<PAGE>
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999 Commission file number 1-4416
- --------------------------------------------------------------------------------
SPS TECHNOLOGIES, INC.
(Exact name of registrant as specified in its Charter)
PENNSYLVANIA 23-1116110
(State of Incorporation) (I.R.S. Employer Identification No.)
101 Greenwood Avenue, Suite 470
Jenkintown, Pennsylvania 19046
(Address of principal executive offices) (Zip Code)
(215) 517-2000
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE
SECURITIES EXCHANGE ACT OF 1934:
Title of Each Class Name of Each Exchange
Common Stock, Par Value $.50 on Which Registered
Per Share New York Stock Exchange
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 at March 9, 2000, was approximately $391,114,000.
The number of shares of registrant's common stock outstanding on March 9,
2000 was 12,584,126.
DOCUMENTS INCORPORATED BY REFERENCE
Exhibit 13, which contains portions of the 1999 Annual Report to
Shareholders of the registrant is incorporated by reference in Parts I, II and
IV of this Report. Portions of the Definitive Proxy Statement of registrant, if
filed with the Securities and Exchange Commission within 120 days after
December 31, 1999, are incorporated by reference in Part III of this report. To
the extent not so filed, such information will be provided on a Form 10-K/A
filed with the Securities and Exchange Commission.
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<PAGE>
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
PART I
Item 1. BUSINESS
SPS Technologies, Inc. and subsidiaries (the "Company") was incorporated
in Pennsylvania in 1903. The Company is engaged in the design, manufacture and
marketing of fasteners, specialty metals, magnetic products, aerospace
structures and precision tools. The Company is multinational in operation. In
addition to 21 manufacturing plants in the United States, it operates 15
manufacturing facilities in five different countries: England, Ireland, Canada,
Brazil and Australia. The Company also has a 55% interest in a manufacturing
operation in China and a minority interest in a manufacturing operation in
India. Marketing operations are carried on by subsidiaries in four other
countries.
Due primarily to the operating results of recently acquired businesses,
sales and net earnings continued to increase in 1999. Despite lower demand for
the Company's products in certain geographic areas and served markets, the
Company's overall sales volume has remained at a level that has generated
reasonable profits and significant free cash flow. The Company has consistently
reinvested operating cash flows into "bolt on" acquisitions that complement
existing product offerings and into new capital to improve manufacturing
efficiencies. In 1999, the Company made one acquisition in the Precision
Fasteners and Components segment and completed a new long-term Note Purchase
Agreement. Additional information regarding the general development of business
operations in 1999 is provided in Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations".
The Company is organized as seven business groups that have been
aggregated into three reportable segments for financial reporting purposes. The
three reportable segments are: Precision Fasteners and Components, Specialty
Materials and Alloys and Magnetic Products. The Precision Fasteners and
Components segment consists of five business groups which produce fasteners for
the aerospace, automotive and industrial machinery markets, structural
assemblies for the aerospace market and precision consumable tools used for
metal forming and cutting. Principal fastener products are SPS(R) aerospace
fasteners, MULTIPHASE(R) alloy fasteners and other aerospace fasteners;
UNBRAKO(R) brand socket screws, hex keys, dowel pins, FLEXLOC(R) all-metal
locknuts, GREER STOP NUTS(TM), SPS micro screws and SPS Non-Ferrous nuts and
bolts; engineered fasteners and precision components for gasoline and diesel
engines, other critical and non-critical automotive applications and
off-highway equipment. Principal structural assemblies products are precision
machined components, sheetmetal fabrications and avionics assemblies. Principal
tooling products are HI-LIFE(R) thread roll dies and other metalworking tools.
The Specialty Materials and Alloys (SM&A) segment produces specialty metals,
melting services, superalloys and ceramic cores for the manufacture of
components for aerospace, industrial gas turbine, medical and general
engineering applications. Principal SM&A products are air and vacuum-melted
iron, cobalt, and nickel-based superalloys, including CMSX(R) single-crystal
alloys. The Magnetic Products segment produces magnetic materials and products
for the automotive, aerospace, reprographic, computer, security and advertising
specialty markets. Principal magnetic products are metallic and ceramic
permanent magnets, wound and pressed powder magnetic components, bonded
magnets, magnetic components and assemblies and magnetic ultra-thin foil and
strip products.
The Company sells directly to original equipment manufacturers and
industrial, commercial and governmental users, and also sells through
independent stocking distributors and dealers. There were no changes in the
methods of distribution during 1999.
The principal sources of raw materials include major and specialty steel
producers, and non-ferrous metal producers, converters and distributors. The
Company anticipates it will have no significant problem with respect to sources
or availability of the raw materials essential to the conduct of its business.
The Company owns certain trademarks and patents that it considers to be of
importance to its three segments. The principal trademarks of the Company
include SPS(R), ARNOLD(R), FLEXLOC(R), MULTIPHASE(R), MP-35N(R), MP159(R),
UNBRAKO(R), U130(R), CMSX(R) , PLASTIFORM(R) and HI-LIFE(R). The trademarks
have been registered in the United States and certain foreign countries.
Generally, trademark registrations are valid so long as the trademarks
registered are used and renewal of the registration is timely made. United
States patents of the Company expire at various times over the next 17 years.
Patents covering the CMSX-4(R), CMSX-10(R), CM 186 LC(R) and CM 247 LC(R)
superalloys are of particular importance in protecting the proprietary
superalloy technology of the Company's subsidiary, Cannon-Muskegon Corporation.
However, the Company does not believe that its business as a whole is dependent
on any one or more patents or trademarks or on patent or trademark protection
generally.
2
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No material portion of the Company's business in any segment is seasonal.
No material part of the Company's business is dependent upon a single
customer. In 1999, the five largest customers accounted for 21% of the
Company's reported consolidated sales.
The backlog of orders by segment at December 31, which represents firm
orders with scheduled delivery within the next twelve months, was as follows
(in thousands of dollars):
1999 1998
-------- --------
Precision Fasteners and Components .......... $207,350 $238,414
Specialty Materials and Alloys .............. 21,301 28,444
Magnetic Products ........................... 27,209 29,259
-------- --------
Total ....................................... $255,860 $296,117
======== ========
The Company's business is highly competitive. Competition is based
primarily on technology, price, service, product quality and performance. The
Company believes that its favorable competitive position is based upon its
high-quality product performance and service to its customers, supported by its
commitment to research and development.
Total expenditures during 1999, 1998 and 1997 for Company-sponsored
research and development were $6.3 million, $5.3 million and $5.3 million,
respectively. In 1999, approximately 55% of the expenditures were for the
Company's Precision Fasteners and Components segment.
Capital expenditures for property, plant and equipment are planned at
$34.5 million in 2000, excluding capital spending for any businesses that may
be acquired in 2000.
There were approximately 4,837 persons employed in the Precision Fasteners
and Components segment, 461 persons employed in the Specialty Materials and
Alloys segment, and 970 persons employed in the Magnetic Products segment at
December 31, 1999.
Additional narrative information and the financial information concerning
industry segments and the foreign and domestic operations are included in Note
18 to the Company's Consolidated Financial Statements on pages 33 through 35 in
the 1999 Annual Report to Shareholders. Exhibit 13.1 contains the information
and is incorporated herein by reference.
Item 2. PROPERTIES
The Company owns or leases the manufacturing properties described below.
All properties are in good condition.
Location
Owned Square Feet
----- -----------
Jenkintown, Pennsylvania .......... 663,000(a)
Cleveland, Ohio ................... 365,000(a)
Sorocaba, Brazil .................. 339,000(a)
Coventry, England ................. 224,000(a)(d)
Smethwick, England ................ 137,000(a)
Leicester, England ................ 109,000(a)
Salt Lake City, Utah .............. 104,000(a)
Waterford, Michigan ............... 114,000(a)
Melbourne, Australia .............. 44,000(a)
Mansfield, England ................ 35,300(a)
Nuneaton, England ................. 9,400(a)
Transfer, Pennsylvania ............ 245,000(b)
Muskegon, Michigan ................ 135,000(b)
Marengo, Illinois ................. 356,000(c)
Norfolk, Nebraska ................. 112,000(c)
Marietta, Ohio .................... 78,000(c)
Sevierville, Tennessee ............ 65,000(c)
Derbyshire, England ............... 44,000(c)
Ogallala, Nebraska ................ 22,000(c)
3
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<TABLE>
<CAPTION>
Leased Lease Expires Square Feet
------ ------------- -----------
<S> <C> <C>
Shannon, Ireland ...................... (f)(g)(h)(r) (s) 296,000(a)
Nashville, Tennessee .................. (i) 99,000(a)
Las Vegas, Nevada ..................... (j) 64,000(a)
Leicester, England .................... (k) 38,000(a)
Pointe-Claire, Quebec, Canada ......... (l) 39,150(a)
Essex, England ........................ (t) 80,000(a)
Howell, Michigan ...................... (u) 44,000(a)
Nottingham, England ................... (v) 71,600(a)
Nuneaton, England ..................... (aa) 16,000(a)
Santa Ana, California ................. (e) 76,000(a)
Plymouth, Michigan .................... (w) 108,490(a)
Canton, Michigan ...................... (x) 50,840(a)
Gadsden, Alabama ...................... (x) 64,782(a)
Tyler, Texas .......................... (y) 9,000(a)
Melbourne, Australia .................. (z) 34,000(a)
Wickliffe, Ohio ....................... (m)(n) 76,000(b)
Rochester, New York ................... (o) 70,000(c)
Adelanto, California .................. (p) 45,000(c)
Rochester, England .................... (q) 12,000(c)
</TABLE>
- -----------
<TABLE>
<S> <C>
(a) Precision Fasteners and Components segment.
(b) Specialty Materials and Alloys segment.
(c) Magnetic Products segment.
(d) Approximately 180,000 square feet used for manufacturing purposes, with remaining 44,000 square feet
sub-leased.
(e) Lease for 76,000 square feet expires June 30, 2009.
(f) Lease for 15,702 square feet expires December 31, 2023.
(g) Lease for 100,000 square feet expires November 13, 2010.
(h) Lease for 57,000 square feet expires April 1, 2004.
(i) Lease for 99,000 square feet expires August 14, 2002.
(j) Lease for 60,000 square feet expires February 28, 2000.
(k) Lease for 38,000 square feet expires January 12, 2002.
(l) Lease for 35,000 square feet expires October 31, 2002.
(m) Lease for 38,000 square feet expires May 1, 2009.
(n) Lease for 38,000 square feet expires July 1, 2010.
(o) Lease for 70,000 square feet expires October 31, 2006.
(p) Lease for 45,000 square feet expires January 1, 2005.
(q) Lease for 12,000 square feet expires June 24, 2007.
(r) Lease for 75,000 square feet expires November 15, 2010.
(s) Lease for 48,000 square feet expires January 1, 2112.
(t) Lease for 80,000 square feet expires July 8, 2012.
(u) Lease for 44,000 square feet expires June 30, 2003.
(v) Leases for 42,000 square feet with various expirations. Primary lease expires December 24, 2001.
(w) Leases for 108,490 square feet with various expirations. Primary lease expires June 30, 2009.
(x) Leases for 50,840 square feet and 64,782 square feet each expire June 30, 2009.
(y) Lease for 9,000 square feet expires March 10, 2001.
(z) Leases for 34,000 square feet with various expirations. Primary lease expires December 31, 2003.
(aa) Property is leased on a month-to-month basis. The Company must give six months notice before
terminating.
</TABLE>
Industrial Development Revenue Bonds were issued to finance the
acquisition and improvement of the Salt Lake City, Utah manufacturing facility.
These bonds are collateralized by a first mortgage on the facility and a bank
letter of credit.
4
<PAGE>
Item 3. LEGAL PROCEEDINGS
A discussion of legal proceedings is included in Note 10 to the Company's
Consolidated Financial Statements on pages 23 and 24 in the 1999 Annual Report
to Shareholders. Exhibit 13.1 contains the information and is incorporated
herein by reference.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of 1999, through the solicitations of proxies or otherwise.
EXECUTIVE OFFICERS OF THE REGISTRANT
All executive officers of the Company are named below and are appointed by
the Board of Directors. The date that each officer was first appointed to their
present position is indicated. No officer listed was appointed as a result of
any arrangement between them and any other person as that phrase is understood
under the Securities Exchange Act regulations. No family relationship exists
among the executive officers of the Company.
<TABLE>
<CAPTION>
Name Experience and Position Held Age
- ---- ---------------------------- ---
<S> <C> <C>
Charles W. Grigg Chairman and Chief Executive Officer since October 1999. 60
Previously, Chairman, Chief Executive Officer and President
since April 1997. Previously, Chairman and Chief Executive
Officer since December 1993.
John S. Thompson President and Chief Operating Officer since October 1999. 52
Previously, President and Chief Executive of BTR, Inc.
since 1993.
William M. Shockley Vice President, Chief Financial Officer since October 1998. 38
Previously, Vice President, Chief Financial Officer and
Controller since July 1995. Previously, Corporate Controller
since September 1992.
Thomas S. Cross Vice President, Human Resources since June 1999. 48
Previously, Vice President, Human Resources, North
American Aerospace Fasteners since January 1998.
Previously, Human Resource Manager, North American
Aerospace Fasteners since January 1994.
James D. Dee Vice President, General Counsel and Secretary since April 42
1997. Previously, Vice President, Environmental and Legal
Affairs since February 1996. Previously, Assistant Counsel
and Patent Counsel since 1988.
Thomas W. McDonnell Controller since February 2000. Previously, Director of 39
Middle Market Advisory Services, PricewaterhouseCoopers
LLP since July 1997. Previously, Audit Manager,
PricewaterhouseCoopers LLP since July 1988.
Margaret B. Zminda Treasurer, Assistant Secretary and Director, Investor 41
Relations since February 2000. Previously, Controller since
October 1998. Previously, Aerospace Fasteners Controller
since September 1993.
</TABLE>
5
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PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
Information regarding the principal markets on which SPS Technologies'
common stock is traded, the high and low sales price for the stock on the New
York Stock Exchange for each quarterly period during the past 2 years, and the
approximate number of holders of common stock at March 3, 2000 is included
under the caption entitled "Common Stock Information" on page 37 in the 1999
Annual Report to Shareholders. Exhibit 13.4 contains this information and is
incorporated herein by reference.
Item 6. SELECTED FINANCIAL DATA
A summary of selected financial data for SPS Technologies for the years
and year-ends specified is included under the caption entitled "Selected
Financial Data" on page 37 in the 1999 Annual Report to Shareholders. Exhibit
13.3 contains this information and is incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Information regarding SPS Technologies' financial condition, changes in
financial condition and results of operations is included under the caption
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations" on pages 38 through 45 in the 1999 Annual Report to
Shareholders. Exhibit 13.5 contains this information and is incorporated herein
by reference.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's quantitative and qualitative information about market risk
is included in the section entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 38 through 45 in the
1999 Annual Report to Shareholders. Exhibit 13.5 contains this information and
is incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements for SPS Technologies and the
required supplementary data "Summary of Quarterly Results" are included on
pages 13 through 37 in the 1999 Annual Report to Shareholders. Exhibits 13.1
and 13.2 contain this information and are incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
6
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Identification of directors:
Information regarding directors is incorporated by reference to the
Definitive Proxy Statement, Election of Directors, if filed with the
Securities and Exchange Commission (SEC) within 120 days after December 31,
1999. To the extent not so filed, such information will be provided on a
Form 10-K/A filed with the SEC.
(b) Identification of executive officers:
Information regarding executive officers is contained in Part I of this
report (page 5).
Item 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated by reference
to the Definitive Proxy Statement, Executive Compensation and Board Meetings,
Committees and Compensation of Directors, if filed with the SEC within 120 days
after December 31, 1999. To the extent not so filed, such information will be
provided on a Form 10-K/A filed with the SEC.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management is incorporated by reference to the Definitive Proxy Statement,
Ownership of Voting Securities, if filed with the SEC within 120 days after
December 31, 1999. To the extent not so filed, such information will be
provided on a Form 10-K/A filed with the SEC.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
7
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PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report:
1. The Consolidated Financial Statements, Notes to Consolidated
Financial Statements and Report of Independent Accountants are set
forth on pages 13 through 36 of the 1999 Annual Report to
Shareholders. Exhibit 13.1 contains this information and is
incorporated by reference. The Report of Independent Accountants,
which covers the financial statement schedule, appears on page 11 of
this report.
2. Financial Statement Schedules:
The following supplemental schedule is located in this Report on the
page indicated.
Page
----
II Valuation and Qualifying Accounts 12
Schedules other than those listed above are omitted for the reason that they are
either not applicable or not required or because the information required is
contained in the financial statements or notes thereto.
<TABLE>
<CAPTION>
<S> <C>
3. Exhibits:
3a Articles of Incorporation as amended. Exhibit 3a to the Annual Report on Form 10-K for the year
ended December 31, 1997, is hereby incorporated by reference.
3b By-Laws as amended, effective April 29, 1998. Exhibit 3 to the Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998, is hereby incorporated by reference.
4a Rights Agreement, effective November 21, 1998. Exhibit 1 to the Form 8-A filed November 18, 1998,
is hereby incorporated by reference.
4b Form of Registration Rights Agreement between the Company, the Purchasers and the Investors dated
November 16, 1994. Exhibit 4.5 to the Form S-3 filed August 26, 1994, is hereby incorporated by
reference.
10a SPS 1988 Long Term Incentive Stock Plan as amended, effective February 2, 1989. Exhibit 10a to
the Annual Report on Form 10-K for the year ended December 31, 1988, is hereby incorporated by
reference.
10b SPS Employees Savings and Investment Plan as Amended and Restated, effective January 1, 1999.
10c Employment Agreement between SPS Technologies, Inc. and John S. Thompson, President and Chief
Operating Officer, effective October 1, 1999.
10d SPS Technologies, Inc. Management Incentive Plan as Amended and Restated, effective April 26,
1994, Exhibit 10d to the Annual Report on Form 10-K for the year ended December 31, 1995, is
hereby incorporated by reference.
10e Form of standby Purchase Agreement dated November 16, 1994. Exhibit 10.1 to the Form S-3/A filed
November 17, 1994, is hereby incorporated by reference.
10f Retirement Benefit Agreement, dated February 28, 1979. Exhibit 10f to the Annual Report on Form
10-K for the year ended December 31, 1991, is hereby incorporated by reference.
1Og Fee Arrangement with Former Directors, effective November 29, 1984. Exhibit 10g to the Annual
Report on Form 10-K for the year ended December 31, 1990, is hereby incorporated by reference.
10h Form of Employment Agreements between SPS Technologies, Inc. and certain employees, as amended
and restated effective December 14, 1992. Exhibit 10h to the Annual Report on Form 10-K for the
year ended December 31, 1992, is hereby incorporated by reference.
10i SPS Technologies, Inc. Executive Deferred Compensation Plan, as amended and restated, effective
December 14, 1992. Exhibit 10i to the Annual Report on Form 10-K for the year ended December 31,
1992, is hereby incorporated by reference.
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
10j SPS Technologies, Inc. Executive Deferred Compensation Plan II, as amended and restated effective
December 1, 1993. Exhibit 10j to the Annual Report on Form 10-K for the year ended December 31,
1993, is hereby incorporated by reference.
10k SPS Technologies, Inc. Supplemental Executive Retirement Plan, as amended and restated effective
December 14, 1992, Exhibit 10k to the Annual Report on Form 10-K for the year ended December
31, 1992, is hereby incorporated by reference.
10l Employment Agreement between SPS Technologies, Inc. and Charles W. Grigg, Chairman and Chief
Executive Officer, effective December 1, 1993. Exhibit 10l to the Annual Report on Form 10-K for the
period ended December 31, 1993, is hereby incorporated by reference.
10m Form of Indemnification Agreements between SPS Technologies, Inc. and officers and directors dated
February 2, 1987. Exhibit 10m to the Annual Report on Form 10-K for the period ended December
31, 1992, is hereby incorporated by reference.
1On Split Dollar Insurance Agreements regarding certain officers and directors effective April 2, 1990, and
November 27, 1991. Exhibit 10n to the Annual Report on Form 10-K for the year ended December
31, 1991, is hereby incorporated by reference.
10o SPS Technologies, Inc. Senior Executive Severance Plan, effective, December 14, 1992. Exhibit 10o
to the Annual Report on Form 10-K for the year ended December 31, 1992, is hereby incorporated by
reference.
lOp Agreement with Retiring Executive, approved December 14, 1992. Exhibit 10p to the Annual Report
on Form 10-K for the year ended December 31, 1992, is hereby incorporated by reference.
10q SPS Technologies, Inc, Benefit Equalization Plan, as amended and restated effective December 14,
1992. Exhibit 10 to the Quarterly Report on Form 1O-Q for the quarter ended March 31, 1993, is
hereby incorporated by reference.
1Or SPS Technologies, Inc. Long Range Incentive Plan, effective January 1, 1995. Exhibit 10r to the
Annual Report on Form 10-K for the year ended December 31, 1995, is hereby incorporated by
reference.
10s SPS Technologies, Inc. Executive Deferred Compensation Plan III, effective January 1, 1998. Exhibit
10s to the Annual Report on Form 10-K for the year ended December 31, 1998, is hereby
incorporated by reference.
13.1 1999 Consolidated Financial Statements, Notes to Consolidated Financial Statements and Report of
Independent Accountants.
13.2 Summary of Quarterly Results, for 1999 and 1998.
13.3 Selected Financial Data for 1995 through 1999.
13.4 Common Stock Information for 1999 and 1998.
13.5 1999 Management's Discussion and Analysis of Financial Condition and Results of Operations.
21 Subsidiaries of the Registrant.
23 Consent of Independent Accountants.
27 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K filed during the last quarter of 1999:
None.
9
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SPS TECHNOLOGIES, INC.
-----------------------------------
(Registrant)
/s/ William M. Shockley
-----------------------------------
William M. Shockley
Vice President,
Chief Financial Officer
Date: March 10, 2000
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/ CHARLES W. GRIGG Chairman, Chief Executive Officer and March 10, 2000
-------------------- Director (Principal Executive
Charles W. Grigg Officer)
/s/ JOHN S. THOMPSON President, Chief Operating Officer and March 10, 2000
-------------------- Director
John S. Thompson
/s/ WILLIAM M. SHOCKLEY Vice President, Chief Financial Officer March 10, 2000
----------------------- (Principal Financial Officer)
William M. Shockley
/s/ HOWARD T. HALLOWELL, III Director March 10, 2000
- ----------------------------
Howard T. Hallowell, III
/s/ JAMES F. O'CONNOR Director March 10, 2000
---------------------
James F. O'Connor
/s/ ERIC M. RUTTENBERG Director March 10, 2000
----------------------
Eric M. Ruttenberg
/s/ HARRY J. WILKINSON Director March 10, 2000
----------------------
Harry J. Wilkinson
</TABLE>
10
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of SPS Technologies, Inc.:
Our audits of the consolidated financial statements referred to in our report
dated February 8, 2000, except for Note 20, as to which the date is March 14,
2000, appearing in the 1999 Annual Report to Shareholders of SPS Technologies,
Inc. (which report and consolidated financial statements are incorporated by
reference in this Annual Report on Form 10-K) also included an audit of the
financial statement schedule listed in Item 14(a)(2) of this Form 10-K. In our
opinion, this financial statement schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.
PRICEWATERHOUSECOOPERS LLP
Philadelphia, Pennsylvania
February 8, 2000
11
<PAGE>
SCHEDULE II
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1999, 1998 and 1997
(Thousands of dollars)
<TABLE>
<CAPTION>
Additions Additions
charged charged
(deductions (deductions
Balance at credited) credited) Balance at
beginning to costs and to other end of
Description of year expenses accounts Deductions year
- ----------- ------- -------- -------- ---------- ----
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999:
$ (84)(b)
Allowance for doubtful accounts ......... $ 2,960 $ 459 517 (c) $ (489)(a) $ 3,363
========= ======== ========= ======= =========
Deferred income tax valuation (1,202)(b)
allowance .............................. $ 11,782(e) $ (1,449) $ (255)(d) $ $ 8,876
========= ======== ========= ======= =========
Year ended December 31, 1998:
(9)(b)
Allowance for doubtful accounts ......... $ 2,027 $ 990 $ 324(c) $ (372)(a) $ 2,960
========= ======== ========= ======= =========
Deferred income tax valuation
allowance ............................. $ 11,030(e) $ 752 $ $ $ 11,782(e)
========= ======== ========= ======= =========
Year ended December 31, 1997:
$ (28)(b)
Allowance for doubtful accounts ......... $ 1,668 $ 407 263 (c) $ (283)(a) $ 2,027
========= ======== ========= ======= =========
Deferred income tax valuation
allowance ............................. $ 12,596(e) $ 150 $ (1,716)(d) $ 11,030(e)
========= ======== ========= =========
</TABLE>
(a) Write off of uncollectible receivables, net of recoveries.
(b) Translation adjustments.
(c) Balance acquired in connection with acquisitions.
(d) Release of valuation allowances related to prior year business acquisitions
and credited to goodwill, the 1997 amount is net of balances acquired with
business acquisitions.
(e) The prior year components of the net deferred income tax asset were
reclassified to conform to the current year presentation.
12
<PAGE>
EXHIBIT INDEX
3a Articles of Incorporation as amended. Exhibit 3a to the Annual Report
on Form 10-K for the year ended December 31, 1997, is hereby
incorporated by reference.
3b By-Laws as amended, effective April 29, 1993. Exhibit 3 to the
Quarterly Report on Form 10-Q for the quarter ended September 30, 1998,
is hereby incorporated by reference.
4a Rights Agreement, effective November 21, 1998. Exhibit 1 to the Form
8-A filed November 18, 1998, is hereby incorporated by reference.
4b Form of Registration Rights Agreement between the Company, the
Purchasers and the Investors dated November 16, 1994. Exhibit 4.5 to
the Form S-3 filed August 26, 1994, is hereby incorporated by
reference.
10a SPS 1988 Long Term Incentive Stock Plan as amended, effective February
2, 1989. Exhibit 10a to the Annual Report on Form 10-K for the year
ended December 31, 1988, is hereby incorporated by reference.
10b SPS Employees Savings and Investment Plan as Amended and Restated,
effective January 1, 1999.
10c Employment Agreement between SPS Technologies, Inc. and John S.
Thompson, President and Chief Operating Officer, effective October 1,
1999.
10d SPS Technologies, Inc. Management Incentive Plan as Amended and
Restated, effective April 26, 1994. Exhibit 10d to the Annual Report on
Form 10-K for the year ended December 31, 1995, is hereby incorporated
by reference.
10e Form of standby Purchase Agreement dated November 16, 1994. Exhibit
10.1 to the Form S-3/A file November 17, 1994, is hereby incorporated
by reference.
<PAGE>
10f Retirement Benefit Agreement, dated February 28, 1979. Exhibit 10f to
the Annual Report on Form 10-K for the year ended December 31, 1991, is
hereby incorporated by reference.
10g Fee Arrangement with Former Directors, effective November 29, 1984.
Exhibit 10g to the Annual Report on Form 10-K for the year ended
December 31, 1990, is hereby incorporated by reference.
10h Form of Employment Agreements between SPS Technologies, Inc. and
certain employees, as amended and restated effective December 14, 1992.
Exhibit 10h to the Annual Report on Form 10-K for the year ended
December 31, 1992, is hereby incorporated by reference.
10i SPS Technologies, Inc. Executive Deferred Compensation Plan, as amended
and restated, effective December 14, 1992. Exhibit 10i to the Annual
Report on Form 10-K for the year ended December 31, 1992, is hereby
incorporated by reference.
10j SPS Technologies, Inc. Executive Deferred Compensation Plan II, as
amended and restated effective December 1, 1993. Exhibit 10j to the
Annual Report on Form 10-K for the year ended December 31, 1993, is
hereby incorporated by reference.
10k SPS Technologies, Inc. Supplemental Executive Retirement Plan, as
amended and restated effective December 14, 1992. Exhibit 10k to the
Annual Report on Form 10-K for the year ended December 31, 1992, is
hereby incorporated by reference.
10l Employment Agreement between SPS Technologies, Inc. and Charles W.
Grigg, Chairman and Chief Executive Officer, effective December 1,
1993. Exhibit 10l to the Annual Report on Form 10-K for the period
ended December 31, 1993, is hereby incorporated by reference.
10m Form of Indemnification Agreements between SPS Technologies, Inc. and
officers and directors dated February 2, 1987. Exhibit 10m to the
Annual Report on Form 10-K for the period ended December 31, 1992, is
hereby incorporated by reference.
10n Split Dollar Insurance Agreements regarding certain officers and
directors effective April 2, 1990, and November 27, 1991. Exhibit 10n
to the Annual Report on Form 10-K for the year ended December 31, 1991,
is hereby incorporated by reference.
<PAGE>
10o SPS Technologies, Inc. Senior Executive Severance Plan, effective
December 14, 1992. Exhibit 10o to the Annual Report on Form 10-K for
the year ended December 31, 1992, is hereby incorporated by reference.
10p Agreement with Retiring Executive, approved December 14, 1992. Exhibit
10p to the Annual Report on Form 10-K for the year ended December 31,
1992, is hereby incorporated by reference.
10q SPS Technologies, Inc. Benefit Equalization Plan, as amended and
restated effective December 14, 1992. Exhibit 10 to the Quarterly
Report on Form 10-Q for the quarter ended March 31, 1993, is hereby
incorporated by reference.
10r SPS Technologies, Inc. Long Range Incentive Plan, effective January 1,
1995. Exhibit 10r to the Annual Report on Form 10-K for the year ended
December 31, 1995, is hereby incorporated by reference.
10s SPS Technologies, Inc. Executive Deferred Compensation Plan III,
effective January 1, 1998. Exhibit 10s to the Annual Report on Form
10-K for the year ended December 31, 1998, is hereby incorporated by
reference.
13.1 1999 Consolidated Financial Statements, Notes to Consolidated Financial
Statements and Report of Independent Accountants.
13.2 Summary of Quarterly Results for 1999 and 1998.
13.3 Selected Financial Data for 1995 through 1999.
13.4 Common Stock Information for 1999 and 1998.
13.5 1999 Management's Discussion and Analysis of Financial Condition and
Results of Operations.
21 Subsidiaries of the Registrant.
23 Consent of Independent Accountants.
27 Financial Data Schedule.
<PAGE>
SPS TECHNOLOGIES, INC.
EMPLOYEES SAVINGS AND INVESTMENT PLAN
(PLAN NUMBER 004)
AMENDED AND RESTATED
EFFECTIVE JANUARY 1, 1999
<PAGE>
SPS TECHNOLOGIES, INC.
EMPLOYEES SAVINGS AND INVESTMENT PLAN
(PLAN NUMBER 004)
AMENDED AND RESTATED
EFFECTIVE JANUARY 1, 1999
TABLE OF CONTENTS
-----------------
Article Page
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Preamble
I. Purpose 3
II. Definitions 4
III. Participation 30
IV. Participant Savings 32
V. Company Contributions 42
VI. Investment Provisions 48
VII. Participants' Accounts 50
VIII. Distribution and Vesting 62
IX. Terminated Participants 75
X. Administration 77
XI. The Trust 90
XII. Amendment and Termination 95
XIII. Top Heavy Provisions 98
XIV. Withdrawals During Employment 108
i
<PAGE>
Article Page
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XV. Loans From The Plan 118
XVI. General Provisions 129
Schedule A: ADP and ACP Tests and
Related Limits on Contributions 133
Schedule B: Determination of Highly
Compensated Employees 163
Schedule C: Distribution Dates 167
Schedule D: USERRA Provisions 173
Schedule E: Participating Subsidiaries 181
Schedule F: Special Provisions 182
ii
<PAGE>
KEY TO INTERNAL REFERENCES IN THIS PLAN
2.1 Section
(a) Subsection
(1) paragraph
(A) clause
(i) [not named]
(I) [not named]
<PAGE>
SPS TECHNOLOGIES, INC.
EMPLOYEES SAVINGS AND INVESTMENT PLAN
WHEREAS, SPS Technologies, Inc. (the "Company") adopted the
SPS Technologies, Inc. Exempt Employees Savings and Investment Plan ("EESIP"),
effective August 1, 1979, for certain of its employees; and
WHEREAS, the Company adopted the SPS Technologies, Inc.
Non-Exempt Employees Savings and Investment Plan ("NEESIP"),effective July 1,
1984, for certain of its employees; and
WHEREAS, EESIP and NEESIP have been amended from time to time,
and were amended and restated, effective January 1, 1989; and
WHEREAS, the Company has since merged EESIP with and into
NEESIP, effective December 31, 1998; and
WHEREAS, the Company has changed the name of NEESIP to the SPS
Technologies, Inc. Employees Savings and Investment Plan (the "Plan"); and
WHEREAS, the Company desires at this time to amend and restate
the Plan, to comply with recent changes to the Internal Revenue Code of 1986 and
the Employee Retirement Income Security Act of 1974, as amended from time to
time;
NOW THEREFORE, except as otherwise provided, effective January
1, 1999, the Plan is continued, renamed, amended, and restated as hereinafter
set forth:
<PAGE>
ARTICLE I
PURPOSE
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1.1 Purpose. SPS Technologies, Inc., desiring to provide
systematically for the payment of benefits to its employees on account of
retirement, death, or total disability, to reward loyalty and service, and to
strengthen the bond between its employees and itself, herewith continues this
plan known as the SPS Technologies, Inc. Employees Savings and Investment Plan.
1.2 Type of Plan. For purposes of compliance with section
401(a)(27)(B) of the Internal Revenue Code, this plan shall be designated a
profit sharing plan.
-2-
<PAGE>
ARTICLE II
DEFINITIONS
-----------
Except where otherwise clearly indicated by context, the
masculine shall include the feminine and the singular shall include the plural,
and vice-versa.
2.1 "Accounts" or "Participant Account" shall mean the
separate entries maintained in the records of the Trustee which represent a
Participant's interest in the Fund.
(a) "Salary Redirection Account" means a record separately
maintained for each Participant, accounting for Pre-Tax Salary Redirection
Contributions made by the Participant and the investment performance of such
contributions.
(b) "401(k) Account" means a record separately maintained
for each Participant, accounting for elective contributions made by the
Participant, accounting for elective contributions made by the participant to a
C-M Plan while he was participating in that plan and transferred to this Plan as
a result of the merger of the C-M Plans into this Plan, and the investment
performance of such contributions.
(c) "C-M Account" means a record separately maintained for
each Participant, accounting for employer contributions made on behalf of the
Participant while he was participating in a C-M Plan and transferred to this
Plan as a result of the merger of the C-M Plans into this Plan, and the
investment performance of such contributions.
-3-
<PAGE>
(d) "Voluntary Account" means a record separately
maintained for each Participant, accounting for voluntary employee contributions
made by the Participant to a C-M Plan while he was participating in that plan
and transferred to this Plan as a result of the merger of the C-M Plans into
this Plan, and the investment performance of such contributions. The Voluntary
Account shall be divided into two sub-accounts, which shall be the "pre-1987
account" and the "post-1986 account." All contributions made prior to January 1,
1987 shall be credited to the "pre-1987 account," and all contributions made on
and after January 1, 1987 shall be credited to the "post-1986 account." Gains
and losses shall be allocated to a given sub-account in the proportion that the
amount in that sub-account as of the relevant Valuation Date bears to the total
of the amounts in both sub-accounts as of that Valuation Date.
(e) "Rollover Account" means a record separately
maintained for each Participant, accounting for amounts rolled over into the
Fund as provided in Section 4.10, and the investment performance of such
amounts.
-4-
<PAGE>
(f) "Company Account" means a record separately maintained
for each Participant, accounting for matching Contributions made by the Company
on behalf of the Participant and the investment performance of such
contributions.
(g) "Basic Account" means a record separately maintained
for each Participant, accounting for After-Tax Basic Contributions made by the
Participant and the investment performance of such contributions. The Basic
Account shall be divided into two sub-accounts, which shall be the "pre-1987
account" and the "post-1986 account." All After-Tax Basic Contributions
contributed prior to January 1, 1987 shall be credited to the "pre-1987
account," and all After-Tax Basic Contributions contributed on and after January
1, 1987 shall be credited to the "post-1986 account." Gains and losses on
After-Tax Basic Contributions shall be allocated to a given sub-account in the
proportion that the amount in that sub-account as of the relevant Valuation Date
bears to the total of the amounts in both sub-accounts as of that Valuation
Date.
(h) "Supplemental Account" means a record separately
maintained for each Participant, accounting for After-Tax Supplemental
Contributions (if any) made by the Participant and the investment performance of
such contributions. The Supplemental Account shall be divided into two
sub-accounts, which shall be the "pre-1987 account" and the "post-1986 account."
All After-Tax Supplemental Contributions contributed prior to January 1, 1987
shall be credited to the "pre-1987 account," and all After-Tax Supplemental
Contributions contributed on and after January 1, 1987 shall be credited to the
"post-1986 account." Gains and losses on After-Tax Supplemental Contributions
shall be allocated to a given sub-account in the proportion that the amount in
that sub-account as of the relevant Valuation Date bears to the total of the
amounts in both sub-accounts as of that Valuation Date.
-5-
<PAGE>
(i) "Salary Redirection Basic Account" means a record
separately maintained for each Participant, accounting for Pre-Tax Salary
Redirection Basic Contributions made by the Participant and the investment
performance of such contributions.
(j) "Salary Redirection Supplemental Account" means a
record separately maintained for each Participant, accounting for Pre-Tax Salary
Redirection Supplemental Contributions (if any) made by the Participant and the
investment performance of such contributions.
2.2 "ACP Test" shall mean the tests described in Section
A.8(b) of Schedule A.
2.3 "ADP Test" shall mean the tests described in Section
A.4(b) of Schedule A.
2.4 "Affiliated Company" shall mean:
(a) any parent or subsidiary of the Company (or company
under common control with the Company) which is a member of the same controlled
group of corporations (within the meaning of section 1563(a) of the Code) as the
Company;
-6-
<PAGE>
(b) any member of an affiliated service group, as
determined under section 414(m) of the Code, of which the Company is a member;
(c) any trade or business under common control with the
Company, as determined under section 414(c) of the Code; and
(d) any entity required to be aggregated with the Company
pursuant to regulations under section 414(o) of the Code.
"50% Affiliated Company" shall mean an Affiliated Company, but
with the phrase "more than 50%" substituted for the phrase "at least 80%" in
section 1563(a) of the Code.
2.5 "Annual Additions" shall mean, for any Participant, for
any Limitation Year, the sum of
(a) Salary Redirection Savings, Matching Contributions,
and any other employer contributions; and
(b) any forfeitures allocated for the Limitation Year to
the Participant's accounts under this Plan and any other defined contribution
plan(s) maintained by the Company or a 50% Affiliated Company.
