<PAGE> 1
F O R M 1 0 - Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Quarter ended March 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 1-3931
SALEM CORPORATION
- - -------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Commonwealth of Pennsylvania 25-0923435
- - -------------------------------------------- -----------------------
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification number)
P.O. Box 2222, Pittsburgh, Pennsylvania 15230
----------------------------------------------
(Address of principal executive offices)
(Zip Code)
412-276-5700
--------------------------------------------------
Registrant's telephone number, including area code
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 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
----- -----
1,864,882 Shares of Common Stock were outstanding at May 1, 1996.
Page 1 of 13
<PAGE> 2
SALEM CORPORATION AND SUBSIDIARIES
I N D E X
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income
and Retained Earnings for the
three months ended March 31, 1996
and 1995 (Unaudited) 3
Consolidated Balance Sheets as of
March 31, 1996 (Unaudited) and
December 31, 1995 4
Consolidated Statements of Cash Flows
for the three months ended March 31,
1996 and 1995 (Unaudited) 5
Notes to Consolidated Financial
Statements for the three months
ended March 31, 1996 (Unaudited) 6-7
Review by Independent Public Accountants 8
Review Report of Independent
Public Accountants 9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 10-11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 13
</TABLE>
Page 2 of 13
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SALEM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (NOTE 1)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1996 1995
------- -------
(In Thousands Except
Per Share Amounts)
<S> <C> <C>
Gross revenues $29,496 $31,856
Cost of revenues 23,752 26,332
------- -------
Gross income 5,744 5,524
Unusual charges 44 808
Selling, general & administrative expenses 4,613 4,367
------- -------
Operating income 1,087 349
------- -------
Other income (expense):
Interest income 311 346
Interest expense (76) (66)
Other income (expense), net 115 60
(Loss) gain on foreign exchange (178) 80
------- -------
Total other income 172 420
------- -------
Income from continuing operations before
minority interest and income taxes 1,259 769
Minority interest 39 2
Provision for income taxes (550) (302)
------- -------
Income from continuing operations 748 469
Loss from discontinued operations (47) (141)
------- -------
Net income 701 328
Retained earnings, beginning of period 31,753 29,677
Cash dividends declared - (187)
------- -------
Retained earnings, end of period $32,454 $29,818
======= =======
Net income per common share:
Income from continuing operations $ .40 $ .25
Loss from discontinued operations (.02) (.07)
------- -------
$ .38 $ .18
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
Page 3 of 13
<PAGE> 4
SALEM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (NOTE 1)
<TABLE>
<CAPTION>
(IN THOUSANDS)
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
(Unaudited)
<S> <C> <C>
A S S E T S
-----------
CURRENT ASSETS:
Cash and cash equivalents (including
restricted cash of $6,144 and $5,998) $17,263 $18,048
Restricted short-term investments 4,770 4,687
Receivables 18,633 23,890
Indebtedness of related parties, current 97 97
Contracts-in-progress 7,879 8,756
Inventories 6,527 6,018
Income tax benefit 2,898 3,078
Prepaid expenses 2,040 2,270
Investments in and advances to discontinued operations - 904
------- -------
Total current assets 60,107 67,748
------- -------
PROPERTY, PLANT AND EQUIPMENT, at cost 26,474 25,445
Less- Accumulated depreciation 16,332 16,036
------- -------
Net property, plant and equipment 10,142 9,409
OTHER ASSETS:
Investments in affiliated companies (at equity) 2,089 2,098
Income tax benefit 2,976 2,817
Other assets 3,702 3,749
------- -------
Total assets $79,016 $85,821
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Dividends payable $ - $ 280
Current maturities of long-term debt 801 680
Accounts payable (including outstanding
checks of $1,315 and $1,703) 12,247 18,288
Advance billings on contracts 8,107 8,720
Accrued income taxes 282 1,389
Accrued payroll and employee benefits 4,508 4,811
Accrued loss reserve 2,396 2,347
Other accrued liabilities 1,181 1,162
Reserves for warranty expense 3,617 3,689
Net current liabilities of discontinued operations 926 -
------- -------
Total current liabilities 34,065 41,366
LONG-TERM DEBT 1,652 1,683
OTHER NONCURRENT LIABILITIES 3,207 3,285
MINORITY INTEREST 492 531
SHAREHOLDERS' EQUITY
Preferred stock, par $25.00, authorized 112,485
shares, issued 0 shares - -
Common stock, par $.50, authorized 15,000,000
shares, issued 2,690,324 shares 1,345 1,345
Paid-in surplus 9,301 9,301
Pension adjustment (1) (1)
Retained earnings 32,454 31,753
Cumulative translation adjustment (302) (245)
Treasury stock, at cost (825,442 shares) (3,197) (3,197)
------- -------
Total shareholders' equity 39,600 38,956
------- -------
Total liabilities and shareholders'
equity $79,016 $85,821
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
Page 4 of 13
<PAGE> 5
