the FaAA Plan as of the FaAA Merger
Date (the "FaAA Participants") the Administrator shall authorize, upon the
request of a FaAA Participant, a withdrawal by such FaAA Participant of all or
any part of his or her Account balance under the Exponent Plan that is
attributable to the balance of such Account as a
D-2
<PAGE>
result of the merger of the FaAA Plan Voluntary Contribution Account into the
Pension Plan, and subsequently, into the Exponent Plan.
D.7 In-Service Withdrawals Prohibited. Notwithstanding any provision of
---------------------------------
the Plan or any Appendices to the contrary, to the extent any distribution is
otherwise permitted under the Plan prior to the Participant's Normal Retirement,
death, Disability, or severance from employment, and prior to the termination of
the Plan, the Participant shall not receive a distribution until such time as
the Participant incurs a distributable event with respect to his or her FaAA
Plan Account and/or Pension Plan Account (and Earnings thereon) within the
meaning of Code Section 414(l).
D-3
<PAGE>
EXHIBIT 10.22
EXPONENT, INC.
EMPLOYEE STOCK PURCHASE PLAN
(Amended and Restated as of March 23, 1999)
The following constitute the provisions of the Employee Stock Purchase Plan
of Exponent, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" shall mean the Board of Directors of the Company.
-----
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" shall mean the Common Stock of the Company.
------------
(d) "Company" shall mean Exponent, Inc. and any Designated Subsidiary
-------
of the Company.
(e) "Compensation" shall mean all base straight time gross earnings
------------
including commissions, overtime, voluntary contributions to tax deferral plans
and paid time off but exclusive of payments for shift premium, incentive
compensation, incentive payments, bonuses and other compensation.
(f) "Cut-Off Date" shall mean the fifteenth day of the month prior to
------------
the fiscal month in which a Plan Quarter begins.
(g) "Designated Subsidiary" shall mean any Subsidiary which has been
---------------------
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(h) "Employee" shall mean any individual who is an Employee of the
--------
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the
<PAGE>
individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(i) "Enrollment Date" shall mean the first day of each Offering
---------------
Period.
(j) "Exercise Date" shall mean the last day of each Plan Quarter.
-------------
(k) "Fair Market Value" shall mean, as of any date, the value of
-----------------
Common Stock determined as follows:
(1) The Common Stock's Fair Market Value shall be the closing
sales price for such stock (or the closing bid, if no sales were reported) as
quoted on the New York Stock Exchange for the last market trading day on the
date of such determination, as reported in The Wall Street Journal or such other
source as the Administrator deems reliable, or;
(2) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of such determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable, or;
(3) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
(l) "Offering Periods" shall mean the periods of approximately twelve
----------------
(12) months during which a right granted pursuant to the Plan may be exercised,
commencing on the first Trading Day on or after the first day of each fiscal
quarter beginning in January, April, July and October and terminating on the
last Trading Day in the period ending twelve (12) months later. The duration and
timing of Offering Periods may be changed pursuant to Section 4 of this Plan.
(m) "Plan" shall mean this Employee Stock Purchase Plan.
----
(n) "Purchase Price" shall mean an amount equal to 85% of the Fair
--------------
Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(o) "Plan Quarter" shall mean the approximately three (3) month
------------
period commencing after one Exercise Date and ending with the next Exercise
Date, except that the first Plan Quarter of any Offering Period shall commence
on the Enrollment Date and end with the next Exercise Date.
(p) "Reserves" shall mean the number of shares of Common Stock
--------
covered by each right under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under a right.
-2-
<PAGE>
(q) "Subsidiary" shall mean a corporation, domestic or foreign, of
----------
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(r) "Trading Day" shall mean a day on which national stock exchanges
-----------
and the Nasdaq System are open for trading.
3. Eligibility.
-----------
(a) Any Employee who has been employed by the Company for six (6)
months prior to a given Enrollment Date shall be eligible to participate in any
Offering Period of the Plan; provided, however, that a subscription agreement
and beneficiary designation form must be filed with the Company by the Cut-Off
Date.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted a right under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding rights to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such right
is granted) for each calendar year in which such right is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive,
----------------
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after the first day of each fiscal quarter beginning in
January, April, July and October, or on such other date as the Board shall
determine, and continuing thereafter until terminated in accordance with
Section 20. The Board shall have the power to change the duration of Offering
Periods (including the commencement dates thereof) with respect to future
offerings without shareholder approval if such change is announced at least five
(5) days prior to the scheduled beginning of the first Offering Period to be
affected thereafter.
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement and beneficiary designation form authorizing
payroll deductions in the form of Exhibit A to this Plan and filing it with the
Company's human resources office by the Cut-Off Date prior to the applicable
Enrollment Date.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such
-3-
<PAGE>
authorization is applicable, unless sooner terminated by the participant as
provided in Section 10 hereof.
6. Payroll Deductions.
------------------
(a) At the time a participant files his or her subscription
agreement and beneficiary designation form, he or she shall elect to have
payroll deductions made on each pay day during the Offering Period in an amount
not exceeding fifteen percent (15%) of the Compensation which he or she receives
on each pay day during the Offering Period.
(b) All payroll deductions made for a participant shall be credited
to his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof. A participant may increase or decrease
the rate of his or her payroll deductions by completing and filing with the
Company a new subscription agreement and beneficiary designation form
authorizing a change in payroll deduction rate prior to the Cut-Off Date for a
given Plan Quarter. If such an increase or decrease is submitted, the
participant will be automatically withdrawn from the Offering Period he or she
is then participating in and reenrolled in the next new Offering Period at the
new payroll deduction rate. Notice of the change in rate must be received by the
Company prior to the Cut-off Date unless the Company elects to process a given
change in participation more quickly. A participant's subscription agreement and
beneficiary designation form shall remain in effect for successive Offering
Periods unless terminated as provided in Section 10 hereof. The Board may, in
its discretion, limit the number of participation rate changes during any
Offering Period.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time during a
Plan Quarter. Payroll deductions shall recommence at the rate provided in such
participant's subscription agreement and beneficiary designation form at the
beginning of the first Plan Quarter which is scheduled to end in the following
calendar year, unless terminated by the participant as provided in Section 10
hereof.
(e) At the time the right is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the right or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
-4-
<PAGE>
7. Grant of Right. On the Enrollment Date of each Offering Period, each
--------------
eligible Employee participating in such Offering Period shall be granted a right
to purchase on each Exercise Date during such Offering Period (at the applicable
Purchase Price) up to a number of shares of the Company's Common Stock
determined by dividing such Employee's payroll deductions accumulated prior to
such Exercise Date and retained in the Participant's account as of the Exercise
Date by the applicable Purchase Price; provided that in no event shall an
Employee be permitted to purchase during each Plan Quarter more than 10,000
shares of the Company's Common Stock (subject to any adjustment pursuant to
Section 19) on the Enrollment Date, and provided further that such purchase
shall be subject to the limitations set forth in Sections 3(b) and 12 hereof.
Exercise of the right shall occur as provided in Section 8 hereof, unless the
participant has withdrawn pursuant to Section 10 hereof. The right shall expire
on the last day of the Offering Period.
8. Exercise of Right.
-----------------
(a) Unless a participant withdraws from the Plan as provided in
Section 10 hereof, his or her right for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to the right shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Plan Quarter or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's right to purchase
shares hereunder is exercisable only by him or her.
(b) If the Board determines that, on a given Exercise Date, the
number of shares with respect to which options are to be exercised may exceed
(i) the number of shares of Common Stock that were available for sale under the
Plan on the Enrollment Date of the applicable Offering Period, or (ii) the
number of shares available for sale under the Plan on such Exercise Date, the
Board may in its sole discretion (x) provide that the Company shall make a pro
rata allocation of the shares of Common Stock available for purchase on such
Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall
be practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Exercise Date, and continue all Offering Periods then in effect, or (y) provide
that the Company shall make a pro rata allocation of the shares available for
purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform
a manner as shall be practicable and as it shall determine in its sole
discretion to be equitable among all participants exercising options to purchase
Common Stock on such Exercise Date, and terminate any or all Offering Periods
then in effect pursuant to Section 20 hereof. The Company may make pro rata
allocation of the shares available on the Enrollment Date of any applicable
Offering Period pursuant to the preceding sentence, notwithstanding any
authorization of additional shares for issuance under the Plan by the Company's
shareholders subsequent to such Enrollment Date.
-5-
<PAGE>
9. Delivery. As promptly as practicable after each Exercise Date on
--------
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her right.
10. Withdrawal.
----------
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her right under the Plan prior to the Cut-Off Date for a Plan Quarter by giving
written notice to the Company in the form of Exhibit B to this Plan. All of the
participant's payroll deductions credited to his or her account shall be paid to
such participant promptly after receipt of a timely filed notice of withdrawal
and such participant's right for the Offering Period shall be automatically
terminated, and no further payroll deductions for the purchase of shares shall
be made for such Offering Period. If participant submits written notice of
withdrawal after the Cut-Off Date for a Plan Quarter, then the participant shall
participate in the share purchase for such Plan Quarter but the participant
shall be withdrawn prior to and shall not participate in the next Plan Quarter.
If a participant withdraws from an Offering Period, payroll deductions shall not
resume at the beginning of the succeeding Offering Period unless the participant
delivers to the Company a new subscription agreement and beneficiary designation
form. The notice of withdrawal must be received by the fifteenth day of the
third month of the Plan Quarter for the money for that Plan Quarter to be
refunded to the Participant. If the notice of withdrawal is received after such
date, then the Participant shall be withdrawn from the Offering Period after
such Plan Quarter.
(b) A participant's withdrawal from an Offering Period shall not have
any effect upon his or her eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in any other Offering Period.
11. Termination of Employment.
-------------------------
Upon a participant's termination of employment, for any reason, he or
she shall be deemed to have elected to withdraw from the Plan and the payroll
deductions credited to such participant's account during the Offering Period but
not yet used to exercise the right shall be returned to such participant or, in
the case of his or her death, to the person or persons entitled thereto under
Section 15 hereof, and such participant's right shall be automatically
terminated. The preceding sentence notwithstanding, a participant who receives
payment in lieu of notice of termination of employment shall be treated as
continuing to be an Employee for the participant's customary number of hours per
week of employment during the period in which the participant is subject to such
payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
--------
participant in the Plan.
13. Stock.
-----
-6-
<PAGE>
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be 400,000 shares, plus an annual increase to be added at the first
regularly schedule Board of Director meeting of each calendar year, equal to the
lesser of (i) 200,000 Shares, (ii) 3% of the outstanding Shares on such date, or
(iii) a lesser amount determined by the Board. If, on a given Exercise Date,
the number of shares with respect to which rights are to be exercised exceeds
the number of shares then available under the Plan, the Company shall make a pro
rata allocation of the shares remaining available for purchase in as uniform a
manner as shall be practicable and as it shall determine to be equitable.
(b) The participant shall have no interest or voting right in shares
covered by his right until such right has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
--------------
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
--------------------------
(a) A participant shall file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under the Plan in the event of such participant's death subsequent to an
Exercise Date on which the right is exercised but prior to delivery to such
participant of such shares and cash. In addition, a participant may file a
written designation of a beneficiary who is to receive any cash from the
participant's account under the Plan in the event of such participant's death
prior to exercise of the right. If a participant is married and the designated
beneficiary is not the spouse, spousal consent shall be required for such
designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and
in the absence of a beneficiary validly designated under the Plan who is living
at the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
-7-
<PAGE>
16. No Transferability. Neither payroll deductions credited to a
------------------
participant's account nor any rights with regard to the exercise of a right or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the Company
------------
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each participant
-------
in the Plan. Statements of account shall be given to participating Employees at
least annually, which statements shall set forth the Purchase Price, the number
of shares purchased and the remaining cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
---------------------------------------------------------------------
Merger or Asset Sale.
--------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each Plan Quarter (pursuant to Section 7), as well as
the price per share and the number of shares of Common Stock covered by each
right under the Plan which has not yet been exercised shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to a right.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's right has been changed to the New Exercise Date and that the
participant's right shall be exercised automatically on the New Exercise
-8-
<PAGE>
Date, unless prior to such date the participant has withdrawn from the Offering
Period as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
--------------------
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding right shall be assumed or an
equivalent right substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the right, any Plan Quarters
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date") and any Offering Periods then in progress shall end on the New
Exercise Date. The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's right has been changed to the New Exercise Date and
that the participant's right shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
20. Amendment or Termination.
------------------------
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 19 hereof, no
such termination can affect rights previously granted, provided that an Offering
Period may be terminated by the Board of Directors on any Exercise Date if the
Board determines that the termination of the Plan is in the best interests of
the Company and its shareholders. Except as provided in Section 19 hereof, no
amendment may make any change in any right theretofore granted which adversely
affects the rights of any participant. To the extent necessary to comply with
Section 423 of the Code (or any successor rule or provision or any other
applicable law, regulation or stock exchange rule), the Company shall obtain
shareholder approval in such a manner and to such a degree as required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
(c) In the event the Board determines that the ongoing operation of
the Plan may result in unfavorable financial accounting consequences, the Board
may, in its discretion and, to the
-9-
<PAGE>
extent necessary or desirable, modify or amend the Plan to reduce or eliminate
such accounting consequence including, but not limited to:
(1) altering the Purchase Price for any Offering Period including an
Offering Period underway at the time of the change in Purchase Price;
(2) shortening any Offering Period so that Offering Period ends on a
new Exercise Date, including an Offering Period underway at the time of the
Board action; and
(3) allocating shares.
Such modifications or amendments shall not require stockholder
approval or the consent of any Plan participants.
21. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to a right unless the exercise of such right and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of a right, the Company may require the
person exercising such right to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without any
present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
-10-
<PAGE>
EXHIBIT A
---------
EXPONENT, INC.
EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT AND BENEFICIARY DESIGNATION FORM
_____ Original Application Enrollment Date: ___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. _____________________________________________________ hereby elects to
participate in Exponent, Inc. Employee Stock Purchase Plan (the "Employee
Stock Purchase Plan") and subscribes to purchase shares of the Company's
Common Stock in accordance with this Subscription Agreement and Beneficiary
Designation Form and the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (from 0 to 15%) during the Offering
Period in accordance with the Employee Stock Purchase Plan. (Please note
that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
right.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that my
ability to exercise the right under this Subscription Agreement and
Beneficiary Designation Form is subject to shareholder approval of the
Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only):
___________________________________________________________________________
____________.
6. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares), I will be treated
for federal income tax purposes as having received ordinary income at the
time of such disposition in an amount equal to the excess of the fair
market value of the
<PAGE>
shares at the time such shares were purchased by me over the price which I
paid for the shares. I hereby agree to notify the Company in writing within
------------------------------------------------------
30 days after the date of any disposition of my shares and I will make
---------------------------------------------------------------------------
adequate provision for Federal, state or other tax withholding obligations,
---------------------------------------------------------------------------
if any, which arise upon the disposition of the Common Stock. The Company
------------------------------------------------------------
may, but will not be obligated to, withhold from my compensation the amount
necessary to meet any applicable withholding obligation including any
withholding necessary to make available to the Company any tax deductions
or benefits attributable to sale or early disposition of Common Stock by
me. If I dispose of such shares at any time after the expiration of the 2-
year holding period, I understand that I will be treated for federal income
tax purposes as having received income only at the time of such
disposition, and that such income will be taxed as ordinary income only to
the extent of an amount equal to the lesser of (1) the excess of the fair
market value of the shares at the time of such disposition over the
purchase price which I paid for the shares, or (2) 15% of the fair market
value of the shares on the first day of the Offering Period. The remainder
of the gain, if any, recognized on such disposition will be taxed as
capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement and Beneficiary
Designation Form is dependent upon my eligibility to participate in the
Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)______________________________________________
(First) (Middle) (Last)
__________________________ ______________________________________________
Relationship
______________________________________________
(Address)
-2-
<PAGE>
Employee's Social
Security Number: ____________________________________
Employee's Address: ____________________________________
____________________________________
____________________________________
9. If you desire to have the shares you purchase through the Employee Stock
Purchase Plan transferred directly to a broker (rather than delivered to
you in certificate form), please complete the following Deposit or
Withdrawal at Custodian (DWAC) information:
Broker Name: ____________________________________
Broker Account Number: ____________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT AND BENEFICIARY DESIGNATION FORM
SHALL REMAIN IN EFFECT THROUGHOUT SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED
BY ME.
Dated:_________________________ ________________________________________
Signature of Employee
_______________________________________
Spouse's Signature (Required if beneficiary
other than spouse and Employee lives in
Arizona, California, Texas or Washington)
-3-
<PAGE>
EXHIBIT B
---------
EXPONENT, INC.
EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of Exponent, Inc.
Employee Stock Purchase Plan which began on ____________, 19____ (the
"Enrollment Date") hereby notifies the Company that he or she hereby withdraws
from the Offering Period. He or she hereby directs the Company to pay to the
undersigned as promptly as practicable all the payroll deductions credited to
his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her right for such Offering Period will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement and Beneficiary Designation Form.
Name and Address of Participant:
________________________________
________________________________
________________________________
________________________________
Signature
________________________________
Date
________________________________
Social Security Number
<PAGE>
EXHIBIT 10.23
EXPONENT, INC.
1999 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this 1999 Stock Option Plan are:
--------------------
. to attract and retain the best available personnel for positions
of substantial responsibility,
. to provide additional incentive to Employees, Directors and
Consultants, and
. to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees as shall
-------------
be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
---------------
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
-----
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Committee" means a committee of Directors appointed by the
---------
Board in accordance with Section 4 of the Plan.
(f) "Common Stock" means the common stock of the Company.
------------
(g) "Company" means Exponent, Inc., a Delaware corporation.
-------
1
<PAGE>
(h) "Consultant" means any person, including an advisor, engaged by
----------
the Company or a Parent or Subsidiary to render services to such entity.
(i) "Director" means a member of the Board.
--------
(j) "Disability" means total and permanent disability as defined in
----------
Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(m) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the mean between the closing high bid and the low
asked prices for the Common stock as quoted on such exchange or system for the
last market trading day prior to the time of determination, as reported in The
Wall Street Journal or such other source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the closing high bid and low
asked prices for the Common Stock on the last market trading day prior to the
day of determination, as reported in The Wall Street Journal or such other
source as the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
2
<PAGE>
(n) "Incentive Stock Option" means an Option intended to qualify as
----------------------
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
(p) "Notice of Grant" means a written or electronic notice evidencing
---------------
certain terms and conditions of an individual Option or Stock Purchase Right
grant. The Notice of Grant is part of the Option Agreement.
(q) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the Plan.
------
(s) "Option Agreement" means an agreement between the Company and an
----------------
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.
(t) "Option Exchange Program" means a program whereby outstanding
-----------------------
Options are surrendered in exchange for Options with a lower exercise price.
(u) "Optioned Stock" means the Common Stock subject to an Option or
--------------
Stock Purchase Right.
(v) "Optionee" means the holder of an outstanding Option or Stock
--------
Purchase Right granted under the Plan.
(w) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(x) "Plan" means this 1999 Stock Plan.
----
(y) "Restricted Stock" means shares of Common Stock acquired pursuant
----------------
to a grant of Stock Purchase Rights under Section 11 of the Plan.
(z) "Restricted Stock Purchase Agreement" means a written agreement
-----------------------------------
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.
3
<PAGE>
(aa) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
----------
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(bb) "Section 16(b)" means Section 16(b) of the Exchange Act.
-------------
(cc) "Service Provider" means an Employee, Director or Consultant.
----------------
(dd) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 13 of the Plan.
(ee) "Stock Purchase Right" means the right to purchase Common Stock
--------------------
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ff) "Subsidiary" means a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 400,000 Shares, plus an annual increase to be added on each
anniversary date of the adoption of the Plan equal to the lesser of (i) 300,000
Shares, (ii) 3% of the outstanding Shares on such date, or (iii) a lesser
amount determined by the Board. The Shares may be authorized, but unissued, or
reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
--------
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.
4. Administration of the Plan.
--------------------------
(a) Procedure.
---------
(i) Multiple Administrative Bodies. The Plan may be administered
------------------------------
by different Committees with respect to different groups of Service Providers.
(ii) Section 162(m). To the extent that the Administrator
--------------
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the
4
<PAGE>
meaning of Section 162(m) of the Code, the Plan shall be administered by a
Committee of two or more "outside directors" within the meaning of Section
162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify
----------
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iv) Other Administration. Other than as provided above, the
--------------------
Plan shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option or Stock Purchase Right granted
hereunder. Such terms and conditions include, but are not limited to, the
exercise price, the time or times when Options or Stock Purchase Rights may be
exercised (which may be based on performance criteria), any vesting acceleration
or waiver of forfeiture restrictions, and any restriction or limitation
regarding any Option or Stock Purchase Right or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
5
<PAGE>
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option or Stock Purchase Right
(subject to Section 15(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
(xi) to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option or Stock Purchase Right that number of Shares having a
Fair Market Value equal to the amount required to be withheld. The Fair Market
Value of the Shares to be withheld shall be determined on the date that the
amount of tax to be withheld is to be determined. All elections by an Optionee
to have Shares withheld for this purpose shall be made in such form and under
such conditions as the Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
----------------------------------
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may
-----------
be granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
6. Limitations.
-----------
(a) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
6
<PAGE>
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year
of the Company, Options to purchase more than 500,000 Shares.
(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 500,000 Shares
which shall not count against the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 13.
(iv) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 13), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall become
------------
effective upon its adoption by the Board. It shall continue in effect for a
term of ten (10) years unless terminated earlier under Section 15 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Option
--------------
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement.
9. Option Exercise Price and Consideration.
---------------------------------------
(a) Exercise Price. The per share exercise price for the Shares to be
--------------
issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
7
<PAGE>
(A) granted to an Employee who, at the time the
Incentive Stock Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price of less than 100% of the Fair Market Value per Share
on the date of grant pursuant to a merger or other corporate transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
---------------------------------
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised.
(c) Form of Consideration. The Administrator shall determine the
---------------------
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
8
<PAGE>
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. If an Optionee
-------------------------------------------------
ceases to be a Service Provider, other than upon the Optionee's death or
Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence
of a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's
9
<PAGE>
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified by the Administrator, the
Option shall terminate, and the Shares covered by such Option shall revert to
the Plan.
10
<PAGE>
(c) Disability of Optionee. If an Optionee ceases to be a Service
----------------------
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service Provider,
-----------------
the Option may be exercised within such period of time as is specified in the
Option Agreement (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant), by the Optionee's estate or by a
person who acquires the right to exercise the Option by bequest or inheritance,
but only to the extent that the Option is vested on the date of death. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. If, at
the time of death, the Optionee is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option shall immediately
revert to the Plan. The Option may be exercised by the executor or
administrator of the Optionee's estate or, if none, by the person(s) entitled to
exercise the Option under the Optionee's will or the laws of descent or
distribution. If the Option is not so exercised within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to buy
-----------------
out for a payment in cash or Shares an Option previously granted based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically, by means of a Notice of Grant, of the
terms, conditions and restrictions related to the offer, including the number of
Shares that the offeree shall be entitled to purchase, the price to be paid, and
the time within which the offeree must accept such offer. The offer shall be
accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Administrator.
11
<PAGE>
(b) Repurchase Option. Unless the Administrator determines otherwise,
-----------------
the Restricted Stock Purchase Agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. Unless
--------------------------------------------------------
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
------------------------------------------------------------------
Asset Sale.
- ----------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as
12
<PAGE>
expressly provided herein, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock subject to an Option or Stock Purchase
Right.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
--------------------
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option and Stock Purchase Right shall be
assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Option or
Stock Purchase Right, the Optionee shall fully vest in and have the right to
exercise the Option or Stock Purchase Right as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or exercisable. If
an Option or Stock Purchase Right becomes fully vested and exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully vested and exercisable for a
period of fifteen (15) days from the date of such notice, and the Option or
Stock Purchase Right shall terminate upon the expiration of such period. For the
purposes of this paragraph, the Option or Stock Purchase Right shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or Stock Purchase Right, for each Share
of Optioned Stock subject to the Option or Stock Purchase Right, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
13
<PAGE>
14. Date of Grant. The date of grant of an Option or Stock Purchase Right
-------------
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall
be provided to each Optionee within a reasonable time after the date of such
grant.
15. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
--------------------
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
16. Conditions Upon Issuance of Shares.
----------------------------------
(a) Legal Compliance. Shares shall not be issued pursuant to the
----------------
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
--------------------------
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
17. Inability to Obtain Authority. The inability of the Company to obtain
-----------------------------
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
14
<PAGE>
18. Reservation of Shares. The Company, during the term of this Plan, will
---------------------
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. Shareholder Approval. The Plan shall be subject to approval by the
--------------------
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
15
<PAGE>
EXHIBIT 10.24
EXPONENT, INC.
RESTRICTED STOCK AWARD PLAN
1. Purposes of the Plan. The purposes of this Plan are:
--------------------
. to provide additional incentive to Employees, and
. to promote the success of the Company's business.
Restricted Stock Awards granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees as shall
-------------
be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
---------------
administration of restricted stock award plans under U. S. state corporate laws,
U.S. federal and state securities laws, the Code, any stock exchange or
quotation system on which the Common Stock is listed or quoted and the
applicable laws of any foreign country or jurisdiction where Restricted Stock
Awards are, or will be, granted under the Plan.
(c) "Award" means the holder of an outstanding Restricted Stock Award
-----
granted under the Plan.
(d) "Board" means the Board of Directors of the Company.
-----
(e) "Code" means the Internal Revenue Code of 1986, as amended.
----
(f) "Committee" means a committee of Directors appointed by the Board
---------
in accordance with Section 4 of the Plan.
(g) "Common Stock" means the common stock of the Company.
------------
(h) "Company" means Exponent, Inc., a Delaware corporation.
-------
(i) "Consultant" means any person, including an advisor, engaged by
----------
the Company or a Parent or Subsidiary to render services to such entity.
(j) "Director" means a member of the Board.
--------
(k) "Disability" means total and permanent disability as defined in
----------
Section 22(e)(3) of the Code.
<PAGE>
(l) "Employee" means any person, including Officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(n) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(o) "Notice of Grant" means a written or electronic notice evidencing
---------------
certain terms and conditions of an individual Restricted Stock Award grant. The
Notice of Grant is part of the Restricted Stock Award Agreement.
(p) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(q) "Optioned Stock" means the Common Stock subject to a Restricted
--------------
Stock Award.
(r) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(s) "Plan" means this Restricted Stock Award Plan.
----
(t) "Restricted Stock Award" means shares of Common Stock granted
----------------------
pursuant to Section 7 of the Plan.
-2-
<PAGE>
(u) "Restricted Stock Award Agreement" means a written agreement
--------------------------------
between the Company and the Optionee evidencing the terms and restrictions
applying to stock awarded under a Restricted Stock Award. The Restricted Stock
Award Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.
(v) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
----------
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(w) "Section 16(b) " means Section 16(b) of the Exchange Act.
-------------
(x) "Service Provider" means an Employee, Director or Consultant.
----------------
(y) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 13 of the Plan.
(z) "Subsidiary" means a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 9
-------------------------
of the Plan, the maximum aggregate number of Shares which may be optioned and
granted under the Plan is 100,000 Shares. The Shares may be authorized, but
unissued, or reacquired Common Stock.
If a Restricted Stock Award expires or becomes unexercisable without
having been acquired in full, the unacquired Shares which were subject thereto
shall become available for future grant under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
--------
the Plan shall not be returned to the Plan and shall not become available for
future distribution under the Plan, except Shares that are reacquired by the
Company shall become available for future grant under the Plan.
4. Administration of the Plan.
--------------------------
(a) Procedure.
---------
(i) Multiple Administrative Bodies. The Plan may be
------------------------------
administered by different Committees with respect to different groups of Service
Providers.
(ii) Rule 16b-3. To the extent desirable to qualify
----------
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iii) Other Administration. Other than as provided above,
--------------------
the Plan shall be administered by (A) the Board or (B) a Committee, which
committee shall be constituted to satisfy Applicable Laws.
-3-
<PAGE>
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Restricted Stock
Awards may be granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Restricted Stock Award granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Restricted Stock Awards granted hereunder.
Such terms and conditions include, but are not limited to, the time or times
when Restricted Stock Awards may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Restricted Stock Award or the shares
of Common Stock relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;
(vi) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
(vii) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(viii) to modify or amend each Restricted Stock Award (subject to
Section 11(c) of the Plan);
(ix) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of a Restricted Stock Award
previously granted by the Administrator;
(x) to allow employees receiving Restricted Stock to satisfy
withholding tax obligations by electing to have the Company withhold from the
Shares to be issued or purchase from the Shares issued that number of Shares
having a Fair Market Value equal to the amount required to be withheld. The
Fair Market Value of the Shares to be withheld shall be determined on the date
that the amount of tax to be withheld is to be determined. All elections by an
employee to have Shares withheld for this purpose shall be made in such form and
under such conditions as the Administrator may deem necessary or advisable;
-4-
<PAGE>
(xi) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
----------------------------------
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Restricted Stock Awards.