-7-
<PAGE>
Any excess amounts distributed to a Participant under Sections
A.3, A.7, A.11, and A.12 of Schedule A shall be included in determining the
amount of that Participant's Annual Additions for the Limitation Year for which
such amounts are contributed to the Plan.
Rollover contributions shall not be included in determining
the amount of a Participant's Annual Additions.
Make-up contributions contributed by or on behalf of a
Participant who has returned from military service shall be included in
determining the amount of the Participant's Annual Additions for the Limitation
Year to which the make-up contributions relate (not for the Limitation Year in
which they are actually contributed).
2.6 "Board of Directors" shall mean the board of directors of
the Company.
2.7 "C-M Plan" means the Cannon-Muskegon Corporation 401(k)
Retirement Savings Plan for Hourly Employees on the Cannon-Muskegon Profit
Sharing Plan, as in effect prior to the Effective Date.
2.8 "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
2.9 "Administrative Committee" or "Retirement Committee" shall
mean the persons appointed by the Board of Directors to supervise the
administration of the Plan, as hereinafter provided.
-8-
<PAGE>
2.10 "Company" shall mean SPS Technologies, Inc., a
Pennsylvania corporation and its Participating Subsidiaries.
2.11 "Compensation" shall mean, for a given Participant, for a
given Plan Year, the amount(s) which must be reported in the "wages, tips, other
compensation" box on the Form(s) W-2 provided to the Participant by the Company,
increased by elective contributions under sections 125, 402(e)(3), 402(h)(1)(B),
and 403(b) of the Code.
For the Plan Year beginning in 1997, a Participant's annual
Compensation shall not be more than $160,000. For Plan Years beginning after
1997, a Participant's annual Compensation shall not be more than the amount set
by section 401(a)(17) of the Code, as adjusted for cost-of-living increases. In
the case of a Plan Year which is less than 12 months long, the dollar limit on
Compensation shall be determined by multiplying the annual limit by a fraction,
the numerator of which is the number of full calendar months in the short Plan
Year and the denominator of which is 12.
Until January 1, 1997, if a Participant is a five-percent (5%)
owner of the Company or one of the 10 Highly Compensated Employees who receive
the most pay from the Company and all Affiliated Companies, and if any of such
Participant's family members are also Participants in the Plan, the Participant
and his family member(s) shall be treated as one Participant for purposes of
applying the dollar limit on Compensation described above. If, after the
Compensation of the family members has been added up, the dollar limit on
Compensation has been exceeded, each family member's pro-rata share of the
dollar limit shall be determined, and that share shall be the family member's
Compensation for the Plan Year.
-9-
<PAGE>
For the purpose of the preceding paragraph, a Participant's
"family members" are his spouse and his lineal descendants who have not attained
age 19 by the end of the Plan Year in question. The family aggregation rule of
the preceding paragraph shall not apply on or after January 1, 1997.
2.12 "Computation Period" shall mean for any employee the
12-month period beginning on the employee's date of employment by the Company or
an Affiliated Company or on any anniversary of such date, and ending on the day
before the anniversary thereof.
2.13 "Effective Date" shall mean (except as otherwise set
forth herein) January 1, 1999, the effective date of this amended and restated
Plan. The Plan was originally effective on July 1, 1984 (August 1, 1979 for the
"EESIP").
-10-
<PAGE>
2.14 "Date of Employment" means the date on which an employee of
the Company or any Subsidiary completes his first Hour of Service.
2.15 "Date of Reemployment" means the first date following a Period
of Severance that is not credited as Service under the Plan on which an employee
of the Company or any Subsidiary performs an Hour of Service.
2.16 "Eligible Employee" shall mean any Employee who is entitled to
make Pre-Tax Salary Redirection Contributions and after-tax contributions to get
Matching Contributions for all or any portion of a given Plan Year. An Eligible
Employee shall be included in the ADP Test and ACP Test population for a given
Plan Year regardless of whether he actually makes contributions for that Plan
Year.
2.17 "Employee" shall mean any person employed by the Company,
including officers, shareholders, or directors who are employees, but excluding
persons covered by a collective bargaining agreement, unless they are covered by
a collective bargaining agreement that specifically provides for their
participation hereunder. Notwithstanding the foregoing sentence, effective
August 1, 1992, employees of the Marango division of The Arnold Engineering Co.
who are covered by a collective bargaining agreement shall be considered
Employees under this Section, and, effective August 1, 1996, employees of the
Sevierville division of The Arnold Engineering Co. who are covered by a
collective bargaining agreement shall be considered Employees under this
Section. The term Employee shall not include any person who is a leased employee
or an independent contractor, whether such person is later determined to be a
common-law employee by the Internal Revenue Service or the courts, or not.
-11-
<PAGE>
2.18 "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time.
2.19 "Excess Deferral" shall mean the amount described in Section
A.2(i) of Schedule A.
2.20 "Fund" shall mean the fund established for this Plan,
administered under the Trust Agreement, out of which benefits payable under this
Plan shall be paid. Effective January 1, 1995, the Fund shall consist of the
separate Funds, herein described, and any other Funds approved by the Employee
Benefits Committee.
(a) Vanguard Windsor Fund is a growth and income stock fund
which seeks long-term growth of capital and income by investing in a portfolio
of common stocks. As a secondary objective, this fund also seeks a reasonable
level of current income.
-12-
<PAGE>
(b) Vanguard Wellington Fund is a balanced fund which
is designed to provide conservative investors with a prudent investment program
with the following objectives: (1) conservation of principal; (2) reasonable
income return; and (3) profits without undue risks.
(c) Vanguard Primecap Fund is a growth stock fund
which seeks long-term growth of capital by investing principally in a portfolio
of common stocks. Dividend income is incidental.
(d) Vanguard International Growth Fund is an
international stock fund which seeks long-term capital growth by investing in
the common stocks of companies based outside of the United States. Dividend
income is incidental.
(e) Vanguard Total Bond Market Index Fund is a
intermediate-term bond fund which seeks to match the total return of the Lehman
Brothers Aggregate Bond Index.
(f) Vanguard Retirement Savings Trust is an
unsegregated fund, together with the earnings thereon invested primarily in
investment contracts issued by commercial banks and other similar types of fixed
principal investments.
(g) Vanguard Small-Cap Index Fund is a fund that
attempts to provide investment results that parallel the performance of the
unmanaged Russell 2000 Small Stock Index (200 small capitalization common
stocks).
-13-
<PAGE>
(h) Vanguard 500 Index Fund is a fund that attempts
to provide investment results that parallel the Standard & Poor's 500 Composite
Stock Index.
(i) SPS Stock Fund is an unsegregated fund invested
in the common stock of SPS Technologies, Inc.
Effective July 1, 1999, the Fund shall also consist of the
following separate Funds:
(j) Vanguard U.S. Growth Fund is a large-cap growth
fund that seeks long-term growth of capital by investing in large, high quality,
seasoned U.S. companies with records of exceptional growth and above-average
prospects for future growth.
(k) Vanguard Windsor II Fund is a large-cap value
fund that seeks long-term growth of capital and income from dividends by
investing in a diversified group of out-of-favor stocks of large companies. The
stocks generally sell at prices below the overall market average compared to
their dividend income and future return potential.
The description of the investment characteristics of each of
these funds, as set forth above, shall not limit or prevent the Trustee, in its
discretion, from holding any portion of a fund in cash or in other forms of
short-term securities.
2.21 "Hardship" shall mean, beginning on January 1, 1992, a
Participant's immediate and heavy financial need for funds to:
-14-
<PAGE>
(a) pay medical expenses incurred by the Participant
or his spouse or any of his dependents, not reimbursed by insurance or
otherwise, or to obtain medical care (as defined in section 213(d) of the Code)
for the Participant or his spouse or any of his dependents;
(b) purchase a principal residence for the
Participant (but not to pay mortgage payments);
(c) pay tuition and related educational fees for the
next 12 months of post-secondary education for the Participant or his spouse or
any of his children or dependents;
(d) prevent the eviction of the Participant from his
principal residence or foreclosure on the mortgage of his principal residence;
(e) on or after June 1, 1990, to prevent the
incarceration of the Participant; or
(f) on or after June 1, 1990, to pay funeral expenses
of a member of the Participant's family.
For the purpose of this Section, the term "dependent" shall
have the meaning given to it by section 152 of the Code.
The amount of a hardship withdrawal may include the amount
required to pay any federal, state, and local income taxes and penalties that
will result from the hardship withdrawal.
-15-
<PAGE>
2.22 "Highly Compensated Employee" shall mean, for a given Plan
Year, an employee who is found to be a highly compensated employee within the
meaning of Treas. Reg.ss.1.414(q)-1T for that Plan Year. The determination under
Treas. Reg.ss.1.414(q)-1T shall be made in accordance with Schedule B.
2.23 "Hour of Service" shall mean an hour for which:
(a) an employee is directly or indirectly paid or entitled to
payment by the Company or an Affiliated Company for the performance of
employment duties; or
(b) back pay, irrespective of mitigation of damages, is either
awarded or agreed to; or
(c) an employee is directly or indirectly paid or entitled to
payment by the Company or an Affiliated Company on account of a period of time
during which no duties are performed due to vacation, holiday, illness,
incapacity (including disability), layoff, jury duty, military duty, or leave of
absence; or
(d) an employee is absent from work without pay but receives
Hours of Service under Section 2.43.
There shall be excluded from the foregoing those periods during
which payments are made or due under a plan maintained solely for the purpose of
complying with applicable workers' compensation, unemployment compensation, or
disability insurance laws. An Hour of Service shall not be credited where an
employee is being reimbursed solely for medical or medically related expenses.
-16-
<PAGE>
Hours of Service shall be credited in accordance with the rules set
forth in U.S. Department of Labor Reg.ss.2530.200b-2(b) and (c).
Hours of Service shall be credited for any individual who is
considered a leased employee for purposes of this Plan under section 414(n) of
the Code.
2.24 "Income" shall mean, until January 1, 1998, the sum of an
employee's Limitation Compensation and his elective deferrals under sections
125, 402(e)(3), 402(h)(1)(B), and 403(b) of the Code. Beginning on January 1
1998, when the definition of Limitation Compensation changes to include elective
deferrals (in accordance with an amendment to section 415(c)(3) of the Code), an
employee's Income shall be his Limitation Compensation.
2.25 "Employee Benefits Committee" means the committee appointed by
the Board of Directors pursuant to Section 10.3.
2.26 "Investment Medium" shall mean any fund, contract, obligation,
or other mode of investment selected by the Committee to which a Participant may
direct the investment of the assets of his Accounts.
-17-
<PAGE>
2.27 "Limitation Compensation" shall mean for any Participant:
(a) the Participant's wages, salary, fees for professional
services, and other amounts received for personal services rendered in the
course of employment with the Company or a 50% Affiliated Company, regardless of
whether an amount is paid in cash, including (but not limited to) commissions
paid to salesmen, compensation for services on the basis of a percentage of
profits, commissions on insurance premiums, tips, bonuses, fringe benefits,
reimbursements, expense allowances, and, after December 31, 1997, elective
contributions under sections 125, 402(e)(3), 402(h)(1)(B), and 403(b) of the
Code; foreign earned income, whether or not excludable from gross income under
section 911 of the Code; taxable amounts received by the Participant through
accident or health insurance for personal injury or sickness or from a
self-insured medical expense reimbursement plan; moving expenses paid or
reimbursed by the Company or a 50% Affiliated Company in excess of any amount
deductible by the Participant; wages or payments in lieu of wages received on
account of absence from work for permanent and total disability; the amount
included in the taxable income of the Participant as a result of the grant of a
non-qualified stock option by the Company or a 50% Affiliated Company; and the
amount includable in the gross income of the Participant as the result of an
election described in section 83(b) of the Code.
-18-
<PAGE>
(b) Limitation Compensation shall exclude the following:
(1) employer contributions on behalf of an employee to a
simplified employee pension plan;
(2) any distributions from a plan of deferred
compensation, except that any amounts received by an employee pursuant to an
unfunded non-qualified plan may be included in the year that such amounts are
included in gross income;
(3) amounts realized from the exercise of a non-qualified
stock option or from stock or property which is currently taxable under section
83 of the Code;
(4) amounts realized from the sale, exchange, or other
disposition of stock acquired through the exercise of a qualified or incentive
stock option; and
(5) other amounts which receive special tax benefits, such
as premiums for group term life insurance to the extent not includable in gross
income, or contributions made by an employer toward the purchase of an annuity
contract described in section 403(b) of the Code.
2.28 "Limitation Year" shall mean the Plan Year or such other
12-month period as may be designated by the Company.
-19-
<PAGE>
2.29 "Management Incentive Plan" means the plan maintained by SPS
Technologies, with that name.
2.30 "Mandatory Benefit Commencement Date" shall mean for any
Participant the date described in Section C.1 of Schedule C.
2.31 "Matching Contributions" shall mean the amounts contributed to
the Fund by the Company pursuant to Section 5.1.
2.32 "Normal Retirement Age" shall mean for any Participant age 65.
shall mean the date on which a Participant attains Normal Retirement Age. A
Participant attains age 65 on his 65th birthday.
2.34 "Participant" shall mean any Employee entitled to and who
elects to participate in this Plan under Section 3.1, and any Employee or former
Employee for whom an Account is maintained under the Plan.
2.35 "Participating Subsidiary" means any Subsidiary or any
corporation of which SPS Technologies, Inc. owns more than fifty percent (50%)
of the outstanding stock, and which is designated as a Participating Subsidiary
by the Board of Directors, and which elects to participate in the Plan. A
Participating Subsidiary shall be such only as long as such designation and
election remain in effect.
-20-
<PAGE>
2.36 "Period of Severance" means the period of time commencing
on an Employee's Termination date and ending on the date on which the Employee
again performs an Hour of Service. However, if an Employee is absent from work
by reason of pregnancy, childbirth, or adoption, or for purposes of the care of
such Employee's child immediately after birth or adoption, the 12-consecutive
month period beginning on the first anniversary of the first day of such absence
shall not constitute Period of Severance.
2.37 "Plan" shall mean the SPS Technologies, Inc. Employees Savings
and Investment Plan (formerly the SPS Technologies, Inc. Non-Exempt Employees
Savings and Investment Plan), as set forth herein and as hereafter amended from
time to time. For purposes of compliance with section 401(a)(27)(B) of the Code,
the Plan is designated a profit sharing plan.
2.38 "Plan Year" shall mean a 12-month period which shall commence
each January 1st and end on the next following December 31st. The foregoing
notwithstanding, the first Plan Year was the six-month period beginning on July
1, 1984 and ending on December 31, 1984.
2.39 "Pre-Tax Salary Redirection Contributions" shall mean a
Participant's before-tax savings (including Pre-Tax Salary Redirection Basic
Contributions and Pre-Tax Salary Redirection Supplemental Contributions)
transferred to the Fund as provided in Article IV.
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2.40 "Qualified Matching Contributions" shall mean amounts which
are contributed to the Fund by the Company on behalf of non-highly compensated
Participants; which are allocated on the basis of Pre-Tax Salary Redirection
Contributions; which Participants may not elect to receive in cash; and which,
when made, are subject to the distribution and nonforfeitability requirements of
section 401(k) of the Code.
2.41 "Qualified Nonelective Contributions" shall mean amounts which
are contributed to the Fund by the Company on behalf of non-highly compensated
Eligible Employees; which are allocated on the basis of Compensation; which
Eligible Employees may not elect to receive in cash; and which, when made, are
subject to the distribution and nonforfeitability requirements of section 401(k)
of the Code.
2.42 "Rollover Savings" shall mean a Participant's distributions
from other qualified retirement plans that have been rolled over into the Fund
as provided in Section 4.10.
2.43 "Service" means an Employee's period of employment commencing
on his Date of Employment or Date of Reemployment (whichever is applicable) and
ending on his Termination Date. Separate periods of Service shall be aggregated
to determine an Employee's total Service for purposes of this Plan; provided,
however, that the determination of any Employee's total Service shall be subject
to the following rules:
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(a) In the case of a Participant who severs from service by
reason of a quit, retirement, or discharge, and who then performs an Hour of
Service within 12 months of his Termination Date, the Participant's total
Service shall include the Period of Severance from his Termination Date to his
Date of Reemployment.
(b) In the case of a Participant who severs from service by
reason of a quit, retirement, or discharge during an absence from service of 12
months or less for a reason other than a quit, retirement, or discharge, and who
then performs an Hour of Service within 12 months of the date on which he was
first absent from service, the Participant's total Service shall include the
Period of Severance.
(c) Service shall include the following periods of time:
(1) leaves of absence with the consent of the Company and
periods of Total Disability within the period during which right to
reinstatement is provided under the Company's policies, provided that the
Participant returns to active employment from such leave of absence or Total
Disability or becomes eligible to retire under the SPS Technologies, Inc.
Retirement Income Plan, and further provided that all those similarly situated
be treated alike;
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(2) absences due to service in the armed forces to the
extent that the Participant's right to reemployment is protected by law;
(3) absences due to layoff if the Participant is recalled
to work within the period during which right to reinstatement is provided under
the Company's policies, and further provided that the Participant returns to
active employment pursuant to such policies; and
(4) unpaid leaves of absence under the Family and Medical
Leave Act of 1993 for a period beginning on or after August 5, 1993.
(d) Periods of employment by a Subsidiary either before the
Subsidiary becomes a Participating Subsidiary or after the Subsidiary ceases to
be a Participating Subsidiary shall be included as Service under the Plan.
(e) Periods of employment by a company either before it
becomes a Subsidiary or after it ceases to be a Subsidiary shall not constitute
Service under the Plan.
(f) Periods of Service of less than a whole year shall be
credited at the rate of 1/12th of a year of Service for any month in which an
Hour of Service is credited.
(g) Notwithstanding the foregoing, periods of service prior to
January 1, 1976 shall be considered as Service only to the extent that such
periods would have been recognized as "continuous service" as defined and
computed in accordance with the SPS Technologies, Inc. Retirement Income Plan as
it existed on or prior to December 31, 1975.
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2.44 "Subsidiary" means:
(a) any company which is included within a "controlled group
of corporations" within which SPS Technologies, Inc. is also included, as
determined under Section 1563 of the Code, without regard to Subsections (a)(4)
and (e)(3)(C) of said Section 1563, except that for purposes of Section 7.8,
such determination under Section 1563 shall be made by substituting the phrase
"more than 50%" for the phrase "at least 80%" in Section 1563(a)(1);
(b) any other trade or business (whether or not incorporated)
which, based on principles similar to those defining a "controlled group of
corporations" for the purposes of (a) above, and pursuant to Section 414(c) of
the Code, is under common control;
(c) any member of an affiliated service group, as determined
under Section 414(m) of the Code, of which SPS Technologies, Inc. is a member;
and
(d) any entity required to be aggregated with SPS
Technologies, Inc. under Section 414(o) of the Code.
2.45 "Termination Date" means the earlier of:
(a) the date on which an Employee quits, retires, is
discharged, or dies, or
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(b) the first anniversary of the first day of a period during
which an Employee remains continuously absent from work (with or without pay)
for any reason other than a quit, retirement, discharge, or death.
2.46 "Total Disability" shall mean a physical or mental condition
of such severity and probable prolonged duration as to entitle the Participant
to disability retirement benefits under the federal Social Security Act.
All determinations of Total Disability shall be made on a
uniform and consistent basis applicable to all Employees in similar
circumstances.
2.47 "Trust" means the trust or trusts held by any Trustee or its
successors, designated by the Board of Directors in accordance with one or more
Trust Agreements between the Company and such Trustee.
2.48 "Trust Agreement" shall mean the agreement and declaration of
trust executed under this Plan.
2.49 "Trustee" shall mean the corporate trustee or one or more
individuals collectively appointed and acting under the Trust Agreement.
2.50 "Unit" means the unit of measure of a Participant's
proportionate interest, if any, in each Fund described in Section 2.20.
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2.51 "USERRA" shall mean the Uniformed Services Employment and
Reemployment Rights Act of 1994, as amended from time to time.
2.52 "Valuation Date" shall mean each business day while the plan
is in effect.
2.53 "Voluntary Savings" shall mean a Participant's after-tax
savings transferred to the Fund as provided in Article IV.
<PAGE>
ARTICLE III
PARTICIPATION
-------------
3.1 Date of Participation.
(a) Each person who was participating in the Plan (or any
plan merged into this Plan) immediately prior to the Effective Date and who is
an Employee on the Effective Date shall be a Participant hereunder as of the
Effective Date.
(b) Each person who is an Employee as of the Effective
Date (but who is not eligible to participate under Subsection (a)) shall become
eligible to become a Participant as of the Effective Date.
(c) Each other Employee shall become eligible to become a
Participant on the first day of any pay period coincident with or next following
his Date of Employment.
3.2 Participation Voluntary. Participation in this Plan is
voluntary. An Eligible Employee who does not elect to become a Participant when
he first meets the requirements of this Section may become a Participant at any
later time by following the procedure in Section 3.5.
3.3 Participation After Reemployment. A Participant whose
employment is terminated and who is later reemployed as an Employee shall resume
his participation in the Plan as of the Date of his Reemployment, but not
earlier than the first date on which he would otherwise have been eligible to
become a participant had he not terminated his employment.
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3.4 Data. Each Employee shall furnish to the Committee such
data as the Committee may consider necessary for the determination of the
Employee's rights and benefits under the Plan and shall otherwise cooperate
fully with the Committee in the administration of the Plan.
3.5 Method of Becoming a Participant. An Eligible Employee,
including one who becomes eligible again under Section 3.3, shall become a
Participant by making written application to participate in the Plan on the
form(s) provided by the administrative Committee. Such Eligible Employee must
apply for participation prior to the beginning of the pay periods for which he
desires to enter the Plan and must make contributions hereunder.
<PAGE>
ARTICLE IV
PARTICIPANT SAVINGS
4.1 Amount of Participant Contributions.
(a) Each Participant shall contribute, at his option, two
percent (2%), three percent (3%), four percent (4%), five percent (5%), or six
percent (6%) of his Base Pay. Such contributions shall be referred to as either
After-Tax Basic Contributions or Pre-Tax Salary Redirection Basic Contributions,
as designated by the Participant in accordance with Section 4.2.
(b) If a Participant is making contributions at the
maximum rate of six percent (6%) of his Base Pay, he may also elect to make
additional contributions, the amount of which shall be expressed as a whole
percentage that is one percent (1%) to ten percent (10%) of his Base Pay. Such
contributions shall be referred to as either After-Tax Supplemental
Contributions or Pre-Tax Salary Redirection Supplemental Contributions, as
designated by the Participant in accordance with Section 4.2.
(c) All Participant contributions shall be in the form of
Employee-authorized payroll deductions.
(d) Notwithstanding any other Subsection of this Section
4.1, if a Participant who is employed by Greer Stop Nut, Inc. or Non-Ferrous
Bolt & Mfg. Co. and is making contributions at the maximum rate of six percent
(6%) of his Base Pay, he may also elect to make additional contributions, solely
in accordance with this Subsection (d), the amount of which shall be expressed
as a whole percentage that is one percent (1%) to fourteen percent (14%) of his
Base Pay. Such contributions will be referred to as either After-Tax
Supplemental Contributions or Pre-Tax Supplemental Contributions, as designated
by the Participant in accordance with Section 4.2.
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4.2 Designation of Participant Contributions.
(a) A Participant who contributes two percent (2%) to six
percent (6%) of his Base Pay shall select, on a prospective basis, the whole
percentage of such contributions which the Participant wants designated as (1)
an After-Tax Basic Contribution, representing a contribution on an after-tax
basis, and (2) a Pre-Tax Salary Redirection Basic Contribution, representing a
before-tax contribution as described in Sections 401(k) and 402(e)(3) of the
Code.
(b) A Participant who is eligible to and does make
additional contributions of one percent (1%) to ten percent (10%) of his Base
Pay shall select, on a prospective basis, the whole percentage of such
additional contributions which the Participant wants designated as (1) an
After-Tax Supplemental Contribution, representing a contribution on an after-tax
basis, and (2) a Pre-Tax Salary Redirection Supplemental Contribution,
representing a before-tax contribution as described in Sections 401(k) and
402(e)(3) of the Code.
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(c) Effective January 1, 1987, in any one taxable year,
the amount of Pre-Tax Salary Redirection Contributions plus any other elective
deferrals (as defined in Section 402(g)(3) of the Code) allocated to a
Participant's accounts under this Plan and all other plans, contracts, and
arrangements maintained by the Company and Subsidiaries shall in no event exceed
the dollar limit in effect under Section 402(g) of the Code for that taxable
year.
(d) Notwithstanding anything in the Plan to the contrary,
After-Tax Supplemental Contributions shall not in any Plan Year exceed the limit
required in order to satisfy the ACP Test.
(e) Separate accounting shall be maintained under the Plan
with respect to a Participant's After-Tax Basic Contributions, Pre-Tax Salary
Redirection Basic Contributions, After-Tax Supplemental Contributions, and
Pre-Tax Salary Redirection Supplemental Contributions in the Participant's Basic
Account, Salary Redirection Basic Account, Supplemental Account, and Salary
Redirection Supplemental Account, respectively.
4.3 Dollar Limit on Salary Redirection Savings.
(a) In any one taxable year, the amount of Salary
Redirection Savings plus any other elective deferrals (as defined in section
402(g)(3) of the Code) allocated to a Participant's accounts under this Plan and
all other plans, contracts, and arrangements maintained by the Company and
Affiliated Companies shall in no event exceed the dollar limit in effect under
section 402(g) of the Code at the beginning of that taxable year ($9,500 for
1997; $10,000 for 1998 and 1999; $10,500 for 2000) or, if applicable, the lesser
amount described in Subsection (b).
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(b) If a Participant is granted a Hardship withdrawal
under Article XIV, his Pre-Tax Salary Redirection Contributions shall be
suspended in accordance with Section 14.2(d). In the taxable year of the
Participant following the year in which the Hardship withdrawal is taken, the
dollar limit on the amount allocable to his Salary Redirection Contribution
Account shall be:
(1) the applicable limit under section 402(g) of the
Code for the taxable year following the year in which the Hardship withdrawal is
taken, minus
(2) the amount of the Participant's Salary Redirection
Savings for the taxable year in which the Hardship withdrawal is taken.
4.4 Change of Contribution Rate.
(a) A Participant may change the contribution rate he has
elected under Section 4.1 to any other rate permitted under that Section. Such a
change shall become effective with the first pay period after the date on which
the Committee is notified of the change.
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(b) (1) A Participant who is a Highly Compensated Employee
and whose Pre-Tax Salary Redirection Contributions have been limited in
accordance with Schedule A may change his percentage of contributions more than
once in a six-month period, provided:
(A) any such change follows the Administrative
Committee's determination that its earlier required reduction in contribution
rates may be disregarded in whole or in part; and
(B) any such change shall become effective with
the first pay period following the date on which a written election is received
by the Administrative Committee.
(2) Any change made in accordance with paragraph (1)
does not limit the Administrative Committee's right to require subsequent
reductions in contribution rates of Highly Compensated Employees.
4.5 Suspension of Participant Contributions.
(a) By filing a written election with the Administrative
Committee, a Participant may elect to suspend his Pre-Tax Salary Redirection
Contributions. Such suspension shall become effective with the first pay period
after the date on which the written election to suspend is received by the
Administrative Committee. Any suspension must be effective for a period of at
least six months.
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(b) Participant contributions shall be suspended
automatically for any pay period in which the Participant does not receive Base
Pay. Participant contributions shall be suspended automatically upon transfer of
the Participant to a Subsidiary which is not a Participating Subsidiary.
(c) In order to resume making contributions, a Participant
must follow the procedure outlined in Section 3.5 as though he were a new
Participant.
(d) A Participant shall not be permitted to make up
contributions for any period in which his contributions were suspended.
4.6 Termination of Participant Contributions. A Participant's
contributions shall terminate effective with the pay period that end immediately
prior to or coincident with the date on which the Participant terminates
employment for any reason, including retirement or death.
4.7 Remittance of Contributions. Amounts deducted as Salary
Redirection Savings shall be remitted to the Trustee and/or Insurance Company
for deposit in the Fund as soon as is practicable, but in no event more than 15
business days after the end of the calendar month in which such contributions
were withheld from the Participant's Compensation and shall be allocated to the
Funds as directed by each Participant in accordance with Article VI.
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4.8 Nondiscrimination Testing. The Plan must satisfy the ADP
and ACP Tests set forth in Schedule A as of the last day of each Plan Year.
4.9 Excess Deferrals. In a taxable year in which a
Participant has an Excess Deferral, the Excess Deferral shall be treated as
described in Schedule A.
4.10 Rollovers to the Plan.
(a) With the consent of the Administrative Committee, an
Employee who became a Participant before April 1, 1996 may roll over into the
Fund all or a portion of his interest in any retirement plan of a former
employer that is tax-qualified under Section 401(a) of the Code, except that the
interest being rolled over may not contain nondeductible employee contributions.
Any rollover by an Employee who became a Participant before
April 1, 1996 must be completed no later than June 30, 1996. An Employee who
became a Participant before April 1, 1996 may not, under any circumstances, roll
funds over to the Plan after June 30, 1996. The time limit described in
Subsection (d)(1) shall also apply.
(b) With the consent of the Administrative Committee, an
Employee who becomes a Participant on or after April 1, 1996 may roll over into
the Fund all or a portion of his interest in any retirement plan of a former
employer that is tax-qualified under Section 401(a) of the Code, except that the
interest being rolled over may not contain nondeductible employee contributions.
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Any such rollover must be completed within 90 days after the
Employee becomes a Participant or, if later, within 30 days after the funds
being rolled over become available for transfer to the Plan. The time limit
described in Subsection (d)(1) shall also apply.
(c) Amounts rolled over from another retirement plan
that is tax-qualified under Section 401(a) of the Code shall be credited to the
Participant's Rollover Account.
(d) The Trustee shall not accept a distribution from
any other retirement plan that is tax-qualified under Section 401(a) of the Code
unless (1) the distribution being rolled over comes directly from the fiduciary
of the distributing plan, or comes from the Participant, within 60 days after
the Participant receives a distribution from such other tax-qualified retirement
plan; and (2) the distribution being rolled over will not cause the Plan to be a
direct or indirect transferee of a plan to which the survivor annuity
requirements of Sections 401(a)(11) and 417 of the Code apply.
(e) Except as specifically provided in this Section,
no Participant shall be permitted to roll over or transfer funds to the Plan
from another qualified retirement plan or trust, from an individual retirement
account or individual retirement annuity, or from an annuity plan.
4.11 USERRA Make-Up Contributions. If a Participant has been
absent from work due to military service and he meets the requirements for
coverage under USERRA, he shall have the right to make up the Salary Redirection
Contributions he could have contributed if he had been actively employed by the
Company during his period of military service, as provided in Section D.3 of
Schedule D.
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ARTICLE V
COMPANY CONTRIBUTIONS
---------------------
5.1 Matching Contributions.
(a) Before January 1, 1999. Subject to the limitations of
Schedule A and the provisions of Schedule F, each month the Company will
contribute out of its accumulated earnings and profits, and pay (or cause to be
paid) to the Trustee and/or Insurance Company, for each Participant (except
those employees of The Arnold Engineering Co. working at the Sevierville
location and covered by a collective bargaining agreement, unless the collective
bargaining agreement specifically provides for their participation
hereunder)(employees of The Arnold Engineering Co., Marengo, Illinois location
are only eligible to receive contributions under this Article V on and after
October 1, 1998) a base amount, which shall be referred to as the Matching
Company Contribution, to be allocated to the Participant's Company Account as
follows:
(1) effective January 1, 1997 through December 31,
1997, an amount equal to fifteen percent (15%) of the first six percent (6%) of
the Participant's Compensation that is deferred through Pre-Tax Salary
Redirection Basic Contributions; and
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(2) effective January 1, 1998:
(A) an amount equal to fifteen percent (15%) of
the first six percent (6%) of the Participant's Compensation that is deferred
through Pre-Tax Salary Redirection Basic Contributions in any month during the
first through fifth years of the Participant's Service; and
(B) an amount equal to twenty percent (20%) of the
first six percent (6%) of the Participant's Compensation that is deferred
through Pre-Tax Salary Redirection Contributions in any month during the sixth
and all subsequent years of the Participant's Service.
(b) On and After January 1, 1999. For Plan Years beginning
on and after January 1, 1999, Matching Company Contributions shall be an amount
equal to:
(1) fifteen percent (15%) of the first six percent
(6%) of the Participant's Compensation that is deferred through Pre-Tax Salary
Redirection Basic Contributions or After Tax Basic Contributions in any month
during the first through fifth years of the Participant's Service; and
(2) twenty-five percent (25%) (twenty percent (20%)
for Employees of The Arnold Engineering Co., Marengo, Illinois location who are
covered by a collective bargaining agreement) of the first six percent (6%) of
the Participant's Compensation that is deferred through Pre-Tax Salary
Redirection Contributions or After Tax Basic Contributions in any month during
the sixth and all subsequent years of the Participant's Service.
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(c) Notwithstanding Subsection (a), a Participant who is
employed by Greer Stop Nut, Inc. ("Greer Participant") shall be allocated a
matching contribution under the Plan solely in accordance with this Subsection
(c), subject to the limitations of Schedule A. For each month the Company will
contribute out of its accumulated earnings and profits and pay (or cause to be
paid) to the Trustee and/or Insurance Company for each Greer Participant a base
amount, which shall be referred to as the Matching Company Contribution, to be
allocated to the Greer Participant's Company Account and to be determined as
follows: one hundred percent (100%) of the first three percent (3%) of the Greer
Participant's After-Tax Basic Contributions and/or Pre-Tax Salary Redirection
Basic Contributions contributed in any month during the Greer Participant's
Service.
(d) Notwithstanding any other provision of this Section, a
Participant who directs his current monthly matching contribution to the SPS
Stock Fund, in accordance with Section 6.1 of this Plan, and who has an account
balance in excess of $0 on the last day of the month, shall receive an
additional matching contribution (the "SPS Stock Fund Match") from the Company
equal to fifteen percent (15%) of the amount of the current monthly matching
contribution directed to the SPS Stock Fund, provided, however, that the SPS
Stock Fund Match of a Participant who is employed by Greer Stop Not, Inc. will
be limited to seven and one-half percent (7.5%) of the amount of the matching
contribution directed to the SPS Stock Fund.
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(e) Notwithstanding any other provision of this Section,
Matching Company Contributions for former EESIP Participants are governed by the
terms of that plan as in effect from time to time.
(f) If a Participant has been absent from work due to
military service and he meets the requirements for coverage under USERRA, he
shall have the right to make up the Salary Redirection Savings he might have
contributed during his period of military service, as provided in Section D.3 of
Schedule D. If the Participant does make up Salary Redirection Contributions,
the Company shall contribute make-up Matching Contributions, as provided in
Section D.4 of Schedule D.
5.2 Remittance of Matching Contributions.
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(a) In the Company's sole discretion, Matching Company
Contributions may be contributed for each month in cash, in Company Stock, or
partially in cash and partially in Company Stock. If Matching Company
Contributions are paid in cash, such contributions shall be remitted to the
Trustee at the same time as Participant After-Tax Contributions, if applicable,
otherwise such contributions will be contributed each month.
(b) If the Company makes its contributions in cash, then
such amounts to the extent allocated to the SPS Stock Fund shall be used for the
purchase of shares of stock at the lowest price obtainable. Such shares of stock
may, in the sole discretion of the Trustee, be purchased on a national or
regional securities exchange, from the Company, from the SPS Technologies, Inc.
Retirement Income Plan, or from any other bona fide offeror of such stock, to
the extent allowed by the Code and ERISA.
5.3 QNECs and QMACs. If the Committee determines that the Plan
does not satisfy the ADP Test and/or the ACP Test, it may recommend that the
Company make Qualified Nonelective Contributions and/or Qualified Matching
Contributions on behalf of non-highly compensated Eligible Employees. Any such
contributions that the Company makes shall be allocated in accordance with
Section 7.6.
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5.4 Maximum Amount. The total of Matching Contributions,
Qualified Nonelective Contributions, and Qualified Matching Contributions for
any Plan Year shall not exceed the maximum amount which will constitute an
allowable current deduction under the applicable provisions of the Code. All
Company contributions are expressly conditioned upon their deductibility for
federal income tax purposes.
5.5 Nondiscrimination Testing. The Plan must satisfy the ACP
Test set forth in Schedule A as of the last day of each Plan Year.
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ARTICLE VI
----------
INVESTMENT PROVISIONS
---------------------
6.1 Investment of Contributions. At the time he elects to
become a Participant under the Plan, each Participant shall select the Funds to
which contributions are to be allocated. The SPS Stock Fund is available for
investment of Matching Contributions only. If the Participant elects to have
such contributions invested in more than one such Fund, he shall designate, in
multiples of twenty-five percent (25%), the portion of such contributions that
shall be invested in each Fund. Effective January 1, 1992, investments may be
made in 10% increments.
6.2 Change in Investment Election.
(a) Any investment election made by a Participant with
respect to investment of his contributions shall continue in effect until
changed by the Participant.
(b) Prior to January 1, 1992, by filing a written election
with the Administrative Committee, a Participant may change his current
investment election as to future contributions, within the limits of Section
4.1, effective with the first pay period following the date that is 14 days
after the date on which the written election to change is received by the
Administrative Committee.
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(c) On or after January 1, 1992, by telephoning the
Trustee in accordance with Plan procedures, a Participant may change his current
investment election as to further contributions, within the limits of Section
4.1, effective with the next contribution.
(d) Such conversions may be made not more than once in any
three-month period that begins on January 1st, April 1st, July 1st, or October
1st and must be made in multiples of twenty-five percent (25%) before January 1,
1992 and in multiples of ten percent (10%) on or after January 1, 1995 provided
that prior to January 1, 1992 no more than fifty (50%) of his Company Account
may be allocated to the SPS Stock Fund.
(e) Effective July 1, 1999 a Participant may change his
investment election as frequently or infrequently as the Participant so chooses.
6.3 Conversion of Past Elections.
(a) Prior to January 1, 1992, by filing a written
election, a Participant may convert his investment election with regard to any
sums then in his Salary Redirection Account, effective on the first Valuation
Date following the date that is 14 days after the date on which such written
election to convert is received by the Administrative Committee.
(b) On or after January 1, 1992, by telephoning the
Trustee in accordance with Plan Procedures, a Participant may convert his
investment election with regard to any sums then in his Participant Account.
Requests for change made prior to 4:00 p.m. Eastern Time on any business day
shall be processed that day; otherwise, the change shall become effective on the
following business day.
(c) Such conversions may be made not more than once in any
three-month period that begins on January 1st, April 1st, July 1st, or October
1st and must be made in multiples of twenty-five percent (25%) before January 1,
1992 and in multiples of ten percent (10%) on or after January 1, 1995 provided
that prior to January 1, 1992 no more than fifty percent (50%) of his Company
Account may be allocated to the SPS Stock Fund.