SALEM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------------
1996 1995
------- -------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $ 748 $ 469
Adjustments for noncash items-
Depreciation and amortization 430 412
Deferred income taxes 21 (121)
Other noncurrent liabilities (78) 68
Allowance for doubtful accounts (13) 10
Equity of affiliates, net (58) 24
Reserves for warranty expense (72) 16
Cumulative translation adjustments 67 (53)
Loss from discontinued operations (47) (141)
Changes in certain assets and liabilities,
net of effects from acquired business
Receivables 5,116 5,788
Contracts-in-progress, net 251 (1,505)
Inventories (510) 118
Prepaid expenses 226 89
Accounts payable (5,874) (2,196)
Accrued income taxes (1,137) (811)
Accrued liabilities (225) 942
Minority Interest (39) (2)
Investments in/advances to discontinued operations 889 -
Net assets/liabilities of discontinued operations 926 (669)
------- -------
Net cash flows from operating activities $ 621 $ 2,438
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Short-term investments $ (83) $ (300)
Acquisition of Enviroplant International
Group Limited - (738)
Purchases of property, plant, & equipment, net (1,169) (119)
------- -------
Net cash flows used for
investing activities $(1,252) $(1,157)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid $ (280) $ (187)
Proceeds (payments) under financing arrangements 167 (215)
Proceeds from debt 91 -
Payments on debt (57) (69)
------- -------
Net cash flows used for
financing activities $ (79) $ (471)
------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH $ (75) $ 84
------- -------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS $ (785) $ 894
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 18,048 20,524
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $17,263 $21,418
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 113 $ 17
Income taxes paid, net 1,668 823
</TABLE>
See accompanying notes to consolidated financial statements.
Page 5 of 13
<PAGE> 6
SALEM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
1. BASIS OF PRESENTATION
The financial information included herein has been prepared by Salem
Corporation (the "Company"), without audit, for filing with the Securities and
Exchange Commission pursuant to the rules and regulations of said Commission.
The financial information presented herein, while not necessarily indicative of
results to be expected for the year, reflects all adjustments, consisting of
normal recurring adjustments, which in the opinion of the Company are necessary
for a fair statement of the results for the periods indicated. This financial
information should be read in conjunction with the financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995.
Comparative consolidated financial statements have been restated where
necessary to conform with the current year's presentation.
2. NONRECURRING CHARGES
In the first quarter of 1996, the Company recorded nonrecurring legal
and consulting charges totaling $44,000 resulting from efforts to maximize
shareholder value, including the possible sale of the Company. In the first
quarter of 1995, the Company recorded nonrecurring charges of $808,000
including $658,000 related to the possible sale of the Company and $150,000 as
the result of an SEC investigation.
3. INCOME TAXES
The Company's effective income tax rate for the three months ended
March 31, 1996 was 43.7%. This rate differed from combined federal and state
statutory rates due to losses sustained at the Company's Bermuda insurance
company for which no tax benefit is recorded and, to a lesser extent, losses
sustained by United Kingdom subsidiaries which are tax affected at only 35%.
The Company's effective income tax rate for the three months ended March 31,
1995 was 39.3%. This rate was not significantly different from a combined
federal and state statutory rate.
4. DISCONTINUED OPERATIONS
In April 1996, Enviroplant International Group Limited, a wholly owned
subsidiary of Salem Automation Limited which is a United Kingdom subsidiary of
the Company, ceased trading and began voluntary liquidation proceedings. As a
result of Enviroplant's liquidation, the Company has deconsolidated
Page 6 of 13
<PAGE> 7
Enviroplant's operations in the accompanying financial statements reflecting
such operations as discontinued operations. The estimated amount required to
satisfy liabilities related to Enviroplant and to complete the liquidation
process is reflected as a net liability of discontinued operations in the
accompanying balance sheets.
5. POSSIBLE CHANGE IN CONTROL
On April 11, 1996, the Company announced that the Board of Directors
was not prepared to recommend to the Company's shareholders the offer made by
Mr. Victor Posner on April 3, 1996 to acquire the entire equity ownership of
the Company in a transaction in which shareholders would be paid $20 per share.
Because the offer made by Mr. Posner was deemed by the Board to be a serious
offer, Mr. Posner was invited to commence any necessary due diligence and has
signed a confidentiality agreement. The Board also requested that Mr. Posner
refine certain terms of his merger proposal to assure that a fair and open
bidding process for the Company's stock will be permitted to occur.