5. Eligibility. Restricted Stock Awards may be granted to Employees;
-----------
provided, however, that Employees who own at least three percent (3%) of the
Company's outstanding Common Stock may not receive Restricted Stock Awards under
the Plan. Neither the Plan nor any Restricted Stock Award shall confer upon an
Optionee any right with respect to continuing the Optionee's relationship as a
Service Provider with the Company, nor shall they interfere in any way with the
Optionee's right or the Company's right to terminate such relationship at any
time, with or without cause.
6. Term of Plan. Subject to Section 15 of the Plan, the Plan shall
------------
become effective upon its adoption by the Board. It shall continue in effect
for a term of ten (10) years unless terminated earlier under Section 11 of the
Plan.
7. Terms of Restricted Stock Awards.
--------------------------------
(a) Rights to Acquire. Restricted Stock Awards may be issued
-----------------
either alone, in addition to, or in tandem with cash awards made outside of the
Plan. After the Administrator determines that it will offer Restricted Stock
Awards under the Plan, it shall advise the offeree in writing or electronically,
by means of a Notice of Grant, of the terms, conditions and restrictions related
to the offer, including the number of Shares that the offeree shall be entitled
to acquire and the time within which the offeree must accept such offer. The
offer shall be accepted by execution of a Restricted Stock Award Agreement in
the form determined by the Administrator.
(b) Reacquisition Option. Unless the Administrator determines
--------------------
otherwise, the Restricted Stock Award Agreement shall grant the Company a
reacquisition option exercisable upon the voluntary or involuntary termination
of the participant's service with the Company for any reason (including death or
Disability). The reacquisition option shall lapse at a rate determined by the
Administrator.
(c) Other Provisions. The Restricted Stock Award Agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Restricted Stock Award is
-----------------------
exercised, the participant shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her acquisition is entered
upon the records of the duly authorized transfer agent of the Company. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the Restricted Stock Award is exercised, except as provided
in Section 9 of the Plan.
-5-
<PAGE>
8. Non-Transferability of Restricted Stock Awards. Unless determined
----------------------------------------------
otherwise by the Administrator, a Restricted Stock Award may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Optionee, only by the Optionee. If the Administrator
makes a Restricted Stock Award transferable, such Restricted Stock Award shall
contain such additional terms and conditions as the Administrator deems
appropriate.
9. Adjustments Upon Changes in Capitalization, Dissolution, Merger
---------------------------------------------------------------
or Asset Sale.
- -------------
Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Restricted Stock Award, and the number of shares of Common
Stock which have been authorized for issuance under the Plan but as to which no
Restricted Stock Awards have yet been granted or which have been returned to the
Plan upon cancellation or expiration of a Restricted Stock Award, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of issued shares of Common Stock effected
without receipt of consideration by the Company; provided, however, that
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration." Such adjustment shall be
made by the Board, whose determination in that respect shall be final, binding
and conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number of shares of Common Stock subject to a Restricted
Stock Award.
Dissolution or Liquidation. In the event of the proposed dissolution
--------------------------
or liquidation of the Company, the Administrator shall notify each Awardee and
holder of Restricted Stock as soon as practicable prior to the effective date of
such proposed transaction. The Administrator may provide that any Company
reacquisition right applicable to any Shares acquired upon exercise of a
Restricted Stock Award shall lapse as to all such Shares, provided the proposed
dissolution or liquidation takes place at the time and in the manner
contemplated. To the extent it has not been previously exercised, a Restricted
Stock Award will terminate immediately prior to the consummation of such
proposed action.
Merger or Asset Sale. In the event of a merger of the Company with
--------------------
or into another corporation, or the sale of substantially all of the assets of
the Company, the new substituted or additional securities received for the
Restricted Stock shall be subject to the same reacquisition right by the Company
or the successor corporation. In the event that the successor corporation
refuses to assume or substitute for options issued by the Company, the holders
of Restricted Stock shall fully vest in and the Company's reacquisition shall
fully lapse as to all the Restricted Stock. If a Restricted Stock becomes fully
vested in the event of a merger or sale of assets, the Administrator shall
notify the holder of Restricted Stock in writing or electronically that the
Restricted Stock shall be fully vested as of the date of the transaction.
-6-
<PAGE>
10. Date of Grant. The date of grant of a Restricted Stock Award shall be, for
-------------
all purposes, the date on which the Administrator makes the determination
granting such Restricted Stock Award, or such other later date as is
determined by the Administrator. Notice of the determination shall be
provided to each Optionee within a reasonable time after the date of such
grant.
11. Amendment and Termination of the Plan.
-------------------------------------
Amendment and Termination. The Board may at any time amend, alter,
-------------------------
suspend or terminate the Plan.
Shareholder Approval. The Company shall obtain shareholder approval
--------------------
of any Plan amendment to the extent necessary and desirable to comply with
Applicable Laws.
Effect of Amendment or Termination. No amendment, alteration,
----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Restricted Stock Awards
granted under the Plan prior to the date of such termination.
12. Conditions Upon Issuance of Shares.
----------------------------------
Legal Compliance. Shares shall not be issued pursuant to the exercise
----------------
of a Restricted Stock Award unless the exercise of such Restricted Stock Award
and the issuance and delivery of such Shares shall comply with Applicable Laws
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
Investment Representations. As a condition to the exercise of a
--------------------------
Restricted Stock Award, the Company may require the person exercising such
Restricted Stock Award to represent and warrant at the time of any such exercise
that the Shares are being acquired only for investment and without any present
intention to sell or distribute such Shares if, in the opinion of counsel for
the Company, such a representation is required.
13. Inability to Obtain Authority. The inability of the Company to obtain
-----------------------------
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such
requisite authority shall not have been obtained.
14. Reservation of Shares. The Company, during the term of this Plan, will at
---------------------
all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
-7-
<PAGE>
15. Shareholder Approval. The Plan shall be subject to approval by the
--------------------
shareholders of the Company within twelve (12) months after the date the
Plan is adopted. Such shareholder approval shall be obtained in the manner
and to the degree required under Applicable Laws.
-8-
<PAGE>
EXPONENT, INC.
RESTRICTED STOCK AWARD PLAN
NOTICE OF GRANT OF RESTRICTED STOCK AWARD
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Notice of Grant.
[Grantee's Name and Address]
You have been granted the right to acquire Common Stock of the Company,
subject to the Company's Reacquisition Option and your ongoing status as a
Service Provider (as described in the Plan and the attached Restricted Stock
Award), as follows:
Grant Number _________________________
Date of Grant _________________________
Total Number of Shares Subject _________________________
to This Restricted Stock Award
Expiration Date: _________________________
YOU MUST EXERCISE THIS RESTRICTED STOCK AWARD BEFORE THE EXPIRATION DATE OR
IT WILL TERMINATE AND YOU WILL HAVE NO FURTHER RIGHT TO ACQUIRE THE SHARES. By
your signature and the signature of the Company's representative below, you and
the Company agree that this Restricted Stock Award is granted under and governed
by the terms and conditions of the Restricted Stock Award Plan and the
Restricted Stock Award Agreement, attached hereto as Exhibit A, both of which
are made a part of this document. You further agree to execute the attached
Restricted Stock Award Agreement as a condition to acquiring any shares under
this Restricted Stock Award Right.
GRANTEE: EXPONENT, INC.
_____________________ _______________________________
Signature By
_____________________ _______________________________
Print Name Title
<PAGE>
EXHIBIT A
---------
EXPONENT, INC.
STOCK AWARD PLAN
RESTRICTED STOCK AWARD AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Restricted Stock Award Agreement.
WHEREAS the Participant named in the Notice of Grant, (the "Participant")
is a Service Provider, and the Participant's continued participation is
considered by the Company to be important for the Company's continued growth;
and
WHEREAS in order to give the Participant an opportunity to acquire an
equity interest in the Company as an incentive for the Participant to
participate in the affairs of the Company, the Administrator has granted to the
Participant a Restricted Stock Award subject to the terms and conditions of the
Plan and the Notice of Grant, which are incorporated herein by reference, and
pursuant to this Restricted Stock Award Agreement (the "Agreement").
NOW THEREFORE, the parties agree as follows:
1. Transfer of Stock. The Company hereby agrees to award to the
-----------------
Participant and the Participant hereby agrees to accept shares of the Company's
Common Stock (the "Shares").
2. Reacquisition Option.
--------------------
In the event the Participant ceases to be a Service Provider for any or no
reason (including death or disability) before all of the Shares are released
from the Company's Reacquisition Option (see Section 3), the Company shall, upon
the date of such termination (as reasonably fixed and determined by the Company)
have an irrevocable, exclusive option (the "Reacquisition Option") for a period
of sixty (60) days from such date to receive, without payment or future
consideration, up to that number of shares which constitute the Unreleased
Shares (as defined in Section 3). The Reacquisition Option shall be exercised by
the Company by delivering written notice to the Participant or the Participant's
executor (with a copy to the Escrow Holder). Upon delivery of such notice, the
Company shall become the legal and beneficial owner of the Shares being
reacquired and all rights and interests therein or relating thereto, and the
Company shall have the right to retain and transfer to its own name the number
of Shares being reacquired by the Company.
Whenever the Company shall have the right to reacquire Shares hereunder,
the Company may designate and assign one or more employees, officers, directors
or shareholders of the Company or other persons or organizations to exercise all
or a part of the Company's acquisition rights under this Agreement.
<PAGE>
3. Release of Shares From Reacquisition Option.
-------------------------------------------
(a) One-third of the Shares shall be released from the Company's
Reacquisition Option each year on the anniversary of the Date of Grant provided
that the Participant does not cease to be a Service Provider prior to the date
of any such release.
(b) Any of the Shares that have not yet been released from the
Reacquisition Option are referred to herein as "Unreleased Shares."
(c) The Shares that have been released from the Reacquisition Option
shall be delivered to the Participant at the Participant's request (see Section
5).
4. Restriction on Transfer. Except for the escrow described in Section 6
-----------------------
or the transfer of the Shares to the Company or its assignees contemplated by
this Agreement, none of the Shares or any beneficial interest therein shall be
transferred, encumbered or otherwise disposed of in any way until such Shares
are released from the Company's Reacquisition Option in accordance with the
provisions of this Agreement, other than by will or the laws of descent and
distribution.
5. Escrow of Shares.
----------------
(a) To ensure the availability for delivery of the Participant's
Unreleased Shares upon reacquisition by the Company pursuant to the Repurchase
Option, the Participant shall, upon execution of this Agreement, deliver and
deposit with an escrow holder designated by the Company (the "Escrow Holder")
the share certificates representing the Unreleased Shares, together with the
stock assignment duly endorsed in blank, attached hereto as Exhibit A-2. The
Unreleased Shares and stock assignment shall be held by the Escrow Holder,
pursuant to the Joint Escrow Instructions of the Company and Participant
attached hereto as Exhibit A-3, until such time as the Company's Reacquisition
Option expires. As a further condition to the Company's obligations under this
Agreement, the Company may require the spouse of Participant, if any, to execute
and deliver to the Company the Consent of Spouse attached hereto as Exhibit A-4.
(b) The Escrow Holder shall not be liable for any act it may do or
omit to do with respect to holding the Unreleased Shares in escrow while acting
in good faith and in the exercise of its judgment.
(c) If the Company or any assignee exercises the Reacquisition Option
hereunder, the Escrow Holder, upon receipt of written notice of such exercise
from the proposed transferee, shall take all steps necessary to accomplish such
transfer.
(d) When the Reacquisition Option has been exercised or expires
unexercised or a portion of the Shares has been released from the Reacquisition
Option, upon request the Escrow Holder shall promptly cause a new certificate to
be issued for the released Shares and shall deliver the certificate to the
Company or the Participant, as the case may be.
-2-
<PAGE>
(e) Subject to the terms hereof, the Participant shall have all the
rights of a shareholder with respect to the Shares while they are held in
escrow, including without limitation, the right to vote the Shares and to
receive any cash dividends declared thereon. If, from time to time during the
term of the Reacquisition Option, there is (i) any stock dividend, stock split
or other change in the Shares, or (ii) any merger or sale of all or
substantially all of the assets or other acquisition of the Company, any and all
new, substituted or additional securities to which the Participant is entitled
by reason of the Participant's ownership of the Shares shall be immediately
subject to this escrow, deposited with the Escrow Holder and included thereafter
as "Shares" for purposes of this Agreement and the Reacquisition Option.
6. Legends. The share certificate evidencing the Shares, if any, issued
-------
hereunder shall be endorsed with the following legend (in addition to any legend
required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REACQUISITION AS SET FORTH IN AN
AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE
WITH THE SECRETARY OF THE COMPANY.
7. Adjustment for Stock Split. All references to the number of Shares in
--------------------------
this Agreement shall be appropriately adjusted to reflect any stock split, stock
dividend or other change in the Shares which may be made by the Company after
the date of this Agreement.
8. Tax Consequences. The Participant has reviewed with the Participant's
----------------
own tax advisors the federal, state, local and foreign tax consequences of this
investment and the transactions contemplated by this Agreement. The Participant
is relying solely on such advisors and not on any statements or representations
of the Company or any of its agents. The Participant understands that the
Participant (and not the Company) shall be responsible for the Participant's own
tax liability that may arise as a result of the transactions contemplated by
this Agreement. The Participant understands that Section 83 of the Internal
Revenue Code of 1986, as amended (the "Code"), taxes as ordinary income the
difference between the Fair Market Value of the Shares on the date of
acquisition and the Fair Market Value of the Shares as of the date any
restrictions on the Shares lapse. In this context, "restriction" includes the
right of the Company to reacquire the Shares pursuant to the Reacquisition
Option. The Participant understands that the Participant may elect to be taxed
at the time the Shares are acquired rather than when and as the Reacquisition
Option expires by filing an election under Section 83(b) of the Code with the
IRS within 30 days from the date of purchase. The form for making this election
is attached as Exhibit A-5 hereto.
THE PARTICIPANT ACKNOWLEDGES THAT IT IS THE PARTICIPANT'S SOLE
RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION
83(b), EVEN IF THE PARTICIPANT REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO
MAKE THIS FILING ON THE PARTICIPANT'S BEHALF.
