<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission File Number 0-3063
TINSLEY LABORATORIES, INC.
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 94-1049146
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STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION
No.)
3900 LAKESIDE DRIVE, RICHMOND, CALIFORNIA 94806
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
Registrant's telephone number (510)222-8110
-------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, without par value
--------------------------------
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
-- --
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained herein, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
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State issuer's revenues for its most recent year.
$13,109,144
State the aggregate value of the voting stock held by non-affiliates computed by
reference to the price at which the stock was sold, or the average bid and asked
prices of such stock, as of a specified date within the past 60 days. (See
definition of affiliate in Rule 12b-2 of the Exchange Act).
$5,596,812 (computed on the basis of $7.25 per share, which was the last
reported sales price on the over-the-counter market as reported by the
National Association of Securities Dealers, Inc. for March 13, 1996.)
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
771,974
DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Shareholders for fiscal year ended Parts I and II
December 31, 1995 (the "1995 Annual Report")
Proxy Statement for 1996 Annual Meeting of
Shareholders to be held on April 24, 1996,
to be filed pursuant to Section 14(a) of
the Exchange Act (the "1996 Proxy Statement")
Transitional Small Business Disclosure Format: Yes No X
-- --
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PART I
ITEM 1. BUSINESS.
GENERAL
Tinsley Laboratories, Inc. (the "Company") was incorporated in California in
1946. Headquartered in Richmond, California, the Company operates entirely
within a single industry, the precision optical components and assemblies
industry. Within this industry, the Company designs, manufactures and sells
precision optical components, assemblies and systems.
The Company's customers have historically included aerospace firms, instrument
and equipment manufacturers, defense system manufacturers, color television tube
manufacturers, agencies of the U.S. Government and universities. Products sold
to these customers are generally designed and produced to meet customer
specifications, as distinguished from proprietary products offered in the
general market. With its May 1993 acquisition of Century Precision Industries,
Inc. ("Century"), the Company began selling optical components and accessories
(primarily lenses) to cinematographers, professional photographers and
educational institutions in the general commercial market.
The range of applications of the Company's products have traditionally included
optical projection systems used in advanced avionics, pilot training and forward
looking and target acquisition systems and simulation equipment and aspheric
mirrors for large-scale telescopes. Discrete optical components produced by the
Company are used as optical windows for reconnaissance aircraft for laser fusion
research and as tooling for the manufacture of color television tubes. As noted
above, the Company's 1993 acquisition of Century has enabled the Company in
recent years to penetrate the commercial market for lenses and accessories.
The Company specializes in the design and manufacture of aspheric lenses and
mirrors produced both as discrete optical components and intrinsic parts of
complex optical assemblies.
The Company believes that it leads the optical industry in the design and
fabrication of aspheric lenses and mirrors. Aspheric lenses, by performing the
work of a number of optical surfaces, permit the use of highly compact optical
systems. They are especially desirable where weight and space are at a premium
as in high performance aircraft.
Through its computer-controlled optical manufacturing technology, the Company is
in a position to design and make aspheres in production quantities.
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RECENT SALES AND INCOME TRENDS
The Company's 1995 sales volume of $13,109,144 was slightly higher than fiscal
1994 sales of $12,968,892 and 7% higher than its fiscal 1993 sales of
$12,238,052. However, net income of $268,385, or 35 cents a share, for fiscal
1995 was approximately 22% lower than fiscal 1994 earnings of $345,785, or 45
cents a share, and approximately 44% lower than fiscal 1993 earnings of
$483,188, or 61 cents a share.
GOVERNMENT SALES
Sales to agencies of the U.S. Government by the Company are made primarily
through subcontracts with prime contractors. In fiscal 1995, such sales by the
Company were approximately $3,901,000 compared to approximately $5,819,000 in
fiscal 1994 and $7,600,000 in fiscal 1993.
MARKETING
The Company's domestic sales and certain foreign sales are handled directly by
its in-house sales staff. The Company's domestic customers are widely
distributed throughout the U.S. market.
MAJOR CUSTOMERS
Due to the highly specialized nature of the Company's business, a few customers
have historically accounted for an important percentage of its sales. These
major customers vary from year to year. In fiscal 1995, sales to three domestic
customers (four in 1994 and four in 1993), none of which has any other material
relationship with the Company, totaled approximately $3,111,000 ($4,041,000 and
$5,165,000 in fiscal 1994 and fiscal 1993, respectively).
FOREIGN SALES
The Company's revenues from sales to government or non-government customers
outside the United States in fiscal 1995 amounted to approximately 19% of total
revenues as compared to approximately 17% in fiscal 1994 and 14% in fiscal 1993.
International sales during the last fiscal three years were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Europe $1,375,361 $914,004 $ 744,466
Asia 781,690 478,915 462,480
Canada & Mexico 165,632 563,037 374,316
South Pacific 41,223 140,960 66,792
Latin & South America 58,971 47,245 40,777
Other 18,314 53,632 1,952
------ ------ ----------
$2,441,191 $2,197,793 $1,690,783
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
COMPETITION
The Company faces varying degrees of competition within the optical components
and assemblies industry, depending upon the product specifications stipulated by
prospective customers. As previously mentioned, the Company
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believes it enjoys a competitive advantage in the manufacture and sale of
certain types of aspheric lenses.
Many of the Company's competitors or potential competitors are subsidiaries or
divisions of large, diversified companies and therefore have access to financial
resources substantially in excess of those available to the Company.
BACKLOG
The Company's backlog at the end of fiscal 1995 was approximately $8,885,000 or
approximately 122% above the Company's backlog of approximately $4,002,000 at
the end of fiscal 1994 and approximately 68% above the Company's backlog of
approximately $5,300,000 at the end of the fiscal 1993.
The Company presently anticipates shipping more than 75% of its fiscal 1995
backlog during fiscal 1996.
RAW MATERIALS
Raw materials for the Company's operations, or acceptable substitutes, are
normally available. The Company is not dependent on a single source for a
significant portion of its raw material requirements. In certain instances, raw
materials are supplied by customers at no cost to the Company.
PATENTS AND LICENSES
The Company owns three patents but does not regard any of them as material at
the present time. As a general rule, the Company does not seek patent or
process licenses from others.
The Company believes that the success of its products depends generally on its
proprietary technology, computer software, manufacturing skills and speed of
response to sales opportunities.
RESEARCH AND DEVELOPMENT
The Company's research and development expenditures decreased slightly in fiscal
1995 to approximately $355,000 from approximately $383,000 expended in fiscal
1994. In fiscal 1993, the Company expended approximately $290,000 for research
and development. The Company's research and development program is dedicated to
improvement of its design capability, aspheric process technology and computer
controlled equipment. The Company has also continued to spend product
development funds for Century.
EMPLOYEES
The Company employed 104 people on a full-time basis at the end of fiscal 1995,
as compared to 92 full-time people at the end of fiscal 1994 and 103 full-time
people at the end of fiscal 1993. 32 employees were added as a result of
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the Company's acquisition of Century in fiscal 1993. None of the Company's
employees is represented by a labor organization. The Company considers its
relations with its employees to be satisfactory. The Company does not generally
employ part-time employees; however, the Company does utilize the services of
consultants from time to time on either a full-time or part-time basis in
connection with the fulfillment of certain of its major subcontracts.
GOVERNMENT REGULATIONS AND ENVIRONMENTAL LAWS
Compliance with existing or probable governmental regulations and with federal,
state and local environmental laws has not had any material effect on the
Company's operations. The Company does not expect that continued compliance
with such existing or probable governmental regulations and laws will materially
affect its capital expenditures, earnings or competitive position.
ITEM 2. PROPERTIES
In fiscal 1984, the Company moved its headquarters to a 60,000 square foot
facility which it built and owns in Richmond, California. To support its
requirements for a significant contract, the Company constructed a 4,000 square
foot building addition in fiscal 1989.
The Company's headquarters are presently encumbered by a deed of trust securing
a $1,267,010 loan made to the Company by The Mechanics Bank of Richmond in
connection with the Company's acquisition of Century. As of the end of its 1995
fiscal year, the Company owed approximately $934,000 on such loan. Such loan
bears interest at the rate of 8.5% per annum and provides for payments of
principal and interest at the rate of $17,715 per month until July 15, 2000 when
the entire remaining principal balance becomes due and payable.
Century's operations are conducted out of an approximately 12,000 square foot
facility located in North Hollywood, California. Such facility is leased by
Century from Mr. Steven E. Manios, a Vice President and a Director of the
Company, and his spouse pursuant to a lease agreement for base rent currently
equal to approximately $113,000 per annum through November 1996. Century has
the right to terminate such lease at any time during the term thereof upon 90
days prior written notice. Century also has an option to extend such lease for
a period of two years on the same terms and conditions as in the original lease,
except for base rent which will be subject to adjustment at the beginning of the
two-year extension term based upon the increase in the consumer price index for
the Los Angeles metropolitan area.
To satisfy its need for additional facilities due to its anticipated growth, the
Company has tentatively agreed to purchase a 5,952 square foot office and
research and development facility located on approximately two acres of land
adjacent to the Company's headquarters subsequent to the end of its 1995 fiscal
year. The basic terms of such proposed purchase include a $150,000 cash
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down payment and the Company's issuance of a $750,000 promissory note secured by
the property. Such secured promissory note will bear interest, payable monthly,
at 8% per annum on unpaid principal and the principal amount thereof will be all
due and payable two years after the close of escrow.
ITEM 3. LEGAL PROCEEDINGS.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Reference is hereby made to the material appearing under the caption "Stock
Prices and Dividends" set forth in the Company's 1995 Annual Report, which
material is incorporated herein.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
Reference is hereby made to the material appearing under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" set forth in the Company's 1995 Annual Report, which material is
incorporated herein.
ITEM 7. FINANCIAL STATEMENTS
Reference is hereby made to the Consolidated Financial Statements, Notes to
Consolidated Financial Statements and Report of Independent Auditors set forth
in the Company's 1995 Annual Report, which items are incorporated herein.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16 (a)
OF EXCHANGE ACT.
DIRECTORS
Reference is hereby made to the materials appearing under the caption
"Information About Nominees for Director" set forth in the Company's 1996 Proxy
Statement, which materials are incorporated herein.
EXECUTIVE OFFICERS
The following table sets forth the names, ages and positions held by each of the
executive officers of the Company as of the date hereof:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
Robert J. Aronno 61 Chairman of the Board of Directors,
President, Chief Executive Officer and
Chief Financial Officer
Robert J. Johnson 65 Vice President/Marketing and Secretary
Daniel J. Bajuk 47 Executive Vice President
James A. Kennon 41 Vice President
Steven E. Manios 57 Vice President
</TABLE>
Robert J. Aronno has been the Chairman of the Board of Directors since March
1993, the President and Chief Executive Officer since April 1985 and the Chief
Financial Officer since April 1979. Mr. Aronno also served as the Company's
Executive Vice President and Chief Operating Officer from May 1974 through April
1985 and as the Company's Treasurer from July 1972 through April 1985. From
1970 to May 1974, Mr. Aronno also served as the Company's Senior Vice President.
Robert J. Johnson has served as the Company's Vice President-Marketing since
1966 and Secretary since 1957.
Daniel J. Bajuk has been a Vice President of the Company since July 1985. Mr.
Bajuk has worked for the Company since 1967 in various other capacities,
including Manager of the Company's Optical Division.
James A. Kennon has been a Vice President of the Company since April 1990. Mr.
Kennon previously worked for the Company as an Electronics Engineer and Manager
of the Electronics Department from August 1976 to December 1982. Mr. Kennon was
a full-time consultant to the Company from 1983 through 1987, at which time he
again became a full-time employee of the Company.
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Steven E. Manios has been a Vice President of the Company since April 1994 and
an employee of the Company since May 19, 1993. For more than five years prior
to May 19, 1993, Mr. Manios served as President, Chief Executive Officer, a
Director and sole shareholder of Century.
There are no family relationships between any of the executive officers of the
Company. There are no arrangements or understandings between any of the
executive officers or any other person pursuant to which any of them is selected
as an executive officer. The term of office of each executive officer will
continue until his successor is elected and qualified or until he is removed in
accordance with law or the Company's Bylaws.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Reference is hereby made to the material appearing under the caption "Section
16(a) Reporting Delinquences" set forth in the Company's 1996 Proxy Statement,
which material is incorporated herein.
ITEM 10. EXECUTIVE COMPENSATION.
Reference is hereby made to the materials appearing under the captions "Board
and Committee Meetings and Committee Functions" and "Management Compensation and
Transactions-Executive Officers' Compensation" set forth in the Company's 1996
Proxy Statement, which materials are incorporated herein.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
Reference is hereby made to the materials appearing under the captions
"Security Ownership of Certain Beneficial Owners" and "Security Ownership of
Management" set forth in the Company's 1996 Proxy Statement, which materials are
incorporated herein.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Reference is hereby made to the material appearing under the caption "Management
Compensation and Transactions-Other Transactions with Directors and Executive
Officers" set forth in the Company's 1996 Proxy Statement, which material is
incorporated herein.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) ATTACHED HERETO ARE THE FOLLOWING EXHIBITS(1):
3.1 Articles of Incorporation.(2)
3.2 Certificate of Amendment of Articles of Incorporation filed
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July 16, 1968.(2)
3.3 Certificate of Amendment of Articles of Incorporation filed
June 16, 1988.(3)
3.4 Certificate of Amendment of Articles of Incorporation, filed
April 30, 1989.(4)
3.5 Certificate of Ownership, filed August 20, 1990.(4)
3.6 Bylaws.(2)
3.7 Certificate of Adoption of Amendment to Bylaws, effective
April 23, 1987.(3)
3.8 Certificate of Adoption of Amendment to Bylaws, effective
April 28, 1988.(3)
3.9 Certificate of Adoption of Amendment to Bylaws, effective
March 9, 1990.(5)
10.1 Adoption Agreement re Defined Benefit Pension Plan, dated
December 19, 1985.(6)
10.2 1993 Incentive Stock Option Plan.(7)
10.3 Stock Redemption Agreement, dated March 19, 1993.(8)
10.4 Cooperative Research and Development Agreement, dated April 30,
1993, with Lawrence Livermore National Laboratory.
10.5 Stock Purchase Agreement, dated May 19, 1993.(9)
10.6 Standard Industrial/Commercial Single-Tenant Lease-Net and
Addendum thereto, each dated May 19, 1993.(9)
10.7 Salary Continuation Agreement, dated December 12, 1986,
with Mr. Daniel J. Bajuk.(10)
10.8 Real Estate Promissory Note and Deed of Trust and Assignment of
Rents, each dated June 10, 1993, in favor of The Mechanics Bank of
Richmond.(10)
10.9 Employment Agreement, dated June 28, 1995, with Mr.
Robert J. Aronno.
10.10 Salary Continuation Agreement, dated June 28, 1995, with Mr.
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Robert J. Johnson.
10.11 PR Taylor Multiple Employer 401(k) Plan as Adopted by Tinsley
Laboratories, Inc. effective as of July 1, 1995.
13.1 Annual Report to Shareholders for the Company's fiscal year.ended
December 31, 1995 (to the extent that it is incorporated, either
in whole or in part, into this Form 10-KSB).
21.1 List of Subsidiaries.(10)
23.1 Consent of Independent Auditors.
- ------------------------------------------------
(1). Required classification of exhibits which are not referred to herein
have been eliminated because they are not applicable.
(2). Incorporated by reference from the Company's Form 10-K for its fiscal
year ended December 28, 1980.
(3). Incorporated by reference from the Company's Form 10-K for its fiscal
year ended December 25, 1988.
(4). Incorporated by reference from the Company's Form 10-K for its fiscal
year ended December 23, 1990.
(5). Incorporated by reference from the Company's Form 10-K for its fiscal
year ended December 24, 1989.
(6). Incorporated by reference from the Company's Form 10-K for its fiscal
year ended December 28, 1986.
(7). Incorporated by reference from the Company's Proxy Statement utilized
in connection with its 1993 Annual Meeting of Shareholders held April
28, 1993.
(8). Incorporated by reference from the Company's Form 10-KSB for its fiscal
year ended December 27, 1992.
(9). Incorporated by Reference from the Company's Form 8-K dated May 19, 1993.
(10). Incorporated by reference from the Company's Form 10-KSB for its Fiscal
year ended December 26, 1993.
(b) Reports on Form 8-K:
None
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TINSLEY LABORATORIES, INC.
March 27, 1996 By: /s/ ROBERT J. ARRONO
----------------------------
Robert J. Aronno, Chairman of the Board of
Directors, President, Chief Executive Officer
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- --------- -------- ----
<S> <C> <C>
/s/ ROBERT J. ARRONO
- ------------------------ Chairman of the Board of Directors, March 27, 1996
Robert J. Aronno President, Chief Executive Officer,
Chief Financial Officer and Director
/s/ ROBERT J. JOHNSON
- ------------------------
Robert J. Johnson Vice President-Marketing and Secretary March 27, 1996
- ------------------------
Daniel J. Bajuk Executive Vice President March 27, 1996
/s/ JAMES A. KENNON
- ------------------------
James A. Kennon Vice President March 27, 1996
/s/ STEPHEN L. DAVENPORT
- ------------------------
Stephen L. Davenport Director March 29, 1996
- ------------------------
Daniel J. Duckhorn Director March 27, 1996
- ------------------------
Stephen E. Globus Director March 27, 1996
/s/ STEVEN E. MANIOS
- ------------------------
Steven E. Manios Vice President and Director March 29, 1996
</TABLE>
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into
effective as of June 28, 1995, by and between TINSLEY LABORATORIES, INC., a
California corporation ("Company"), and ROBERT J. ARONNO, an individual
("Employee").
RECITALS
A. Employee has been employed by the Company in various
capacities for in excess of 25 years and has served as the Company's President
and Chief Executive Officer since April 1985.
B. The Company desires to continue to employ Employee upon
the terms and subject to the conditions contained in this Agreement.
C. Employee desires to continue to be employed by the
Company upon the terms and subject to the conditions contained in this
Agreement.
TERMS AND CONDITIONS
NOW, THEREFORE, the parties hereto agree as follows:
1. EMPLOYMENT. The Company hereby agrees to continue to
employ Employee, and Employee hereby agrees to continue to be employed by the
Company, upon the terms and subject to the conditions set forth herein. During
the initial term of this Agreement and any extension thereof, Employee shall
continue to serve the Company as its President and Chief Executive Officer with
the same authority regarding the management and supervision of the Company's
operations as Employee presently enjoys, subject at all times to the Bylaws of
the Company and the direction and control of the Board of Directors of the
Company. Employee agrees to continue to perform his duties hereunder as a
full-time employee of the Company in an efficient, faithful and businesslike
manner and shall continue to conduct himself at all times during the initial
term of this Agreement and any extension thereof in a
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manner which does not damage or otherwise adversely reflect upon the Company's
business reputation and integrity.
2. BASE SALARY. During the Company's fiscal year ending December
24, 1995, the Company agrees to pay Employee an annual gross base salary equal
to $112,500 for the services rendered and to be rendered by Employee hereunder,
payable in accordance with the Company's established payroll policy, subject to
customary withholding and employment taxes. During the remainder of the initial
term of this Agreement and any extension thereof, Employee shall be entitled to
receive such annual gross base salary as is approved from time to time by the
Company's Board of Directors; provided, however, that such annual gross base
salary shall not be less than the annual gross base salary paid to Employee by
the Company during its fiscal year ending December 24, 1995.
3. TERM AND TERMINATION.
3.1 TERM Subject to the provisions of Section 3.2 hereof,
the initial term of this Agreement shall be for a period of approximately three
(3) years commencing as of the date hereof and continuing through and including
June 30, 1998. The initial term of this Agreement shall be automatically
extended for additional one (1) year periods unless either party gives notice to
the other, not less than ninety (90) days prior to the expiration of the initial
term of this Agreement or any extension thereof, of his or its intention not to
extend, or further extend, this Agreement.
3.2 TERMINATION OF EMPLOYMENT. The Company may terminate
the employment of Employee at any time for Cause (as hereinafter defined),
effective upon delivery of written notice of such termination to Employee.
Termination for "Cause" shall mean termination because:
(i) Employee shall have been repeatedly or
habitually intoxicated or under the influence of
drugs while on the premises of the Company or
while performing any of his duties or
obligations hereunder;
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(ii) Employee shall have been convicted of a
violation of law involving moral turpitude or a
felony;
(iii) Employee shall have embezzled any property
belonging to the Company or shall have willfully
injured the Company or any of the Company's
tangible or intangible property;
(iv) Employee shall have engaged in other willful
misconduct or shall have been grossly negligent
in the performance of his duties or obligations
hereunder, which other willful misconduct or
gross negligence shall have materially adversely
affected the business or reputation of the
Company; or
(v) Employee shall have materially breached any of
the provisions of this Agreement, which breach
has continued for a period of thirty (30) days
after delivery to Employee of written notice
from the Company's Board of Directors setting
forth in detail the nature and extent of his
breach of this Agreement and the actions
required to be taken by Employee to cure such
breach within such thirty (30) day period.
The employment of Employee and this Agreement shall also terminate automatically
upon: (i) the death or permanent disability of Employee; or (ii) Employee
retiring, resigning or otherwise voluntarily terminating his employment with the
Company. Employee shall endeavor to give the Company at least ninety (90) days'
prior written notice of his intent to retire, resign or otherwise voluntarily
terminate his employment. For purposes of this Agreement, "permanent
disability" shall mean the inability of Employee to perform his duties and
obligations under this Agreement due to mental or physical disability for at
least twenty (20) hours per week for twelve (12) consecutive months or three
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hundred sixty-five (365) days within any two (2) year period, as certified by a
practicing medical doctor satisfactory to the Company. If the employment of
Employee is terminated for Cause, if the Employee dies or becomes permanently
disabled, or if Employee retires, resigns or otherwise voluntarily terminates
his employment, Employer shall not be obligated to make any further payments to
Employee, whether base salary, bonus or otherwise, except accrued base salary
and accrued vacation pay, if any, and except as specifically set forth in
Sections 4 through 6 hereof.
4. PAYMENT OF BONUSES TO EMPLOYEE. In recognition of Employee's
many years of valuable service to and on behalf of the Company and as a further
incentive for Employee to continue to exert his best efforts on behalf of the
Company, the Company agrees to pay Employee, or Employee's designated
beneficiary or beneficiaries in the event of Employee's death prior to the
payment of any amounts due hereunder, the following cash bonuses:
4.1 ANNUAL BONUSES FOR THREE YEARS BASED UPON COMPANY'S
STOCK PRICE OR COMPANY'S EPS MULTIPLE.
4.1.1 BONUS FOR FIRST YEAR. Subject to the provisions
of Section 4.1.4 and 4.2 hereof, the Company agrees to pay Employee, or
Employee's designated beneficiary or beneficiaries in the event of Employee's
death prior to the payment of such bonus, a bonus equal to 12,500 multiplied by
the greater of: (i) the amount, if any, by which the Company's Stock Price (as
defined in Section 4.1.5.4 hereof) as of June 30, 1996 exceeds $7.00; or (ii)
the amount, if any, by which the Company's EPS Multiple (as defined in Section
4.1.5.3 hereof) for the Company's 12-month fiscal period ending in June 1996
exceeds $4.80. Such bonus, if any, shall be paid on or prior to August 15,
1996.
4.1.2 BONUS FOR SECOND YEAR. Subject to the
provisions of Section 4.1.4 and 4.2 hereof, the Company further agrees to pay
Employee, or Employee's designated beneficiary or beneficiaries in the event of
Employee's death prior to the payment of such bonus, a bonus equal to 12,500
multiplied by the greater of: (i) the amount, if any, by which the Company's
Stock Price as of June 30, 1997 exceeds the higher of the Company's Stock Price
as of June 30, 1996 or $7.00; or (ii) the amount, if any, by which the Company's
EPS Multiple for the
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Company's 12-month fiscal period ending in June 1997 exceeds the higher of the
Company's EPS Multiple for the Company's 12-month fiscal period ended in June
1996 or $4.80. Such bonus, if any, shall be paid on or prior to August 15,
1997.
4.1.3 BONUS FOR THIRD YEAR. Subject to the provisions
of Section 4.1.4 and 4.2 hereof, the Company further agrees to pay Employee, or
Employee's designated beneficiary or beneficiaries in the event of Employee's
death prior to the payment of such bonus, a bonus equal to 12,500 multiplied by
the greater of: (i) the amount, if any, by which the Company's Stock Price as
of June 30, 1998 exceeds the highest of the Company's Stock Price as of June 30,
1997, the Company's Stock Price as of June 30, 1996 or $7.00; or (ii) the
amount, if any, by which the Company's EPS Multiple for the Company's 12-month
fiscal period ending in June 1998 exceeds the highest of the Company's EPS
Multiple for the Company's 12-month fiscal period ended in June 1997, the
Company's EPS Multiple for the Company's 12-month fiscal period ended in June
1996 or $4.80. Such bonus, if any, shall be paid on or prior to August 15,
1998.
4.1.4 PRORATED BONUS FOR PARTIAL YEAR. In the event
that Employee's employment terminates for any reason other than the Company's
termination of Employee for Cause at any time prior to the earlier of June 30,
1998 or the date of closing of the Company's Acquisition (as defined in Section
4.1.5.1 hereof), Employee shall be entitled to receive the annual bonus
otherwise provided for in Sections 4.1.1, 4.1.2 or 4.1.3 hereof for the year
ending June 30 in question multiplied by a fraction, the numerator of which is
the number of full months during such year ending June 30 that Employee remains
in the Company's employ pursuant to this Agreement and the denominator of which
is twelve (12).
4.1.5 DEFINITIONS. For purposes of this Section 4.1,
the following words and phrases shall have the following meanings unless the
context clearly indicates to the contrary:
4.1.5.1 ACQUISITION. The term
"Acquisition" means the acquisition of the Company's Business or a controlling
interest in the Company's Business by a person or persons by means of: (i) a
merger or consolidation; (ii) the sale of all, or substantially all, of the
operating assets of the
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Company and any Subsidiaries; or (iii) the issuance by the Company and/or
transfer by any of the Company's shareholders of any voting securities of the
Company or any Subsidiary in any one transaction or series of similar or related
transactions.
4.1.5.2 COMPANY'S BUSINESS. The term
"Company's Business" means the business heretofore or hereafter conducted by the
Company and any Subsidiaries.
4.1.5.3 COMPANY'S EPS MULTIPLE. The
term "Company's EPS Multiple" means an amount equal to eight (8) times the
Company's reported earnings per share for the Company's 12-month fiscal period
ending in June of each year in question as determined by the Company's
independent certified public accountants in accordance with generally accepted
accounting principles and in accordance with all applicable regulations
heretofore or hereafter promulgated by the Securities and Exchange Commission.
4.1.5.4 COMPANY'S STOCK PRICE. The term
"Company's Stock Price" means the average of the closing bid prices for shares
of the Company's common stock (as presently constituted) in the over-the-counter
market, as reported by NASDAQ, for the ten trading days immediately preceding
June 30 of each year in question.
4.1.5.5 SUBSIDIARY. The term
"Subsidiary" means any corporation or other entity in which the Company and/or
any Subsidiary of the Company owns a majority of the outstanding voting
securities or outstanding voting interests.
4.2 CHANGES IN COMPANY'S CAPITAL STRUCTURE. In the event
that shares of the Company's common stock are changed into or exchanged for a
different number or kind of shares or other securities of the Company by reason
of one or more stock dividends, stock splits, reverse stock splits, combinations
of shares, reclassifications, recapitalizations or other reorganizations, the
rights of Employee to receive bonuses pursuant to Sections 4.1 and 4.2 hereof
shall be appropriately adjusted such that Employee is entitled to receive the
same amount of bonuses as Employee would be entitled to receive in the absence
of any of such changes in the Company's capital structure.
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5. DEFERRED COMPENSATION BENEFITS. In further recognition of
Employee's many years of valuable service to and on behalf of the Company and as
a further incentive for Employee to continue to exert his best efforts on behalf
of the Company, the Company agrees to pay Employee, or Employee's designated
beneficiary or beneficiaries in the event of Employee's death prior to the
payment of all amounts due hereunder, an aggregate of $500,000 in deferred
compensation benefits, payable in one hundred twenty installments of $4,166.67
each, commencing on the first day of the calendar month following the calendar
month within which Employee's employment with the Company ceases for any reason
and continuing on the same day of each succeeding calendar month thereafter for
the next one hundred nineteen (119) months or until all amounts due hereunder
have been paid. The Company's payment of deferred compensation benefits
hereunder shall be subject to all required withholding and other taxes.
6. OTHER BENEFITS. During the initial term of this Agreement and
any extension thereof, Employee shall also be entitled to participate in any and
all benefits from time to time generally afforded senior executive employees of
the Company in the sole discretion of the Board of Directors of the Company
including, by way of example and not by way of limitation, health, accident,
hospitalization, disability and life insurance programs, profit sharing and
other similar employee fringe benefit plans. Upon the expiration or other
termination of Employee's employment hereunder for any reason other than the
Company's termination of Employee for Cause, the Company agrees to continue to
provide, at its expense, Employee and/or his spouse with such health, accident,
hospitalization, disability and life insurance benefits afforded Employee and/or
his spouse at the time Employee's employment is terminated for a period of
eighteen (18) months after Employee's employment with the Company first ceases.
Subject to the Company's rules, practices and procedures, Employee shall also be
entitled to the use of an automobile owned or leased by the Company and
reasonable related automobile gasoline and oil, maintenance and insurance
expenses while employed by the Company pursuant to this Agreement.
7. REIMBURSEMENT OF EXPENSES. During the initial term of this
Agreement and any extension thereof, Employee shall be reimbursed by the Company
for Employee's reasonable travel, entertainment and other incidental expenses
incurred on business for the Company upon the submission by Employee of such
vouchers
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or other proof and when approved in accordance with the practices now
existing at the Company or in accordance with such practices as they may
hereafter be changed.
8. VACATIONS AND HOLIDAYS. During the initial term of this
Agreement and any extension thereof, Employee shall be entitled to such vacation
periods and holidays generally afforded senior executive employees of the
Company in the sole discretion of the Company, during which such vacation
periods and holidays the then annual base salary of Employee shall be paid in
full.
9. CONFIDENTIALITY.
9.1 CONFIDENTIAL INFORMATION. For the purposes of
this Agreement, "confidential information" means any information not generally
known outside of the Company or information entrusted to the Company by third
parties, and includes information known to Employee as confidential or secret or
which Employee shall have reason to know or reasonably should know is
confidential or secret. This information may relate, for example, to business
or marketing plans, computer programming, research, development, purchasing,
accounting, selling, marketing, costs, profits, sales, products, personnel,
pricing policies and other business affairs and methods and other information
not readily available to the public, and plans for future development. This
information may be contained in material such as data reports, agreements,
correspondence, customer lists, specifications or computer programs, or may be
in the nature of, or consist of, unknown knowledge, techniques, processes,
practices or know-how.
