-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BjbJyh8jao18OTFkXV0HPxaw/HRxSH5IsX351wh25xLOMF1GW95MsrKO8hNSIurO zlaJ3nw6zZbgq3BdamGJ7Q== 0000950123-03-011345.txt : 20031014 0000950123-03-011345.hdr.sgml : 20031013 20031014112530 ACCESSION NUMBER: 0000950123-03-011345 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20031014 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BALDWIN TECHNOLOGY CO INC CENTRAL INDEX KEY: 0000805792 STANDARD INDUSTRIAL CLASSIFICATION: PRINTING TRADES MACHINERY & EQUIPMENT [3555] IRS NUMBER: 133258160 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09334 FILM NUMBER: 03938499 BUSINESS ADDRESS: STREET 1: 12 COMMERCE DRIVE CITY: SHELTON STATE: CT ZIP: 06484 BUSINESS PHONE: 2034021000 MAIL ADDRESS: STREET 1: 12 COMMERCE DRIVE CITY: SHELTON STATE: CT ZIP: 06484 10-K 1 y90086ke10vk.txt BALDWIN TECHNOLOGY COMPANY, INC. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 2003 COMMISSION FILE NUMBER 1-9334 BALDWIN TECHNOLOGY COMPANY, INC. (Exact name of registrant as specified in its charter) --------------------- DELAWARE 13-3258160 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 12 COMMERCE DRIVE 06484 SHELTON, CONNECTICUT (Zip Code) (Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 203-402-1000 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered CLASS A COMMON STOCK AMERICAN STOCK EXCHANGE PAR VALUE $.01
Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [ ] No [X] Aggregate market value of the of the registrant's common stock held by non-affiliates of the registrant, based upon the closing price of a share of the registrant's common stock on December 31, 2002 as reported by the American Stock Exchange on that date was $5,926,000. Number of shares of Common Stock outstanding at August 31, 2003: Class A Common Stock............... 12,828,647 Class B Common Stock............... 2,185,883 ---------- Total............................ 15,014,530
DOCUMENTS INCORPORATED BY REFERENCE Items 10, 11, 12 and 13 are incorporated by reference into Part III of this Form 10-K from the Baldwin Technology Company, Inc. Proxy Statement for the 2003 Annual Meeting of Stockholders. (A definitive proxy statement will be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year covered by this Form 10-K.) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE ---- Item 1. Business.................................................... 1 Item 2. Properties.................................................. 9 Item 3. Legal Proceedings........................................... 9 Item 4. Submission of Matters to a Vote of Security Holders......... 9 Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters......................................... 10 Item 6. Selected Financial Data..................................... 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 12 Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................................................ 26 Item 8. Financial Statements and Supplementary Data................. 28 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................... 75 Item 9A. Controls and Procedures..................................... 75 Item 10. Directors, Executive Officers and Key Employees of the Registrant.................................................. 75 Item 11. Executive Compensation...................................... 75 Item 12. Security Ownership of Certain Beneficial Owners and Management.................................................. 75 Item 13. Certain Relationships and Related Transactions.............. 75 Item 14. Principal Accountant Fees and Services...................... 75 Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K......................................................... 75
CAUTIONARY STATEMENT -- This Annual Form 10-K may contain statements which constitute "forward-looking" information as that term is defined in the Private Securities Litigation Reform Act of 1995 or by the Securities and Exchange Commission ("SEC") in its rules, regulations and releases. Baldwin Technology Company, Inc. (the "Company") cautions investors that any such forward-looking statements made by the Company are not guarantees of future performance and that actual results may differ materially from those in the forward-looking statements. Some of the factors that could cause actual results to differ materially from estimates contained in the Company's forward-looking statements are set forth in Exhibit 99 to this Annual Report on Form 10-K for the year ended June 30, 2003. PART I ITEM 1. BUSINESS Baldwin Technology Company, Inc. ("Baldwin" or the "Company") is a leading global manufacturer of accessories and controls for the printing and publishing industry. The Company offers its customers a broad range of products designed to enhance the quality of printed products and increase the productivity and cost-efficiency of the print manufacturing process while addressing the environmental concerns and safety issues involved in the printing process. Baldwin's products include cleaning systems, fluid management and ink control systems, web press protection systems and drying systems. The Company sells its products both to printing press manufacturers who incorporate the Company's products into their own printing systems for sale to printers, and to printers to upgrade the quality and capability of existing and new printing presses. The Company has product development and manufacturing facilities, as well as sales and service operations, in strategic markets worldwide. During the first quarter of the fiscal