-3-
<PAGE>
9. General Provisions.
------------------
(a) This Agreement shall be governed by the internal substantive
laws, but not the choice of law rules of California. This Agreement, subject to
the terms and conditions of the Plan and the Notice of Grant, represents the
entire agreement between the parties with respect to the acquisition of the
Shares by the Participant. Subject to Section 11(c) of the Plan, in the event of
a conflict between the terms and conditions of the Plan and the terms and
conditions of this Agreement, the terms and conditions of the Plan shall
prevail. Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Agreement.
(b) Any notice, demand or request required or permitted to be given
by either the Company or the Participant pursuant to the terms of this Agreement
shall be in writing and shall be deemed given when delivered personally or
deposited in the U.S. mail, First Class with postage prepaid, and addressed to
the parties at the addresses of the parties set forth at the end of this
Agreement or such other address as a party may request by notifying the other in
writing.
Any notice to the Escrow Holder shall be sent to the Company's address with
a copy to the other party hereto.
(c) The rights of the Company under this Agreement shall be
transferable to any one or more persons or entities, and all covenants and
agreements hereunder shall inure to the benefit of, and be enforceable by the
Company's successors and assigns. The rights and obligations of the Participant
under this Agreement may only be assigned with the prior written consent of the
Company.
(d) Either party's failure to enforce any provision of this Agreement
shall not in any way be construed as a waiver of any such provision, nor prevent
that party from thereafter enforcing any other provision of this Agreement. The
rights granted both parties hereunder are cumulative and shall not constitute a
waiver of either party's right to assert any other legal remedy available to it.
(e) The Participant agrees upon request to execute any further
documents or instruments necessary or desirable to carry out the purposes or
intent of this Agreement.
(f) PARTICIPANT ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES
PURSUANT TO SECTION 3 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS A SERVICE
PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED OR
ACQUIRING SHARES HEREUNDER). PARTICIPANT FURTHER ACKNOWLEDGES AND AGREES THAT
THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE
SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT
ALL, AND SHALL NOT INTERFERE WITH PARTICIPANT'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE PARTICIPANT'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR
WITHOUT CAUSE.
-4-
<PAGE>
By Participant's signature below, Participant represents that he or she is
familiar with the terms and provisions of the Plan, and hereby accepts this
Agreement subject to all of the terms and provisions thereof. Participant has
reviewed the Plan and this Agreement in their entirety, has had an opportunity
to obtain the advice of counsel prior to executing this Agreement and fully
understands all provisions of this Agreement. Participant agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Agreement.
Participant further agrees to notify the Company upon any change in the
residence indicated in the Notice of Grant.
DATED: _____________________
PARTICIPANT: EXPONENT, INC.
__________________________________ _______________________________________
Signature By
__________________________________ _______________________________________
Print Name Title
-5-
<PAGE>
EXHIBIT A-2
-----------
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, __________________________, hereby sell, assign and
transfer unto ____________________________________________ (__________) shares
of the Common Stock of Exponent, Inc. standing in my name of the books of said
corporation represented by Certificate No. _____ herewith and do hereby
irrevocably constitute and appoint ______________________ to transfer the said
stock on the books of the within named corporation with full power of
substitution in the premises.
This Stock Assignment may be used only in accordance with the Restricted
Stock Award Agreement (the "Agreement") between Exponent, Inc. and the
undersigned dated ______________, 19__.
Dated: _______________, 19__
Signature: ______________________________
INSTRUCTIONS: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise the
Reacquisition Option, as set forth in the Agreement, without requiring
additional signatures on the part of the Participant.
<PAGE>
EXHIBIT A-3
-----------
JOINT ESCROW INSTRUCTIONS
-------------------------
__________, 19__
Corporate Secretary
Exponent, Inc.
[Address]
Dear ___________:
As Escrow Agent for both Exponent, Inc., a Delaware corporation (the
"Company"), and the undersigned participant (the "Participant"), you are hereby
authorized and directed to hold the documents delivered to you pursuant to the
terms of that certain Restricted Stock Award Agreement ("Agreement") between the
Company and the undersigned, in accordance with the following instructions:
1. In the event the Company and/or any assignee of the Company (referred
to collectively as the "Company") exercises the Company's Reacquisition Option
set forth in the Agreement, the Company shall give to Participant and you a
written notice specifying the number of shares of stock to be reacquired and the
time for a closing hereunder at the principal office of the Company. Participant
and the Company hereby irrevocably authorize and direct you to close the
transaction contemplated by such notice in accordance with the terms of said
notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its assignee
pursuant to the exercise of the Company's Reacquisition Option.
3. Participant irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Participant does hereby irrevocably constitute and appoint you as Participant's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities. Subject to the provisions of this paragraph 3, Participant
shall exercise all rights and privileges of a shareholder of the Company while
the stock is held by you.
4. Upon written request of the Participant, but no more than once per
calendar year, unless the Company's Reacquisition Option has been exercised, you
shall deliver to Participant a certificate or certificates representing so many
shares of stock as are not then subject to the Company's Reacquisition Option.
Within 90 days after Participant ceases to be a Service Provider,
<PAGE>
you shall deliver to Participant a certificate or certificates representing the
aggregate number of shares held or issued pursuant to the Agreement and not
acquired by the Company or its assignees pursuant to exercise of the Company's
Reacquisition Option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to
Participant, you shall deliver all of the same to Participant and shall be
discharged of all further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties.
You shall not be personally liable for any act you may do or omit to do
hereunder as Escrow Agent or as attorney-in-fact for Participant while acting in
good faith, and any act done or omitted by you pursuant to the advice of your
own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law, and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court.
In case you obey or comply with any such order, judgment or decree, you shall
not be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other experts
as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate if you
shall cease to be an officer or agent of the Company or if you shall resign by
written notice to each party. In the event of any such termination, the Company
shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
-2-
<PAGE>
14. It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the securities held
by you hereunder, you are authorized and directed to retain in your possession
without liability to anyone all or any part of said securities until such
disputes shall have been settled either by mutual written agreement of the
parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses or at such other addresses as a party may designate by ten
days' advance written notice to each of the other parties hereto.
COMPANY: Exponent, Inc.
[Address]
PARTICIPANT: _______________________
_______________________
_______________________
ESCROW AGENT: Corporate Secretary
Exponent, Inc.
[Address]
16. By signing these Joint Escrow Instructions, you become a party hereto
only for the purpose of said Joint Escrow Instructions; you do not become a
party to the Agreement.
-3-
<PAGE>
17. This instrument shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and permitted assigns.
18. These Joint Escrow Instructions shall be governed by, and construed
and enforced in accordance with, the internal substantive laws, but not the
choice of law rules, of California.
Very truly yours,
EXPONENT, INC.
_____________________________________
By
_____________________________________
Title
PARTICIPANT:
_____________________________________
Signature
_____________________________________
Print Name
ESCROW AGENT:
_____________________________________
Corporate Secretary
-4-
<PAGE>
EXHIBIT A-4
-----------
CONSENT OF SPOUSE
-----------------
I, ____________________, spouse of ___________________, have read and
approve the foregoing Restricted Stock Award Agreement (the "Agreement"). In
consideration of the Company's grant to my spouse of the right to acquire shares
of Exponent, Inc., as set forth in the Agreement, I hereby appoint my spouse as
my attorney-in-fact in respect to the exercise of any rights under the Agreement
and agree to be bound by the provisions of the Agreement insofar as I may have
any rights in said Agreement or any shares issued pursuant thereto under the
community property laws or similar laws relating to marital property in effect
in the state of our residence as of the date of the signing of the foregoing
Agreement.
Dated: _______________, 19__
_______________________________________
Signature of Spouse
<PAGE>
EXHIBIT A-5
-----------
ELECTION UNDER SECTION 83(b)
----------------------------
OF THE INTERNAL REVENUE CODE OF 1986
------------------------------------
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income
for the current taxable year the amount of any compensation taxable to taxpayer
in connection with his or her receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME: TAXPAYER: SPOUSE:
ADDRESS:
IDENTIFICATION NO.: TAXPAYER: SPOUSE:
TAXABLE YEAR:
2. The property with respect to which the election is made is described as
follows: _____ shares (the "Shares") of the Common Stock of Exponent, Inc.
(the "Company").
3. The date on which the property was transferred is: ____________, 19__.
4. The property is subject to the following restrictions:
The Shares may be reacquired by the Company, or its assignee, upon certain
events. This right lapses with regard to a portion of the Shares based on
the continued performance of services by the taxpayer over time.
5. The fair market value at the time of transfer, determined without regard to
any restriction other than a restriction which by its terms will never
lapse, of such property is:
$_______________.
6. The amount (if any) paid for such property is:
$0.00 .
------------------
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------
except with the consent of the Commissioner.
- -------------------------------------------
Dated: _________, 19__ _____________________________________
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: ________, 19__ _____________________________________
Spouse of Taxpayer
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
Forward-Looking Statement
The statements in this report that are forward-looking are based on current
expectations, and actual results may differ materially. These forward-looking
statements involve numerous risks and uncertainties that could cause actual
results to differ materially, including but not limited to, the possibility that
the demand for the Company's services may decline as a result of changes in
general and industry specific economic conditions and the effects of competitive
services and pricing; one or more current or future claims made against the
Company may result in substantial liabilities; and such other risks and
uncertainties as are described in reports and other documents filed by the
Company from time to time with the Securities and Exchange Commission.
Overview
The Company, together with its subsidiaries, is a multidisciplinary organization
of scientists, physicians, engineers and business consultants performing in-
depth scientific research and analysis in over 50 technical disciplines. The
Company's services include analysis of product development or product recall,
regulatory compliance, discovery of potential problems related to products,
people or property and impending litigation.
During fiscal 1997, the Company continued implementing its strategy of growth
and diversification through the acquisition of Exponent Environmental Group,
Inc. ("EEG"), formerly named Performance Technologies, Incorporated. EEG,
acquired on May 16, 1997, is a scientific and engineering consulting firm
specializing in providing scientific solutions for complex environmental
problems. EEG, together with Exponent Health Group, Inc. ("EHG"), formerly named
Environmental Health Strategies, Inc., are collectively herein referred to as
the Company's environmental and health segment.
Also in 1997, the Company acquired BCS Wireless, Inc. ("BCS") a firm that
specializes in the design, installation and maintenance of wireless
communication networks. During 1999, a decision was made to divest BCS because
the Company's management believes the subsidiary is no longer a strategic fit
for the Company.
9
<PAGE>
Results of Operations
The following table sets forth for the periods indicated, the percentage of
revenue of certain items in the Company's consolidated statements of operations
and the percentage increase (decrease) in the dollar amount of such items year
to year:
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES PERIOD TO PERIOD CHANGE
--------------------------
FISCAL YEARS 1999 1998
--------------------------------------
1999 1998 1997 vs 1998 vs 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 16.0% 13.4%
Operating expenses:
Compensation and related expenses 63.9 65.0 62.2 14.1 18.4
Other operating expenses 17.5 19.6 18.8 3.4 18.0
General and administrative expenses 10.1 10.4 9.0 11.8 31.5
-----------------------------------------------------------------------
91.5 95.0 90.0 11.7 19.6
-----------------------------------------------------------------------
Operating income 8.5 5.0 10.0 98.1 (43.1)
Other income, net 1.4 1.5 1.4 5.3 19.0
Income from continuing operations
before income taxes 9.9 6.5 11.4 76.8 (35.3)
Income taxes 4.1 1.6 4.6 192.3 (59.9)
-----------------------------------------------------------------------
Income from continuing operations 5.8 4.9 6.8 38.0 (18.6)
Discontinued operations, net of taxes (0.2) 0.2 (0.8) (239.4) (128.8)
-----------------------------------------------------------------------
Net income 5.6% 5.1% 6.0% 27.2% (4.3%)
-----------------------------------------------------------------------
</TABLE>
Fiscal years ended December 31, 1999, January 1, 1999 and January 2, 1998
REVENUES The Company's revenues consist of professional fee services, fees for
use of the Company's equipment and facilities as well as third party expenses
directly associated with the services performed that are billed to the client.
Third party expenses are included in revenues net of the related costs.
Revenues increased by $12.9 million or 16.0% during fiscal 1999. The increase is
a result of growth in both segments of the Company's business during the year,
in particular in the other scientific and engineering segment, which contributed
$10.0 million or 78.0% of the total revenue increase. This growth is due to the
effect of higher billable hours, which is the result of an increase in the
number of professional staff as well as higher utilization of existing
professional staff and an increase in bill rates. In addition, several
significant fixed price projects contributed to the revenue growth for 1999.
Fiscal year 1998 revenues increased by $9.5 million or 13.4% over fiscal 1997.
This increase is primarily due to an increase in revenue associated with the
Company's environmental and health segment, which had an increase in revenue of
$6.3 million or 66.8% of the total revenue increase. The revenue increase
associated with the environmental and health segment was largely due to the
inclusion of four additional months of revenue in fiscal 1998 compared to fiscal
1997 for the Environmental Group. The revenue increase associated with the
Company's other scientific and engineering segment is primarily attributable to
an increase in total billable hours in fiscal 1998 associated with an increase
of professional staff.
COMPENSATION AND RELATED EXPENSES During fiscal 1999, total compensation and
related costs increased by $7.4 million or 14.1% over fiscal 1998. The increase
is due to additions in headcount combined with annual salary increases for all
employees and a stock based compensation charge. In addition, in 1999 the
Company standardized its benefits plans for all Company segments, which resulted
in higher benefit costs. As a percentage of revenues, compensation and related
expense was 63.9% in 1999 compared to 65.0% in 1998. This decrease is a result
of higher utilization of professional staff in fiscal 1999.
In fiscal 1998, total compensation and related costs increased by $8.1 million
or 18.4% over fiscal 1997. The environmental and health segment accounted for
10
<PAGE>
$5.1 million or 62.3% of the total increase, primarily due to the inclusion of
four additional months of compensation expense in fiscal 1998 associated with
the Environmental Group. The remaining $3.0 million increase is attributable to
the Company's other scientific and engineering segment. This increase in
compensation expense resulted from an increase in professional and
administrative staff in addition to an increase in the average employee salary.
As a percentage of revenue, compensation and related expenses increased to 65.0%
in fiscal 1998 from 62.2 % in fiscal 1997. This increase is primarily a result
of lower utilization of professional staff in fiscal 1998 compared to fiscal
1997, which resulted from an increase in professional staff occurring at a
faster rate than business growth.