9.2 NONDISCLOSURE. Employee acknowledges that,
during Employee's employment with the Company, Employee has been and will
continue to be given access to or become acquainted with confidential
information. Employee agrees that such confidential information is of great
value to the Company and agrees not to use or disclose any confidential
information in any manner during Employee's employment with the Company and for
a period of one (1) year thereafter, other than as expressly required by the
Company in Employee's work for the Company or as a Director thereof, as the case
may be, without the Company's prior written consent. Employee agrees that all
confidential information, documents or other materials relating to the Company's
business, whether prepared or conceived by Employee during Employee's employment
with the Company or otherwise, or which may be in Employee's
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possession or control, are the Company's sole and exclusive property, and may be
removed from the Company's premises only if permitted by the Company in
accordance with its then rules and regulations. Employee agrees to immediately
return all confidential materials to the Company when no longer required in
order for Employee to perform Employee's services for the Company, when
Employee's employment is terminated for any reason, or whenever the Company may
otherwise require.
9.3 NO COMPETITIVE EMPLOYMENT. Without the
Company's express prior written approval, Employee shall not: (i) plan for,
acquire any substantial financial interest in or perform any services for any
other entity while employed by the Company; (ii) employ, attempt to employ or
solicit for employment by others, any of the Company's employees while employed
by the Company and for a period of one (1) year thereafter; (iii) solicit, or
cause to be solicited, any of the Company's customers with respect to the sale
of products or services which are competitive with those of the Company while
employed by the Company and for a period of one (1) years thereafter; or (iv)
solicit, cause to be solicited or accept the disclosure of any confidential
information for any purpose whatsoever not expressly authorized by the Company.
9.4 INJUNCTIVE RELIEF. Employee acknowledges that a
breach by Employee of any provision of this Section 11 will cause the Company
great and irreparable harm and that the Company shall be entitled to injunctive
and other equitable relief to prevent a breach or threatened breach of any
provision hereof, in addition to any other remedies the Company may have, and
that the provisions of this Section 11 shall be specifically enforceable against
Employee in accordance with its terms. Nothing contained herein shall, however,
prohibit Employee from becoming employed by a competitor of the Company
subsequent to the termination of his employment by the Company so long as
Employee has not violated the provisions of this Section 9.
10. GENERAL PROVISIONS.
10.1 NOTICES. All notices or other written
communications required or permitted to be given by this Agreement shall be
deemed given if personally delivered or three (3) days after it has been sent
(the date of posting shall be considered as the first day and there shall be
excluded any Sundays, legal
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holidays or other days upon which the United States mail generally is not
delivered) by United States registered or certified mail, postage prepaid,
properly addressed to the party to receive the notice at the following address
or at any other address given to the other party in the manner provided by this
Section 11.1:
If to the Company: Tinsley Laboratories, Inc.
3900 Lakeside Drive
Richmond, CA 94806
If to Employee: Mr. Robert J. Aronno
One Camelia Lane
Lafayette, CA 94599
10.2 SEVERABILITY. If any provision or any part of
any provision of this Agreement is determined to be invalid or unenforceable,
such provision or part shall be deemed to be severable from the remainder of
this Agreement, and shall not cause the invalidity or unenforceability of the
remainder of this Agreement, and the remainder of the Agreement shall be
interpreted as if such provision or part were so excluded and shall be
enforceable in accordance with its terms.
10.3 ASSIGNMENT. The parties acknowledge that this
Agreement constitutes a personal contract with Employee. Except as expressly
provided for herein, Employee may not transfer, assign or delegate any of his
rights, duties or obligations hereunder without the prior written consent of the
Company. Subject to the foregoing, this Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
personal representatives, successors and assigns.
10.4 NO IMPLIED WAIVERS. The failure of either party
at any time to require performance by the other party of any provision hereof
shall not affect in any way the right to require such performance at any later
time nor shall the waiver by either party of a breach of any provision hereof be
taken or held to be a waiver of such provision.
10.5 GOVERNING LAW. This Agreement has been entered
into in the State of California and all questions with respect to the
construction of this Agreement and the rights and liabilities of the parties
shall be governed by and construed and
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interpreted in accordance with the laws of the State of California.
10.6 COUNTERPARTS. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
10.7 CAPTIONS. The captions of the sections and
subsections of this Agreement are included for reference purposes only and are
not intended to be a part of the Agreement or in any way to define, limit or
describe the scope or intent of the particular provision to which they refer.
10.8 ENTIRE AGREEMENT; AMENDMENT. This Agreement
contains the entire understanding between the parties hereto with respect to the
subject matter hereof and supersedes any and all prior and contemporaneous
written or oral negotiations and agreements between them regarding the subject
matter hereof. This Agreement may be amended only in a writing signed by both
of the parties.
10.9 ATTORNEYS' FEES AND LITIGATION COSTS. If any
legal action or arbitration is brought for the enforcement of this Agreement, or
because of an alleged dispute, breach, default or misrepresentation in
connection with any of the provisions of this Agreement, the successful or
prevailing party shall be entitled to recover his or its reasonable attorneys'
fees and other costs incurred in such legal action, in addition to any other
relief to which he or it may be entitled.
10.10 ARBITRATION. Except as provided in Section 9.4
hereof, any controversy or claim arising out of or relating to this Agreement
shall be settled by arbitration in Contra Costa County, California, in
accordance with the then rules of the Judicial Arbitration & Mediation Services,
Inc., and judgment upon an award rendered in such arbitration may be entered in
any court having jurisdiction thereof.
10.11 DESIGNATED BENEFICIARY OR BENEFICIARIES. For
purposes of this Agreement, Employee's designated beneficiary or beneficiaries
shall mean the person or persons designated by Employee herein or in a writing
hereafter delivered to the Company to receive payments otherwise due Employee
under this Agreement in
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the event of Employee's death before all payments otherwise due Employee under
this Agreement shall have been paid. Employee's designated beneficiary as of
the date hereof is his spouse, Sarah T. Aronno. If Employee's spouse
predeceases Employee, Employee's designated beneficiary shall be his son,
John F. Aronno. Employee shall be entitled to change his designated beneficiary
or beneficiaries from time to time from the persons set forth herein or from the
persons set forth in any subsequent writing delivered by Employee to the Company
hereunder; provided, however, that any such change shall not become effective
until actually received by the Company in writing from Employee.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
effective as of the date first above mentioned.
"Company" "Employee"
TINSLEY LABORATORIES, INC.
By:
--------------------------- ------------------------------
Its: Robert J. Aronno
-----------------------
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SALARY CONTINUATION AGREEMENT
THIS SALARY CONTINUATION AGREEMENT ("Agreement") is made and entered
into as of June 28, 1995, by and between TINSLEY LABORATORIES, INC., a
California corporation ("Company"), and ROBERT J. JOHNSON ("Key Employee").
RECITALS
A. Key Employee has been employed by the Company in a capacity of
responsibility and by reason thereof has acquired experience and knowledge of
considerable value to the Company.
B. The Company desires to offer an inducement to Key Employee to
remain in its employ by compensating him beyond his regular salary for services
which Key Employee has rendered, or will hereafter render, to the Company.
C. The provisions of this Agreement are to be operative if Key
Employee continues on the employ of the Company until his retirement, death,
total disability or termination by the Company for other than cause, subject
only to the exceptions noted herein.
TERMS AND CONDITIONS
NOW, THEREFORE, the parties hereto agree as follows:
II.. EMPLOYMENT OF KEY EMPLOYEE. The Company hereby agrees to
continue the employment of Key Employee in a capacity of responsibility
commencing as of the date of this Agreement, and Key Employee hereby accepts
such continued employment by the Company.
III..COMPENSATION OF KEY EMPLOYEE. As compensation for his services,
the Company hereby agrees to pay Key Employee, and Key Employee hereby agrees to
accept from the Company, an annual salary to be determined by the Company in its
sole and absolute discretion and the other employee benefits referred to
elsewhere in this Agreement.
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IV.. RETIREMENT BENEFITS. If Key Employee remains in the continuous,
full-time employ of the Company until his retirement, Key Employee shall,
subject to the provisions of Section 9 hereof, be entitled to receive from the
Company an amount equal to $100,000, payable in 120 equal monthly installments
of $833.33 each, without interest, commencing on the first day of the calendar
month following the month in which the Key Employee retires and continuing on
the first day of each month thereafter for the next 119 months. In the event
that Key Employee dies before or while receiving payments pursuant to this
Section 3, the Company shall commence or continue, as the case may be, making
such payments to Key Employee's Beneficiary (as defined in Section 7 hereof).
Said Beneficiary shall be entitled to receive all payments which Key Employee
would have been entitled to receive hereunder had Key Employee not died.
V.. DEATH BENEFITS. In the event that Key Employee dies while in the
full-time employ of the Company, the Company agrees to pay to Key Employee's
Beneficiary an amount equal to $100,000. Said death benefits shall be payable
by the Company to Key Employee's Beneficiary in 120 equal monthly installments
of $833.33 each, without interest, commencing on the first day of the calendar
month following the month in which Key Employee dies and continuing on the first
day of each month thereafter for the next 119 months.
VI.. DISABILITY BENEFITS. In the event that Key Employee becomes
Totally Disabled (as defined in Section 8 hereof) while in the full-time employ
of the Company, the Company agrees, subject to the provisions of Section 9
hereof, to pay Key Employee an amount equal to $100,000. Said disability
benefits shall be payable in 120 equal monthly installments of $833.33 each,
without interest, commencing on the first day of the calendar month following
the month in which Key Employee first becomes Totally Disabled and continuing on
the first day of each month thereafter for the next 119 months. In the event
that Key Employee dies before or while receiving payments pursuant to this
Section 5, the Company shall commence or continue, as the case may be, making
such payments to Key Employee's Beneficiary. Said Beneficiary shall be entitled
to receive all payments which Key Employee would have been entitled to receive
hereunder had Key Employee not died.
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VII.. TERMINATION BENEFITS. In the event that Key Employee's
employment with the Company shall be terminated by the Company for any reason
other than for due and just cause, the Company agrees, subject to the provisions
of Section 9 hereof, to pay Key Employee an amount equal to $100,000. Said
termination benefits shall be payable in 120 equal monthly installments of
$833.33 each, without interest, commencing on the first day of the calendar
month following the month in which Key Employee's employment with the Company is
terminated for any reason other than for due and just cause. In the event that
Key Employee dies before or while receiving payments pursuant to this Section 6,
the Company shall commence or continue, as the case may be, making such payments
to Key Employee's Beneficiary. Said Beneficiary shall be entitled to receive
all payments which Key Employee would have been entitled to receive hereunder
had Key Employee not died.
VIII.. DEFINITION OF BENEFICIARY. The term "Beneficiary" shall
mean the person or persons designated by Key Employee in a writing delivered to
the Company to receive payments otherwise due Key Employee under this Agreement
in the event Key Employee dies prior to the payment of all amounts due
hereunder. Key Employee shall be entitled to change his Beneficiary from time
to time; provided, however, that any such change shall not become effective
until received by the Company in writing from Key Employee. If the Employee is
married and does not name his spouse as his Beneficiary, Key Employee will
provide the Company with a written consent signed by his spouse consenting and
agreeing to such Beneficiary designation in a form deemed acceptable by the
Company. If the Employee is unmarried or becomes unmarried and later marries or
re-marries, as the case may be, and does not name his new spouse as Beneficiary,
Key Employee will provide the Company with a written consent signed by his
spouse consenting and agreeing to such Beneficiary designation in a form deemed
acceptable by the Company.
IX.. DEFINITION OF TOTALLY DISABLED. For purposes of this Agreement,
the term "Totally Disabled" shall have the same meaning as that term is used in
the Company's long term disability plan in effect at the time of a need for a
determination of whether or not a Key Employee is Totally Disabled for the
purposes hereof. In the event the Company does not have a long-term disability
plan at the time that a determination of whether or not a Key Employee is
"Totally Disabled" is to be made, the definition will be based on the definition
in the long-term disability plan
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of the Company most recently in effect. In the event the Company has never had
a long-term disability plan in effect, the term "Totally Disabled" shall mean
that Key Employee is unable or unwilling to perform Key Employee's normal duties
on behalf of the Company by reason of any medically determinable physical or
mental impairment for a continuous period of at least 180 days or for at least
270 days within any 18-month period.
X.. FORFEITURE OF BENEFITS. In consideration of the receipt by him
of the benefits otherwise payable to him hereunder and as a condition precedent
to the receipt of any such benefits hereunder, Key Employee agrees that he will
not, at any time within a period of 120 months from and after the date that Key
Employee retires, becomes Totally Disabled or is terminated by the Company for
any reason other than due or just cause, directly or indirectly, engage in or
have any interest in, any person, firm, corporation or other business entity
(whether as an employee, officer, director, agent, securityholder, creditor,
consultant or otherwise) that engages in any activity in any of the counties
within the State of California or within the United States where the Company is
conducting, or has conducted, its business, which activity is the same as,
similar to or competitive with any activity engaged in by the Company. In the
event that Key Employee breaches the foregoing noncompetition covenant, the
Company may, in its sole and absolute discretion, upon written notice to Key
Employee, cause all further benefits otherwise payable to such Key Employee
under this Agreement to be suspended. Thereafter, if the Company shall find
that Key Employee has continued to violate his noncompetition covenant, the
Company may permanently cancel the payment of all further benefits otherwise
payable hereunder to Key Employee and all rights of Key Employee under this
Agreement shall be deemed to have been forfeited and cancelled.
XI.. RIGHT OF COMPANY TO TERMINATE EMPLOYMENT. Nothing contained in
this Agreement shall confer upon Key Employee any right to be continued in the
employ of the Company or shall interfere in any way with the right of the
Company to terminate the employment of Key Employee at any time.
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XII.. NO EFFECT ON OTHER EMPLOYEE BENEFITS. The benefits provided by
this Agreement shall be in addition to Key Employee's annual salary as
determined by the Company in its sole and absolute discretion and shall not
affect the right of Key Employee to participate in any current or future profit
sharing plan, pension plan, retirement plan or other similar plan of the Company
or in any supplemental compensation arrangement between the Company and Key
Employee which constitutes a part of the Company's regular compensation
structure.
XIII..NONALIENATION OF BENEFITS. No right or benefit under this
Agreement shall be subject to anticipation, alienation, assignment, pledge,
encumbrance or charge, and any attempt to anticipate, alienate, sell, assign,
pledge, encumber or charge the same shall be null and void. No right or benefit
under this Agreement shall in any manner be liable for or subject to the debts,
contracts, liabilities or torts of the person entitled to receive such benefits.
If Key Employee or his Beneficiary shall become bankrupt or attempts to
anticipate, alienate, sell, assign, pledge, encumber or charge any right or
benefit hereunder, then such right or benefit shall, in the sole and absolute
discretion of the Company, cease and determine and, in such event, the Company
may hold or apply the same or any part thereof to the benefit of Key Employee or
his Beneficiary in such amount and in such proportion as the Company may deem
proper.
XIV..INSURANCE OR ANNUITY POLICIES. If the Company shall acquire an
insurance policy or annuity contract or any other asset in connection with the
funding of its liabilities hereunder, it is expressly understood and agreed that
neither Key Employee nor his Beneficiary shall have any right with respect to,
or claim against, such policy or other asset, except as expressly provided by
the terms of such policy or in the title to such other asset. Such policy or
asset shall not be deemed to be held under any trust for the benefit of Key
Employee or his Beneficiary or to be held in any way as collateral security for
the fulfillment of the Company's obligations under this Agreement, except as may
be expressly provided by the terms of such policy or title to such other asset.
Except as expressly provided by the terms of such policy or title to such asset,
such policy or other asset shall be and remain in general an unpledged and
unrestricted asset of the Company.
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XV.. ASSUMPTION OF OBLIGATIONS UPON MERGER OR SALE OF COMPANY. The
Company agrees that it will not merge or consolidate with any other corporation
or organization or permit its business to be sold to any other corporation or
organization unless and until the succeeding or continuing company or other
organization shall expressly assume all of the Company's obligations and
liabilities hereunder.
XVI..GENERAL PROVISIONS.
XVI.A. NOTICES. Any notice sent hereunder shall be deemed
given if served personally upon the party for whom intended, or if mailed
postage prepaid by certified or registered mail, return receipt requested, to
the address of the party for whom intended as hereinafter set forth, or as
otherwise designated by such party in writing:
Company: 3900 Lakeside Drive
Richmond, CA 94806
Attn: Robert J. Aronno, President
Key Employee: 7600 Potrero
El Cerrito, CA 94530
XVI.B. ASSIGNMENT. The rights and obligations of the Company
under this Agreement shall inure to the benefit of the Company, its successors
and assigns, and shall be binding upon the successors and assigns of the
Company. This Agreement, being personal to Key Employee, cannot be assigned by
Key Employee.
XVI.C. WAIVER. Failure to insist on compliance with any of
the terms, covenants or conditions hereof shall not be deemed a waiver of such
terms, covenants or conditions, nor shall any waiver or relinquishment of any
right or power hereunder at any one time or more times be deemed a waiver or
relinquishment of such rights or powers at any other time or times.
XVI.D. GOVERNING LAW. The parties hereto agree that this
Agreement has been executed in the State of California and shall be governed by
the laws thereof.
XVI.E. EFFECT OF HEADINGS. The headings of the Sections of
this Agreement are included for purposes of
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convenience only and shall not affect the construction or interpretation of any
of the provisions of this Agreement.
XVI.F. SEVERABILITY. In the event that any provision of this
Agreement or any part of any provision of this Agreement shall be determined to
be illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall not affect the legality, validity or enforceability of
any other provision or part hereof.
XVI.G. MODIFICATION. This Agreement constitutes the entire
agreement among the parties hereto pertaining to the subject matter hereof and
supersedes any and all prior and contemporaneous agreements, understandings,
negotiations and discussions, whether oral or written, of the parties. No
supplement, modification, waiver or termination of this Agreement or any
provisions hereof shall be binding unless executed in writing by the party or
parties to be bound thereby.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
"Company" "Key Employee"
TINSLEY LABORATORIES, INC.
By:
----------------------------- -------------------------------
Robert J. Aronno, President Robert J. Johnson
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PR TAYLOR MULTIPLE EMPLOYER 401(K) PLAN
AS ADOPTED BY
TINSLEY LABORATORIES, INC.
EFFECTIVE AS OF AUGUST 14, 1995
Prepared By:
COOLEY GODWARD CASTRO
HUDDLESON & TATUM
5 Palo Alto Square, 4th Floor
Palo Alto, CA 94306
(415)843-5000
Stephen W. Fackler
Julie A. Vehrenkamp
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1 - INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2 - DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1 Account . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 Actual Contribution Percentage. . . . . . . . . . . . . . . . 1
2.3 Actual Deferral Percentage. . . . . . . . . . . . . . . . . . 1
2.4 Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.5 Annual Additions. . . . . . . . . . . . . . . . . . . . . . . 2
2.6 Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.7 Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.8 Break in Service. . . . . . . . . . . . . . . . . . . . . . . 2
2.9 Code. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.10 Committee . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.11 Company . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.12 Compensation. . . . . . . . . . . . . . . . . . . . . . . . . 2
2.13 Contribution Rate . . . . . . . . . . . . . . . . . . . . . . 3
2.14 Crosspoint. . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.15 Deferral Rate . . . . . . . . . . . . . . . . . . . . . . . . 4
2.16 Defined Benefit Plan Fraction . . . . . . . . . . . . . . . . 5
2.17 Defined Contribution Plan Fraction. . . . . . . . . . . . . . 5
2.18 Disability. . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.19 Effective Date. . . . . . . . . . . . . . . . . . . . . . . . 6
2.20 Eligible Employee . . . . . . . . . . . . . . . . . . . . . . 6
2.21 Employee. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.22 Employer. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.23 Employer Contributions. . . . . . . . . . . . . . . . . . . . 7
2.24 Employer Contributions Account. . . . . . . . . . . . . . . . 7
2.25 Employment Commencement Date. . . . . . . . . . . . . . . . . 7
2.26 Entry Date. . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.27 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.28 Excess Aggregate Contributions. . . . . . . . . . . . . . . . 7
2.29 Excess Contributions. . . . . . . . . . . . . . . . . . . . . 7
2.30 Excess Elective Deferrals . . . . . . . . . . . . . . . . . . 8
2.31 Five Year Break in Service. . . . . . . . . . . . . . . . . . 8
2.32 Forfeiture. . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.33 Hardship. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.34 Highly Compensated Employee . . . . . . . . . . . . . . . . . 8
2.35 Hour of Service . . . . . . . . . . . . . . . . . . . . . . . 10
2.36 Investment Fund . . . . . . . . . . . . . . . . . . . . . . . 11
i.
<PAGE>
2.37 Investment Management Advisor . . . . . . . . . . . . . . . . 11
2.38 Investment Manager. . . . . . . . . . . . . . . . . . . . . . 11
2.39 Limitation Year . . . . . . . . . . . . . . . . . . . . . . . 11
2.40 Matching Contributions. . . . . . . . . . . . . . . . . . . . 11
2.41 Matching Contributions Account. . . . . . . . . . . . . . . . 12
2.42 Non-Highly Compensated Employee . . . . . . . . . . . . . . . 12
2.43 Normal Retirement Age . . . . . . . . . . . . . . . . . . . . 12
2.44 Participant . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.45 Period of Service . . . . . . . . . . . . . . . . . . . . . . 12
2.46 Period of Severance . . . . . . . . . . . . . . . . . . . . . 12
2.47 Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.48 Plan Administrator. . . . . . . . . . . . . . . . . . . . . . 12
2.49 Plan Year . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.50 Profit Sharing Contributions. . . . . . . . . . . . . . . . . 13
2.51 Profit Sharing Contributions Account. . . . . . . . . . . . . 13
2.52 Qualified Nonelective Contributions . . . . . . . . . . . . . 13
2.53 Qualified Nonelective Contributions Account . . . . . . . . . 13
2.54 Reemployment Commencement Date. . . . . . . . . . . . . . . . 13
2.55 Required Beginning Date . . . . . . . . . . . . . . . . . . . 13
2.56 Review Panel. . . . . . . . . . . . . . . . . . . . . . . . . 13
2.57 Rollover Account. . . . . . . . . . . . . . . . . . . . . . . 14
2.58 Rollover Contribution . . . . . . . . . . . . . . . . . . . . 14
2.59 Salary Deferral Account . . . . . . . . . . . . . . . . . . . 14
2.60 Salary Deferral Agreement . . . . . . . . . . . . . . . . . . 14
2.61 Salary Deferral Contributions . . . . . . . . . . . . . . . . 14
2.62 Severance from Service Date . . . . . . . . . . . . . . . . . 14
2.63 Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.64 Trust Agreement . . . . . . . . . . . . . . . . . . . . . . . 15
2.65 Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.66 Valuation Date. . . . . . . . . . . . . . . . . . . . . . . . 15
2.67 Year of Service . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 3 - ELIGIBILITY AND PARTICIPATION. . . . . . . . . . . . . . . . . 15
3.1 Eligibility to Become a Participant . . . . . . . . . . . . . 15
3.2 Participation in Salary Deferral Contributions. . . . . . . . 15
3.3 Suspension of Participation . . . . . . . . . . . . . . . . . 15
3.4 Reestablishing Eligible Employee Status and Plan Reentry. . . 16
3.5 Termination of Participation. . . . . . . . . . . . . . . . . 16
3.6 No Maximum Age. . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 4 - CONTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . . . . . 16
4.1 Salary Deferral Contributions . . . . . . . . . . . . . . . . 16
4.2 Salary Deferral Agreement . . . . . . . . . . . . . . . . . . 19
4.3 Employer Contributions. . . . . . . . . . . . . . . . . . . . 19
4.4 Qualified Nonelective Contributions . . . . . . . . . . . . . 20
ii.
<PAGE>
4.5 Time of Payment . . . . . . . . . . . . . . . . . . . . . . . 20
4.6 Rollover Contributions. . . . . . . . . . . . . . . . . . . . 20
4.7 Nondiscrimination Requirements. . . . . . . . . . . . . . . . 21
4.8 Reversion of Contributions. . . . . . . . . . . . . . . . . . 27
4.9 Other Limitations on Contributions. . . . . . . . . . . . . . 27
ARTICLE 5 - PARTICIPANTS' ACCOUNTS . . . . . . . . . . . . . . . . . . . . 29
5.1 Individual Accounts . . . . . . . . . . . . . . . . . . . . . 29
5.2 Revaluation of the Trust. . . . . . . . . . . . . . . . . . . 29
5.3 Statements. . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.4 Allocation of Investment Income . . . . . . . . . . . . . . . 30
ARTICLE 6 - INVESTMENT OF PARTICIPANT'S ACCOUNTS . . . . . . . . . . . . . 30
6.1 Investment Control. . . . . . . . . . . . . . . . . . . . . . 30
6.2 Selection of Investment Funds . . . . . . . . . . . . . . . . 30
6.3 Investment of Accounts. . . . . . . . . . . . . . . . . . . . 30
6.4 Change of Investment Election as to Future Contributions. . . 30
6.5 Transfers Between Investment Funds. . . . . . . . . . . . . . 30
ARTICLE 7 - VESTING. . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.1 Fully Vested Accounts . . . . . . . . . . . . . . . . . . . . 31
7.2 Vesting of the Profit Sharing Contributions Account and
Matching Contributions Account. . . . . . . . . . . . . . . . 31
7.3 Change in Vesting Schedule. . . . . . . . . . . . . . . . . . 32
7.4 Forfeitures . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.5 Vesting on Reemployment . . . . . . . . . . . . . . . . . . . 33
ARTICLE 8 - PLAN DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . 34
8.1 Events Permitting Distribution. . . . . . . . . . . . . . . . 34
8.2 Applicable Distribution and Withdrawal Provisions . . . . . . 34
8.3 Time of Distribution to Participant . . . . . . . . . . . . . 34
8.4 Latest Time of Distribution . . . . . . . . . . . . . . . . . 35
8.5 Small Benefits: Immediate Payment. . . . . . . . . . . . . . 35
8.6 Form of Distribution to Participant . . . . . . . . . . . . . 36
8.7 Distribution of Death Benefit . . . . . . . . . . . . . . . . 36
8.8 Beneficiary Designation; Spousal Consent Rights . . . . . . . 36
8.9 Minimum Required Distributions; Incorporation of
Regulations . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.10 Direct Rollover . . . . . . . . . . . . . . . . . . . . . . . 37
8.11 Withholding on Distributions. . . . . . . . . . . . . . . . . 38
8.12 Deferred Distribution . . . . . . . . . . . . . . . . . . . . 38
8.13 Determination of Account Balance. . . . . . . . . . . . . . . 38
8.14 No Liability. . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE 9 - WITHDRAWALS WHILE EMPLOYED . . . . . . . . . . . . . . . . . . 39
9.1 Withdrawals From Rollover Account . . . . . . . . . . . . . . 39
iii.
<PAGE>
9.2 Withdrawals From Salary Deferral Account. . . . . . . . . . . 39
9.3 Withdrawals from Employer Contributions Account . . . . . . . 39
9.4 Plan Administrator Consent. . . . . . . . . . . . . . . . . . 40
9.5 Hardship Withdrawal Rules . . . . . . . . . . . . . . . . . . 40
9.6 Frequency and Source of Withdrawals . . . . . . . . . . . . . 42
9.7 Payment of Withdrawals. . . . . . . . . . . . . . . . . . . . 42
9.8 Valuation Date. . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE 10 - LOANS FROM THE PLAN . . . . . . . . . . . . . . . . . . . . . 42
10.1 Eligibility for Loans . . . . . . . . . . . . . . . . . . . . 42
10.2 Amount of Loans . . . . . . . . . . . . . . . . . . . . . . . 43
10.3 Aggregate Loan Limitation . . . . . . . . . . . . . . . . . . 43
10.4 Loan Requirements . . . . . . . . . . . . . . . . . . . . . . 43
10.5 Loan Procedures . . . . . . . . . . . . . . . . . . . . . . . 44
10.6 Segregated Investment . . . . . . . . . . . . . . . . . . . . 44
ARTICLE 11 - FUNDING POLICY AND METHOD . . . . . . . . . . . . . . . . . . 44
11.1 Contributions . . . . . . . . . . . . . . . . . . . . . . . . 44
11.2 Expenses of the Plan. . . . . . . . . . . . . . . . . . . . . 45
11.3 Independent Accountant. . . . . . . . . . . . . . . . . . . . 45
ARTICLE 12 - FIDUCIARY RESPONSIBILITIES AND PLAN ADMINISTRATION. . . . . . 45
12.1 Plan Sponsor and Plan Administrator . . . . . . . . . . . . . 45
12.2 Administrative Responsibilities . . . . . . . . . . . . . . . 45
12.3 Management of Plan Assets . . . . . . . . . . . . . . . . . . 45
12.4 Trustee and Investment Managers . . . . . . . . . . . . . . . 46
12.5 Selection of Service Providers and Delegation of
Fiduciary Responsibilities. . . . . . . . . . . . . . . . . . 46
12.6 Service in Several Fiduciary Capacities . . . . . . . . . . . 46
12.7 Appointment of the Committee. . . . . . . . . . . . . . . . . 46
12.8 Indemnification . . . . . . . . . . . . . . . . . . . . . . . 47
12.9 Removal of Plan Administrator and Other Named Fiduciaries . . 47
ARTICLE 13 - CLAIMS PROCEDURES . . . . . . . . . . . . . . . . . . . . . . 48
13.1 Application for Benefits. . . . . . . . . . . . . . . . . . . 48
13.2 Denial of Application . . . . . . . . . . . . . . . . . . . . 48
13.3 Review Panel. . . . . . . . . . . . . . . . . . . . . . . . . 48
13.4 Request for Review. . . . . . . . . . . . . . . . . . . . . . 48
13.5 Decision on Review. . . . . . . . . . . . . . . . . . . . . . 48
13.6 Rules and Interpretations . . . . . . . . . . . . . . . . . . 49
13.7 Exhaustion of Remedies. . . . . . . . . . . . . . . . . . . . 49
ARTICLE 14 - AMENDMENT OR DISCONTINUANCE OF THE PLAN . . . . . . . . . . . 49
14.1 Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . 49
14.2 Merger, Consolidation or Transfer . . . . . . . . . . . . . . 49
14.3 Right to Terminate Plan . . . . . . . . . . . . . . . . . . . 50
iv.