year ending June 30, 2003, the Company committed to a plan to dispose of substantially all of the assets of its Baldwin Kansa subsidiary ("BKA"); the transaction closed on October 10, 2002. The consideration received for the transaction, after certain post-closing adjustments, was approximately $3,736,000, which approximated the net book value of the assets sold. During the fiscal year ended June 30, 2002, the operating results and future prospects of BKA deteriorated. As a result, the goodwill associated with BKA exceeded the assessment of its fair-value made by the Company, and the Company recorded a goodwill impairment charge of $5,434,000 in the fourth quarter of the fiscal year ended June 30, 2002. BKA is accounted for as a discontinued operation, therefore, for all periods presented, amounts previously reported in continuing operations have been reclassified to reflect BKA as a discontinued operation. For a further discussion, see Note 18 to the Consolidated Financial Statements. On November 16, 2001, the Company sold substantially all of the assets of its subsidiary Baldwin Document Finishing Systems, Inc. ("BDF"), the sole operation unit in the Print On-Demand ("POD") business to Finishing and Systems Technology LLC ("FAST"), a new company formed by the management of the POD business. The consideration included the Company retaining a note receivable from FAST in the amount of $137,000 plus interest at 8%, due in three equal annual installments on the anniversary date of the sale. The first installment was due in November 2002, which was not paid, and in May 2003, FAST filed for Chapter 7 bankruptcy protection. As a result, the Company wrote-off the entire amount of the note of $137,000 in May 2003. The remaining assets of the POD business are not material. The revenues and corresponding expenses attributable to the POD business are included in the Company's consolidated financial statements only for the periods that the POD business was owned by the Company. As a result of its decision to sell the POD business, the Company recorded an impairment charge of $687,000 during the fiscal year ended June 30, 2001 to write-off goodwill associated with the POD business. During the fiscal year ended June 30, 2002, the Company recorded a loss on the sale of the POD business of approximately $8,000. On September 26, 2001, the Company sold substantially all of the assets of the Roll Handling Group ("RHG"). The revenues and corresponding expenses attributable to the RHG are included in these consolidated financial statements only for the periods that the RHG business was owned by the Company. As a result of the decisions to sell the RHG business, the Company recorded an impairment charge during the fiscal year ended June 30, 2001 of approximately $14,831,000 associated with the write-off of assets, primarily goodwill related to the RHG business. During the fiscal year ended June 30, 2002, The Company recorded a loss on the sale of the RHG business of approximately 1 $250,000 during the fiscal year ended June 30, 2002 and an additional loss of approximately $211,000 during the fiscal year ended June 30, 2003. On September 27, 2000, the Company sold substantially all of the assets of its Baldwin Stobb Division ("BSD"). The revenues and corresponding expenses attributable to BSD are included in the Company's consolidated financial statements only for the periods that BSD was owned by the Company. The Company recorded a loss of $831,000 on the sale of BSD in the fiscal year ended June 30, 2001. LIQUIDITY On August 18, 2003, Baldwin and certain of its subsidiaries, entered into a $20,000,000 Credit Agreement (the "Credit Agreement") with Maple Bank GmbH ("Maple" or "Lender"), which if not terminated by the Lender on August 15, 2004 or by the Company by payment in full, shall terminate in its entirety on August 15, 2005. The credit facility is collateralized by substantially all of the accounts and notes receivable of the Company and a portion of the Company's inventory up to a maximum amount of $5,000,000. Borrowings under the credit facility are subject to a borrowing base and bear interest at a rate equal to the three-month Eurodollar rate (as defined in the Credit Agreement) plus (i) 10% for loans denominated in U.S. Dollars or (ii) 11.5% for loans denominated in Euros. The interest rate will be reduced by 0.50% or whole increments thereof for each whole increment of Disclosed EBITDA (as defined in the Credit Agreement) that equals or exceeds $1,250,000 for any fiscal quarter commencing with the quarter ending December 31, 2003. In no event however, may the interest rate be less than 10.5% per annum. The initial borrowings under the credit facility amounted to $18,874,000, of which the Company utilized $16,243,000 to retire its previously existing debt with Fleet National Bank and Wachovia Bank National Association and the remainder of the borrowings was utilized for closing costs and working capital purposes. The Credit Agreement does not require the Company to satisfy any financial covenants, except for the limitation on annual capital expenditures; however, it contains a material adverse effect clause, which provides that Maple would not be obligated to fund any loan, convert or continue any loan as a LIBOR loan or issue any new letters of credit in the event of a material adverse effect. Management does not anticipate that such an event will occur; however, there can be no assurance that such an event will not occur. The Company has experienced operating losses and debt covenant violations over the past three