On May 9, 1996, the Company received an offer from a senior management
group lead by A.A. Fornataro, the Company's President and Chief Operating
Officer and Donald L. Hoylman, its Group Vice President, to acquire all of the
Company's stock for $22 per share through a merger. The offer was subject to
obtaining financing upon satisfactory terms and conditions and was accompanied
by a letter from NatCity Investments, Inc., financial advisors to the management
group, expressing confidence that financing can be arranged within 30 days. The
management offer is to remain open for a period of 30 days after the financing
contingency is removed. The Board of Directors is studying the terms of
management's offer and will respond as promptly as possible after concluding its
study.
Although the Company has ceased the active solicitation of offers to
acquire the Company, it is continuing to engage in discussions with other
parties who have expressed an interest in the Company.
6. INCOME PER COMMON SHARE
Per share amounts have been computed using the weighted average number
of common shares outstanding during the period (1,864,882 in 1996 and 1995).
Page 7 of 13
<PAGE> 8
REVIEW BY INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated financial statements for the three month period ended
March 31, 1996 have been reviewed prior to filing, by the Company's independent
public accountants, Arthur Andersen LLP, whose report covering their review of
the financial statements is presented on Page 9.
Page 8 of 13
<PAGE> 9
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Shareholders of Salem Corporation:
We have reviewed the accompanying consolidated balance sheet of Salem
Corporation (a Pennsylvania corporation) as of March 31, 1996, and the related
consolidated statement of income, retained earnings and cash flows for the
three-month period ended March 31, 1996. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above in order for them to be
in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Salem Corporation as of December
31, 1995, and, in our report dated March 5, 1996, we expressed an unqualified
opinion on that statement. In our opinion, the information set forth in the
accompanying consolidated balance sheet as of December 31, 1995, is fairly
stated, in all material respects, in relation to the consolidated balance sheet
from which it has been derived.
Pittsburgh, Pennsylvania,
April 24, 1996
Page 9 of 13
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FIRST QUARTER OF 1996 COMPARED TO FIRST QUARTER OF 1995
Gross revenues of $29.5 million in the current quarter decreased 7.5%
from the $31.9 million in the first quarter of 1995. This decrease is
primarily attributable to lower volume in the Company's mineral processing
equipment segment resulting from lower levels of orders due to market
conditions. Despite this decline in gross revenues, gross income in the
current quarter increased to $5.7 million or 3.6% from the $5.5 million gross
income in 1995. Gross income as a percent of revenues was 19.5% in the first
quarter of 1996 as compared to 17.3% in the comparable quarter of 1995. This
increase can be attributed to improved profitability on sales at virtually all
of the Company's subsidiaries.
Operating income of $1.1 million in the first quarter of 1996 is
significantly greater than the $349,000 in the first quarter of 1995, due to
the significant reduction of nonrecurring charges related to the possible sale
of the Company of $44,000 in the current quarter as opposed to $808,000 in the
first quarter of the prior year of which $658,000 was related to the possible
sale of the Company and $150,000 related to an SEC investigation. This
increase in operating income is also attributable to the achievement of a
breakeven operating position in 1996 as opposed to a $600,000 loss in 1995 at
the Company's Salem Automation Limited subsidiary in the United Kingdom. The
Company announced in April that its United Kingdom subsidiary Enviroplant
International Group Limited has commenced liquidation proceedings. It is
anticipated, based on advice from counsel, that the liquidation of Enviroplant
will not result in any further significant losses or liability to Salem
Corporation beyond that recorded in 1995.
Interest income decreased to $311,000 in the current quarter from
$346,000 in 1995. This decrease is primarily attributable to a decrease in
investable funds.
The provision for income taxes was approximately $550,000 in the first
quarter of 1996 as compared to $302,000 in the first quarter of 1995. This
increase in income taxes is due primarily to the increased level of pre-tax
U.S. income.
The Company's backlog at March 31, 1996 was $70.7 million compared to
$86.8 million at March 31, 1995 and $73.9 million at December 31, 1995.
Page 10 of 13
<PAGE> 11
FINANCIAL CONDITION AND LIQUIDITY
Cash and cash equivalents of approximately $17.3 million at March 31,
1996 decreased from the $18.0 million at December 31, 1995. This decrease
reflects the generation of $600,000 cash from operations and was offset by the
use of $1.3 million cash for investing activities. Such funds were used
primarily for the purchase of equipment in the Company's metal processing
equipment segment.
The Company has two separate bonding facilities, each for the issuance
of up to $10 million of surety bonds. In connection with such facilities, the
Company has obtained $2.5 million of standby letters of credit in favor of the
issuers of such bonds. The standby letters of credit are fully collateralized
by certificates of deposit. At March 31, 1996, approximately $7.6 million of
such facilities were currently utilized.
In addition, the Company, in April 1996, has entered into an agreement
with a bank which provides, for the Company's domestic operations, a $10
million line of credit, a $5 million term loan and a $3 million lease line.