<PAGE>
14.4 Employer's Rights and Obligations Upon Plan Termination . . . 50
14.5 Participants' Rights Upon Plan Termination. . . . . . . . . . 50
ARTICLE 15 - TOP-HEAVY PROVISIONS. . . . . . . . . . . . . . . . . . . . . 50
15.1 Top-Heavy Plan Defined. . . . . . . . . . . . . . . . . . . . 50
15.2 Other Definitions . . . . . . . . . . . . . . . . . . . . . . 51
15.3 Top-Heavy Accrual Rules . . . . . . . . . . . . . . . . . . . 52
15.4 Impact on Contribution Limitations. . . . . . . . . . . . . . 53
ARTICLE 16 - MULTIPLE EMPLOYER PLAN. . . . . . . . . . . . . . . . . . . . 53
16.1 Participation and Coverage. . . . . . . . . . . . . . . . . . 53
16.2 Exclusive Benefit . . . . . . . . . . . . . . . . . . . . . . 54
16.3 Vesting . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
16.4 Deduction Limitations . . . . . . . . . . . . . . . . . . . . 54
16.5 Qualification . . . . . . . . . . . . . . . . . . . . . . . . 54
ARTICLE 17 - GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . 54
17.1 No Implied Employment Contract. . . . . . . . . . . . . . . . 54
17.2 Benefits Not Assignable . . . . . . . . . . . . . . . . . . . 54
17.3 Qualified Domestic Relations Orders . . . . . . . . . . . . . 55
17.4 Payments of Benefits to Infants or Incompetents . . . . . . . 55
17.5 Unclaimed Benefits. . . . . . . . . . . . . . . . . . . . . . 55
17.6 Source of Benefits. . . . . . . . . . . . . . . . . . . . . . 55
17.7 Forms of Plan Communications. . . . . . . . . . . . . . . . . 56
17.8 IRS Qualification . . . . . . . . . . . . . . . . . . . . . . 56
17.9 Construction of Plan. . . . . . . . . . . . . . . . . . . . . 56
17.10 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 56
17.11 Severability. . . . . . . . . . . . . . . . . . . . . . . . . 56
ARTICLE 18 - EXECUTION . . . . . . . . . . . . . . . . . . . . . . . . . . 57
v.
<PAGE>
PR TAYLOR MULTIPLE EMPLOYER 401(K) PLAN
1
INTRODUCTION
The PR Taylor Multiple Employer 401(k) Plan was originally effective on
July 1, 1994.
The Plan is intended to qualify as a profit-sharing plan under
Sections 401(a) and 501 of the Code, with a cash or deferred arrangement
intended to qualify under Section 401(k) of the Code. Notwithstanding the
foregoing, contributions to the Plan shall be determined without regard to
profits of the Employer or any Affiliate of the Employer. This plan document
sets out the terms under which the Employer participates in the Plan, which is
intended to be a multiple employer plan within the meaning of Section 413(c) of
the Code. The Plan shall be maintained for the exclusive benefit of the
Participants and their Beneficiaries.
2
DEFINITIONS
The following terms when used in the Plan shall have the meanings
specified below. Words in the masculine, feminine and neuter gender shall be
deemed to include the other, and words in the singular shall include the plural
and vice versa, unless a different meaning is plainly required by the context:
2.1 "ACCOUNT" means, to the extent applicable to a Participant, the
aggregate of the separate accounts and subaccounts maintained under the Plan and
held by the Trustee for the benefit of a Participant, as described in Articles 5
and 6.
2.2 "ACTUAL CONTRIBUTION PERCENTAGE" means the average of the
Contribution Rates (calculated separately for each Eligible Employee) of the
Eligible Employees in a group.
2.3 "ACTUAL DEFERRAL PERCENTAGE" means the average of the Deferral
Rates (calculated separately for each Eligible Employee) of the Eligible
Employees in a group.
2.4 "AFFILIATE" means any corporation or other trade or business
(whether or not incorporated) that, together with the Employer is a member of a
"controlled group of corporations" or is under "common control" as defined in
Section 414(b) or 414(c) of the Code, respectively, is a member of an
"affiliated service group" as defined in Section 414(m) of the Code, or is
required to be treated as a single employer pursuant to regulations under
Section 414(o) of the Code, but only to the extent provided in any such
regulations. An entity
1.
<PAGE>
shall be considered an Affiliate only with respect to periods during which the
relationship described above exists.
2.5 "ANNUAL ADDITIONS" means, to the extent applicable under the Plan,
the sum of the following amounts credited to a Participant's Account for any
Limitation Year:
(a) Salary Deferral Contributions;
(b) Employer Contributions;
(c) Qualified Nonelective Contributions;
(d) Allocated Forfeitures; and
(e) Amounts described in Sections 415(l)(1) and 419A(d)(2) of
the Code.
Notwithstanding the foregoing, Excess Elective Deferrals that are distributed in
accordance with Subsection 4.1(d) of the Plan are not Annual Additions.
However, Excess Contributions and Excess Aggregate Contributions that are
distributed (or in the case of Excess Aggregate Contributions, that are
forfeited) in accordance with Paragraphs 4.7(b)(1) and (e)(1) of the Plan,
respectively, are Annual Additions.
2.6 "BENEFICIARY" means the person or persons entitled under
Section 8.8 to receive any Plan benefit payable pursuant to Section 8.7
following the death of a Participant.
2.7 "BOARD" means the Board of Directors of the Company, as
constituted from time to time.
2.8 "BREAK IN SERVICE" means, for purposes of eligibility and vesting,
any one year Period of Severance.
2.9 "CODE" means the Internal Revenue Code of 1986, as amended from
time to time.
2.10 "COMMITTEE" means the 401(k) Plan Committee referred to in Section
12.7(a), if appointed as provided in Section 12.7.
2.11 "COMPANY" means Tinsley Laboratories, Inc. and any successor
thereto.
2.12 "COMPENSATION" means for a Plan Year an Eligible Employee's wages
as defined in Section 3401(a) of the Code, and all other payments of
compensation to an Employee by the Employer (in the course of the Employer's
trade or business) for which the Employer is required to furnish the Employee
with a written statement under Sections 6041(d), 6051(a)(3), and 6052 of the
Code (specifically, the amount shown in Box 1 on the Employee's Form W-2 or any
successor method of reporting under Section 6041(d) of the Code).
2.
<PAGE>
Compensation shall be determined without regard to any rules under Section
3401(a) of the Code that limit the remuneration included in wages based on the
nature or location of the employment or the services performed (such as the
exception for agricultural labor in Section 3401(a)(2) of the Code).
Notwithstanding the foregoing, for purposes of determining whether an individual
is a Highly Compensated Employee or a Key Employee, Compensation shall be
determined without regard to Sections 125, 402(e)(3), and 402(h)(1) of the Code,
and in the case of employer contributions made pursuant to a salary reduction
agreement, without regard to Section 403(b) of the Code. For purposes of
calculating an Eligible Employee's Contribution Rate or Deferral Rate and
allocating contributions under Article 4 (but not for purposes of the
limitations contained in Section 4.9), Compensation shall include: (i) Salary
Deferral Contributions, (ii) other elective contributions that are made by the
Employer or an Affiliate on behalf of its Employees that are not includable in
gross income under Sections 125, 402(e)(3), 402(h), and 403(b) of the Code,
(iii) Compensation deferred under an eligible deferred compensation plan within
the meaning of Section 457(b) of the Code (deferred compensation plans of state
and local governments and tax-exempt organizations), and (iv) employee
contributions (under governmental plans) described in Section 414(h)(2) of the
Code that are picked up by the employing unit and thus are treated as employer
contributions.
Compensation of an Eligible Employee taken into account for determining all
benefits provided under the Plan for any Plan Year shall not exceed $150,000, as
adjusted for increases in the cost of living in accordance with Section
401(a)(17)(B) of the Code. If the period for determining Compensation used in
calculating an Eligible Employee's allocation for a Plan Year is a short Plan
Year (I.E., shorter than twelve (12) months), the annual Compensation limit is
an amount equal to the otherwise applicable annual Compensation limit multiplied
by a fraction, the numerator of which is the number of months in the short Plan
Year, and the denominator of which is twelve (12). In determining the
Compensation of an Eligible Employee for purposes of this limitation, the family
aggregation rules of Section 414(q)(6) of the Code shall apply, except that in
applying such rules, the term "family" shall include only the spouse of the
Eligible Employee and any lineal descendants of the Eligible Employee who have
not attained age 19 before the close of the year. If, in complying with Section
414(q)(6) of the Code, the $150,000 limitation (as adjusted) is exceeded, then
the $150,000 limitation shall be prorated among the affected individuals in
proportion to each individual's Compensation as determined under this Section
2.12 prior to the application of the $150,000 limitation.
2.13 "CONTRIBUTION RATE" means the rate (expressed as a percentage to
the nearest one hundredth of one percent) determined by dividing:
(a) The aggregate amount of any Matching Contributions made
under the Plan on behalf of an Eligible Employee for the Plan Year; by
(b) The Eligible Employee's Compensation for the Plan Year.
The amount in Subsection (a) above shall include any Forfeiture allocated to the
Participant's Account on the basis of Matching Contributions or Salary Deferral
Contributions, which shall be
3.
<PAGE>
taken into account in the Plan Year in which such Forfeiture is allocated. The
amount in Subsection (a) above shall not include any Matching Contributions that
are forfeited as Excess Aggregate Contributions, or because the Salary Deferral
Contributions to which they relate are treated as an Excess Contribution, Excess
Elective Deferral or Excess Aggregate Contribution. The Compensation of an
Eligible Employee taken into account in Subsection (b) above shall be limited,
where applicable, to the Compensation of the Eligible Employee during the
portion of the Plan Year during which he or she is eligible to participate in
the Plan.
In computing the Contribution Rate, the Company may elect to include in the
amount in Subsection (a) above:
(1) All or a portion of the Salary Deferral Contributions
for such Employees;
(2) All or a portion of the Qualified Nonelective
Contributions for such Employees; or
(3) All or a portion of any contributions (including, if
applicable, any Employer Contributions) that constitute "qualified nonelective
contributions" (as defined in Section 401(m)(4)(C) of the Code) or "elective
deferrals" (as defined in Section 401(m)(4)(B) of the Code) made to the Plan or
any other plan of the Employer or any Affiliate of the Employer;
provided, however, that the Salary Deferral Contributions, including those taken
into account hereunder, satisfy the nondiscrimination test under
Subsection 4.7(a). Any such election shall be subject to the requirements of
and shall be made in accordance with any regulations applicable under
Section 401(m) of the Code.
2.14 "CROSSPOINT" means Crosspoint Venture Partners and any
successor thereto. The Employer hereby agrees that Crosspoint may delegate its
rights and responsibilities under the Plan.
2.15 "DEFERRAL RATE" means the rate (expressed as a percentage to
the nearest one hundredth of one percent) determined by dividing:
(a) The aggregate amount of the Eligible Employee's Salary
Deferral Contributions, if any, for the Plan Year; by
(b) The Eligible Employee's Compensation for such Plan Year.
The Compensation of an Eligible Employee taken into account in Subsection (b)
above shall be limited, where applicable, to the Compensation of the Eligible
Employee during the portion of the Plan Year during which he or she is eligible
to participate in the Plan.
In computing the Deferral Rate, the Employer may elect to include in the amount
in Subsection (a) above:
4.
<PAGE>
(1) All or a portion of the Qualified Nonelective
Contributions made on behalf of such Eligible Employees; or
(2) All or a portion of any contributions
(including, if applicable, any Employer Contributions) that constitute
"qualified nonelective contributions" (as defined in Section 401(m)(4)(C) of the
Code) or "matching contributions" described in Section 401(k)(3)(D)(ii)(I) of
the Code (generally known as "qualified matching contributions") made to the
Plan or any other plan of the Employer or any Affiliate of the Employer.
Any such election shall be subject to the requirements of and shall be in
accordance with regulations applicable under Section 401(k) of the Code.
2.16 "DEFINED BENEFIT PLAN FRACTION" means, for any Limitation Year,
a fraction, the numerator of which is the Participant's projected annual
retirement income benefit under all the defined benefit plans (whether or not
terminated) maintained by the Employer or any Affiliate of the Employer
determined as of the end of the Limitation Year, and the denominator of which is
the lesser of:
(a) The product of 1.25 multiplied by $90,000 (which dollar
amount shall be automatically adjusted for increases in the cost of living, if
any, in accordance with regulations or other pronouncements issued by the
Secretary of the Treasury or Commissioner of Internal Revenue, for such calendar
year, under the authority granted by Section 415(d) of the Code); or
(b) The product of 1.4 multiplied by one hundred percent
(100%) of the Participant's average annual Compensation for the three (3)
consecutive calendar years during which he or she received his or her greatest
aggregate compensation from the Company and during which he or she was a
Participant in the Plan.
The limitations under Subsection (a) shall be adjusted in the case of annual
retirement income benefits which do not exceed $10,000 for the Limitation Year
and for Participants with Years of Service of less than ten (10) years, to the
extent provided in Sections 415(b)(4) and (5) of the Code.
2.17 "DEFINED CONTRIBUTION PLAN FRACTION" means, for any Limitation
Year, a fraction, the numerator of which is the sum of the Annual Additions to
the Participant's accounts under all the defined contribution plans maintained
by the Employer or any Affiliate of the Employer (whether or not terminated) for
the current and all prior Limitation Years, and the denominator of which is the
sum of the maximum aggregate amounts for the current and all prior Limitation
Years of service with the Employer or any Affiliate of the Employer (regardless
of whether a defined contribution plan was maintained by the Employer). The
maximum aggregate amount in any Limitation Year is the lesser of one hundred
twenty-five percent (125%) of the dollar limitation in effect under
Section 415(c)(1)(A) of the Code or thirty-five percent (35%) of the
Participant's Compensation for such year.
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2.18 "DISABILITY" means any physical or mental condition which
renders a Participant incapable of performing the work for which he or she was
employed by the Employer or similar work offered by the Employer. The
Disability of a Participant shall be determined by the Plan Administrator in its
sole discretion, in accordance with uniform principles consistently applied,
upon the basis of such evidence as the Plan Administrator deems necessary and
advisable.
2.19 "EFFECTIVE DATE" of the Plan means August 14, 1995, the date on
which the Plan is adopted by the Company.
2.20 "Eligible Employee" means any Employee, except any Employee who:
(a) Has not attained age eighteen (18);
(b) Is a nonresident alien who received no earned income
(within the meaning of Section 911(b) of the Code) from the Employer that
constitutes income from sources within the United States (within the meaning of
Section 861(a)(3) of the Code);
(c) Is a member of a collective bargaining unit covered
under a collective bargaining agreement, unless such agreement expressly
provides for coverage of such bargaining unit members in the Plan; provided,
however, that if such an Employee later becomes an Eligible Employee, all of his
or her prior service with the Employer or an Affiliate of the Employer shall be
credited immediately; or
(d) Is a leased employee (within the meaning of Section
414(n) of the Code).
An individual's status as an Eligible Employee shall be determined by the
Employer pursuant to the foregoing provisions, and such determination shall be
conclusive and binding on all persons.
2.21 "EMPLOYEE" means an individual who is employed by the Employer
in the status of "employee" as that term is used in Section 3121(d)(1) or (2) of
the Code or is a leased employee (as defined in Section 414(n) of the Code),
unless such leased employee is covered by a plan of the leasing organization
that meets the requirements of Section 414(n)(5)(B) of the Code and leased
employees constitute no more than twenty percent (20%) of the Employer's
Employees who are Non-Highly Compensated Employees. Notwithstanding the
foregoing, "Employee" shall not include any individual performing services
solely through an employment or leasing agency except to the extent required
under Section 414(n) of the Code.
2.22 "EMPLOYER" means the Company and each Affiliate of the Company
that, with the approval of the Company and subject to such conditions as the
Company may impose, adopts this Plan, and any successor or successors of any of
them.
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2.23 "EMPLOYER CONTRIBUTIONS" means any Matching Contributions or
Profit Sharing Contributions made by the Employer pursuant to Section 4.3.
2.24 "EMPLOYER CONTRIBUTIONS ACCOUNT" means the aggregate of the
separateaccounts into which Matching Contributions and Profit
Sharing Contributions, if any, and investment gains and losses thereon shall be
credited.
2.25 "EMPLOYMENT COMMENCEMENT DATE" means the date on which an
Employee first performs an Hour of Service for the Employer, including service
performed prior to the Effective Date.
2.26 "ENTRY DATE" means each January 1, April 1, July 1, and October
1.
2.27 "ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.
2.28 "Excess Aggregate Contributions" means, for each Plan Year, the
excess of:
(a) The aggregate amount of Matching Contributions, Salary
Deferral Contributions, and Qualified Nonelective Contributions actually taken
into account in computing the Actual Contribution Percentage for Eligible
Employees who are Highly Compensated Employees for such Plan Year, over
(b) The maximum amount of such contributions permitted under
the Actual Contribution Percentage test under Subsection 4.7(d).
The amount of Excess Aggregate Contributions for Eligible Employees who are
Highly Compensated Employees shall be determined by first reducing the
contributions of the Highly Compensated Employee(s) having the highest
Contribution Rate by such amounts so as to cause the Plan to satisfy such Actual
Contribution Percentage test or to lower such Eligible Employee's Contribution
Rate to that of the Highly Compensated Employee(s) with the next highest
Contribution Rate, whichever occurs first. Such process shall continue, as
necessary, with respect to the Highly Compensated Employee(s) with the next
highest Contribution Rate until such Actual Contribution Percentage test is met.
Excess Aggregate Contributions shall be allocated among the family members of
Highly Compensated Employees who are subject to the family member aggregation
rules of Section 414(q)(6) of the Code in proportion to the Matching
Contributions, Salary Deferral Contributions, and Qualified Nonelective
Contributions of each family member that are combined to determine the
Contribution Rate for the family group.
2.29 "EXCESS CONTRIBUTIONS" means, for each Plan Year, the excess of:
(a) The aggregate amount of Salary Deferral Contributions
and Qualified Nonelective Contributions actually taken into account in computing
the Actual Deferral Percentage for Highly Compensated Employees for such Plan
Year, over
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(b) The maximum amount of such contributions permitted by
the Actual Deferral Percentage test under Subsection 4.7(a).
The amount of Excess Contributions for Eligible Employees who are Highly
Compensated Employees shall be determined by first reducing the contributions of
the Highly Compensated Employee(s) having the highest Deferral Rate by such
amounts so as to cause the Plan to satisfy such Actual Deferral Percentage test
or to lower such Eligible Employee's Deferral Rate to that of the Highly
Compensated Employee(s) with the next highest Deferral Rate, whichever occurs
first. Such process shall continue, as necessary, with respect to the Highly
Compensated Employee(s) with the next highest Deferral Rate until such Actual
Deferral Percentage test is met. Excess Contributions shall be allocated among
the family members of Highly Compensated Employees who are subject to the family
member aggregation rules of Section 414(q) of the Code in proportion to the
Salary Deferral Contributions and Qualified Nonelective Contributions of each
family member that are combined to determine the Deferral Rate for the family
group.
2.30 "EXCESS ELECTIVE DEFERRALS" means, for a taxable year of a
Participant, the amount by which the total of such Participant's Salary Deferral
Contributions under this Plan and any other elective deferrals (as defined in
Section 402(g)(3) of the Code) under all other plans, contracts or arrangements
in which the Participant is eligible to participate (whether or not maintained
by the Employer or any Affiliate of the Employer) exceeds $7,000, and therefore
are includable in his or her gross income under Section 402(g) of the Code.
Such $7,000 amount shall be adjusted for cost-of-living increases at the same
time and in the same manner as under Section 415(d) of the Code.
2.31 "FIVE YEAR BREAK IN SERVICE" means five consecutive one year
Periods of Severance.
2.32 "FORFEITURE" means the portion of a Participant's Employer
Contributions Account which is not payable to the Participant or his or her
Beneficiary because of such Participant's termination of employment before full
vesting or excess Annual Additions reallocated in accordance with Section 4.9.
2.33 "HARDSHIP" means the immediate and heavy financial need of a
Participant, as determined in a uniform and nondiscriminatory basis by the Plan
Administrator in accordance with Section 9.5 and as may be further clarified by
rules or regulations issued by the Secretary of the Treasury or the Internal
Revenue Service.
2.34 "HIGHLY COMPENSATED EMPLOYEE" means, with respect to a given
Plan Year, any Employee if such Employee:
(a) At any time during the Lookback Year or Determination
Year was a five percent (5%) owner of the Employer within the meaning of
Section 416(i)(1)(B)(i) of the Code;
(b) During the Lookback Year:
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(1) Received Compensation in excess of $75,000 (as
adjusted for cost-of-living increases at the same time and in the same manner as
under Section 415(d) of the Code);
(2) Received Compensation in excess of $50,000 (as
adjusted for cost-of-living increases at the same time and in the same manner as
under Section 415(d) of the Code) and was in the group consisting of the top
twenty percent (20%) of employees of the Employer and all Affiliates of the
Employer when ranked on the basis of Compensation received from the Employer
during the Lookback Year; or
(3) Received Compensation greater than fifty percent
(50%) of the limit in effect for the Plan Year under Section 415(b)(1)(A) of the
Code and was an officer within the meaning of regulations applicable under
Section 416(i)(1)(A)(i) of the Code; provided that, for purposes of this
definition, no more than fifty (50) employees (or, if lesser, the greater of
three (3) employees or ten percent (10%) of the employees) shall be treated as
officers and provided further that, if no officer has satisfied the compensation
requirement in this Paragraph (3), the highest paid officer shall qualify as a
Highly Compensated Employee; or
(c) During the Determination Year, is described in Paragraph
(b)(1), (2) or (3) above and was one of the one hundred (100) employees of the
Employer and all Affiliates of the Employer receiving the highest Compensation
in the Determination Year.
Unless the Company elects otherwise in accordance with applicable regulations,
the "Lookback Year" is the twelve (12) month period immediately preceding the
beginning of the Plan Year for which the determination of who is a Highly
Compensated Employee is being made and the "Determination Year" is such Plan
Year. If the Company so elects, the Lookback Year shall instead be the calendar
year ending with or within the Plan Year and the Determination Year shall be the
portion (if any) of such Plan Year extending beyond such calendar year. If the
Company makes such an election and if the Plan Year is other than the calendar
year, the calculation with respect to who are Highly Compensated Employees in
the Determination Year shall be adjusted pursuant to applicable regulations.
For purposes of determining the size of the group consisting of the top twenty
percent (20%) of employees when ranked on the basis of Compensation, as referred
to in Paragraph (b)(2), or the number of officers, as referred to in Paragraph
(b)(3), the following employees shall be excluded:
(A) Employees who have not completed six (6)
months of service;
(B) Employees who normally work less than 17
1/2 hours per week;
(C) Employees who normally work not more
than six (6) months during any year;
9
<PAGE>
(D) Employees who have not attained age
twenty-one (21);
(E) Except to the extent provided in
regulations, Employees who are included in a unit of employees covered by a
collective bargaining agreement between employee representatives and the
Employer; and
(F) Non-resident aliens with no United
States source income.
In addition to the foregoing, a Highly Compensated Employee for a Plan Year
includes any Employee who separated from service (or who was deemed to have
separated under applicable regulations) prior to the Plan Year, performs no
service for the Employer during the Plan Year, and was a Highly Compensated
Employee for either the Determination Year during which he or she separated from
service or any Determination Year ending on or after the Employee's 55th
birthday.
In determining whether an Employee is a Highly Compensated Employee, all
employers that are aggregated under Section 414(b), (c), (m) or (o) of the Code
shall be treated as a single employer.
The determination of who is a Highly Compensated Employee, including the
determinations of the number and identity of Employees in the top twenty percent
(20%) of Employees when ranked on the basis of Compensation, the 100 Employees
receiving the highest Compensation, the number of Employees treated as officers
and the Compensation that is considered, shall be made in accordance with
Section 414(q) of the Code and the regulations thereunder. Notwithstanding the
foregoing, the Company may determine who is a Highly Compensated Employee in
accordance with the simplified method set forth in Section 4 of Revenue
Procedure 93-42.
2.35 "HOUR OF SERVICE" means:
(a) Each hour for which an Employee is directly or
indirectly paid or entitled to payment for the performance of duties for the
Employer, an Affiliate of the Employer, or any other employer who also maintains
the Plan during the applicable computation period;
(b) Each hour for which an Employee is directly or
indirectly entitled to payment on account of a period of time during which no
duties are performed (irrespective of whether the employment relationship has
terminated) due to vacation, holiday, illness, incapacity, disability, layoff,
jury duty, military duty or leave of absence. Notwithstanding the foregoing
however, no more than 501 Hours of Service shall be credited to an Employee on
account of any single continuous period in which the Employee performs no
duties. Hours of Service shall not be counted where such payment is made or is
due:
(1) Under a plan maintained solely for the purpose
of complying with applicable workers' compensation, unemployment or disability
insurance law; or
10
<PAGE>
(2) Solely to reimburse an Employee for medical or
medically-related expenses; and
(c) Each hour for which back pay, irrespective of mitigation
of damages, is either awarded or agreed to by the Employer or an Affiliate of
the Employer. These hours shall be credited to the computation period(s) to
which the award or agreement for back pay pertains rather than to the
computation period in which the award, agreement or payment is made; provided,
however, that the limits under Subsection (b) above are applicable and that an
Employee shall not be entitled to additional Hours of Service under this
Subsection (c) for the same Hours of Service credited under Subsection (a) or
(b) above.
Hours of Service shall be credited to the Employee for the periods specified
above in accordance with Department of Labor Regulations Sections 2530.200b-2
and -3, the provisions of which are incorporated herein by this reference.
2.36 "INVESTMENT FUND" means, to the extent applicable, one or more
of the investment funds referred to in Article 6 in which the assets of the
Trust are invested.
2.37 "INVESTMENT MANAGEMENT ADVISOR" means P.R. Taylor, Inc. and any
successor thereto.
2.38 "INVESTMENT MANAGER" means any fiduciary (other than a Trustee
or named fiduciary as specified in Article 12) who:
(a) Has the power to manage, acquire or dispose of any asset
of the Trust;
(b) Is
(1) Registered as an investment adviser under the
Investment Advisers Act of 1940;
(2) A "bank," as defined in such Act; or
(3) An insurance company qualified to perform
services described in Subsection (a) above under the laws of more than one
state; and
(c) Has acknowledged in writing that such person is a
fiduciary with respect to the Plan.
2.39 "Limitation Year" means the Plan Year.
2.40 "MATCHING CONTRIBUTIONS" means contributions to the Plan by the
Employer made under Subsection 4.3(b) on behalf of a Participant on account of
such Participant's Salary Deferral Contributions.
11
<PAGE>
2.41 "MATCHING CONTRIBUTIONS ACCOUNT" means the account into which
Matching Contributions, if any, and investment gains and losses thereon shall be
credited.
2.42 "NON-HIGHLY COMPENSATED EMPLOYEE" means, with respect to a given
Plan Year, any Employee who is not a Highly Compensated Employee for such Plan
Year.
2.43 "Normal Retirement Age" means the date on which a Participant
attains age sixty-five (65).
2.44 "PARTICIPANT" means an Eligible Employee, whether or not he or
she has elected to make Salary Deferral Contributions, who has become a
Participant in the Plan in accordance with Section 3.1 or a former Eligible
Employee who has an Account under the Plan.
2.45 "PERIOD OF SERVICE" means a period of time beginning on the
Employment Commencement Date or Reemployment Commencement Date, as the case may
be, and ending on the Severance from Service Date. If an Employee ceases
service and subsequently returns to service within twelve (12) months, the
Period of Severance, if any, shall be included in computing the Employee's
Period of Service for purposes of vesting and eligibility.
All Periods of Service with the Employer, an Affiliate of the Employer, or any
other employer who also maintains the Plan shall be aggregated for vesting and
eligibility purposes. In aggregating any nonsuccessive Periods of Service for a
reemployed Employee, 12 months of service (30 days shall equal one month, for
purposes of aggregating fractional months) or 365 days shall equal a one year
Period of Service. Any Period of Service that, after such aggregation, is less
than 12 months or 365 days shall be disregarded in calculating an Employee's
vested benefit.
2.46 "PERIOD OF SEVERANCE" means a period of time commencing on the
Severance from Service Date and ending on the date on which the Employee again
performs an Hour of Service for the Employer. Notwithstanding the preceding
sentence, if an Employee is absent from employment as a result of the Employee's
pregnancy, birth of the Employee's child, placement of a child for adoption by
the Employee, or caring for the child for a period beginning on such birth or
placement, and if such absence extends beyond the first anniversary of the date
such absence began, (i) the Period of Severance shall begin on the second
anniversary of the date such absence began and (ii) the period between the first
and second anniversaries of the date such absence began shall not be included as
a Period of Service or as a Period of Severance.
2.47 "PLAN" means the PR Taylor Multiple Employer 401(k) Plan, as set
forth herein and as amended from time to time.
2.48 "PLAN ADMINISTRATOR" means the person initially designated by
the Company to serve as the Plan Administrator or any successor thereto.
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<PAGE>
2.49 "PLAN YEAR" means, in the case of the initial Plan Year, the
period commencing on the Effective Date and ending on December 31, 1995.
Thereafter, the Plan Year shall be the twelve-consecutive month period
commencing each January 1 and ending the following December 31.
2.50 "PROFIT SHARING CONTRIBUTIONS" means the amount, if any,
contributed to the Plan by the Employer under Subsection 4.3(a).
2.51 "PROFIT SHARING CONTRIBUTIONS ACCOUNT" means the account into
which Profit Sharing Contributions, if any, and investment gains and losses
thereon shall be credited.
2.52 "QUALIFIED NONELECTIVE CONTRIBUTIONS" means contributions to the
Plan by the Employer made under Section 4.4, provided that a Participant may not
elect to receive any such contributions in cash until distributed from the Plan
and that such contributions shall be subject to the distribution limitations and
nonforfeitability requirements of Section 401(k)(2)(B) and (C) of the Code.
2.53 "QUALIFIED NONELECTIVE CONTRIBUTIONS ACCOUNT" means the account
into which Qualified Nonelective Contributions, if any, and investment gains and
losses thereon shall be credited.
2.54 "REEMPLOYMENT COMMENCEMENT DATE" means the first date, following
a Break in Service, on which the Employee again performs an Hour of Service for
the Employer.