(d) None of the Participant's Basic Account, Salary
Redirection Basic Account, Supplemental Account, Salary Redirection Supplemental
Account, or Rollover Account may be allocated to the SPS Stock Fund.
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ARTICLE VII
PARTICIPANTS' ACCOUNTS
----------------------
7.1 Units. In the discretion of the Administrative Committee,
each of the Funds shall be divided into Units of Participation and the interests
of each Participant in each Fund shall be evidenced by the number of Units and
portions thereof in such Fund credited to the Participant's Salary Redirection
Account. Each Unit in a Fund shall have an equal beneficial interest in such
Fund, and none shall have priority or preference over any other. In the absence
of a decision by the Administrative Committee to utilize the Unit method, the
Participant's records shall be maintained on a dollar basis, with credits for
contributions and debits for withdrawals. Each Participant shall share pro rata,
with appropriate debits and credits, in the income, expenses, gains, and losses,
whether realized or not, of each Fund in which he participates.
7.2 Valuation of Assets. Each Fund shall be valued by the
Trustee as follows:
(a) Investments of each Fund shall be valued at the market
value thereof, as determined by the Trustee on the Valuation Date.
(b) Records of valuations of each Fund and of the Units
thereof shall be prepared and preserved by the Trustee in such manner and within
such time after each Valuation Date as may be prescribed by the Administrative
Committee or, in the absence of rules set by the Administrative Committee, as
determined by the Trustee.
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7.3 Valuation of Units. The original Unit of each Fund shall
be one dollar ($1.00). Thereafter, at or as of such dates as may be prescribed
by the Administrative Committee and at such other times as the Trustee may
elect, the value of a Unit in each Fund shall be determined by dividing the
value of such Fund, determined by the Trustee as provided in Section 7.2, by the
total number of outstanding Units in such Fund.
7.4 Determination of Number of Units. Each investment of a
Participant in Units in a Fund shall be on the basis of the value of such a Unit
as of the Valuation Date last preceding such investment. Each distribution in
respect of and each conversion of Units in a Fund shall be on the basis of the
value of such a Unit as of the Valuation Date specified according to the type of
distribution or conversion. The number of Units and fractions of Units in each
Fund to be credited or debited to a Participant's account each month shall be
calculated by dividing the monthly sum to be contributed to or paid from such
Fund for such Participant by the value of a Unit of such Fund immediately prior
to such contribution or payment. The number of outstanding Units in such Fund
shall be increased or decreased accordingly.
7.5 Cancellation of Units. Upon distribution of the value of
the Participant Account or of any accounts which are a part thereof, a
Participant's Units in the distributed account(s) shall be canceled.
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7.6 Allocation to QNEC and QMAC Accounts.
(a) Effective January 1, 2000 Qualified Nonelective
Contributions made in a given Plan Year shall be allocated to QNEC Accounts as
of the last day of the preceding Plan Year. Qualified Nonelective Contributions
shall be allocated to the QNEC Account of each individual who was a non-highly
compensated Eligible Employee in the preceding Plan Year, regardless of his
employment status in the current Plan Year, in the proportion that his
Compensation for the preceding Plan Year bears to the sum of the Compensation of
all non-highly compensated Eligible Employees for the preceding Plan Year.
(b) Effective January 1, 2000 Qualified Matching
Contributions made in a given Plan Year shall be allocated to QMAC Accounts as
of the last day of the preceding Plan Year. Qualified Matching Contributions
shall be allocated to the QMAC Account of each individual who was a non-highly
compensated Participant in the preceding Plan Year, regardless of his employment
status in the current Plan Year, in the proportion that his Salary Redirection
Savings for the preceding Plan Year bear to the sum of the Salary Redirection
Savings of all non-highly compensated Participants for the preceding Plan Year.
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(c) Until December 31, 1999 Qualified Nonelective
Contributions shall be allocated to the QNEC Accounts of the Eligible Employees
who are not Highly Compensated Employees in the Plan Year for which the
Qualified Nonelective Contributions are made. Qualified Nonelective
Contributions shall be allocated to the QNEC Account of each such Eligible
Employee in the proportion that his Compensation for the Plan Year bears to the
sum of the Compensation of all such Eligible Employees for the Plan Year.
(d) Until December 31, 1999 Qualified Matching
Contributions shall be allocated to the QMAC Accounts of the Participants who
are not Highly Compensated Employees in the Plan Year for which the Qualified
Matching Contributions are made. Qualified Matching Contributions shall be
allocated to the QMAC Account of each such Participant in the proportion that
his Salary Redirection Savings for the Plan Year bears to the sum of the Salary
Redirection Savings of all such Participants for the Plan Year.
7.6 Accounting for Allocations. The Committee shall establish
or provide for the establishment of accounting procedures for the purpose of
making the allocations, valuations, and adjustments to Participants' Accounts
provided for in this Article. From time to time such procedures may be modified
for the purpose of achieving equitable and nondiscriminatory allocations among
the Accounts of Participants in accordance with the general concepts of the Plan
and the provisions of this Article.
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7.7 Multiple Use Test. The Plan must satisfy the test set
forth in Section A.12 of Schedule A for each Plan Year.
7.8 Maximum Allocation. The provisions of this Section shall
be effective January 1, 1995 and shall be construed to comply with section 415
of the Code and the regulations thereunder.
(a) A Participant's Annual Additions shall in no event
exceed the lesser of:
(1) $30,000, or
(2) twenty-five percent (25%) of such Participant's
Limitation Compensation for the Limitation Year.
As provided in Section 2.5, make-up contributions contributed
by or on behalf of a Participant who has returned from military service shall be
included in determining the amount of the Participant's Annual Additions for the
Limitation Year to which the make-up contributions relate (not for the
Limitation Year in which they are actually contributed).
(b) If a Participant's Annual Additions would exceed the
amount described in Subsection (a) for a reason described in the first paragraph
of Treas. Reg.ss.1.415-6(b)(6), the Trustee or Insurance Company shall dispose
of the excess amount by taking as many of the following steps as necessary:
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(1) First, After-Tax contribution shall be distributed
to the Participants to the extent required to correct the amount of the
Participant's Annual Additions, or until all After-Tax contributions have been
distributed. Income attributable to the excess After-Tax contributions shall
also be distributed to the Participant.
(2) Next, Salary Redirection Contributions shall be
distributed to the Participant to the extent required to correct the amount of
the Participant's Annual Additions, or until all Salary Redirection
Contributions have been distributed. Income attributable to the excess Salary
Redirection Contributions shall also be distributed to the Participant.
(2) Finally, to the extent required to correct the
amount of the Participant's Annual Additions, and Matching Contributions shall
be segregated and shall be held in a suspense account until the following
Limitation Year (or succeeding Limitation Years), at which time the money shall
be used to reduce future Matching Contributions to the Plan. Amounts held in the
suspense account shall share in investment gains and losses of the Fund.
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(c) The provisions of this Subsection shall not apply on
or after January 1, 2000. Until January 1, 2000, if in any Limitation Year a
Participant in this Plan is also a participant in one or more defined benefit
plans maintained by the Company or a 50% Affiliated Company, the annual benefit
under the defined benefit plan(s) shall be reduced, if necessary, so that the
sum of the defined benefit and defined contribution fractions (defined below)
does not exceed 1.0 for such Limitation Year.
(1) (A) The defined benefit fraction is a fraction,
the numerator of which is the Participant's "projected annual benefit" under the
defined benefit pension plans sponsored by the Company and 50% Affiliated
Companies in which he has participated, determined as of the close of the
limitation years of such plans, and the denominator of which is the lesser of:
(i) 1.25 x $90,000 (as adjusted by the Internal
Revenue Service to reflect cost-of-living increases), or
(ii) one hundred forty percent (140%) of the
Participant's highest average "pay" over any three consecutive calendar years.
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(B) For the purpose of this Subsection,
"projected annual benefit" shall mean the annual benefit to which a Participant
would be entitled under the terms of a defined benefit plan if he had continued
employment until his normal retirement date under such plan and if his
compensation for the purpose of such plan had continued at the same rate.
(C) For the purpose of determining the
denominator of the defined benefit fraction, a Participant's "pay" shall be his
annual compensation as defined in Treas. Reg. ss.1.415-2(d).
(2) The defined contribution fraction is a
fraction, the numerator of which is the sum of the Participant's Annual
Additions under all defined contribution plans sponsored by the Company and 50%
Affiliated Companies for all limitation years, and the denominator of which is
the sum of the lesser of the following amounts, determined for each limitation
year of service with the Company or 50% Affiliated Company:
(A) 1.25 x $30,000, or
(B) thirty-five percent (35%) of the
Participant's Limitation Compensation for such limitation year.
(3) (A) A defined benefit plan sponsored by
the Company or a 50% Affiliated Company to which nondeductible employee
contributions are made is considered to be a separate defined contribution plan,
to the extent that the employee contributions constitute annual additions in the
current and prior limitation years.
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(B) The Annual Additions for any
Limitation Year beginning before January 1, 1987 shall not be recomputed to
treat all of a Participant's own after-tax contributions as Annual Additions.
(d) The dollar limitations described in Subsections
(a) and (c) shall be adjusted annually in accordance with section 415(d) of the
Code.
(e) The provisions of this Subsection shall not apply
on or after January 1, 2000, the date on which the provisions of Subsection (c)
cease to apply.
(A) The Committee may elect to apply
Subsection (c)(2) with respect to any Limitation Year ending after December 31,
1986 by adjusting the numerator under Subsection (c)(2) by using an alternate
amount for all Limitation Years beginning before January 1, 1987. The adjustment
is to subtract permanently from the numerator of the defined contribution
fraction an amount equal to the product of (i) and (ii):
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(i) the sum of the defined
contribution fraction and the defined benefit fraction as of the "determination
date," minus 1.0, times
(ii) the denominator of the
defined contribution fraction as of the "determination date."
(B) For purposes of clause (A) above,
the "determination date" is December 31, 1986. In addition, the defined benefit
fraction and the defined contribution fraction are computed in accordance with
the limitations set forth in section 415 of the Code, taking into account any
modifications for any accrued benefit that is protected by the provisions of the
Tax Equity and Fiscal Responsibility Act of 1982 or the Tax Reform Act of 1986.
(C) The adjustment described in this
Subsection (e)(2) may be made only if (i) both the defined benefit plan in
question and this Plan were in existence on May 6, 1986; (ii) both plans
satisfied the requirements of section 415 of the Code for the last Limitation
Year beginning before January 1, 1987; and (iii) any accruals in excess of the
limits set forth in section 415 of the Code are reduced. Any changes in the
terms and conditions of the Plan made after May 5, 1986 may not be recognized in
making this adjustment to the defined contribution fraction.
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ARTICLE VIII
DISTRIBUTION AND VESTING
------------------------
8.1 General. The interest of each Participant in the Fund
shall be distributed in the manner, in the amount, and at the time provided in
this Article, except as provided in Schedule C, and except in the event of the
termination of the Plan.
8.2 Vesting. Each Participant shall at all times have a one
hundred percent (100%)nonforfeitable interest in his Participant Account.
8.3 Normal Retirement. A Participant shall have the right to
receive normal retirement benefits on his Normal Retirement Date, if he then
retires. His Accounts, valued in accordance with Section 7.2, shall be
distributed in accordance with the provisions of this Article.
8.4 Late Retirement. A Participant who remains in the employ
of the Company beyond his Normal Retirement Date shall participate in the Plan
on the same basis as other Participants. In general, the Participant's Accounts,
valued in accordance with Section 7.2, shall be distributed in accordance with
the provisions of this Article when the Participant actually retires. However,
if the Participant is affected by the distribution rule for five-percent (5%)
owners (set forth in Section C.1(c) of Schedule C) and is still employed by the
Company or an Affiliated Company when he reaches his Mandatory Benefit
Commencement Date, he shall receive benefits in accordance with Section C.2 of
Schedule C; and if the Participant is not a five-percent (5%) owner but attains
age 70 1/2 in 1997, 1998, or 1999, he shall have the special benefit
commencement option described in Section C.1(e) of Schedule C.
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8.5 Death.
(a) If a Participant dies while he is employed by the
Company or an Affiliated Company, vested in his Matching Contribution and Profit
Sharing Accounts, his Accounts, valued in accordance with Section 7.2, shall be
paid or applied for the benefit of his beneficiary in accordance with Section
8.7.
(b) If a Participant dies after he has terminated his
employment with the Company and all Affiliated Companies, but before he has
received a full distribution of his Accounts, the balance of his Accounts,
valued in accordance with Section 7.2, shall be paid or applied for the benefit
of his beneficiary in accordance with Section 8.7.
(c) At the election of the beneficiary, distribution of a
benefit payable under this Section may occur as late as one year after the death
of the Participant.
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(d) In determining the amount of the benefit payable under
this Section, the Participant Account shall first be reduced by any security
interest held by the Plan by reason of a loan taken by the Participant, to the
extent there is outstanding principal and interest.
(e) In determining the amount of the benefit payable under
this Section, the deceased Participant's Accounts shall first be reduced by any
security interest held by the Plan by reason of a loan taken by the Participant,
to the extent that there is outstanding principal and interest.
8.6 Total Disability.
(a) If a Participant suffers a Total Disability prior to
his retirement and his employment is terminated because of such Total
Disability, he shall be entitled to an immediate distribution of his Participant
Account, valued in accordance with Section 7.2. If the value of the
Participant's Accounts is at least $3,500 (at least $5,000, beginning on January
1, 1998), his Accounts shall not be distributed until (1) he consents in writing
to such distribution, or (2) he attains Normal Retirement Age, or (3) he dies.
(b) Total Disability shall be determined by the Committee,
which may require such proof of Total Disability as it sees fit.
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8.7 Form of Distribution.
(a) At the direction of the Participant (or his
beneficiary or legal representative in the case of death or incapacity), his
Accounts, valued in accordance with Section 7.2, shall be distributed to him in
one of the following forms of payment
(1) a single-sum payment; or
(2) a nontransferable annuity contract providing fixed
income or fixed period payments, without life contingencies, over a period which
shall not violate any applicable provisions of section 401(a)(9) of the Code.
(b) In the event that a retired or terminated vested
Participant fails to make a valid election under this Section, his Accounts
shall be distributed to him in a single-sum payment.
(c) At the direction of the Participant (or his
beneficiary or legal representative in the case of death or incapacity),
distribution of the relevant portion of his Participant Account consisting of
the SPS Stock fund or one of the other Funds shall be made under any one of the
options described in Subsection (a), or in the form of Company common stock
(from the SPS Stock Fund) and/or mutual fund shares, to the extent available for
distribution (from the other funds).
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(d) A Participant shall have the right to elect a direct
rollover in accordance with Section 8.10 if he is to receive an "eligible
rollover distribution" (as defined in Section 8.10(c)).
(e) Certain Participants shall receive benefits in
accordance with Schedule C.
8.8 Valuation for Distribution.
(a) For the purposes of paying the amounts to be
distributed to a Participant or his beneficiaries under this Plan, the value of
the Fund and the amount of the Participant's interest shall be determined in
accordance with the provisions of Article VII as of the Valuation Date
coincident with or immediately preceding the date of the payment. There shall be
added to such amount the additional contributions , if any, which have been (or
are to be) allocated to the Participant's Accounts after that Valuation Date.
(b) If any distribution is deferred for more than 60 days
after the occurrence of the event triggering the distribution, the Participant
Account shall be valued as of the Valuation Date that occurs at least 30 days
but not more than 60 days before the date on which the Participant Account is
distributed.
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(c) Subsection (a) notwithstanding, for the purpose of
making a minimum distribution under section 401(a)(9) of the Code to a
Participant who is still employed, the Participant's Accounts shall be valued in
accordance with Section C.5 of Schedule C.
(d) If, at the time of a distribution, the value of a
Participant's Accounts is at least $3,500 (at least $5,000, beginning on January
1, 1998), the value of his vested interest in those Accounts at any later time
shall be deemed to be at least $3,500 (at least $5,000, beginning] on January 1,
1998 for purposes of determining whether the Participant may be "cashed out".
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8.9 Timing of Distribution.
(a) (1) In general, a Participant entitled to receive
benefits under this Article shall commence to receive benefits as soon as
administratively practicable. However, in accordance with applicable law,
benefits shall commence before a Participant's Normal Retirement Date only if
the Participant consents in writing to receive benefits before his Normal
Retirement Date. The Participant's consent shall be valid only if it is given
within 90 days before his benefit commencement date. Such consent shall be given
in the manner prescribed by the Committee.
(2) Distribution may be made at any time that is more
than seven days after the Participant has received any required notice(s)
regarding his distribution options (including but not limited to notice of his
right to elect a direct rollover), if the Participant waives his right to the
30-day election period to which he is otherwise entitled.
(b) Distribution of a Participant's benefits under this
Plan shall be made or shall commence by his Mandatory Benefit Commencement Date.
Schedule C contains provisions relating to mandatory benefit commencement and to
the special benefit commencement option that is available to certain
Participants.
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(c) Assuming that he has made proper application for his
benefits, a Participant shall begin to receive benefits no later than the later
to occur of:
(1) the 60th day after the end of the Plan Year in
which the Participant attains Normal Retirement Age, or
(2) the 60th day after the end of the Plan Year in
which the Participant's employment with the Company and all Affiliated Companies
terminates.
8.10 Direct Rollover Option.
(a) A Participant or a Participant's surviving spouse or
an alternate payee under a qualified domestic relations order (as defined in
section 414(p) of the Code) who is to receive an "eligible rollover
distribution" (as defined in Subsection (c)) may elect to have the amount of
such distribution transferred directly in a direct rollover to an "eligible
retirement plan" (as defined in Subsection (d)).
(b) If a Participant or surviving spouse or alternate
payee is to receive an eligible rollover distribution of more than $500, he may
choose to have part of the distribution transferred directly in a direct
rollover to an eligible retirement plan and to have the remainder paid to him.
The amount which is to be transferred must be at least $500.
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(c) (1) For the purpose of this Section, an "eligible
rollover distribution" shall mean a distribution from the Plan that is a
single-sum payment or one of the payments in a series of installment payments
made at least annually over a period of less than 10 years. The dollar amount of
an eligible rollover distribution shall not include the portion of such
distribution that is a required minimum distribution under section 401(a)(9) of
the Code or the portion of such distribution that consists of voluntary
after-tax employee contributions, but shall include earnings on voluntary
after-tax employee contributions.
(2) A distribution of less than $200 that would
otherwise be an eligible rollover distribution within the meaning of paragraph
(1) shall not be an eligible rollover distribution if it is reasonable to expect
that all such distributions to the Participant or surviving spouse or alternate
payee from the Plan during the same calendar year will total less than $200.
(d) For the purpose of this Section, an "eligible
retirement plan" shall mean:
(1) in the case of a Participant or an alternate
payee, one of the following: an individual retirement account or an individual
retirement annuity, a qualified trust if it is part of a defined contribution
plan, or an annuity plan described in section 403(a) of the Code;
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(2) in the case of a Participant's surviving spouse,
an individual retirement account or an individual retirement annuity.
(e) (1) The Committee shall provide to the Participant or
surviving spouse or alternate payee an explanation of his right to elect a
direct rollover and the federal tax withholding consequences to him if he does
not elect a direct rollover. The Participant, surviving spouse, or alternate
payee shall then have at least 30 days (but not more than 90 days) in which to
elect a direct rollover.
(2) A Participant or surviving spouse or alternate
payee who elects a direct rollover must provide all information that the
Committee may require to complete the direct rollover.
(3) A Participant or surviving spouse or alternate
payee who elects a direct rollover with respect to any eligible rollover
distribution that is one in a series of installment payments made at least
annually over a period of less than 10 years shall be deemed to have made the
same election with respect to all subsequent eligible rollover distributions in
the series unless and until he changes his election. A change of election shall
be accomplished by notifying the Administrative Committee of the change in the
manner prescribed by the Administrative Committee.
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(4) A Participant or surviving spouse or alternate
payee who is entitled to elect a direct rollover with respect to all or any
portion of a distribution from the Plan but who does not make any election shall
be deemed to have rejected the direct rollover option.
8.11 Beneficiary Designation.
(a) Except as provided in Subsection (c), each
Participant shall have the unrestricted right at any time to designate his
beneficiary under the Plan. Such designation shall be made by executing and
filing with the Committee a form provided by the Committee for that purpose.
(b) Except as provided in Subsection (c), each
Participant shall have the unrestricted right to revoke and to change, at any
time and from time to time, any beneficiary designations previously made. Such
revocations and/or changes shall be made by executing and filing with the
Committee a form provided by the Committee for that purpose.
(c) (1) A married Participant must designate his spouse
as his beneficiary unless:
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(A) the spouse consents in writing not to receive
death benefits under the Plan,
(B) the spouse consents in writing to the
specific alternate beneficiary designated by the Participant (if any),
(C) the spouse's consent acknowledges its own
effect, and
(D) the spouse's consent is witnessed by a Plan
representative or a notary public.
(2) A Participant may not change his beneficiary
without the consent of his spouse, unless the original consent of the spouse
expressly permits the Participant to make changes without further consent of the
spouse, or unless the Participant's change is to name his spouse as his
beneficiary.
(d) A married Participant is not required to comply with
the consent requirement of Subsection (c) if he establishes to the satisfaction
of a Plan representative that his spouse cannot be located, or if he is legally
separated or has been abandoned (within the meaning of local law) and has a
court order to that effect.
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(e) No designation, revocation, or change of
beneficiaries shall be valid and effective unless and until filed with the
Committee. If no designation is made, or if the beneficiaries named in such
designation predecease the Participant, or if the beneficiaries cannot be
located by the Committee, the interest of the deceased Participant shall be paid
to the Participant's surviving spouse or, if none, to the Participant's estate.
8.12 Mailing Address. Benefit payments and notifications
hereunder shall be deemed made when mailed to the last address furnished to the
Committee.
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ARTICLE IX
TERMINATED PARTICIPANTS
-----------------------
9.1 Treatment of Terminated Participant.
(a) Except as provided in Subsection (c), if a terminated
Participant's Accounts are valued at less than $3,500 (less than $5,000,
beginning on August 1, 1998), the Accounts shall be distributed in a single-sum
payment (i.e., "cashed out"), as follows:
(1) The Participant shall have the right to elect a
direct rollover in accordance with Section 8.10 if his distribution is an
"eligible rollover distribution" (as defined in Section 8.10(c)). The Committee
shall provide the Participant with a notice of his right to elect a direct
rollover, and the Participant shall then have at least 30 days (but not more
than 90 days) in which to elect a direct rollover.
(2) If the Participant does not elect a direct
rollover within his election period (or if his distribution is not an eligible
rollover distribution), his Accounts shall be distributed to him in a single-sum
payment as soon after his termination of employment as is administratively
practicable.
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(3) Distribution under this Subsection may be made at
any time that is more than seven days after the Participant has received the
notice of his right to elect a direct rollover, if the Participant waives his
right to a 30-day election period.
(b) If a terminated Participant's Accounts are valued at
$3,500 or more ($5,000 or more, beginning on August 1, 1998), the Accounts shall
be distributed pursuant to Article VIII as if the Participant had continued
employment until his Normal Retirement Date. However, the Participant's Accounts
shall be distributed to him earlier than his Normal Retirement Date if he
requests earlier distribution.
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ARTICLE X
ADMINISTRATION
--------------
10.1 Allocation and Delegation of Fiduciary Responsibilities.
Fiduciary responsibilities with respect to the Plan are to be allocated as set
forth in this Article X. A fiduciary shall have only those specific powers,
duties, responsibilities, and obligations as are specifically given him under
this Plan or the Trust Agreement. It is intended that each fiduciary be
responsible for the proper exercise of his own powers, duties, responsibilities,
and obligations under this Plan and/or the Trust Agreement, and a fiduciary
generally shall not be responsible for any act or failure to act of another
fiduciary. The Company shall be the named fiduciary and the plan administrator.
The Company shall have the sole responsibility for establishing the funding
policy of the Plan and for making contributions provided for under Article V.
10.2 Powers and Responsibilities of the Board of Directors. The
Board of Directors has the following powers and responsibilities:
(a) to authorize amendments to the Plan, as set forth in
Article XII;
(b) to terminate the Plan, as set forth in Article XII; and
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(c) to appoint and remove members of the Administrative and
Employee Benefits Committees, as set forth in Sections 10.3 and 10.4.
10.3 Employee Benefits Committee.
(a) The Employee Benefits Committee shall consist of at least
three members who shall be appointed by and serve at the pleasure of the Board
of Directors. Vacancies shall be filled by the Board of Directors. Any member of
the Employee Benefits Committee may resign by delivering a written resignation
to the Board of Directors, to become effective upon delivery or at any other
date specified therein.
(b) The members of the Employee Benefits Committee shall elect
from their members a chairman and shall appoint a secretary who may, but need
not, be a member of the Employee Benefits Committee. The Employee Benefits
Committee may, in writing, delegate some or all of its powers and
responsibilities as specified in Section 10.3(d) to any other person or entity.
(c) The Employee Benefits Committee shall hold meetings upon
such notice, at such times, and at such places as it may determine. The majority
of the members of the Employee Benefits Committee at the time in office shall
constitute a quorum for the transaction of business at all meetings, and a
majority vote of those present at any meeting shall be required for action. The
Employee Benefits Committee may also act by written consent of a majority of its
members.
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(d) The Employee Benefits Committee shall have the following
powers and responsibilities:
(1) to establish investment objectives with respect to the
investment of assets which are not held by an Insurance Company;
(2) to establish and modify investment performance
standards;
(3) to comply with the investment provisions of ERISA;
(4) to coordinate any necessary audit process with respect
to reports on financial data;
(5) to prepare periodic financial reports to the Board of
Directors which shall show, in reasonable detail, the assets and liabilities of
the Plan, and which shall give an account of the financial operations of the
Plan;
(6) to appoint and remove any Insurance Company;
(7) to approve any Funds for the investment of Participant
contributions that may be consistent with the objectives of the Plan.
10.4 Administrative Committee.
(a) The Administrative Committee shall consist of at least
three persons who shall be appointed by and serve at the pleasure of the Board
of Directors. Vacancies shall be filled by the Board of Directors. Any member of
the Administrative Committee may resign by delivering a written resignation to
the Board of Directors, to become effective upon delivery or at any other date
specified therein.
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(b) The members of the Administrative Committee shall elect
from their members a chairman and shall appoint a secretary who may, but need
not, be a member of the Administrative Committee. The Administrative Committee
may, in writing, delegate some or all of its powers and responsibilities as set
forth in Section 10.4(d) to any other person or entity.
(c) The Administrative Committee shall hold meetings upon such
notice, at such times, and at such places as it may determine. A majority of the
members of the Administrative Committee at the time in office shall constitute a
quorum for the transaction of business at all meetings, and a majority vote of
those present at any meeting shall be required for action. The Administrative
Committee may also act by written consent of a majority of its members.
(d) The Administrative Committee shall adopt such rules for
administration of the Plan as it considers desirable, provided they do not
conflict with the Plan. Records of administration of the Plan shall be kept, and
Participants and their beneficiaries may examine records pertaining to their
Participant Accounts. The Administrative Committee shall have discretionary
authority to determine eligibility for participation or benefits and to construe
the terms of the Plan, and shall also have the following powers and
responsibilities:
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(1) to select and terminate the independent auditor required
under ERISA;
(2) to follow the claims procedure set forth in Section
10.5;
(3) to construe the Plan, correct defects, supply omissions,
and reconcile inconsistencies to the extent necessary to administer the Plan,
with any instructions or interpretation of the Plan made in good faith by the
Administrative Committee to be final and conclusive for all purposes;
(4) to comply with any requirements of ERISA with respect to
filing reports with governmental agencies;
(5) to provide Employees with any and all information
required by ERISA;
(6) to coordinate any necessary audit process with respect
to reports on administration data; and
(7) to conduct routine Plan administration.
(e) No member of the Administrative Committee shall act or
participate in the action of the Administrative Committee in any matter directly
affecting his own Participant Account and not of general application to all
Participants.
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10.5 Claims Procedure.
(a) In the event that the Administrative Committee denies, in
whole or in part, a claim for benefits (including a request for a loan or a
Hardship withdrawal) by a Participant or his beneficiary, the Administrative
Committee shall furnish notice of the denial to the claimant, setting forth:
(1) the specific reasons for the denial,
(2) specific reference to the pertinent Plan provisions on
which the denial is based,
(3) a description of any additional information necessary
for the claimant to perfect the claim and an explanation of why such information
is necessary, and
(4) appropriate information as to the steps to be taken if
the claimant wishes to submit his claim for review.
(b) The notice described in Subsection (a) shall be forwarded
to the claimant within 90 days of the Committee's receipt of the claim;
provided, however, that in special circumstances the Committee may extend the
response period for up to an additional 90 days, in which event it shall notify
the claimant in writing of the extension, and shall specify the reason(s) for
the extension.
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(c) Within 60 days of receipt of a notice of claim denial, a
claimant or his duly authorized representative may petition the Administrative
Committee in writing for a full and fair review of the denial. The claimant or
his duly authorized representative shall have the opportunity to review
pertinent documents and to submit issues and comments in writing to the
Administrative Committee. The Administrative Committee shall review the denial
and shall communicate its decision and the reasons therefor to the claimant in
writing within 60 days of receipt of the petition; provided, however, that in
special circumstances the Administrative Committee may extend the response
period for up to an additional 60 days, in which event it shall notify the
claimant in writing prior to the commencement of the extension.
(d) If for any reason the written notice of denial described
in Subsection (a) is not furnished within 90 days of the Committee's receipt of
a claim for benefits, the claim shall be deemed to be denied. Likewise, if for
any reason the written decision on review described in Subsection (c) is not
furnished within the time prescribed, the claim shall be deemed to be denied on
review.
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10.6 Qualified Domestic Relations Orders. The Committee shall have
the duty to determine whether any domestic relations order received by the Plan
is a qualified domestic relations order as defined in section 414(p) of the
Code. To the extent provided in a qualified domestic relations order, the former
spouse of a Participant shall be treated as the surviving spouse for purposes of
this Plan, and any other spouse of the Participant shall not have a spouse's
rights under the Plan.
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10.7 Indemnification of the Committee.
(a) Each Indemnitee (as defined in Subsection (e)) shall be
indemnified and held harmless by the Company for all actions taken by him and
for all failures to take action (regardless of the date of any such action or
failure to take action), to the fullest extent permitted by the law of the
jurisdiction in which the Company is incorporated, against all expense,
liability, and loss (including, without limitation, attorneys' fees, judgments,
fines, taxes, penalties, and amounts paid or to be paid in settlement)
reasonably incurred or suffered by the Indemnitee in connection with any
Proceeding (as defined in Subsection (e)). No indemnification pursuant to this
Section shall be made, however, in any case where (1) the act or failure to act
giving rise to the claim for indemnification is determined by a court to have
constituted willful misconduct or recklessness or (2) there is a settlement to
which the Company does not consent.
(b) The right to indemnification provided in this Section
shall include the right to have the expenses incurred by the Indemnitee in
defending any Proceeding paid by the Company in advance of the final disposition
of the Proceeding, to the fullest extent permitted by the law of the
jurisdiction in which the Company is incorporated; provided that, if such law
requires, the payment of such expenses incurred by the Indemnitee in advance of
the final disposition of a Proceeding shall be made only on delivery to the
Company of an undertaking, by or on behalf of the Indemnitee, to repay all
amounts so advanced without interest if it shall ultimately be determined that
the Indemnitee is not entitled to be indemnified under this Section or
otherwise.
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(c) Indemnification pursuant to this Section shall continue as
to an Indemnitee who has ceased to be such and shall inure to the benefit of his
heirs, executors, and administrators.
(d) The foregoing right to indemnification shall be in
addition to such other rights as the Indemnitee may enjoy as a matter of law or
by reason of insurance coverage of any kind and is in addition to and not in
lieu of any rights to indemnification to which the Indemnitee may be entitled
pursuant to the by-laws of the Company.
(e) For the purposes of this Section, the following
definitions shall apply:
(1) "Indemnitee" shall mean each person serving as a member
of the Committee (or any other person who is an employee, director, or officer
of the Company or an Affiliated Company) who was or is a party to, or is
threatened to be made a party to, or is otherwise involved in, any Proceeding,
by reason of the fact that he is or was performing administrative functions
under the Plan.
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(2) "Proceeding" shall mean any threatened, pending, or
completed action, suit, or proceeding (including, without limitation, an action,
suit, or proceeding by or in the right of the Company), whether civil, criminal,
administrative investigative, or through arbitration.
10.8 Employment of Agents. The Investment and Administrative
Committees may retain such counsel and such actuarial, accounting, medical,
clerical, and other services as they may require to comply with all applicable
rules and regulations affecting the Plan. Any consultants, accountants,
actuaries, or attorneys may be the same as those retained by the Company.
10.9 Reliance on Reports and Certificates. The Investment and
Administrative Committees, the officers and managers and Employees of the
Company, and the Company itself shall be entitled to rely upon all tables,
valuations, certificates, and reports furnished by any duly appointed actuary,
upon all certificates and reports made by the Trustee, or by any duly appointed
accountant, and upon all opinions given by any duly appointed legal counsel.
10.10 Compensation. Members of the Administrative and Employee
Benefits Committees who are Employees shall not receive any compensation for
their services as such.
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10.11 Notifications.
(a) All notices, reports, and statements given, made,
delivered, or transmitted to a Participant shall be deemed duly given, made,
delivered, or transmitted when mailed, by such class as the sender may deem
appropriate, with postage prepaid and addressed to the Participant at the
address last appearing on the records of the Company with respect to this Plan.
All notices, directions, or other communications given, made, delivered, or
transmitted by a Participant to the Trustee and/or Company, shall not be deemed
to have been duly given, made, delivered, transmitted, or received unless and
until actually received by the Trustee or by the Company acting upon delegation
from the Trustee and/or Insurance Company.
(b) The Trustee and/or the Administrative Committee, or the
Company under delegation from the Trustee, shall, as soon as practicable after
the end of each Plan Year, mail to each Participant a statement setting forth
the account of such Participant in the respective Funds as of the end of such
Plan Year. Such statement shall be deemed to have been accepted as correct
unless written notice to the contrary is received by the Administrative
Committee or Company within 30 days after the mailing of such statement to the
Participant.
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10.12 Administrative and Investment Expenses. All brokerage fees,
taxes, and other expenses related to the purchase and sale of securities in a
Fund and all other expenses (including Trustee's fees, investment management
fees, and all other costs and expenses incurred in administering the Plan) shall
be paid out of the Trust to the extent not paid by the Company.
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ARTICLE XI
THE TRUST
---------
11.1 Designation of Trustee. The Board of Directors shall enter
into one or more Trust Agreement or Agreements with one or more Trustees
selected by it in its sole discretion. The Board of Directors shall have the
power to amend the Trust Agreement, remove the Trustee, and designate a
successor Trustee, all as provided in the Trust Agreement. All of the assets of
the Plan shall be held by the Trustee for use in accordance with this Plan in
providing for the benefits hereunder.
11.2 Fund.
(a) The contributions deposited by the Company in the Fund in
accordance with this Plan shall constitute a fund held for the benefit of
Participants and their eligible beneficiaries under and in accordance with this
Plan. Prior to the satisfaction of all liabilities under the Plan in the event
of termination of the Plan, no part of the corpus or income of the Fund shall be
used for or diverted to purposes other than for the exclusive benefit of such
Participants and beneficiaries (including necessary administrative costs),
except as expressly provided hereafter in this Plan and in the Trust Agreement.
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(b) Subsection (a) notwithstanding, in the case of a
contribution made by the Company (1) as a mistake of fact; or (2) for which a
tax deduction is disallowed, in whole or in part, by the Internal Revenue
Service; or (3) which is conditioned upon the initial qualification of the Plan
under section 401(a) of the Code, and an application for determination is made
to the Internal Revenue Service within the time prescribed by law for filing the
Company's tax return for the taxable year in which the Plan was adopted (or such
later date as the Secretary of the Treasury may prescribe), but such initial
qualification cannot be obtained, the Company shall be entitled to a refund of
said contributions.
(c) Any refund of contributions described in Subsection (b)
must be made (1) within one year after payment of a contribution made as a
mistake of fact, or (2) within one year after disallowance of the tax deduction,
to the extent of such disallowance, or (3) within one year of the date on which
the initial qualification of the Plan is denied by the Internal Revenue Service,
as the case may be.
11.3 No Interest in Fund. No person shall have any interest in or
right to any part of the assets or income of the Fund, except to the extent
expressly provided in this Plan and in the Trust Agreement.
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11.4 Trustee. The Trustee and the Company may by mutual agreement
arrange for the delegation by the Trustee to the Company or to the Employee
Benefits Committee of any of its functions other than (a) the investment,
valuation, management, and custody of assets; (b) the voting with respect to
securities held by the Trustee; and (c) the purchase and sale or redemption of
securities; provided that the Trust Agreement permits delegation of such
functions in accordance with the foregoing provisions of this Section.
11.5 Records. The Trustee shall keep full books of account in
accordance with regulations prescribed by the Employee Benefits Committee. The
Trustee shall, at least once during each calendar year, submit to the Employee
Benefits Committee a report on each Fund, which shall include (a) a list of the
investments making up such Fund at the end of the period covered by the report,
showing the valuation placed on each item on the list by the Trustee at the end
of such period, the total of such valuations, and the number of Units in such
Fund outstanding at the end of such period, and (b) a statement of purchases,
sales, and any other investment changes and of income and disbursements since
the last report. Copies of such reports shall be available for inspection at the
principal office of the Company and at such other places as the Employee
Benefits Committee shall specify.
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11.6 Operation of the Trust.
(a) All assets of the Plan shall be held in a Trust or Trusts
for use in providing the benefits payable under the Plan and paying such
investment expenses as may properly be incurred by the Trustee. The Trust
Agreement may from time to time be amended in the manner herein provided.
(b) A copy of the Trust Agreement shall, upon written request
of a Participant, be made available for inspection by him.
(c) The Board of Directors may from time to time remove a
Trustee and upon removal or resignation of a Trustee designate a successor
Trustee, and may take such other steps and execute such other instruments as it
may deem necessary or desirable to put this Plan into effect or to carry it out.
Each fiduciary warrants that any directions given, information furnished, or
action taken by it shall be in accordance with provisions of the Plan or the
Trust Agreements, as the case may be, authorizing or providing for such
direction, information, or action.
11.7 Participant's Representatives. The Trustee shall not be
bound to recognize the authority or agency of any party acting for a Participant
unless and until it receives documentary evidence thereof in form and substance
satisfactory to it and thereafter receives from time to time, as the Trustee may
require, further documentary evidence disclosing the status of any agency.
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ARTICLE XII
AMENDMENT AND TERMINATION
12.1 Amendment.
(a) The Company reserves the right to amend the Plan in whole
or in part, at any time by action of the Board of Directors; provided, however,
that it shall be impossible, except as provided in Section 11.2, for any part of
the corpus or income of the Fund to be used for or diverted to any purpose other
than for the exclusive benefit of Participants and their beneficiaries.