The Company's United Kingdom subsidiaries have two separate credit
facilities at one major bank: a facility for the issuance of bank guarantees
up to $2.8 million and an overdraft and loan facility of up to $1.5 million.
At May 1, 1996, $2.3 million of the bank guarantee facility and $1.4 million of
the overdraft and loan facility were utilized.
The Company believes that cash flows from operations and existing cash
assets will be sufficient to enable it to meet near-term cash requirements.
The Company's ability to meet its long-term cash requirements is dependent upon
its credit line and its ability to attain and sustain sufficient cash flows
from operations.
Page 11 of 13
<PAGE> 12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On or about April 9, 1996, a derivative action was filed in the
Circuit Court of the 11th Judicial Circuit in and for Dade County, Florida by
Harry Lewis, individually and on behalf of others similarly situated, against
Victor Posner. The Company is named as a nominal defendant in this action.
The complaint alleges, among other things, that Mr. Posner has breached his
fiduciary duties by failing to offer an adequate price for the Company's stock
and by causing the Company to waste its corporate assets. The complaint seeks
an injunction against the consummation of Mr. Posner's offer, damages and
attorneys' and experts' fees.
A class action was filed in the Court of Common Pleas of Allegheny
County, Pennsylvania on or about May 3, 1996 by Cranston Capital Partners
against the Company's directors. The plaintiff seeks an injunction against the
consummation of Victor Posner's offer to acquire the Company's outstanding
stock for $20 per share, damages and attorneys' fees. The complaint alleges
that the Company's directors have engaged in or aided and abetted a fraudulent
plan or scheme to assure that Victor Posner can wrongfully acquire the Company
for inadequate consideration. The complaint further alleges that the Company's
directors have breached their fiduciary duties in not exercising independent
business judgment and acting to the detriment of the plaintiff and others
similarly situated in order to benefit themselves and/or their colleagues. It
is also alleged that the Company's directors failed to comply with their
fiduciary duty of candor by omitting material information concerning Mr.
Posner's offer and other offers to acquire the Company from the Company's proxy
statement issued in connection with the Annual Meeting of Shareholders held May
9, 1996. The complaint was filed prior to the receipt on May 9, 1996 of
management's offer to acquire the Company's stock for $22 per share.
The Company is engaged in ordinary litigation incidental to its
business. The Company does not believe that this litigation will have a
material adverse effect upon its financial condition.
Page 12 of 13
<PAGE> 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Nonqualified Deferred Compensation Plan filed herewith as
Exhibit 10.1.
(b) No reports on Form 8-K have been filed by the Registrant
during the quarter for which this report is filed.
(c) Exhibit 27 - Financial Data Schedule
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
DATE: MAY 15, 1996 SALEM CORPORATION
-------------------------------
(Registrant)
BY: /S/ A. A. FORNATARO
-------------------------------
A. A. Fornataro
President and Chief
Operating Officer
BY: /S/ GEORGE A. DOUGLAS
-------------------------------
George A. Douglas
Treasurer and Corporate
Controller
Page 13 of 13
<PAGE> 1
EXHIBIT 10.1
SALEM CORPORATION
EXHIBIT
NONQUALIFIED DEFERRED COMPENSATION PLAN
Nonqualified Retirement Plan 7.5A
Effective January 1, 1996
<PAGE> 2
TABLE OF CONTENTS
INTRODUCTION
ARTICLE I DEFINITIONS
ARTICLE II PARTICIPATION
ARTICLE III CONTRIBUTIONS
Section 3.01 -- Employer Contributions
Section 3.02 -- Allocation
Section 3.03 -- Transfer and Disposition of Certain Contributions
ARTICLE IV INVESTMENT OF CONTRIBUTIONS
ARTICLE V BENEFITS
Section 5.01 -- Retirement Benefits
Section 5.02 -- Death Benefits
Section 5.03 -- Disability Benefits
Section 5.04 -- Termination Benefits
ARTICLE VI DISTRIBUTION OF BENEFITS
Section 6.01 -- Automatic Forms of Distribution
Section 6.02 -- Optional Forms of Distribution
Section 6.03 -- Election Procedures
ARTICLE VII GENERAL PROVISIONS
Section 7.01 -- Amendments
Section 7.02 -- Provisions Relating to the Insurer
and Other Parties
Section 7.03 -- Employment Status
Section 7.04 -- Rights to Plan Assets
Section 7.05 -- Nonalienation of Benefits
Section 7.06 -- Construction
Section 7.07 -- Legal Actions
Section 7.08 -- Word Usage
PLAN EXECUTION
TABLE OF CONTENTS 3 (Salem)
<PAGE> 3
INTRODUCTION
The Employer is establishing a nonqualified, defined contribution
employees' retirement plan which has been designed as, and is intended to be,
an unfunded plan for purposes of the Employee Retirement Income Security Act
of 1974, as amended, and a nonqualified plan under the Internal Revenue Code of
1986, including any later amendments to the Code. The Employer agrees to
operate the plan according to the terms, provisions and conditions set forth in
this document
Any funds accumulated for purposes of providing benefits under this plan
are fully available to satisfy the claims of the Employer's creditors.