fiscal years. As more fully discussed in this Form 10-K, the Company has embarked on restructuring plans and undertaken other actions aimed at improving the Company's competitiveness, operating results and cash flow. These actions have included the sale of certain businesses, as noted above, the consolidation of other operations and headcount reductions related to the consolidations and weak market conditions. As a result of these actions, combined with the new credit agreement discussed above, management believes that the Company's cash flows from operations, along with available bank lines of credit and alternative sources of borrowings, if necessary, are sufficient to finance its working capital and other capital requirements over the term of the current financing with Maple. Management further believes that additional actions can be taken to reduce operating expenses and that assets can be sold to meet liquidity needs, if necessary. INDUSTRY OVERVIEW Baldwin operates in a highly fragmented market. The Company defines its business as that of providing accessories and controls for the printing and publishing industry. The Company believes that it produces the most complete line of accessories and controls for the printing and publishing industry. 2 The Company's products are used by printers engaged in all commercial printing processes including lithography, flexography and digital printing. The largest share of its business is in offset (lithographic) printing. Offset printing is the largest segment of the domestic and international printing market and is used primarily for printing books, magazines, business forms, catalogs, greeting cards, packaging and newspapers. The Company's products are designed to improve the printing process in terms of both the quality of the finished product as well as its cost efficiency. Offset printing represents a significant segment of the U.S. commercial printing industry, and has become the dominant technology in the international printing market. The Company believes that the future growth of its international markets will be attributable in large part to the increased use of offset printing. The Company has established operations in strategic geographic locations to take advantage of growth opportunities in these markets. Baldwin's worldwide operations enable it to closely monitor new product developments in different printing markets and to introduce new products, or adapt existing ones, to meet the printing equipment requirements of specific local markets throughout the world. PRINCIPAL PRODUCTS The Company manufactures and sells many different products to printers and printing press manufacturers. The Company's product development efforts are focused on the needs of the printer and the printing press manufacturers. Typically, it takes a new product several years after its introduction to make a significant contribution to the Company's net sales. As a product progresses through its life cycle, the percentage of sales to printing press manufacturers generally increases as the product's acceptance by the printing industry increases and printers begin to specify certain of the Company's products as part of their accessory and controls equipment package selected when ordering new printing presses. Historically, the Company's products have had a long life cycle as the Company continually upgrades and refines its product lines to meet customer needs and changes in printing press technology. The Company's products help printers address increasingly demanding requirements for print quality and environmental and safety issues, as well as enhance productivity and reduce materials waste. The Company's products range in unit price from under $100 to approximately $50,000. Baldwin's principal products are described below: CLEANING SYSTEMS. The Company's Cleaning Systems products clean the cylinders of an offset press and include the Press Washer, Automatic Blanket Cleaner, Newspaper Blanket Cleaner, Chill Roll Cleaner, Digital Plate Cleaner and Guide Roll Cleaner, all of which reduce paper waste, volatile organic compound ("VOC") emissions and press downtime, as well as improve productivity, print quality and safety of operation for the press operator. In the fiscal years ended June 30, 2003, 2002 and 2001, net sales of Cleaning Systems represented approximately 54.9%, 45.8% and 48.6% of the Company's net sales, respectively. FLUID MANAGEMENT SYSTEMS. The Company's Fluid Management Systems control the supply, temperature, cleanliness, chemical composition and certain other characteristics of the fluids used in the lithographic printing process. Among the most important of these products are the Company's Refrigerated Circulators and Spray Dampening Systems. In the fiscal years ended June 30, 2003, 2002 and 2001, net sales of Fluid Management Systems represented approximately 21.0%, 23.9% and 20.1% of the Company's net sales, respectively. OTHER ACCESSORY AND CONTROL PRODUCTS. The Company's Web Press Protection Systems, designed in response to the increasing number of web leads used in printing today's colorful newspapers, provide an auto-arming electronic package offering high quality press protection in the 3 event of a web break. The Company's Ink Control Systems regulate many aspects of the ink feed system on a printing press. These products include Ink Agitators, Ink Mixers and Ink Level Systems which reduce ink and paper waste. Other products include Ultraviolet and Infrared Dryers and Gluing Systems. In the fiscal years ended June 30, 2003, 2002 and 2001, net sales