2.55 "REQUIRED BEGINNING DATE" means:
(a) In the case of a Participant who attained age 701/2
before January 1, 1988 and who is not a "five percent owner" (within the meaning
of Section 416(i)(1)(B)(i) of the Code), April 1 of the calendar year following
the later of (i) the calendar year in which the Participant attains age 701/2 or
(ii) the calendar year in which the Participant retires; and
(b) In the case of a "five percent owner" (within the
meaning of Section 416(i)(1)(B)(i) of the Code) or a Participant who attains age
701/2 after December 31, 1987, April 1 of the calendar year following the
calendar year in which the Participant attains age 701/2, whether or not he or
she is still an Employee; provided, however, that the Required Beginning Date
for a Participant who is not a five percent owner and who attains age 701/2 in
1988 shall be April 1, 1990. If the Participant became a "five percent owner"
after the calendar year in which he or she attains age 701/2, then his or her
Required Beginning Date shall be no later than April 1 of the calendar year
following the year in which he or she becomes a "five percent owner."
2.56 "REVIEW PANEL" means the committee, if any, appointed by the
Plan Administrator to review appeals of denied claims under the Plan pursuant to
Section 13.3.
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<PAGE>
2.57 "ROLLOVER ACCOUNT" means the account credited with Rollover
Contributions under Section 4.6.
2.58 "ROLLOVER CONTRIBUTION" means a contribution to the Plan of an
amount described in (i) Sections 402(c) or 403(a)(4) of the Code, relating to
certain distributions from an employees' trust or employee annuity described in
Sections 401(a) or 403(a) of the Code, respectively, or (ii) Section
408(d)(3)(A)(ii) of the Code, relating to certain distributions from an
individual retirement account or an individual retirement annuity. Further, for
the purposes of this Plan, a Rollover Contribution shall include direct trustee
to trustee transfers (within the meaning of Section 401(a)(31) of the Code) from
other qualified plans and direct or indirect plan to plan transfers from other
qualified plans or from the custodian of a conduit individual retirement
arrangement, provided that the trust or custodial account from which the funds
are being transferred permits such a transfer to be made.
2.59 "SALARY DEFERRAL ACCOUNT" means the account into which any
Salary Deferral Contributions or Qualified Nonelective Contributions made on
behalf of a Participant pursuant to Article 4, and earnings on those
contributions, shall be credited, except to the extent that the Plan
Administrator determines, in accordance with Section 4.4 to cause Qualified
Nonelective Contributions to be allocated to a separate subaccount for each
Participant instead of allocating such contributions to the Salary Deferral
Accounts of Participants.
2.60 "SALARY DEFERRAL AGREEMENT" means the agreement between the
Employer and an Employee to reduce the Employee's Compensation as provided for
in Article 4.
2.61 "SALARY DEFERRAL CONTRIBUTIONS" means contributions to the Plan
by the Employer that are made pursuant to the election of a Participant pursuant
to a Salary Deferral Agreement under Section 4.1, in lieu of Compensation
payable to the Participant.
2.62 "SEVERANCE FROM SERVICE DATE" means the date on which the
earlier of the following events occurs:
(a) The Employee quits, is discharged, retires or dies; or
(b) The first anniversary of the first date of a period in
which the Employee remains absent from service (with or without pay) with the
Employer for any reason other than a quit, retirement, discharge or death, such
as vacation, holiday, sickness, disability, leave or absence or layoff.
If an Employee does not resume employment upon the expiration of a leave of
absence and such leave is not extended by the Employer, for purposes hereof the
Employee shall be deemed to have been discharged as of the date such leave of
absence expired.
2.63 "TRUST" means all such money or other property that is held by
the Trustee pursuant to the terms of the Trust Agreement.
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2.64 "TRUST AGREEMENT" means the trust agreement entered into between the
Company and a trustee for the purpose of funding benefits under the Plan, or any
successor trust agreement.
2.65 "TRUSTEE" means the trustee or any successor thereto acting as such
pursuant to Section 12.4 and the terms of the Trust Agreement.
2.66 "VALUATION DATE" means the date on which assets of the Trust are
valued, which shall be the last day of each Plan Year or such other date or
dates the Plan Administrator may elect to determine the fair market value of the
Trust and make an allocation of income, gain or loss thereon as provided in
Section 5.2.
2.67 "YEAR OF SERVICE" means, for purposes of eligibility and vesting, a
twelve-month Period of Service.
3
ELIGIBILITY AND PARTICIPATION
3.1 ELIGIBILITY TO BECOME A PARTICIPANT.An Employee shall become a
Participant in the Plan as of the Entry Date coinciding with or next following
his or her completion of a six-month Period of Service, provided that he or she
is an Eligible Employee on such Entry Date.
3.2 PARTICIPATION IN SALARY DEFERRAL CONTRIBUTIONS. To participate for
purposes of making Salary Deferral Contributions, an Eligible Employee must have
entered into a Salary Deferral Agreement, in the form as may be prescribed by
the Plan Administrator, authorizing the reduction of his or her Compensation in
amounts that will be contributed to the Plan as Salary Deferral Contributions on
his or her behalf by the Employer.
3.3 Suspension of Participation.
(a) A Participant shall be suspended from active participation in the
Plan for any period during which the Participant:
(1) Is on a leave of absence without pay or
(2) Does not qualify as an Eligible Employee but remains a
Participant.
(b) A Participant shall make no Salary Deferral Contributions with
respect to any period of suspended participation under Subsection (a) above, nor
shall a suspended Participant receive any allocation of Employer Contributions,
Qualified Nonelective Contributions, or Forfeitures for any such period. In
addition, a Participant's Salary Deferral Contributions may be suspended or
limited in the manner and for the period prescribed under
15.
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Section 9.5 in the case of a Hardship withdrawal from the Plan. A suspended
Participant, however, shall continue to share in the income, gains, losses and
expenses of the investments held in his or her Account.
3.4 Reestablishing Eligible Employee Status and Plan Reentry. If a former
Eligible Employee who was a Participant again becomes an Eligible Employee, such
Eligible Employee shall again be a Participant in the Plan immediately on
becoming an Eligible Employee.
3.5 TERMINATION OF PARTICIPATION. An Employee who becomes a Participant
shall cease to be a Participant as of the date on which no further benefits
under the Plan are payable to him or her.
3.6 NO MAXIMUM AGE. Participation in the Plan shall not be discontinued
or limited in any way, and the allocation of contributions shall not be
decreased, because of a Participant's attainment of any age.
4
CONTRIBUTIONS
4.1 Salary Deferral Contributions.
(a) Subject to the limitations established by this Article 4, the
Employer shall make Salary Deferral Contributions on an Eligible Employee's
behalf in an amount equal to the amount of Compensation that the Eligible
Employee has elected to defer pursuant to the Eligible Employee's Salary
Deferral Agreement. Each Eligible Employee may elect to have the Employer
contribute to the Plan from one percent (1%) to a maximum of fifteen percent
(15%) of such Eligible Employee's Compensation for the Plan Year in accordance
with such uniform and nondiscriminatory rules and procedures as the Plan
Administrator may establish.
(b) Notwithstanding the provisions of Subsection 4.1(a) above, in
order for the Plan to comply with the requirements of Sections 401(k), 402(g)
and 415 of the Code (see Subsections 4.1(c) and 4.7(a) and Section 4.9 of the
Plan, respectively), at any time in a Plan Year, the Plan Administrator (in its
sole discretion) may, by notifying the affected Eligible Employees in writing,
reduce the rate of Salary Deferral Contributions to be made on behalf of an
Eligible Employee for the remainder of that Plan Year, or the Plan Administrator
may require that all Salary Deferral Contributions to be made on behalf of an
Eligible Employee be discontinued for the remainder of that Plan Year. Such a
reduction or discontinuance may be applied selectively to individual Eligible
Employees or to a particular class of Eligible Employees, as the Plan
Administrator may determine in its sole discretion. Upon the close of the Plan
Year or such earlier date as the Plan Administrator may determine, any reduction
or discontinuance in Salary Deferral Contributions shall automatically cease
until the Plan Administrator again determines that such a reduction or
discontinuance of Salary Deferral Contributions is required. Any such reduction
or discontinuance shall be prospective only as
16.
<PAGE>
to pay periods commencing after notice to the affected Eligible Employees, and
shall not result in discrimination in favor of Highly Compensated Employees in
any manner prohibited by Section 401(a)(4) of the Code or regulations applicable
thereunder. Any amounts that would have been contributed to the Plan in the
absence of a reduction or discontinuance pursuant to this Subsection 4.1(b)
shall be paid in cash to the affected Eligible Employees in the same manner in
which such amounts otherwise are payable as Compensation in the absence of any
election of Salary Deferral Contributions.
(c) The total of the Salary Deferral Contributions under this Plan
and any other elective deferrals (as defined in Section 402(g)(3) of the Code)
under all other plans, contracts or arrangements of the Employer or any
Affiliate of the Employer for any Participant during any taxable year of the
Participant shall not exceed $7,000 or such other amount in effect under
Section 402(g)(1) of the Code, as adjusted for increases in the cost of living
for the calendar year in which the Participant's taxable year begins. To the
extent Salary Deferral Contributions are distributed or returned to a
Participant as excess Annual Additions pursuant to Section 4.9 of the Plan, such
distributed or returned amounts shall be disregarded for purposes of the
limitation described in this Subsection 4.1(c).
(d) In the event a Participant has any Excess Elective Deferrals for
any taxable year of such Participant, whether or not the limitation in
Subsection 4.1(c) has been exceeded for such taxable year, such Excess Elective
Deferrals may be distributed to the Participant from the Plan in accordance with
either of Paragraphs (1) or (2) below (or a combination thereof, as applicable):
(1) The Plan Administrator may cause the Excess Elective
Deferrals to be distributed to the Participant during the taxable year of the
Participant in which the Excess Elective Deferrals occur if the following
conditions are satisfied:
(A) The Participant designates the distribution as Excess
Elective Deferrals; provided, however, to the extent the Participant's Excess
Elective Deferrals are attributable only to Salary Deferral Contributions under
this Plan and any other elective deferrals (as defined in Section 402(g)(3) of
the Code) under all other plans, contracts or arrangements maintained by the
Employer or any Affiliate of the Employer, the Participant shall be deemed to
have designated the distribution as Excess Elective Deferrals;
(B) Such distribution is made after the date on which the
Excess Elective Deferrals were received by the Plan; and
(C) The Plan designates the distribution as a distribution
of Excess Elective Deferrals.
(2) If any amount of Excess Elective Deferrals is included in
the gross income of a Participant for federal income tax purposes for any
taxable year of such Participant, the Participant, not later than the first
March 1 following the close of such taxable year, may notify the Plan
Administrator of the amount of such Excess Elective Deferrals that the
Participant designates
17.
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as having been received by the Plan; provided, however, to the extent the
Participant's Excess Elective Deferrals are attributable only to Salary Deferral
Contributions under this Plan and any other elective deferrals (as defined in
Section 402(g)(3) of the Code) under all other plans, contracts or arrangements
maintained by the Employer or any Affiliate of the Employer, the Participant
shall be deemed to have notified the Plan Administrator and designated the
amount of the Excess Elective Deferrals. In the event notice of Excess Elective
Deferrals is given or deemed given in accordance with the foregoing provision,
the Plan Administrator shall cause there to be distributed to the Participant,
not later than the first April 15 following the close of such taxable year of
the Participant, the amount so designated, plus any income and minus any loss
allocable thereto for such taxable year of the Participant. The amount of any
income or loss to be allocated to Excess Elective Deferrals under this Paragraph
(2) shall be determined under the same method used for allocating income to
Participants' Accounts generally, as then in effect in accordance with the
provisions of Section 5.2 of the Plan.
Any designation of Excess Elective Deferrals made by a Participant under
Paragraph (1) or (2) above shall be in writing, and, if the Excess Elective
Deferrals are attributable in part to elective deferrals made for the taxable
year to any plan, contract or arrangement not maintained by the Employer or any
Affiliate of the Employer, the Participant shall certify to the Plan
Administrator or otherwise provide such information as the Plan Administrator
may reasonably require in order to establish that the amount designated
constitutes Excess Elective Deferrals. The amount of Excess Elective Deferrals
that may be distributed under this Subsection 4.1(d) with respect to a
Participant for a taxable year shall be reduced by any Excess Contributions
previously distributed in accordance with Subsection 4.7(b) for the Plan Year
beginning with or within the Participant's taxable year. In no event may a
Participant receive as a corrective distribution under this Subsection 4.1(d) an
amount in excess of the Participant's total Salary Deferral Contributions for
the taxable year. Notwithstanding any other provision in the Plan, the consent
of a Participant or his or her spouse shall not be required for a distribution
of Excess Elective Deferrals and allocable income.
(e) Any decrease in the Salary Deferral Contributions for an Eligible
Employee resulting from the distribution of Excess Elective Deferrals also shall
be effective for purposes of determining the amount of Matching Contributions to
be made for the Eligible Employee's benefit under Subsection 4.3(b).
(f) A Participant's Salary Deferral Contributions shall be credited
to his or her Salary Deferral Account. However, for Federal tax purposes (and
wherever permitted, for state tax purposes), Salary Deferral Contributions shall
be deemed to be contributions to the Plan by the Employer, and a Participant's
Salary Deferral Agreement shall constitute an election to have his or her
taxable compensation reduced by the amount of all such Salary Deferral
Contributions. Salary Deferral Contributions shall be made in accordance with
Plan rules and are subject to the limitations set forth in this Article 4.
4.2 Salary Deferral Agreement.
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(a) Salary Deferral Contributions shall be authorized by a
Participant in writing pursuant to a Salary Deferral Agreement. The Salary
Deferral Agreement shall provide that a Participant's Compensation shall be
reduced by any whole number percentage or whole dollar amount; provided,
however, that the amount of the reduction does not exceed the limitations set
forth in this Article 4.
(b) A Participant may elect to suspend his or her Salary Deferral
Contributions at any time by filing a notice on the prescribed form with the
Plan Administrator. Any such election shall be effective as soon as is
reasonably practical following receipt of such notice by the Plan Administrator.
By giving the Plan Administrator reasonable notice in the manner and at the time
prescribed by the Plan Administrator, a Participant who has suspended Salary
Deferral Contributions may recommence making Salary Deferral Contributions at
any time after the date on which Salary Deferral Contributions were suspended.
(c) A Participant may elect to change the amount of his or her Salary
Deferral Contributions at any time effective as soon as administratively
possible following receipt by the Plan Administrator of the Participant's
revised election form. Any such change must be made in the manner and at the
time prescribed by the Plan Administrator.
(d) The Employer shall forward all Salary Deferral Contributions to
the Trustee for investment in the Trust, as provided for in Article 6, as soon
as reasonably feasible after such amounts would have been paid to the
Participants if not withheld from the Participants' Compensation, but in any
event no later than ninety (90) days after the date such amounts would have been
paid as Compensation.
4.3 EMPLOYER CONTRIBUTIONS.
(a) PROFIT SHARING CONTRIBUTIONS. For any Plan Year, the Employer
may make Profit Sharing Contributions in any amount as may be determined by the
Employer in its sole discretion. Such contributions, if any, shall be made in
the form of cash and shall be allocated as of the last day of the Plan Year to
the Profit Sharing Contributions Accounts of all Eligible Employees who are
employed as of the last day of the Plan Year and who completed 1,000 Hours of
Service during the Plan Year or who terminated employment during the Plan Year
as a result of death, Disability, or attainment of Normal Retirement Age in the
proportion that the Compensation of each such Eligible Employee for the Plan
Year bears to the total Compensation for all such Eligible Employees for such
Plan Year. For purposes of allocating such Profit Sharing Contributions for any
Plan Year based on an Eligible Employee's Compensation, only Compensation
attributable to periods in such Plan Year during which such Eligible Employee
was a Participant shall be taken into account.
(b) MATCHING CONTRIBUTIONS. For any Plan Year, the Employer may make
Matching Contributions in any amount as may be determined by the Employer, in
its sole discretion. Such contributions, if any, shall be made in the form of
cash and shall be allocated
19.
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as of the last day of the Plan Year to the Matching Contributions Accounts of
all Eligible Employees who made Salary Deferral Contributions for the Plan Year
and who are employed as of the last day of the Plan Year or who terminated
employment during the Plan Year as a result of death, Disability, or attainment
of Normal Retirement Age in the proportion that each such Eligible Employee's
Salary Deferral Contributions for the Plan Year bears to the total Salary
Deferral Contributions for all Eligible Employees for such Plan Year. The
Employer may uniformly limit for all Eligible Employees, or just for those
Eligible Employees who are Highly Compensated Employees, the amount of Salary
Deferral Contributions that are taken into account for purposes of allocating
Matching Contributions.
4.4 QUALIFIED NONELECTIVE CONTRIBUTIONS. For any Plan Year, the Employer
may make Nonelective Contributions in any amount as may be determined by the
Employer in its sole discretion. Such contributions, if any, shall be made in
the form of cash and shall be allocated as of the last day of the Plan Year to
the Salary Deferral Accounts of all Eligible Employees who are employed during
such Plan Year in the proportion that the Compensation of each such Eligible
Employee for the Plan Year bears to the total Compensation for all such Eligible
Employees for such Plan Year, provided that the Employer may determine that
allocations of Nonelective Contributions shall be limited to individual Eligible
Employees who are Non-Highly Compensated Employees or to all Eligible Employees
who are Non-Highly Compensated Employees, as the Employer may determine in its
sole discretion. For purposes of allocating Nonelective Contributions for any
Plan Year based on an Eligible Employee's Compensation, only Compensation
attributable to periods in such Plan Year during which such Eligible Employee
was a Participant shall be taken into account.
If the Plan Administrator so determines, it may cause Qualified Nonelective
Contributions to be allocated to a separate Qualified Nonelective Contributions
Account for each Participant established for the purpose of receiving and
holding such contributions instead of allocating such contributions to the
Salary Deferral Accounts of Participants. Such contributions shall meet the
requirements of Section 401(m)(4)(C) of the Code and regulations applicable
thereunder.
4.5 TIME OF PAYMENT. All Employer Contributions and Qualified Nonelective
Contributions shall be paid to the Trustee, in one or more installments, not
later than the final date for filing the Employer's Federal income tax return
for the fiscal year of the Employer within which or with which occurs the end of
the Plan Year for which such contributions are made, including extensions of
time granted for such filing.
4.6 ROLLOVER CONTRIBUTIONS.
(A) An Eligible Employee, whether or not he or she has reached an
Entry Date or elected to make Salary Deferral Contributions, or an Employee who
would be eligible to participate in the Plan upon satisfaction of the age
requirement in Subsection 2.20(a) or the service requirement in Section 3.1,
whether or not he or she has yet satisfied such requirements, may make a
Rollover Contribution subject to the approval of the Plan Administrator and in
accordance with procedures approved by the Plan Administrator. Upon such a
Rollover Contribution by an Eligible
20.
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Employee who has not yet otherwise become a Participant, his or her Rollover
Account shall represent his or her sole interest in the Plan.
(B) A Rollover Contribution (other than in the case of a direct
trustee-to-trustee transfer (within the meaning of Section 401(a)(31) of the
Code) or a plan-to-plan transfer) shall be made within sixty (60) days of
distribution (or such longer time as may be permitted by regulations), and shall
exclude any amounts contributed by the Eligible Employee to the plan, annuity or
other arrangement from which the Rollover Contribution is derived. In no event
may an Eligible Employee make a Rollover Contribution (including as a result of
a plan-to-plan transfer) that would cause the Plan to be a direct or indirect
transferee, within the meaning of Section 401(a)(11)(B)(iii)(III) of the Code
and any regulations or rulings thereunder, of a plan described in
Section 401(a)(11)(B)(i) or (ii) of the Code.
(C) A Rollover Contribution shall be made only in the form of money.
In the event of a Rollover Contribution that is derived from a distribution to
the Eligible Employee of property other than money from a plan, trust or annuity
described in Sections 401(a) or 403(a) of the Code (but not from an individual
retirement account or annuity described in Section 408(a) or (b) of the Code),
the Rollover Contribution shall be made in an amount of money equal to the
proceeds from the BONA FIDE sale of all or a portion of such property. In no
event may a Rollover Contribution be made with respect to a distribution of
property other than money from an individual retirement account or annuity
described in Section 408(a) or (b) of the Code or from a plan, trust or annuity
described in Sections 401(a) or 403(a) of the Code to the extent of such
property that is retained by the Eligible Employee.
(D) An Eligible Employee may be required to furnish evidence
satisfactory to the Plan Administrator that the amount of a proposed Rollover
Contribution meets all of the foregoing requirements. When made, the Eligible
Employee's Rollover Contribution shall be credited to such Eligible Employee's
Rollover Account as of the date such contribution is received. A Rollover
Contribution shall not be considered a contribution by the Employer, and an
Eligible Employee's Rollover Account shall be fully vested at all times.
4.7 NONDISCRIMINATION REQUIREMENTS.
(A) ACTUAL DEFERRAL PERCENTAGE TEST. In no event shall the Actual
Deferral Percentage for Eligible Employees who are Highly Compensated Employees
exceed with respect to any Plan Year the greater of (1) or (2) as follows:
(1) One hundred twenty-five percent (125%) of the Actual
Deferral Percentage for Eligible Employees who are Non-Highly Compensated
Employees or
(2) The lesser of (i) two hundred percent (200%) of the Actual
Deferral Percentage for Eligible Employees who are Non-Highly Compensated
Employees, (ii) the Actual Deferral Percentage for Eligible Employees who are
Non-Highly Compensated Employees plus two (2) percentage points, or (iii) the
highest amount which, when taking into account the Actual Deferral Percentage
for Eligible Employees who are Non-Highly Compensated Employees and the
21.
<PAGE>
Actual Contribution Percentages for Highly Compensated Employees and Non-Highly
Compensated Employees, respectively, would not cause the "aggregate limit"
(within the meaning of Treasury Regulations Section 1.401(m)-2(b)(3)) to be
exceeded, in accordance with the provisions of Subsection 4.7(g) below.
(B) CORRECTION METHODS TO MEET ACTUAL DEFERRAL PERCENTAGE TEST. In
the event that for any Plan Year the Actual Deferral Percentage for Eligible
Employees who are Highly Compensated Employees otherwise would not meet either
of the tests set forth above, as required by Section 401(k)(3)(A) of the Code,
then the Employer shall elect one of the following methods (or any combination
thereof) of meeting one of those tests:
(1) Excess Contributions, plus any income and minus any loss
allocable thereto for such Plan Year, may be distributed after the end of the
Plan Year and within twelve (12) months after the close of such Plan Year to the
Highly Compensated Employees to whose Accounts such Excess Contributions were
allocated for the Plan Year. If Excess Contributions are distributed more than
21/2 months after the last day of the Plan Year in which such amounts arose, a
ten percent (10%) excise tax will be imposed on the Employer with respect to
such amounts as provided in Section 4979 of the Code. The amount of any income
or loss to be allocated to Excess Contributions shall be determined under the
same method used for allocating income to Participants' Accounts generally, as
then in effect in accordance with the provisions of Section 5.2 of the Plan.
Notwithstanding any other provision in the Plan, the consent of a Participant or
his or her spouse shall not be required for a distribution of Excess
Contributions and allocable income.
(2) In its discretion, the Employer may make Qualified
Nonelective Contributions on behalf of Non-Highly Compensated Employees pursuant
to Section 4.4 in amounts sufficient to meet the Actual Deferral Percentage test
when taking such contributions into account to the extent permitted under the
Plan and regulations under Section 401(k) of the Code.
(C) SPECIAL RULES FOR ACTUAL DEFERRAL PERCENTAGE LIMIT TESTING.
(1) For purposes of the Actual Deferral Percentage test, the
Deferral Rate of any Eligible Employee who is a Highly Compensated Employee for
the Plan Year and who is eligible to have Salary Deferral Contributions or any
other employer contributions described in Section 401(k)(3)(D) of the Code
allocated to his or her accounts under two or more cash or deferred arrangements
described in Section 401(k) of the Code that are maintained by the Employer or
an Affiliate shall be determined as if all Salary Deferral Contributions and any
such other employer contributions were made under a single cash or deferred
arrangement. If a Highly Compensated Employee participates in two or more cash
or deferred arrangements described in Section 401(k) of the Code that have
different plan years, all such arrangements that have plan years ending with or
within the same calendar year shall be treated as a single arrangement.
(2) In the event that this Plan satisfies the requirements of
Sections 401(k), 401(a)(4) or 410(b) of the Code only if aggregated with one or
more other plans, or if one or more other plans satisfy the requirements of such
Sections of the Code only if aggregated with this Plan, then this Section 4.7
shall be applied by determining the Actual Deferral Percentage of
22.
<PAGE>
Eligible Employees as if all such plans were a single plan. Plans may be
aggregated in order to satisfy Section 401(k) of the Code only if they have the
same Plan Year.
(3) For purposes of determining the Deferral Rate of an Eligible
Employee who is a five percent (5%) owner of the Employer (within the meaning of
Section 416(i)(1)(B)(i) of the Code) or one of the ten (10) most highly paid
Highly Compensated Employees for the Plan Year, the Salary Deferral
Contributions, amounts treated as Salary Deferral Contributions, and
Compensation of such Eligible Employee shall include the Salary Deferral
Contributions, amounts treated as Salary Deferral Contributions, and
Compensation for the Plan Year of any of the members of his or her family who
also are Eligible Employees. Such family members shall be disregarded as
separate Employees in determining the Actual Deferral Percentage both for
Eligible Employees who are Non-Highly Compensated Employees and for Eligible
Employees who are Highly Compensated Employees. For this purpose, family
members shall be an Eligible Employee's spouse and lineal ascendants or
descendants and the spouses of such lineal ascendants or descendants.
(4) In order to be taken into account for purposes of the Actual
Deferral Percentage test for a Plan Year, Salary Deferral Contributions must be
allocated to the Employee's Account as of a date within such Plan Year. For
this purpose, Salary Deferral Contributions will not be considered to be
allocated as of a date within a Plan Year unless (i) the allocation is not
contingent on the Employee's participation in the Plan or performance of
services on any date subsequent to that date and (ii) such Salary Deferral
Contributions are made before the end of the twelve-month period immediately
following such Plan Year.
(5) Salary Deferral Contributions will be taken into account
under the Actual Deferral Percentage test for a Plan Year only if they relate to
Compensation that either would have been received by the Eligible Employee in
the Plan Year (but for his or her Salary Deferral Agreement) or attributable to
services performed by the Eligible Employee in the Plan Year and would have been
received by the Eligible Employee within 21/2 months after the close of the Plan
Year (but for his or her Salary Deferral Agreement).
(6) Any decrease in the Salary Deferral Contributions for an
Eligible Employee resulting from the distribution of Excess Contributions also
shall be effective for purposes of determining the amount of Matching
Contributions to be made for the Eligible Employee's benefit under Subsection
4.3(b).
(7) To the extent Salary Deferral Contributions are distributed
or returned to a Participant as excess Annual Additions pursuant to Section 4.10
of the Plan, such amounts shall be disregarded for purposes of determining the
Deferral Rate of a Participant.
(8) To the extent Salary Deferral Contributions are taken into
account in determining an Eligible Employee's Contribution Rate for purposes of
the Actual Contribution Percentage test under Subsection 4.7(d), such amounts
shall be disregarded for purposes of determining the Deferral Rate.
23.
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(9) Excess Elective Deferrals of a Non-Highly Compensated
Employee that are calculated by taking into account only Salary Deferral
Contributions under this Plan and any other plan maintained by the Employer and
that are distributed to such Non-Highly Compensated Employee pursuant to
Subsection 4.1(d) of the Plan shall be disregarded for purposes of determining
the Deferral Rate of such Non-Highly Compensated Employee.
(10) For purposes of Subsection 4.7(a), Eligible Employee shall
include any Employee who would be eligible to make Salary Deferral Contributions
to the Plan but for a suspension due to a withdrawal, a loan, an election not to
participate in the Plan, or the inability of the Employee to receive additional
Annual Additions because of the limits imposed by Section 415(c)(1) or 415(e) of
the Code.
(11) The Plan Administrator shall maintain such records as are
necessary to demonstrate compliance with the requirements of Subsection 4.7(a),
including the extent to which Qualified Nonelective Contributions are taken into
account for purposes of determining an Eligible Employee's Deferral Rate.
(D) ACTUAL CONTRIBUTION PERCENTAGE TEST. In no event shall the
Actual Contribution Percentage for Eligible Employees who are Highly Compensated
Employees exceed with respect to any Plan Year the greater of (1) or (2) as
follows:
(1) One hundred twenty-five percent (125%) of the Actual
Contribution Percentage for Eligible Employees who are Non-Highly Compensated
Employees or
(2) The lesser of (i) two hundred percent (200%) of the Actual
Contribution Percentage for Eligible Employees who are Non-Highly Compensated
Employees or (ii) the Actual Contribution Percentage for Eligible Employees who
are Non-Highly Compensated Employees plus two (2) percentage points.
(E) CORRECTION METHODS TO MEET ACTUAL CONTRIBUTION PERCENTAGE TEST.
In the event that for any Plan Year the Actual Contribution Percentage for
Eligible Employees who are Highly Compensated Employees otherwise would not meet
either of the tests set forth above, as required by Section 401(m)(2) of the
Code, then the Employer shall elect one of the following methods (or any
combination thereof) of meeting one of those tests:
(1) Excess Aggregate Contributions, plus any income and minus
any loss allocable thereto for such Plan Year, may be forfeited, if forfeitable,
or, if not forfeitable, distributed after the end of the Plan Year and within
twelve (12) months after the close of such Plan Year to the Highly Compensated
Employees to whose Accounts such Excess Aggregate Contributions were allocated
for the Plan Year. If Excess Aggregate Contributions are distributed more than
21/2 months after the last day of the Plan Year in which such amounts arose, a
ten percent (10%) excise tax will be imposed on the Employer with respect to
such amounts as provided in Section 4979 of the Code. The amount of any income
or loss to be allocated to Excess Aggregate Contributions shall be determined
under the same method used for allocating income to Participants' Accounts
generally, as then in effect in accordance with the provisions of Section 5.2
24.
<PAGE>
of the Plan. Notwithstanding any other provision in the Plan, the consent of a
Participant or his or her spouse shall not be required for a distribution of
Excess Contributions and allocable income.
(2) In its discretion, the Employer may make Qualified
Nonelective Contributions on behalf of Non-Highly Compensated Employees pursuant
to Section 4.4 in amounts sufficient to meet the Actual Deferral Percentage test
when taking such contributions into account to the extent permitted under the
Plan and regulations under Section 401(k) of the Code.
(F) SPECIAL RULES FOR ACTUAL DEFERRAL PERCENTAGE LIMIT TESTING.
(1) For purposes of the Actual Deferral Percentage test, the
Deferral Rate of any Eligible Employee who is a Highly Compensated Employee for
the Plan Year and who is eligible to have Salary Deferral Contributions or any
other employer contributions described in Section 401(k)(3)(D) of the Code
allocated to his or her accounts under two or more cash or deferred arrangements
described in Section 401(k) of the Code that are maintained by the Employer or
an Affiliate shall be determined as if all Salary Deferral Contributions and any
such other employer contributions were made under a single cash or deferred
arrangement. If a Highly Compensated Employee participates in two or more cash
or deferred arrangements described in Section 401(k) of the Code that have
different plan years, all such arrangements that have plan years ending with or
within the same calendar year shall be treated as a single arrangement.