(b) Each amendment to the Plan shall be in writing. No
amendment to the Plan shall have the effect of retroactively depriving
Participants of benefits already accrued under the Plan or of reducing a
Participant's vested interest in his Accounts.
12.2 Termination. The Plan and the Fund forming part of the Plan
may be terminated, or contributions may be completely discontinued, by the
Company at any time by action of the Board of Directors. In the event of a
termination, a partial termination, or a complete discontinuance of
contributions, or in the event that the Company is dissolved, liquidated, or
adjudicated a bankrupt, the interests of the affected Participants, their
estates, and their beneficiaries shall be fully vested. Unless there is a
successor plan (as defined in Treas. Reg. ss.1.401(k)-1(d)(3)), distributions
shall be made in cash or in property or in any combination of cash and property.
When all assets have been paid out by the Trustee, the Fund shall cease.
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12.3 Merger. The Plan shall not be merged with or consolidated
with, nor shall its assets and/or liabilities be transferred to, any other
qualified retirement plan unless each Participant would receive a benefit after
such merger, consolidation, or transfer (assuming the Plan then terminated)
which is of actuarial value equal to or greater than the benefit he would have
received from his Accounts if the Plan had been terminated on the day before
such merger, consolidation, or transfer. No amounts shall be transferred to this
Plan which would cause the Plan to be a direct or indirect transferee of a plan
to which the survivor annuity requirements of sections 401(a)(11) and 417 of the
Code apply.
12.4 Consent to Modifications. A modification which affects the
rights or duties of the Trustee and/or Insurance Company may be made only with
the consent of the Trustee and/or Insurance Company. A modification may affect
Employees participating in this Plan at the time thereof, as well as future
Participants, but may not diminish any Participant Account as of the effective
date of such modification; provided, however, that any and all amendments may be
made which are necessary to (a) qualify or maintain the qualification of the
Plan under the applicable provisions of the Code and (b) meet and continue
meeting the requirements of ERISA.
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ARTICLE XIII
TOP-HEAVY PROVISIONS
--------------------
13.1 General. Effective January 1, 1997, the following provisions
shall automatically apply to the Plan for each Plan Year in which it is a
Top-Heavy Plan (as defined below). This Article shall be construed to comply
with section 416 of the Code and the regulations thereunder.
13.2 Definitions. The following definitions shall supplement those
set forth in Article II of the Plan:
(a) "Aggregation Group" shall mean:
(1) each plan (including a frozen plan or a plan which has
been terminated during the 60-month period ending on the Determination Date) of
the Company or an Affiliated Company in which a Key Employee is a participant,
(2) each other plan (including a frozen plan or a plan which
has been terminated during the 60-month period ending on the Determination Date)
of the Company or an Affiliated Company which enables any plan in which a Key
Employee participates to meet the requirements of section 401(a)(4) or 410 of
the Code, and
(3) each other plan (including a frozen plan or a plan which
has been terminated during the 60-month period ending on the Determination Date)
of the Company or an Affiliated Company which is included by the Committee if
the Aggregation Group, including such a plan, would continue to meet the
requirements of sections 401(a)(4) and 410 of the Code.
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(b) "Determination Date" shall mean the last day of the
preceding Plan Year.
(c) "Key Employee" shall mean any Employee or former Employee
who at any time during the 60-month period ending on the Determination Date is
described below. The term Key Employee shall also include the beneficiaries of
such persons. The foregoing notwithstanding, the number of persons described in
Subsection (c)(2) for the entire 60-month period shall be limited to 10.
(1) An officer of the Company having Income for a Plan Year
during the 60-month period ending on the Determination Date that is greater than
fifty percent (50%) of the amount in effect under section 415(b)(1)(A) of the
Code for the calendar year in which such Plan Year ends. The number of employees
to be treated as officers shall be no more than 50, or, if less, the greater of:
(A) three employees, or
(B) ten percent (10%) of the greatest number of
employees, including leased employees within the meaning of section 414(n) of
the Code, employed by the Company and all Affiliated Companies during the
60-month period ending on the Determination Date.
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(2) One of the 10 employees with annual Income greater than
the amount described in section 415(c)(1)(A) of the Code who own (or are
considered as owning, within the meaning of section 318 of the Code) the largest
interests in the Company or any Affiliated Company, provided that such interest
exceeds one-half of one percent (0.5%) of the total share ownership of the
Company or Affiliated Company.
(3) A five-percent (5%) owner of the Company.
(4) A one-percent (1%) owner of the Company who has annual
Income which, in the aggregate, is in excess of $150,000.
The above determinations shall be made in accordance with
section 416(i) of the Code and the regulations thereunder.
(d) "Key Employee Ratio" shall mean the ratio for any Plan
Year, calculated as of the Determination Date of such Plan Year, determined by
comparing the amount described in Subsection (d)(1) with the amount described in
Subsection (d)(2) after deducting from each such amount any portion thereof
described in Subsection (d)(3).
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(1) The sum of (A) the present value of all accrued benefits
of Key Employees under all qualified defined benefit plans included in the
Aggregation Group, (B) the balances in all of the accounts of Key Employees
under all qualified defined contribution plans included in the Aggregation
Group, and (C) the amounts distributed from all plans in such Aggregation Group
to or on behalf of any Key Employee during the period of five Plan Years ending
on the Determination Date, except benefits paid on account of death in excess of
the accrued benefit or account balances immediately prior to death.
(2) The sum of (A) the present value of all accrued benefits
of all participants under all qualified defined benefit plans included in the
Aggregation Group, (B) the balances in all of the accounts of all participants
under all qualified defined contribution plans included in the Aggregation
Group, and (C) the amounts distributed from all plans in such Aggregation Group
to or on behalf of any participant during the period of five Plan Years ending
on the Determination Date.
(3) The sum of (A) all rollover contributions (or
fund-to-fund transfers) to the Plan by an Employee from a plan sponsored by an
employer which is not the Company or an Affiliated Company, (B) any amount that
is included in Subsections (d)(1) and (2) for a person who is a Non-Key Employee
as to the Plan Year of reference but who was a Key Employee as to any earlier
Plan Year, and (C) for Plan Years beginning after December 31, 1984, any amount
that is included in Subsections (d)(1) and (2) for a person who has not
performed any service for the Company during the five-year period ending on the
Determination Date.
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(4) The present value of accrued benefits under all
qualified defined benefit plans included in the Aggregation Group shall be
determined on the basis of the UP- 1984 Mortality Table (Unisex) with no age
setback and an interest rate of eight and one-half percent (8.5%). The value of
proportional subsidies, including subsidized preretirement survivor's benefits,
subsidized early retirement benefits, and optional forms of payment, shall be
ignored in determining the present value of accrued benefits.
(5) Solely for the purpose of determining whether the Plan,
or any other plan included in the Required Aggregation Group, is top-heavy, the
accrued benefit of an Employee other than a Key Employee shall be determined
under (A) the method, if any, that uniformly applies for accrual purposes under
all plans maintained by the Company and all Affiliated Companies, or (B) if
there is no such method, as if such benefit accrued not more rapidly than at the
slowest accrual rate permitted under the fractional accrual method of section
411(b)(1)(C) of the Code.
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(e) "Non-Key Employee" shall mean any person who is an
Employee or a former Employee in any Plan Year but who is not a Key Employee as
to that Plan Year. The term Non-Key Employee shall also include the
beneficiaries of such persons.
(f) "Required Aggregation Group" shall mean all plans
described in Sections 13.2(a)(1) and (2).
(g) "Super Top-Heavy Plan" shall mean each plan in an
Aggregation Group if, as of the applicable Determination Date, the Key Employee
Ratio exceeds ninety percent (90%), determined in accordance with section 416 of
the Code.
(h) "Top-Heavy Account" shall mean the Account to which are
credited the minimum Company contributions made under this Article on behalf of
a Non-Key Employee for Plan Years in which the Plan is a Top-Heavy Plan, and
gains and losses thereon. Only Non-Key Employees shall have Top-Heavy Accounts.
(i) "Top-Heavy Plan" shall mean each plan in an Aggregation
Group if, as of the applicable Determination Date, the Key Employee Ratio
exceeds sixty percent (60%), determined in accordance with section 416 of the
Code.
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(j) "Top-Heavy Valuation Date" shall mean the most recent
Valuation Date occurring within the 12-month period ending on the Determination
Date.
13.3 Minimum Contribution for Non-Key Employees.
(a) (1) In each Plan Year in which the Plan is a Top-Heavy
Plan, each Participant who is a Non-Key Employee and who is employed by the
Company on the last day of such Plan Year shall receive a total minimum Company
contribution (including forfeitures) under all plans in the Required Aggregation
Group of not less than three percent (3%) of the Participant's annual Limitation
Compensation. (2) Salary Redirection contributions made on behalf of a
Participant in plan years beginning after December 31, 1984 and before January
1, 1989 shall be deemed to be Company contributions for the purpose of this
Subsection. Neither salary reduction contributions nor matching contributions
made on behalf of a Participant in plan years beginning after December 31, 1988
shall be deemed to be Company contributions for the purpose of this Subsection.
(3) The minimum Company contribution shall be provided to
each Participant who is a Non-Key Employee employed by the Company on the last
day of the Plan Year, regardless of the number of Hours of Service completed by
the Participant during the Plan Year, and regardless of the Participant's level
of compensation. Minimum Company contributions shall be allocated to Top-Heavy
Accounts.
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(b) The percentage set forth in Subsection (a)(1) shall be
reduced to the percentage at which contributions, including salary Redirection
contributions, matching contributions, and forfeitures, are made (or are
required to be made) for a Plan Year for the Key Employee for whom such
percentage is the highest for that Plan Year. This percentage shall be
determined for each Key Employee by dividing the contribution for such Key
Employee by his Limitation Compensation for the Plan Year. All defined
contribution plans in the Required Aggregation Group shall be treated as one
plan for the purpose of this Section; however, this Section shall not apply to
any plan in the Required Aggregation Group if such plan enables a defined
benefit plan in the group to meet the requirements of section 401(a)(4) or
section 410 of the Code.
(c) If the Required Aggregation Group includes both a defined
benefit plan and a defined contribution plan and a Participant who is a Non-Key
Employee employed by the Company on the last day of the Plan Year participates
in both, the Company is not required to provide such Participant with both the
minimum benefit under the defined benefit plan and the minimum contribution
described above. In such event, the Participant shall have the minimum benefit
provided under the defined benefit Top-Heavy Plan.
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(d) The compensation taken into account for the purpose of
determining minimum Company contributions under this Section shall not be more
than the amount in effect under section 401(a)(17) of the Code for the Plan Year
in question.
13.4 Vesting. If the Plan becomes a Top-Heavy Plan, each
Participant shall continue to be one hundred percent (100%) vested in his
Participant Account.
13.5 Social Security. For each Plan Year in which it is a Top-Heavy
Plan, the Plan must meet the requirements of this Article without regard to any
Social Security or similar contributions or benefits.
13.6 Adjustment to Maximum Allocation Limitation.
(a) The provisions of this Section shall not apply on or after
January 1, 2000. Until January 1, 2000, for each Plan Year in which the Plan is
(1) a Super Top-Heavy Plan
or
(2) a Top-Heavy Plan and the Board of
Directors does not make the election described in Subsection (b) (and a similar
election has not been made as to another plan in the Aggregation Group), the
1.25 factor in the defined benefit and defined contribution fractions described
in Section 7.8 shall be reduced to 1.0. However, this adjustment shall not apply
to any Participant during any period in which the Participant earns no
additional accrued benefit under any defined benefit plan and has no employer
contributions, forfeitures, or voluntary contributions allocated to his accounts
under any defined contribution plan.
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(b) If, in any Plan Year beginning January 1, 2000, the Plan
is a Top-Heavy Plan but not a Super Top-Heavy Plan and the Required Aggregation
Group includes a defined benefit plan, the Board of Directors may elect to use a
factor of 1.25 in computing the denominator of the defined benefit and defined
contribution fractions described in Section 7.8. In the event of such an
election, the minimum Company contribution described in Section 13.3(a)(1) for
each Non-Key Employee who is not covered by a defined benefit plan shall be
increased from three percent (3%) to four percent (4%), and the minimum benefit
described in Section 13.3(c) for each Non-Key Employee who is covered by a
defined benefit plan shall be the increased minimum benefit provided under the
defined benefit Top-Heavy Plan.
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ARTICLE XIV
WITHDRAWALS DURING EMPLOYMENT
-----------------------------
14.1 General. While he is still employed by the Company or an
Affiliated Company, a Participant may withdraw his interest in the Fund only in
the manner, in the amount, and at the times provided in this Article.
14.2 Hardship Withdrawals.
(a) With the approval of the Committee, a Participant may
withdraw up to the total value of his Salary Redirection Account and his 401(k)
Account in the event of Hardship; provided, however, that he may not withdraw
any amount that constitutes earnings credited to his Salary Redirection Account
after December 31, 1988.
(b) A Participant shall apply for a Hardship withdrawal in the
form and manner prescribed by the Committee. The Participant's application shall
represent that the withdrawal is to be made because of Hardship.
(c) A withdrawal shall not be permitted under this Section for
any reason not listed in the Plan's definition of Hardship (Section 2.21).
(d) The Committee shall approve a Hardship withdrawal only if
the Participant delivers with his withdrawal application a signed statement that
his financial need cannot reasonably be relieved:
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(1) by ceasing to contribute Pre-tax Salary Redirection
Contributions and After-tax Contributions to this Plan;
(2) by receiving all distributions (other than Hardship
distributions) and all non-taxable loans available to him from all retirement
plans maintained by the Company and Subsidiaries and any other employer(s);
(3) by borrowing from commercial sources on reasonable
commercial terms an amount sufficient to satisfy the need;
(4) through reimbursement or compensation by insurance or
otherwise;
(5) by liquidation of his assets (including the assets of
his spouse and minor children that are reasonably available to him). A
Participant's financial need cannot reasonably be relieved by one of the methods
listed above if the effect would be to increase the amount of the need.
(e) Subsection (d) notwithstanding, the Committee shall not
approve a Hardship withdrawal if it has actual knowledge that the Participant's
financial need can be relieved by one or more of the methods listed in
Subsection (d).
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14.3 Withdrawals After Age 59 1/2. A Participant who has attained
age 59 1/2 may withdraw up to the total value of his Salary Redirection and
Supplemental Accounts,401(k) Account, QMAC Account, and QNEC Account. Requests
for such withdrawals shall be made in the manner prescribed by the Committee.
14.4 Other Withdrawals.
(a) A Participant may at any time withdraw any amount from his
Voluntary Account. Requests for withdrawals shall be made in the manner
prescribed by the Committee.
(b) (1) A Participant who contributed voluntary contributions
to a C-M Plan prior to January 1, 1987 shall have the choice of (A) making his
withdrawal entirely from either his "pre-1987 account" or his "post-1986
account" (as described in Section 2.1(d)); or (B) making his withdrawal first
from his pre-1987 account, until his entire pre-1987 account has been withdrawn,
and then from his post-1986 account; or (C) making his withdrawal first from his
pre-1987 account, until all principal in his pre-1987 account has been
withdrawn, and then from his post-1986 account.
(2) A withdrawal from the pre-1987 account may consist
entirely of principal (that is, the Participant's Voluntary Savings) until all
principal in the pre-1987 account has been withdrawn. Any remainder of the
withdrawal to come from the pre-1987 account shall be taken from earnings and
shall be taxable income to the Participant for the year of the withdrawal.
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(3) A withdrawal from the post-1986 account shall consist of
both principal and taxable earnings. The portion consisting of principal shall
bear the same proportion to the withdrawal from the post-1986 account as the
principal in the post-1986 account bears to the total value of the post-1986
account as of the date of withdrawal.
14.5 Special Withdrawals. A Participant may withdraw the total
value of his Accounts in a single sum after a determination by the Committee
that one of the following events has occurred:
(a) the termination of the Plan, where there is no successor
plan (as defined in Treas. Reg.ss.1.401(k)-1(d)(3));
(b) the sale by the Company of substantially all of its assets
used in a trade or business, if the Participant making the withdrawal begins
employment with the corporation acquiring such assets; or
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(c) the sale by the Company of its interest in a subsidiary,
if the withdrawal is made by a Participant who continues employment with such
subsidiary.
14.6 Withdrawal of Pledged Amount. No amount that is security for
a loan under Article XV may be withdrawn.
14.7 Amount and Payment of Withdrawals.
(a) The maximum amount available for withdrawal from any
Account shall be determined on the basis of the value of the Account as of the
Valuation Date coincident with or immediately preceding the date on which the
withdrawn amount is paid to the Participant.
(b) A Participant may specify the Fund or Funds from which a
withdrawal under this Article is to be made; provided, however, that any payment
of Voluntary Savings shall be made out of the Participant's interest in the
various Funds in proportion to the Participant's share of Voluntary Savings in
such Fund.
(c) If a Participant does not specify the Fund or Funds from
which a withdrawal is to be paid, payment shall be made out of the Participant's
interest in the various Funds in proportion to the Participant's share in such
Funds.
14.8 Withdrawals from Rollover Account. A Participant may at
any time withdraw any amount from his Rollover Account; provided, however, that
no more than one such withdrawal may be made in any six-month period. Requests
for withdrawals shall be made on forms prescribed by the Administrative
Committee.
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14.9 Emergency Withdrawals. Notwithstanding the other provisions of
this Article XIV, a Participant shall have the right at any time to request
withdrawal of all or part of the total value of his Basic Account, Supplemental
Account, and Company Account because of proven financial emergency. For this
purpose, "financial emergency" shall mean a need for financial assistance to
meet obligations with respect to providing primary housing and with respect to
the health, welfare, or education of the Participant or a member of his
immediate family. Withdrawals under this Section are subject to the following
rules:
(a) The withdrawal shall be subject to the approval of the
Administrative Committee, both as to the withdrawal itself and the amount
thereof.
(b) In granting approvals, the Administrative Committee shall
act in a uniform and nondiscriminatory manner.
(c) The withdrawal shall be satisfied first by a withdrawal of
the value of the Participant's After-Tax Supplemental Contributions, then by a
withdrawal of the value of the Participant's After-Tax Basic Contributions, and
finally by a withdrawal of the value of Matching Contributions.
(d) No more than one withdrawal may be made under this Section
in any six-month period.
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14.10 Withdrawal of After-Tax Contributions and Matching
Contributions. By filing a written request with the Administrative Committee, a
Participant may elect to withdraw certain amounts from his Basic Account,
Supplemental Account, and Company Account, as follows:
(a) Withdrawal of up to one hundred percent (100%) of his
After-Tax Supplemental Contributions or, if less, one hundred percent (100%) of
his Supplemental Account. Such a withdrawal shall not result in a Participant's
being prohibited from making Plan contributions.
(b) Withdrawal of up to one hundred percent (100%) of the
After-Tax Basic Contributions; provided that if the withdrawal takes place prior
to January 1, 1995, the amount withdrawn was contributed at least 24 months
prior to the date of withdrawal or, if less, one hundred percent (100%) of the
then value of such After-Tax Basic Contributions. Such a withdrawal shall result
in a Participant's being prohibited from making After-Tax Contributions for a
period of six months, but shall not result in a Participant's being prohibited
from making Pre-Tax Salary Redirection Contributions.
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(c) Withdrawal of either fifty percent (50%) or one hundred
percent (100%) of the lesser of (1) the value of the Participant's Company
Account as of the Valuation Date coincident with or immediately preceding the
date that is 24 months prior to the date of withdrawal, or (2) the value of the
Participant's Basic Account on the date of withdrawal. Such a withdrawal is
permissible only when the Participant has elected to withdraw one hundred
percent (100%) of the After-Tax Basic Contributions available for withdrawal
under Subsection (b). In the event of a fifty-percent (50%) withdrawal, the
Participant shall be prohibited from making any After-Tax Contributions for a
period of six months, but he shall not be prohibited from making Pre-Tax Salary
Redirection Contributions.
(d) A withdrawal under this Section shall be satisfied first
by a withdrawal of the value of the Participant's After-Tax Supplemental
Contributions, then by a withdrawal of the value of the Participant's After-Tax
Basic Contributions, and finally by a withdrawal of the value of Matching
Contributions.
(e) No more than one withdrawal may be made under this Section
in any six-month period.
14.11 Resumption of Participant Contributions. In order to resume
making contributions, a Participant must follow the procedure outlined in
Section 3.5 as if he were a new Participant. Contributions shall resume at the
percentages in effect prior to suspension unless the Participant has elected
otherwise pursuant to Section 4.4 or 4.5.
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14.12 Amount and Payment of Withdrawals.
(a) Prior to January 1, 1992, the amount of any withdrawal
shall be determined on the basis of the value of the Participant's account as of
the Valuation Date coincident with or next following the date that is 30 days
after the date on which the written request to withdraw is received by the
Administrative Committee. As of such Valuation Date, an appropriate number of
the Participant's Units (if applicable) shall be canceled. The amounts withdrawn
shall be paid in cash to the Participant as soon after such Valuation Date as is
practicable.
(b) On and after January 1, 1992, the amount of any withdrawal
shall be determined on the basis of the Participant's account as of the
Valuation Date on which the written request to withdraw is processed by the
Trustee. As of such Valuation Date, an appropriate number of the participant's
Units (if applicable) shall be canceled. The amounts withdrawn shall be paid in
cash to the Participant as soon after such Valuation Date is practicable.
14.13 Fund to Be Charged with Withdrawal.
(a) A Participant may specify the Fund or Funds from which a
withdrawal under this Article is to be made; provided, however, that any
distribution of After-Tax Contributions made on or after January 1, 1987 shall
be made out of the Participant's interest in the various Funds in proportion to
the Participant's share of After-Tax Contributions in such Funds.
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(b) If a Participant does not specify the Fund or Funds from
which a withdrawal is to be made, distribution shall be made out of the
Participant's interest in the various Funds in proportion to the Participant's
share in such Funds.
14.14 Withdrawals from Rollover Account. A Participant may
at any time withdraw any amount from his Rollover Account; provided, however,
that no more than one such withdrawal may be made in any six-month period.
Requests for withdrawals shall be made on forms prescribed by the Administrative
Committee.
14.15 Withdrawals Not Subject to Replacement. A Participant may
not replace any portion of his Accounts withdrawn under this Plan.
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ARTICLE XV
LOANS FROM THE PLAN
-------------------
15.1 Loan Program.
(a) The Trustee has established a program under which assets
of the Plan may be loaned to certain individuals. This loan program is
administered by the Administrative Committee in accordance with (1) the
provisions of this Article and (2) any related documents describing procedures
to be followed in the administration of the loan program which have been made a
part of the Plan.
15.2 Persons Who May Borrow from the Plan.
(a) All vested Participants shall be eligible to apply for
loans from the Plan.
(b) (1) Beneficiaries of deceased Participants who are
"parties in interest," as that term is defined in section 3(14) of ERISA, shall
be also eligible to apply for loans from the Plan. For the purposes of this
Article, the Accounts of a deceased Participant shall be deemed to belong to the
beneficiary of that deceased Participant.
(2) The Administrative Committee shall be under no
obligation to approve the loan application of any beneficiary who is not a paid
employee of the Company.
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(c) If the Company or a Participating Subsidiary is an S
Corporation, no shareholder-employee who owns more than five percent (5%) of the
stock of the Company shall be permitted to apply for a loan. No one who is an
Owner-Employee or a member of the family of an Owner-Employee shall be permitted
to apply for a loan.
(d) An individual who is eligible to apply for a loan from the
Plan shall hereinafter be called a "Borrower."
15.3 Application for and Approval of Loan.
(a) All applications for loans shall be made in the manner
prescribed by the Administrative Committee. In his application, the Borrower
shall specify:
(1) the amount of the loan being requested, which shall not
be less than the minimum loan amount set forth in Section 15.5(a);
(2) the intended use of the loan proceeds;
(3) the intended security for the loan; and
(4) the intended repayment period, which shall be a period
authorized under Section 15.8(b).
(b) The Administrative Committee shall rule upon loan
applications in a uniform and nondiscriminatory manner, taking into
consideration only those factors which would be considered in a normal
commercial setting by an entity in the business of making similar types of
loans. In ruling on a loan application, the Administrative Committee shall not
consider the Borrower's race, color, religion, sex, age, or national origin, but
may consider his credit worthiness, collateral, and financial need.
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(c) The Administrative Committee shall deny a request for a
loan if the intended use of the loan proceeds is to purchase securities.
(d) The Administrative Committee shall not approve any loan
which would exceed the maximum amount described in Section 15.5(b). The
Administrative Committee may approve a loan of less than the amount requested in
a Borrower's application.
(e) No more than one loan application per Borrower shall be
approved during any Plan Year. In no event shall a Borrower be permitted to have
more than two loans from this Plan outstanding at any time.
(f) If a request for a loan is approved, the loan proceeds
shall be paid to the Borrower as of the Valuation Date coincident with or
immediately following the date on which the loan is approved. Any fees or
charges associated with the processing of the loan shall be paid by the
Borrower.
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(g) If a request for a loan is denied, the Borrower may appeal
the denial in the manner described in Section 10.5.
15.4 Account Attributed to Beneficiary. For the purpose of this
Article, the Participant Account of a deceased Participant shall be deemed to
belong to the beneficiary of that deceased Participant.
15.5 Amount of Loan.
(a) The Plan shall make no loan in an amount less than $1,000.
(b) The value of a Borrower's outstanding loans under this
Plan and all other plans qualified under section 401(a) of the Code which are
sponsored by the Company and Affiliated Companies shall not exceed the lesser
of:
(1) $50,000 reduced by the excess of (A) the highest
outstanding loan balance during the 12 months before a new loan is made over (B)
the outstanding loan balance on the date of the new loan, or
(2) fifty percent (50%) of the value of the Borrower's
vested interest in the Plan, determined as of the Valuation Date as of which the
loan proceeds are paid to the Borrower.
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(c) A loan that is deemed distributed under section 72(p) of
the Code (including interest accrued after the deemed distribution) is
considered outstanding for the purpose of Subsection (b) (1) unless it has been
repaid (for example, by a plan loan offset).
15.6 Security for Loan.
(a) Security for a loan granted pursuant to this Article must
be at least equal to the proceeds of the loan.
(b) (1) Not more than fifty percent (50%) of the Borrower's
vested interest in the Plan, valued as of the Valuation Date as of which the
loan proceeds are paid to the Borrower, may be used as security for a loan
granted pursuant to this Article.
(2) The amount which is security for the loan shall be
allocated first to the vested portion of the Borrower's Voluntary Account (if
any), then to his Rollover Account, then to his C-M Account (if any), and
finally to his Salary Redirection Account.
(c) To the extent that the Administrative Committee determines
that additional security is required, the additional security shall consist of
such collateral as the Administrative Committee and the Borrower mutually agree
upon. The value and liquidity of any additional security shall be such that it
may reasonably be anticipated that, in the event of default, the Plan will not
lose principal and interest.
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15.7 Interest Rate. The rate of interest to be charged on a given
loan shall be determined when that loan is approved by the Administrative
Committee, and shall be a rate selected by the Administrative Committee which
the Administrative Committee deems to be commensurate with the interest rates
being charged at that time by financial institutions which are in the business
of making similar types of loans.
15.8 Installment Note.
(a) Each loan shall be evidenced by the Borrower's execution
of a personal installment note. Such note shall be an asset of the Account of
the Borrower.
(b) Each personal installment note shall specify the period of
repayment, which shall be up to 60 months from the Valuation Date as of which
the loan proceeds are paid to the Borrower. However, if the purpose of the loan
is to acquire a dwelling unit which is to be used as the principal residence of
the Borrower, the period of repayment may be as long as, but shall not exceed,
180 months.
(c) Each personal installment note shall specify the rate of
interest being charged on the loan.
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15.9 Repayment of Loan.
(a) All loans shall be repaid in equal installments through
payroll deductions or in such other manner as the Administrative Committee may
determine; provided, however, that payments shall be made at least quarterly.
Substantially level amortization of each loan is required over the term of the
loan.
(b) A Borrower may repay the outstanding balance of a loan in
a single sum at any time by notifying the Administrative Committee of his intent
to do so and by forwarding to the Administrative Committee payment in full of
the outstanding balance, plus interest accrued to the date of payment.
(c) All loans from the Plan shall be nonrenewable.
(d) The amount of principal and interest repaid by a Borrower
shall be credited to that Borrower's Accounts as each repayment is made.
15.10 Default on Loan.
(a) Anything in this Plan to the contrary notwithstanding, in
the event that
(1) a loan is not repaid by the time the note matures;
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(2) three consecutive installments of principal and/or
interest are not paid;
(3) the Borrower dies;
(4) the Plan ceases to constitute a qualified plan within
the meaning of section 401(a) of the Code;
(5) in a case where repayment of the loan is being
accomplished by payroll deduction, the Borrower's employment with the Company
terminates for any reason, or the Borrower's compensation is discontinued;
(6) the Borrower is placed or places himself in bankruptcy;
or
(7) any other event occurs which the Administrative
Committee, applying standards which would be used in a normal commercial setting
by an entity in the business of making similar types of loans, judges to be an
event of default or an event which may jeopardize the repayment of the loan, the
full balance of the loan, plus accrued interest, shall immediately become due
and payable unless the Administrative Committee, in its sole discretion, waives
the event of default and makes alternate arrangements to prevent the loss to the
Plan of the balance of the loan, plus interest.
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(b) The Administrative Committee shall give notice of an event
of default described in Subsection (a) to the Borrower who has defaulted on his
loan (or, in the case of default by death, to the estate of the Borrower). If
the balance of the loan and accrued interest are not paid within 30 days after
the date of such notice, the Administrative Committee shall be entitled to
foreclose upon the Borrower's security immediately or at any later time it may
select; provided, however, that the first consideration in selecting a date of
foreclosure shall be to prevent disqualification of the Plan.
15.11 Foreclosure.
(a) When the Administrative Committee forecloses upon a
Borrower's security, it shall first reduce that Borrower's vested interest in
the Plan by the lesser of (1) the full amount of the unpaid balance of the loan,
plus accrued interest (determined as of the date of foreclosure), or (2) the
entire portion of the Borrower's vested interest in the Plan which is security
for the loan.
(b) (1) Subsection (a) notwithstanding, in the case of a
Borrower who is a Participant, the Administrative Committee shall in no event
use that Borrower's Salary Redirection Account or 401(k) Account to reduce his
indebtedness unless, as of the date of foreclosure, the Borrower has reached age
59 1/2, retired, terminated his employment with the Company, or suffered a Total
Disability, or is eligible to withdraw his Accounts because one of the events
described in Section 14.5 has occurred. This restriction shall not apply in the
case of foreclosure upon the security of a Borrower who is the beneficiary of a
deceased Participant.
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(2) Subsection (a) notwithstanding, the Administrative
Committee shall not use Matching or Profit Sharing Contributions which were
allocated to the Borrower's Account less than 24 months prior to the date of
foreclosure to reduce that Borrower's indebtedness unless, as of the date of
foreclosure, the Borrower has retired or terminated his employment with the
Company.
(c) When the full amoun7t of the unpaid balance of the loan,
plus accrued interest, has been restored to the Plan, any portion of the
Borrower's security which remains shall be released and shall no longer be
security for any loan.
(d) Foreclosing upon a Borrower's security shall not operate
as a waiver of the rights of the Administrative Committee, the Company, or the
Plan to pursue additional means of preventing loss to the Plan in the event of
default on a loan.
15.12 Deemed Distribution. The provisions of Article VIII
notwithstanding, if a Borrower defaults on a loan and the Administrative
Committee is entitled to foreclose upon the Borrower's security, the unpaid
balance of the loan, plus accrued interest, shall be deemed to be immediately
distributed to the Borrower.
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ARTICLE XVI
GENERAL PROVISIONS
------------------
16.1 No Employment Rights. Neither the action of the Company in
establishing the Plan, nor any provisions of the Plan, nor any action taken by
the Company or by the Committee shall be construed as giving to any employee of
the Company the right to be retained in its employ, or any right to payment
except to the extent of the benefits provided in the Plan to be paid from the
Fund.
16.2 Source of Benefits. All benefits payable under the Plan shall
be paid or provided for solely from the Fund, and the Company assumes no
liability or responsibility therefor.
16.3 Governing Law. Except to the extent superseded by ERISA, all
questions pertaining to the validity, construction, and operation of the Plan
shall be determined in accordance with the laws of the state in which the
principal place of business of the Company is located.
16.4 Spendthrift Clause.
(a) No benefit payable at any time under this Plan and no
interest or expectancy herein shall be anticipated, assigned, or alienated by
any Participant or beneficiary, or subject to attachment, garnishment, levy,
execution, or other legal or equitable process, except for:
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(1) an amount necessary to satisfy a federal tax levy made
pursuant to section 6331 of the Code;
(2) any benefit payable pursuant to a domestic relations
order which is determined to be a qualified domestic relations order within the
meaning of the Code;
(3) an amount that a Participant is ordered or required to
pay to the Plan after August 4, 1997 under a judgment, order, decree, or
settlement agreement that is described in and complies with section
401(a)(13)(C) of the Code.
(b) Any attempt to alienate or assign a benefit hereunder,
whether currently or hereafter payable, shall be void. No benefit shall in any
manner be liable for or subject to the debts or liability of any Participant or
beneficiary. If any Participant or beneficiary attempts to or does alienate or
assign his benefit under the Plan or any part thereof, or if by reason of his
bankruptcy or other event happening at any time such benefit would devolve upon
anyone else or would not be enjoyed by him, then the Committee may terminate
payment of such benefit and hold or apply it for the benefit of the Participant
or beneficiary.
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16.5 Incapacity. If the Committee deems any Participant or
beneficiary who is entitled to receive payments hereunder to be incapable of
receiving the same by reason of youth, illness, or infirmity or incapacity of
any kind, the Committee may, until a claim is made by a conservator or other
individual who is legally charged with the care of such person, direct the
Trustee to make payments to a relative or friend of such person for such
person's benefit. Thereafter, any benefits to which such person is entitled
shall be paid to the conservator or other individual legally charged with the
care of such person, which shall be a complete discharge to the extent thereof
of any and all liability of the Company, any Committee, the Trustee, and the
Fund with respect to such person.
16.6 Participation by Subsidiary. With the prior consent of the
Board of Directors, a Participating Subsidiary may adopt this Plan for its
employees by action of its board of directors or other governing body. Each
amendment to the Plan shall be binding on a Participating Subsidiary which has
adopted the Plan, and, by its adoption of the Plan, the Participating Subsidiary
shall be deemed to have appointed the Company, any Committee, and the Trustee as
its exclusive agents to exercise on its behalf all the power and authority
conferred by the Plan and the Trust Agreement upon the Company, the Committee,
and the Trustee, respectively. The authority of the Company, the Committee, and
the Trustee to act as such agents shall continue until the Participating
Subsidiary terminates its participation in the Plan and the benefits payable to
Participants employed (or formerly employed) by the Participating Subsidiary
have been distributed as provided herein. A Participating Subsidiary may
terminate its participation in the Plan at any time by action of its board of
directors or other governing body. If the Participating Subsidiary to be a
Subsidiary, it may no longer participate in the Plan.
16.7 Withholding. Any Committee and the Trustee shall have the
right to withhold any and all federal, state, and local taxes which may be
withheld in accordance with applicable law.
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SCHEDULE A
ADP AND ACP TESTS AND RELATED LIMITS ON CONTRIBUTIONS
A.1 Testing Method. The "current year testing method" (as
defined in IRS Notice 98-1) shall be used for the ADP Test and the ACP Test
through 1999. Thereafter, the "prior year testing method" (as defined in IRS
Notice 98-1) shall be used for the ADP test and ACP test.
A.2 Definitions. The following definitions shall supplement
those set forth in Article II of the Plan:
(a) "ACP of the HCEs" shall mean, for a given Plan
Year, the Actual Contribution Percentage for the group of Eligible Employees who
are Highly Compensated Employees in that Plan Year.
For purposes of the multiple use test set forth in Section
A.12, the ACP of the HCEs shall be determined as provided in Section A.12(c).
(b) "ACP of the NHCEs" shall mean, for Plan Years
through 1999, the Actual Contribution Percentage for the group of Eligible
Employees who are not Highly Compensated Employees in that Plan Year. Effective
January 1, 2000, ACP of the NHCEs shall mean the Actual Contribution Percentage
for the group of individuals who were non-highly compensated Eligible Employees
in the preceding Plan Year, regardless of the employment status of any
individual in that group in the current Plan Year. Thus, for a given Plan Year,
the ACP of the NHCEs is fixed as of the end of the preceding Plan Year; it is
not adjusted for any ensuing change in any individual's employment status (but
may be adjusted if the Company makes Qualified Matching Contributions and/or
Qualified Nonelective Contributions on behalf of non-highly compensated Eligible
Employees, as provided in Section A.10).
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(c) "Actual Contribution Percentage" shall mean, for
a specific group of Eligible Employees, the average (expressed as a percentage
rounded to the nearer one-hundredth of one percent) of the Individual
Contribution Percentages of the Eligible Employees in the group.
Special rules for determining the Actual Contribution
Percentage are set forth in Section A.8(c).
(d) "Actual Deferral Percentage" shall mean, for a
specific group of Eligible Employees, the average (expressed as a percentage
rounded to the nearer one-hundredth of one percent) of the Individual Deferral
Percentages of the Eligible Employees in the group.
Special rules for determining the Actual Deferral Percentage
are set forth in Section A.4(c).
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(e) "ADP of the HCEs" shall mean, for a given Plan
Year, the Actual Deferral Percentage for the group of Eligible Employees who are
Highly Compensated Employees in that Plan Year.
For purposes of the multiple use test set forth in Section
A.12, the ADP of the HCEs shall be determined as provided in Section A.12(c).
(f) "ADP of the NHCEs" shall mean, for a given Plan
Year through 1999, the Actual Deferral Percentage for the group of Eligible
Employees who are not Highly Compensated Employees in that Plan Year. Effective
January 1, 2000, ADP of NHCEs shall man the Actual Deferral Percentage for the
group of individuals who were non-highly compensated Eligible Employees in the
preceding Plan Year, regardless of the employment status of any individual in
that group in the current Plan Year. Thus, for a given Plan Year, the ADP of the
NHCEs is fixed as of the end of the preceding Plan Year; it is not adjusted for
any ensuing change in any individual's employment status (but may be adjusted if
the Company makes Qualified Nonelective Contributions and/or Qualified Matching
Contributions on behalf of non-highly compensated Eligible Employees, as
provided in Section A.6).
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(g) "Excess Aggregate Contributions" shall mean, for
a given Highly Compensated Employee, for a given Plan Year, the dollar amount by
which the Highly Compensated Employee's Voluntary Savings and Matching
Contributions must be reduced for the Highly Compensated Employee's Individual
Contribution Percentage to equal the highest permitted Individual Contribution
Percentage for that Plan Year (as described in Section A.9(c)).