OTHER OPERATING EXPENSES Other operating expenses increased by $532,000 or 3.4%
during fiscal 1999 largely due to increased occupancy expenses. The growth in
occupancy expenses is primarily the result of rent increases in existing
regional facilities along with costs associated with the expansion of one
regional office as well as the addition of two other regional offices in
California during the second half of fiscal year 1999. In addition, depreciation
expense grew by $91,000, largely due to the completion of the new Indoor Test
Facility at the Company's Phoenix Test and Engineering Center during the second
half of the fiscal year. This increase was partially offset by a reduction in
depreciation expense due to the sale of one of the Company's properties in Menlo
Park. Other operating expenses were 17.5% of total revenues for fiscal 1999
compared to 19.6% for fiscal 1998.
Other operating expenses for fiscal 1998 increased by $2.4 million or 18.0% over
fiscal 1997. The environmental and health segment contributed $1.1 million or
44.6% of the total operating expense increase. The increase in operating
expenses associated with the environmental and health segment is again
attributable to the addition of four months of operating expense for the
Environmental Group in fiscal 1998 compared to fiscal 1997. Operating expenses
for the Company's other scientific and engineering segment increased by $1.3
million or 55.4% of the total operating expense increase. This increase was due
to an increase in occupancy costs and depreciation expense associated with the
relocation of offices during fiscal 1998. As a percentage of revenue, other
operating expenses increased to 19.6% in fiscal 1998 from 18.8% in fiscal 1997,
an increase directly associated with the relocation and expansion of offices
while revenue growth was not as strong.
GENERAL AND ADMINISTRATIVE EXPENSES In fiscal 1999, general and administrative
expenses increased by $987,000 or 11.8% over fiscal 1998. $306,000 of the
increase is due to increased travel costs associated with marketing efforts and
the Company's focus on creating national practice areas. In addition, personnel
costs associated with the hiring and relocation of additional professional staff
increased by $192,000 and bad debt expense increased by $144,000. As a
percentage of revenue, general and administrative expenses decreased slightly to
10.1% in fiscal 1999 as compared to 10.4% for fiscal 1998.
General and administrative expenses increased in fiscal 1998 by $2.0 million or
31.5% over fiscal 1997. This increase is primarily attributable to the Company's
other scientific and engineering segment, which accounted for $1.6 million of
the total $2.0 million increase. Of the $1.6 million increase, approximately
$850,000 is due to an increase in bad debt expense of which approximately
$280,000 resulted from some unusually large client bankruptcies. Approximately
$600,000 is due to an increase in travel, marketing and outside consulting
expense associated with the Company's increased marketing efforts. As a
percentage of revenue, general and administrative expenses increased to 10.4% in
fiscal 1998 from 9.0% in fiscal 1997.
OTHER INCOME AND EXPENSE Other income and expense consists primarily of interest
expense on the Company's mortgage, net of interest income earned on available
cash and short-term investments and rental income derived from the leasing of
certain portions of the Company's headquarters building.
Other income and expense, net, increased by $64,000 or 5.3% during fiscal 1999.
The increase is primarily due to a $213,000 gain on the sale of one of the
Company's properties and decreased interest expense on the Company's mortgage.
These gains were partially offset by a decrease in rental income derived from
the sale of the aforementioned property and a decrease in interest income due to
the Company's lower cash and investment balances as a result of the Company's
change in cash management policy.
Other income and expense, net, increased by $193,000 or 19.0% in fiscal 1998.
This increase is primarily due to a decrease in interest expense associated with
the Company's IRS settlement. This decrease in interest expense was partially
offset by a decrease in interest income of approximately $350,000 due to lower
average cash and investment balances during fiscal 1998, in addition to a slight
decrease in rental income of approximately $138,000
11
<PAGE>
due to a decrease in space subleased to outside companies.
INCOME TAXES In fiscal 1999, the Company's provision for income taxes as a
percentage of income from continuing operations is 41.5%. In fiscal 1998, the
provision for income taxes as a percentage of income is 25.9%. This lower
effective tax rate is primarily due to the Company removing a 100% valuation
allowance recorded against the $800,000 deferred tax asset generated from a tax
loss resulting from the sale of PLG, Inc. in September 1997. The decision to
remove the valuation allowance was based upon plans to generate capital gains
via a potential sale of its owned building at the Company's headquarters
facility. Other options for generating capital gains are also being evaluated.
The Company has until September 2002 to generate sufficient capital gains to
utilize the entire $800,000 deferred tax asset. The Company's provision for
income taxes as a percentage of income from continuing operations is 40.5% for
fiscal year 1997.
DISCONTINUED OPERATIONS Effective April 2, 1999 the Company committed to a
formal plan to divest its wholly owned subsidiary, BCS Wireless, Inc. ("BCS").
Accordingly, the results of operations for BCS for all fiscal years presented
have been recorded as a discontinued operation, net of taxes.
In September 1997, the Company sold its wholly owned subsidiary, PLG, for
approximately $2.0 million. Accordingly, the results of operations for PLG have
been shown in the consolidated statements of operations as a loss from
discontinued operations, net of taxes.
LIQUIDITY AND CAPITAL RESOURCES Effective February 1, 1999, the Company changed
its cash management policy to use all excess operating cash to pay down the
mortgage on the Company's headquarters building. As a result of this policy
change, the Company had no cash or cash equivalents at December 31, 1999. The
balance on the Company's mortgage, however, was reduced to $3.6 million at
December 31, 1999 compared to the $16.2 million balance at January 1, 1999. The
Company has financed its business principally through cash flows from operating
activities.
Net cash provided by operating activities was $10.6 million in fiscal 1999,
compared to $1.2 million in fiscal 1998. The increase in cash provided by
operating activities was primarily attributable to timing differences associated
with the payment of the Company's corporate income taxes in addition to an
increase in accrued benefits associated with the Company's increase in staff.
The cash provided by these items was offset by an increase in net accounts
receivable. The increase in accounts receivable is due to the Company's strong
revenue growth in 1999. Net cash provided by operating activities was $1.2
million in fiscal 1998 compared to $3.7 million in fiscal 1997. This decrease in
operating cash flow in fiscal 1998 is primarily due to an increase in accounts
receivable associated with the Company's continued revenue growth in addition to
an increase of days of revenue outstanding at the end of fiscal 1998 compared to
fiscal 1997. Additionally, cash provided by operating activities decreased over
fiscal 1997 due to a decrease in income taxes payable due to earlier payment of
fiscal 1998 taxes in addition to an increase in the net deferred tax asset. This
decrease in cash from changes in operating assets and liabilities was partially
offset by an increase in net income after adjusting for non-cash items in fiscal
1998 compared to fiscal 1997.
Net cash used in investing activities was $581,000 for fiscal 1999, compared to
net cash of $473,000 provided by investing activities for fiscal 1998. This
decrease was primarily a result of the reduction in short-term investment
proceeds for the Company due to the change in cash management policy mentioned
above. This was offset by the funds provided by the sale of one of the Company's
properties in Menlo Park. During fiscal 1998, the Company generated $473,000 of
cash from investing activities primarily through the sale of short-term
investments for a net amount of $6.3 million offset by cash used for capital
expenditures of $5.2 million. During fiscal 1997, the Company generated $1.3
million from investing activities again primarily through the sale of short-term
investments for a net amount of $13.8 million offset by cash used for
acquisitions of approximately $7.8 million and capital expenditures of $3.7
million.
12
<PAGE>
Net cash used in financing activities was $16.1 million for fiscal 1999 compared
to $4.0 million for fiscal 1998. This increase in cash used in financing
activities was primarily due to the net payment of $12.6 million on the
Company's $30.0 million revolving mortgage note. In addition, the Company
repurchased $4.4 million of the Company's common stock in fiscal 1999 compared
to $3.4 million in shares purchased during fiscal 1998. Net cash used in
financing activities increased to $4.0 million in fiscal 1998 compared to $1.1
million in fiscal 1997. This increase is primarily due to stock repurchases in
fiscal 1998 of $3.4 million.
In January 1999, the Company refinanced both its mortgage and line of credit
under one borrowing agreement for a total maximum borrowing amount of $35.0
million. The Company's long-term obligations at December 31, 1999 consisted
primarily of the revolving reducing note on the headquarters facility of $3.6
million. The Company did not use the $5.0 million line of credit during 1999.
Because the Company feels the line of credit will not be needed in the future,
it does not intend to renew the $5.0 million line of credit portion of its
financing agreement. See further discussion under Note 4 of Notes to
Consolidated Financial Statements.
Previously, the Company had a $10.0 million line of credit agreement, which had
been renewed in August 1998. There were no amounts borrowed against this line of
credit during fiscal 1998 or 1997.
Management believes that its existing revolving note, together with funds
generated from operations, will provide adequate cash to fund the Company's
anticipated cash needs through at least the next twelve-month period.
OTHER MATTERS To date the Company has not experienced any material Year 2000
problems with its purchased software and has not been impacted by any Year 2000
problems that may have impacted our clients or suppliers. The amount the Company
has spent related to Year 2000 issues has not been material. The Company
continues to monitor its systems for potential Year 2000 issues.
13
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
EXPONENT, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL YEARS
(In thousands, except per share data) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $93,271 $80,412 $70,935
----------------------------------------------
Operating expenses:
Compensation and related expenses 59,632 52,246 44,130
Other operating expenses 16,279 15,747 13,343
General and administrative expenses 9,377 8,390 6,378
----------------------------------------------
85,288 76,383 63,851
----------------------------------------------
Operating income 7,983 4,029 7,084
Other income (expense):
Interest expense, net (679) (661) (1,168)
Miscellaneous income, net 1,948 1,866 2,180
Income from continuing operations before income taxes 9,252 5,234 8,096
Income taxes 3,841 1,314 3,279
----------------------------------------------
Income from continuing operations 5,411 3,920 4,817
Discontinued operations:
Loss from operations of PLG, Inc. (net of tax benefit of $97) - - (144)
Income (loss) from operations of BCS Wireless, Inc. (net of tax
expense (benefit) of ($158), $108 and ($280) respectively) (223) 160 (411)
----------------------------------------------
Net income $ 5,188 $ 4,080 $ 4,262
==============================================
Income per share from continuing operations:
Basic $ 0.80 $ 0.53 $ 0.67
Diluted $ 0.78 $ 0.51 $ 0.65
Income (loss) per share from discontinued operations:
Basic ($ 0.03) $ 0.02 ($ 0.08)
Diluted ($ 0.03) $ 0.02 ($ 0.08)
Net income per share:
Basic $ 0.77 $ 0.55 $ 0.60
Diluted $ 0.75 $ 0.53 $ 0.58
Shares used in per share computations:
Basic 6,750 7,392 7,148
Diluted 6,894 7,709 7,385
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
14
<PAGE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
EXPONENT, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL YEARS
(In thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $5,188 $4,080 $4,262
---------------------------------------------
Other comprehensive income (losses):
Foreign currency translation adjustments (50) (1) (28)
Unrealized losses on investments, net of reclassification
adjustment - (11) (45)
---------------------------------------------
Comprehensive income $5,138 $4,068 $4,189
=============================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
15
<PAGE>
CONSOLIDATED BALANCE SHEETS
EXPONENT, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In thousands, except per share data) 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ - $ 6,082
Accounts receivable, net of allowance for doubtful accounts
of $1,527 and $1,000 respectively 38,494 33,889
Prepaid expenses and other assets 2,345 3,949
Deferred income taxes 1,389 1,177
---------------------------
Total current assets 42,228 45,097
---------------------------
Property, equipment and leasehold improvements, net 29,468 32,147
Goodwill 7,851 8,584
Deferred income taxes 365 524
Other assets 540 633
---------------------------
$80,452 $86,985
===========================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 4,040 $ 2,151
Current installment of long-term obligations 415 1,709
Accrued payroll and employee benefits 11,101 8,388
Income taxes payable - 278
---------------------------
Total current liabilities 15,556 12,526
---------------------------
Long-term obligations, net of current installments 4,139 15,629
Other obligations 609 515
---------------------------
Total liabilities 20,304 28,670
---------------------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value; 2,000 shares authorized; no shares outstanding - -
Common stock, $.001 par value; 20,000 shares authorized; 7,902 shares issued
and outstanding 8 8
Additional paid in capital 33,406 33,257
Accumulated other comprehensive losses (66) (16)
Retained earnings 34,470 29,575
Treasury shares, at cost: 1,223 and 702 shares held, respectively (7,670) (4,509)
---------------------------
Total stockholders' equity 60,148 58,315
---------------------------
$80,452 $86,985
===========================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
16
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
EXPONENT, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated
COMMON STOCK Additional other TREASURY
------------ paid-in comprehensive Retained ------------------
(In thousands) Shares Amount capital income (losses) earnings Shares Amount Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 3, 1997 7,902 $8 $33,000 $ 69 $21,644 (1,097) ($5,450) $49,271
Sale of stock pursuant to
employee stock plans - - 148 - (14) 157 747 881
Acquisition of EEG (Note 11) (99) 480 2,474 2,375
Net unrealized loss on
investments - - - (45) - - - (45)
Foreign currency translation
adjustments - - - (28) - - - (28)
Net income - - - - 4,262 - - 4,262
---------------------------------------------------------------------------------------
Balance at January 2, 1998 7,902 8 33,148 (4) 25,793 (460) (2,229) 56,716
Sale of stock pursuant to
employee stock plans - - 112 - (298) 247 1,124 938
Purchase of treasury shares - - - - - (489) (3,404) (3,404)
Net unrealized loss
on investments - - - (11) - - - (11)
Foreign currency translation
adjustments - - - (1) - - - (1)
Other - - (3) - - - - (3)
Net income - - - - 4,080 - - 4,080
---------------------------------------------------------------------------------------
Balance at January 1, 1999 7,902 8 33,257 (16) 29,575 (702) (4,509) 58,315
Sale of stock pursuant to
employee stock plans - - 109 - (293) 200 1,213 1,029
Purchase of treasury shares - - - - - (721) (4,374) (4,374)
Foreign currency translation
adjustments - - - (50) - - - (50)
Other - - 40 - - - - 40
Net income - - - - 5,188 - - 5,188
---------------------------------------------------------------------------------------
Balance at December 31, 1999 7,902 $8 $33,406 ($66) $34,470 (1,223) ($7,670) $60,148
=======================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
17
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
EXPONENT, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
FISCAL YEARS
(In thousands) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,188 $ 4,080 $ 4,262
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,416 4,288 3,430
Gain on sale of building (213) - -
Provision for doubtful accounts 2,573 684 (447)
Change in deferred income taxes (53) (815) (1,057)
Changes in operating assets and liabilities:
Accounts receivable (7,517) (5,765) (3,856)
Prepaid expenses 1,414 909 (188)
Accounts payable and accrued liabilities 1,874 (203) (3,261)
Accrued payroll and employee benefits 2,824 10 2,259
Income taxes payable (278) (1,929) 1,278
Other obligations (86) (57) (43)
Net operating activities of discontinued operations 486 (16) 1,354
----------------------------------------
Net cash provided by operating activities 10,628 1,186 3,731
----------------------------------------
Cash flows from investing activities:
Purchase of short-term investments - (1,962) (11,395)
Sales of short-term investments - 8,309 25,213
Proceeds from sale of building 4,411 - -
Acquisition of EHG, Inc., net of cash acquired - (393) -
Acquisition of BCS, Inc., net of cash acquired - - (313)
Acquisition of EEG, Inc., net of cash acquired - - (7,495)
Capital expenditures (4,971) (5,168) (3,653)
Other assets 38 (117) (323)
Net investing activities of discontinued operations (59) (196) (719)
----------------------------------------
Net cash provided by (used in) investing activities (581) 473 1,315
----------------------------------------
Cash flows from financing activities:
Proceeds from borrowings and issuance of long-term
obligations 20,266 - -
Repayments of borrowings and long-term obligations (33,050) (1,523) (1,753)
Repurchase of common stock (4,374) (3,404) -
Net issuance of common stock 1,029 938 854
Net financing activities of discontinued operations - - (200)
----------------------------------------
Net cash used in financing activities (16,129) (3,989) (1,099)
----------------------------------------
Net increase (decrease) in cash and cash equivalents (6,082) (2,330) 3,947
Cash and cash equivalents at beginning of year 6,082 8,412 4,465
----------------------------------------
Cash and cash equivalents at end of year $ - $ 6,082 $ 8,412
========================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EXPONENT, INC. AND SUBSIDIARIES
Note 1: Summary of Significant Accounting Policies
BASIS OF PRESENTATION Exponent, Inc. together with its subsidiaries (referred to
as the "Company") is a multi-disciplinary organization of scientists,
physicians, engineers and business consultants performing in-depth scientific
research and analysis in over 50 technical disciplines. The accompanying
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries, Exponent Failure Analysis Associates, Inc. ("FaAA"),
Exponent Health Group, Inc. ("EHG"), Exponent Environmental Group, Inc. ("EEG"),
BCS Wireless, Inc. ("BCS") and PLG, Inc. ("PLG"). The results of BCS Wireless,
Inc. and PLG, Inc. have been accounted for as discontinued operations for all
fiscal years presented. All significant inter-company transactions and balances
have been eliminated in consolidation.