(2) In the event that this Plan satisfies the requirements of
Sections 401(k), 401(a)(4) or 410(b) of the Code only if aggregated with one or
more other plans, or if one or more other plans satisfy the requirements of such
Sections of the Code only if aggregated with this Plan, then this Section 4.7
shall be applied by determining the Actual Deferral Percentage of Eligible
Employees as if all such plans were a single plan. Plans may be aggregated in
order to satisfy Section 401(k) of the Code only if they have the same Plan
Year.
(3) For purposes of determining the Deferral Rate of an
Eligible Employee who is a five percent (5%) owner of the Employer (within the
meaning of Section 416(i)(1)(B)(i) of the Code) or one of the ten (10) most
highly paid Highly Compensated Employees for the Plan Year, the Salary Deferral
Contributions, amounts treated as Salary Deferral Contributions, and
Compensation of such Eligible Employee shall include the Salary Deferral
Contributions, amounts treated as Salary Deferral Contributions, and
Compensation for the Plan Year of any of the members of his or her family who
also are Eligible Employees. Such family members shall be disregarded as
separate Employees in determining the Actual Deferral Percentage both for
Eligible Employees who are Non-Highly Compensated Employees and for Eligible
Employees who are Highly Compensated Employees. For this purpose, family
members shall be an Eligible Employee's spouse and lineal ascendants or
descendants and the spouses of such lineal ascendants or descendants.
(4) In order to be taken into account for purposes of the
Actual Deferral Percentage test for a Plan Year, Salary Deferral Contributions
must be allocated to the
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<PAGE>
Eligible Employee's Account as of a date within such Plan Year. For this
purpose, Salary Deferral Contributions will not be considered to be allocated as
of a date within a Plan Year unless (i) the allocation is not contingent on the
Employee's participation in the Plan or performance of services on any date
subsequent to that date and (ii) such Salary Deferral Contributions are made
before the end of the twelve-month period immediately following such Plan Year.
(5) Salary Deferral Contributions will be taken into account
under the Actual Deferral Percentage test for a Plan Year only if they relate to
Compensation that either would have been received by the Eligible Employee in
the Plan Year (but for his or her Salary Deferral Agreement) or attributable to
services performed by the Eligible Employee in the Plan Year and would have been
received by the Eligible Employee within 21/2 months after the close of the Plan
Year (but for his or her Salary Deferral Agreement).
(6) Any decrease in the Salary Deferral Contributions for an
Eligible Employee resulting from the distribution of Excess Contributions also
shall be effective for purposes of determining the amount of Matching
Contributions to be made for the Eligible Employee's benefit under Subsection
4.3(b).
(7) To the extent Salary Deferral Contributions are
distributed or returned to a Participant as excess Annual Additions pursuant to
Section 4.10 of the Plan, such amounts shall be disregarded for purposes of
determining the Deferral Rate of a Participant.
(8) To the extent Salary Deferral Contributions are taken into
account in determining an Eligible Employee's Contribution Rate for purposes of
the Actual Contribution Percentage test under Subsection 4.7(d), such amounts
shall be disregarded for purposes of determining the Deferral Rate.
(9) Excess Elective Deferrals of a Non-Highly Compensated
Employee that are calculated by taking into account only Salary Deferral
Contributions under this Plan and any other plan maintained by the Employer and
that are distributed to such Non-Highly Compensated Employee pursuant to
Subsection 4.1(d) of the Plan shall be disregarded for purposes of determining
the Deferral Rate of such Non-Highly Compensated Employee.
(10) For purposes of Subsection 4.7(a), Eligible Employee shall
include any Employee who would be eligible to make Salary Deferral Contributions
to the Plan but for a suspension due to a withdrawal, a loan, an election not to
participate in the Plan, or the inability of the Employee to receive additional
Annual Additions because of the limits imposed by Section 415(c)(1) or 415(e) of
the Code.
(11) The Plan Administrator shall maintain such records as are
necessary to demonstrate compliance with the requirements of Subsection 4.7(a),
including the extent to which Qualified Nonelective Contributions are taken into
account for purposes of determining an Eligible Employee's Deferral Rate.
(G) ACTUAL CONTRIBUTION PERCENTAGE TEST. In no event shall the
Actual Contribution Percentage for Eligible Employees who are Highly Compensated
Employees exceed with respect to any Plan Year the greater of (1) or (2) as
follows:
(1) One hundred twenty-five percent (125%) of the Actual
Contribution Percentage for Eligible Employees who are Non-Highly Compensated
Employees or
(2) The lesser of (i) two hundred percent (200%) of the Actual
Contribution Percentage for Eligible Employees who are Non-Highly Compensated
Employees or (ii) the Actual Contribution Percentage for Eligible Employees who
26
<PAGE>
are Non-Highly Compensated Employees plus two (2) percentage points.
(H) CORRECTION METHODS TO MEET ACTUAL CONTRIBUTION PERCENTAGE TEST.
In the event that for any Plan Year the Actual Contribution Percentage for
Eligible Employees who are Highly Compensated Employees otherwise would not meet
either of the tests set forth above, as required by Section 401(m)(2) of the
Code, then the Employer shall elect one of the following methods (or any
combination thereof) of meeting one of those tests:
(1) Excess Aggregate Contributions, plus any income and minus
any loss allocable thereto for such Plan Year, may be forfeited, if forfeitable,
or, if not forfeitable, distributed after the end of the Plan Year and within
twelve (12) months after the close of such Plan Year to the Highly Compensated
Employees to whose Accounts such Excess Aggregate Contributions were allocated
for the Plan Year. If Excess Aggregate Contributions are distributed more than
21/2 months after the last day of the Plan Year in which such amounts arose, a
ten percent (10%) excise tax will be imposed on the Employer with respect to
such amounts as provided in Section 4979 of the Code. The amount of any income
or loss to be allocated to Excess Aggregate Contributions shall be determined
under the same method used for allocating income to Participants' Accounts
generally, as then in effect in accordance with the provisions of Section 5.2 of
the Plan. Notwithstanding any other provision in the Plan, the consent of a
Participant or his or her spouse shall not be required for a distribution of
Excess Aggregate Contributions and allocable income.
(2) In its discretion, the Employer may make Qualified
Nonelective Contributions on behalf of Non-Highly Compensated Employees pursuant
to Section 4.4 in amounts sufficient to meet the Actual Contribution Percentage
test when taking such contributions into account to the extent permitted under
the Plan and regulations under Section 401(m) of the Code.
(I) SPECIAL RULES FOR ACTUAL CONTRIBUTION PERCENTAGE LIMIT TESTING.
(1) For purposes of the Actual Contribution Percentage test,
the Contribution Rate for any Eligible Employee who is a Highly Compensated
Employee for the Plan Year and who is eligible to have Matching Contributions or
any other matching contributions described in Section 401(m)(4)(A) of the Code
allocated to his or her accounts under two or more plans described in
Section 401(a) of the Code that are maintained by the Employer or an Affiliate
shall be determined as if all Matching Contributions and any such other matching
contributions were made under a single plan. If a Highly Compensated Employee
participates in two or more plans to which are made contributions described in
Section 401(m)(4)(A) of the Code that have different plan years, all such plans
that have plan years ending with or within the same calendar year shall be
treated as a single plan.
(2) In the event that this Plan satisfies the requirements of
Sections 401(m), 401(a)(4) or 410(b) of the Code only if aggregated with one or
more plans, or if one or more other plans satisfy the requirements of such
Sections of the Code only if aggregated with this Plan, then this Section 4.7
shall be applied by determining the Contribution Rate of Eligible Employees as
if all such plans were a single plan. Plans may be aggregated in order to
satisfy Section 401(m) of the Code only if they have the same plan year.
(3) For purposes of determining the Contribution Rate of an
Eligible Employee who is a five percent (5%) owner of the Employer (within the
meaning of Section 416(i)(1)(B)(i) of the Code) or one of the ten (10) most
highly paid Highly Compensated Employees for the Plan Year, the Matching
Contributions, amounts treated as Matching Contributions, and Compensation of
such Eligible Employee shall include the Matching Contributions, amounts treated
as Matching Contributions, and Compensation for the Plan Year of any of the
27
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members of his or her family who also are Eligible Employees. Such family
members shall be disregarded as separate employees in determining the
Contribution Rate both for Eligible Employees who are Non-Highly Compensated
Employees and for Eligible Employees who are Highly Compensated Employees. For
this purpose, family members shall be an Eligible Employee's spouse and lineal
ascendants or descendants and the spouse of such lineal ascendants or
descendants.
(4) In order to be taken into account for purposes of the
Actual Contribution Percentage test for a Plan Year, Matching Contributions must
(i) be allocated to the Eligible Employee's Account as of a date within the Plan
Year under other provisions of the Plan, (ii) be made on account of the Eligible
Employee's Salary Deferral Contributions for the Plan Year and (iii) be made
before the end of the twelve-month period immediately following the Plan Year.
(5) Matching Contributions that are forfeited as Excess
Aggregate Contributions pursuant to Subsection 4.7(e) or because the Salary
Deferral Contributions to which they relate are treated as Excess Contributions,
Excess Elective Deferrals or Excess Aggregate Contributions shall not be taken
into account for purposes of the Actual Contribution Percentage test.
(6) For purposes of Subsection 4.7(d), Eligible Employee shall
include any Employee who would be eligible to make Salary Deferral Contributions
to the Plan and thus receive Matching Contributions but for a suspension due to
a withdrawal, a loan, an election not to participate in the Plan, or the
inability of the Employee to receive additional Annual Additions because of the
limits imposed by Section 415(c)(1) or 415(e) of the Code.
(7) The Plan Administrator shall maintain such records as are
necessary to demonstrate compliance with the requirements of Subsection 4.7(d),
including the extent to which Salary Deferral Contributions and Qualified
Nonelective Contributions are taken into account for purposes of determining an
Eligible Employee's Contribution Rate.
(G) PREVENTION OF MULTIPLE USE. Notwithstanding any other provisions
of the Plan to the contrary, in no event shall the sum of the Actual Deferral
Percentage and the Actual Contribution Percentage for Eligible Employees who are
Highly Compensated Employees exceed with respect to any Plan Year the "aggregate
limit," as that term is defined in Treasury Regulations Section 1.401(m)-2(b)(3)
(relating to the multiple use of the alternative limitations contained in
Sections 401(k)(3)(A)(ii)(II) and 401(m)(2)(A)(ii) of the Code, respectively).
However, the aggregate limit will not be considered to have been exceeded in any
Plan Year if either the Actual Deferral Percentage or the Actual Contribution
Percentage of the Eligible Employees who are Highly Compensated Employees does
not exceed 1.25 multiplied by the Actual Deferral Percentage or Actual
Contribution Percentage, as the case may be, of the Eligible Employees who are
Non-Highly Compensated Employees. If, after application of the provisions in
Subsections 4.7(b) and (e) above, such aggregate limit would be exceeded for any
Plan Year, then either the Actual Deferral Percentage of Highly Compensated
Employees for such Plan Year shall be reduced or the Employer shall make
Qualified Nonelective Contributions pursuant to Section 4.4 so that the
aggregate limit is not exceeded. The amount of any reduction of the Actual
Deferral Percentage for Highly Compensated Employees under this Subsection
4.7(g) shall be determined in the same manner as the amount of any Excess
Contributions is determined, as specified in Section 2.29, and such reduction
shall be treated as Excess Contributions for purposes of the Plan. For purposes
of this Subsection 4.7(g), the provisions of Treasury Regulations Section
1.401(m)-2 are incorporated by reference herein.
4.8 REVERSION OF CONTRIBUTIONS. Except as provided in this Section 4.8 or
as provided in Section 4.9 in the case of the termination of the Plan, the
assets of the Plan shall never inure to the benefit of the Employer, and shall
be held
28
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for the exclusive purposes of providing benefits to Participants and/or their
Beneficiaries, and for defraying the expenses of administering the Plan.
(A) In the case of a contribution which is made by virtue of a
mistake of fact, this Section 4.8 shall not prohibit the return of such
contribution to the Employer within one (1) year after the payment of the
contribution.
(B) The Employer's obligation to make contributions hereunder is
conditioned upon initial qualification of the Plan under Section 401(a) of the
Code, or any successor provision thereto, and if the Plan does not so qualify,
then this Section 4.8 shall not prohibit the return of such contribution to the
Employer within one (1) year after the date of denial of initial qualification
of the Plan, but only if the application for the qualification is made by the
time prescribed by law for filing the Employer's return for the taxable year in
which the Plan is adopted, or such later date as the Secretary of the Treasury
may prescribe.
(C) To the extent the deduction of a contribution by the Employer
under Section 404 of the Code, or any successor provision thereto, is
disallowed, this Section 4.8 shall not prohibit the return of such contribution
(to the extent disallowed) to the Employer within one (1) year after such
disallowance of the deduction.
4.9 OTHER LIMITATIONS ON CONTRIBUTIONS.
(A) In no event shall the Annual Additions allocated to any
Participant's Account in any Limitation Year exceed the lesser of (1) or (2) as
follows:
(1) Twenty-five percent (25%) of the Participant's
Compensation for the Limitation Year; or
(2) $30,000 (or, if greater, 1/4 of the defined benefit dollar
limit then in effect under Section 415(b)(1)(A) of the Code, as adjusted
annually under Section 415(d) of the Code for increases in the cost of living).
(B) If, as a result of (i) the allocation of Forfeitures, (ii) a
reasonable error in estimating a Participant's Compensation, (iii) a reasonable
error in determining the amount of Salary Deferral Contributions that may be
made with respect to any Participant under the limits of Section 415 of the Code
or (iv) other limited facts and circumstances that the Commissioner of Internal
Revenue finds justify the availability of the relief provisions specified in
this Section 4.9, allocations of Annual Additions would exceed the limitation of
Subsection 4.9(a) with respect to any Participant, the Participant's Salary
Deferral Contributions for the Limitation Year, plus any income allocable
thereto, shall be distributed to the Participant to the extent that the
distribution would reduce the excess Annual Additions allocated to the
Participant's Account. If excess Annual Additions remain for any Participant
after available Salary Deferral Contributions have been distributed, the excess
Annual Additions shall be credited to a suspense account for the Limitation Year
and used to reduce Employer Contributions for the next Limitation Year (and
succeeding Limitation Years, as necessary) for all Eligible Employees.
29.
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(C) Any suspense account established under Subsection (b) shall be
maintained in accordance with the following special rules:
(1) The balance in the suspense account shall be allocated and
reallocated in the manner prescribed in Subsection 4.9(b) (except to the extent
limited by Subsection 4.9(a)) on the next succeeding allocation date for
allocation of contributions. The entire amount so allocated from the suspense
account, including any gains, income or losses credited to the suspense account
in accordance with Paragraph (2) below, shall be considered as Annual Additions
as of the date allocated.
(2) Investment gains, income or losses shall be allocated to
the suspense account.
(3) No further Employer Contributions may be made under the
Plan until the suspense account is exhausted.
(4) In the event of termination of the Plan, the suspense
account shall be allocated and reallocated to the Accounts of all Eligible
Employees in the manner prescribed in Subsections 4.9(b) and (c) up to the
limits of Subsection 4.9(a) determined without regard to Compensation paid after
the date of Plan termination. Any remaining amount of said suspense account
that cannot be so reallocated shall be repaid to the Employer.
(D) If a Participant has been a participant in a qualified defined
benefit plan (as defined in Section 414(j) of the Code) maintained by the
Employer or any Affiliate, in no event shall an Eligible Employee be entitled to
receive a benefit in an amount which would cause the sum of the Defined Benefit
Plan Fraction and the Defined Contribution Plan Fraction to exceed 1.0 for any
Limitation Year. In the event such sum of the Defined Benefit Plan Fraction and
the Defined Contribution Plan Fraction would otherwise exceed 1.0 for any Plan
Year, the projected annual retirement income benefit under the Defined Benefit
Plan Fraction shall be limited, to the extent necessary, to reduce such Defined
Benefit Plan Fraction so that the sum of the two fractions hereunder does not
exceed the foregoing 1.0 limitation.
(E) Notwithstanding other provisions of this Section 4.9 to the
contrary, the otherwise permissible Annual Additions for any Eligible Employee
under this Plan may be further reduced to the extent necessary, as determined by
the Plan Administrator, to prevent disqualification of the Plan under
Section 415 of the Code, which imposes additional limitations on the benefits
payable to Eligible Employees who also may be participating in other
tax-qualified pension, profit sharing, savings or stock bonus plans maintained
by an Affiliate of the Employer. The Plan Administrator shall advise affected
Eligible Employees of any additional limitation on their Annual Additions
required by the preceding sentence.
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5
PARTICIPANTS' ACCOUNTS
5.1 INDIVIDUAL ACCOUNTS. The Plan Administrator, or the Trustee if the
Plan Administrator so determines and the Trustee agrees, shall maintain, or
cause to be maintained, an Account for each Participant, which shall consist of
the following subaccounts, as applicable: a Salary Deferral Account, an
Employer Contributions Account, a Rollover Account, and such other separate
subaccounts, if any, as the Plan Administrator may determine to establish
pursuant to Section 4.4. The Plan Administrator shall also maintain, or cause
to be maintained, on behalf of each Participant, a separate accounting of each
Participant's Account, including contributions, transfers, withdrawals,
earnings, losses and expenses attributable thereto.
5.2 REVALUATION OF THE TRUST. As of each Valuation Date, the Plan
Administrator shall cause to be determined the fair market value of all assets
of the Trust, giving effect to (i) earnings, (ii) gains and losses and (iii)
appreciation or depreciation whether or not realized. The method of valuation
shall be determined by the Trustee and shall be followed with reasonable
consistency from year to year. The aggregate amount credited to the Accounts of
all Participants having Accounts in the Trust shall be adjusted as of each
Valuation Date so as to be equal to the value of all assets in the Trust on such
date. Such adjustment shall be made by allocating to the Account of each
Participant, as of the Valuation Date and prior to the allocation of
contributions and Forfeitures for the Plan Year or such other valuation period,
that proportion of the net change in fair market value of all assets as is equal
to the proportion that the value of each such Account bears to the value of all
such Accounts as of the immediately preceding Valuation Date, after making such
adjustments as may be appropriate to reflect contributions, loans or
distributions which were made subsequent to the preceding Valuation Date.
The Plan Administrator may at any other time it deems appropriate under the
circumstances secure a determination of the fair market value of the Trust as a
whole, of one or more of the separate Investment Funds established under Article
6, or one or more of the separate subaccounts maintained for a Participant. In
such event, the Plan Administrator may make a determination as of such date of
the income, gain or loss on any such respective funds since the preceding
Valuation Date. If the allocation of such income, gain or loss will produce a
significant change in the value of Participants' Accounts, and if such valuation
shall affect a distribution, then in the discretion of the Plan Administrator
such date may thereupon be deemed a Valuation Date, and the Plan Administrator
shall allocate such income, gain or loss to the Accounts of Participants in the
manner provided in the preceding paragraph.
5.3 STATEMENTS. At least once in each Plan Year, the Plan Administrator
shall cause to be furnished to each Participant a statement showing the values
of his or her Account pursuant to this Article 5 as of a Valuation Date
occurring in such Plan Year or the preceding Plan Year.
5.4 ALLOCATION OF INVESTMENT INCOME. Each Participant's Account shall be
revalued on each Valuation Date to reflect any investment income, gains, losses
and expenses
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allocable to such Account as well as any adjustments for contributions to or
distributions, loans or withdrawals from such Account.
6
INVESTMENT OF PARTICIPANT'S ACCOUNTS
6.1 INVESTMENT CONTROL. A Participant shall have the right to direct the
investment of his or her Account in accordance with Section 6.3 among such
Investment Funds as are selected by the Plan Administrator.
6.2 SELECTION OF INVESTMENT FUNDS. The Plan Administrator shall have the
authority to select and withdraw, in its sole discretion, one or more Investment
Funds for the investment of Participants' Accounts upon prior written notice to
Participants.
6.3 INVESTMENT OF ACCOUNTS.
(A) If the Plan Administrator selects more than one Investment Fund
pursuant to Section 6.2, each Participant may make an investment election, in
accordance with such rules as may be established by the Plan Administrator,
which shall be applied in a uniform and nondiscriminatory manner.
(B) Each Participant who directs the investment of his or her Account
is solely responsible for the selection of his or her investment options. The
Trustee, the Employer, the Plan Administrator, and the officers, supervisors and
other employees of any such entity are not authorized to advise a Participant as
to the manner in which his or her Account shall be invested. The fact that an
Investment Fund is available to a Participant for investment under the Plan
shall not be construed as a recommendation for investment in that Investment
Fund. In the event no election is made by a Participant, such amounts available
for his or her election will be invested by the Trustee in a money market fund
or similar investment.
6.4 CHANGE OF INVESTMENT ELECTION AS TO FUTURE CONTRIBUTIONS. The Plan
Administrator shall prescribe, on a uniform and nondiscriminatory basis, the
timing and frequency with which changes in investment elections as to future
contributions are permitted. The Plan Administrator may establish and
communicate to all Participants procedures under which a Participant may elect
to change his or her investment election under Section 6.3 as to future
contributions by the use of a telephone exchange system maintained by the
Investment Funds for such purposes, subject to such restrictions as may be
established by the Investment Fund.
6.5 TRANSFERS BETWEEN INVESTMENT FUNDS. The Plan Administrator shall
prescribe, on a uniform and nondiscriminatory basis, the timing and frequency
with which Participants may elect to transfer amounts already allocated to their
Accounts between available Investment Funds. The Plan Administrator may
establish and communicate to all
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Participants procedures under which Participants may indicate their elections
regarding transfers between Investment Funds by giving instructions directly to
the manager or managers of any such funds, subject to such reasonable conditions
and limitations as to the timing and frequency of such instructions by a
Participant as the Plan Administrator from time to time may prescribe on a
uniform and nondiscriminatory basis. Such procedures shall specify (i) a
reasonable method for providing such instructions to the fund managers (which
may include telephonic instructions) designed to ensure the proper
implementation of a Participant's instructions and otherwise to protect the
interests of Participants, and (ii) the frequency with which such transfers may
be made (which may be as frequently as daily) in accordance with new
instructions of the Participant.
7
VESTING
7.1 FULLY VESTED ACCOUNTS. A Participant shall at all times have a one
hundred percent (100%) nonforfeitable interest in his or her Salary Deferral
Account, Qualified Nonelective Contributions Account, and Rollover Account, as
applicable.
7.2 Vesting of the Profit Sharing Contributions Account and Matching
Contributions Account.
(A) If a Participant's employment with the Employer is terminated
before his or her Normal Retirement Age for any reason other than Disability or
death, in addition to the amounts credited to the subaccounts identified in
Section 7.1, the Participant shall be entitled to an amount equal to the "vested
percentage" of his or her Profit Sharing Contributions Account and Matching
Contributions Account. Such vested percentage shall be determined based on the
Participant's Years of Service for vesting purposes in accordance with the
following schedule:
VESTED
YEARS OF SERVICE PERCENTAGE
Less than 3 0%
3 but less than 4 20%
4 but less than 5 40%
5 but less than 6 60%
6 but less than 7 80%
7 or more 100%
(B) In all events, a Participant's Profit Sharing Contributions
Account and Matching Contributions Account shall be fully vested upon attainment
of his or her Normal Retirement Age or the termination of his or her employment
with the Employer by reason of Disability or death.
33.
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7.3 CHANGE IN VESTING SCHEDULE.
(A) If the vesting schedule set forth in Subsection 7.2(a) is amended
by the Company, for any Employee who is a Participant on the date the amendment
is adopted or the date the amendment is effective, whichever is later, the
vested percentage (determined as of such date) of such Participant's Account
shall not be less than the Participant's vested percentage under the Plan
without regard to such amendment.
(B) Notwithstanding any other provision of the Plan to the contrary,
in the event that the vesting schedule set forth in Subsection 7.2(a) is amended
by the Company, any Participant with at least three (3) Years of Service for
vesting purposes at the time such amendment first becomes effective shall be
permitted to elect, within a reasonable period after the adoption of such
amendment, to have the vested and nonforfeitable portion of his or her Accounts
calculated without regard to such amendment. In the event that the use of the
vesting schedule prior to amendment would under all circumstances provide a
Participant with vested and nonforfeitable benefits in his or her Accounts that
are equal to or greater than the amount of such benefits after applying the
amended vesting schedule, the Participant shall be deemed to have elected the
use of the vesting schedule prior to amendment for purposes of calculating the
vested and nonforfeitable portion of his or her Accounts. The period during
which the election may be made shall commence with the date the amendment is
adopted and shall end on the latest of (i) sixty (60) days after the amendment
is adopted, (ii) sixty (60) days after the amendment becomes effective, or (iii)
sixty (60) days after the Participant is issued written notice of the amendment
by the Company.
7.4 FORFEITURES.
(A) Any remainder of a terminated Participant's Profit
Sharing Contributions Account or Matching Contributions Account that is not
vested in accordance with the foregoing vesting schedule shall be forfeited
immediately upon termination of employment.
(B) Amounts forfeited under Subsection 7.4(a) shall be applied first
to restore the Account balances of any Participants entitled to such restoration
under Subsection (c) below. Remaining Forfeiture amounts, if any, shall then be
used to reduce any subsequent Employer Contributions and shall be allocated to
the Employer Contributions Accounts of Participants in accordance with the
provisions of Section 4.3.
(C) If a previously terminated Participant is reemployed by the
Employer prior to incurring a Five Year Break in Service, an amount equal to the
value of the forfeited portion of the Participant's Profit Sharing Contributions
Account and Matching Contributions Account shall be restored to his or her
Account in full as of the Participant's Reemployment Commencement Date, without
adjustment for any gains or losses occurring subsequent to the time of the prior
forfeiture; provided, however, if the Participant has previously received a
distribution from his or her Accounts, no such restoration shall be made until
the Participant repays the full amount distributed to him or her before the
earlier of (i) five (5) years after the first day the Participant is
subsequently reemployed by the Employer, or (ii) the close of the first Five
Year Break in Service commencing after the distribution. Such restoration shall
be made out of then available Forfeitures of the
34.
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nonvested portions of the Accounts of other Participants in accordance with
Subsection 7.4(b), if any, or by a special contribution from the Employer to the
extent that Forfeitures then available are insufficient.
7.5 VESTING ON REEMPLOYMENT.
(A) Except as provided in Subsection (d) of this Section 7.5, if a
Participant or former Participant is reemployed after a one year Period of
Severance (including a Five Year Break in Service), he or she shall receive
credit for any Period of Service completed prior to his or her date of
reemployment for the purpose of computing his or her vested percentage after his
or her date of reemployment in his or her Profit Sharing Contributions Account
and Matching Contributions Account balance related to his or her employment
after his or her one year Period of Severance.
(B) If a Participant or former Participant is reemployed after a one
year Period of Severance but before incurring a Five Year Break in Service, that
Participant's employment before his or her one year Period of Severance shall be
taken into account, together with his or her employment after his or her one
year Period of Severance, for purposes of computing his or her vested percentage
in his or her Profit Sharing Contributions Account and Matching Contributions
Account balance with respect to his or her participation before such one year
Period of Severance.
(C) If a Participant or former Participant is reemployed after
incurring a Five Year Break in Service, no amounts shall be reinstated to his or
her Profit Sharing Contributions Account and Matching Contributions Account
under Section 7.4(c) and no Period of Service after such Five Year Break in
Service shall be taken into account in determining the vested percentage in his
or her Profit Sharing Contributions Account and Matching Contributions Account
balance accrued before such Five Year Break in Service. The undistributed
vested amount of a Participant's Profit Sharing Contributions Account and
Matching Contributions Account, if any, which accrued prior to the Participant's
Five Year Break in Service shall be held as a separate Profit
Sharing Contributions Account and Matching Contributions Account, as
appropriate. Such separate subaccount shall be fully vested and shall share in
allocation of gain or loss pursuant to Section 5.2 but shall not share in
allocations pursuant to Article 4.
(D) If a Participant or former Participant who had no vested interest
in his or her Profit Sharing Contributions Account and Matching Contributions
Account at the time of his or her termination of employment is reemployed by the
Employer after a Period of Severance of one year or longer, the Participant's
Period of Service before such one year Period of Severance shall be disregarded
for vesting purposes if the Period of Severance equals or exceeds the greater of
five (5) consecutive years or the aggregate Periods of Service, whether or not
consecutive, completed before such Period of Severance.
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8
PLAN DISTRIBUTIONS
8.1 EVENTS PERMITTING DISTRIBUTION. Except as otherwise provided in
Section 17.3, distribution of the balance credited to a Participant's Account
may be made only under the following circumstances:
(A) Upon termination of the Participant's employment for any reason;
(B) In cases of in-service withdrawals to the extent permitted in
Article 9;
(C) Upon termination of the Plan, if the Employer does not maintain a
successor defined contribution plan (other than an employee stock ownership plan
as defined in Section 4975(e) or 409 of the Code or a simplified employee
pension plan as defined in Section 408(k) of the Code) and the Participant's
distribution is made in the form of a lump sum;
(D) Upon the sale, to an entity that is not an Affiliate, of
substantially all of the assets used by the Employer in a trade or business in
which the Participant is employed, if the Participant's distribution is made in
the form of a lump sum, the Employer continues to maintain the Plan following
such sale, and the Participant continues employment with the purchaser of such
assets; or
(E) Upon the sale, to an entity that is not an Affiliate, of the
interest of the Employer or an Affiliate in a subsidiary in which the
Participant is employed, if the Participant's distribution is made in the form
of a lump sum, the Employer continues to maintain the Plan following such sale,
and the Participant continues employment with such subsidiary.
8.2 APPLICABLE DISTRIBUTION AND WITHDRAWAL PROVISIONS. A Participant who
is an Employee may not receive any distributions from the Plan prior to his or
her termination of employment or the termination of the Plan except (i) to the
extent permitted under Article 9 as a withdrawal or (ii) as required under
Section 8.4 (relating to the latest time for distributions). Following a
Participant's termination of employment, distribution of his or her benefit
shall be made as provided below in this Article 8.
8.3 TIME OF DISTRIBUTION TO PARTICIPANT.
(A) Except as provided in Sections 8.4 and 8.5, and unless a
Participant elects otherwise, the distribution of a Participant's benefit under
Section 8.6 shall occur not later than sixty (60) days after the close of the
Plan Year in which occurs the later of (i) the Participant's attainment of his
or her Normal Retirement Age, (ii) the tenth (10th) anniversary of the year in
which the Participant commenced participation in the Plan, or (iii) the
Participant's termination of employment.