of Other Accessory and Control Products represented approximately 24.1%, 26.2%, 8.0% of the Company's net sales, respectively. NEWSPAPER INSERTER EQUIPMENT AND MAILING MACHINE SYSTEMS. Newspaper Inserter Equipment collates and inserts sections and advertising material into newspapers. The cost of materials in the printing industry continues to pressure printers to reduce other costs, particularly labor costs. When manual processes are replaced by newspaper inserters, payback periods as low as six months have been realized by some purchasers of this equipment. Mailing Machine Systems fold, label and prepare newspapers for mailing. These products were produced at the Company's BKA facility. The Company decided to exit this business, and completed the sale of substantially all the assets of BKA on October 10, 2002. For all periods presented, BKA is shown as a discontinued operation and therefore none of BKA's sales are included in the Company's net sales. The Company entered the short-run, POD market in January of 1997. This business venture marketed and distributed finishing equipment for the digital printing market. The results of operations for this business were not material for all periods presented. Net sales for the POD business are included for the entire fiscal year ended June 30, 2001, and only for three months in the fiscal year ended June 30, 2002. There were no net sales included for the POD business in the fiscal year ended June 30, 2003. As part of the Company's restructuring plan, the Company exited this market upon the completion of the sale of substantially all the assets of the POD business on November 16, 2001. ROLL HANDLING SYSTEMS. The Company's Roll Handling Systems unwind, rewind and splice paper and other substrates supplied to presses in rolls and also control the tension and position of web materials. This equipment eliminates unnecessary press stoppages and allows an efficient work flow. The RHG product lines were sold on September 26, 2001. Net sales for the RHG are included for the entire fiscal year ended June 30, 2001, and only for three months in the fiscal year ended June 30, 2002. In the fiscal years ended June 30, 2002 and 2001, net sales of Roll Handling Systems represented approximately 4.1% and 20.1% of the Company's net sales, respectively. There were no sales included for the RHG in the fiscal year ended June 30, 2003. MATERIAL HANDLING/STACKING SYSTEMS. The Company's Material Handling/Stacking Systems automate the handling of the printed product. The efficient counting, stacking, packing and compressing of printed materials helps to increase press utilization and productivity, reduce and control waste and decrease pressroom labor requirements. This product line was sold on September 27, 2000, when the Company sold substantially all the assets of BSD. Net sales for BSD are included only for three months in the fiscal year ended June 30, 2001, and represented approximately 3.2% of the Company's net sales. There were no sales included for BSD in the fiscal years ended June 30, 2003 and 2002. WORLDWIDE OPERATIONS The Company believes that it is the only manufacturer of accessories and controls for the printing and publishing industry, which has complete product development, manufacturing and marketing capabilities in the Americas, Europe and Asia. 4 The following table sets forth the percentages of the Company's net sales attributable to its geographic regions for the fiscal years ended June 30, 2003, 2002 and 2001:
YEARS ENDED JUNE 30, ----------------------- 2003 2002 2001 ----- ----- ----- Americas................................................ 20.3% 21.0% 30.4% Europe.................................................. 41.8 42.1 37.9 Asia.................................................... 37.9 36.9 31.7 ----- ----- ----- Total........................................ 100.0% 100.0% 100.0% ===== ===== =====
In the Americas, the Company operates in North, Central and South America through its U.S. subsidiaries and a sales office in Brazil. In Europe, the Company operates through its subsidiaries in Germany, Sweden, France, England and the Netherlands. In Asia, the Company operates through its subsidiaries in India, Japan, China and Australia. All of the Company's subsidiaries are wholly owned except for two subsidiaries, one in which the Company holds a 90% interest, and another in which the Company holds an 80% interest. The sale of the RHG on September 26, 2001 reduced operations in Sweden, China and the United States, while the sale of BKA on October 10, 2002 further reduced operations in the United States. For additional information relating to the Company's segments and operations in its three geographic regions, see Note 6 to the Consolidated Financial Statements. RESTRUCTURING CHARGES During March 2000, the Company initiated a restructuring plan (the "March 2000 Plan") that included the consolidation of production into certain facilities, and a reduction in total employment, primarily in the United States. The March 2000 Plan was expanded during the fourth quarter of the fiscal year ended June 30, 2001. Accordingly, the Company recorded restructuring charges in the amounts of $220,000, $621,000 and $2,277,000 for the fiscal years ended June 30, 2003, 2002 and 2001, respectively, related to the March 2000 Plan. The $220,000 relates primarily to additional exit costs, which were expensed as incurred. The March 2000 Plan reduced the Company's worldwide cost base and strengthened its competitive position as a leading global supplier of accessories and controls to