(h) "Excess Contributions" shall mean, for a given
Highly Compensated Employee, for a given Plan Year, the dollar amount by which
the Highly Compensated Employee's Salary Redirection Savings must be reduced for
the Highly Compensated Employee's Individual Deferral Percentage to equal the
highest permitted Individual Deferral Percentage for that Plan Year (as
described in Section A.5(g)).
(i) "Excess Deferral" shall mean the excess of (1)
the amount of Salary Redirection Savings plus any other elective deferrals (as
defined in section 402(g)(3) of the Code) made in an individual's taxable year
pursuant to the individual's election, over (2) the dollar limit in effect under
section 402(g) of the Code for that taxable year ($9,500 for 1997; $10,000 for
1998 and 1999).
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(j) "Individual Contribution Percentage" shall mean
the ratio described in Section A.9.
(k) "Individual Deferral Percentage" shall mean the
ratio described in Section A.5.
A.3 Return of Excess Deferral.
(a) (1) If a Participant has an Excess Deferral
in any taxable year, he may notify the Committee of the Excess Deferral and
request that all or a portion of such Excess Deferral be returned to him. The
Committee must receive the Participant's notification by the March 1st after the
taxable year of the Participant in which the Excess Deferral occurred.
(2) If a Participant has an Excess Deferral
in any taxable year, taking into account only this Plan and any other cash or
deferred arrangement(s) maintained by the Company and Affiliated Companies, he
shall be deemed to have requested a return of the Excess Deferral, whether he
actually makes the request in accordance with paragraph (1), or not.
(b) When a Participant has requested (or is deemed to
have requested) the return of an Excess Deferral, the Committee shall direct the
Trustee to distribute to the Participant either:
(1) the amount of the Excess Deferral
requested under Subsection (a)(1) (or, if less, the portion of such amount that
does not exceed the Participant's Salary Redirection Savings for such year),
plus any income attributable to such amount; or
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(2) the total amount of the Excess Deferral,
determined by taking into account only this Plan and any other cash or deferred
arrangement(s) maintained by the Company and Affiliated Companies, plus any
income attributable to such amount.
(c) An Excess Deferral may be distributed in the
taxable year in which it occurs or after the end of that taxable year, but shall
in no event be distributed later than April 15th of the year after the year in
which it occurs.
(d) The Trustee shall determine the income
attributable to an Excess Deferral using any reasonable method that does not
violate section 401(a)(4) of the Code and is also used for allocating income to
Participants' Accounts. Such method shall be applied consistently to all Excess
Deferrals for a given taxable year. Income shall be allocated to an Excess
Deferral solely for the taxable year in which the Excess Deferral occurs (or, in
the case of an Excess Deferral that is distributed in the taxable year in which
it occurs, for the period from the beginning of such taxable year to the date on
which the Excess Deferral is distributed) and not for any period thereafter.
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A.4 Actual Deferral Percentage Test.
(a) The Administrative Committee shall cause the ADP
Test to be run as of the last day of each Plan Year that begins after 1986 and
may also cause the ADP Test to be run at any time during a given Plan Year. As
provided in Section A.1, the "current year testing method" shall be used for the
ADP Test through 1999. Effective January 1, 2000 the "prior year testing method"
shall be used.
(b) The Plan satisfies the ADP Test at a given point
in time if it satisfies one of the two tests described below.
(1) The Plan satisfies the ADP Test if the
ADP of the HCEs is not more than the ADP of the NHCEs multiplied by 1.25.
(2) The Plan satisfies the ADP Test if:
(A) the ADP of the HCEs does not exceed
the ADP of the NHCEs by more than two percentage points, and
(B) the ADP of the HCEs is not more than
the ADP of the NHCEs multiplied by 2.0.
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(c) (1) As provided in Section A.2(d), the
Actual Deferral Percentage for a specific group of Eligible Employees is the
average (expressed as a percentage rounded to the nearer one-hundredth of one
percent) of the Individual Deferral Percentages of the Eligible Employees in the
group. In determining the Actual Deferral Percentage, the Committee may treat
this Plan and any other cash or deferred arrangement maintained by the Company
or an Affiliated Company as a single plan.
(2) If this Plan is treated, for purposes of
section 401(a)(4) or 410(b) of the Code, as one plan with any other cash or
deferred arrangement(s) maintained by the Company or an Affiliated Company, this
Plan and the other cash or deferred arrangement(s) shall be treated as one plan
in determining the Actual Deferral Percentage.
(3) Cash or deferred arrangements that are
aggregated under this Subsection must all have the same plan year and must all
use the "current year testing method" (as defined in IRS Notice 98-1) through
1999 and the "prior year testing method" (as defined in IRS Notice 98-1)
thereafter.
(d) Subsection (c) notwithstanding, plans (or
portions of plans) that must be disaggregated pursuant to Section A.13 shall in
no event be aggregated.
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A.5 Individual Deferral Percentage.
(a) For any Plan Year, an Eligible Employee's
Individual Deferral Percentage is the ratio of:
(1) the Eligible Employee's Salary
Redirection Savings for the Plan Year, to
(2) the Eligible Employee's pay for the Plan
Year; provided, however, that any pay attributable to a period before the
Eligible Employee becomes a Participant shall not be taken into account.
(b) For the purpose of determining the denominator of
the Individual Deferral Percentage, an Eligible Employee's "pay" shall be his
Limitation Compensation. An Eligible Employee's pay for any Plan Year (and,
thus, the denominator of the Individual Deferral Percentage) shall not be more
than the amount set by section 401(a)(17) of the Code, as adjusted for
cost-of-living increases.
(c) In the case of an Eligible Employee who is a
Highly Compensated Employee, the numerator of the Individual Deferral Percentage
shall include any Excess Deferral made in the Plan Year. In the case of an
Eligible Employee who is not a Highly Compensated Employee, the numerator shall
not include any Excess Deferral.
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(d) As provided in Section A.9(b), all or any portion
of an Eligible Employee's Salary Redirection Contributions for a given Plan Year
may be included in the numerator of the Individual Contribution Percentage,
provided that such contributions satisfy the requirements of Treas. Reg.
ss.1.401(m)-1(b)(5). Any Salary Redirection Contributions that are added to the
numerator of the Individual Contribution Percentage must be subtracted from the
numerator of the Individual Deferral Percentage.
(e) All or any portion of the Qualified Nonelective
Contributions and/or Qualified Matching Contributions made on behalf of a
non-highly compensated Eligible Employee for a given Plan Year may be included
in the numerator of the Individual Deferral Percentage, provided that such
contributions satisfy the requirements of Treas. Reg. ss.1.401(k)-1(b)(5). The
dollar amount of Qualified Nonelective Contributions and/or Qualified Matching
Contributions to be added to the numerator of the Individual Deferral Percentage
shall be determined by the Committee. Qualified Nonelective Contributions and/or
Qualified Matching Contributions included in the numerator of the Individual
Deferral Percentage shall in no event be included in the numerator of the
Individual Contribution Percentage.
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(f) If Individual Deferral Percentages of non-highly
compensated Eligible Employees are increased as a result of the inclusion of
Qualified Nonelective Contributions and/or Qualified Matching Contributions, the
ADP of the NHCEs shall also be increased.
(g) (1) For a given Plan Year, the highest
permitted Individual Deferral Percentage is the highest percentage of
Compensation that any Highly Compensated Employee could contribute as Salary
Redirection Contributions without causing the Plan to fail the ADP Test. This
percentage shall be determined in accordance with Treas.
Reg.ss.1.401(k)-1(f)(2).
(2) The highest permitted Individual
Deferral Percentage applies only to Highly Compensated Employees; it does not
apply to non-highly compensated Eligible Employees and shall not affect the
contributions of non-highly compensated Eligible Employees in any way.
(h) If in any Plan Year a Highly Compensated Employee
participates in this Plan and in any other cash or deferred arrangement(s) (as
described in section 401(k) of the Code) maintained by the Company or an
Affiliated Company, then, in computing the Individual Deferral Percentage for
such Highly Compensated Employee, this Plan and the other cash or deferred
arrangement(s) shall be treated as one 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 with plan years ending with or
within the same calendar year shall be treated as a single arrangement.
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(i) Subsection (h) notwithstanding, plans (or
portions of plans) that must be disaggregated pursuant to Section A.13 shall in
no event be aggregated.
A.6 ADP Test -- Corrective Action.
(a) If at any time before the end of a Plan Year the
Committee determines that the Plan does not satisfy the ADP Test, it may reduce
the contribution rates (and, thus, the Individual Deferral Percentages) of one
or more Participants who are Highly Compensated Employees so that the ADP Test
is satisfied. The Administrative Committee shall prescribe such reductions in a
uniform and nondiscriminatory manner.
(b) (1) If the Administrative Committee
determines that the Plan does not satisfy the ADP Test, it may recommend that
the Company make Qualified Nonelective Contributions and/or Qualified Matching
Contributions on behalf of non-highly compensated Eligible Employees. Any such
contributions that the Company makes shall be, for Plan Years through 1999,
allocated in accordance with Section 7.6 and shall be used to increase the ADP
of the NHCEs. For Plan Years after 1999 any such contributions the Company makes
shall be remitted to the Trustee for deposit in the Fund by the last day of the
Plan Year for which the Plan does not satisfy the ADP Test; shall be allocated
as of the last day of the preceding Plan Year in accordance with Section 7.6;
and shall be used to increase the ADP of the NHCEs.
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(2) As provided in Section A.5(e), Qualified
Nonelective Contributions and/or Qualified Matching Contributions included in
the numerator of the Individual Deferral Percentage to help the Plan satisfy the
ADP Test shall in no event be included in the numerator of the Individual
Contribution Percentage.
(c) If, in spite of any corrective action that has
been taken, the Plan does not satisfy the ADP Test as of the last day of a given
Plan Year, Excess Contributions shall be returned as described in Section A.7.
A.7 Return of Excess Contributions.
(a) If the Plan does not satisfy the ADP Test as of
the last day of a given Plan Year, the Committee shall determine the total
amount of Excess Contributions for that Plan Year, which shall be the sum of the
Excess Contributions of all Highly Compensated Employees. The total amount of
Excess Contributions shall be apportioned among the Highly Compensated Employees
in accordance with Subsection (c) and shall be distributed to the Highly
Compensated Employees in accordance with Subsection (d).
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(b) The total amount of Excess Contributions shall be
determined after determining the amount of Excess Deferrals and before
determining the total amount of Excess Aggregate Contributions.
(c) Using the following leveling process, the
Committee shall apportion the total amount of Excess Contributions among the
Highly Compensated Employees.
(1) First, Excess Contributions shall be set
aside for the Highly Compensated Employee with the greatest dollar amount of
Salary Redirection Savings. The amount set aside for this Highly Compensated
Employee shall be an amount which either:
(A) equals the total amount of Excess
Contributions, or
(B) reduces the Highly Compensated
Employee's Salary Redirection Savings to the point at which they equal the
Salary Redirection Savings of the Highly Compensated Employee with the second
greatest dollar amount of Salary Redirection Savings.
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(2) Next, Excess Contributions shall be set
aside for the two Highly Compensated Employees who then have the greatest dollar
amount of Salary Redirection Savings. An equal amount shall be set aside for
each of these Highly Compensated Employees, until:
(A) the total set aside under paragraph
(1) and this paragraph equals the total amount of Excess Contributions, or
(B) the Salary Redirection Savings of
the two Highly Compensated Employees have been reduced to the point at which
they equal the Salary Redirection Savings of the Highly Compensated Employee
with the third greatest dollar amount of Salary Redirection Savings.
(3) Next, Excess Contributions shall be set
aside for the three Highly Compensated Employees who then have the greatest
dollar amount of Salary Redirection Savings. An equal amount shall be set aside
for each of these Highly Compensated Employees, until:
(A) the total set aside under paragraphs
(1) and (2) and this paragraph equals the total amount of Excess Contributions,
or
(B) the Salary Redirection Savings of
the three Highly Compensated Employees have been reduced to the point at which
they equal the Salary Redirection Savings of the Highly Compensated Employee
with the fourth greatest dollar amount of Salary Redirection Savings.
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(4) This leveling process shall be repeated
until the Committee has apportioned the total amount of Excess Contributions for
the Plan Year.
(d) The Administrative Committee shall direct the
Trustee to distribute to each Highly Compensated Employee the amount of Excess
Contributions set aside for him under Subsection (c), plus any income
attributable thereto. Such amounts shall be distributed no later than the last
day of the Plan Year following the Plan Year in which the Excess Contributions
were contributed to the Plan.
(e) Any Matching Contributions which are attributable
to Excess Contributions and which are not Excess Aggregate Contributions shall
be forfeited and shall be used in the future as Matching Contributions.
(f) The Trustee shall determine the income
attributable to Excess Contributions using any reasonable method that does not
violate section 401(a)(4) of the Code and is also used for allocating income to
Participants' Accounts. Such method shall be applied consistently to all Excess
Contributions for a given Plan Year. Income shall be allocated to Excess
Contributions solely for the Plan Year in which the Excess Contributions are
contributed to the Plan and not for any period thereafter.
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A.8 Actual Contribution Percentage Test.
(a) The Committee shall cause the ACP Test to be run
as of the last day of each Plan Year and may also cause the ACP Test to be run
at any time during a given Plan Year. As provided in Section A.1, the "current
year testing method" shall be used for the ACP Test through 1999. For Plan Years
after 1999, the "prior year testing method" shall be used for the ACP Test.
(b) The Plan satisfies the ACP Test at a given point
in time if it satisfies one of the two tests described below.
(1) The Plan satisfies the ACP Test if the
ACP of the HCEs is not more than the ACP of the NHCEs multiplied by 1.25.
(2) The Plan satisfies the ACP Test if:
(A) the ACP of the HCEs does not exceed
the ACP of the NHCEs by more than two percentage points, and
(B) the ACP of the HCEs is not more than
the ACP of the NHCEs multiplied by 2.0.
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(c) (1) As provided in Section A.2(c), the
Actual Contribution Percentage for a specific group of Eligible Employees is the
average (expressed as a percentage rounded to the nearer one-hundredth of one
percent) of the Individual Contribution Percentages of the Eligible Employees in
the group. In determining the Actual Contribution Percentage, the Committee may
treat this Plan and any other plan maintained by the Company or an Affiliated
Company to which matching contributions and/or voluntary employee contributions
are made as a single plan.
(2) If this Plan is treated, for purposes of
section 401(a)(4) or 410(b) of the Code, as one plan with any other plan(s)
maintained by the Company or an Affiliated Company to which matching
contributions and/or voluntary employee contributions are made, this Plan and
such other plan(s) shall be treated as one plan in determining the Actual
Contribution Percentage.
(3) Plans that are aggregated under this
Subsection must all have the same plan year and must all use the "current year
testing method" (as defined in IRS Notice 98-1) through 1999 and the "prior year
testing method" (as defined in IRS Notice 98-1) thereafter.
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(d) Subsection (c) notwithstanding, plans (or
portions of plans) that must be disaggregated pursuant to Section A.13 shall in
no event be aggregated.
A.9 Individual Contribution Percentage.
(a) For any Plan Year, an Eligible Employee's
Individual Contribution Percentage is the ratio of:
(1) the Matching Contributions contributed
on behalf of the Eligible Employee for the Plan Year, plus the Eligible
Employee's Voluntary Savings for the Plan Year, to
(2) the Eligible Employee's pay for the Plan
Year; provided, however, that any pay attributable to a period before the
Eligible Employee becomes a Participant shall not be taken into account.
(b) (1) For the purpose of determining the
denominator of the Individual Contribution Percentage, an Eligible Employee's
"pay" shall be his Limitation Compensation. An Eligible Employee's pay for any
Plan Year (and, thus, the denominator of the Individual Contribution Percentage)
shall not be more than the amount set by section 401(a)(17) of the Code, as
adjusted for cost-of-living increases.
(2) All or any portion of an Eligible
Employee's Salary Redirection Savings for a given Plan Year may be included in
the numerator of the Individual Contribution Percentage, provided that such
contributions satisfy the requirements of Treas. Reg. ss.1.401(m)-1(b)(5). If
Salary Redirection Savings are to be added to the numerator of the Individual
Contribution Percentage, the dollar amount to be added shall be determined by
the Committee. Salary Redirection Savings added to the numerator of the
Individual Contribution Percentage must be subtracted from the numerator of the
Individual Deferral Percentage.
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(3) All or any portion of the Qualified
Matching Contributions and/or Qualified Nonelective Contributions made on behalf
of a non-highly compensated Eligible Employee for a given Plan Year may be
included in the numerator of the Individual Contribution Percentage, provided
that such contributions satisfy the requirements of Treas. Reg.
ss.1.401(m)-1(b)(5). The dollar amount of Qualified Matching Contributions
and/or Qualified Nonelective Contributions to be added to the numerator of the
Individual Contribution Percentage shall be determined by the Committee.
Qualified Matching Contributions and/or Qualified Nonelective Contributions
included in the numerator of the Individual Contribution Percentage shall in no
event be included in the numerator of the Individual Deferral Percentage.
(4) If Individual Contribution Percentages
of non-highly compensated Eligible Employees are increased as a result of the
inclusion of Qualified Matching Contributions and/or Qualified Nonelective
Contributions, the ACP of the NHCEs shall also be increased.
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(c) (1) For a given Plan Year, the highest
permitted Individual Contribution Percentage is the highest percentage of pay
(as defined in Subsection (b)(1))] that could be contributed as Voluntary
Savings and Matching Contributions by or on behalf of any Highly Compensated
Employee without causing the Plan to fail the ACP Test. This percentage shall be
determined in accordance with Treas. Reg. ss.1.401(m)-1(e)(2).
(2) The highest permitted Individual
Contribution Percentage applies only to Highly Compensated Employees; it does
not apply to non-highly compensated Eligible Employees and shall not affect the
contributions of non-highly compensated Eligible Employees in any way.
(d) If in any Plan Year a Highly Compensated Employee
participates in this Plan and in any other plan(s) maintained by the Company or
an Affiliated Company to which matching contributions (as defined in section
401(m)(4)(A) of the Code) and/or voluntary employee contributions are made,
then, in computing the Individual Contribution Percentage for such Highly
Compensated Employee, all matching contributions and voluntary employee
contributions shall be included in the numerator. If a Highly Compensated
Employee participates in two or more such plans that have different plan years,
all plans with plan years ending with or within the same calendar year shall be
treated as a single plan.
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(e) Subsection (d) notwithstanding, plans (or
portions of plans) that must be disaggregated pursuant to Section A.13 shall in
no event be aggregated.
A.10 ACP Test -- Corrective Action.
(a) If at any time before the end of a Plan Year the
Committee determines that the Plan does not satisfy the ACP Test, it may reduce
the contribution rates (and, thus, the Individual Contribution Percentages) of
one or more Participants who are Highly Compensated Employees so that the ACP
Test is satisfied. The Committee shall prescribe such reductions in a uniform
and nondiscriminatory manner.
(b) (1) If the Committee determines that the
Plan does not satisfy the ACP Test, it may recommend that the Company make
Qualified Matching Contributions and/or Qualified Nonelective Contributions on
behalf of non-highly compensated Eligible Employees. Any such contributions that
the Company makes shall be, for Plan Years through 1999, allocated in accordance
with Section 7.6 and shall be used to increase the ACP of the NHCEs. For Plan
Years after 1999 any such contributions the Company makes shall be remitted to
the Trustee for deposit in the Fund by the last day of the Plan Year for which
the Plan does not satisfy the ACP Test; shall be allocated as of the last day of
the preceding Plan Year in accordance with Section 7.6; and shall be used to
increase the ACP of the NHCEs.
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(2) As provided in Section A.9(b)(3),
Qualified Matching Contributions and/or Qualified Nonelective Contributions
included in the numerator of the Individual Contribution Percentage to help the
Plan satisfy the ACP Test shall in no event be included in the numerator of the
Individual Deferral Percentage.
(c) If, in spite of any corrective action that has
been taken, the Plan does not satisfy the ACP Test as of the last day of a given
Plan Year, the Committee and the Trustee shall dispose of Excess Aggregate
Contributions as described in Section A.11.
A.11 Disposition of Excess Aggregate Contributions.
(a) If the Plan does not satisfy the ACP Test as of
the last day of a given Plan Year, the Committee shall determine the total
amount of Excess Aggregate Contributions for that Plan Year, which shall be the
sum of the Excess Aggregate Contributions of all Highly Compensated Employees.
The total amount of Excess Aggregate Contributions shall be apportioned among
the Highly Compensated Employees in accordance with Subsection (c) and shall be
disposed of in accordance with Subsection (d).
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(b) The total amount of Excess Aggregate
Contributions shall be determined after determining both the amount of Excess
Deferrals and the total amount of Excess Contributions.
(c) Using the following leveling process, the
Committee shall apportion the total amount of Excess Aggregate Contributions
among the Highly Compensated Employees.
(1) First, Excess Aggregate Contributions
shall be set aside for the Highly Compensated Employee with the greatest dollar
amount of Matching Contributions and Voluntary Savings. The amount set aside for
this Highly Compensated Employee shall be an amount which either:
(A) equals the total amount of Excess
Aggregate Contributions, or
(B) reduces the Highly Compensated
Employee's Matching Contributions and Voluntary Savings to the point at which
they equal the Matching Contributions and Voluntary Savings of the Highly
Compensated Employee with the second greatest dollar amount of Matching
Contributions and Voluntary Savings.
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(2) Next, Excess Aggregate Contributions
shall be set aside for the two Highly Compensated Employees who then have the
greatest dollar amount of Matching Contributions and Voluntary Savings. An equal
amount shall be set aside for each of these Highly Compensated Employees, until:
(A) the total set aside under paragraph
(1) and this paragraph equals the total amount of Excess Aggregate
Contributions, or
(B) the Matching Contributions and
Voluntary Savings of the two Highly Compensated Employees have been reduced to
the point at which they equal the Matching Contributions and Voluntary Savings
of the Highly Compensated Employee with the third greatest dollar amount of
Matching Contributions and Voluntary Savings.
(3) Next, Excess Aggregate Contributions
shall be set aside for the three Highly Compensated Employees who then have the
greatest dollar amount of Matching Contributions and Voluntary Savings. An equal
amount shall be set aside for each of these Highly Compensated Employees, until:
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(A) the total set aside under paragraphs
(1) and (2) and this paragraph equals the total amount of Excess Aggregate
Contributions, or
(B) the Matching Contributions and
Voluntary Savings of the three Highly Compensated Employees have been reduced to
the point at which they equal the Matching Contributions and Voluntary Savings
of the Highly Compensated Employee with the fourth greatest dollar amount of
Matching Contributions and Voluntary Savings.
(4) This leveling process shall be repeated
until the Committee has apportioned the total amount of Excess Aggregate
Contributions for the Plan Year.
(d) The Excess Aggregate Contributions set aside for
a given Highly Compensated Employee, plus any income attributable thereto, shall
be distributed to the Highly Compensated Employee no later than the last day of
the Plan Year following the Plan Year in which the Excess Aggregate
Contributions were contributed to the Plan.
(e) The Trustee shall determine the income
attributable to Excess Aggregate Contributions using any reasonable method that
does not violate section 401(a)(4) of the Code and is also used for allocating
income to Participants' Accounts. Such method shall be applied consistently to
all Excess Aggregate Contributions for a given Plan Year. Income shall be
allocated to Excess Aggregate Contributions solely for the Plan Year in which
the Excess Aggregate Contributions are contributed to the Plan and not for any
period thereafter.
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A.12 Multiple Use Test.
(a) (1) In addition to complying with the
limitations imposed by other provisions of this Plan, the Plan must satisfy the
"multiple use" test described in this Section. The Plan satisfies the multiple
use test if the sum of the ADP of the HCEs and the ACP of the HCEs does not
exceed the aggregate limit described in Subsection (b).
(2) For a given Plan Year, the Plan
automatically satisfies the multiple use test unless the Plan both (A) satisfies
the ADP Test by means of the test described in Section A.4(b)(2), and (B)
satisfies the ACP Test by means of the test described in Section A.8(b)(2).
(b) The aggregate limit for a given Plan Year is the
greater of the amounts described in paragraphs (1) and (2) below:
(1) This amount is the sum of (A) and (B):
(A) one hundred twenty-five percent
(125%) of the greater of (i) the ADP of the NHCEs or (ii) the ACP of the NHCEs;
plus
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(B) two percentage points plus the
lesser of (i) the ADP of the NHCEs or (ii) the ACP of the NHCEs. In no event,
however, shall the amount determined under this clause (B) be more than twice
the lesser of the ADP of the NHCEs or the ACP of the NHCEs.
(2) This amount is the sum of (A) and (B):
(A) one hundred twenty-five percent
(125%) of the lesser of (i) the ADP of the NHCEs or (ii) the ACP of the NHCEs;
plus
(B) two percentage points plus the
greater of (i) the ADP of the NHCEs or (ii) the ACP of the NHCEs. In no event,
however, shall the amount determined under this clause (B) be more than twice
the greater of the ADP of the NHCEs or the ACP of the NHCEs.
(c) For purposes of the multiple use test, the ADP of
the HCEs and the ACP of the HCEs shall be determined after any corrective
distributions of Excess Deferrals, Excess Contributions, and Excess Aggregate
Contributions have been made. The ADP of the HCEs shall be deemed to equal the
highest permitted Individual Deferral Percentage for the Plan Year, and the ACP
of the HCEs shall be deemed to equal the highest permitted Individual
Contribution Percentage for the Plan Year.
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(d) If the Plan does not satisfy the multiple use
test as of the last day of a given Plan Year, the ACP of the HCEs shall be
reduced by the process described in Section A.11.
A.13 Disaggregation.
(a) Sections A.4, A.5, A.6, and A.7 (ADP Test),
Sections A.8, A.9, A.10, and A.11 (ACP Test), and Section A.12 (multiple use
test) shall be applied separately to the group of Eligible Employees who are
covered by collective bargaining agreements and the group of Eligible Employees
who are not covered by any collective bargaining agreement.
(b) If for any Plan Year the Plan is disaggregated
into component plans for purposes of coverage testing under section 410(b) of
the Code, it shall be disaggregated in the same manner for purposes of Sections
A.4, A.5, A.6, and A.7 (ADP Test), Sections A.8, A.9, A.10, and A.11 (ACP Test),
and Section A.12 (multiple use test).
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(c) For any Plan Year, the Plan may be disaggregated
into component plans as described in Treas. Reg. ss.1.410(b)-6(b)(3). If the
Plan is permissively disaggregated in this fashion, each component plan must
separately pass the ADP Test, the ACP Test, and the multiple use test and must
separately satisfy the coverage requirement of section 410(b) of the Code.
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SCHEDULE B
DETERMINATION OF HIGHLY COMPENSATED EMPLOYEES
B.1 Introduction. Highly Compensated Employees for a given
Plan Year shall be the employees who are described below. The determination as
to whether an employee is a Highly Compensated Employee shall be made in
accordance with section 414(q) of the Code and the regulations thereunder. The
provisions of this Schedule shall be effective January 1, 1997, and, for the
purpose of determining which employees are Highly Compensated Employees for
1997, such provisions shall be treated as if they were in effect during 1996.
B.2 Determination. "Highly Compensated Employee" shall mean
any employee of the Company or an Affiliated Company who:
(a) was at any time during either the Determination Year
or the Look-Back Year a five-percent (5%) owner (as defined in section
416(i)(1)(B) of the Code); or
(b) (1) was in the Top-Paid Group for the Look-Back Year,
if the Board of Directors has elected to have this condition apply, and (2) had
Income during the Look-Back Year which is in excess of $80,000 (as adjusted for
cost-of-living increases).
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Employees who are non-resident aliens who receive no
U.S.-source income from the Company or any Affiliated Company shall not be
treated as employees for the purpose of this Section.
B.3 Definitions. The following definitions shall supplement
those set forth in Article II of the Plan:
(a) "Determination Year" shall mean the Plan Year for
which the determination of Highly Compensated Employees is being made.
(b) "Look-Back Year" shall mean the 12 months immediately
preceding the first day of the Determination Year.
(c) "Top-Paid Group" shall mean the group consisting of
the top twenty percent (20%) of employees of the Company and all Affiliated
Companies for the Look-Back Year, when employees are ranked on the basis of
their Income for the Look-Back Year. Solely for purposes of determining the
number of employees to be included in such group, the following employees shall
not be counted:
(1) employees who have not completed six months of
employment by the end of the Look-Back Year;
(2) employees who normally work fewer than 17 1/2
hours per week;
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(3) employees who normally work not more than six
months during any year;
(4) employees who have not attained age 21 by the end
of the Look-Back Year.
(5) employees who are non-resident aliens who receive
no U.S. source of income from the Company or any Subsidiary.
Employees covered by a collective bargaining agreement shall
be counted in determining the number of employees to be included in the Top-Paid
Group unless ninety percent (90%) or more of the employees of the Company and
all Affiliated Companies are covered by collective bargaining agreements and
this Plan covers only employees who are not covered by collective bargaining
agreements. In such a case, employees covered by a collective bargaining
agreement shall not be counted in determining the number of employees to be
included in the Top-Paid Group.
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B.4 Highly Compensated Former Employees. For a given
Determination Year, an individual is a Highly Compensated Former Employee if he
separated from service before the first day of the Determination Year and if he
was a Highly Compensated Employee (as determined under Section B.2) during
either (a) the year he separated from service or (b) any Determination Year
ending on or after his 55th birthday.
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SCHEDULE C
DISTRIBUTION DATES
C.1 Mandatory Benefit Commencement Date.
(a) Distribution of a Participant's benefits under
this Plan shall commence by his Mandatory Benefit Commencement Date.
(b) Effective January 1, 1997, unless Subsection (c)
applies, a Participant's Mandatory Benefit Commencement Date shall be the April
1st that follows the later of:
(1) the end of the calendar year in which the
Participant attains age 70 1/2, or
(2) the end of the calendar year in which the
Participant's employment with the Company and all Affiliated Companies
terminates.
(c) Subsection (b) shall not apply in the case of a
Participant who is a five-percent (5%) owner (as defined in section 416(i)(1)(B)
of the Code) during the Plan Year in which he attains age 70 1/2. Such a
Participant's Mandatory Benefit Commencement Date shall be the April 1st that
follows the end of the calendar year in which he attains age 70 1/2, even if he
is still working on that date.
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(d) If a Participant is affected by the distribution
rule for five-percent (5%) owners set forth in Subsection (c) and is still
employed by the Company or an Affiliated Company when he reaches his Mandatory
Benefit Commencement Date, he shall receive benefits in accordance with Section
C.2. Once distribution to a five-percent (5%) owner has commenced, distribution
shall continue even if the Participant ceases to be a five-percent (5%) owner.
(e) A Participant who is not a five-percent (5%)
owner and who attains age 70 1/2in 1997, 1998, or 1999 has a special benefit
commencement option. Such a Participant may elect to begin receiving benefit
payments while he is still employed by the Company or an Affiliated Company. A
Participant who makes this election shall receive benefits in accordance with
Section C.3. An election under this Subsection shall be made in the manner
prescribed by the Committee.
(f) If distribution to a Participant who is not a
five-percent (5%) owner commenced before the Participant terminated his
employment with the Company and all Affiliated Companies, in accordance with the
provisions of the Plan and applicable law as in effect before January 1, 1997,
distribution shall not be affected by the provisions of Subsection (a), but
shall continue uninterrupted.
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C.2 Benefits Payable to Five-Percent (5%)Owners.
(a) If a Participant is affected by the distribution
rule for five-percent (5%) owners (set forth in Section C.1(c)) and is still
employed by the Company or an Affiliated Company when he reaches his Mandatory
Benefit Commencement Date, he shall begin to receive benefits on his Mandatory
Benefit Commencement Date. Payments from his Accounts shall be made in
accordance with the minimum distribution rules of section 401(a)(9) of the Code
unless the Participant makes the election described in Subsection (b).
(b) (1) A Participant whose benefits are to
commence while he is still employed may elect to receive the total balance in
his Accounts in a single-sum payment on his Mandatory Benefit Commencement Date.
Such an election shall be made in the manner prescribed by the Committee and may
be made at any time until the date that is 14 days before the Participant's
Mandatory Benefit Commencement Date.
(2) A Participant who has received a total
distribution under paragraph (1) shall thereafter receive the total balance in
his Accounts at the end of each calendar year (including the calendar year that
contains his Mandatory Benefit Commencement Date) until he retires.
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C.3 Special Benefit Commencement Option.
(a) A Participant who is not a five-percent (5%)
owner but who has made the election described in Section C.1(e) shall begin to
receive benefits as soon as administratively practicable after he makes his
election. The Participant shall be treated as if he were a five-percent (5%)
owner, and payments from his Accounts shall be made in accordance with the
minimum distribution rules of section 401(a)(9) of the Code unless he makes the
election described in Subsection (b).
(b) (1) A Participant whose benefits are to
commence while he is still employed may elect to receive the total balance in
his Accounts in a single-sum payment on his benefit commencement date. Such an
election shall be made in the manner prescribed by the Committee and may be made
at any time until the date that is 14 days before the Participant's benefit
commencement date.
(2) A Participant who has received a total
distribution under paragraph (1) shall thereafter receive the total balance in
his Accounts at the end of each calendar year (including the calendar year that
contains his benefit commencement date) until he retires.
C.4 Distribution Upon Retirement. Benefit payments under
Section C.2 or C.3 shall continue for so long as the Participant continues his
employment with the Company or an Affiliated Company. When the Participant
retires, the balance remaining in his Accounts shall be distributed to him in a
single-sum payment.
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C.5 Valuation of Accounts.
(a) For the purpose of making a minimum distribution
under section 401(a)(9) of the Code to a Participant who is still employed, the
Participant's Accounts shall be valued as follows:
(1) The amount to be distributed on the
Participant's benefit commencement date shall be based on the value of his
Accounts as of the last Valuation Date in the second calendar year preceding the
calendar year that contains his benefit commencement date.
(2) The amount to be distributed by the end
of the calendar year that contains the Participant's benefit commencement date
shall be based on (A) the value of the Participant's Accounts as of the last
Valuation Date in the calendar year preceding the calendar year that contains
the benefit commencement date, minus (B) the amount distributed on the benefit
commencement date.
(3) The amount to be distributed by the end
of each calendar year after the calendar year that contains the Participant's
benefit commencement date shall be based on the value of the Participant's
Accounts as of the last Valuation Date in the preceding calendar year, minus the
distribution for the preceding calendar year.
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(b) The value of the Participant's Accounts
determined under Subsection (a)(1), (2), or (3) shall be increased by any
additional contributions and forfeitures that are allocated to the Accounts
after the relevant Valuation Date, but as of dates that fall within the calendar
year containing the relevant Valuation Date.
C.6 Construction. This Schedule shall be construed to comply
with section 401(a)(9) of the Code and the regulations thereunder, and shall be
effective January 1, 1997.
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SCHEDULE D
USERRA PROVISIONS
D.1 USERRA Coverage.
(a) Certain provisions of this Plan apply only to an
individual who has been absent from work due to military service (either because
he was inducted or because he volunteered for military service) and who is
covered under USERRA. An individual is covered under USERRA if:
(1) he was employed by the Company
immediately before he entered military service and he gave the Company advance
notice of his military service, unless advance notice was prevented by military
necessity or it was impossible or unreasonable, under the circumstances, to give
advance notice;
(2) he has been absent from work due to
military service for five years or less;
(3) he has received an honorable discharge
or otherwise satisfactorily completed his military service;
(4) he reports back to work or applies for
reemployment in a timely fashion, as specified in Subsection (b); and
(5) his reemployment is initiated on or
after December 12, 1994.
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(b) An employee returning from military service has
reported back to work or applied for reemployment in a timely fashion and meets
the requirement of Subsection (a)(4) if:
(1) his period of military service was less
than 31 days (or he was absent due to a fitness exam) and he reports back to
work not later than the first regularly scheduled work period after he has had
an eight-hour break and time for travel back home; or
(2) his period of military service was 31
days to 180 days long and he applies for reemployment not more than 14 days
after he completes military service; or
(3) his period of military service was more
than 180 days long and he applies for reemployment within 90 days after he
completes military service; or
(4) he does not meet the time limit
applicable to him under paragraph (1), (2), or (3) but he reports back to work
or applies for reemployment within a period of time that is "reasonable" within
the meaning of section 4312(e) of USERRA.
D.2 Vesting Credit. If an employee has been absent from work
due to military service and he meets the requirements for coverage under USERRA,
he shall be credited with Service toward vesting for his period of military
service.
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D.3 Participant's Make-Up Contributions.
(a) (1) If a Participant has been absent from
work due to military service and he meets the requirements for coverage under
USERRA, he shall have the right to make up the Salary Redirection Contributions
and Voluntary Savings he could have contributed if he had been actively employed
by the Company during his period of military service.
(2) A Participant's make-up Salary
Redirection Contributions may be for the same percentage as provided under the
terms of the Plan of his Projected Pay (as defined in Section D.5).
(3) A Participant's make-up Voluntary
Savings may be for the same percentage as provided under the terms of the Plan
of his Projected Pay.
(b) Make-up contributions shall be made pursuant to
an election by the Participant. The election, which shall be made in the manner
prescribed by the Committee, shall specify:
(1) the percentage of his Projected Pay that
the Participant is contributing as make-up Salary Redirection Savings, and
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(2) the percentage of his Projected Pay that
the Participant is contributing as make-up Voluntary Savings, and
(3) the year to which such make-up
contributions shall relate.
(c) Make-up Salary Redirection Contributions and
Voluntary Savings may be deducted from a Participant's current Compensation or
may be paid by the Participant to the Trustee in cash, or both, as the
Participant elects. Make-up contributions must be made within a period that is
three times the length of the Participant's period of military service (not to
exceed five years); such period shall begin on the Participant's reemployment
date.
(d) (1) A Participant may at any time:
(A) change the percentage he is
contributing as make-up Salary Redirection Contributions and/or make-up
Voluntary Savings to any other percentage permitted under Subsection (a), or
(B) stop his make-up contributions.
(2) If make-up contributions are being
deducted from the Participant's current Compensation, any change or cancellation
shall become effective as soon as administratively practicable following the
date on which the Committee receives notice of the change or cancellation.
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(e) Make-up Salary Redirection Savings allocated to a
Participant's Accounts shall in no event exceed the dollar limit on elective
deferrals under section 402(g) of the Code for the prior taxable year of the
Participant to which they relate. If the dollar limit is exceeded with respect
to any prior taxable year, amounts that would otherwise be paid into the Fund as
make-up Salary Redirection Savings shall instead be paid to the Participant in
cash.
(f) (1) Make-up Salary Redirection Savings shall
not be included in any ADP Test unless and until federal law and/or regulations
promulgated by the Internal Revenue Service require their inclusion.