The Company operates on a 52-53 week fiscal calendar year with each year ending
on the Friday closest to December 31st. Fiscal periods 1999, 1998 and 1997 will
be represented by the fiscal period dates ending December 31, 1999, January 1,
1999 and January 2, 1998, respectively.
REVENUE RECOGNITION The Company derives most of its revenue from professional
service activities, generally at the time services are performed. The majority
of these activities are provided under a time and materials or fixed-price
billing arrangement with revenues consisting of professional fees and expenses
and fees for the use of the Company's equipment and facilities in connection
with the services provided. On fixed-price contracts, revenue is recognized on
the basis of the estimated percentage of completion of services rendered.
The Company reports revenue net of outside direct expenses, which consists
primarily of subcontractor fees and travel expenses. Outside direct expenses
reported against revenue excluding BCS and PLG, were approximately $18,727,000,
$12,247,000 and $9,805,000 in fiscal 1999, 1998 and 1997, respectively.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.
RECLASSIFICATIONS Certain amounts in the accompanying 1998 and 1997 consolidated
financial statements have been reclassified in order to conform with the
presentation of the 1999 consolidated financial statements.
CASH EQUIVALENTS Cash Equivalents consist of highly liquid investments such as
money market mutual funds and commercial paper with original maturities of three
months or less.
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS Property, equipment and leasehold
improvements are stated at cost less accumulated depreciation and amortization.
Depreciation and amortization are computed using the straight-line method.
Buildings are depreciated over their estimated useful lives ranging from 30 to
40 years. Equipment is depreciated over its estimated useful life, which
generally ranges from two to seven years. Leasehold improvements are amortized
over the shorter of their estimated useful lives, generally seven years, or over
the term of the related lease.
IMPAIRMENT OF LONG-LIVED ASSETS AND ASSETS TO BE DISPOSED OF The Company
evaluates long-lived assets and goodwill for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of the assets to future cash flows to be
generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or the fair value less costs
to sell.
GOODWILL Goodwill represents the excess of the purchase price over the fair
market value of the net assets of various entities acquired by the Company
accounted for under the purchase method of accounting. The Company currently
amortizes goodwill on a straight-line basis over periods ranging from 7 to 20
years. The Company periodically evaluates the ongoing profitability of the
businesses acquired to determine if there is goodwill impairment.
In May 1997 the Company recorded $7.2 million of goodwill arising from the
purchase of EEG. Additionally, during fiscal 1998, the Company
19
<PAGE>
recorded additional goodwill of approximately $393,000 associated with the
acquisition of EHG, which considered future payments to be paid, based upon the
attainment of certain revenue and profitability requirements. These future
payments have been accounted for as goodwill as they have been treated as an
adjustment to the original acquisition purchase price.
In January 1997 the Company recorded $485,000 of goodwill related to the
purchase of BCS. As of December 31, 1999, there was $329,000 of un-amortized
goodwill related to BCS.
INCOME TAXES Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the expected tax
consequences of temporary differences between the tax basis and the financial
reporting basis of assets and liabilities. Deferred tax assets and liabilities
are measured using the enacted tax rates and laws in effect when the differences
are expected to reverse. The effect on deferred tax assets and liabilities from
a change in tax rates is recognized in income in the period that includes the
enactment date. A valuation allowance is recorded for deferred tax assets if it
is more likely than not that some portion or all of the deferred tax assets will
not be realized.
FAIR VALUE OF FINANCIAL INSTRUMENTS Financial instruments consist of cash and
cash equivalents, accounts receivable, accounts payable, and long-term debt. The
carrying amount of the Company's cash and cash equivalents, accounts receivable,
accounts payable and debt obligations approximate their fair values, which for
debt is based upon current rates available to the Company.
STOCK-BASED COMPENSATION The Company uses the intrinsic value method to account
for all of its employee stock-based compensation plans.
NET INCOME PER SHARE Basic per share amounts are computed using the
weighted-average number of common shares outstanding during the period. Dilutive
per share amounts are computed using the weighted-average number of common
shares outstanding and potentially dilutive securities, using the treasury stock
method, even when antidilutive, if their effect would be dilutive on the per
share amount of income from continuing operations.
The following schedule reconciles both the numerator and denominator of the
Company's calculation for basic and dilutive net income per share:
FISCAL YEARS
(In thousands) 1999 1998 1997
- -----------------------------------------------------------------
Shares used in basic
per share computation 6,750 7,392 7,148
Effect of dilutive common
stock options outstanding 144 317 237
-------------------------------
Shares used in diluted
per share computation 6,894 7,709 7,385
===============================
Common stock options to purchase 892,068, 126,761 and 609,201 shares were
excluded from the diluted per share calculation for the fiscal years ended
December 31, 1999, January 1, 1999 and January 2, 1998, respectively, due to
their antidilutive effect.
RECENT ACCOUNTING PRONOUNCEMENT In June 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities," which establishes accounting
and reporting standards for derivative instruments and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial condition and measure those
instruments at fair value. Statement No. 133 will be effective for the fiscal
quarter beginning January 1, 2001. The Company does not currently use derivative
instruments or hedging activities and therefore anticipates that the adoption of
Statement No. 133 will not have an impact on its consolidated financial
statements.
Note 2: Short-Term Investments
The Company did not have any available-for-sale securities at December 31, 1999
and January 1, 1999.
The cost of securities sold is based upon the specific identification method.
Total proceeds from the sale of short-term investments in fiscal 1998 and 1997
were $8,309,000 and $25,213,000, respectively. The total proceeds from sales vs.
maturities were as follows:
FISCAL YEARS
(In thousands) 1999 1998 1997
- ---------------------------------------------------------------
Sales $ - $8,309 $24,653
Maturities - - 560
-------------------------------------
$ - $8,309 $25,213
=====================================
20
<PAGE>
Gross realized gains and losses on sales and maturities of short-term
investments are immaterial for all fiscal years presented.
Note 3: Property, Equipment and Leasehold Improvements
FISCAL YEARS
(In thousands) 1999 1998
- -------------------------------------------------------------
Property:
Land $ 4,450 $ 5,450
Buildings 25,105 27,077
Construction in progress 243 185
Equipment:
Machinery and equipment 23,104 21,848
Office furniture and equipment 5,281 5,173
Leasehold improvements 4,663 4,510
------------------------
62,846 64,243
Less accumulated depreciation
and amortization 33,378 32,096
------------------------
Property, equipment and
leasehold improvements, net $29,468 $32,147
========================
In May 1999, the Company sold one of its properties located in Menlo Park,
California. In September 1999, the Company completed construction of its new
Indoor Test Facility at its Phoenix Test and Engineering Center. In fiscal 2000,
the Company expects to complete construction of an engineering and test
preparation building at the Phoenix Test and Engineering Center.
Note 4: Long-Term Obligations
FISCAL YEARS
(In thousands) 1999 1998
- -------------------------------------------------------------
Mortgage note $3,608 $16,207
Other 946 1,131
-------------------------
4,554 17,338
Less current installments 415 1,709
-------------------------
Long-term obligations, net of
current portion $4,139 $15,629
=========================
Effective February 1, 1999, the Company refinanced its 15-year mortgage note on
the Company's headquarters building. The old note, which had an outstanding
principal balance of $16.2 million at the time of the refinancing, had a
floating rate of interest that was tied to LIBOR and was subject to adjustment
every month. Principal payments of $623,333 were due semi-annually on February 1
and August 1 with the final principal payment and all accrued interest due and
payable on August 1, 2011.
The new mortgage note consists of a revolving reducing note, secured by the
Company's headquarters building, with a borrowing amount up to $30.0 million.
The $30.0 million revolving reducing note is subject to automatic annual
reductions in the amount available to be borrowed of approximately $1.3 million
to $2.1 million per year until January 31, 2008. As of December 31, 1999, $26.4
million was available to be borrowed. Any outstanding amounts on the revolving
reducing note are due and payable in full on January 31, 2009. The Company may
from time to time during the term of the note borrow, partially or wholly repay
its outstanding borrowings and re-borrow up to the maximum principal amounts,
subject to the reductions in availability contained in the note. The note is
also subject to two interest rate options of either prime less 1.5% or the fixed
LIBOR plus 1.25% with a term option of one month, two months, three months, six
months, nine months, or twelve months. Interest will be paid on a monthly basis.
Principal amounts subject to the prime interest rate may be repaid at any time
without penalty. Principal amounts subject to the fixed LIBOR rate may also be
repaid at any time but are subject to a prepayment penalty if paid before the
fixed rate term or additional interest if paid after the fixed rate term.
The Company also entered into a line of credit agreement with a borrowing amount
up to $5.0 million. The $5.0 million line of credit is subject to two interest
rate options of either the prime rate in effect from time to time, or a fixed
rate determined by the bank to be 2.75% above LIBOR, with a term option of one
month, two months, three months, six months, nine months or twelve months. The
line of credit agreement expires on February 15, 2000. The Company does not
intend to renew the line of credit portion of its financing agreement.
Other long-term obligations consist primarily of a note with a third party
financing company for the financing of the Company's corporate insurance.
Principal payments due on long-term obligations are $415,000, $368,000,
$163,000, $0 and $0 in fiscal 2000 through fiscal 2004 respectively.
21
<PAGE>
Note 5: Income Taxes
Total income tax expense for the year ended December 31, 1999 was allocated as
follows:
FISCAL YEARS
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------
Income from continuing
operations $3,841 $1,314 $3,279
Discontinued operations -
PLG - - (97)
Discontinued operations -
BCS (158) 108 (280)
---------------------------------
Total $3,683 $1,422 $2,902
=================================
The provision for income taxes consists of the following:
FISCAL YEARS
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------
Current
Federal $2,836 $1,671 $3,440
State 1,058 458 896
-----------------------------
$3,894 $2,129 $4,336
Deferred
Federal ($65) ($788) ($655)
State 12 (27) (402)
-----------------------------
($53) ($815) ($1,057)
-----------------------------
Total $3,841 $1,314 $ 3,279
=============================
The provision for income taxes from continuing operations differs from the tax
expense calculated at the applicable federal statutory rate of 34% as follows
for the years ending:
FISCAL YEARS
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------
Tax at federal statutory
rate of 34% $3,146 $1,780 $ 2,753
Change in beginning-of-
the-year balance of the
valuation allowance for
deferred tax assets allocated
to income tax - (788) -
State taxes,
net of federal benefit 706 275 320
Amortization of goodwill
non-deductible for tax 133 142 100
Foreign rate difference 45 - -
Other (189) (95) 106
-----------------------------
Tax expense from
continuing operations $3,841 $1,314 $ 3,279
=============================
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1999 and
January 1, 1999 are presented as follows:
FISCAL YEARS
(In thousands) 1999 1998
- ------------------------------------------------------------
Deferred tax assets:
State taxes $ 144 $ -
Compensated absences 845 684
Accrued liabilities and reserves 710 511
Capital loss carryforward 830 830
Goodwill 116 -
------------------
Total deferred tax assets 2,645 2,025
------------------
Deferred tax liabilities:
State taxes (145) (18)
Deductible goodwill - (72)
Plant and equipment (746) (234)
------------------
Total deferred tax liabilities (891) (324)
------------------
Net deferred tax assets $1,754 $1,701
==================
Management believes it is more likely than not that the results of future
operations will generate sufficient taxable income to realize the net deferred
assets.
The Company has a capital loss carryforward of $2,071,000 for federal and state
tax purposes that will expire in fiscal years 2000 through 2002.
Note 6: Stockholders' Equity
PREFERRED STOCK The Board of Directors has the authority to issue up to
2,000,000 shares of preferred stock in one or more series and to fix the rights,
preferences, privileges and restrictions of the shares, including dividend
rights, conversion rights, voting rights, terms of redemption and liquidation
preferences. There are no shares of preferred stock outstanding.