Participants have no greater rights with regard to such fund than any other
general creditor of the Employer.
INTRODUCTION 4 (Salem)
<PAGE> 4
ARTICLE I
DEFINITIONS
ACCOUNT means, for a Participant, his share of the Investment Fund. Separate
accounting records are kept for those parts of his Account that result from:
(a) Salary Deferral Contributions.
(b) Employer Basic Contributions.
(c) Employer Discretionary Contributions.
A Participant's Account shall be reduced by any distribution of his Account. A
Participant's Account will participate in the earnings credited, expenses
charged and any appreciation or depreciation of the Investment Fund. His
Account is subject to any minimum guarantees applicable under the Group
Contract or other investment arrangement.
BENEFICIARY means the person or persons named by a Participant to receive any
benefits under this Plan upon the Participant's death.
BENEFIT DATE means, for a Participant, the first day of the first period for
which an amount of benefit is payable to him under this Plan. See Article V -
BENEFITS.
CODE means the Internal Revenue Code of 1986, as amended.
COMPENSATION means base pay made available to an Employee by the Employer
during any specified period .
However, the following shall be excluded:
bonuses
commissions
overtime pay
any pay other than base pay
CONTRIBUTIONS moans
Salary Deferral Contributions
Employer Basic Contributions
Employer Discretionary Contributions
as set out in Article III, unless the context clearly indicates otherwise.
ELIGIBLE EMPLOYEE means any Employee of the Employer who is invited to
participate in the Plan and who represents a select group of highly-compensated
or management employees, as determined by the Employer.
ARTICLE I 5 (Salem)
<PAGE> 5
EMPLOYEE means an individual who is employed by the Employer.
EMPLOYER means SALEM CORPORATION and any of the adopting employers as specified
in the qualified plan who participate with the Salem Corporation in a single
plan.
ENTRY DATE means the date an Employee first enters the Plan as an Active
Participant. See Article II - PARTICIPATION.
ERISA means the Employee Retirement Income Security Act of 1974, as amended.
FISCAL YEAR means the Employer's taxable year. The last day of the Fiscal Year
is December 31.
GROUP CONTRACT means the group annuity contract or contracts into which the
Trustee enters with the Insurer for the investment of Contributions and the
payment of benefits under this Plan. The term Group Contract as it is used in
this Plan is deemed to include the plural unless the context clearly indicates
otherwise.
Any funds accumulated under the Group Contract are available to the general
creditors of the Employer.
INSURER means Principal Mutual Life Insurance Company and any other insurance
company or companies named by the Trustee or Employer.
INVESTMENT FUND means the total assets held for the purpose of providing
benefits for Participants. These funds result from Contributions made under
the Plan.
The Investment Fund is not held for the exclusive benefit of Participants or
their Beneficiaries.
MONTHLY DATE means each Yearly Date and the same day of each following month
during the Plan Year beginning on such Yearly Date.
NET SALARY DEFERRAL CONTRIBUTIONS means, for a Participant, the Salary Deferral
Contributions remaining under this Plan after a transfer of contributions has
occurred under the TRANSFER AND DISPOSITION OF CERTAIN CONTRIBUTIONS SECTION of
Article III.
NORMAL FORM means a single life annuity with installment refund.
PARTICIPANT means an Eligible Employee who is actively participating in the
Plan.
PLAN means the nonqualified retirement plan of the Employer set forth in this
document, including any later amendments to it.
PLAN ADMINISTRATOR means the Employer.
PLAN YEAR means a period beginning on a Yearly Date and ending on the day
before the next Yearly Date.
QUALIFIED PLAN means Salem Corporation Retirement Savings Plan.
ARTICLE I 6 (Salem)
<PAGE> 6
REENTRY DATE means the date a former Participant reenters the Plan. See
Article II - PARTICIPATION.
RETIREMENT DATE means the later of:
(a) The first day of the month on or after the date he has attained age 65.
(b) The date he actually retires (for Participants who work beyond age 65).
TOTALLY AND PERMANENTLY DISABLED means that a Participant is disabled to the
extent he is unable 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 be of long-continued and indefinite duration, pursuant to
Code Section 72(m)(7).
TRUST means an agreement of trust between the Employer and Trustee established
for the purpose of holding and distributing the Trust Fund under the provisions
of the Plan. The Trust may provide for the investment of all or any portion of
the Trust Fund in the Group Contract.
TRUST FUND means the total funds held under the Trust for the purpose of
providing benefits for Participants. These funds result from Contributions made
under the Plan which are forwarded to the Trustee to be deposited in the Trust
Fund.