(2) Make-up Voluntary Savings shall not be
included in any ACP Test unless and until federal law and/or regulations
promulgated by the Internal Revenue Service require their inclusion.
(3) As provided in Section 2.5, make-up
Salary Redirection Contributions and Voluntary Savings shall be included in
determining the amount of a Participant's Annual Additions for the Limitation
Year to which they relate (not the Limitation Year in which they are actually
contributed).
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D.4 Make-Up Matching Contributions.
(a) As provided in Section D.3, a Participant who has
been absent from work due to military service and who meets the requirements for
coverage under USERRA shall have the right to make up the Salary Redirection
Savings he might have contributed during his period of military service. If the
Participant does make up Salary Redirection Savings, the Company shall
contribute make-up Matching Contributions.
(b) A Participant's make-up Salary Redirection
Savings shall be matched at the same rate as the Salary Redirection
Contributions of other Participants for the prior Plan Year to which the make-up
Salary Redirection Contributions relate.
(c) (1) Make-up Matching Contributions shall not
be included in any ACP Test unless and until federal law and/or regulations
promulgated by the Internal Revenue Service require their inclusion.
(2) As provided in Section 2.5, make-up
Matching Contributions shall be included in determining the amount of a
Participant's Annual Additions for the Limitation Year to which they relate (not
the Limitation Year in which they are actually contributed).
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D.5 Projected Pay.
(a) For any Participant who has been absent from work
due to military service and who meets the requirements for coverage under
USERRA, "Projected Pay" shall mean the annual rate of pay the Participant would
have received for a given Plan Year of military service if he had been actively
employed by the Company during that Plan Year. If this rate of pay is not
reasonably certain, a Participant's Projected Pay for each Plan Year of military
service shall be the annualized average of the monthly compensation paid to him
by the Company for the 12 months immediately preceding the beginning of his
period of military service (or the annualized average of the monthly
compensation paid to him by the Company for his entire period of employment, if
he was employed for fewer than 12 months before his military service began).
(b) A Participant's annual Projected Pay shall not be
more than the amount in effect under section 401(a)(17) of the Code for the Plan
Year to which the Projected Pay relates.
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D.7 Forfeitures. No forfeitures shall be allocated to a
Participant's Account for any Plan Year during which the Participant is absent
from work due to military service, whether the Participant meets the
requirements for coverage under USERRA or not.
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SCHEDULE E
Participating Subsidiaries
Participation
Subsidiary Commencement Date
- ---------- -----------------
Cannon-Muskegon Corporation January 1, 1989
The Arnold Engineering Co.
Non-union April 1, 1987
Marengo union employees August 1, 1992
Sevierville union employees August 1, 1996
Flexmag Industries, Inc. June 14, 1996
Magnetic Technologies Corporation January 1, 1998
Lake Erie Design Co., Inc. April 1, 1998
Howell Penncraft, Inc. July 1, 1998
Greer Stop Nut, Inc. October 1, 1997
Non-Ferrous Bolt & Mfg. Co. April 1, 1999
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SCHEDULE F
Special Provisions
F.1 Former Magnetic Technologies Corporation Profit Sharing
Plan and Trust Participants -- Optional Form of Benefit. In addition to the form
of payment options contained in Section 8.7(a), an employee who formerly
participated in the Magnetic Technologies Corporation Profit Sharing Plan and
Trust prior to becoming a Participant in this Plan shall be eligible to receive
a distribution of that portion of his Participant Account which was transferred
into this Plan from the Magnetic Technologies Corporation Profit Sharing Plan
and Trust in installment payments over a period certain in monthly, quarterly,
semi-annual, or annual cash installments. The period over which payment is to be
made shall not extend beyond the life expectancy of the Participant and his
designated beneficiary.
F.2 Former Lake Erie Design Co., Inc. Retirement Savings
Plan Participants -- Normal Form of Benefit.
(a) (1) The "normal form" of benefit for an
unmarried Participant with respect to that portion of his Participant Account
which was transferred into this Plan shall be a single life annuity, with equal
monthly installments payable to the Participant for his lifetime. The single
life annuity shall be the actuarial equivalent of the vested portion of the
balance in the Participant's Accounts.
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(2) The "normal form" of benefit for a
married Participant with respect to that portion of his Participant Account
which was transferred into this Plan shall be a joint and 50% surviving spouse
annuity (i.e., an annuity for the life of the Participant with monthly
installments payable after the death of the Participant to such Participant's
spouse, if then living, for the life of the spouse, in an amount equal to fifty
percent (50%) of the monthly benefit paid to the Participant during his
lifetime). The joint and 50% surviving spouse annuity shall be the actuarial
equivalent of a single life annuity for the life of the Participant and shall
also be the actuarial equivalent of the vested portion of the balance in the
Participant's Accounts.
(3) A Participant's benefit shall be paid in
his normal form of benefit unless the Participant elects to receive one of the
other forms of benefit available under the Plan. Any such election shall be made
in accordance with the provisions of Subsections (e) through (h).
(b) (1) Death benefits shall be paid to the
designated beneficiary of an unmarried Participant in the form of a single-sum
payment that is equal to the vested portion of the balance in the deceased
Participant's Accounts. Death benefits payable in a single sum shall be
distributed to the beneficiary named by the Participant no later than one year
after the Participant's death.
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(2) Death benefits shall be paid to the
surviving spouse of a married Participant in the form of an annuity for the life
of the spouse that is the actuarial equivalent of the vested portion of the
balance in the deceased Participant's Accounts. Such benefit shall commence (A)
on the first day of any month on which the Participant could have elected to
receive immediate retirement benefits, but not later than the date that would
have been the Participant's Normal Retirement Date, as elected in writing by the
surviving spouse; or (B) if the Participant dies on or after his Normal
Retirement Date, on the first day of the month following the month in which he
dies.
(c) (1) Subsection (c)(2) notwithstanding, a
married Participant may elect, during the period beginning on the first day of
the Plan Year in which he attains age 35 and ending on the date of his death, to
have death benefits be payable in a single sum to his spouse or to any other
beneficiary, if the Participant's spouse consents in writing in the form and
manner described in Subsection (l).
(2) A married Participant may revoke an
election under this Subsection at any time prior to his death, and may make and
revoke such an election any number of times.
(3) Death benefits payable in a single sum
shall be distributed to the beneficiary named by the Participant no later than
one year after the Participant's death.
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(4) The Administrative Committee shall
provide the Participant with written information relating to the terms and
conditions of the qualified pre-retirement surviving spouse annuity ("QPSA");
the rules relating to the waiver of the QPSA and the revocation of any waiver;
and the rights of the Participant's spouse with respect to the QPSA. This
information shall be provided:
(A) once during the Plan Year in which
the Participant attains age 32, 33, or 34, or, if later, within a reasonable
period of time after the Participant first begins to participate in the Plan;
(B) in the case of a Participant who
terminates his employment before attaining age 35 and before receiving such
written information, within a reasonable period of time after the Participant's
termination of employment; and
(C) in the case of a Participant to whom
the QPSA has not previously applied, within a reasonable period of time after
such benefit first applies to the Participant.
(d) (1) Annuities payable under this Section
shall be purchased from an insurance company selected by the Administrative
Committee. The terms of any annuity contract purchased and distributed by the
Plan shall comply with the requirements of the Plan.
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(2) For the purposes of this Section,
"actuarial equivalent" shall mean of equal actuarial value, based upon the
factors and assumptions utilized by the insurance company from which the
[Administrative] Committee will purchase annuity contracts.
(e) Not more than 90 days nor less than 30 days
before his benefits are to commence, a Participant shall receive from the
Administrative Committee a written explanation of:
(1) the terms and conditions of his normal
form of benefit;
(2) the Participant's right to waive the
normal form of benefit and the effect of such a waiver;
(3) the rights of the Participant's spouse
with respect to any waiver; and
(4) the Participant's right to revoke an
election to receive an optional form of benefit and the effect of such a
revocation.
(f) The date on which the Participant receives the
written explanation described in Subsection (e) marks the beginning of the
Participant's benefit election period. The benefit election period shall run for
at least 30 days but not more than 90 days, except as otherwise provided in
Subsection (j).
(g) The Participant may elect to receive an optional
form of benefit at any time during his benefit election period by following the
election procedure prescribed by the Administrative Committee.
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(h) If the Participant has a spouse, his election of
an optional form of benefit shall be given effect only if his spouse consents to
the election in the form and manner described in Subsection (l).
(i) A Participant shall have the right to revoke his
election of an optional form of benefit. A revocation may be made at any time
(and any number of times) during the Participant's benefit election period and
may be made without the consent of the Participant's spouse.
(j) In general, the benefit election period must run
for at least 30 days before any distribution may be made. However, distribution
may be made or may commence at any time that is more than seven days after the
Participant has received the written explanation described in Subsection (e), if
the Participant elects (with spousal consent, if applicable) to waive his right
to a 30-day benefit election period.
(k) The written explanation described in Subsection
(e) may be provided to the Participant after his "annuity starting date" (as
defined in Treas. Reg.ss.1.401(a)-20, Q&A-10). In such a case, the rules of
Subsection (j) shall apply, and the Participant's actual benefit commencement
date shall be after his annuity starting date.
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(l) A married Participant may elect to receive an
optional form of benefit only if:
(A) his spouse consents in writing not
to receive the normal form of benefit and, if applicable, consents in writing to
the specific beneficiary designated by the Participant pursuant to his election;
(B) the spouse's consent acknowledges
its own effect; and
(C) the spouse's consent is witnessed by
a Plan representative or a notary public.
(m) A married Participant may elect to waive his
right to a 30-day benefit election period only if his spouse consents in the
form and manner described in Subsection (l).
(n) A Participant is not required to comply with the
spousal consent rules if he establishes to the satisfaction of a Plan
representative either that he has no spouse or that his spouse cannot be
located, or if he is legally separated or has been abandoned (within the meaning
of local law) and has a court order to that effect.
F.3 Forfeitures from Lake Erie Design Co., Inc. Retirement
Savings Plan. To the extent that assets transferred into this Plan from the Lake
Erie Design Co., Inc. Retirement Savings Plan ("Lake Erie Plan") consist of plan
forfeitures from the Lake Erie Plan, such forfeitures will be used to offset any
required future Company matching contributions for those Participants who had
their account balances transferred into this Plan from the Lake Erie Plan.
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F.4 Vesting in Account Balances of Former Lake Erie Plan
Participants. Each Participant who formerly participated in the Lake Erie Plan
and who had his account balance in the Lake Erie Plan transferred into this Plan
shall be fully vested with respect to any amounts transferred into this Plan.
F.5 Employer Matching Provisions for Employees of Howell
Penncraft, Inc. Notwithstanding anything in the Plan to the contrary, commencing
on July 1, 1998 and continuing through December 31, 1998, on behalf of each
employee of Howell Penncraft, Inc., the Company will contribute out of its
accumulated earnings and profits, and pay (or cause to be paid) to the Trustee
and/or Insurance Company for each Participant a base amount, which shall be
referred to as a Matching Company Contribution, to be allocated to the
Participants Company Matching Account an amount as follows:
(a) an amount equal to fifteen percent (15%) of the
first six percent (6%) of the Participant's Compensation that is deferred
through Pre-Tax Salary Redirection Contributions contributed in any month during
the first through fifth years of the Participant's Service;
(b) an amount equal to twenty percent (20%) of the
first six percent (6%) of the Participant's Compensation that is deferred
through Pre-Tax Salary Redirection Contributions contributed in any month during
the sixth through 10th years of the Participant's Service; and
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(c) an amount equal to twenty-five percent (25%) of
the first six percent (6%) of the Participant's Compensation that is deferred
through Pre-Tax Salary Redirection Contributions contributed in any month during
the 11th and all subsequent years of the Participant's Service.
Effective January 1, 1999, each Employee of Howell Penncraft,
Inc. shall be credited with Company Matching Contributions as set forth in
Section 5.1.
F.6 Employer Matching Provisions for Employees of Non-Ferrous
Bolt & Mfg. Co. Notwithstanding anything in the Plan to the contrary, commencing
on April 1, 1999, on behalf of each employee of Non-Ferrous Bolt & Mfg. Co., the
Company will contribute out of its accumulated earnings and profits, and pay (or
cause to be paid) to the Trustee and/or Insurance Company for each Participant a
base amount, which shall be referred to as a Matching Company Contribution, to
be allocated to the Participants Company Matching Account an amount equal to
fifty percent (50%) of the first six percent (6%) of the Participant's
Compensation that is deferred through Pre-Tax Salary Redirection Contributions
contributed in any month.
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EMPLOYMENT AGREEMENT
This Employment Agreement is effective as of October 1, 1999
by and between SPS Technologies, Inc., a Pennsylvania corporation (the
"Company"), and John S. Thompson, an individual (the "Employee").
W I T N E S S E T H:
WHEREAS, the Company desires to employ the Employee and the
Employee desires to be so employed, on the terms and conditions herein set
forth; and
WHEREAS, contemporaneous herewith the Company and the Employee
are entering into an executive severance agreement relating to certain
severance payments in the event of a Change of Control as therein provided
(the "Executive Severance Agreement");
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements hereinafter set forth and intending to be
legally bound hereby, the parties hereto agree as follows:
Section 1. Employment. The Company hereby employs the
Employee, which employment the Employee hereby accepts, to serve, subject to the
direction, supervision and control of the Company's Chairman and Chief Executive
Officer (the "CEO") and the Board of Directors of the Company (the "Board"), as
the Company's President and Chief Operating Officer ("President and Chief
Operating Officer"). In such regard, the Employee agrees to undertake and
discharge such duties, functions and responsibilities as are from time to time
assigned to the Employee by the CEO, consistent with the terms and provisions of
this Employment Agreement.
Section 2. Term and Termination.
(a) Term. The Employee's employment by the Company
shall commence as of October 1, 1999 (the "Effective Date") and shall continue
until such employment is terminated by the Company or by the Employee or when
the Employee reaches the age of 65, retires, dies or becomes disabled, whichever
is sooner. Any such termination shall also automatically constitute the
<PAGE>
resignation by the Employee, and the termination of the Employee's status and
capacity, as an officer, employee and/or agent of the Company, and as an
officer, employee, agent and/or as a member of the Board of any of the Company's
subsidiaries or affiliates.
(b) Termination by Employee. The Employee may
terminate this Employment Agreement and the Employee's employment under this
Employment Agreement at any time by giving at least ninety (90) days' prior
written notice of such termination to the Company.
(c) Termination by Company. The Company may
terminate this Employment Agreement and the Employee's employment under this
Employment Agreement at any time for any reason or for no reason and whether or
not constituting "Cause" (as defined in Section 6(e)(i) hereof), immediately or
on such future date (not to exceed ninety (90) days from the date of notice) as
may be specified in the written notice of termination to the Employee from the
Company.
(d) Termination Upon Death, Retirement or
Disability. This Employment Agreement and the Employee's employment under this
Employment Agreement shall terminate automatically and without notice
immediately upon (i) the death of the Employee, or (ii) the retirement of the
Employee in accordance with the Company's retirement income plan, (iii) the
Employee's attaining age 65, or (iv) the disability of the Employee which
qualifies the Employee for benefits under the Company's Long Term Disability
Plan.
Section 3. Compensation.
(a) Base Salary. In consideration for all services
rendered by the Employee, hereunder or otherwise, to or for the benefit of the
Company, its subsidiaries and affiliates, the Company shall pay the Employee a
base salary at the rate per annum during the first year of employment equal to
Four Hundred Thousand Dollars ($400,000), payable in equal monthly installments.
The Employee's base salary shall be reviewed annually by the Board and may be
increased further (but not decreased) in the sole discretion of the Board.
(b) 1999 Bonus. As additional consideration for the
Employee's service hereunder, the Employee shall be eligible to participate in
the Company's Management Incentive Plan (the "MIP") for an incentive bonus
opportunity for 1999 equivalent to 25% of an annual maximum bonus opportunity
based on a maximum payment of 50% of Employee's base salary (i.e. $100,000) in
2
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accordance with the terms of the MIP. This 1999 incentive bonus opportunity
under the MIP shall have the same MIP payout ranges and objectives established
and approved by the Board for the Company's CEO.
(c) Subsequent Years' Incentive Compensation. In
plan years after 1999, the Employee shall be eligible to participate in the
Company's incentive compensation plans in accordance with the terms thereof,
including, but not limited to, the MIP and the Company's Long Range Incentive
Plan ("LRIP"). For 2000 plan year, the Employee's annual maximum bonus
opportunity for the MIP shall be based on a maximum payment of 50% of Employee's
base salary and the Employee's annual maximum bonus opportunity for the LRIP
shall be based on a maximum payment of 40% of Employee's base salary. The
Employee's objectives for the bonus opportunities for the 2000 plan year under
the MIP shall be established by the Board. The Employee's objectives for the
bonus opportunities for the 2000 plan year under the LRIP shall be based on the
current Company plan for 2000 and shall be the same objectives established by
the Board for the Company's CEO under the LRIP. Bonus opportunities and
objectives for subsequent plan years shall be established by the Board.
(d) Stock Options. The Employee shall be granted
the right and option to purchase seventy-five thousand (75,000) common shares of
the Company at the market value of such shares at the close of trading on the
Effective Date. The Employee shall also be granted the right and option to
purchase an additional twenty-five thousand (25,000) common shares of the
Company after the 2001 Annual Meeting of Shareholders of the Company.
(e) Benefit Plans. The Employee shall be eligible
during the term of his employment under this Employment Agreement to participate
in all employee benefit plans and employee fringe benefits such as health,
disability and life insurance and retirement programs (including the Company's
senior executive severance plan, retirement income plan, executive deferred
compensation plan, supplemental executive retirement plan, and benefit
equalization plan) now or hereafter made available to executive employees of the
Company generally
3
<PAGE>
(collectively, such plans and programs are herein collectively referred to as
the "Benefit Plans"), to the extent and on the same terms and conditions
(subject, however, to the terms and provisions of any such plans or programs) as
from time to time are accorded other employees serving as executive officers of
the Company, except as such Benefit Plans may be expressly modified by the terms
of this Employment Agreement. The Employee shall be entitled to not less than
four (4) weeks vacation annually.
(f) Limitation on Compensation and Benefits. Except
as specifically set forth in this Employment Agreement and the Benefit Plans and
except for such compensation, if any, which may be paid to the Employee as a
member of the Board, the Employee shall not receive or be entitled to any other
compensation, perquisites or benefits.
Section 4. Relocation. The Company shall reimburse the
Employee the reasonable costs and expenses of moving his principal residence to
the greater Philadelphia, Pennsylvania metropolitan area in accordance with its
employee relocation expense reimbursement policy.
Section 5. Board Membership. The Employee shall be nominated
by the Board for membership on the Company's Board in the year 2000. The
Employee shall not accept any other board memberships or remunerative positions,
other than with the Company and its subsidiaries, whether or not for
compensation, in the future except with the concurrence of the Board in each
instance.
Section 6. Severance Compensation.
(a) Termination Upon Change of Control. In the
event of a "Triggering Termination" of the Employee during a "Change of Control
Period" (as such terms are defined in the Executive Severance Agreement) or a
termination resulting from a breach of Section 16 of such Executive Severance
Agreement, the provisions of such Executive Severance Agreement shall govern and
the Employee shall be entitled to the rights and benefits, if any, set forth in
such Executive Severance Agreement in accordance with its terms in lieu of any
severance payments, rights or benefits under or in respect of this Employment
Agreement.
4
<PAGE>
(b) Termination by Employee, by the Company for
"Cause" or Upon Death, Disability or Retirement. Upon termination of the
Employee's employment under this Employment Agreement (i) by the Employee (other
than upon a "Constructive Termination" as defined in Section 6(e)(ii) hereof),
(ii) upon the death, disability or retirement of the Employee or the Employee's
attaining age 65, or (iii) by the Company for "Cause" (as defined in Section
6(e)(i) hereof), all rights and benefits of the Employee hereunder or in respect
hereof or in respect of his employment by the Company shall cease and terminate
without further liability or obligation on the part of the Company whatsoever,
except payment of the Employee's base salary through the effective date of
termination of employment and such sums, if any, due or to become due under any
of the Benefit Plans in which the Employee is a participant as of the effective
date of termination of employment in accordance with the terms and provisions of
such Benefit Plans (which sums, if any, shall be payable as provided by the
terms of such Benefit Plans).
(c) Termination by the Company Without Cause. Upon
termination (other than a termination of employment upon the retirement, death
or disability of the Employee or the Employee's attaining age 65) of the
Employee's employment under this Employment Agreement (A) by the Company without
Cause, or (B) by the Employee upon a Constructive Termination, (herein a
"Severance Termination"), the Company shall pay the Employee, within 30 days
after the effective date of the Severance Termination, in full and complete
settlement, satisfaction and release of all claims and rights the Employee may
have against the Company and liabilities or obligations the Company may have to
the Employee (and whether arising under, pursuant to or in respect of this
Employment Agreement, the Employee's employment by the Company or the
termination thereof, or otherwise), such payments, rights and benefits (other
than the rights provided under Section 5.1 and Article VII of the SESP) provided
under the Company's SESP, as such plan is in effect on the Effective Date, as
though the Employee were entitled to fully participate therein except that the
term "Triggering Termination" as used in the SESP shall be deemed to mean a
Constructive Termination as defined herein or a termination by the Company
without Cause.
(d) Release. In consideration of, and as a
condition to, the foregoing payments and benefits, which the Employee
acknowledges to be adequate consideration therefor in excess of the
consideration to which he otherwise would be entitled upon any such termination,
5
<PAGE>
the Employee shall provide the Company with a fully executed general release of
and from all liabilities, claims, suits, actions and other matters, in form and
substance reasonably satisfactory to the Company.
(e) Certain Definitions. As used herein, the
following terms shall have the following meanings:
(i) "Cause" shall mean misappropriation of
funds, habitual insobriety, substance abuse, conviction of a crime involving
moral turpitude, or gross negligence in the performance of the Employee's
duties, which gross negligence has had an adverse effect on the Company's
business, operations, assets or properties so as to materially adversely affect
the financial condition of the Company and its subsidiaries taken as a whole.
(ii) "Constructive Termination" shall mean a
termination of the Employee's employment under this Employment Agreement
initiated by the Employee following one or more of the following occurrences not
approved in advance by the Employee, provided notice of such occurrence is given
by the Employee to the Company in writing and the Company fails for a period of
more than twenty (20) days to cure the same:
(A) a significant reduction by the Board
of the authority, duties or responsibilities of the Employee as an employee of
the Company including a removal of the Employee as President and Chief Operating
Officer of the Company;
(B) a reduction in, or a wrongful refusal
to pay, the Employee's base salary, by the Company;
(C) a termination or modification of MIP
or LRIP or any action taken pursuant to the terms of such plans, which
materially (x) reduces the Employee's opportunity to receive compensation under
either or both of such plans of equivalent amounts previously received by the
Employee, subject to the right of the Board to establish reasonable objectives
under MIP and LRIP, (y) reduces the compensation payable to the Employee under
either or both of such plans but which does not effect comparable reductions in
the compensation payable to the other participants in such plans, or (z)
increases the compensation payable to other participants in either or both of
such plans but which does not effect corresponding increases in the amount of
compensation payable to the Employee (provided the Employee was, at the time of
such termination or modification, a participant in such plan), unless the
6
<PAGE>
Company replaces MIP or LRIP (or any successor plan thereto permitted hereby) or
the provision so modified with incentive compensation or incentive compensation
plans at least equal to or better than the MIP or LRIP or the provision thereof
as modified or revoked; or
(D) a termination or modification of the
Company's retirement income plan ("RIP"), benefit equalization plan ("BEP"),
deferred compensation plan (in the event the Employee is a participant therein),
or the supplemental executive retirement plan ("SERP"), which materially reduces
to the detriment of the Employee (x) the benefits provided by such plans, or (y)
the funding thereof provided by the RIP or by any trust established by the
Company to fund benefits provided by the BEP, the deferred compensation plan (if
applicable), or the SERP, unless the Company replaces such plan or provision
thereof as so modified or terminated with a benefit or benefits at least equal
to or better than the plan (or any successor plan thereto permitted hereby) or
provision thereof as modified or terminated.
(f) Arbitration. All claims, controversies and
disputes arising out or in respect of or concerning the breach, interpretation
or application of this Agreement, the Employee's employment hereunder or the
termination hereof or of such employment, including without being limited to any
claims that the application of this Employment Agreement or the termination of
the employment relationship established hereby violates any federal, state or
local law or regulation, shall be submitted to and resolved exclusively by final
and binding arbitration in the City of Philadelphia, Pennsylvania, before a
panel of three arbitrators pursuant to the Rules of the American Arbitration
Association, Rules for Commercial Arbitration. One such arbitrator shall be
appointed by each party and the two so appointed shall select a third, or if
they are unable to agree within fifteen (15) days of their appointment, the
third shall be appointed by the AAA. Arbitration must be demanded within thirty
(30) calendar days of the time when the demanding party knows or should have
known of the event or events giving rise to the claim. The arbitration opinion
and award shall be final and binding on the Company and the Employee and shall
be enforceable by any court. Each party shall bear their own costs and expenses,
including but not limited to attorneys' fees and expenses. The Company and the
Employee shall share equally all costs of arbitration, excepting their own
attorneys' fees and expenses. The Company and the Employee recognize that this
7
<PAGE>
Section 6(f) means that certain claims will be litigated and reviewed before an
impartial arbitrator or panel of arbitrators instead of before a court of law
and/or a jury, but desire the many benefits of the arbitration process over
court proceedings, including speed of resolution, lower costs and fees, and more
flexible rules of evidence. The arbitrator or arbitrators duly selected pursuant
to the AAA Rules shall have the same power and authority to order any remedy for
violation of a statute, regulation, or ordinance as a court would have; and
shall have the same power to order discovery as a federal district court has
under the Federal Rules of Civil Procedure. This Section is intended by the
Company and the Employee to be enforceable under the Federal Arbitration Act and
any similar state law. Any award shall bear interest at the "prime rate."
Section 7. Non-Competition. During the term of this Employment
Agreement and thereafter for a period of two (2) years, the Employee agrees that
he shall not, directly or indirectly, (i) compete with the Company, (ii) engage
in any line of business in which the Company is engaged on the date of
termination of the Employee's employment in any geographic market in which the
Company then transacts business, (iii) have any interest, whether as an officer,
director, employee, agent, consultant, owner, shareholder (owning more than one
percent (1%) of the outstanding capital stock) or otherwise, in any corporation,
entity or enterprise engaged in competition with the Company or engaged in any
line of business in which the Company is engaged on the date of termination of
the Employee's employment, or (iv) interfere in any manner with the business or
goodwill of the Company. As used in this Section 7, the term Company shall be
deemed to include the Company and all of its subsidiaries and affiliates. The
provisions of this Section 7 shall survive any termination of this Employment
Agreement.
Section 8. Agreement to Provide Services; Right To Terminate.
(a) No Right of Employment. Nothing in this
Employment Agreement shall be construed as giving the Employee any right to be
retained in the employ of the Company. The Company or the Employee may terminate
the Employee's employment at any time, subject to the Company's obligation to
provide the payments and benefits set forth in this Employment Agreement upon
such termination, if any.
(b) No Other Rights. The Employee acknowledges that
from time to time, the Company may establish, maintain and distribute employee
manuals or handbooks or personnel policy manuals, and officers or other
8
<PAGE>
representatives of the Company may make written or oral statements relating to
personnel policies and procedures. Such manuals, handbooks and statements are
intended only for general guidance. No policies, procedures or statements of any
nature by or on behalf of the Company (whether written or oral, and whether or
not contained in any employee manual or handbook or personnel policy manual),
and no acts or practices of any nature, shall be construed to modify this
Employment Agreement.
Section 9. Exclusivity of Rights. If the Employee becomes
entitled to and receives all of the payments and benefits provided for in this
Employment Agreement in the event of a termination of employment, the Employee
hereby waives the Employee's right to receive payments provided for under any
other severance agreement, plan or program; it being acknowledged, however, that
pursuant to Section 6(a) the provisions of the Executive Severance Agreement
shall govern in the event of a Triggering Termination during a Change of Control
Period or a termination resulting from a breach of Section 16 of such Executive
Severance Agreement.
Section 10. Notice. All notices and other communications
required or permitted hereunder or necessary or convenient in connection
herewith shall be in writing and shall be delivered personally or mailed by
registered or certified mail, return receipt requested, or by overnight express
courier service, as follows:
If to the Company, to:
SPS Technologies, Inc.
101 Greenwood Avenue
Suite 470
Jenkintown, Pennsylvania
Attention: Corporate Secretary
If to the Employee, to:
John S. Thompson
43 Woodcliff Road
Wellesley, Massachusetts 02481
or to such other names or addresses as the Company or the Employee, as the case
may be, shall designate by notice to the other party hereto in the manner
specified in this Section. Any such notice shall be deemed delivered and
effective when received in the case of personal delivery, five (5) days after
9
<PAGE>
deposit, postage prepaid, with the U.S. Postal Service in the case of registered
or certified mail, or on the next business day in the case of overnight express
courier service.
Section 11. Governing Law. This Employment Agreement shall be
governed by and interpreted under the laws of the Commonwealth of Pennsylvania
without giving effect to any conflict of laws provisions.
Section 12. Contents of Agreement, Amendment and Assignment.
(a) Entire Agreement. This Employment Agreement
supersedes all prior understandings and agreements and, together with the
Executive Severance Agreement and the confidentiality agreement referred to
therein, sets forth the entire understanding between the parties hereto with
respect to the subject matter hereof and cannot be changed, modified, extended
or amended except upon written amendment executed by the Employee and approved
by the Board and executed on the Company's behalf by a duly authorized officer.
(b) Binding Provisions. All of the terms and
provisions of this Employment Agreement shall be binding upon and inure to the
benefit of and be enforceable by the respective heirs, representatives,
successors and assigns of the parties hereto. This Employment Agreement, being
one for the personal services of the Employee, shall not be assignable by the
Employee.
Section 13. Severability. If any provision of this Employment
Agreement or application thereof to anyone or under any circumstances shall be
determined by a court of competent jurisdiction to be invalid or unenforceable,
such invalidity or unenforceability shall not affect any other provisions or
applications of this Employment Agreement which can be given effect without the
invalid or unenforceable provision or application, and it is the desire and
intent of the parties that the court modify any such provision so determined to
be invalid or unenforceable so as to make such provision valid and enforceable
in accordance with applicable law.
Section 14. Remedies Cumulative; No Waiver. No right conferred
by this Employment Agreement is intended to be exclusive of any other right or
remedy, and each and every such right or remedy shall be cumulative and shall be
in addition to any other right or remedy given hereunder or now or hereafter
10
<PAGE>
existing at law or in equity. No delay or omission by either party in exercising
any right, remedy or power hereunder or existing at law or in equity shall be
construed as a waiver thereof. In addition to any other remedies to which it may
be entitled, in the event of a breach or threatened breach of Section 7 hereof,
the parties agree that the Company would suffer irreparable harm and that money
damages would be inadequate. Accordingly, the Company shall be entitled to
injunctive and other equitable relief.
Section 15. Miscellaneous. All Section headings are for
convenience only. This Employment Agreement may be executed in several
counterparts, each of which is an original. It shall not be necessary in making
proof of this Employment Agreement or any counterpart hereof to produce or
account for any of the other counterparts.
IN WITNESS WHEREOF, the undersigned, intending to be legally
bound, have executed this Employment Agreement as of the date first above
written.
Attest: SPS TECHNOLOGIES, INC.
_________________________ By:_______________________
Secretary
EMPLOYEE:
_________________________ __________________________
Witness John S. Thompson
11
<PAGE>
ANNUAL REPORT 1999
Statements of Consolidated Operations
(Thousands of dollars, except share data)
Years ended December 31
1999 1998 1997
--------------------------------
Net sales ................................. $787,661 $716,605 $588,616
Cost of goods sold ........................ 615,952 553,770 460,159
--------------------------------
Gross Profit ........................... 171,709 162,835 128,457
Selling, general and administrative expense 80,874 83,501 70,379
--------------------------------
Operating Earnings ..................... 90,835 79,334 58,078
Other income (expense):
Interest income ........................ 915 947 1,002
Interest expense ....................... (14,508) (10,860) (8,998)
Equity in earnings (loss) of affiliates (2,032) (2,442) 230
Minority interest ...................... (96) (523) (224)
Other, net ............................. (294) 114 (788)
--------------------------------
(16,015) (12,764) (8,778)
--------------------------------
Earnings Before Income Taxes ........... 74,820 66,570 49,300
Provision for income taxes ................ 23,600 22,000 16,800
--------------------------------
Net Earnings ........................... $ 51,220 $ 44,570 $ 32,500
================================
Earnings Per Common Share:
Basic ................................ $ 4.05 $ 3.55 $ 2.68
================================
Diluted .............................. $ 3.95 $ 3.42 $ 2.54
================================
See accompanying notes to consolidated financial statements.
13
<PAGE>
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES / FINANCIAL STATEMENTS
Consolidated Balance Sheets
(Thousands of dollars, except share data)
<TABLE>
<CAPTION>
December 31
1999 1998
--------------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents ........................................ $ 50,479 $8,414
Accounts and notes receivable, net ............................... 118,287 109,300
Inventories ...................................................... 138,121 127,366
Deferred income taxes ............................................ 19,291 20,494
Prepaid expenses and other ....................................... 6,971 6,366
--------------------
Total Current Assets ........................................... 333,149 271,940
--------------------
Investments in affiliates ........................................... - 2,033
Property, plant and equipment, net .................................. 221,147 207,800
Other assets, principally goodwill .................................. 146,668 125,462
--------------------
Total Assets ................................................... $700,964 $607,235
====================
Liabilities and Shareholders' Equity
Current Liabilities
Notes payable and current portion of long-term debt .............. $ 15,553 $ 18,185
Accounts payable ................................................. 63,698 51,777
Accrued expenses ................................................. 56,354 62,062
Income taxes payable ............................................. 7,165 5,889
--------------------
Total Current Liabilities ...................................... 142,770 137,913
--------------------
Deferred income taxes ............................................... 26,098 21,176
Long-term debt ...................................................... 201,895 154,010
Retirement obligations and other long-term liabilities .............. 24,731 25,605
Minority interest ................................................... 431 1,731
Shareholders' Equity
Preferred stock, par value $1 per share, authorized 400,000
shares, issued none
Common stock, par value $.50 per share, authorized
60,000,000 shares, issued 13,986,882
shares in 1999 and 13,812,138 shares in 1998 ................... 6,993 6,906
Additional paid-in capital ....................................... 110,261 106,093
Common stock in treasury, at cost, 1,366,407 shares in 1999 ......
and 1,119,008 shares in 1998 ................................... (22,285) (12,943)
Retained earnings ................................................ 229,181 177,961
Accumulated other comprehensive income:
Minimum pension liability ...................................... (732) (2,025)
Cumulative translation adjustments ............................. (18,379) (9,192)
--------------------
Total Shareholders' Equity ................................... 305,039 266,800
--------------------
Total Liabilities and Shareholders' Equity ................. $700,964 $607,235
====================
</TABLE>
See accompanying notes to consolidated financial statements.
14
<PAGE>
ANNUAL REPORT 1999
Statements of Consolidated Cash Flows
(Thousands of dollars)
<TABLE>
<CAPTION>
Years ended December 31
1999 1998 1997
----------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net earnings ................................................. $ 51,220 $ 44,570 $ 32,500
Reconciliation of net earnings to net cash provided by
operating activities:
Depreciation and amortization ........................... 33,615 29,329 23,083
Equity in loss (earnings) of affiliates ................. 2,032 2,442 (230)
Net loss (gain) on sale of property, plant
and equipment ......................................... (3,907) 157 453
Deferred income taxes ................................... 5,503 3,674 7,197
Other operating items ................................... (1,136) (371) (552)
Changes in assets and liabilities, net of acquisitions
of businesses:
Receivables ............................................. (3,056) (6,283) (6,533)
Inventories ............................................. (5,075) (654) 1,796
Prepaid expenses and other .............................. (920) (1,371) (281)
Accounts payable ........................................ 2,015 (5,696) 6,314
Accrued expenses ........................................ (5,657) 308 3,045
Income taxes payable .................................... 2,671 3,141 3,861
Other assets and liabilities, net ....................... (3,903) 915 (450)
----------------------------------
Net cash provided by operating activities ................. 73,402 70,161 70,203
----------------------------------
Cash Flows from Investing Activities
Additions to property, plant and equipment ................... (38,161) (32,084) (37,510)
Proceeds from sale of property, plant and equipment .......... 8,759 408 1,520
Acquisitions of businesses ................................... (29,741) (58,684) (47,191)
Proceeds from sale of other assets ........................... 2,501 - -
----------------------------------
Net cash used in investing activities ..................... (56,642) (90,360) (83,181)
----------------------------------
Cash Flows from Financing Activities
Proceeds from borrowings ..................................... $ 133,022 $ 65,239 $ 30,182
Reduction of borrowings ...................................... (101,418) (53,277) (32,862)
Proceeds from exercise of stock options ...................... 1,158 1,597 2,666
Purchases of treasury stock .................................. (6,952) (3,579) (1,136)
----------------------------------
Net cash provided by (used in) financing activities ....... 25,810 9,980 (1,150)
----------------------------------
Effect of exchange rate changes on cash ...................... (505) (26) (523)
Net increase (decrease) in cash and cash equivalents ...... 42,065 (10,245) (14,651)
Cash and cash equivalents at beginning of year ............ 8,414 18,659 33,310
----------------------------------
Cash and cash equivalents at end of year .................. $ 50,479 $ 8,414 $ 18,659
==================================
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE>
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES / FINANCIAL STATEMENTS
Statements of Consolidated Shareholders' Equity
(Thousands of dollars, except share data)
<TABLE>
<CAPTION>
Accumulated Other
Comprehensive Income
--------------------
Additional Minimum Cumulative Total
Common Paid-In Treasury Retained Pension Translation Comprehensive
Stock Capital Stock Earnings Liability Adjustments Income
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 .............. $6,646 $ 82,561 $ (7,920) $100,891 $(2,257) $ (2,325)
Issuance of 284,346 shares
of common stock under
stock option plans ................... 142 6,095
Acquisitions of 47,424 shares
of treasury stock .................... (1,910)
Issuance of 133,420 shares
of treasury stock for
businesses acquired .................. 3,941 974
Net earnings ............................ 32,500 $32,500
Other comprehensive income .............. (35) (4,513) (4,548)
-----------------------------------------------------------------------------------
Balance, December 31, 1997 .............. 6,788 92,597 (8,856) 133,391 (2,292) (6,838) $27,952
=======
Issuance of 235,292 shares
of common stock under
stock option plans ................... 118 6,487
Acquisitions of 118,177 shares
of treasury stock .................... (5,873)
Issuance of 203,935 shares
of treasury stock for
businesses acquired .................. 7,009 1,786
Net earnings ............................ 44,570 $44,570
Other comprehensive income .............. 267 (2,354) (2,087)
-----------------------------------------------------------------------------------
Balance, December 31, 1998 .............. 6,906 106,093 (12,943) 177,961 (2,025) (9,192) $42,483
=======
Issuance of 174,744 shares
of common stock under
stock option plans ................... 87 4,168
Acquisitions of 247,399 shares
of treasury stock .................... (9,342)
Net earnings ............................ 51,220 $51,220
Other comprehensive income .............. 1,293 (9,187) (7,894)
-----------------------------------------------------------------------------------
Balance, December 31, 1999 .............. $6,993 $110,261 $(22,285) $229,181 $ (732) $(18,379) $43,326
====================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
ANNUAL REPORT 1999
Notes to Consolidated Financial Statements
(Thousands of dollars, except share data)
1. SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of the Company and
all its subsidiaries. Investments in affiliates are accounted for on the equity
method, either due to ownership interest of 20 percent or more but less than 50
percent or due to the Company's inability to exercise effective control. Certain
prior year amounts have been reclassified for comparative purposes.