the printing and publishing industry. Prior to initiating the March 2000 Plan, the Company was managed in a decentralized manner through geographically dispersed, autonomous business units. Given that many of the Company's significant customers have reorganized on a global basis, management decided to restructure the Company along functional lines on a global basis. Rather than have sales, product development and production activities at each decentralized business unit, the March 2000 Plan included the centralization of these activities. Product lines that were previously being produced at multiple facilities were consolidated with similar product lines at existing facilities. The former corporate headquarters was vacated and relocated to the Shelton, Connecticut facility to take advantage of the space created by the downsizing at that facility. Severance costs will be paid through October 2003, the majority of which is expected to be paid during the first quarter of the fiscal year ending June 30, 2004. Facility lease termination costs are expected to be paid through April 2006. The Company expects to incur approximately $50,000 in additional unaccrued restructuring costs related to the March 2000 Plan during the fiscal year ending June 30, 2004, which will be expensed as incurred. The estimated total cash cost of the restructuring program is expected to be approximately $8,324,000, with approximately $660,000 expected to be spent during the fiscal year ending June 30, 2004 and approximately $971,000 (primarily facility lease costs) expected to be spent 5 over the balance of the terms of the leases extending for approximately three years. The March 2000 Plan was expected to save the Company approximately $8,843,000 annually following full implementation; however, approximately $1,876,000 of this savings was related to the divested RHG, which will not be realized under the March 2000 Plan. In response to weak market conditions, in August 2002, the Company announced additional restructuring activities (the "August 2002 Plan"), which reduced total worldwide employment by approximately 160. Accordingly, the Company recorded an additional restructuring charge of approximately $3,385,000 during the fiscal year ended June 30, 2003 related to the August 2002 Plan. These reductions are expected to reduce operating costs by approximately $7,500,000 annually after the August 2002 Plan is fully implemented, which is expected to occur by the end of October 2003. The Company expects that the severance costs will be paid through December 2003 and approximately $400,000 in lease termination costs will be paid through December 2006. In August 2003, the Company expanded the August 2002 Plan and announced additional employment reductions of 15 in the United States and 8 in the United Kingdom. In addition, the Company closed its office in Dunstable, England and is currently running its two separate business operations from its Poole, England location in an effort to reduce or eliminate certain costs as part of its global restructuring efforts. The additional costs associated with the expansion of the August 2002 Plan amounted to approximately $400,000, comprised of; $243,000 in severance costs, $130,000 in lease termination costs and $27,000 in other costs associated with this expansion, which will be expensed as incurred. The majority of these costs will be recognized in the first quarter of the fiscal year ended June 30, 2004. ACQUISITION STRATEGY The Company is not currently seeking acquisition targets as the Company is focusing on operating its core business and implementing the cost reductions associated with its restructuring plans. An element of the Company's growth strategy is to eventually make strategic acquisitions of companies and product lines in related business areas. In such case, the Company's acquisition strategy would involve: (i) acquiring entities that will strengthen the Company's position in the accessories and controls segment and whose products can be sold through the Company's existing distribution network; (ii) entering new end-user market segments and extending existing markets; and (iii) acquiring companies which contribute new products to the Company and which can benefit from the Company's manufacturing and marketing expertise and financial support. Subsequent to an acquisition, the Company's strategy would be to integrate the acquired companies processes and controls with those currently existing in the Company's structure with a view towards enhancing sales, productivity and operating results. MARKETING, SALES AND SUPPORT MARKETING AND SALES. While the Company markets its products in most countries throughout the world, the product mix and distribution channels vary from country to country. The Company has approximately 67 employees devoted to marketing and sales activities in its three principal worldwide markets and more than 150 dealers, distributors and representatives worldwide. The Company markets its products throughout the world through these direct sales representatives, distributors and dealer networks. The Company markets its products to printing press manufacturers ("OEMs") and to newspaper and commercial printers. For the fiscal year ended June 30, 2003, approximately 45% of the Company's net sales were to OEMs and approximately 55% were directly to printers. 