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Accumulated other comprehensive
losses consists of:
FISCAL YEARS
(In thousands) 1999 1998
- -------------------------------------------------------------
Cumulative foreign translation adjustment ($66) ($16)
--------------
($66) ($16)
==============
EMPLOYEE STOCK PURCHASE PLAN The Company authorized 400,000 shares of common
stock for issuance under the original 1992 Employee Stock Purchase Plan (The
"Purchase Plan"). All shares authorized under the original plan were distributed
by the second quarter of fiscal 1999. At the 1999 Stockholders' Meeting an
amendment to the Purchase Plan was approved. This amendment authorized an
additional 400,000 shares for distribution and also inserted a clause in the
Purchase Plan that states "that an annual increase can be added on each
anniversary date of the adoption of the Plan equal to the lesser of: 200,000
shares, 3% of outstanding shares on such date or a lesser amount determined by
the Board of Directors."
22
<PAGE>
Qualified employees may elect to have a certain percentage (not to exceed 15%)
of their salary withheld for purchase of stock pursuant to this plan. On July
23, 1997, the Board of Directors amended the Purchase Plan to reduce the
discount price at which employees may purchase the Company shares from 90% to
85% of the lower of the fair market value of the common stock at the beginning
or ending of the offering period. As of December 31, 1999, 486,435 shares have
been sold under the plan. Weighted average purchase prices for shares sold under
the plan in fiscal 1999, 1998 and 1997 were $5.08, $5.96 and $5.35,
respectively. The Company recognized $101,000, $0 and $0 in stock-based
compensation expense in fiscal 1999, 1998 and 1997, respectively.
RESTRICTED STOCK PLAN At the 1999 Stockholders' Meeting a Restricted Stock Plan
was approved. The terms of the restrictions are to be determined by the Board of
Directors upon grant. This plan initially provides for 100,000 shares to be
available for grant and includes a clause that states "that an annual increase
can be added on each anniversary date of the adoption of the plan equal to the
lesser of: 200,000 shares, 2% of outstanding shares on such date or a lesser
amount determined by the Board of Directors." As of December 31, 1999, no shares
have been granted under the 1999 Restricted Stock Plan.
STOCK OPTION PLANS At the 1999 Stockholders' Meeting the 1999 Stock Option Plan
was approved. This incentive stock option plan provides initially for 400,000
shares to be available for grant and includes a clause that states "that an
annual increase can be added on each anniversary date of the adoption of the
plan equal to the lesser of: 300,000 shares, 3% of outstanding shares on such
date or a lesser amount determined by the Board of Directors." The plan provides
for a grant of incentive stock options, non-statutory stock options and stock
purchase rights at an exercise price equal to the fair market value of the
shares. As of December 31, 1999, no shares have been granted under the 1999
Stock Option Plan.
The 1990 Stock Option Plan is an incentive stock option plan, which covers up to
an aggregate of 2,000,000 shares of common stock. This plan will expire in the
year 2000. The 1990 Plan provides for the grant of either incentive stock
options, exercisable at a price equal to the fair market value of the shares at
the date of grant, or non-qualified options, exercisable at a price not less
than 85% of the fair market value of the shares at the date of grant. In October
1998, the Board approved a new non-statutory stock option plan, which covers up
to an aggregate of 300,000 shares of common stock. The Board approved an
increase of 55,000 shares to this plan in 1999. The 1998 Plan provides for the
grant of non-qualified options, exercisable at a price not less than 85% of the
fair market value of the shares at the date of grant. Options are granted for
terms of up to ten years and generally vest ratably over a four-year period from
the grant date. In addition, the Company has a stock option plan for one officer
covering up to 119,000 shares of common stock, all of which have been granted
and 29,760 have been exercised as of December 31, 1999. Option activity under
the stock option plans is as follows:
Weighted-
Options average
available Number exercise
for grant of shares price
- -----------------------------------------------------------------------
Balance as of
January 3, 1997 271,820 1,432,486 $5.88
Options granted (345,575) 345,575 6.80
Options cancelled 65,875 (65,875) 6.51
Options exercised - (109,272) 5.51
Options expired (42,000) - -
Additional shares
reserved 450,000 - -
---------------------------------------
Balance as of
January 2, 1998 400,120 1,602,914 $6.08
Options granted (469,500) 469,500 6.76
Options cancelled 58,500 (58,500) 6.15
Options exercised - (120,107) 4.86
Additional shares
reserved under
new stock plan 300,000 - -
---------------------------------------
Balance as of
January 1, 1999 289,120 1,893,807 $6.32
Options granted (352,200) 352,200 6.38
Options cancelled 32,862 (32,862) 7.00
Options exercised - (62,000) 4.95
Additional shares
reserved under
new stock plans 455,000 - -
---------------------------------------
Balance as of
December 31, 1999 424,782 2,151,145 $6.36
=======================================
23
<PAGE>
Information regarding options outstanding at December 31, 1999 is summarized
below:
OUTSTANDING EXERCISABLE
---------------------------------------- ---------------------
Weighted-
average Weighted- Weighted-
remaining average average
Range of Number contractual exercise Number exercise
exercise price of shares life price of shares price
- --------------------------------------------------------------------------------
$4.50- $5.50 461,575 4.67 $4.88 444,075 $4.86
$5.63- $5.88 547,950 8.64 $5.77 129,500 $5.80
$6.00- $7.00 488,000 7.21 $6.65 214,000 $6.61
$7.13- $7.50 505,610 3.71 $7.23 433,073 $7.22
$8.00-$10.50 148,010 7.44 $9.11 50,885 $9.01
--------- -----------------------
2,151,145 1,271,533 $6.22
========= =======================
PRO FORMA FAIR VALUE INFORMATION The Company uses the intrinsic value method in
accounting for its Employee Stock Purchase Plan and Stock Option Plan,
collectively called "Options". The Options are generally granted at exercise
prices equal to the fair value of the Company's common stock on the date of the
grant. SFAS No. 123, "Accounting for Stock-Based Compensation," ("SFAS 123")
requires the Company to disclose pro forma information regarding net income and
net income per share as if the Company had accounted for its Options under the
fair value method. Under the fair value method, compensation expense is
calculated for options granted using a defined valuation technique. The Company
uses the Black-Scholes option-pricing model to calculate the fair value of its
Options. In calculating the fair value of an option at the date of grant, the
Black-Scholes option-pricing model requires the input of highly subjective
assumptions. The Company used the following weighted average assumptions for
1999, 1998 and 1997:
EMPLOYEE STOCK PURCHASE PLAN STOCK OPTION PLAN
1999 1998 1997 1999 1998 1997
- -------------------------------------------------------------------------------
Expected life
(in years) 1 1 0.25 5 6 6
Risk-free
interest rate 5.26% 4.85% 5.61% 4.2% 4.3% 6.2%
Volatility 0.49 4.67 0.74 1.0 0.87 0.76
Dividend yield 0% 0% 0% 0% 0% 0%
Using the above assumptions, the weighted average fair value of options granted
during 1999, 1998 and 1997 was $4.97, $5.06 and $4.82, respectively.
Had the Company determined compensation cost based on the estimated fair value
at the grant date for its Options under SFAS No. 123, the Company's income from
continuing operations would have been adjusted to the pro forma amounts
indicated below:
FISCAL YEARS ENDED
(In thousands, except per share data) 1999 1998 1997
- --------------------------------------------------------------------------------
Income from continuing
operations:
As reported $5,411 $3,920 $4,817
Pro forma $3,943 $2,356 $4,319
Income per share from
continuing operations:
As reported:
Basic $ 0.80 $ 0.53 $ 0.67
Diluted $ 0.78 $ 0.51 $ 0.65
Pro forma:
Basic $ 0.58 $ 0.32 $ 0.60
Diluted $ 0.57 $ 0.31 $ 0.58
Note 7: Pension Plan
Effective January 1, 1999, the Company terminated its existing defined
contribution retirement plan and modified its existing 401(k) plan whereby the
Company will contribute to each eligible employee's 401(k) account, 7% of the
employee's base salary plus overtime, regardless of the amount contributed by
the employee. The employee does not need to make a contribution to the plan to
be eligible for the Company's 7% contribution. To be eligible under the plan, an
employee must be at least 21 years of age and be either a full time or part time
salaried employee. The 7% Company contribution will vest 20% a year for
employees hired after January 1, 1999 and immediately for employees hired as of
December 31, 1998. The Company's subsidiaries, Exponent Failure Analysis
Associates, Inc., Exponent Health Group, Inc. and Exponent Environmental Group,
Inc. are covered under the newly modified 401(k) plan.
Prior to fiscal 1999, the Company's subsidiaries Exponent Failure Analysis
Associates, Inc. and Exponent Health Group, Inc. had a defined contribution
retirement plan covering all salaried employees of at least 21 years of age.
Contributions made to this plan were $2,165,000, $1,922,000 and $1,965,000 in
fiscal 1999, 1998 and 1997, respectively.
24
<PAGE>
Note 8: Commitments and Contingencies:
The following is a summary of the future minimum payments, net of rental income,
required under non-cancelable operating leases, with terms in excess of one year
as of December 31, 1999:
(In thousands) Lease Rental Net future
Year ending commitments income payments
- ------------------------------------------------------------------------
2000 $ 3,069 $(1,285) $ 1,784
2001 2,487 (74) 2,413
2002 2,291 (29) 2,262
2003 1,978 (24) 1,954
2004 1,434 - 1,434
Thereafter 6,258 - 6,258
------- ------- -------
$17,517 $(1,412) $16,105
======= ======= =======
Total rent and equipment lease expense in 1999, 1998 and 1997 was $3,434,000,
$3,210,000, and $2,439,000, respectively.
From time to time, the Company may be subject to other claims that arise in
the ordinary course of business. In the opinion of management, all such
matters involve amounts that would not have a material adverse effect on the
Company's consolidated financial position if unfavorably resolved. There are
currently no such matters.
Note 9: Other Income and Expense
Interest and other income (expense), net, consisted of the following:
FISCAL YEARS
(In thousands) 1999 1998 1997
- -----------------------------------------------------------------------
Interest income $ 139 $ 509 $ 861
Interest expense (818) (1,170) (2,029)
Rental income 1,519 1,752 1,889
Other 429 114 291
----------------------------------------
Total $1,269 $ 1,205 $ 1,012
========================================
Note 10: Client and Industry Credit Risk
The Company serves clients in various segments of the economy. During 1999, 1998
and 1997 the Company provided services representing approximately 20%, 29% and
29%, respectively, of gross revenues from continuing operations to clients and
to organizations and insurers acting on behalf of clients in the transportation
industry.
Gross revenues of $8,584,000, $10,076,000, and $5,246,000 in fiscal 1999, 1998
and 1997, respectively, were earned on engagements for one client or for
organizations insuring or providing services to such client in the
transportation industry. As of December 31, 1999 and January 1, 1999, accounts
receivable included $2,658,000 and $3,640,000, respectively, related to this
client. Additionally, in fiscal 1999 gross revenues of approximately $12,500,000
were earned on an engagement for another client. As of December 31, 1999,
accounts receivable included $6,744,000 related to this client. The majority of
the Company's clients are Fortune 500 companies or government agencies that pose
minimal credit risk. The Company maintains reserves for potential credit losses.
Note 11: Acquisitions
During fiscal year 1997, the Company acquired two new companies, BCS Wireless,
Inc. ("BCS") and Exponent Environmental Group, Inc. ("EEG"), formerly named
Performance Technologies, Incorporated. BCS, acquired on January 4, 1997, is a
company that specializes in the design, installation and maintenance of wireless
communication networks. They are located in the greater Madison, Wisconsin area
and have erected communication towers and provided related training and
technical services for the telecommunications industry since 1981. The Company
acquired all of the stock of BCS for $375,000 in cash and recorded $485,000 in
goodwill associated with the purchase. EEG, acquired on May 16, 1997, is a
scientific and engineering consulting firm specializing in scientific solutions
for complex environmental problems. The Company acquired all of the stock of EEG
for approximately $7.5 million in cash and 480,002 shares of stock with an
approximate value of $2.4 million. The Company recorded approximately $7.2
million of goodwill, which is being amortized over twenty years using the
straight-line method.
On August 1, 1996, the Company acquired Exponent health Group, Inc., ("EHG"),
formerly named
25
<PAGE>
Environmental Health Strategies, Inc. EHG provides epidemiological services in
the areas of occupational and environmental health, pharmaceutical and medical
devices and health-related consumer product safety. The Company acquired all of
the stock of EHG for a combination of $250,000 in cash and 283,742 shares of
stock for a total purchase price of $2.1 million. The Company recorded
approximately $2.0 million of goodwill, which is being amortized over seven
years using the straight-line method. Under the original acquisition agreement,
future contingent payments of either cash or stock were considered, based upon
the attainment of certain revenue and profitability requirements as defined per
the terms of the agreement. Contingent payments were to be made at the end of
each fiscal year through fiscal 2001 if the revenue and profitability
requirements were attained. In February 1998, the Company made the first
contingent payment of $143,000 for EHG's financial performance through fiscal
1997. In September 1998, the original acquisition agreement was amended whereby
the Company's obligation for any future contingent payments was terminated in
exchange for a final payment of $250,000. Both payments were recorded as
additional goodwill.
All acquisitions have been accounted for as purchases and, accordingly, the
purchase price was allocated to the net assets acquired based on the estimated
fair market value at the date of the acquisition. The results of operations from
the date of the acquisitions have been included in the Company's consolidated
financial statements. Pro forma disclosures giving effect to the acquisitions of
EHG does not differ materially from the Company's historical results. Results
from continuing operations for the fiscal year ending January 2, 1998 assuming
the Company and EEG were combined at the beginning of the fiscal year would have
been as follows:
FISCAL YEAR
(In thousands, except per share data) 1997
- -----------------------------------------------------------------
Revenues $ 75,584
Income from continuing operations $ 4,848
Net income $ 4,293
Income per share from continuing
operations:
Basic $ 0.68
Diluted $ 0.66
Net income per share:
Basic $ 0.60
Diluted $ 0.58
Note 12: Discontinued Operations
Effective April 2, 1999 the Company committed to a formal plan to divest its
wholly owned subsidiary, BCS Wireless, Inc. ("BCS"). Accordingly, the results of
operations for BCS for all fiscal years presented have been recorded as a
discontinued operation. The condensed consolidated balance sheet as of December
31, 1999 includes approximately $2.0 million in accounts receivable and other
assets, $641,000 in capital equipment, $3.0 million in an intercompany payable
to the Company and $576,000 in accounts payable and accrued liabilities
associated with BCS. The decision to divest BCS was made because the Company's
management believes the subsidiary is no longer a strategic fit for the Company.