Cash Equivalents
The Company considers cash equivalents to be all highly liquid investments
purchased with original maturities of three months or less. The carrying amount
approximates fair value because of the short maturity of these items.
Inventories
Inventories are valued at lower of cost or market. Inventories are stated at
average cost and include material, labor and manufacturing overhead costs.
Factors considered in determining lower of cost or market are current customer
requirements, quantity on hand, age of inventory and months supply of inventory.
Property and Depreciation
Property, plant and equipment are stated at cost. Depreciation is provided
substantially on a straight-line basis over the estimated useful lives of the
respective assets generally as follows: buildings, 8 to 50 years, and machinery
and equipment, 3 to 20 years. Asset and accumulated depreciation accounts are
reduced for the sale or other disposition of property and the resulting gain or
loss is included in results of operations. Fully depreciated items, other than
buildings, generally are removed from the accounts.
Long-Lived Assets
The carrying value of long-lived assets, including intangible assets, is
reviewed when facts and circumstances suggest that they may be impaired. If this
review indicates that the carrying value of the asset will not be recoverable
based on the expected future undiscounted net cash flows of the related asset,
the asset's carrying value is reduced and an impairment loss is recognized.
Intangible assets, included in other assets, were approximately $125,300 and
$105,200 at December 31, 1999 and 1998, respectively. Intangible assets consist
primarily of goodwill which arose from the excess of the cost of purchased
businesses over the value of the underlying net assets and is being amortized by
the straight-line method over periods not exceeding 40 years. Accumulated
amortization at December 31, 1999 and 1998, was $11,400 and $6,400,
respectively. Amortization of intangible assets was $5,002, $2,939 and $2,273 in
1999, 1998 and 1997, respectively.
Revenue Recognition
Revenue is recognized when title of goods is transferred to the customer.
Generally, title of goods is transferred upon shipment of goods.
Retirement Plans
Substantially all employees are covered by pension plans. Defined benefit plans
in the United States are noncontributory and non-United States plans are
primarily contributory. For United States plans, the Company funds the minimum
amount permitted by the Employee Retirement Income Security Act (ERISA) and for
non-United States plans, the Company generally funds current costs.
Foreign Currency Translation
The functional currency of the Company's non-United States subsidiaries is the
local currency. The financial statements of these subsidiaries are
17
<PAGE>
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES / FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (continued)
(Thousands of dollars, except share data)
translated into United States dollars using current rates of exchange, with
gains or losses included in the cumulative translation adjustment account in the
shareholders' equity section of the consolidated balance sheets. Gains and
losses on currency transactions (denominated in currencies other than local
currency), are reflected in the statements of consolidated operations.
Forward Exchange Contracts
The Company enters into forward exchange contracts primarily as hedges relating
to identifiable currency positions. These financial instruments are designed to
minimize exposure and reduce risk from exchange rate fluctuations in the regular
course of business. Gains and losses on forward exchange contracts which hedge
exposures on firm foreign currency commitments are deferred and recognized as
adjustments to the bases of those assets. Gains and losses on forward exchange
contracts which hedge foreign currency assets or liabilities are recognized in
income as incurred. Such amounts effectively offset gains and losses on the
foreign currency assets or liabilities that are hedged. The cash flow from such
contracts is classified in the same category as the transaction hedged in the
statements of consolidated cash flows.
Interest Rate and Currency Swap Agreements
The Company is using an interest rate swap agreement and a currency swap
agreement for purposes other than trading that are treated as off-balance sheet
items. The interest rate swap agreement is used by the Company to modify a
portion of its variable rate obligations to fixed rate obligations, thereby
reducing the exposure to market rate fluctuations. This agreement involves the
exchange of amounts based on fixed interest rates for amounts based on variable
interest rates over the life of the agreement without an exchange of the
notional amount upon which payments are based. The differential to be paid or
received is charged to expense as interest rates change. The currency swap
agreement is used to manage exposure related to an intercompany debt denominated
in one currency that will be repaid in another currency. The currency swap
agreement is designated as a hedge of the firm commitment to pay interest and
principal on debt, which would otherwise expose the company to foreign currency
risk.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to a concentration
of credit risk principally consist of cash, cash equivalents and trade
receivables. The Company sells its principal products to a large number of
customers in different industries and geographies. To reduce credit risk, the
Company performs ongoing credit evaluations of its customers' financial
condition but does not generally require collateral. The Company invests
available cash in money market securities of various banks with high credit
ratings.
18
<PAGE>
ANNUAL REPORT 1999
Notes to Consolidated Financial Statements (continued)
(Thousands of dollars, except share data)
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on the use of the derivative and whether it
qualifies for hedge accounting treatment. This statement is effective for all
interim period financial statements for fiscal years beginning after June 15,
2000. The Company will adopt SFAS No. 133 in the first quarter of 2001. The
Company anticipates that, due to its limited use of derivative instruments, the
adoption of SFAS No. 133 will not have a material effect on the Company's
results of operations or its financial position.
2. BUSINESS ACQUISITIONS
All acquisitions have been accounted for under the purchase method. The results
of operations of the acquired businesses are included in the consolidated
financial statements from the dates of acquisition.
On June 30, 1999 the Company acquired all of the outstanding shares of National
Set Screw Corporation, doing business as NSS Technologies, Inc. (NSS), based in
Plymouth, Michigan for approximately $43,700. NSS manufactures highly
specialized, cold-formed steel components for the automotive, heavy truck,
mining/road construction and waterworks industries. The excess of the purchase
price over the fair values of the net assets acquired was approximately $25,000
and has been recorded as goodwill, which is being amortized on a straight-line
basis over 40 years.
On October 28, 1998 the Company acquired all of the outstanding shares of
Chevron Aerospace Group Limited (Chevron) based in Wilford, Nottingham, England
for approximately $54,900. Chevron is a manufacturer of aircraft structural
assemblies, precision machined components, avionic panels, wiring harnesses and
turbine lockplates. The excess of the purchase price over the fair values of the
net assets acquired was approximately $34,700 and has been recorded as goodwill,
which is being amortized on a straight-line basis over 40 years.
On July 31, 1998, the Company acquired all of the outstanding shares of Nevada
Bolt & Mfg. Co. doing business as Non-Ferrous Bolt & Mfg. Co. (Non-Ferrous), a
manufacturer of non-standard, hot-forged bolts and nuts from stainless steel and
specialty alloy materials, located in Las Vegas, Nevada for $10,800.
Approximately $7,700 was paid with 177,954 shares of common stock from treasury
and the remainder in debt assumed by the Company. In 1998, 203,935 shares of
common stock from treasury were initially issued related to the purchase of
Non-Ferrous; however, in 1999, 25,981 shares were refunded to the Company due to
a net asset adjustment pursuant to the acquisition agreement. The excess of the
purchase price over the fair values of the net assets acquired was approximately
$5,800 and has been recorded as goodwill, which is being amortized on a
straight-line basis over 40 years.
On June 30, 1998, the Company acquired the operating assets of Howell Penncraft,
Inc. (Penncraft), a manufacturer of high-speed tool steel and carbide products
used in metal forming, located in Howell, Michigan, for $3,500. The purchase
price approximated the fair value of the net assets acquired.
19
<PAGE>
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES / FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (continued)
(Thousands of dollars, except share data)
On June 30, 1998, the Company acquired all of the outstanding shares of Terry
Machine Company (Terry), a manufacturer of specialty cold headed fasteners for
the automotive industry, located in Waterford, Michigan, for $22,100. The excess
of the purchase price over the fair values of the net assets acquired was
approximately $8,500 and has been recorded as goodwill, which is being amortized
on a straight-line basis over 40 years.
On March 23, 1998, the Company acquired all of the outstanding shares of
Greenville Metals, Inc. (Greenville), a manufacturer of specialty metals and
alloys, located in Transfer, Pennsylvania, for $15,900. The excess of the
purchase price over the fair values of the net assets acquired was approximately
$7,800 and has been recorded as goodwill, which is being amortized on a
straight-line basis over 40 years.
The following unaudited pro forma consolidated results of operations are
presented as if the acquisitions noted above had been made at the beginning of
the periods presented.
Years Ended
December 31
1999 1998
--------------------
Net sales .......................................... $817,444 $842,618
Net earnings ....................................... 51,561 39,667
Basic earnings per
common share .................................... 4.07 3.12
Diluted earnings per
common share .................................... 3.98 2.99
The pro forma consolidated results of operations include adjustments to give
effect to amortization of goodwill, interest expense on acquisition debt, shares
of common stock issued and the related income tax effects. The unaudited pro
forma information is not necessarily indicative of the results of operations
that would have occurred had the purchase been made at the beginning of the
periods presented or the future results of the combined operations.
3. ACCOUNTS AND NOTES RECEIVABLE
1999 1998
--------------------
Trade .............................................. $119,246 $108,510
Notes and other .................................... 2,404 3,750
--------------------
121,650 112,260
Less allowance for
doubtful receivables ............................ 3,363 2,960
--------------------
$118,287 $109,300
====================
4. INVENTORIES
1999 1998
--------------------
Finished goods ..................................... $ 57,292 $ 53,748
Work-in-process .................................... 41,853 39,192
Raw materials and
supplies ........................................ 33,454 28,412
Tools .............................................. 5,522 6,014
--------------------
$138,121 $127,366
====================
5. INVESTMENTS IN AFFILIATES
At December 31, 1999, the Company's investments in affiliates consist of 22.05
percent interest in Precision Fasteners Limited (PFL), Bombay, India, and a 55
percent interest in Shanghai SPS Biao Wu Fasteners Co. Ltd. (SSBW), Shanghai,
China. SSBW is accounted for as an affiliate under the equity method because the
Company is not able to exercise effective control over the operations.
The Company received $99 of dividends from affiliates in 1997. No dividends were
received in 1999 and 1998. Retained earnings in 1999, 1998 and 1997 included
undistributed earnings (loss) of affiliates, net of deferred taxes, of $(657),
$1,081, and $3,161 respectively.
20
<PAGE>
ANNUAL REPORT 1999
Notes to Consolidated Financial Statements (continued)
(Thousands of dollars, except share data)
6. PROPERTY, PLANT AND EQUIPMENT
1999 1998
--------------------
Land ............................................... $ 7,708 $ 8,231
Buildings .......................................... 72,975 75,182
Machinery and
equipment ....................................... 270,353 260,950
Construction in
progress ........................................ 22,976 14,094
--------------------
374,012 358,457
Less accumulated
depreciation .................................... 152,865 150,657
--------------------
$221,147 $207,800
====================
Depreciation expense was $28,613, $26,390 and $20,810 in 1999, 1998 and 1997,
respectively.
7. NOTES PAYABLE
1999 1998
--------------------
Short-term bank
borrowings and
notes payable ................................... $ 8,538 $ 6,237
Current portion of
long-term debt .................................. 7,015 11,948
--------------------
$ 15,553 $ 18,185
====================
The Company's weighted-average interest rate for short-term bank borrowings and
notes payable was 6.07% and 6.30% as of December 31, 1999 and 1998,
respectively. Short-term lines of credit are made available to the Company by
commercial banks under customary arrangements which require the maintenance of a
satisfactory financial condition by the Company. These lines may be withdrawn at
the discretion of the banks. Unused short-term lines of credit were $25,054 as
of December 31, 1999. The Company also has unused long-term credit facilities as
discussed in Note 8.
<PAGE>
8. LONG-TERM DEBT
1999 1998
--------------------
1996 Note Purchase
Agreement, fixed
interest rates of
7.70% to 7.88% .................................. $ 85,000 $ 85,000
1999 Note Purchase
Agreement, fixed
interest rates of
7.75% to 7.85% .................................. 80,000 -
Bank Credit Agreement,
variable interest
rate, 5.77% at
December 31, 1998 ............................... - 23,327
Guaranteed "A" and "B"
Unsecured Loan Notes,
fixed interest rate
of 4.0% ......................................... 14,536 22,236
Industrial Development
Revenue Bond Series
1987, variable interest
rate, 5.65% and 4.2%
at December 31, 1999
and 1998 ........................................ 5,300 5,300
Promissory Notes, fixed
interest rate of 7.0% ........................... 3,769 4,924
Note Payable, fixed
interest rate
of 8.38% ........................................ 3,437 3,996
Deferred payments,
fixed interest rate
of 6.0% ......................................... 2,855 3,471
Loan Agreement,
variable interest
rate, 8.65% at
December 31, 1998 ............................... - 2,662
Other .............................................. 14,013 15,042
--------------------
208,910 165,958
Less current installments
(included in notes
payable) ........................................ 7,015 11,948
--------------------
$201,895 $154,010
====================
21
<PAGE>
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES / FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (continued)
(Thousands of dollars, except share data)
Installments due during the next five years are as follows: $7,015, $24,479,
$10,552, $7,624 and $11,340 in 2000 through 2004, respectively.
In 1996, the Company entered into a long-term Note Purchase Agreement with three
insurance companies for $85,000 at fixed interest rates of 7.70 percent to 7.88
percent due in annual installments from July 1, 2001 to July 1, 2011.
In 1999, the Company entered into a long-term Note Purchase Agreement with five
insurance companies for $80,000 at fixed interest rates of 7.75 percent to 7.85
percent. Of the total proceeds, $50,000 is due in annual installments from
August 1, 2004 to August 1, 2014 and $30,000 is due on August 1, 2009.
Under the Bank Credit Agreement, the Company may borrow up to $55,000 in either
United States Dollars or certain currencies in Europe. Borrowings bear interest
at either a) an overnight base rate equal to the higher of the prime rate of the
agent bank or the federal funds rate plus .5 percentage points, b) a rate in the
European currency equal to the effective interbank rate plus a margin ranging
from .225 to .45 percentage points based on the consolidated Leverage Ratio, as
defined, or c) at a rate and term negotiated between each bank and the Company,
as applicable. During 1999 and 1998, the average interest rate on borrowings
outstanding was 5.83 percent and 5.57 percent, respectively. There were no
borrowings outstanding under the Bank Credit Agreement at December 31, 1999.
This agreement expires June 30, 2002. The Company is required to pay a fee on
the borrowed and unborrowed amounts of the facility ranging from .1 to .175
percentage points based on the consolidated Leverage Ratio.
In connection with the acquisition of Chevron Aerospace Group Limited (as
described in Note 2), the Company issued Guaranteed "A" and "B" Unsecured Loan
Notes. These notes bear interest at a fixed rate of 4.0 percent and are due on
October 31, 2001. Under this agreement, noteholders may present these notes for
redemption at par value, with not less than 30 days prior written notice on each
of April 30, 2000 and April 30, 2001. The Company may elect to redeem any
outstanding notes, with 30 days prior written notice, at anytime after April 30,
2001.
The Series 1987 Bonds were issued to finance the acquisition and improvement of
a fastener manufacturing facility in Utah and are due in 2012. The Bonds are
collateralized by a first mortgage on the facility and a bank letter of credit.
In 1999 and 1998, the average interest rate was 3.5 percent and 3.7 percent,
respectively.
In connection with the acquisition of Greenville Metals, Inc. (as described in
Note 2), the former stockholders accepted promissory notes for a portion of the
purchase price aggregating approximately $5,800. The notes bear interest at a
fixed rate of 7.0% and are payable in quarterly installments of $290 plus
interest until March 31, 2003.
As part of the acquisition of Terry Machine Company (Terry) (as described in
Note 2), the Company assumed a note payable to a commercial bank in the amount
of approximately $4,300. This note bears interest at a fixed rate of 8.375% and
is payable in monthly installments of $73 (including interest) until September,
2002. A final installment of $1,700 is due on September 11, 2002. In addition,
the former stockholders of Terry agreed to accept deferred payments for a
portion of the purchase price aggregating $4,000. The Company
22
<PAGE>
ANNUAL REPORT 1999
Notes to Consolidated Financial Statements (continued)
(Thousands of dollars, except share data)
has discounted this liability using a 6.0% rate. These amounts are payable in
annual installments of $800 until June 30, 2003.
As part of the 1996 acquisition of Swift Levick Magnets Ltd., the Company
entered into a loan agreement with the seller ($2,662 at December 31, 1998). The
loan was collateralized by a bank letter of credit and bore interest at LIBOR
plus 0.75 percent. The balance of the loan was repaid on June 30, 1999. In 1999
and 1998, the average interest rate was 6.8 percent and 8.6 percent,
respectively.
Other debt includes capital leases and other financing collateralized by fixed
assets, along with local borrowings to finance working capital and operating
requirements.
The Company is subject to a number of restrictive covenants under these various
debt agreements. Covenants associated with the Note Purchase Agreements are
generally more restrictive than those of the Bank Credit Agreement. Effective
August 4, 1999, the Company amended the 1996 long-term Note Purchase Agreement
to include the same restrictive covenants as the 1999 long-term Note Purchase
Agreement. The following significant covenants are currently in place under the
Note Purchase Agreements: maintenance of a consolidated debt-to-total
capitalization (shareholders' equity plus total debt) ratio of not more than 55
percent and maintenance of a consolidated net worth of at least $200,000 plus 50
percent of adjustable consolidated net income for quarters ended after December
31, 1998. Under these covenants, restricted payments, which include all
dividends and purchases or retirements of capital stock, paid by the Company may
not exceed $40,000 plus 50 percent of consolidated net income (or minus 100
percent of the consolidated net loss) from January 1, 1999 to the date of the
restricted payment. Certain of the Company's debt agreements contain cross
default and cross acceleration provisions. At December 31, 1999, the Company was
in compliance with all covenants. As of December 31, 1999, under the terms of
the existing credit agreements, the Company is permitted to incur an additional
$155,000 in debt.
9. ACCRUED EXPENSES
1999 1998
-------------------
Employee compensation
and related benefits ............................ $29,390 $35,684
Interest ........................................... 6,044 4,309
Environmental ...................................... 4,800 5,500
Other .............................................. 16,120 16,569
-------------------
$56,354 $62,062
===================
10. COMMITMENTS AND CONTINGENCIES
Leases
Certain of the Company's operations are conducted from leased facilities, all of
which are under operating leases which expire over the next 11 years. The
Company also has operating leases covering certain machinery and equipment.
Substantially all leases provide for the Company to pay operating expenses.
Rental expense incurred was $8,077, $5,230 and $4,504 in 1999, 1998 and 1997,
respectively.
At December 31, 1999, the future minimum annual rentals on non-cancelable leases
which have initial or remaining terms of more than one year aggregated $43,906.
The minimum payments over the next five years are as follows: $7,786, $6,979,
$6,405, $4,498 and $4,254 in 2000 through 2004, respectively.
23
<PAGE>
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES / FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (continued)
(Thousands of dollars, except share data)
Environmental
The Company has been identified as a potentially responsible party by various
federal and state authorities for clean up or removal of waste from various
disposal sites. At December 31, 1999, the Company had an accrued liability of
$4,800 for environmental remediation which represents management's best estimate
of the undiscounted costs related to environmental remediation which are
considered probable and can be reasonably estimated. The Company has not
included any insurance recovery in the accrued environmental liability. The
measurement of the liability is evaluated quarterly based on currently available
information. Management believes the overall costs of environmental remediation
will be incurred over an extended period of time. As the scope of the Company's
environmental liability becomes more clearly defined, it is possible that
additional reserves may be necessary. Accordingly, it is possible that the
Company's results of operations in future quarterly or annual periods could be
materially affected. Management does not anticipate that its consolidated
financial condition will be materially affected by environmental remediation
costs in excess of amounts accrued.
The Company has established procedures for identifying environmental issues at
its manufacturing facilities. Environmental and safety coordinators, a
designated position at most of the operating facilities, are familiar with
environmental laws and regulations and serve as resources for the identification
and resolution of environmental issues. The Company also has an environmental
audit program, which is used to identify and resolve potential environmental
issues at the operating facilities. Through these programs, the Company monitors
applicable regulatory developments and manages environmental issues.
Litigation
The Company is involved in various legal matters incidental to its business.
Although the final outcome of these matters cannot be determined, it is
management's opinion that the final resolution of these matters will not have a
materially adverse effect on the Company's consolidated financial position or
results of operations.
11. INCOME TAXES
The components of the provision for income taxes were as follows:
1999 1998 1997
--------------------------------
Currently payable:
United States
Federal .................... $12,461 $13,203 $ 7,592
State and local ............ 1,938 1,947 940
Non-United States ........... 3,698 3,176 1,071
--------------------------------
18,097 18,326 9,603
--------------------------------
Deferred:
United States
Federal .................... 5,249 4,646 4,774
State and local ............ 504 313 196
Non-United States ........... (250) (1,285) 2,227
--------------------------------
5,503 3,674 7,197
--------------------------------
$23,600 $22,000 $16,800
================================
The tax expense that results from allocating certain tax benefits to reduce
goodwill of an acquired entity was $255 in 1999 and $407 in 1997. The income tax
benefits of the employee stock option compensation expense for tax purposes in
excess of amounts recognized for financial reporting purposes credited to
additional paid-in capital was $1,358 in 1999, $2,340 in 1998 and $2,356 in
1997.
24
<PAGE>
ANNUAL REPORT 1999
Notes to Consolidated Financial Statements (continued)
(Thousands of dollars, except share data)
The components of earnings before income taxes were as follows:
1999 1998 1997
--------------------------------
United States ...................... $55,766 $58,652 $41,783
Non-United States .................. 19,054 7,918 7,517
--------------------------------
$74,820 $66,570 $49,300
================================
Temporary differences comprising the net deferred income tax asset (liability)
on the consolidated balance sheets were as follows:
1999 1998
-------------------
Inventory ........................................... $ 8,546 $ 9,063
Post-retirement benefits
other than pensions .............................. 4,127 4,321
Other employee benefits
and compensation ................................. 7,052 7,570
Advance corporate tax ............................... - 913
Accrued expenses .................................... 1,259 3,311
Net operating loss
carry forwards ................................... 5,824 7,432
Capital loss carry
forwards ......................................... 3,739 3,739
Valuation allowances ................................ (8,876) (11,782)
-------------------
Deferred income
tax asset ........................................ 21,671 24,567
-------------------
Depreciation ........................................ (21,267) (17,325)
Pension benefits .................................... (4,783) (4,526)
Other, net .......................................... (2,428) (3,398)
-------------------
Deferred income tax
liability ........................................ (28,478) (25,249)
-------------------
Net deferred income
tax asset (liability) ............................ $(6,807) $ (682)
===================
Realization of the deferred tax asset is dependent on generating sufficient
taxable income prior to expiration of any net operating loss (NOL)
carryforwards. Although realization is not assured, management believes it is
more likely than not that the recorded deferred tax asset, net of valuation
allowance provided, will be realized. At December 31, 1999, the Company had the
following NOL carryforwards available in the indicated geographic areas with the
following expiration dates:
Brazil $12,500 No expiration date
England 4,100 No expiration date
Australia 1,100 No expiration date
United States 300 Begin to expire in 2010
The NOL carryforwards available in England and the United States relate to
operating losses of businesses acquired in 1998 and 1997. These losses must be
used to offset future taxable income of the acquired businesses and are not
available to offset taxable income of other subsidiaries located in these
countries. The Company also has capital loss carryforwards of $12,460 available
in England with no expiration dates. These capital losses must be used to offset
future capital gains and are not available to offset taxable operating income.
The valuation allowance at December 31, 1999 and 1998 relate to certain state
and non-United States tax jurisdictions. The net reduction in the valuation
allowance for 1999 was $2,906. The Company released $2,428 of the valuation
allowance related to the capital loss carryforward in England due to a change in
circumstances that caused a change in judgement about the realizability of the
related deferred tax asset in future years. The United States dollar value of
the valuation allowance recorded by the Company's Brazilian subsidiary was
reduced by $1,202 due to the 1999 currency devaluation of the Brazilian Reis and
increased by $979 for additional NOLs generated by this subsidiary. Included in
the valuation allowance at December 31, 1998 was $255 for a deferred tax asset
for which the subsequently recognized tax benefit was allocated to reduce
goodwill of an acquired entity.
The following sets forth the differences between the provision for income taxes
computed at the United States federal statutory income tax rate of 35 percent
and that reported for financial statement purposes:
25
<PAGE>
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES / FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (continued)
(Thousands of dollars, except share data)
1999 1998 1997
---------------------------------
Provision computed
at the United States
federal statutory
income tax rate .............. $26,187 $23,300 $17,255
Earnings of certain
subsidiaries taxed
at different rates ........... (3,526) (2,213) (1,504)
Benefit of cash
repatriation from
non-United States
subsidiaries ................. - (494) -
Permanent items ................. 1,192 (227) 345
State income tax, net
of federal benefit ........... 1,588 1,374 583
Non-US net operating
losses with no
benefit provided ............. 979 1,386 289
Change in valuation
allowance .................... (2,428) (634) (139)
Other, net ...................... (392) (492) (29)
---------------------------------
Provision for income
taxes ........................ $23,600 $22,000 $16,800
================================
United States income taxes have not been provided on unremitted earnings of
certain subsidiaries located outside the continental United States of
approximately $50,400 because, in management's opinion, such earnings have been
indefinitely reinvested in these operations, will be remitted in a tax-free
liquidation, or will be remitted as dividends with taxes substantially offset by
foreign tax credits. It is not practical to determine the amount of unrecognized
deferred tax liabilities for temporary differences related to investments in
these non-United States subsidiaries.
12. RETIREMENT PLANS AND OTHER BENEFITS
The Company sponsors a defined contribution plan. Prior to 1999, the Company
sponsored two plans, however, the plans were merged on January 1, 1999.
Participation in the plan is available to substantially all United States
salaried and hourly employees. Participants may make voluntary pre-tax or
after-tax contributions to the plan up to 16 percent of their compensation (as
defined). The Company contributes a percentage of employee contributions to the
plan based upon the number of years of employee service. The Company's
contribution expense for the plans was $1,148 in 1999, $907 in 1998 and $629 in
1997.
The Company sponsors a number of defined benefit pension plans covering
substantially all employees and a defined benefit plan covering non-employee
directors. The benefits of such plans are based primarily on years of service
and compensation. Plan assets consist principally of common stocks, pooled
equity funds, corporate bonds and United States Government obligations. At
December 31, 1999 and 1998, the plans' assets included 418,264 shares of the
Company's common stock with fair values of $13,359 and $23,684, respectively.
There were no dividends received from Company stock for the years ended December
31, 1999 and 1998.
The following provides a reconciliation of benefit obligations, plan assets and
funded status of these plans at December 31, 1999 and 1998:
26
<PAGE>
ANNUAL REPORT 1999
Notes to Consolidated Financial Statements (continued)
(Thousands of dollars, except share data)
1999 1998
--------------------
Change in benefit obligation:
Benefit obligation at
January 1 ............................... $175,652 $157,529
Service cost ............................. 7,774 7,393
Interest cost ............................ 10,548 10,886
Plan participants'
contributions ........................... 949 951
Amendments ............................... 748 3,381
Actuarial loss (gain) .................... (11,395) 8,178
Acquisitions ............................. 0 810
Foreign currency exchange
rate changes ............................ (3,178) (266)
Benefit payments ......................... (12,390) (13,210)
--------------------
Benefit obligation at
December 31 ............................ $168,708 $175,652
====================
Change in plan assets:
Fair value of plan assets
at January 1 ............................ $170,179 $159,513
Actual return on
plan assets ............................. 8,531 18,432
Employer contributions ................... 7,008 4,019
Plan participants'
contributions ........................... 949 951
Acquisitions ............................. 0 922
Foreign currency exchange
rate changes ............................ (3,487) (448)
Benefits paid ............................ (12,390) (13,210)
--------------------
Fair value of plan assets
at end of year .......................... $170,790 $170,179
====================
Reconciliation of funded
status:
Funded status [over
(under)] ................................ $ 2,082 $ (5,473)
Unrecognized net
actuarial loss (gain) ................... 17,435 23,592
Unrecognized prior
service cost (gain) ..................... (3,763) (5,117)
Unrecognized transition
obligation (asset) ...................... (2,212) (2,775)
--------------------
Prepaid benefit cost ..................... $ 13,542 $ 10,227
====================
Additional benefit
liability ............................... $ (3,188) $ (5,795)
Intangible asset ........................ 2,079 2,728
--------------------
Accumulated other
comprehensive
income .................................. $ (1,109) $ (3,067)
====================
<PAGE>
An additional minimum pension liability for certain plans, representing the
excess of accumulated benefits over plan assets and accrued pension costs, was
recognized at December 31, 1999 and 1998. A corresponding amount was recognized
as an intangible asset, to the extent of unrecognized prior service cost and
unrecognized transition obligation, with the income tax effected balance
recorded as a separate reduction of shareholders' equity.
The plans which have accumulated obligations in excess of plan assets have an
obligation of $89,875 and assets of $81,844 and are therefore underfunded by
$8,031.
The assumptions used as of December 31, 1999, 1998, and 1997 in determining the
net pension cost and net pension liability for United States plans were as
follows:
1999 1998 1997
------------------------------
Discount rate ........................ 8.00% 6.75% 7.00%
Rate of return on
plan assets ....................... 9.00% 9.00% 9.00%
Rate of future
compensation
increase .......................... 5.00% 5.00% 5.00%
The assumptions used in determining the net pension cost and pension liability
for non-United States pension plans were based on the economic environment of
each applicable country. The range of assumptions used as of December 31, 1999
was as follows: discount rate: 5 to 6 percent; rate of return on plan assets: 7
to 7.5 percent; rate of future compensation increase: 2.5 to 4 percent.
27
<PAGE>
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES / FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (continued)
(Thousands of dollars, except share data)
The components of the net periodic pension cost incurred for these plans were as
follows:
1999 1998 1997
---------------------------------
Net periodic benefit costs (income):
Service cost ............................ $ 7,774 $ 7,393 $ 6,316
Interest cost ........................... 10,548 10,886 10,460
Expected return on
plan assets .......................... (14,165) (14,161) (12,898)
Amortization of prior
service cost
(gain) ............................... (596) (637) (844)
Amortization of
transition obligation
(asset) .............................. (485) (821) (817)
Amortization of net
actuarial loss
(gain) ............................... 388 345 654
---------------------------------
Net periodic benefit
cost ................................. 3,464 3,005 2,871
Settlement expense ...................... 0 996 287
---------------------------------
Total expense ........................... $ 3,464 $ 4,001 $ 3,158
=================================
Other Postretirement Benefits
In addition to providing pension benefits, the Company and certain of its
subsidiaries provide postretirement health care and life insurance benefits. All
full-time non-bargaining unit employees hired prior to January 1, 1990 are
eligible for medical benefits under a defined dollar benefit plan if they retire
with at least 10 years of service and meet certain age requirements. Generally,
Company-provided medical benefits terminate when covered individuals become
eligible for Medicare benefits. The medical plan is contributory, with retiree
contributions adjusted annually. The life insurance plan covers substantially
all employees who retire from full-time employment after age 55 with at least 10
years of service. The life insurance plan is non-contributory. Both of the
Company's postretirement plans are unfunded.
An assumed discount rate of 8.0 percent and 6.75 percent was used to determine
the accumulated postretirement benefit obligation at December 31, 1999 and 1998,
respectively.
The following provides a reconciliation of benefit obligations and funded status
of these plans at December 31, 1999 and 1998:
1999 1998
---------------------
Change in benefit
obligation:
Benefit obligation at
January 1 ....................................... $ 8,792 $ 8,940
Service cost ..................................... 205 187
Interest cost .................................... 569 571
Plan participants
contributions ................................... 131 112
Actuarial gain ................................... (924) (202)
Benefit payments ................................. (929) (816)
--------------------
Benefit obligation
at December 31 .................................. $ 7,844 $ 8,792
====================
Reconciliation of
funded status:
Funded status [over
(under)] ........................................ $ (7,844) $ (8,792)
Unrecognized net
actuarial loss (gain) ........................... (697) 227
Unrecognized prior
service cost (gain) ............................. (3,189) (3,720)
--------------------
Accrued benefit
obligation ...................................... $(11,730) $(12,285)
====================
28
<PAGE>
ANNUAL REPORT 1999
Notes to Consolidated Financial Statements (continued)
(Thousands of dollars, except share data)
The components of the net periodic postretirement benefit cost incurred were as
follows:
1999 1998 1997
-----------------------------
Net periodic benefit costs (income):
Service cost ........................... $205 $187 $159
Interest cost .......................... 569 571 629
Amortization of
prior service
cost (gain) ........................... (531) (531) (531)
Amortization of
net actuarial
loss (gain) ........................... 0 (15) (3)
-----------------------------
Net periodic
benefit cost .......................... $243 $212 $254
=============================
A 7.0 percent annual rate of increase in the per capita costs of covered health
care benefits was assumed for 1999. Increasing or decreasing the assumed health
care cost trend rates by one percentage point in each year would change the
accumulated postretirement benefit obligation as of December 31, 1999 by $58 and
change the aggregate of the service and interest components of net periodic
postretirement benefit cost for 1999 by $6.
13. STOCK OPTIONS
The Company has a non-qualified stock option plan which continues to the year
2009. Under the plan, the Company may grant up to an aggregate of 3,550,000
shares in either stock options (fixed price or variable price) or restricted
shares to officers and key employees. Additionally, non-employee directors may
elect to receive discounted price options in lieu of all or a portion of their
annual retainer fee. The number of such options, if elected, is based upon
market value at date of grant. The exercise price of outstanding options is
determined as follows: fixed price options are granted at market value on date
of grant and discounted price options are granted at par value of the common
stock on date of grant. The options' maximum term is 10 years. Fixed price
options granted vest over a five-year period and discounted price options
granted vest after one year.
The Company has adopted the disclosure-only provisions of the Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation." The Company will continue to apply the provisions of Accounting
Principles Board Opinion 25 in accounting for its stock option plans. If the
Company had elected to recognize compensation cost based on the fair value of
the options granted at grant date as prescribed by SFAS No. 123, net earnings
and earnings per share would have been reduced to the pro forma amounts as
follows:
Years Ended December 31
1999 1998 1997
--------------------------------
Net earnings ............................... $49,791 $43,558 $31,775
Basic earnings per
common share ............................ 3.93 3.47 2.62
Diluted earnings per
common share ............................ 3.84 3.35 2.48
The weighted-average fair value of options granted per share were $17.52, $17.50
and $14.51 in 1999, 1998 and 1997, respectively. The fair value of each option
grant is estimated on the date of grant using the Black-Scholes option-pricing
model and the weighted-average assumptions used for grants were as follows:
expected volatility of 33 percent in 1999, 31 percent in 1998 and 29 percent in
1997, expected option life of six years in 1999, 1998 and 1997, and no expected
dividend payments over the life of the option. The expected weighted-average
risk-free interest rate of 5.5 percent in 1999 and 1998, and 6.2 percent in 1997
were used.
29
<PAGE>
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES / FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (continued)
(Thousands of dollars, except share data)
At December 31, 1999, 100 individuals held options to purchase an aggregate of
1,149,108 shares (fixed 1,126,431, discounted 22,677). There are 451,792 fixed
price options outstanding with exercise prices ranging from $10.81 to $19.75 per
share (a weighted-average exercise price per share $12.61) and expiration dates
ranging from November 28, 2000 to July 24, 2005 (a weighted-average remaining
contractual life of four years). Of these 451,792 fixed price options
outstanding, 420,192 shares are currently exercisable with a weighted-average
exercise price of $12.43 per share.
In addition, there are 379,043 fixed price options outstanding with exercise
prices ranging from $26.47 to $39.22 per share (a weighted-average exercise
price per share of $32.48) and expiration dates ranging from January 1, 2006 to
October 11, 2009 (a weighted-average remaining contractual life of eight years).
Of these 379,043 fixed price options outstanding, 117,542 are currently
exercisable with a weighted-average exercise price of $30.11 per share. Also,
there are 295,596 fixed price options outstanding with exercise prices ranging
from $41.09 to $54.81 per share (weighted-average exercise price per share of
$42.62) and expiration dates ranging from December 16, 2007 to April 26, 2009 (a
weighted-average remaining contractual life of nine years). Of these 295,596
fixed price options outstanding, 27,946 are currently exercisable with a
weighted-average exercise price $42.56 per share. The discounted price options
outstanding have an exercise price of $.50 and expiration dates ranging from May
31, 2000 to May 31, 2009 with a weighted-average remaining contractual life of
five years. Of the 22,677 discounted price options outstanding, 20,627 shares
are currently exercisable. No variable price options were outstanding at
December 31, 1999.
30
<PAGE>
ANNUAL REPORT 1999
Notes to Consolidated Financial Statements (continued)
(Thousands of dollars, except share data)
Changes in shares under option were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------------------------------------------------------
Shares Weighted- Shares Weighted- Shares Weighted-
Average Average Average
Exercise Exercise Exercise
Price Price Price
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of year ............................... 1,067,074 $21.58 1,157,124 $18.31 1,261,308 $14.92
Additions (deductions):
Options granted ................................. 267,800 40.65 138,965 42.43 180,856 34.59
Options exercised ............................... (163,066) 14.68 (226,215) 17.20 (271,240) 12.24
Options expired or terminated ................... (22,700) 35.95 (2,800) 30.95 (13,800) 27.00
--------- --------- ---------
Options outstanding at end
of year ......................................... 1,149,108 26.65 1,067,074 21.58 1,157,124 18.31
========= ========= =========
Options exercisable at end
of year ......................................... 586,307 16.99 594,908 14.10 660,668 13.40
Shares available for future
option grants ................................... 100,803 106,744 251,986
</TABLE>
Under the non-qualified stock option plan, the Company has issued 47,677
restricted shares of which 11,678 restricted shares were granted in 1999. Each
year 20 percent of the restricted shares granted become free of any
restrictions. As of December 31, 1999, 27,158 shares issued are restricted under
the non-qualified stock option plan.