TRUSTEE means the trustee or trustees under the Trust. The term Trustee as it
is used in this Plan is deemed to include the plural unless the context clearly
indicates otherwise.
VESTED ACCOUNT means the part of a Participant's Account in which he has a
vested interest. The Participant's Vested Account is equal to zero before his
Benefit Date and is equal to his Account on and after such date.
YEARLY DATE means January 1, 1996, and the same day of each following year.
ARTICLE I 7 (Salem)
<PAGE> 7
ARTICLE II
PARTICIPATION
An Employee shall first become a Participant (begin active participation
in the Plan) on the earliest Monthly Date on or after January 1, 1996, on which
he is an Eligible Employee. This date is his Entry Date.
A former Participant shall again become a Participant (resume active
participation in the Plan) on the date he again performs an hour of service as
an Eligible Employee. This date is his Reentry Date.
A Participant shall cease to be a Participant on the date he is no longer
an Eligible Employee and the value of his Account is zero.
ARTICLE II 8 (Salem)
<PAGE> 8
ARTICLE III
CONTRIBUTIONS
SECTION 3.01--EMPLOYER CONTRIBUTIONS.
Employer Contributions for each Plan Year will be equal to the Employer
Contributions as described below.
(a) Salary Deferral Contributions. The amount of each Salary Deferral
Contribution for a Participant shall be equal to a percentage of his
Compensation for the Plan Year, not to exceed 25%, as elected in his
deferral agreement. An Employee who is eligible to participate in the
Plan may file a deferral agreement with the Employer no later than
December 31 of the calendar year immediately preceding the Plan Year
for which the Salary Deferral Contributions are effective. A
Participant's deferral agreement shall also include his or her election
to have the maximum amount of elective deferral contributions that
could be made for such year under the actual deferral percentage test
(and actual contribution percentage test) either (i) contributed to the
Qualified Plan on his behalf or (ii) paid to him in cash. Any such
contributions shall be subject to the limitation on such contributions
under Code Section 402(g).
The deferral agreement is irrevocable while it is in effect. The
deferral agreement must be in writing and effective before the
beginning of the Plan Year in which Salary Deferral Contributions are
to start. The Participant may make any change or terminate the deferral
agreement by filing a new deferral agreement. The Participant's
deferral agreement to stop Salary Deferral Contributions or to make a
change shall only be effective for Compensation earned in future years.
(b) Employer Basic Contributions. The amount of each Employer Basic
Contribution made by the Employer for a Participant eligible for an
allocation for the Plan Year shall be equal to 3% of the Participant's
Net Salary Deferral Contributions for the Plan Year.
(c) Employer Discretionary Contributions. The Employer may choose to make
this contribution at the end of a Plan Year. The amount of the Employer
Discretionary Contribution made by the Employer for a Participant
eligible for an allocation for the Plan Year shall be equal to 2% of
the Participant's Net Salary Deferral Contributions for the Plan Year.
SECTION 3.02--ALLOCATION.
The following Contributions for each Plan Year shall be allocated among all
Participants:
Employer Basic Contributions
Employer Discretionary Contributions
The eligible persons are all Participants who the Employer determines are
eligible for an allocation for the Plan Year. The amount allocated to such a
person shall be determined below.
The following Contributions for each Plan Year shall be allocated to each
Participant for whom such Contributions were made under the EMPLOYER
CONTRIBUTIONS SECTION of Article III:
ARTICLE III 9 (Salem)
<PAGE> 9
Salary Deferral Contributions
These Contributions shall be allocated when made and credited to the
Participant's Account.
The following Contributions are allocated as of the last day of the Plan
Year to each Participant for whom they are made and credited to his Account:
Employer Basic Contributions
Employer Discretionary Contributions
SECTION 3.03--TRANSFER AND DISPOSITION OF CERTAIN CONTRIBUTIONS.
Not later than January 31 of each following Plan Year, preliminary actual
deferral percentage tests will be performed as to the Qualified Plan to
determine the amount of additional elective deferral contributions that can be
made on behalf of the Participant to the Qualified Plan. Once determined, and in
no event later than March 15 of the Plan Year following the Plan Year for which
the determination is made, the Plan Administrator shall have such amounts
(without regard to any interest earnings) transferred directly to the Qualified
Plan as an elective contribution, or paid to the Participant in cash, according
to the Participant's salary deferral agreement.
ARTICLE III 10 (Salem)
<PAGE> 10
ARTICLE IV
INVESTMENT OF CONTRIBUTIONS
All Contributions are forwarded by the Employer to the Trustee to be
deposited in the Trust Fund.