(B) If the value of a Participant's entire vested benefit exceeds
$3,500, no distribution to such Participant shall occur before the Participant
has attained the later of Normal Retirement Age or age sixty-two (62), unless an
earlier distribution is elected by the Participant in accordance with
Subsection (c) below. For this purpose, if the Participant's vested benefit at
the time of any distribution exceeded $3,500, the value of his or her vested
benefit at all times thereafter will be deemed to exceed $3,500.
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(c) The Plan Administrator shall provide a Participant with
the notices required by Section 402(f) of the Code and Treasury Regulation
Section 1.411(a)-11(c) no less than thirty (30) days and no more than ninety
(90) days before receipt of the distribution. A Participant may elect to
receive his or her benefit at any reasonable time after termination of
employment. Such an election must be made in writing not more than ninety (90)
days and not less than thirty (30) days before the date requested by the
Participant for the distribution to occur. Such distribution may be made less
than thirty (30) days after the notice required under Treasury Regulation
Section 1.411(a)-11(c) is given, provided that:
(1) The Plan Administrator clearly informs the
Participant that the Participant has a right to a period of at least thirty (30)
days after receiving the notice to consider the decision of whether or not to
elect a distribution (and, if applicable, a particular distribution option), and
(2) The Participant, after receiving the notice,
affirmatively elects a distribution.
8.4 LATEST TIME OF DISTRIBUTION. Notwithstanding any other
provision of this Plan, the distribution of a Participant's benefit shall occur
under this Article 8 no later than the Participant's Required Beginning Date,
whether or not the Participant's employment has terminated. Notwithstanding the
foregoing sentence, the distribution of a Participant's benefit may be made
pursuant to Section 242(b) of the Tax Equity and Fiscal Responsibility Act of
1982, even if such distribution would otherwise fail to satisfy the requirements
of this Section 8.4 or any other provision of the Plan. If the Participant
continues to participate in the Plan after his or her Required Beginning Date,
distribution of any additional Plan benefit with respect to which distribution
had not occurred as of the Required Beginning Date shall occur under Section 8.6
during each calendar year following a calendar year in which such an additional
benefit is accrued.
8.5 SMALL BENEFITS: IMMEDIATE PAYMENT. Notwithstanding any other
provision of this Article 8, if the value of a Participant's entire vested
benefit is $3,500 or less, then the benefit shall be paid to such Participant
(or, in the case of his or her death, to the Beneficiary) in a single lump sum
in cash as soon as practical following the Participant's termination of
employment (unless an earlier distribution is required by Section 8.4). For
this purpose, if the Participant's vested benefit at the time of any
distribution exceeded $3,500, the value of his or her vested benefit at all
times thereafter will be deemed to exceed $3,500.
8.6 FORM OF DISTRIBUTION TO PARTICIPANT. A PARTICIPANT'S BENEFIT
SHALL BE DISTRIBUTED IN A LUMP SUM IN CASH.
8.7 DISTRIBUTION OF DEATH BENEFIT. If a Participant dies before
receiving his or her benefit, such Participant's Beneficiary shall be entitled
to receive such benefit after filing the prescribed claim form with the Plan
Administrator. Subject to the provisions of Sections 8.5 and 8.9, the
Participant's benefit shall be paid to his or her Beneficiary in the form of a
single
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lump sum in cash and the distribution shall be made as soon as reasonably
practical after the Participant's death. However, in no event shall the lump
sum distribution be made later than five (5) years after the Participant's
death.
8.8 BENEFICIARY DESIGNATION; SPOUSAL CONSENT RIGHTS.
(a) A Participant's Beneficiary shall be the person(s) so
designated by such Participant. If the Participant has not made an effective
designation of a Beneficiary or if the designated Beneficiary is not living when
a distribution is to be made, then (i) the surviving spouse of the deceased
Participant shall be the Beneficiary, if then living, or (ii) if none, the
estate of the Participant shall be the Beneficiary. The Participant may change
his or her designation of a Beneficiary from time to time. Any designation of a
Beneficiary (or an amendment or revocation thereof) shall be effective only if
it is made in writing on the prescribed form and is received by the Plan
Administrator prior to the Participant's death.
(b) The designation by a married Participant of a primary
Beneficiary other than his or her surviving spouse shall not be valid unless
such designation (i) includes the written consent of the surviving spouse that
acknowledges the effect of such designation and is witnessed by either a Plan
representative or a notary public, and (ii) names a specific Beneficiary that
may not be changed without further spousal consent (unless the consent or a
prior consent expressly permits designations by the Participant without any
requirement of further consent by the spouse). Such consent shall be effective
only as to the spouse who signs the consent and, once given, may not be revoked
by such spouse. Notwithstanding the foregoing, such spousal consent shall not
be required if it is established to the satisfaction of a Plan representative
that the required consent cannot be obtained because there is no spouse, because
the Participant is legally separated from or has been abandoned by the spouse
(and the Participant has a court order to that effect), because the spouse
cannot be located, or because of other circumstances that are deemed acceptable
under applicable Treasury Regulations. If a Participant's spouse is legally
incompetent to give consent, the spouse's legal guardian may do so, even if such
guardian is the Participant. A designation of Beneficiary made by a Participant
and consented to by his or her spouse may be revoked by the Participant in
writing without the consent of the spouse at any time prior to the time his or
her benefit is distributed. Any new election must comply with the requirements
of this Subsection 8.8(b).
(c) The Plan Administrator may require such proof of death
and such evidence of the right of any person to receive payment under Section
8.7 as the Plan Administrator may deem advisable. The Plan Administrator's
determination of the right under this Section 8.8 of any person to receive
payment shall be final and conclusive upon all persons.
8.9 MINIMUM REQUIRED DISTRIBUTIONS; INCORPORATION OF REGULATIONS.
(a) All distributions under the Plan shall comply with
Section 401(a)(9) of the Code and the regulations promulgated thereunder,
including Treasury Regulations Section 1.401(a)(9)-2, and the provisions of the
Plan reflecting Section 401(a)(9) of the Code (including Section 8.4 and this
Section 8.9) shall override any other provisions of the Plan that are
inconsistent therewith.
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(b) Notwithstanding anything in the Plan to the contrary, if
a Participant dies before the distribution of his or her benefits has been made,
the Participant's entire benefit shall be distributed by December 31 of the
calendar year containing the fifth (5th) anniversary of the date of his or her
death.
(c) For purposes of this Section 8.9 and to the extent
permitted by law, any amount paid to a Participant's child shall be treated as
if it had been paid to the Participant's surviving spouse if such amount will
become payable to the surviving spouse upon such child reaching the age of
majority (or other designated event permitted by law).
8.10 DIRECT ROLLOVER.
(a) Notwithstanding any provision of the Plan to the
contrary that would otherwise limit a distributee's election under this Section
8.10, a distributee may elect, at the time and in the manner prescribed by the
Plan Administrator and in accordance with the regulations promulgated under
Section 402(c) of the Code, to have any portion of an eligible rollover
distribution paid directly to an eligible retirement plan specified by the
distributee in a direct rollover.
(b) For purposes of this Section 8.10 and Section 8.11:
(1) "Eligible retirement plan" means an individual
retirement account described in Section 408(a) of the Code, an individual
retirement annuity (other than an endowment contract) described in Section
408(b) of the Code, a qualified trust described in Section 401(a) of the Code,
or an annuity plan described in Section 403(a) of the Code, that accepts the
distributee's eligible rollover distribution. However, in the case of an
eligible rollover distribution to the surviving spouse, an eligible retirement
plan is an individual retirement account or an individual retirement annuity.
(2) "Eligible rollover distribution" means any
distribution, in a form permitted under Section 8.6 of the Plan, of all or any
portion of the balance to the credit of the distributee, except that the
following distributions shall not be eligible rollover distributions: (i) any
distribution that is one of a series of substantially equal periodic payments
(not less frequently than annually) made for the life (or life expectancy) of
the distributee or the joint lives (or joint life expectancies) of the
distributee and the distributee's designated beneficiary, or for a specified
period of ten (10) years or more, (ii) any distribution required under Section
8.4 and (iii) the portion of any distribution that is not includable in gross
income.
(3) "Distributee" means an Employee or former
Employee. In addition, the Employee's or former Employee's surviving spouse and
the Employee's or former Employee's spouse or former spouse who is the alternate
payee under a qualified domestic relations order, as defined in Section 414(p)
of the Code, are distributees with regard to the interest of the spouse or
former spouse.
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(4) "Direct rollover" means a payment by the Plan to
the eligible retirement plan specified by the distributee.
8.11 WITHHOLDING ON DISTRIBUTIONS. Distributions under this Plan
shall be subject to Federal income tax withholding to the extent prescribed by
Section 3405 of the Code. In accordance with Section 3405(c) of the Code and
the regulations thereunder, if a Participant elects to receive a distribution of
any portion of an eligible rollover distribution rather than have such
distribution transferred directly to an eligible retirement plan in accordance
with Section 8.10, the Plan Administrator shall withhold or cause to be withheld
from such distribution an amount equal to twenty percent (20%) of such
distribution.
8.12 DEFERRED DISTRIBUTION. The Accounts of Participants who have
terminated employment and have not yet received the entire value of their vested
Plan benefit may be charged with their proportionate shares of the
administrative expenses of the relevant Investment Funds and with their shares
of any per Participant fees charged by a third party administrator.
8.13 DETERMINATION OF ACCOUNT BALANCE. Whenever a Participant or his
or her Beneficiary is entitled to receive a distribution of the entire amount or
a percentage of his or her Account balance, the amount of such Account balance
shall be determined as of the Valuation Date immediately preceding the date of
distribution, as adjusted for contributions and withdrawals made after such
Valuation Date.
8.14 NO LIABILITY. Any payment to any Participant, or to his or her
legal representative or Beneficiary, in accordance with the provisions of the
Plan, shall to the extent thereof be in full satisfaction of all claims for
benefits hereunder against the fiduciaries of the Plan, including the Employer,
the Plan Administrator, and the Trustee, any of whom may require such
Participant, legal representative or Beneficiary, as a condition precedent to
such payment, to execute a receipt therefor in such form as shall be determined
by the fiduciary requesting such receipt. The Employer does not guarantee the
Plan, the Participants, former Participants or their legal representatives or
Beneficiaries against loss of or depreciation in value of any right or benefit
that any of them may acquire under the terms of the Plan. All of the benefits
payable hereunder shall be paid or provided for solely from the Trust, and the
Employer does not assume any liability or responsibility therefor.
9
WITHDRAWALS WHILE EMPLOYED
9.1 WITHDRAWALS FROM ROLLOVER ACCOUNT. A Participant who has made
a Rollover Contribution and who is an Employee may make a withdrawal from his or
her Rollover Account if:
(a) He or she has attained age fifty-nine and one-half (59
1/2) or
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(b) Subject to the restrictions of Section 9.5, he or she is
eligible for a Hardship withdrawal.
The amount that may be withdrawn under this Section 9.1 shall not exceed the
balance credited to the Participant's Rollover Account. Notwithstanding the
foregoing provisions of this Section 9.1, to the extent required by applicable
rules or regulations in order to maintain the qualification of the Plan or a
plan from which assets are transferred to the Plan, the withdrawal of any
portion of a Participant's Rollover Account that is attributable to a
plan-to-plan transfer to the Plan from another qualified plan shall be subject
to any additional limitation imposed on the amounts so transferred by the
transferor plan immediately prior to such transfer.
9.2 WITHDRAWALS FROM SALARY DEFERRAL ACCOUNT. A Participant who has
withdrawn all amounts permitted to be withdrawn from his or her Rollover
Account, if any, pursuant to Section 9.1, and who is an Employee may make a
withdrawal from his or her Salary Deferral Account if:
(a) He or she has attained age fifty-nine and one-half (59
1/2) or
(b) Subject to the restrictions of Section 9.5, he or she is
eligible for a Hardship withdrawal.
9.3 WITHDRAWALS FROM EMPLOYER CONTRIBUTIONS ACCOUNT. A Participant
who has withdrawn all amounts permitted to be withdrawn from his or her Rollover
Account and Salary Deferral Account, if any, and who is an Employee may make a
withdrawal from the vested portion of his or her Employer Contributions Account
if:
(a) He or she has attained age fifty-nine and one-half (59
1/2) or
(b) Subject to the restrictions of Section 9.5, he or she is
eligible for a Hardship withdrawal.
The amount that may be withdrawn under this Section 9.3 shall not exceed the
vested portion of the balance credited to the Participant's
Employer Contributions Account.
9.4 PLAN ADMINISTRATOR CONSENT. The Plan Administrator, in its sole
discretion, may withhold its consent to any withdrawal under this Article 9, and
the Plan Administrator may consent only to the withdrawal of a part of the
amount requested by the Participant. The Plan Administrator shall act upon
requests for withdrawals in a uniform and nondiscriminatory manner, based on
written, objective criteria and consistent with the requirements of
Section 401(a), Section 401(k), Section 401(m) and related provisions of the
Code.
9.5 HARDSHIP WITHDRAWAL RULES.
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(a) A Hardship withdrawal must be made on account of an
immediate and heavy financial need of the Participant.
(1) The Plan Administrator shall determine whether a
Participant has an immediate and heavy financial need based on all the relevant
facts and circumstances. A financial need may be immediate and heavy even if it
was reasonably foreseeable or voluntarily incurred by the Participant.
(2) However, a Hardship withdrawal will be deemed to
be on account of an immediate and heavy financial need of the Participant if the
Hardship withdrawal is for:
(A) Costs directly related to the
construction or purchase (excluding mortgage payments) of the Participant's
principal residence;
(B) Expenses for medical care described in
Section 213(d) of the Code which (i) were previously incurred by the Participant
or the Participant's spouse or dependent (as defined in Section 152 of the Code)
or (ii) are necessary for such persons to obtain such medical care;
(C) Payment of tuition and related
educational fees for the next twelve (12) months of post-secondary education for
the Participant or his or her spouse, child or dependent (as defined in Section
152 of the Code);
(D) Payment of amounts necessary to prevent
the eviction of the Participant from his or her principal residence or the
foreclosure of the mortgage on the Participant's principal residence; or
(E) Any other financial need that has been
identified as a deemed immediate and heavy financial need in a ruling of general
applicability issued under the authority of the Commissioner of the Internal
Revenue Service.
(b) A Hardship withdrawal must be necessary to satisfy an
immediate and heavy financial need of the Participant.
(1) A Hardship withdrawal will not be treated as
necessary to satisfy an immediate and heavy financial need of the Participant to
the extent it would exceed the amount required to relieve the financial need or
to the extent such need may be satisfied from other resources reasonably
available to the Participant. This determination generally is to be made on the
basis of all relevant facts and circumstances. For purposes of this
determination, the Participant's resources shall be deemed to include those
assets of his or her spouse and minor children that are reasonably available to
the Participant. However, property held for the Participant's child under an
irrevocable trust or under the Uniform Gifts to Minors Act is not treated as a
resource of the Participant. The amount of an immediate and heavy financial
need may include any amounts necessary to pay any federal, state or local income
taxes or penalties reasonably anticipated to result from the distribution of the
Hardship withdrawal.
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(2) However, a Hardship withdrawal will be deemed
necessary to satisfy an immediate and heavy financial need of the Participant if
all of the following requirements are satisfied:
(A) The amount of the Hardship withdrawal
must not exceed the amount of the immediate and heavy financial need of the
Participant. The amount of the immediate and heavy financial need may include
any amounts necessary to pay any federal, state or local income taxes or
penalties reasonably anticipated to result from the distribution of the Hardship
withdrawal.
(B) The Participant must have obtained all
distributions, other than Hardship withdrawals, and all nontaxable loans
currently available under all plans maintained by the Employer, unless obtaining
such loan would increase the Participant's Hardship.
(C) Upon receipt of a Hardship withdrawal,
the Participant shall be suspended from making Salary Deferral Contributions to
the Plan or elective contributions to any other plan maintained by the Employer
or an Affiliate (including qualified and nonqualified plans, but excluding
health or welfare benefit plans) for twelve (12) months following the receipt of
the Hardship withdrawal.
(D) Upon receipt of a Hardship withdrawal,
the Participant may not make Salary Deferral Contributions to the Plan or
elective contributions to any other plan maintained by the Employer or an
Affiliate for the Participant's taxable year immediately following the year of
the Hardship withdrawal in excess of the applicable limit under Section 402(g)
of the Code for such following year, less the amount of such Participant's
Salary Deferral Contributions to the Plan and elective contributions to any
other plan maintained by the Employer or an Affiliate for the year of the
Hardship withdrawal.
(c) The Plan Administrator's determination of an immediate
and heavy financial need of the Participant, the amount required to satisfy such
need and the Participant's lack of other resources reasonably available to meet
such need shall be made in a uniform and nondiscriminatory manner with respect
to all Participants.
(d) Notwithstanding any other provision of this Article 9, a
Participant shall not be permitted to make a Hardship withdrawal of any
Qualified Nonelective Contributions or of any earnings on such contributions
credited to his or her Account.
(e) Hardship withdrawals from a Participant's Salary
Deferral Account under this Article 9 shall be limited to an amount equal to the
Participant's total Salary Deferral Contributions under the Plan, determined as
of the date of the withdrawal, reduced by the amount of any previous Hardship
withdrawals.
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(f) In order to qualify for a Hardship withdrawal, the
Participant must submit a properly completed withdrawal request form in
accordance with procedures established by the Plan Administrator.
9.6 FREQUENCY AND SOURCE OF WITHDRAWALS. A Participant shall not be
permitted to make more than one withdrawal under this Article 9 in any period of
twelve (12) consecutive months; provided, however, that withdrawals made at the
same time shall be considered a single withdrawal. Withdrawals shall be paid
from the affected Account and subaccounts. If more than one Investment Fund is
available to pay the withdrawal, the withdrawal shall be made from the
Investment Fund(s) designated by the Participant, subject to such ordering
restrictions as the Plan Administrator may adopt; provided, however, that a
Hardship withdrawal shall be made only after the maximum amount available
without demonstrating a Hardship has been withdrawn.
9.7 PAYMENT OF WITHDRAWALS. A Participant may request a withdrawal
by filing the prescribed withdrawal request form with the Plan Administrator. A
withdrawal shall be paid as soon as reasonably practical after the date on which
the Plan Administrator receives the prescribed withdrawal form (subject to the
Plan Administrator's consent). Withdrawals shall be paid only in a single lump
sum payment in cash.
9.8 VALUATION DATE. For purposes of this Article 9, the value of a
Participant's Account and the vested percentage of any subaccounts shall be
determined as of the Valuation Date preceding the date of distribution of the
withdrawal amount, as adjusted for contributions and distributions made after
such Valuation Date and for outstanding loans.
10
LOANS FROM THE PLAN
10.1 ELIGIBILITY FOR LOANS. Upon written approval of the Plan
Administrator, a Participant who is an Employee may obtain a cash loan from the
Plan as provided in this Article 10. Notwithstanding the foregoing, to the
extent required under applicable Department of Labor regulations, a Participant
who is not an Employee but otherwise is a "party in interest" (within the
meaning of Section 3(14) of ERISA) also shall be eligible to receive a loan
under the terms of this Article 10.
10.2 AMOUNT OF LOANS.
(a) The minimum amount of a Participant's loan shall be
$1,000.
(b) The maximum amount of a loan shall be the lesser of
(i) 50% of the Participant's vested Account balance or (ii) the amount
determined under Section 10.3.
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(c) For purposes of this Section 10.2, a Participant's
vested Account balance shall be determined as of the Valuation Date preceding
the date of the loan, as adjusted for any distributions or contributions made
after such Valuation Date.
10.3 AGGREGATE LOAN LIMITATION. No loan shall be granted under the
Plan if it would cause the aggregate balance of all loans that a Participant
thereafter has outstanding under this Plan or under any other qualified plan
maintained by the Employer or any Affiliate to exceed the lesser of:
(a) $50,000, less the amount by which such aggregate balance
has been reduced through repayments during the period of twelve (12) months
ending on the day before such loan is made; or
(b) The greater of (i) $10,000 or (ii) 50% of the vested
portion of all accounts of the Participant under this Plan or under any other
qualified plan maintained by the Employer or any Affiliate.
10.4 LOAN REQUIREMENTS. Loans to Participants shall be made on such
terms and conditions as the Plan Administrator may determine in its sole
discretion, provided that loans shall:
(a) Be available to all Participants on a reasonably
equivalent basis;
(b) Other than by operation of the limitations contained in
Section 10.2, not be made available to Highly Compensated Employees in an amount
greater than the amount made available to other Employees;
(c) Bear a reasonable rate of interest;
(d) Provide for level amortization over its term with
payments at quarterly or more frequent intervals, as determined by the Plan
Administrator;
(e) Provide for repayment in full on or before the earlier
of (i) the date when the Participant ceases to be an Employee, or a reasonable
time thereafter, or (ii) the date five (5) years after the loan is made (or the
date thirty (30) years after the loan is made if the loan is used to acquire a
dwelling unit that, within a reasonable period of time, is to be used as the
principal residence of the Participant); and
(f) Be adequately secured.
10.5 LOAN PROCEDURES. The terms and conditions of any loans made
from the Plan shall be set forth in the "Loan Procedures" that shall be adopted
by the Plan Administrator as a part of the Plan, and which hereby are
incorporated in this Plan by reference. Such Loan Procedures may be amended
from time to time by the Plan Administrator, and shall provide, among other
things:
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(a) The identity of the person or positions authorized to
administer the loan program established pursuant to this Article 10;
(b) The procedure for applying for loans;
(c) The basis on which loans will be approved or denied;
(d) Limitations (if any) on the types and amount of loans
that are available under the Plan;
(e) The procedure for determining a reasonable rate of
interest that will be charged on loans;
(f) The types of collateral that may secure a Participant's
loan; and
(g) The events constituting default and the steps that will
be taken to preserve Plan assets in the event of such default.
10.6 SEGREGATED INVESTMENT. A loan to a Participant under this
Article 10 shall be a segregated investment of the Account and applicable
subaccount of such Participant made at the Participant's direction. Principal
and interest payments on a Participant's loan shall be allocated to such
Participant's Account. Any loss caused by nonpayment or other default on a
Participant's loan obligations shall be borne solely by such Participant's
Account, and neither the Employer, the Plan Administrator, the Trustee, nor any
employee of any of the foregoing, shall be liable for any such loss.
11
FUNDING POLICY AND METHOD
11.1 CONTRIBUTIONS. The Company shall cause the participating
Employers to make Profit Sharing Contributions, Matching Contributions, and
Qualified Nonelective Contributions to the Plan, as provided in Article 4. The
Company shall also make arrangements for the collection of Salary Deferral
Contributions and Rollover Contributions, as provided in Article 4.
11.2 EXPENSES OF THE PLAN. All costs and expenses of the Plan shall
be paid out of the Trust, to the extent such costs and expenses are not paid by
the participating Employers.
11.3 INDEPENDENT ACCOUNTANT. The Plan Administrator shall engage an
independent qualified public accountant to conduct such examination and to
express such opinion as may be required by Section 103(a)(3) of ERISA, if any.
The Plan Administrator may remove and discharge the person so engaged, but in
such event the Plan Administrator shall engage a
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successor independent qualified public accountant to perform such examination
and to express such opinion, if required.
12
FIDUCIARY RESPONSIBILITIES AND PLAN ADMINISTRATION
12.1 PLAN SPONSOR AND PLAN ADMINISTRATOR. The Company is the "plan
sponsor" and the Plan Administrator is the "plan administrator" of the Plan, as
such terms are used in ERISA and the Code and the Plan Administrator as
described herein.
12.2 ADMINISTRATIVE RESPONSIBILITIES. The Plan Administrator shall
be the named fiduciary that has the authority to control and manage the
operation and administration of the Plan in the Plan Administrator's sole
discretion subject to the terms of the Plan. The Plan Administrator shall make
such rules, interpretations and computations and take such other actions to
administer the Plan as the Plan Administrator may deem appropriate in its sole
discretion. The rules, interpretations, computations and other actions of the
Plan Administrator shall be binding and conclusive on all persons. In
administering the Plan, the Plan Administrator shall act in a nondiscriminatory
manner to the extent required by Section 401(a) and related provisions of the
Code and shall at all times discharge its duties with respect to the Plan in
accordance with the standards set forth in Section 404(a)(1) of ERISA.
12.3 MANAGEMENT OF PLAN ASSETS. The Plan Administrator shall be a
named fiduciary with respect to control and management of the assets of the
Plan, but only to the extent that it shall have the authority (i) to appoint one
or more Trustees to hold the assets of the Plan and to enter into an agreement
with each Trustee it appoints, (ii) to select Investment Funds in which Plan
assets may be invested, (iii) to appoint one or more Investment Managers for any
assets of the Plan and to enter into an investment management agreement with
each Investment Manager it appoints, (iv) to direct the investment of any Plan
assets not assigned to an Investment Manager or not invested in one or more
Investment Funds at the direction of Participants in accordance with Article 6,
(v) to remove any Trustee or Investment Manager it appointed and (vi) to direct
the Trustee to enter into a custodial agreement with a bank or trust company
pursuant to which such bank or trust company is to have custody of Plan assets
as an agent of the Trust. Each Investment Manager so appointed shall
acknowledge in writing that it is a fiduciary with respect to the Plan.
12.4 TRUSTEE AND INVESTMENT MANAGERS. The Trustee shall have the
exclusive authority and discretion to control and manage the Plan assets held by
it, except to the extent that (i) the Company directs how such assets shall be
invested, (ii) the Company allocates the authority to manage such assets to one
or more Investment Managers, (iii) the Plan prescribes how such assets shall be
invested or (iv) Participants are permitted to direct the investment of their
Accounts pursuant to Article 6. Each Investment Manager appointed under
Section 12.3 shall have the exclusive authority to manage, including the power
to acquire and dispose of,
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the Plan assets assigned to it by the Company except to the extent that the Plan
prescribes how such assets shall be invested (including at the direction of
Participants in accordance with Article 6). The Trustee and any Investment
Manager shall be solely responsible for diversifying the investments, in
accordance with Section 404(a)(1)(C) of ERISA, of the Plan assets assigned to
them by the Company, except to the extent that the Company directs or the Plan
prescribes how such assets shall be invested (including at the direction of
Participants in accordance with Article 6).
12.5 SELECTION OF SERVICE PROVIDERS AND DELEGATION OF FIDUCIARY
RESPONSIBILITIES.
(a) The Company may engage such attorneys, actuaries,
accountants, consultants or other persons to render advice or to perform
services with regard to any of its responsibilities under the Plan as it shall
determine to be necessary or appropriate. The Company shall engage the
Investment Management Advisor to assist the Plan Administrator with respect to
control and management of the assets of the Plan.
(b) The Company may designate by written instrument (signed
by both parties) one or more actuaries, accountants or consultants as
fiduciaries to carry out, where appropriate, fiduciary responsibilities of the
Company. The Company shall not allocate or delegate to any other person any of
its duties and responsibilities under the Plan. The duties and responsibilities
of the Company under the Plan shall be carried out by the directors, officers
and employees of the Company (or a Committee thereof appointed in accordance
with Section 12.7), acting on behalf and in the name of the Company in their
capacities as directors, officers and employees and not as individual
fiduciaries. Except as provided in Section 13.3 (regarding the appointment of a
Review Panel), the Company is specifically prohibited from designating any
director, officer or employee of the Company as a fiduciary and from allocating
or delegating to any such person any of its fiduciary responsibilities.
12.6 SERVICE IN SEVERAL FIDUCIARY CAPACITIES. Nothing herein shall
prohibit any person or group of persons from serving in more than one fiduciary
capacity with respect to the Plan (including service both as the Plan
Administrator and as a Trustee).
12.7 APPOINTMENT OF THE COMMITTEE. The Company may appoint a
Committee to act on its behalf in carrying out the Company's fiduciary duties
under the Plan. If the Company appoints a Committee, as provided in this
Section 12.7, the following rules shall apply:
(a) The Committee shall be known as the 401(k) Plan
Committee.
(b) The Committee shall consist of one (1) or more persons
appointed from time to time by the Company who may be Employees and who shall
serve at the pleasure of the Company without compensation, unless otherwise
determined by the Company. The Company shall certify to the Trustee the members
of the Committee.
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(c) The Committee shall act by agreement of a majority of
its members, either by vote at a meeting or in writing without a meeting. By
such action, it may authorize one or more members to execute documents on its
behalf, perform other fiduciary and ministerial duties and direct the Trustee in
the performance of its duties hereunder on behalf of the Committee. The
Trustee, upon written notification of such authorization, shall accept and rely
upon such documents until notified in writing that the authorization has been
revoked by the Committee. The Trustee shall not be deemed to be on notice of
any change in the membership of the Committee unless notified in writing. A
member of the Committee, who is also a Participant hereunder, shall not vote or
act upon any matter relating solely to himself or herself. In the event of a
deadlock or other situation which prevents agreement of a majority of the
Committee members, the matter shall be decided by the Company.
(d) The Committee shall keep such written records as it
shall deem necessary or proper, which records shall be open to inspection by the
Company. The Committee shall obtain from the Trustee regular reports with
respect to the current value of the assets held in the Trust, in such form as is
acceptable to the Committee. The Committee shall keep on file a copy of this
Plan and the Trust Agreement, including any subsequent amendments, all annual
and interim reports of the Trustee and the latest annual report, summary of the
annual report, and summary plan description required under Title I of ERISA for
examination by Participants during business hours.
12.8 INDEMNIFICATION. Unless otherwise addressed in a written
contract entered into between the Company and a fiduciary of the Plan, the
Company agrees to indemnify and reimburse, to the fullest extent permitted by
law, members of the Committee, directors, officers and employees acting for the
Company, all such former members, directors, officers and employees, and any
other person to which any fiduciary responsibility with respect to the Plan is
allocated or delegated, including but not limited to the Plan Administrator, for
any and all expenses, liabilities or losses, including attorneys' fees, arising
out of any act or omission relating to the rendition of services for or the
management and administration of the Plan, other than such expenses, liabilities
and costs as may result from the bad faith, criminal acts or willful misconduct
of such persons or to the extent such indemnification is specifically prohibited
by ERISA.
12.9 Removal of Plan Administrator and Other Named Fiduciaries. The
Company acknowledges that as a condition of participating in the Plan, the
Company has no authority to change or remove either the Plan Administrator or
any named fiduciary with respect to the control and management of the Plan's
assets. The Company authorizes Crosspoint to remove the Plan Administrator and
appoint a new Plan Administrator, but only if such action is effective for all
companies for which Crosspoint has such authority. The Company also authorizes
Crosspoint to remove any named fiduciary with respect to the control and
management of the Plan's assets, but only if such action is effective for all
companies for which Crosspoint has such authority.