-----------------------
14. EARNINGS PER SHARE
Basic earnings per common share is calculated using the average shares of common
stock outstanding, while diluted earnings per common share reflects the
potential dilution that could occur if stock options were exercised. Earnings
per share are computed as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------------------
<S> <C> <C> <C>
Net earnings ..................................... $ 51,220 $ 44,570 $ 32,500
==========================================
Average shares of common stock
outstanding used to compute basic
earnings per common share ..................... 12,659,920 12,541,619 12,128,173
Additional common shares to be issued
assuming exercise of stock options,
net of shares assumed reacquired .............. 295,138 477,082 668,085
------------------------------------------
Shares used to compute dilutive effect of
stock options ................................. 12,955,058 13,018,701 12,796,258
==========================================
Basic earnings per common share .................. $ 4.05 $ 3.55 $ 2.68
==========================================
Diluted earnings per common share ................ $ 3.95 $ 3.42 $ 2.54
==========================================
</TABLE>
Options to purchase 545,296 shares of common stock at a weighted-average price
of $39.29 per share were outstanding during 1999 but were not included in the
computation of diluted EPS in 1999 because the options' exercise price was
greater than the average market price of the common shares. These options expire
on various dates between February 10, 2007 and October 12, 2009.
31
<PAGE>
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES / FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (continued)
(Thousands of dollars, except share data)
15. PREFERRED STOCK PURCHASE RIGHTS
As provided in the Rights Agreement dated November 21, 1998, the Board of
Directors declared a dividend distribution of one Right for each outstanding
share of common stock. Under the 1998 Rights Agreement, each Right may be
exercised, under certain conditions, to purchase one one-hundredth of a share of
Series A Junior Participating Preferred Shares, par value $1.00 per share, for
$250, subject to adjustment. The Rights are not exercisable or transferable
apart from the common stock until 10 business days after a public announcement
that a person or group has acquired or intends to commence a tender offer for 10
percent or more of the outstanding common stock. The Board of Directors may, at
its option and under certain conditions, exchange all of the Rights not owned by
the 10 percent holder for an equal number of shares of common stock. The Rights,
which expire on November 21, 2008, unless extended by the Company's Board of
Directors, do not have voting or dividend Rights and may be redeemed by the
Company at a price of $.01 per Right at any time until 10 business days
following the acquisition of 10 percent or more of the Company's common stock.
In the event that the Company is acquired in a merger or other business
combination transaction, or 50 percent or more of its assets or earning power is
sold, each Right will entitle the holder to receive from the surviving or
acquiring corporation, for the exercise price, common stock having a market
value equal to two times the exercise price of the Right. Alternatively, if a 10
percent holder were to acquire the Company in a business combination transaction
in which the Company and its stock survive, or were to engage in certain
"self-dealing" transactions, each Right not owned by the 10 percent holder would
have the right to receive common shares having a market value of two times the
exercise price of the Right.
16. FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are as follows:
1999
-------------------
Carrying Fair
Amount Value
-------------------
Cash and cash
equivalents ...................................... $50,479 $50,479
Long-term debt, including
current portion .................................. (208,910) (215,860)
Interest rate and
currency swaps ................................... - 590
Forward Exchange
Contracts ........................................ - (360)
1998
-------------------
Carrying Fair
Amount Value
-------------------
Cash and cash
equivalents ...................................... $ 8,414 $ 8,414
Long-term debt, including
current portion .................................. (165,958) (176,865)
Interest rate and
currency swaps ................................... - (1,355)
Forward Exchange
Contracts ........................................ - -
The methods and assumptions used to estimate the fair value of each class of
financial instruments and additional information related to these financial
instruments are as follows:
Cash and Cash Equivalents
The carrying amount approximates fair value because of the short maturity of
these instruments.
Long-Term Debt
The fair value of fixed rate long-term debt was
estimated at the discounted amount of future cash flow using the Company's
year-end incremental rate of borrowing for similar debt. The fair value of
variable rate debt approximates its carrying value.
32
<PAGE>
ANNUAL REPORT 1999
Notes to Consolidated Financial Statements (continued)
(Thousands of dollars, except share data)
Interest Rate and Currency Swaps
The fair value of the interest rate swap agreement and the currency swap
agreement is the estimated amount that the banks would receive or pay to
terminate the swap agreements at December 31, 1999 and 1998. The interest rate
swap agreement is used by the Company to modify $20,000 of its variable rate
obligations to a fixed rate obligation of 5.69 percent. This swap agreement
expires in November 2003. The Company entered into a currency swap agreement to
exchange British pounds (18,100) for United States dollars (30,046). The Company
is required to make British pound payments on a quarterly basis at a fixed rate
of 8 percent in exchange for United States dollar receipts at a fixed rate of
6.785 percent until the swap agreement matures on October 27, 2003. The Company
is exposed to credit loss in the event of nonperformance by the counterparties
to the swap agreements. The Company does not anticipate nonperformance by the
counterparties who are major financial institutions.
Forward Exchange Contracts
At December 31, 1999 and 1998, the Company had $50,723 and $13,848,
respectively, of forward foreign currency exchange contracts outstanding. These
contracts are primarily in British pounds, Irish punts, Euros and Canadian
dollars and mature within 60 days. The difference between the contract amounts
and fair values of these contracts is not material. At December 31, 1999, the
Company had additional forward exchange contracts to purchase $23.4 million of
foreign currencies (Canadian Dollars and Irish Punts) with maturities ranging
from January 5, 2000 to October 1, 2001 with a weighted average maturity of 235
days. The fair value of these additional foreign currency contracts had been
estimated by valuing the net position of the contracts using the applicable spot
rates and forward rates as of the reporting dates. The counterparties of all
exchange contracts are major financial institutions, therefore, management
believes the risk of incurring losses related to these contracts is remote.
Standby Letters of Credit
The Company is contingently liable under standby letters of credit totaling
$26,088 and $33,291 at December 31, 1999 and 1998, respectively. The difference
between the contract amounts and fair values of these standby letters of credit
is not material. The Company's management does not expect any material losses to
result from these standby letters of credit because performance is not expected
to be required.
17. RESEARCH AND DEVELOPMENT
Research and development costs incurred were $6,338, $5,349 and $5,290 for 1999,
1998 and 1997, respectively.
18. SEGMENTS AND RELATED INFORMATION
The Company has seven business groups which have separate management teams that
report operating results regularly that are reviewed by the chief operating
decision makers of the Company. Certain business groups have been aggregated
into the same reportable segment because they have similar products and
services, production processes, types of customers and distribution methods and
their long-term financial performance is affected by similar economic
conditions.
33
<PAGE>
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES / FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (continued)
(Thousands of dollars, except share data)
The Company has three reportable segments:
Precision Fasteners and Components, Specialty Materials & Alloys and Magnetic
Products. The Precision Fasteners and Components segment consists of five
business groups which produce precision fasteners and components for critical
applications in the aerospace, automotive and industrial machinery markets. The
Specialty Materials & Alloys segment produces specialty metals, superalloys and
ceramic cores for aerospace, industrial gas turbine and medical applications.
The Magnetic Products segment produces magnetic materials and products used in
automotive, aerospace, reprographic, computer and advertising specialty markets.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company evaluates performance
based on operating earnings of the respective segments. No single customer or
group under common control represented 10% or more of the Company's net sales
during 1999, 1998 and 1997.
Segments Information
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------------
<S> <C> <C> <C>
Net sales:
Precision Fasteners and
Components .................................... $542,359 $463,414 $394,868
Specialty Materials & Alloys ................... 107,192 112,782 82,777
Magnetic Products .............................. 138,110 140,409 110,971
---------------------------------
Net sales ...................................... $787,661 $716,605 $588,616
=================================
Operating earnings:
Precision Fasteners and
Components .................................... $ 70,106 $ 56,768 $ 42,398
Specialty Materials & Alloys ................... 13,670 15,132 10,986
Magnetic Products .............................. 17,559 17,834 14,394
Unallocated Corporate Costs .................... (10,500) (10,400) (9,700)
---------------------------------
Operating earnings ............................. $ 90,835 $ 79,334 $ 58,078
=================================
Total assets:
Precision Fasteners and
Components .................................... $504,010 $418,300 $301,708
Specialty Materials & Alloys ................... 77,278 70,838 45,578
Magnetic Products .............................. 119,676 118,097 124,762
---------------------------------
Total assets ...................................... $700,964 $607,235 $472,048
=================================
</TABLE>
Depreciation and Amortization and Capital Additions:
<TABLE>
<CAPTION>
Depreciation and Amortization Capital Additions
-------------------------------- --------------------------------
1999 1998 1997 1999 1998 1997
-------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
Precision Fasteners and
Components ...................................... $23,213 $19,765 $15,715 $27,841 $22,520 $25,320
Specialty Materials & Alloys ....................... 2,578 2,243 1,418 7,907 6,082 4,966
Magnetic Products .................................. 7,824 7,321 5,950 2,413 3,482 7,224
-------------------------------- --------------------------------
Total .............................................. $33,615 $29,329 $23,083 $38,161 $32,084 $37,510
================================ ================================
</TABLE>
34
<PAGE>
ANNUAL REPORT 1999
Notes to Consolidated Financial Statements (continued)
(Thousands of dollars, except share data)
Geographic Areas
1999 1998 1997
---------------------------------
Net sales:
United States ................... $558,378 $517,693 $413,206
England and Ireland ............. 182,457 145,560 111,105
Brazil .......................... 15,157 22,627 27,399
Other ........................... 31,669 30,725 36,906
---------------------------------
Net sales ....................... $787,661 $716,605 $588,616
=================================
Long-lived assets:
United States ................... $250,715 $200,305 $155,331
England and Ireland ............. 98,987 109,827 59,624
Brazil .......................... 7,848 12,660 14,570
Other ........................... 10,265 12,503 15,635
---------------------------------
Total long-lived assets ......... $367,815 $335,295 $245,160
=================================
The other geographic areas consist principally of Australia, Canada, China,
Japan, Mexico and Singapore. For geographic area disclosure purposes, the
Company considers investments in affiliates, property, plant and equipment and
other assets, as disclosed in the Consolidated Balance Sheets, to be long-lived
assets.
19. SUPPLEMENTAL CASH FLOW INFORMATION
1999 1998 1997
--------------------------------
Cash paid for
interest ........................... $14,535 $10,148 $10,627
Cash paid for income
taxes .............................. 15,273 15,249 6,059
Noncash Transactions:
Issuance (refund)
of treasury shares
for businesses
acquired .......................... (1,121) 8,795 4,915
Debt assumed with
businesses
acquired .......................... 15,018 50,278 3,179
Acquisition of
treasury shares
for stock options
exercised ......................... 1,269 2,294 774
20. SUBSEQUENT EVENT
In March 2000, the Company acquired all of the outstanding shares of Avibank
Mfg., Inc. based in Burbank, California for approximately $115,000. The
consideration consisted of $111,400 in cash and 110,652 shares of the Company's
common stock valued at $3,600.
Avibank is a manufacturer of fastener products for the aerospace, automotive and
industrial markets. The Avibank acquisition will be accounted for under the
purchase method.
Avibank's results of operations will be included in the consolidated financial
statements from the date of acquisition.
35
<PAGE>
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES / FINANCIAL STATEMENTS
Report Of Independent Accountants
The Shareholders and Board of Directors
SPS Technologies, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, shareholders' equity and cash flows
present fairly, in all material respects, the financial position of SPS
Technologies, Inc. and its subsidiaries at December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Philadelphia, Pennsylvania
February 8, 2000, except for Note 20,
as to which the date is March 14, 2000
36
<PAGE>
EXHIBIT 13.2
ANNUAL REPORT 1999
Summary of Quarterly Results (Unaudited)
(Thousands of dollars, except share data)
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------
March June September December
31 30 30 31
---------------------------------------------
<S> <C> <C> <C> <C>
1999
- ----
Net sales $202,475 $194,560 $195,728 $194,898
Gross profit 44,854 42,768 41,796 42,291
Net earnings 13,320 13,010 12,310 12,580
Basic earnings per common share 1.05 1.03 .97 1.00
Diluted earnings per common share 1.02 1.00 .95 .98
1998
- ----
Net sales $179,865 $175,149 $184,440 $177,151
Gross profit 40,187 41,773 41,008 39,867
Net earnings 10,920 11,720 11,025 10,905
Basic earnings per common share .88 .94 .87 .86
Diluted earnings per common share .85 .90 .84 .83
</TABLE>
<PAGE>
EXHIBIT 13.3
Selected Financial Data
(Thousands of dollars, except share data)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales ......................................... $787,661 $716,605 $588,616 $485,903 $409,814
Operating earnings ................................ 90,835 79,334 58,078 38,178 26,010
Net earnings ...................................... 51,220 44,570 32,500 22,300 14,875
- -------------------------------------------------------------------------------------------------------------------
Working capital ................................... 190,379 134,027 106,385 126,319 103,007
Total assets ...................................... 700,964 607,235 472,048 428,000 326,087
Long-term debt .................................... 201,895 154,010 95,507 98,838 58,119
Property, plant and equipment
additions ...................................... 38,161 32,084 37,510 28,220 21,480
- -------------------------------------------------------------------------------------------------------------------
Per Common Share Data:
Basic net earnings ............................. 4.05 3.55 2.68 1.87 1.30
Diluted net earnings ........................... 3.95 3.42 2.54 1.77 1.25
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 13.4
Common Stock Information
The price range at which the Company's common stock traded in its principal
market, the New York Stock Exchange, during the last eight quarters were as
follows:
Quarter Ended High Low
- ---------------------------------------------------------------------
December 31, 1999 .............. $38.00 $28.38
September 30, 1999 ............. 42.31 35.13
June 30, 1999 .................. 47.00 35.00
March 31, 1999 ................. 57.00 35.50
December 31, 1998 .............. $57.38 $38.13
September 30, 1998 ............. 63.63 37.00
June 30, 1998 .................. 65.00 54.06
March 31, 1998 ................. 54.13 39.25
The approximate number of holders of record of common stock as of March 3, 2000
was 933.
<PAGE>
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES / FINANCIAL STATEMENTS
Management's Discussion and Analysis of Financial
Condition and Results of Operations
INTRODUCTION
Due primarily to the operating results of recently acquired businesses, sales
and net earnings have continued to improve over the last three years. Despite
lower demand for the Company's products in certain geographic areas and served
markets, the Company's overall sales volume has remained at a level that has
generated reasonable profits and significant free cash flow. The Company has
consistently reinvested operating cash flows into "bolt-on" acquisitions that
complement existing product offerings and into new capital to improve
manufacturing efficiencies.
1999 COMPARED TO 1998
Net Sales
Precision Fasteners and Components segment sales increased $78.9 million, or
17.0 percent, in 1999. This segment's increase in sales is primarily
attributable to the impact of businesses acquired in 1999 and 1998. Sales by
those businesses (NSS Technologies, Chevron Aerospace Group Limited, Terry
Machine Company, Non-Ferrous Bolt & Mfg. Co. and Howell Penncraft, Inc.)
increased segment sales by $111.7 million. Chevron Aerospace continues to
benefit from improved demand for aerospace products in Europe due to a growing
market position with Airbus Industrie. Chevron Aerospace has also benefited from
customers' strategy to outsource work and consolidate their supplier base. NSS
Technologies and Terry Machine continue to benefit from strong demand for their
products from the North American automotive market and increased capacity due to
recent capital investments.
Excluding sales by the businesses acquired in 1999 and 1998, Precision Fasteners
and Components segment sales decreased $32.8 million, or 7.7 percent, in 1999
compared to 1998. Total aerospace fastener sales in North America declined by
$20.8 million (11.1 percent) in 1999 consistent with decreasing order rates
experienced in the second half of 1998 and during 1999. These reductions reflect
the decline in new aircraft production at Boeing forecasted for 2000 as well as
inventory reduction activities in the aerospace industry at the original
equipment manufacturer and distributor levels. The Company has been successful
in obtaining long-term agreements for aerospace fasteners to ensure an on-going
level of sales activity and has invested in production capacity and built
inventory to support these contracts. The Company's automotive and industrial
fastener sales decreased $19.1 million, or 11.9 percent. The devaluation of the
Brazilian Real, overall weakness of the Brazilian economy and decreased demand
for automotive fasteners in Europe and Unbrako fasteners in North America and
Europe all contributed to this decrease. The Company's industrial fastener
operations continue to struggle with weak end market demand and aggressive price
competition from Asian manufacturers.
Historically, the Company has manufactured Unbrako socket screws in Cleveland,
Ohio and Shannon, Ireland. Decreased demand from the industrial machinery
markets and a strong dollar have reduced demand for the Unbrako line of socket
screws. Because of lower wage and tax rates in Ireland and the need for more
automotive fastener manufacturing capacity in Cleveland, the Company
consolidated its Unbrako socket screw manufacturing operations into its Shannon,
Ireland facility in the second half of 1999. In Cleveland, the skilled labor
force and production equipment was transferred to the automotive fastener
operations already located in that facility.
38
<PAGE>
ANNUAL REPORT 1999
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Specialty Materials and Alloys segment sales decreased $5.6 million, or 5.0
percent. Decreased sales to the commercial aerospace and medical markets were
partially offset by strong demand from the industrial gas turbine market. In
December 1998, the Company signed a five-year supply agreement to deliver in
excess of three million pounds annually of superalloy material to Precision
Castparts for use in industrial gas turbines and airplane jet engines. The
Company's $6.75 million investment at Cannon-Muskegon Corporation for a building
addition, a new five ton vacuum furnace and other equipment to increase capacity
to meet the requirements of this new contract was completed in the fourth
quarter of 1999. Full participation in this long-term supply agreement is
expected in 2000.
Magnetic Products segment sales decreased $2.3 million, or 1.6 percent, in 1999
compared to 1998. Several markets served by this segment were relatively soft in
1999, including military applications, oil exploration and general industrial
markets in both the United States and Europe. However, strong demand from the
United States automotive, telecommunications, computers and advertising markets
offset the softness experienced in other markets. In order to increase magnetic
product sales in 2000, this segment will concentrate its resources and
investments in the high technology segments of the magnetics market.
Sales originating in the United States, as presented in the geographic area
information in Note 18 to the financial statements, increased $40.7 million, or
7.9 percent, in 1999. This increase is primarily due to sales from businesses
acquired in the last two years located in the United States ($70.1 million), net
of the decreased United States aerospace fastener sales ($19.0 million). Sales
originating in England and Ireland increased $36.9 million, or 25.3 percent, due
to sales from Chevron Aerospace ($46.5 million), which was acquired on October
28, 1998 and higher sales of aerospace fasteners manufactured in England ($6.1
million), net of lower sales of automotive and industrial fasteners and magnetic
products manufactured in England and Ireland ($15.0 million).
Operating Earnings
Operating earnings of the Company increased $11.5 million, or 14.5 percent, in
1999 compared to 1998. Operating earnings for 1999 include a non-recurring gain
related to the sale leaseback of an aerospace fastener manufacturing facility.
Pursuant to the exercise of a purchase option granted in a lease agreement dated
November 30, 1994, the Company sold its Santa Ana, California facility for $6.8
million on June 11, 1999, resulting in a realized gain of $3.4 million. The
Company's aerospace fastener operation located in this building will remain
there under a leaseback arrangement. A deferred gain of $1.8 million will be
amortized into operating earnings over the 10 year leaseback period.
Excluding the gain of $3.4 million described above, the operating earnings of
the Precision Fasteners and Components segment improved from $56.8 million, or
12.2 percent of sales, in 1998 to $66.7 million, or 12.3 percent of sales, in
1999. The improvement in operating earnings is primarily the result of
businesses acquired in 1999 and 1998 which increased 1999 operating earnings by
$7.7 million compared to 1998. In 1999, this segment incurred severance costs of
$1.4 million associated with downsizing and consolidating fastener operations in
North America. In 1998, this segment incurred severance costs of $4.7 million
associated with downsizing and consolidating fastener operations in England,
Ireland and Brazil. These headcount reductions are necessary to maintain profit
margins in certain businesses that are experiencing a soft demand in their
served markets.
39
<PAGE>
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES / FINANCIAL STATEMENTS
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Operating earnings of the Specialty Materials and Alloys segment declined from
$15.1 million, or 13.4 percent of sales, in 1998 to $13.7 million, or 12.8
percent of sales, in 1999. Operating earnings of the Magnetic Products segment
declined from $17.8 million, or 12.7 percent of sales, in 1998 to $17.6 million,
or 12.7 percent of sales, in 1999. These changes in operating earnings compared
to 1998 are consistent with the changes in sales volume discussed above. In the
Specialty Materials and Alloys segment, a new, higher-capacity vacuum furnace
discussed above is expected to improve this segment's operating margins in 2000.
Other Income (Expenses)
Due to higher levels of debt, interest expense increased from $10.9 million in
1998 to $14.5 million in 1999. In 1999, the Company recorded its share of losses
from its Indian affiliate in the amount of $1.1 million which reduced its
investment balance to zero. Also in 1999, the Company withdrew its last on-site
representative from its fastener joint venture in China and, due to ongoing
losses incurred by that operation, wrote off the residual carrying value of that
investment of $0.6 million.
Income Taxes
The effective income tax rate decreased from 33.0 percent in 1998 to 31.5
percent in 1999. As discussed in Note 11 to the financial statements, the 1999
provision for income taxes was favorably impacted by the $2.4 million release of
valuation allowance related to the realizability of the capital loss
carryforward in England. The effect of this income tax valuation release was to
increase 1999 diluted earnings per share by $ .19.
Orders and Backlog
Incoming orders in 1999 were $742.5 million compared to $704.2 million in 1998,
a 5.4 percent increase. The acquisitions made in the last two years increased
orders by $121.9 million. The Company is experiencing lower demand for its
products in certain geographic regions and served markets which partially
offsets the benefit of the order increases due to the impact of businesses
acquired. In 1999, orders for aerospace fasteners declined $30.8 million, or
14.1 percent compared to 1998. This decline is consistent with the forecasted
drop in United States commercial aircraft production rates for next year, along
with inventory management activities. The Company continues to benefit from
improved demand for aerospace fasteners and components in Europe. Orders for
automotive fasteners in Brazil, expressed in United States dollars, were down
31.4 percent, but this decline is due to the devaluation of the Brazilian Real,
as orders on a local currency basis increased by 4.2 percent. Industrial
fastener orders were $12.0 million, or 16.9 percent, lower than 1998, reflecting
continued soft demand for industrial hardware in the United States and Europe.
Orders for the Specialty Materials and Alloy segment were $18.6 million, or 15.0
percent, lower than 1998 reflecting the decrease in demand from the commercial
aerospace and medical markets that could not be offset by the strength in demand
from the industrial gas turbine market. The backlog of orders, which represents
firm orders with delivery scheduled within 12 months, at December 31, 1999 was
$255.9 million, compared to $296.1 million at the end of 1998 and $251.1 million
at December 31, 1997.
40
<PAGE>
ANNUAL REPORT 1999
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
ENVIRONMENTAL
The Company has been identified as a potentially responsible party by various
federal and state authorities for clean up or removal of waste from various
disposal sites. The cost of remediation will depend upon numerous factors,
including the number of parties found liable at each environmental site and
their ability to pay, the outcome of negotiations with regulatory authorities
and the years of remedial activity required.
At December 31, 1999, the accrued liability for environmental remediation
represents management's best estimate of the probable and reasonably estimable
costs related to environmental remediation. The measurement of the liability is
evaluated quarterly based on currently available information.
ACQUISITIONS
As discussed in Note 2 to the financial statements, the Company acquired all of
the outstanding shares of National Set Screw Corporation, doing business as NSS
Technologies, Inc. (NSS), based in Plymouth, Michigan for $43.7 million on June
30, 1999. NSS manufactures highly specialized cold-formed steel components for
the automotive, heavy truck, mining/road construction and waterworks industries.
NSS' sales for the twelve months ended December 31, 1999 were approximately
$61.4 million. This acquisition expands the Company's manufacturing and
technical capabilities and broadens the range of products offered to our
automotive customers.
1998 COMPARED TO 1997
Net Sales
Precision Fasteners and Components segment sales increased $68.5 million, or
17.4 percent. The 1998 increase in this segment's sales is due principally to
two factors: an increase in aerospace fastener sales and the businesses acquired
in 1998 and 1997. The segment's aerospace fasteners sales increased $29.7
million, or 14.0 percent, to $241.1 million as sales increased in North America
and Europe. Although sales in North America increased in 1998, the Company
experienced a decline in aerospace fastener orders in North America in 1998. The
Company's North American aerospace facilities did secure important long term
contracts with Boeing, Pratt & Whitney and General Electric. The recent success
of Airbus in winning new aircraft orders increased the overall demand for
aerospace products in Europe. To further participate in the expanding European
aerospace market, the Company initiated a $4.3 million expansion project for its
European aerospace fastener manufacturing facility. This expansion was completed
in 1999 and has increased manufacturing capacity by 25 percent.
Sales by businesses acquired in 1998 and 1997 increased Precision Fasteners and
Components segment sales by $49.6 million. Sales by Mohawk Europa Limited
(acquired on September 23, 1997), Terry Machine Company (acquired on June 30,
1998) and Chevron Aerospace Group Limited (acquired on October 28, 1998) were
the major contributors to this increase. Excluding the sales from acquired
businesses, the Company's automotive and industrial fastener sales decreased
$6.1 million, or 3.8 percent. The decrease in sales of fasteners manufactured in
Brazil and Australia exceeded the modest growth in sales of fasteners
manufactured in North America and Europe. The overall weakness of the Brazilian
economy and
41
<PAGE>
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES / FINANCIAL STATEMENTS
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
increased fastener industry capacity has adversely affected the Company's
Brazilian operation. The Company's Australian operation was adversely affected
by weak demand from the automotive industry as a result of the Asian economic
slowdown.
Specialty Material and Alloys segment sales increased $30.0 million, or 36.2
percent. This increase is primarily due to the acquisition of Greenville Metals,
Inc. ($14.0 million) and to an increase in superalloy sales ($13.4 million) by
the Cannon-Muskegon Corporation (Cannon). Superalloy sales benefited from strong
demand from the aerospace and industrial gas turbine markets.
Excluding the $32.1 million of sales by two companies acquired at the end of
1997 (Magnetic Technologies Corporation and National-Arnold Magnetics Company),
Magnetic Products segment sales decreased by $2.6 million, or 2.4 percent. The
decrease is attributed to a decline in demand from ad-specialty customers and
the General Motors strike.
Sales originating in the United States, as presented in the geographic area
information in Note 18 to the financial statements, increased $104.5 million, or
25.3 percent, in 1998. This increase is primarily due to increased domestic
aerospace sales ($15.1 million) and sales from acquisitions made in the last two
years located in the United States ($79.2 million). Sales originating in England
and Ireland increased $34.5 million, or 31.0 percent, due to higher sales of
aerospace fasteners manufactured in England ($7.5 million) and increased sales
from Mohawk, which was acquired in September of 1997 ($9.1 million). The
decrease in sales originating in other areas is attributed to the decrease in
sales of fasteners manufactured in Australia described above.
Operating Earnings
Operating earnings of the Precision Fasteners and Components segment improved
from $42.4 million, or 10.7 percent of sales, in 1997, to $56.8 million, or 12.2
percent of sales in 1998. The improvement in earnings is attributed to increased
sales of aerospace fasteners and improvements in manufacturing efficiencies. New
production equipment, new plant layouts and process simplification has resulted
in improved margins in this segment.
In 1998 and 1997, the Precision Fasteners and Components segment was adversely
impacted by operating losses and downsizing costs incurred at the Company's
manufacturing operation in Coventry, England. In 1998, this facility lost $3.4
million, which included operating losses of $860 thousand, cost of employee
separations of $1.7 million, inventory write-offs of $600 thousand and other
costs of $240 thousand. In 1997, this facility lost $3.2 million which included
operating losses of $2.4 million and cost of employee separations of $800
thousand. Headcount at this facility has been reduced from 188 employees at June
30, 1997 to 68 employees at December 31, 1999. Certain equipment at Coventry was
relocated to other facilities owned by the Company or sold to third parties.
Operating earnings of the Specialty Materials and Alloys segment improved from
$11.0 million, or 13.3 percent of sales to $15.1 million, or 13.4 percent of
sales. The increase in earnings is attributed to increased sales of superalloys
and earnings contributed by the 1998 acquisition of Greenville Metals, Inc.
Partially offsetting these increases were operating losses incurred by Lake Erie
Design where technical problems were experienced in ramping up production of
very complex cores in the new 38,000 square foot industrial gas turbine core
facility.
42
<PAGE>
ANNUAL REPORT 1999
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Operating earnings of the Magnetic Products segment increased from $14.4
million, or 13.0 percent of sales, in 1997 to $17.8 million, or 12.7 percent of
sales, in 1998. The magnetic product acquisitions completed at the end of 1997
discussed above contributed $3.2 million of the $3.4 million increase in
operating earnings.
Other Income (Expenses)
Interest expense increased from $9.0 million in 1997 to $10.9 million in 1998
due primarily to a higher level of average debt during 1998. The 1998 loss from
equity in earnings of affiliates was $2.7 million worse than the 1997 income
amount. The Company's affiliates in India and China incurred significant losses
in 1998. The Company's share of these losses was $1.4 million for the Indian
affiliate and $1.0 million for the China joint venture. Decreasing export sales,
manufacturing inefficiencies and weak economic conditions in Asia were the major
factors in these losses.
LIQUIDITY AND CAPITAL RESOURCES
Management considers liquidity to be the ability to generate adequate amounts of
cash to meet its needs and capital resources to be the resources from which such
cash can be obtained, principally from operating and external sources. The
Company believes that capital resources available to it will be sufficient to
meet the needs of its business, both on a short-term and long-term basis.
Cash flow provided by or used in operating activities, investing activities and
financing activities is summarized in the statements of consolidated cash flows.
Net cash provided by operating activities increased by $3.2 million in 1999
compared to 1998 due primarily to the $6.6 million improvement in net earnings.
Cash flows provided by or used in investing activities for 1999 include the net
proceeds from the sale leaseback of the Santa Ana, California facility ($6.6
million) and the cash payment for the acquisition of NSS ($28.5 million). Cash
flows used in investing activities for 1998 include cash payments for the
acquisitions of Greenville Metals ($10.1 million), Terry Machine ($8.4 million),
Howell Penncraft ($3.5 million) and Chevron Aerospace ($32.6 million). Cash
flows used in investing activities for 1997 include cash payments for Greer Stop
Nut, Inc. ($10.0 million), RJF's Bonded Magnet Business ($9.2 million), Lake
Erie Design ($7.8 million), Mohawk Europa Limited ($8.9 million) and Magnetic
Technologies Corporation ($9.6 million). The Company spent $38.2 million for
capital expenditures in 1999 and has budgeted $34.5 million for 2000, excluding
capital spending for any companies that may be acquired in 2000.
The Company's total debt to equity ratio was 71 percent at December 31, 1999, 65
percent at December 31, 1998 and 52 percent at December 31, 1997. Total debt was
$217.4 million at December 31, 1999, $172.2 million at December 31, 1998 and
$110.7 million at December 31, 1997. As of December 31, 1999, under the terms of
the existing credit agreements, the Company is permitted to incur an additional
$155.0 million in debt. In 1999, the Company completed a new long-term Note
Purchase Agreement in the amount of $80.0 million at an average fixed rate of
7.81 percent. A portion of the proceeds were used to reduce certain bank
borrowings and the remaining proceeds will be used to finance the Company's
on-going acquisition program. Additional details of the long-term Note Purchase
Agreements, the credit agreements with commercial banks and other debt are
provided in Note 8 to the financial statements.
43
<PAGE>
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES / FINANCIAL STATEMENTS
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
MARKET RISK
The Company's primary market risk exposures are foreign currency exchange rate
and interest rate risk. Fluctuations in foreign currency exchange rates affect
the Company's results of operations and financial position. As discussed in Note
1 to the financial statements, the Company uses forward exchange contracts and
one currency swap agreement to minimize exposure and reduce risk from exchange
rate fluctuations affecting the results of operations. Because the largest
portion of the Company's foreign operations are in countries with relatively
stable currencies, namely, England, Ireland and Canada, the foreign currency
exchange rate risk to the Company's financial position is not significant.
However, the Company has expanded into Brazil, China and other foreign countries
which increases its exposure to foreign currency fluctuations. Fluctuations in
interest rates primarily affect the Company's results of operations. Because a
majority of the Company's debt is in fixed rate obligations (as disclosed in
note 8 to the financial statements), the Company has effectively limited its
interest expense exposure to fluctuations in interest rates.
The status of the Company's financial instruments as of December 31, 1999 and
1998 is provided in note 16 to the financial statements. Assuming an
instantaneous 10 percent strengthening of the United States dollar versus
foreign currencies for which forward exchange contracts and currency rate swap
agreements existed and a 10 percent change in the interest rate on the Company's
debt had all occurred on December 31, 1999, the Company's results of operations,
cash flow and financial position would not have been materially affected.
YEAR 2000 READINESS DISCLOSURES
The following statements include "Year 2000 Readiness Disclosure" within the
meaning of the Year 2000 Information and Readiness Disclosure Act of 1998. The
Company identified, evaluated and implemented changes to computer systems and
applications that were necessary to achieve a year 2000 (Y2K) date conversion
with no material effect on customers or disruption to business operations. These
actions were necessary to ensure that information technology (IT) and non-IT
systems and applications would recognize and process the year 2000 and beyond.
Major areas of potential business impact were identified and conversion efforts
completed. All mainframe based IT systems were assessed and required Y2K
conversions of these computer programs were substantially completed by April
1999. All PC and LAN based IT systems and non-IT systems were assessed and
required Y2K conversions of these systems were substantially completed by
September 1999. The Company communicated with suppliers, customers, financial
institutions and others it does business with to coordinate Y2K conversion. The
Company encountered no Y2K systems issues at the turn of the year that had a
material impact on IT or non-IT systems at any of its facilities. The Company
continues to monitor system performance consistent with its normal operating
practices.
The cost specifically associated with addressing Y2K issues incurred in 1999
were capitalizable costs of $1.5 million and costs expensed as incurred of $600
thousand. Costs expensed as incurred include the cost of resources within the
Company and external resources which have been directed toward Y2K activities.
Total Y2K readiness costs incurred over the past three years were approximately
$2.0 million of capitalizable costs and $1.7 million of costs expensed as
incurred.
44
<PAGE>
ANNUAL REPORT 1999
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
FORWARD-LOOKING STATEMENTS
Certain statements in Management's Discussion and Analysis of Financial
Condition and Results of Operations contain "forward-looking" information,
within the meaning of the Private Securities Litigation Reform Act of 1995, that
involve risk and uncertainty. The Company's expectations of future benefits and
participation levels of the aerospace and superalloy long-term contracts, an
increase in sales by concentrating on the high technology segments of the
magnetic market, future benefits from the installation of new capital equipment,
future benefits of headcount reductions and other downsizing actions, future
benefits from operational synergies with newly acquired companies and the
relative stability of certain foreign currencies are "forward looking"
statements contained in Management's Discussion and Analysis of Financial
Condition and Results of Operations. Actual future results may differ materially
depending on a variety of factors, such as: the effects of competition on
products and pricing, customer satisfaction and qualification issues, labor
disputes, worldwide political and economic stability and changes in fiscal
policies, laws and regulations on a national and international basis. The
Company undertakes no obligation to publicly release any forward-looking
information to reflect anticipated or unanticipated events or circumstances
after the date of this document.
45
<PAGE>
EXHIBIT 21
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
At December 31, 1999, the Company or one of its wholly-owned subsidiaries had,
among others, the following subsidiaries:
The Arnold Engineering Co.
(an Illinois corporation) 100% stock interest
Cannon-Muskegon Corporation
(a Michigan corporation) 100% stock interest
Chevron Aerospace Group Limited
(a United Kingdom corporation) 100% stock interest
Flexmag Industries, Inc.
(an Ohio corporation) 100% stock interest
Greenville Metals, Inc.
(a Pennsylvania corporation) 100% stock interest
Greer Stop Nut, Inc.
(a Tennessee corporation) 100% stock interest
Howell Penncraft, Inc.
(a Michigan corporation) 100% stock interest
Lake Erie Design Co., Inc.
(an Ohio corporation) 100% stock interest
Magnetic Technologies Corporation
(a Delaware corporation) 100% stock interest
Mecair Aerospace Industries, Inc.
(a Canadian corporation) 100% stock interest
Metalac S.A. Industria e Comercio 99.4% stock interest
(a Brazilian corporation) (99.6 % voting, 99.1% non-voting)
Mohawk Europa, Ltd.
(an Irish corporation) 100% stock interest
National-Arnold Magnetics Company
(a California partnership) 60% partnership interest
<PAGE>
National Set Screw
(a Michigan corporation) 100% stock interest
Nevada Bolt & Mfg. Co.
(a Nevada corporation) 100% stock interest
Postkey Ltd.
(a United Kingdom corporation) 100% stock interest
Precision Fasteners Limited
(an Indian corporation) 22.05% stock interest
SPS Biao Wu Fasteners Company Limited
(a Chinese foreign equity joint venture) 55% stock interest
SPS International Investment Company
(a Delaware corporation) 100% stock interest
S.P.S. International Limited
(an Irish corporation) 100% stock interest
SPS Technologies Limited
(a United Kingdom corporation) 100% stock interest
SPS/Unbrako K.K.
(a Japanese corporation) 100% stock interest
Standco Canada, Ltd.
(a Canadian corporation) 100% stock interest
Swift Levick Magnets, Ltd.
(a United Kingdom corporation) 100% stock interest
Terry Machine Company
(a Michigan corporation) 100% stock interest
Unbrako Mexicana, S.A. de C.V.
(a Mexican corporation) 100% stock interest
Unbrako Pty. Limited
(an Australian corporation) 100% stock interest
The Company files consolidated financial statements which include the above
subsidiaries, except for Precision Fasteners Limited and SPS Biao Wu Fasteners
Company Limited, as well as subsidiaries which have been omitted from the above
list; all such omitted subsidiaries considered in the aggregate as a single
subsidiary do not constitute a "significant subsidiary" as defined in Rule
1-02(w) of Regulation S-X under the Securities Exchange Act, as amended.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (Registration No. 333-61517), Form S-8 (Registration No.
33-23778) and Post Effective Amendments to the Registration on Form S-8
(Registration Nos. 2-64082, 2-90908) of SPS Technologies, Inc. and subsidiaries
of our report dated February 8, 2000, except for Note 18, as to which the date
is March 14, 2000 relating to the financial statements, which appears in the
Annual Report to Shareholders, which is incorporated in this Annual Report on
Form 10-K. We also consent to the incorporation by reference of our report dated
February 8, 2000 relating to the financial statement schedule, which appears in
this Form 10-K.
PRICEWATERHOUSECOOPERS LLP
Philadelphia, Pennsylvania
March 17, 2000
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