Investment of Contributions is governed by the provisions of the Trust,
the Group Contract and any other funding arrangement in which the Trust Fund is
or may be invested. To the extent permitted by the Trust, Group Contract or
other funding arrangement, the Participant, with the consent of the Trustee,
shall direct the Contributions to any of the accounts available under the Trust
or Group Contract and may request the transfer of assets resulting from those
Contributions between such accounts. A Participant may not direct the Trustee
to invest the Participant's Account in collectibles. To the extent that a
Participant does not direct the investment of his Account, such Account shall
be invested ratably in the accounts available under the Trust or Group Contract
in the same manner as the undirected Accounts of all other Participants. The
Accounts of all inactive Participants may be segregated and invested separately
from the Accounts of all other Participants.
The Trust Fund shall be valued at current fair market value as of the last
day of the last calendar month ending in the Plan Year and, at the discretion
of the Trustee, may be valued more frequently. The valuation shall take into
consideration investment earnings credited, expenses charged, payments made and
changes in the value of the assets held in the Trust Fund. The Account of a
Participant shall be credited with its share of the gains and losses of the
Trust Fund. That part of a Participant's Account invested in a funding
arrangement which establishes an account or accounts for such Participant
thereunder shall be credited with the gain or loss from such account or
accounts. That part of a Participant's Account which is invested in other
funding arrangements shall be credited with a proportionate share of the gain
or loss of such investments. The share shall be determined by multiplying the
gain or loss of the investment by the ratio of the part of the Participant's
Account invested in such funding arrangement to the total of the Trust Fund
invested in such funding arrangement.
ARTICLE IV 11 (Salem)
<PAGE> 11
ARTICLE V
BENEFITS
SECTION 5.01--RETIREMENT BENEFITS.
On a Participant's Retirement Date, his Vested Account shall be
distributed to him according to the distribution of benefits provisions of
Article VI. This date shall be a Participant's Benefit Date.
SECTION 5.02--DEATH BENEFITS.
If a Participant dies before his Retirement Date, his Vested Account shall
be distributed according to the distribution of benefits provisions of Article
VI. This date shall be a Participant's Benefit Date.
SECTION 5.03--DISABILITY BENEFITS.
If a Participant becomes Totally and Permanently Disabled before his
Retirement Date, his Vested Account shall be distributed according to the
distribution of benefits provisions of Article VI. This date shall be a
Participant's Benefit Date.
SECTION 5.04--TERMINATION BENEFITS.
A Participant will receive a distribution of his Vested Account if he
ceases to be an Employee before his Retirement Date, provided he has not again
become an Employee. This date shall be a Participant's Benefit Date.
ARTICLE V 12 (Salem)
<PAGE> 12
ARTICLE VI
DISTRIBUTION OF BENEFITS
SECTION 6.01--AUTOMATIC FORMS OF DISTRIBUTION.
Unless an election of an optional form of benefit has been made according
to the ELECTION PROCEDURES SECTION of Article VI, the automatic form of benefit
payable to or on behalf of a Participant is determined as follows:
(a) The automatic form of benefit at retirement or disability shall be the
Normal Form.
(b) The automatic form of death benefit shall be a single sum payment to
the Participant's Beneficiary.
SECTION 6.02--OPTIONAL FORMS OF DISTRIBUTION.
An election of an optional form of benefit may be made by the Participant
(see the ELECTION PROCEDURES SECTION of Article VI).
(a) The optional forms of retirement benefit shall be the following: a
straight life annuity; single life annuities with certain periods of
five, ten or fifteen years; survivorship life annuities with
installment refund and survivorship percentages of 50, 66 2/3 or 100;
and fixed period annuities for any period of whole months which is not
less than 60 nor more than 360. The Participant may also elect to
receive his Vested Account in a single-sum payment.
Election of an optional form is subject to the election provisions of
Article VI.
(b) The optional forms of death benefit are any annuity that is an optional
form of retirement benefit.
SECTION 6.03--ELECTION PROCEDURES.
The Participant or Beneficiary shall make any election under this section
in writing. The Plan Administrator may require such individual to complete and
sign any necessary documents as to the provisions to be made.
(a) Retirement Benefits. A Participant may elect his Beneficiary. A
Participant may elect to have retirement benefits distributed under any
of the optional forms of retirement benefit described in the OPTIONAL
FORMS OF DISTRIBUTION SECTION of Article VI.
(b) Disability Benefits. A Participant may elect his Beneficiary. A
Participant who is Totally and Permanently Disabled may elect to have
disability benefits distributed under any of the optional forms of
retirement benefit described in the OPTIONAL FORMS OF DISTRIBUTION
SECTION of Article VI.
(c) Death Benefits. A Participant may elect his Beneficiary. A Participant
may elect to have death benefits distributed under any of the optional
forms of death benefit described in the OPTIONAL FORMS OF DISTRIBUTION
SECTION of Article VI.