13
CLAIMS PROCEDURES
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13.1 APPLICATION FOR BENEFITS. Applications for benefits and
inquiries concerning the Plan (or concerning present or future rights to
benefits under the Plan) shall be submitted to the Plan Administrator in
writing. An application for benefits shall be submitted on the prescribed form
and shall be signed by the Participant or, in the case of a benefit payable
after his or her death, by his or her Beneficiary.
13.2 DENIAL OF APPLICATION. In the event that an application for
benefits is denied in whole or in part, the Plan Administrator shall notify the
applicant in writing of the denial and of the right to a review of the denial.
The written notice shall set forth, in a manner calculated to be understood by
the applicant, specific reasons for the denial, specific references to the
provisions of the Plan on which the denial is based, a description of any
information or material necessary for the applicant to perfect the application,
an explanation of why the material is necessary, and an explanation of the
review procedure under the Plan. The written notice shall be given to the
applicant within a reasonable period of time (not more than ninety (90) days)
after the Plan Administrator received the application, unless special
circumstances require further time for processing and the applicant is advised
of the extension. In no event shall the notice be given more than one hundred
eighty (180) days after the Plan Administrator received the application.
13.3 REVIEW PANEL. The Plan Administrator may from time to time
appoint a Review Panel that may consist of two (2) or more individuals who may,
but need not, be Employees. If no such Review Panel is named, the Plan
Administrator shall be deemed to be the Review Panel for purposes of this
Article 13. The Review Panel shall be the named fiduciary that has the
authority to act with respect to any appeal from a denial of benefits or a
determination of benefit rights.
13.4 REQUEST FOR REVIEW. An applicant whose application for benefits
was denied in whole or in part, or the applicant's duly authorized
representative, may appeal from the denial by submitting to the Review Panel a
request for a review of the application within sixty (60) days after receiving
written notice of the denial from the Plan Administrator. The Plan
Administrator and the Company shall provide the applicant or his or her
representative an opportunity to review pertinent materials, other than legally
privileged documents, in preparing the request for a review. The request for a
review shall be in writing and addressed to the Review Panel. The request for a
review shall set forth all of the grounds on which it is based, all facts in
support of the request, and any other matters that the applicant deems
pertinent. The Review Panel may require the applicant to submit such additional
facts, documents or other material as it may deem necessary or appropriate in
making its review.
13.5 DECISION ON REVIEW. The Review Panel shall act on each request
for a review within sixty (60) days after receipt, unless special circumstances
require further time for processing and the applicant is advised of the
extension. In no event shall the decision on review be rendered more than one
hundred twenty (120) days after the Review Panel received the request for a
review. The Review Panel shall give prompt written notice of its decision to
the applicant and to the Plan Administrator and the Company. In the event that
the Review
48.
<PAGE>
Panel confirms the denial of the application for benefits in whole or in part,
the notice shall set forth, in a manner calculated to be understood by the
applicant, the specific reasons for the decision and specific references to the
provisions of the Plan on which the decision is based.
13.6 RULES AND INTERPRETATIONS. The Review Panel shall adopt such
rules, procedures and interpretations of the Plan as it deems necessary or
appropriate in carrying out its responsibilities under this Article 13.
13.7 EXHAUSTION OF REMEDIES. No legal action for benefits under the
Plan shall be brought unless and until the claimant (i) has submitted a written
application for benefits in accordance with Section 13.1, (ii) has been notified
by the Plan Administrator that the application is denied, (iii) has filed a
written request for a review of the application in accordance with Section 13.4
and (iv) has been notified in writing that the Review Panel has affirmed the
denial of the application; provided, however, that legal action may be brought
after the Plan Administrator or the Review Panel has failed to take any action
on the claim within the time prescribed by Sections 13.2 and 13.5, respectively.
14
AMENDMENT OR DISCONTINUANCE OF THE PLAN
14.1 AMENDMENTS.
(a) The Company authorizes Crosspoint to amend the Plan on
its behalf as long as any amendment to the Plan would not increase the
contributions (other than Salary Deferral Contributions) that an Employer would
be obligated to make to the Plan, but only if such amendment is effective for
all companies for which Crosspoint has such authority.
(b) The Company may not amend any provisions of the Plan
without prior approval of the Plan Administrator, except with respect to the
making, allocating, and vesting of Profit Sharing Contributions and Matching
Contributions.
(c) The Company may not make any amendment to the Plan that
would jeopardize the status of the Plan as a multiple employer plan within the
meaning of Section 413(c) of the Code. The Company acknowledges that as a
condition of participating in the Plan, the Company may not amend or otherwise
alter the provisions of Section 12.9 and Article 14 of the Plan.
14.2 MERGER, CONSOLIDATION OR TRANSFER. In the event of any merger
or consolidation with, or transfer of assets or liabilities to, any other plan,
the benefit that each Participant would be entitled to receive if the Plan were
to terminate immediately after the merger, consolidation or transfer shall not
be less than the benefit that he or she would have been entitled to receive if
the Plan had terminated immediately before the merger, consolidation or
transfer. In the event a Participant's benefits are transferred to another
qualified plan maintained by the Employer or any Affiliate of the Employer, if
such transfer
49.
<PAGE>
would result in the elimination or reduction of any benefits protected under
Section 411(d)(6) of the Code, such transfer of benefits shall be conditioned
upon a voluntary, fully informed election by the Participant to transfer such
Participant's benefits to such other qualified plan in accordance with
regulations under Section 411(d)(6) of the Code.
14.3 RIGHT TO TERMINATE PLAN.
(a) An Employer has established the Plan with the bona fide
intention and expectation that the Plan will continue indefinitely and that the
Employer will be able to make its contributions indefinitely, but the Employer
shall be under no obligation to continue making contributions or to maintain the
Plan for any given length of time and may, in its sole and absolute discretion,
discontinue its contributions or terminate the Plan with respect to such
Employer, at any time without any liability whatsoever.
(b) The Company reserves the right to terminate the Plan at
any time with respect to any or all Employers.
(c) The Company may terminate participation in the Plan for
itself and/or any or all Employers by provision of a written notice to the Plan
Administrator and Crosspoint.
14.4 Employer's Rights and Obligations Upon Plan Termination. Any
other provision of the Plan to the contrary notwithstanding, upon any
termination of the Plan, the Employer shall have no obligation or liability
whatsoever to make any further payments (including any Matching Contributions
payable prior to such termination) to the Trustee for benefits under the Plan.
Neither the Trustee nor any Participant, Employee or Beneficiary shall have any
right to compel the Employer to make any payment after the termination of the
Plan.
14.5 PARTICIPANTS' RIGHTS UPON PLAN TERMINATION. If the Plan is
terminated or partially terminated, or if contributions are completely
discontinued, then each Participant who then is an Employee and who is directly
affected by such event shall have a one hundred percent (100%) vested interest
in his or her Account (including all subaccounts), without regard to his or her
Period of Service.
15
TOP-HEAVY PROVISIONS
15.1 TOP-HEAVY PLAN DEFINED. Notwithstanding any other provision of
this Plan to the contrary, this Article 15 shall apply if the Plan is a
"Top-Heavy Plan" as defined herein. The Plan shall be a Top-Heavy Plan in a
Plan Year if, as of the "Determination Date" (as defined in Section 15.2), the
aggregate Account balances of "Key Employees" (as defined in Section 15.2) under
the Plan exceeds sixty percent (60%) of the aggregate Account balances
50.
<PAGE>
under the Plan of all Employees, but excluding the Account balances of former
Key Employees.
For purposes of this Article 15, an Employee's Account balance is the sum of
(i) his or her Account balance as of the most recent Valuation Date within the
twelve (12) month period ending on the Determination Date, (ii) any
contributions allocated to his or her Account after the Valuation Date and on or
before the Determination Date, and (iii) the aggregate distributions (including
distributions made on account of death and distributions from any terminated
qualified retirement plan previously maintained by the Employer that would be
included in the "Required Aggregation Group" (as defined in Section 15.2) if not
terminated) made with respect to such Employee during the five-year period
ending on the Determination Date and not reflected in the value of his or her
Account as of the most recent Valuation Date.
In determining whether this Plan is a Top-Heavy Plan, all employers that are
aggregated under Section 414(b), (c), (m) or (o) of the Code shall be treated as
a single employer. In addition, all plans that are part of the Required
Aggregation Group shall be treated as a single plan.
Notwithstanding the foregoing provisions of this Section 15.1, the following
shall not be taken into consideration when determining an Employee's Account
balance, except to the extent provided by regulations:
(a) Any Rollover Contribution (or similar transfer)
initiated by the Employee to this Plan (see Section 416(g)(4)(A) of the Code);
(b) The Account balance of any individual who has not
performed services for the Employer at any time during the five-year period
ending on the Determination Date (see Section 416(g)(4)(E) of the Code).
15.2 OTHER DEFINITIONS. For purposes of this Article 15, the
following terms shall have the following meanings:
(a) "Compensation," as used in this Article 15, shall have
the same meaning given that term in Section 2.12.
(b) "Determination Date" means the last day of the preceding
Plan Year; provided, however, that for the first Plan Year of the Plan, the
Determination Date shall be the last day of that Plan Year.
(c) "Employee" means (i) a current Employee or (ii) a former
Employee who was credited with an Hour of Service during the Plan Year
containing the Determination Date or any of the four (4) preceding Plan Years.
(d) "Key Employee" means an Employee, a former Employee, or
the Beneficiary under the Plan of a former Employee who, in the Plan Year
containing the Determination Date, or any of the four (4) preceding Plan Years,
is:
51.
<PAGE>
(1) An officer of the Employer having an annual
Compensation greater than fifty percent (50%) of the amount in effect under
Section 415(b)(1)(A) of the Code for any such Plan Year. Not more than fifty
(50) Employees or, if less, the greater of three (3) Employees or ten percent
(10%) of the Employees shall be considered as officers for purposes of this
paragraph.
(2) One of the ten (10) Employees owning (or
considered as owning within the meaning of Section 318 of the Code) the largest
interest in the Employer, which is more than one-half percent (.5%) ownership
interest in value, and whose Compensation exceeds the maximum dollar limitation
under Section 415(c)(1)(A) of the Code as in effect for the calendar year in
which the Determination Date falls.
(3) A five percent (5%) owner of the Employer.
(4) A one percent (1%) owner of the Employer having an
annual Compensation from the Employer of more than $150,000.
Whether an Employee is a five percent (5%) owner or a one percent (1%) owner
shall be determined in accordance with Section 416(i)(1)(B) of the Code.
(e) "Non-Key Employee" means any Employee who is not a Key
Employee or any Beneficiary under the Plan of a former Employee who was not a
Key Employee.
(f) "Required Aggregation Group" means:
(1) Each stock bonus, pension or profit sharing plan
of the Employer in which a Key Employee participates and which is intended to
qualify under Section 401(a) of the Code; and
(2) Each other such stock bonus, pension or profit
sharing plan of an Employer which enables any plan in which a Key Employee
participates to meet the requirements of Section 401(a)(4) or Section 410 of the
Code.
15.3 TOP-HEAVY ACCRUAL RULES. If the Plan is a Top-Heavy Plan in a
Plan Year, the following rules shall apply:
(a) The aggregate Profit Sharing Contributions, Nonelective
Contributions, and Forfeitures allocated to each "Eligible Non-Key Employee" (as
defined below) shall not be less than the lesser of the following percentages of
the Eligible Non-Key Employee's Compensation for the Plan Year:
(1) Three percent (3%) or, if the Employer has a
defined benefit plan which designates this Plan to satisfy the requirements for
a minimum contribution or benefit under Section 416 of the Code, five percent
(5%); or
52.
<PAGE>
(2) The highest percentage of Compensation provided in
the form of all contributions under the Plan (including Salary Deferral
Contributions and Matching Contributions) on behalf of any Key Employee for the
Plan Year, including if that percentage is zero, zero percent (0%).
For purposes of this Section 15.3, "Eligible Non-Key Employee" shall mean a
Non-Key Employee who is an Eligible Employee and who has not separated from
service at the end of the Plan Year, regardless of (i) whether he or she has
completed a Year of Service during the Plan Year, (ii) his or her level of
Compensation, or (iii) whether he or she has declined to make any Salary
Deferral Contributions.
(b) a Participant's vested interest in his or her Profit
Sharing Contributions Account and Matching Contributions Account shall be the
percentage determined under the vesting schedule contained in Subsection 7.2(a)
or the percentage determined under the vesting schedule set forth below,
whichever is greater:
VESTED
YEARS OF SERVICE PERCENTAGE
Less than 2 0%
2 but less than 3 20%
3 but less than 4 40%
4 but less than 5 60%
5 but less than 6 80%
6 or more 100%
However, for any Plan Year which (i) occurs subsequent to a Plan Year in which
this Plan was determined to be Top-Heavy and (ii) in which the Plan is not
determined to be Top-Heavy, the vesting schedule contained in Subsection 7.2(a)
shall again be effective except that the vested percentage of any Participant
shall not be reduced thereby and any Participant with three (3) or more Years of
Service shall have the right to select the vesting schedule under which his or
her vested Account balance will be determined.
15.4 IMPACT ON CONTRIBUTION LIMITATIONS. For any Plan Year during
which the Plan is a Top-Heavy Plan, the number "1.0" shall be substituted for
the number "1.25" wherever it appears in Section 415(e)(2)(B) and (3)(B) of the
Code and Sections 2.16 and 2.17 of this Plan.
16
MULTIPLE EMPLOYER PLAN
16.1 PARTICIPATION AND COVERAGE. Section 410(a) of the Code shall be
applied as if all employees of each of the employers who maintain the Plan are
employed by a single
53.
<PAGE>
employer. However, the minimum coverage requirements of Section 410(b) of the
Code are generally applied to the Plan on an employer-by-employer basis, taking
into account the generally applicable rules such as Sections 401(a)(5), 414(b),
and 414(c) of the Code.
16.2 EXCLUSIVE BENEFIT. For purposes of Section 401(a) of the Code,
in determining whether the Plan is for the exclusive benefit of Employees and
their Beneficiaries, all employees participating in the Plan shall be considered
Employees.
16.3 VESTING. Section 411 of the Code shall be applied as if all
employers who maintain the Plan constitute a single employer, except that the
application of any rules with respect to breaks in service shall be made under
regulations prescribed by the Secretary of Labor. Thus, all the hours which an
Employee worked for each employer maintaining the Plan shall be aggregated in
computing the Employee's Hours of Service under the Plan.
16.4 DEDUCTION LIMITATIONS. Each applicable limitation provided by
Section 404(a) of the Code shall be determined as if each employer who maintains
the Plan were maintaining a separate plan.
16.5 QUALIFICATION. The qualification of the Plan is determined with
respect to all employers maintaining the Plan. Therefore, the failure by one
employer maintaining the Plan to satisfy an applicable qualification requirement
will result in the disqualification of the Plan for all employers maintaining
the Plan.
17
GENERAL PROVISIONS
17.1 NO IMPLIED EMPLOYMENT CONTRACT. The adoption and maintenance of
the Plan shall not be deemed to be a contract of employment between an Employer
and any Employee. Accordingly, the Plan shall not be deemed (i) to give any
Employee or other person any right to be retained in the employ of an Employer
nor (ii) to interfere with the right of an Employer to discharge any Employee or
other person at any time and for any reason, which right is hereby reserved.
17.2 BENEFITS NOT ASSIGNABLE. Except as otherwise provided in
Article 10 or as provided in Section 414(p) of the Code with respect to
qualified domestic relations orders, or as otherwise provided under Section
401(a)(13) of the Code, no interest, whether vested or not, of a Participant or
Beneficiary in the Plan, no Account balance nor distribution or payment under
the Plan to any Participant or Beneficiary shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or
charge, whether voluntary or involuntary, and any attempt to anticipate,
alienate, sell, transfer, assign, pledge, encumber or charge the same shall be
void; nor shall any distribution or payment in any way be liable for or subject
to the debts, contracts, liabilities, engagements or torts of any Participant or
Beneficiary. If any Participant or Beneficiary has been adjudicated a bankrupt
54.
<PAGE>
or has purported to anticipate, alienate, sell, transfer, assign, pledge,
encumber or charge any distribution or payment, voluntarily or involuntarily,
then the Company, in its discretion, may direct the Trustee to hold or apply the
distribution or payment or any part thereof to or for the benefit of such
Participant or Beneficiary in such manner as the Company shall direct.
17.3 QUALIFIED DOMESTIC RELATIONS ORDERS. In accordance with Section
414(p) of the Code, the Plan Administrator shall establish reasonable written
procedures to determine the qualified status of domestic relations orders
received with respect to Participants and to administer distributions to
alternate payees under such qualified domestic relations orders.
Notwithstanding any other provision of the Plan, benefits under the Plan that
are the subject of a qualified domestic relations order may be distributed to
any alternate payee in compliance with the provisions of such qualified domestic
relations order, without regard to whether the Participant to whose benefits the
qualified domestic relations order relates has terminated employment with an
Employer or has reached "earliest retirement age," as that term is defined in
Section 414(p) of the Code. Any payment to an alternate payee, or to his or her
legal representative or beneficiary, pursuant to the terms of a qualified
domestic relations order, shall be in full satisfaction of all claims under such
order against the Trustee or an Employer, any of who may require such alternate
payee, or his or her legal representative or beneficiary, to execute a receipt
therefore in such form as shall be determined by the Trustee or an Employer, as
the case may be.
17.4 PAYMENTS OF BENEFITS TO INFANTS OR INCOMPETENTS. If the Company
determines that any person entitled to payments under the Plan is an infant or
is incompetent by reason of a physical or mental disability, then it may cause
all payments thereafter becoming due to such person to be made to any other
person for his or her benefit, without responsibility for the application of
amounts so paid. Payments made pursuant to this provision shall completely
discharge an Employer and the Trustee.
17.5 UNCLAIMED BENEFITS. If any benefit would be distributable under
the Plan but the Company is unable, after reasonable and diligent effort, to
locate the Participant or Beneficiary to whom the distribution is payable for
three (3) consecutive Plan Years, then the Participant's Account may be closed
after the third consecutive Plan Year during which such distribution is payable
but the Participant or Beneficiary cannot be found. The amount of the unpaid
benefit shall be reallocated as determined by the Company, unless mandatory
provisions of applicable escheat laws require another application, in which
event such benefit shall be applied as such laws require. If, however, the
Participant or Beneficiary subsequently makes a proper claim to the Company for
any benefit that was reallocated and that was not lost by escheat, then such
benefit (without income, gains or other adjustment) shall be restored to the
Participant's Account from a special contribution made by the Employer for this
purpose. The benefit shall thereafter be distributable in accordance with the
terms of the Plan. Notification by certified or registered mail to the last
known address of the Participant or Beneficiary will be deemed a reasonable and
diligent effort to locate such person.
17.6 SOURCE OF BENEFITS. The Trust shall be the sole source of
benefits under the Plan, and each Participant, Beneficiary or other person who
claims the right to any payment or
55.
<PAGE>
benefit under the Plan shall only be entitled to look to the Trust for such
payment or benefit and shall not have any right, claim or demand therefor
against an Employer or any officer or director of an Employer.
17.7 FORMS OF PLAN COMMUNICATIONS. All communications from a
Participant or Beneficiary with regard to the Plan shall become effective only
when made in writing and filed with the Company. If the Company has adopted
prescribed forms for any communications, such communications shall be effective
only if filed on such forms.
17.8 IRS QUALIFICATION. The Employer intends that the Plan
(including the Trust Agreement forming a part thereof) shall be a qualified
defined contribution plan for the exclusive benefit of Employees and their
Beneficiaries, as provided in Sections 401(a), 401(k) and 501(a) of the Code.
17.9 CONSTRUCTION OF PLAN. Any gender, where appearing in the Plan,
shall be deemed to include the other gender, the singular shall include the
plural, and the plural shall include the singular, unless the context otherwise
requires. Titles are for reference only. In the event of a conflict between a
title and the text of the Plan, the text of the Plan shall control. In the
event of a conflict between the text of the Plan and any summary, description or
other information regarding the Plan, the text of the Plan shall control.
17.10 GOVERNING LAW. The provisions of the Plan shall be construed,
administered and governed according to ERISA and, to the extent not superseded
by ERISA, the laws of the State of California.
17.11 SEVERABILITY. If any provision of the Plan shall be held by a
court of competent jurisdiction to be invalid or unenforceable, the remaining
provisions of the Plan shall continue to be fully effective.
56.
<PAGE>
18
EXECUTION
To record the adoption of the Plan to read as set forth herein,
effective as of August 14, 1995, the Company has caused its authorized officer
to execute this document this day of , 1995.
----- ---------------
TINSLEY LABORATORIES, INC.
BY:
-----------------------------------
PRINTED NAME: Robert J. Aronno
TITLE: President
57.
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
TINSLEY LABORATORIES, INC.
YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 25, 1994
WITH REPORT OF INDEPENDENT AUDITORS
<PAGE>
TINSLEY LABORATORIES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1995 and December 25, 1994
CONTENTS
Report of Independent Auditors.................................................1
Audited Consolidated Financial Statements
Consolidated Balance Sheets....................................................2
Consolidated Statements of Income..............................................4
Consolidated Statements of Stockholders' Equity................................5
Consolidated Statements of Cash Flows..........................................6
Notes to Consolidated Financial Statements.....................................7
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Tinsley Laboratories, Inc.
We have audited the accompanying consolidated balance sheets of Tinsley
Laboratories, Inc. as of December 31, 1995 and December 25, 1994, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1995. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Tinsley
Laboratories, Inc. at December 31, 1995 and December 25, 1994, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles.
February 16, 1996
ERNST & YOUNG
1
<PAGE>
TINSLEY LABORATORIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 25,
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 560,692 $ 893,241
Trade receivables (net of allowance
for doubtful accounts of $49,100
in 1995 and $20,000 in 1994) 1,521,097 2,139,285
Unbilled receivables 837,701 545,382
Inventories:
Raw materials 230,271 241,244
Contracts in progress (net of progress
billings of $431,000 in 1995 and
$136,000 in 1994) 874,604 594,759
Finished goods 760,113 680,524
---------- -----------
Total inventories 1,864,988 1,516,527
Prepaid expenses and other receivables 127,816 107,372
Deferred income taxes 316,057 164,881
---------- -----------
Total current assets 5,228,351 5,366,688
Property, plant and equipment, at cost:
Land 644,553 644,553
Building 2,550,875 2,550,875
Machinery and equipment 5,878,788 8,901,263
Leasehold improvements 191,094 185,665
Equipment construction in process 260,455 287,085
---------- -----------
9,525,765 12,569,441
Less accumulated depreciation and
amortization 4,240,278 7,674,441
---------- -----------
Net property, plant and equipment 5,285,487 4,895,000
Cash surrender value of life insurance
(net of loans thereon of $283,085 in
1995 and 1994) 564,025 495,523
Goodwill (net of amortization of
$315,611 in 1995 and $193,439 in 1994) 1,516,963 1,639,135
Noncompetition agreement and other assets
(net of amortization of $258,333 in 1995
and $158,333 in 1994) 345,364 445,364
---------- -----------
$12,940,190 $12,841,710
---------- -----------
---------- -----------
</TABLE>
2
<PAGE>
Tinsley Laboratories, Inc.
Consolidated Balance Sheets (continued)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 25,
1995 1994
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 491,296 $ 583,419
Accrued liabilities 540,905 214,183
Accrued compensation and related liabilities 634,905 476,672
Income taxes payable 362,008 226,982
Current portion - long-term debt obligations 151,878 147,624
Current portion - notes payable to related
parties 400,000 400,000
---------- -----------
Total current liabilities 2,580,992 2,048,880
Long-term debt obligations, less current portion 900,928 1,047,938
Long-term notes payable to related parties,
less current portion 460,000 860,000
Deferred income taxes 369,230 440,947
Deferred compensation 312,102 295,602
Stockholders' equity:
Preferred stock, with no par value; 500,000
shares authorized; none issued or outstanding - -
Common stock, stated value $.16-2/3 per share:
3,000,000 shares authorized; 767,124 shares
issued and outstanding (762,024 in 1994) 127,854 127,004
Capital in excess of stated value 1,343,880 1,316,680
Retained earnings 6,973,044 6,704,659
Minimum pension liability (127,840) -
---------- -----------
Total stockholders' equity 8,316,938 8,148,343
---------- -----------
Total liabilities and stockholders' equity $12,940,190 $12,841,710
---------- -----------
---------- -----------
</TABLE>
3
<PAGE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
TINSLEY LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 25, DECEMBER 26,
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Net sales $13,109,144 $12,968,892 $12,238,052
Costs and expenses:
Cost of goods sold 9,088,148 9,025,794 8,717,459
Selling, administrative and
research and development
expenses 3,178,398 3,069,899 2,393,498
Amortization of intangible
assets 222,172 222,172 129,600
----------- ----------- -----------
12,488,718 12,317,865 11,240,557
----------- ----------- -----------
Income from operations 620,426 651,027 997,495
Other income 21,307 155,622 16,723
Interest expense (179,366) (215,783) (160,230)
----------- ----------- -----------
Income before income taxes 462,367 590,866 853,988
Provision for income taxes 193,982 245,081 370,800
----------- ----------- -----------
Net income $ 268,385 $ 345,785 $ 483,188
----------- ----------- -----------
----------- ----------- -----------
Net income per common share $ .35 $ 0.45 $ 0.61
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
[Tinsley logo]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONSOLIDATED
STATEMENTS OF
STOCKHOLDERS'
EQUITY
YEARS ENDED
DECEMBER 31, 1995,
DECEMBER 25, 1994, AND
DECEMBER 26, 1993
<TABLE>
<CAPTION>
COMMON CAPITAL IN MINIMUM TOTAL
SHARES COMMON EXCESS OF RETAINED PENSION STOCKHOLDERS'
OUTSTANDING STOCK STATED VALUE EARNINGS LIABILITY EQUITY
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances,
December 27, 1992 830,217 138,366 $1,406,928 $6,264,397 $ $7,809,691
Repurchase of
common stock (75,593) (12,596) (127,840) (388,711) - (529,147)
Exercise of stock
options 6,900 1,151 35,300 - - 36,451
Net income - - - 483,188 - 483,188
-----------------------------------------------------------------------------------------------------------
Balances,
December 26, 1993 761,524 126,921 1,314,388 6,358,874 - 7,800,183
Exercise of stock
options 500 83 2,292 - - 2,375
Net income - - - 345,785 - 345,785
-----------------------------------------------------------------------------------------------------------
Balances,
December 25, 1994 762,024 127,004 1,316,680 6,704,659 - 8,148,343
Exercise of stock
options 5,100 850 27,200 - - 28,050
Net income - - - 268,385 - 268,385
Adjustment for
minimum pension
liability - - - - (127,840) (127,840)
-----------------------------------------------------------------------------------------------------------
Balances,
December 31, 1995 767,124 127,854 $1,343,880 $6,973,044 $(127,840) $8,316,938
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
See accompanying notes.
</TABLE>
6
<PAGE>
[Tinsley logo]
- --------------------------------------------------------------------------------
CONSOLIDATED
STATEMENTS OF
CASH FLOWS
YEARS ENDED
DECEMBER 31, 1995,
DECEMBER 25, 1994, AND
DECEMBER 26, 1993
<TABLE>
<CAPTION>
1995 1994 1993
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activites:
Net income $ 268,385 $ 345,785 $ 483,188
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 945,550 844,960 734,817
Deferred income taxes (137,666) 92,665 (66,574)
Changes in operating assets and liabilities:
Trade and unbilled receivables 325,869 (1,047,827) 526,451
Inventories (348,461) 435,964 (497,421)
Prepaid expenses and other receivables (20,444) (11,184) (6,270)
Trade accounts payable and accrued liabilities 234,599 138,924 (4,574)
Accrued compensation and related liabilities,
and deferred compensation (38,334) 5,059 2,954
Income taxes payable 135,026 124,490 (269,386)
-----------------------------------------------------------------------------------------------------------
Total adjustments 1,096,139 583,051 419,997
-----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,364,524 928,836 903,185
Cash flows from investing activities:
Purchase of stock of Century Precision Optics,
net of cash acquired - - (1,575,105)
Purchase of property, plant and equipment (1,113,865) (581,474) (173,995)
Other assets (68,502) (63,722) (150,590)
-----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,182,367) (645,196) (1,899,690)
-----------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from long-term debt arrangements - - 1,267,010
Principal payments on long-term debt (542,756) (575,428) (150,591)
Proceeds from exercise of stock options 28,050 2,375 36,451
Repurchase of common stock - - (29,147)
-----------------------------------------------------------------------------------------------------------
Net cash (used in) provided by
financing activities (514,706) (573,053) 1,123,723
-----------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (332,549) (289,413) 127,218
Cash and cash equivalents at beginning of year 893,241 1,182,654 1,055,436
-----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 560,692 $ 893,241 $1,182,654
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 167,409 $ 227,113 $ 117,254
Income taxes $ 196,622 $ 136,000 $ 667,426
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
Supplemental schedule of noncash investing and
financing activities:
Repurchase of common stock financed through
note payable $ - $ - $ 500,000
-----------------------------------------------------------------------------------------------------------
Noncompetition agreement financed through
note payable $ - $ - $ 600,000
-----------------------------------------------------------------------------------------------------------
Acquisition of Century Precision Optics financed
through note payable $ - $ - $ 750,000
-----------------------------------------------------------------------------------------------------------
Minimum pension liability and related
deferred tax asset $ 213,067 $ - $ -
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
See accompanying notes.
</TABLE>
7
<PAGE>
Tinsley Laboratories, Inc.
Notes to Consolidated Financial Statements
December 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Tinsley Laboratories, Inc., ("the Company") designs and manufactures precision
optical components and systems, including color television tooling products,
optical instruments, aspheric lenses, metal mirrors, and massive optical
components. The Company also manufactures and distributes video, cinematography
and camera lenses.
The Company sells its products primarily to large corporations that act as prime
government contractors or to the U.S. Government directly and to distributors
and end users in the photography and cinematography industries. The Company
performs ongoing credit evaluations of its customers and generally does not
require collateral. The Company maintains reserves for potential credit losses
and such losses have not been material to the Company.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company and
its two active wholly owned subsidiaries, Century Precision Industries, Inc.
d/b/a Century Precision Optics ("Century") and Tinsley International, Inc.,
after elimination of intercompany transactions and balances.