Effective September 18, 1997 the Company sold all of the outstanding shares of
stock of its wholly owned subsidiary, PLG, Inc. ("PLG"), for a total purchase
price of approximately $2.0 million which included a premium of $600,000 over
the net book value. The Company made the decision to sell PLG based on
management's assessment that the services PLG provided, which included
consulting services primarily to the nuclear industry, were no longer
complementary to the Company's core business. The Company received an unsecured
subordinated promissory note as consideration of the $2.0 million purchase
price. The note was paid in full by the end of fiscal 1999. Certain expenses
related to the sale of PLG and a reserve against the note receivable offset the
$600,000 gain on disposal, therefore, no gain on the sale was recorded.
The Company has recorded the results of operations for BCS and PLG as
discontinued operations in the consolidated financial statements for all fiscal
years presented.
Note 13: Supplemental Cash Flow Information The following is supplemental
disclosure of cash flow information:
FISCAL YEARS
(In thousands) 1999 1998 1997
- ----------------------------------------------------------------------------
Cash paid during the year:
Interest $ 718 $ 1,087 $ 1,260
Income taxes $ 4,125 $ 5,322 $ 2,198
Non-cash investing and
financing activities:
Disposition of operations
in exchange for a
promissory note - - $ 2,053
Issuance of debt for financing
of insurance policy $ 1,121 $ 1,369 -
Treasury shares issued for
acquisition of EEG - - $ 2,375
26
<PAGE>
Note 14: Segment Reporting
The Company is a multidisciplinary organization of scientists, physicians,
engineers and business consultants performing in-depth scientific research and
analysis in a number of technical disciplines. The Company has two operating
segments based on two primary areas of service. One operating segment provides
services in the area of environmental and health risk analysis. This operating
segment provides a wide range of consulting services relating to environmental
hazards and risks and the impact on both human health and the environment. The
Company's other operating segment is a broader service group providing technical
consulting in different practices and primarily in the area of impending
litigation.
Segment information for the three fiscal years ended December 31, 1999, January
1, 1999 and January 2, 1998 follows:
R E V E N U E S
- ------------------------------------------------------------
FISCAL YEARS
(In thousands) 1999 1998 1997
- ------------------------------------------------------------
Environmental and health $20,810 $17,985 $11,651
Other scientific and
engineering 72,461 62,427 59,284
----------------------------
Total revenues $93,271 $80,412 $70,935
============================
OPERATING INCOME (LOSS)/1/
- ------------------------------------------------------------
FISCAL YEARS
(In thousands) 1999 1998 1997
- ------------------------------------------------------------
Environmental and health $ 3,265 $ 1,429 $ 1,527
Other scientific and
engineering 18,724 12,018 13,740
----------------------------
Total segment operating
income 21,989 13,447 15,267
----------------------------
Corporate operating loss (14,006) (9,418) (8,183)
----------------------------
Total operating income $ 7,983 $ 4,029 $ 7,084
============================
ASSETS
- ------------------------------------------------------------
FISCAL YEARS
(In thousands) 1999 1998 1997
- ------------------------------------------------------------
Environmental and health $ 4,612 $ 6,261 $ 5,774
Other scientific and
engineering 40,000 36,977 30,791
Other 2,723 2,984 1,456
----------------------------
Total segment assets 47,335 46,222 38,021
----------------------------
Corporate assets 33,117 40,763 50,230
----------------------------
Total assets $ 80,452 $ 86,985 $88,251
============================
CAPITAL EXPENDITURES
- ------------------------------------------------------------
FISCAL YEARS
(In thousands) 1999 1998 1997
- ------------------------------------------------------------
Environmental and health $ 257 $ 431 $ 298
Other scientific and
engineering 4,373 4,007 3,156
---------------------------
Total segment capital
expenditures 4,630 4,438 3,454
----------------------------
Corporate capital expenditures 341 730 199
----------------------------
Total capital expenditures $4,971 $5,168 $ 3,653
============================
DEPRECIATION AND AMORTIZATION
- ------------------------------------------------------------
FISCAL YEARS
(In thousands) 1999 1998 1997
- ------------------------------------------------------------
Environmental and health $ 223 $ 327 $ 182
Other scientific and
engineering 2,351 2,453 2,015
----------------------------
Total segment depreciation
and amortization 2,574 2,780 2,197
----------------------------
Corporate depreciation and
amortization 1,842 1,508 1,233
----------------------------
Total depreciation and
amortization $4,416 $ 4,288 $ 3,430
============================
Information regarding Exponent's operations in different geographical areas:
REVENUES/2/
- ------------------------------------------------------------
FISCAL YEARS
(In thousands) 1999 1998 1997
- ------------------------------------------------------------
United States $90,901 $ 78,215 $69,027
Foreign countries 2,370 2,197 1,908
----------------------------
Total $93,271 $ 80,412 $70,935
============================
PROPERTY, PLANT AND EQUIPMENT, NET
- ------------------------------------------------------------
FISCAL YEARS
(In thousands) 1999 1998 1997
- ------------------------------------------------------------
United States $29,407 $32,060 $30,184
Foreign countries 61 87 93
----------------------------
Total $29,468 $32,147 $30,277
============================
/1/ Due to a Company reorganization and centralization of the Company's
corporate functions effective January 2, 1999, operating income for the
periods presented are not comparable. Included in the Company's corporate
operating expenses for fiscal 1999 are corporate related costs that had
been included in the operating income of the environmental and health
segment for fiscal 1998 and 1997. The Company has not restated segment
information for fiscal 1998 and 1997 to be comparable with 1999, as it
would be impracticable to do so.
/2/ Geographic revenues are allocated based on the location of the customer.
27
<PAGE>
Note 15: Comparative Quarterly Financial Data (unaudited)
Summarized quarterly financial data is as follows:
<TABLE>
<CAPTION>
FISCAL 1999
- ---------------------------------------------------------------------------------------------------------------------
April 2, July 2, October 1, December 31,
(In thousands, except per share data) 1999 1999 1999 1999
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $23,815 $23,353 $24,082 $22,021
Operating income 2,428 1,825 2,502 1,228
Income from continuing operations before income taxes 2,785 2,334 2,697 1,436
Income from continuing operations 1,631 1,368 1,575 837
Income (loss) from discontinued operations (282) (95) 88 66
Net income $ 1,349 $ 1,273 $ 1,663 $ 903
--------------------------------------------------------
Income per share from continuing operations:
Basic $ 0.23 $ 0.20 $ 0.23 $ 0.13
Diluted $ 0.23 $ 0.20 $ 0.23 $ 0.12
Net income per share:
Basic $ 0.19 $ 0.19 $ 0.25 $ 0.14
Diluted $ 0.19 $ 0.18 $ 0.24 $ 0.13
Shares used in per share computations:
Basic 7,076 6,794 6,764 6,682
Diluted 7,176 6,922 6,953 6,841
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1998
- ----------------------------------------------------------------------------------------------------------------------
April 3, July 3, October 2, January 1,
(In thousands, except per share data) 1998 1998 1998 1999
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $21,300 $19,362 $19,350 $20,400
Operating income 2,291 674 565 499
Income from continuing operations before income taxes 2,552 1,104 813 765
Income from continuing operations 1,512 1,464 487 457
Income (loss) from continuing operations 48 111 122 (121)
Net income $ 1,560 $ 1,575 $ 609 $ 336
--------------------------------------------------------
Income per share from continuing operations:
Basic $ 0.20 $ 0.19 $ 0.07 $ 0.06
Diluted $ 0.19 $ 0.18 $ 0.07 $ 0.06
Net income per share:
Basic $ 0.21 $ 0.21 $ 0.08 $ 0.05
Diluted $ 0.20 $ 0.20 $ 0.08 $ 0.05
Shares used in per share computations:
Basic 7,476 7,532 7,324 7,236
Diluted 7,987 8,025 7,480 7,301
</TABLE>
28
<PAGE>
AUDITORS' REPORT
EXPONENT, INC. AND SUBSIDIARIES
The Board of Directors and Stockholders
Exponent, Inc.
We have audited the accompanying consolidated balance sheets of Exponent, Inc.
and subsidiaries as of December 31, 1999 and January 1, 1999, and the related
consolidated statements of operations, comprehensive income (loss),
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Exponent, Inc. and
subsidiaries as of December 31, 1999 and January 1, 1999, and the results of
their operations and their cash flows for each of the years in the three-year
period ending December 31, 1999, in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Mountain View, California
January 24, 2000
QUARTERLY STOCK DATA
The Company's common stock is traded on the NASDAQ Stock Market under the symbol
"EXPO." The following table sets forth for the fiscal periods indicated the high
and low closing sales prices for the Company's common stock.
Stock prices by quarter High Low
- --------------------------------------------------------------
Fiscal year ended January 1, 1999
First quarter $11.00 $8.50
Second quarter $11.88 $8.00
Third quarter $ 8.63 $4.19
Fourth quarter $ 6.63 $4.25
Fiscal year ended December 31, 1999
First quarter $ 6.50 $5.50
Second quarter $ 7.25 $5.25
Third quarter $ 7.50 $5.00
Fourth quarter $ 6.91 $5.25
Fiscal year ended December 29, 2000
First quarter (through
February 25, 2000) $ 9.50 $6.25
As of February 25, 2000, there were 398 holders of record of the Company's
common stock. The Company has never paid cash dividends. The Company currently
intends to retain future earnings for reinvestment in the Company's business
and, therefore, does not anticipate paying cash dividends in the foreseeable
future.
29
<PAGE>
FINANCIAL SUMMARY
EXPONENT, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL YEARS
(In thousands, except per share data) 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 93,271 $ 80,412 $ 70,935 $ 53,273 $ 52,824
----------------------------------------------------------------------
Operating expenses:
Compensation and related expenses 59,632 52,246 44,130 33,541 31,942
Other operating expenses 16,279 15,747 13,343 12,381 13,069
General and administrative expenses 9,377 8,390 6,378 5,579 4,373
----------------------------------------------------------------------
85,288 76,383 63,851 51,501 49,384
----------------------------------------------------------------------
Operating income 7,983 4,029 7,084 1,772 3,440
Other income (expense):
Interest expense, net (679) (661) (1,168) (1,188) (1,059)
Miscellaneous income, net 1,948 1,866 2,180 1,622 1,172
----------------------------------------------------------------------
Income from continuing operations before
income taxes 9,252 5,234 8,096 2,206 3,553
Income taxes 3,841 1,314 3,279 367 1,439
----------------------------------------------------------------------
Income from continuing operations 5,411 3,920 4,817 1,839 2,114
Discontinued operations:
Loss from operations of PLG, Inc. - - (144) (1,832) (92)
Income (loss) from operations of BCS Wireless, Inc. (223) 160 (411) - -
Extraordinary item - - - (443) -
----------------------------------------------------------------------
Net income (loss) $ 5,188 $ 4,080 $ 4,262 ($ 436) $ 2,022
======================================================================
Income per share from continuing operations:
Basic $ 0.80 $ 0.53 $ 0.67 $ 0.28 $ 0.32
Diluted $ 0.78 $ 0.51 $ 0.65 $ 0.27 $ 0.31
Net income (loss) per share:
Basic $ 0.77 $ 0.55 $ 0.60 ($ 0.07) $ 0.31
Diluted $ 0.75 $ 0.53 $ 0.58 ($ 0.07) $ 0.30
Shares used in per share computations:
Basic 6,750 7,392 7,148 6,663 6,610
Diluted 6,894 7,709 7,385 6,801 6,728
</TABLE>
30
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
State or Other Jurisdiction
of Incorporation or
Subsidiary Incorporation or Organization
- ----------------------------- -----------------------------
Exponent Failure Analysis Associates, Inc. Delaware
FaAA Investments Corporation California
FaAA Products Corporation California
170181 Canada Ltd. Canada
Failure Analysis Associates B.V. Netherlands
Spectus Technologies, Inc. California
(formerly Applied Visual Computing, Inc.)
Failure Analysis Associates, Spolka z o.o. Poland
Exponent Health Group, Inc. California
BCS Wireless, Inc. Wisconsin
Exponent Environmental Group, Inc. Washington
<PAGE>
EXHIBIT 23.1
REPORT ON FINANCIAL STATEMENT SCHEDULE AND CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Exponent, Inc.
The audits referred to in our report dated January 24, 2000, included the
related financial statement schedule as of December 31, 1999, and for each of
the years in the three-year period ended December 31, 1999, as listed in the
index in Item 14(a)2 herein. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based on our audits. In our
opinion, such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in
all material respects, the information set forth therein.
We consent to incorporation by reference in the registration statements (Nos.
33-38479, 334-46054, 33-75210, 33-793468, and 333-31830) on Form S-8 of
Exponent, Inc. of our reports dated January 24, 2000, relating to the
consolidated balance sheets of Exponent, Inc. and subsidiaries as of December
31, 1999 and January 1, 1999, and related consolidated statements of
operations, comprehensive income (loss), stockholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1999, and
the related schedule, which reports appear or are incorporated by reference in
the December 31, 1999, annual report on Form 10-K of Exponent, Inc.
/s/ KPMG LLP
Mountain View, California
March 27, 2000
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED 12/31/1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<MULTIPLIER> 1,000
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-02-1999
<PERIOD-END> DEC-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 40021
<ALLOWANCES> 1527
<INVENTORY> 0
<CURRENT-ASSETS> 42228
<PP&E> 62846
<DEPRECIATION> 33378
<TOTAL-ASSETS> 80452
<CURRENT-LIABILITIES> 15556
<BONDS> 4139
0
0
<COMMON> 8
<OTHER-SE> 60148
<TOTAL-LIABILITY-AND-EQUITY> 80452
<SALES> 0
<TOTAL-REVENUES> 93271
<CGS> 0
<TOTAL-COSTS> 59632
<OTHER-EXPENSES> 25656
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 818
<INCOME-PRETAX> 9252
<INCOME-TAX> 3841
<INCOME-CONTINUING> 5411
<DISCONTINUED> (223)
<EXTRAORDINARY> 0
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<NET-INCOME> 5188
<EPS-BASIC> .77
<EPS-DILUTED> .75
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ANNUAL
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ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1000
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-01-1999
<PERIOD-START> JAN-03-1998
<PERIOD-END> JAN-01-1999
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<TOTAL-REVENUES> 80412
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<INCOME-PRETAX> 5234
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<INCOME-CONTINUING> 3920
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED 12/31/1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-02-1998
<PERIOD-START> JAN-04-1997
<PERIOD-END> JAN-02-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
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0
0
<COMMON> 0
<OTHER-SE> 0
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<TOTAL-REVENUES> 70935
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<OTHER-EXPENSES> 19721
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2029
<INCOME-PRETAX> 8096
<INCOME-TAX> 3279
<INCOME-CONTINUING> 4817
<DISCONTINUED> (555)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4262
<EPS-BASIC> .60
<EPS-DILUTED> .58
</TABLE>