ARTICLE VI 13 (Salem)
<PAGE> 13
If the Participant has not elected an optional form of distribution for
the death benefit payable to his Beneficiary, the Beneficiary may, for
his own benefit, elect the form of distribution, in like manner as a
Participant.
Any election of an optional form of distribution by a Participant under this
section shall be made in writing on a form provided by the Employer. Such
election must be made on or before December 31 of the year preceding the year
in which the distribution is made.
ARTICLE VI 14 (Salem)
<PAGE> 14
ARTICLE VII
GENERAL PROVISIONS
SECTION 7.01--AMENDMENTS.
The Employer may amend this Plan at any time, including any remedial
retroactive changes (within the specified period of time as may be determined
by Internal Revenue Service regulations) to comply with the requirements of any
law or regulation issued by any governmental agency to which the Employer is
subject.
SECTION 7.02--PROVISIONS RELATING TO THE INSURER AND OTHER PARTIES.
The obligations of an Insurer shall be governed solely by the provisions
of the Group Contract. The Insurer shall not be required to perform any act not
provided in or contrary to the provisions of the Group Contract. See the
CONSTRUCTION SECTION of this article.
Any issuer or distributor of investment contracts or securities is
governed solely by the terms of its policies, written investment contract,
prospectuses, security instruments, and any other written agreements entered
into with the Trustee.
Such Insurer, issuer or distributor is not a party to the Plan, nor bound
in any way by the Plan provisions. Such parties shall not be required to look
to the terms of this Plan, nor to determine whether the Employer, the Plan
Administrator or the Trustee have the authority to act in any particular manner
or to make any contract or agreement .
Until notice of any amendment or termination of this Plan or a change in
Trustee has been received by the Insurer at its home office or an issuer or
distributor at their principal address, they are and shall be fully protected
in assuming that the Plan has not been amended or terminated and in dealing
with any party acting as Trustee according to the latest information which they
have received at their home office or principal address.
SECTION 7.03--EMPLOYMENT STATUS.
Nothing contained in this Plan gives an Employee the right to be retained
in the Employer's employ or to interfere with the Employer's right to discharge
any Employee.
SECTION 7.04--RIGHTS TO PLAN ASSETS.
No Employee shall have any right to or interest in any assets of the Plan
upon termination of his employment or otherwise except as specifically provided
under this Plan, and then only to the extent of the benefits payable to such
Employee in accordance with Plan provisions.
Any final payment or distribution to a Participant or his legal
representative or to any Beneficiaries or spouse of such Participant under the
Plan provisions shall be in full satisfaction of all claims against the Plan,
the Plan Administrator, the Trustee, the Insurer, and the Employer arising
under or by virtue of the Plan.
ARTICLE VII 15 (Salem)
<PAGE> 15
SECTION 7.05--NONALIENATION OF BENEFITS.
Benefits payable under the Plan are not subject to the claims of any
creditor of any Participant, Beneficiary or spouse. A Participant, Beneficiary
or spouse does not have any rights to alienate, anticipate, commute, pledge,
encumber or assign any of such benefits. The preceding sentences shall also
apply to the creation, assignment, or recognition of a right to any benefit
payable with respect to a Participant according to a domestic relations order.
SECTION 7.06--CONSTRUCTION.
The validity of the Plan or any of its provisions is determined under and
construed according to Federal law and, to the extent permissible. according to
the laws of the state in which the Employer has its principal office. In case
any provision of this Plan is held illegal or invalid for any reason, such
determination shall not affect the remaining provisions of this Plan, and the
Plan shall be construed and enforced as if the illegal or invalid provision had
never been included.
In the event of any conflict between the provisions of the Plan and the
terms of any contract or policy issued hereunder, the provisions of the Plan
control the operation and administration of the Plan.
SECTION 7.07--LEGAL ACTIONS.
The Plan, the Plan Administrator and the Trustee are the necessary parties
to any action or proceeding involving the assets held with respect to the Plan
or administration of the Plan or Trust. No person employed by the Employer, no
Participant, former Participant or their Beneficiaries or any other person
having or claiming to have an interest in the Plan is entitled to any notice of
process. A final judgment entered in any such action or proceeding shall be
binding and conclusive on all persons having or claiming to have an interest in
the Plan.
SECTION 7.08--WORD USAGE.
The masculine gender, where used in this Plan, shall include the feminine
gender and the singular words as used in this Plan may include the plural,
unless the context indicates otherwise.
ARTICLE VII 16 (Salem)
<PAGE> 16
By executing this Plan, Salem Corporation acknowledges having
counseled to the extent necessary with selected legal and tax advisors
regarding the Plan's legal and tax implications.
Executed this 20th day of December, 1995.
SALEM CORPORATION
By: /s/ G. A. DOUGLAS
--------------------------------
Treasurer & Corporate Controller
--------------------------------
Title
PLAN EXECUTION (Salem)
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