BUSINESS COMBINATION
On May 19, 1993, the Company acquired all of the outstanding capital stock of
Century which manufactures and distributes video, cinematography and camera
lenses. The purchase price was $2,250,000, of which $1,500,000 was paid in cash
and the balance was financed with a promissory note to Century's former owner in
the amount of $750,000 (see Note 4). An additional $200,000 was paid and
capitalized as costs for outside professional and financing expenses directly
related to the acquisition. This acquisition has been accounted for as a
purchase and, accordingly, the acquired assets and liabilities have been
recorded at their estimated fair value at the date of acquisition. The excess of
the purchase price over the estimated fair market value of the assets (goodwill)
was approximately $1,833,000 and is being amortized using the straight-line
method over 15 years. The operating results of this acquisition are included in
the Company's consolidated results of operations from the date of acquisition.
8
<PAGE>
Tinsley Laboratories, Inc.
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BUSINESS COMBINATION (CONTINUED)
The following unaudited pro forma summary presents the consolidated results of
operations of the Company for 1993 as if the acquisition had occurred as of
January 1, 1993. These pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of what would have occurred
had the acquisition been made as of that date or of results which may occur in
the future.
PRO FORMA OPERATING RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
Net sales $13,970,578
Net income $ 621,508
Net income per common share $ .79
</TABLE>
As part of the purchase, the Company entered into a Noncompetition Agreement
with the former owner of Century that requires the Company to pay a total of
$600,000, of which $100,000 was paid in cash upon closing of the purchase, an
additional $50,000 was paid in November 1993, and $140,000 was paid in May 1994
in consideration of the former owner's promise not to compete with the business
of Century for a period of six years after the closing. The remaining $310,000
was payable in four annual installments commencing on May 19, 1995. As of
December 31, 1995, the remaining liability was $210,000. This liability (and the
related intangible asset which is being amortized over six years) has been
recorded in the consolidated financial statements.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a maturity of
three months or less at acquisition to be cash equivalents. The Company invests
its excess cash in deposits with major banks. The Company has not experienced
any material losses in its investments.
REVENUE RECOGNITION
The majority of the Company's sales are from fixed price contracts and product
sales for which revenue is recognized as units are delivered or accepted. Sales
under cost-plus contracts are recognized as services are performed. At the time
a loss on a contract becomes known, the entire amount of the estimated ultimate
loss on the contract is accrued. Differences between invoiced amounts and
revenue recognized are reflected as unbilled contract receivables.
9
<PAGE>
Tinsley Laboratories, Inc.
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
Inventories are stated at the lower of cost or market. Finished goods and raw
materials are removed from inventory on the first-in, first-out method.
Inventoried costs related to contracts in process include actual production cost
and factory overhead, reduced by amounts related to revenue recognized.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, stated at cost is being depreciated on the
straight-line basis. Estimated useful lives for purposes of depreciation are as
follows:
Building 40 years
Machinery and equipment 3 to 10 years
Leasehold improvements Life of lease
GOODWILL
Excess of cost over the fair value of net assets acquired (or goodwill)
generally is amortized on a straight-line basis over 15 years. The carrying
amount of goodwill is reviewed if facts and circumstances suggest that it may be
impaired. If this review indicates that goodwill will not be recoverable, as
determined based on the estimated undiscounted cash flows of the entity acquired
over the remaining amortization period, the carrying amount of the goodwill is
reduced by the estimated shortfall of cash flows. In addition, the Company
assesses long-lived assets for impairment under FASB Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." Under those rules, goodwill associated with assets acquired in
a purchase business combination is included in impairment evaluations when
events or circumstances exist that indicate the carrying amount of those assets
may not be recoverable.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income Taxes."
Under SFAS No. 109, the liability method is used to account for income taxes.
Under this method, deferred tax assets and liabilities are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
10
<PAGE>
Tinsley Laboratories, Inc.
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK BASED COMPENSATION
The Company has granted stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company accounts for stock option grants in accordance with APB
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and, accordingly, has
recognized no compensation expense for the stock option grants.
PER SHARE INFORMATION
Per share data is computed using the weighted average number of common and
dilutive common equivalent shares outstanding of 767,124 in 1995, 769,967 in
1994, and 787,572 in 1993.
RECLASSIFICATION
Certain amounts in the 1994 and 1993 financial statements have been reclassified
to conform to the 1995 presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
2. RESEARCH AND DEVELOPMENT
Research and development expenditures of approximately $355,350, $383,249 and
$290,051 were charged against operations as incurred in 1995, 1994 and 1993,
respectively.
11
<PAGE>
Tinsley Laboratories, Inc.
Notes to Consolidated Financial Statements (continued)
3. PROVISION FOR INCOME TAXES
The components of income tax expense were as follows:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
--------- -------- --------
<S> <C> <C> <C>
1995:
Federal $ 249,570 $(116,724) $ 132,846
State 82,078 (20,942) 61,136
-------- -------- --------
$ 331,648 $(137,666) $ 193,982
-------- -------- --------
-------- -------- --------
1994:
Federal $ 108,334 $ 74,750 $ 183,084
State 44,082 17,915 61,997
-------- -------- --------
$ 152,416 $ 92,665 $ 245,081
-------- -------- --------
-------- -------- --------
1993:
Federal $ 293,102 $ (12,483) $ 280,619
State 105,939 (15,758) 90,181
-------- -------- --------
$ 399,041 $ (28,241) $ 370,800
-------- -------- --------
-------- -------- --------
</TABLE>
A reconciliation of total income tax expense with the statutory federal income
tax rate appears as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1995 1994 1993
-------- -------- --------
% OF % OF % OF
PRETAX PRETAX PRETAX
INCOME INCOME INCOME
-------- -------- --------
Income tax expense at federal statutory rate 34.0% 34.0% 34.0%
State franchise tax, net of any federal benefit 6.1 6.1 6.1
Life insurance proceeds - (4.3) -
Amortization of goodwill 8.9 7.0 2.8
Foreign sales corporation commission (5.8) (1.5) (3.7)
Other, net (1.2) .2 4.2
---- ---- ----
42.0% 41.5% 43.4%
---- ---- ----
---- ---- ----
</TABLE>
12
<PAGE>
Tinsley Laboratories, Inc.
Notes to Consolidated Financial Statements (continued)
3. PROVISION FOR INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effect of differences between the
carrying amounts of assets and liabilities for financial reporting and the
amount used for income tax purposes. Significant components of the Company's
deferred tax liabilities and assets as of December 31, 1995 and December 25,
1994, are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1995 1994
------------------------
Deferred tax liabilities:
Depreciation and amortization $(582,888) $(563,613)
Prepaid property taxes (17,033) (17,393)
Section 481(a) adjustments - (37,874)
Other - (7,063)
-------- --------
Total deferred tax liability (599,921) (625,943)
Deferred tax assets:
Inventory reserve 123,830 97,153
Deferred compensation 125,153 136,344
Use of different method of accounting for
long-term contracts for tax purposes 34,073 27,922
Accrued vacation 91,674 38,308
State franchise tax 30,763 21,501
Other 56,028 28,649
Minimum pension liability 85,227 -
-------- --------
Total deferred tax asset 546,748 349,877
-------- --------
Net deferred tax liability $ (53,173) $(276,066)
-------- --------
-------- --------
</TABLE>
13
<PAGE>
Tinsley Laboratories, Inc.
Notes to Consolidated Financial Statements (continued)
3. PROVISION FOR INCOME TAXES (CONTINUED)
The following is a summary of deferred tax assets and liabilities at December
31, 1995 and December 25, 1994:
<TABLE>
<CAPTION>
CURRENT NONCURRENT TOTAL
-------- ---------- --------
<S> <C> <C> <C>
1995:
Deferred tax assets $ 333,090 $ 213,658 $ 546,748
Deferred tax liabilities (17,033) (582,888) (599,921)
-------- -------- --------
Net deferred tax assets (liabilities) $316,057 $(369,230) $ (53,173)
-------- -------- --------
-------- -------- --------
1994:
Deferred tax assets $ 227,211 $ 122,666 $ 349,877
Deferred tax liabilities (62,330) (563,613) (625,943)
-------- -------- --------
Net deferred tax assets (liabilities) $ 164,881 $(440,947) $(276,066)
-------- -------- --------
-------- -------- --------
</TABLE>
14
<PAGE>
Tinsley Laboratories, Inc.
Notes to Consolidated Financial Statements (continued)
4. LONG-TERM DEBT OBLIGATIONS
Long-term debt and notes payable consist of:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 25,
1995 1994
------------ ------------
<S> <C>
8.5% loan agreement dated June 30, 1993, principal and interest
payable monthly with a final payment of $209,000 in July 15, 2000 $ 933,778 $1,061,152
8% promissory note dated May 19, 1993, principal and interest payable
in four annual installments beginning May 1994 through May 1997 350,000 550,000
8% subordinated promissory note dated June 1, 1993 principal payable
in four installments and interest payable four times a year through
June 1997 300,000 400,000
Noncompetition Agreement, dated May 19, 1993, payable annually
through May 1998 210,000 310,000
6% special assessment bond dated April 2, 1974, principal and interest
payable semiannually through April 1999 12,039 14,002
12% special assessment bond dated April 2, 1982, principal and
interest payable semiannually through April 2007 102,024 107,838
Other 4,965 12,570
--------- ---------
1,912,806 2,455,562
Less current portion 551,878 547,624
--------- ---------
$1,360,928 $1,907,938
--------- ---------
--------- ---------
</TABLE>
The aggregate maturities of long-term debt at December 31, are as follows:
<TABLE>
<S> <C>
1996 $ 551,878
1997 609,818
1998 183,878
1999 187,372
2000 309,502
Thereafter 70,358
---------
$1,912,806
---------
---------
</TABLE>
15
<PAGE>
Tinsley Laboratories, Inc.
Notes to Consolidated Financial Statements (continued)
4. LONG-TERM DEBT OBLIGATIONS (CONTINUED)
At December 31, 1995, the Company had outstanding an irrevocable standby letter
of credit for $378,000, which secures the required payments on the 8% promissory
note, dated May 19, 1993, to a related party. The letter of credit is subject to
renewal in June 1996.
During 1995, the Company established a $1,000,000 bank line of credit. The line
of credit is secured by the Company's current and future assets. Borrowings
under this line of credit bear interest at a variable rate of prime plus 1% per
annum. The line of credit, which expires on April 30, 1996, requires the Company
to meet various financial covenants. There were no borrowings under this line of
credit at December 31, 1995.
5. RELATED PARTY TRANSACTIONS
On March 19, 1993, the Company entered into a stock redemption agreement with a
former officer and director, and his spouse. The Company repurchased and
redeemed all 75,593 shares of the Company's common stock owned by the former
officer and his spouse at $7.00 per share. The Company paid $29,151 in cash and
issued a $500,000 promissory note, which accrues interest at 8% per annum, and
is payable over four years. As of December 31, 1995, $300,000 remained
outstanding under this promissory note.
On May 19, 1993, the Company issued a promissory note for $750,000 to the former
owner of Century in connection with the Company's purchase of all of Century's
issued and outstanding capital stock on that date. The note accrues interest at
8% per annum and is payable over four years. The note is secured by an
irrevocable standby letter of credit (See Note 4). As of December 31, 1995,
$350,000 remained outstanding under this promissory note.
On May 19, 1993, Century entered into a lease agreement with a related party for
the office building occupied by Century. Base rent was $8,667 per month through
October 1994. An option to extend the term of the lease for an additional two
years from the original date of termination was exercised in 1994 and extended
the term through October 1996 at $9,398 per month. Rent expense paid to this
related party by Century during 1995 and 1994 was approximately $112,780 and
$105,000, respectively.
16
<PAGE>
Tinsley Laboratories, Inc.
Notes to Consolidated Financial Statements (continued)
6. LEASE COMMITMENTS
The Company leases certain facilities, manufacturing equipment and operating
equipment under noncancellable operating leases. Total rent expense for 1995,
1994 and 1993 was $210,410, $197,435 and $162,309, respectively.
7. STOCK OPTIONS
In February 1993, the Company's Board of Directors terminated the Company's 1983
Incentive Stock Option Plan. All outstanding options under this plan expired or
were cancelled during 1993.
Effective February 4, 1993, the Company's Board of Directors approved the 1993
Incentive Stock Option Plan ("Plan") and reserved 100,000 shares of common stock
for issuance under the Plan. Such Plan was subsequently approved by the
Company's stockholders. All full-time employees are eligible to receive options
under the Plan, which will expire in February 2003 and which is intended to
qualify as an incentive stock option plan pursuant to Section 422 of the
Internal Revenue Code. The exercise price per share of all incentive stock
options granted under the Plan must be at least equal to the fair market value
of the shares at the date of the grant. Vesting is established by the Company's
Board of Directors or Compensation Committee and generally occurs at the rate of
20% per year.
From time to time, the Company has issued non-qualified stock options to certain
key employees, consultants and board members at the discretion of the Board of
Directors or Compensation Committee. The non-qualified stock options have a per
share exercise price equal to or in excess of 100% of the market value of the
shares of the Company's common stock on the date of grant. Vesting is
established by the Company's Board of Directors or Compensation Committee.
17
<PAGE>
Tinsley Laboratories, Inc.
Notes to Consolidated Financial Statements (continued)
7. STOCK OPTIONS (CONTINUED)
Price data and activity for all stock options are summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
------------------------
OUTSTANDING
OPTIONS PRICE RANGE
----------- -----------
<S> <C> <C>
Balances at December 27, 1992 97,500 $4.67 - $5.42
Granted 119,000 5.50 - 5.88
Termination of 1983 ISO Plan (72,000) 4.67 - 5.42
Exercised (6,900) 4.75 - 5.50
Cancelled (23,500) 4.75 - 5.08
--------- -------------
Balances at December 26, 1993 114,100 4.75 - 5.88
Exercised (500) 4.75
Cancelled (20,000) 5.50
--------- -------------
Balances at December 25, 1994 93,600 5.50 - 5.88
Granted 75,500 6.13 - 7.00
Exercised (5,100) 5.50
--------- -------------
Balances at December 31, 1995 164,000 $5.50 - $7.00
--------- -------------
--------- -------------
</TABLE>
At December 31, 1995, options to purchase 100,400 common shares were exercisable
at prices ranging from $5.50 to $7.00 per share.
8. MAJOR CUSTOMERS AND GEOGRAPHICAL INFORMATION
A significant portion of the Company's sales has been derived from major
customers:
Three customers accounted for $3,111,056 in sales of 1995;
Four customers accounted for $4,040,552 in sales of 1994;
Four customers accounted for $5,165,956 in sales of 1993.
18
<PAGE>
Tinsley Laboratories, Inc.
Notes to Consolidated Financial Statements (continued)
8. MAJOR CUSTOMERS AND GEOGRAPHICAL INFORMATION (CONTINUED)
International sales during the last three fiscal years were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Europe $1,375,361 $ 914,004 $ 744,466
Asia 781,690 478,915 462,480
Canada and Mexico 165,632 563,037 374,316
South Pacific 41,223 140,960 66,792
Latin and South America 58,971 47,245 40,777
Other 18,314 53,632 1,952
---------- ---------- ----------
$2,441,191 $2,197,793 $1,690,783
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
9. EMPLOYEE BENEFIT PLANS
Effective January 1985, the Company adopted a defined benefit pension plan (the
"Plan") for eligible employees with at least one year of service. Substantially
all employees of the Company are covered by the Plan. Under the Plan, benefits
will be payable in the form of a life annuity at an annual rate of up to fifty
percent of average compensation in a five year measurement period, less a
portion of social security benefits. For service of less than twenty-five years,
the fifty percent of average compensation, as defined, is to be reduced
proportionately. All eligible employees must participate in the Plan for at
least five years in order to receive applicable benefits thereunder.
During 1995, the Company decided to terminate the Plan. The Company is currently
in the process of finalizing the plan of termination. As of December 31, 1995,
the Company has recorded an additional minimum pension liability of $213,037
representing the excess of the estimated accumulated benefit obligation of
$1,627,920 over the actual fair market value of the Plan assets (primarily money
market funds) of $1,414,883 at December 31, 1995. The minimum pension liability
resulted in a charge to stockholders' equity, (net of income taxes of $85,227)
of $127,840. During 1995, the Company made contributions to the Plan of $160,900
and recorded pension expense of $3,188.
If the termination of the Plan is finalized, the minimum pension liability
(adjusted for subsequent changes in the accumulated benefit obligation and plan
assets) will be charged to the results of operations at that time.
19
<PAGE>
9. EMPLOYEE BENEFIT PLANS (CONTINUED)
The 1994 and 1993 pension expense includes the following components:
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Service cost for benefits earned during the year $ 117,328 $ 124,000
Interest cost on projected benefit obligation 101,675 93,121
Return on plan assets (22,038) (31,755)
Net amortization and deferral (66,181) (42,496)
--------- ---------
Net pension expense $ 130,784 $ 142,870
--------- ---------
--------- ---------
The funded status of the plan for the year ended
December 25, 1994 is as follows:
Actuarial present value of:
Vested benefit obligation $1,146,972
Non-vested benefit obligation 11,809
----------
Accumulated benefit obligation 1,158,781
Impact of future salary increases 214,286
----------
Projected benefit obligation 1,373,067
Plan assets at fair value - primarily mutual funds 1,214,008
----------
Projected benefit obligation in excess of plan
assets 159,059
Unrecognized transition loss (10,464)
Unrecognized net (gain) loss (6,000)
Adjustment required to recognize minimum pension
liability -
----------
Pension liability recognized at year end $ 142,595
----------
----------
</TABLE>
20
<PAGE>
Tinsley Laboratories, Inc.
Notes to Consolidated Financial Statements (continued)
9. EMPLOYEE BENEFIT PLANS (CONTINUED)
The discount rate used in determining the actuarial present value of projected
benefit obligation was 8.25% for 1994 and 1993. The assumed long-term rate of
return on plan assets was 8.25% for 1994 and 1993. The assumed long-term rate
of compensation increase was 4% for 1994 and $3% for 1993. Pension expense was
accrued and funded annually.
Effective July 1, 1995, the Company adopted a contributory defined contribution
plan in which the Company's employees may participate provided they have
completed at least six months of full time permanent employment. The Company, at
its discretion, expects to make contributions on behalf of all eligible
employees to the Plan on an annual basis. During 1995, the Company made no
contributions to the Plan.
In 1986, the Company entered into deferred compensation agreements with certain
key employees under which the Company agreed to pay certain fixed amounts over a
ten year period after the employees reach the age of 65. Payments provided for
in these agreements begin vesting five years after the date of the agreements
and become fully vested only if the employees remain employed by the Company
through the age of 65. For accounting purposes, the present value of these
payments is being charged ratably to expense over the period until the employees
reach the age of 65 using a discount rate of 8%. The charge to expense for these
agreements was $13,751 in 1995, $0 in 1994, and $43,200 in 1993.
10. SUBSEQUENT EVENTS
The Company recently entered into an agreement to purchase the 5,952 square foot
office and R&D facility located on approximately two acres of land at 4000
Lakeside Drive, Richmond for $900,000. The Company has deposited $5,000 in
connection with an escrow to be established with respect to the Company's
purchase of this property. The terms of the proposed purchase include a total
cash down payment of $150,000 and the Company's issuance of a promissory note
secured by the property in the amount of $750,000 bearing interest at 8% per
annum and will be due and payable in two years from the close of purchase
escrow.
21
<PAGE>
TO OUR SHAREHOLDERS:
Consolidated sales in 1995 amounted to $13,109,144, or slightly higher than
1994 sales of $12,968,892. Consolidated net income of $268,385 or 35 cents a
share was 22 percent below our 1994 earnings of $345,785 or 45 cents a share.
Fourth quarter sales came to $3,268,875, somewhat under third quarter sales
of $3,558,842. Fourth quarter net income of $103,251, on the other hand,
improved over earnings for the September quarter of $84,192.
Throughout 1995 Tinsley's operating results continued to reflect the decline
in our military business, in line with the general falling off of defense
expenditures. But, while the military sector weakened, we witnessed a general
strengthening and broadening of our commercial/industrial and scientific
research markets.
This positive trend in our non-defense related lines became pronounced in
the second half and has continued during these early months of the new year.
Thus the company's backlog, which stood at about $4,000,000 at the start of 1995
had more than doubled by the close of the year to approximately $8,885,000, and
has continued to grow to about $10,000,000 at the end of February 1996.
This material improvement in backlog is attributable to various factors,
including the market acceptance of the new products we have developed at Century
Precision Industries, which we acquired in May 1993. Century manufactures and
distributes optical products and accessories to various industries that
complement Tinsley's range of optical products and systems.
We also experienced increased demand for the precision optics we sell to
manufacturers of high technology equipment used in the production of electronic
products. Bookings of our optical tooling for the manufacture of color
television tubes, a Tinsley specialty of many years standing, have also been
brisk.
As we point out in our special essay in the Annual Report, Tinsley has long
been a supplier of precision optics for space exploration. We provided the
small aspheric mirrors that clarified the flawed vision of the Hubble Space
Telescope.
We have now been requested to furnish new optics for both the second and
third missions planned by NASA for further servicing of the orbiting
observatory.
1
<PAGE>
Tinsley will also be providing specialized optical equipment for the U.S.-
European Cassini Mission, which is scheduled to explore Saturn and its largest
moon, Titan. And for still another space exploration under NASA sponsorship,
the Far Ultraviolet Spectroscopic Mission, or FUSE, we will be furnishing
mirrors for high resolution astronomical spectroscopy.
As we enter the New Year, we have largely completed the Company's transition
from our major dependence on military orders to our mounting reliance on the
commercial/industrial and scientific research markets as wellsprings for our
future growth and profitability. As we draw steadily on our present bookings we
look for improvements in sales and earnings in 1996. We believe that by the end
of 1996 Tinsley will be well launched in this new, long term direction.
We wish again to use the Annual Report to pay tribute to all Tinsley
employees and their achievements and to express to them our thanks and
appreciation.
Robert J. Aronno
Chairman of the Board
President and Chief Executive Officer
March 27, 1996
2
<PAGE>
MANAGEMENT'S DISCUSSION AND FINANCIAL ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
Sales for 1995 of $13,109,144, were slightly higher than 1994 sales of
$12,968,892. However, net income of $268,385 was approximately 22% below 1994
earnings of $345,785.
As detailed in the Letter to Shareholders, Tinsley's operating results
continued to reflect reduced military business. Lower net income in 1995 was
also due in great part to lower than expected revenues resulting from delays of
certain bookings which had been anticipated earlier in 1995.
Gross profit margin held steady in 1995 at approximately 30%, which was
virtually the same in 1994. Century Precision Optics generally provides a
higher gross profit margin than the rest of Tinsley's operations.
Selling, administrative and research and development expenses for 1995
increased to $3,178,398 as compared to $3,069,899 for 1994, reflecting only a 4%
increase in these expenses which included higher expenditures for advertising,
especially for our new Century products.
In 1994, sales of $12,968,892 increased 6% over 1993 sales of $12,238,052 as
Century's results were included for the full year in 1994 and only seven months
in 1993. Net income of $345,785 declined 28% from 1993 earnings of $483,188.
The lower earnings in 1994 were due to a number of factors including reduced
defense-related sales, higher research and development, selling, administrative,
interest and acquisition-related expenses.
For information on the Company's sales to major customers we refer you to
Note 8 of the Consolidated Financial Statements.
IMPACT OF INFLATION:
Inflation rates in 1995, 1994 and 1993 continued at a moderate level and had
no material effect on operations.
FINANCIAL CONDITION:
At the end of 1995, the Company's cash and cash equivalents position was
$560,692 compared to $893,241 at the end of 1994. Trade receivables and
unbilled receivables amounted to $2,358,798 against $2,684,667 at the close of
the previous year.
Inventory for contracts in progress increased to $874,604 (net of accrued
progress billings of $431,000) at year-end 1995 from $594,759 (net of accrued
progress billings of $136,000) at the previous year-end. The contracts in
progress at the end of 1995 tend to require a greater processing time, causing
inventory levels to be somewhat higher than last year.
Cash expenditures for property, plant and equipment of $1,113,865 were up
substantially in 1995 from $581,474 in 1994 as the Company is working to
increase its manufacturing capabilities in some strategic market segments. As
discussed in Note 10 of the Consolidated Financial Statements, the Company is in
the process of acquiring an additional facility adjacent to its Richmond,
California plant in order to meet increased requirements.
3
<PAGE>
MANAGEMENT'S DISCUSSION AND FINANCIAL ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
In May 1993, the Company purchased 100% of the outstanding securities of
Century, which is located in North Hollywood, California, for $2,250,000. The
excess of the purchase price over the estimated fair market value of the assets
(goodwill) was approximately $1,833,000 and is being amortized using the
straight-line method over 15 years. Amortization of goodwill amounted to
approximately $122,000 in 1995 and 1994 and approximately $71,000 in 1993.
In conjunction with the Century acquisition, a noncompetition agreement was
entered into with Century's former owner. The face value of this agreement of
$600,000 is capitalized as part of Other Assets and is being amortized using the
straight-line method over six years. The noncompetition agreement is payable in
various installments through May 1998. Amortization of the noncompetition
agreement amounted to approximately $100,000 in 1995 and 1994 compared to
approximately $58,000 in 1993.
Principal payments on long-term debt amounted to $542,756 during 1995
compared to $575,428 in 1994. The $1,061,152 loan, secured by the Company's
Richmond property, was entered into to provide a substantial portion of the
funds needed to acquire Century. This loan is payable in monthly installments
of $17,715, bears interest at a rate of 8.5% per annum and has a balloon payment
at the expiration date of July 15, 2000.
Classified as a note payable to related party is a $550,000 Promissory Note
given to Century's former owner as part of the Company's acquisition of Century.
This note carries an 8% annual interest rate and is payable in annual
installments through May 1997.
During 1993, the Company repurchased 75,593 shares of its Common Stock from
a Director in exchange for $29,151 in cash and a subordinated promissory note
for $500,000 ($300,000 outstanding at December 31, 1995). This related party
transaction requires interest payments quarterly at 8% per annum and principal
is payable in four annual installments through June 1997.
The Company's current ratio was 2.0 to 1 at year end 1995 compared to 2.6 to
1 at the end of the prior year. The debt to equity ratio was 21% at December
31, 1995, compared to 30% at the close of 1994. Please refer to the
Consolidated Statement of Cash Flows for further information.
The Company believes that funds generated from operations are sufficient to
meet cash flow requirements through fiscal 1996.
4
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SELECTED FINANCIAL DATA
FISCAL YEARS ENDED
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Net sales $13,109,144 $12,968,892 $12,238,052 $11,051,062 $8,748,671
Net income 268,385 345,785 483,188 586,500 497,146
Net income per
common share 0.35 0.45 0.61 0.70 0.59
At year-end:
Total assets 12,940,190 12,841,710 12,818,036 9,994,468 10,805,707
Total long-term debt
and notes payable 1,360,928 1,907,938 2,449,368 131,615 135,824
Cash dividends
declared per
common share - - - - -
</TABLE>
- --------------------------------------------------------------------------------
STOCK PRICES AND DIVIDENDS
The following table indicates the quarterly high and low bid prices for
Tinsley's stock on the Over-The-Counter market (NASDAQ Symbol: TNSL) for the
last two years.
<TABLE>
<CAPTION>
1995 1994
---------------- ----------------
<S> <C> <C> <C> <C>
High Low High Low
Quarter bid bid bid bid
- --------------------------------------------------------------------------------
First quarter 5 3/8 4 3/4 7 6 1/2
Second quarter 6 4 7/8 6 5/8 5 1/2
Third quarter 6 3/4 5 1/2 5 3/4 5 1/2
Fourth quarter 6 1/2 6 5 1/2 4 3/4
- --------------------------------------------------------------------------------
</TABLE>
As of February 29,1996, the approximate number of holders of common stock was
300.
- --------------------------------------------------------------------------------
FORM 10-KSB
The Company's Form 10-KSB annual report to the Securities and Exchange
Commission provides certain additional information and will be available in
April 1996. A copy of this report may be obtained upon written request
addressed to the Secretary of the Company.
- --------------------------------------------------------------------------------
ANNUAL MEETING OF STOCKHOLDERS
The annual stockholder's meeting this year will be held on
Wednesday, April 24, 1996, at 10:00 a.m., Local Time, at the offices of the
Company located at 3900 Lakeside Drive, Richmond, California.
18
<PAGE>
TINSLEY LABORATORIES
Founded in 1926, Tinsley Laboratories is the leading independent company in
the precision optics industry specializing in the design and fabrication of
aspherical optical surfaces. Tinsley's discrete lenses and mirrors and its
optical assemblies are used in precision optical and electro-optic systems with
space, military, scientific and industrial applications.
For many years, Tinsley has been in the forefront in the development of
computer aided processes and unique equipment for the manufacture of optical
components. The range of applications facilitated by our technology is
considerable. They include head-up display optics for military and commercial
aircraft, as well as the optics for the Viking and Voyager space missions that
returned striking images of the outer planets. Tinsley has produced both the
large optical components for the Keck Observatory in Hawaii and the small
lithographic optics incorporated in the equipment that etches on computer chips.
Recently, the Company was widely recognized for having produced the required
corrective optics to clear up the Hubble Space Telescope's blurred vision.
Tinsley also received the prestigious NASA Goddard Space Flight Center
Contractor Excellence Award for 1994, Goddard's highest award.
The Company is also internationally known for its phosphor exposure aspheric
lenses, a critical tool in the manufacture of color television tubes. Through
its subsidiary, Century Precision Optics of North Hollywood, California, Tinsley
also makes specialty lenses and accessories for the film and video industries.
TINSLEY'S SUPPORT OF EQUAL OPPORTUNITY
In our hiring practices and in dealing with our employees, Tinsley follows
the letter and spirit of equal employment opportunity. The Company does not
discriminate because of race, religion, national origin, age or sex.
We have an ongoing affirmative action program to ensure equal opportunity.
OFFICERS AND BOARD OF DIRECTORS
OFFICERS
Robert J. Aronno
CHAIRMAN OF THE BOARD
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Robert J. Johnson
VICE PRESIDENT, MARKETING AND SECRETARY
Daniel J. Bajuk
EXECUTIVE VICE PRESIDENT
James A. Kennon
VICE PRESIDENT
Steven E. Manios
VICE PRESIDENT
DIRECTORS
Robert J. Aronno
Daniel J. Duckhorn
PRESIDENT, ST. HELENA WINE COMPANY
Stephen L. Davenport
RETIRED
Stephen E. Globus
CHAIRMAN OF THE BOARD, GLOBUS GROWTH GROUP, INC.
Steven E. Manios
Transfer Agent: Chemical Mellon Shareholder Services
San Francisco, California
Registrar: Chemical Mellon Shareholder Services
San Francisco, California
Auditors: Ernst & Young LLP
San Francisco, California
Counsel: Clark & Trevithick
Los Angeles, California
19