6 SUPPORT. The Company is committed to after-sales service and support of its products throughout the world. Baldwin employs approximately 90 service technicians, who are complemented by product engineers, to provide field service for the Company's products on a global basis. BACKLOG. Backlog represents unfilled product orders, which Baldwin has received from its customers under valid contracts or purchase orders. The Company's backlog was $49,709,000 as of June 30, 2003, $48,707,000 as of June 30, 2002 and $60,589,000 as of June 30, 2001. The above backlog amounts have been adjusted to exclude the backlog of the BKA business, the assets of which were sold on October 10, 2002, as BKA is reported as a discontinued operation. Included in the June 30, 2001 backlog was $10,513,000 related to the Company's former RHG, the assets of which were sold in September 2001. CUSTOMERS. For the fiscal year ended June 30, 2003, one customer accounted for more than 10% of the Company's net sales. Koenig and Bauer Aktiengesellschaft ("KBA") accounted for approximately 13% of the Company's net sales. The ten largest customers of Baldwin (including KBA) accounted for approximately 46%, 44% and 49%, respectively, of the Company's net sales for the fiscal years ended June 30, 2003, 2002 and 2001. Sales of Baldwin's products are not considered seasonal. Sales in three of the last five years have been greater in the first six months of its fiscal year than in the second six months of its fiscal year (see Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations"). RESEARCH, DEVELOPMENT AND ENGINEERING The Company believes its research, development and engineering efforts have been an important factor in establishing and maintaining its leadership position in the field of accessories and controls for the printing and publishing industry. The Company has won six Intertech Awards from the Graphic Arts Technical Foundation. The Intertech Award was established in 1978 to recognize technologies that are predicted to have a major impact on the graphic communications industry, but are not yet in widespread use in the marketplace. Baldwin has devoted substantial efforts to adapt its products to almost all models and sizes of printing presses in use worldwide. The Company has product development functions at several of its locations. While the Company believes that this approach to research and development has helped the Company to react quickly to meet the needs of its customers, coordination of the Company's product development activities required more centralization, which was accomplished with the Company's restructuring efforts. The restructured organization focuses attention on opportunities within the respective markets, while avoiding duplicative efforts within the Company. Baldwin employs approximately 119 persons whose primary function is new product development, application engineering or modification of existing products. The Company's total expenditures for research, development and engineering for the fiscal years ended June 30, 2003, 2002 and 2001 were $16,148,000, $15,451,000 and $17,135,000, respectively, representing approximately 12.0%, 11.0% and 9.9% of the Company's net sales in each fiscal year, respectively. PATENTS The Company owns or licenses a number of patents and patent applications relating to a substantial number of Baldwin's products. Patented products represent a significant portion of the Company's net sales for all periods presented. The Company's patents expire at different times during the next twenty years; however, one significant group of patents, which provide for the majority of the Company's current royalty income, are scheduled to expire in February 2005. The expiration of patents in the near future is not expected to have a material adverse effect on the Company's net sales; however, 7 royalty income and cash flows, are expected to be negatively impacted upon the expiration of this group of patents. The Company has also relied upon and intends to continue to rely upon unpatented proprietary technology, including the proprietary engineering required to adapt its products to a wide range of models and sizes of printing presses. The Company believes its rights under, and interests in, its patents and patent applications, as well as its proprietary technology, are sufficient for its business as currently conducted. MANUFACTURING The Company conducts its manufacturing operations through a number of operating subsidiaries. In North America, the Company has a manufacturing facility in Kansas. In Europe, the Company has subsidiaries with manufacturing and assembly facilities in Germany and Sweden. In Asia, Baldwin has manufacturing and assembly facilities in India and Japan. In general, raw materials required by the Company can be obtained from various sources in the quantities desired. The Company has no long-term supply contracts and does not consider itself dependent on any individual supplier. The nature of the Company's operations is such that there is little, if any, negative effect upon the environment, and the Company has not experienced any serious problems in complying with environmental protection laws and regulations. COMPETITION Within the highly fragmented printing press accessory industry, the Company produces and markets what it believes to be the most complete line of accessories and controls. Numerous companies, including vertically integrated printing press manufacturers, manufacture and sell products, which compete with one or more of the Company's products. These printing press manufacturers generally have larger staffs and greater financial resources than the Company. The Company competes by offering customers a broad product line, coupled with a well-known reputation for the reliability of its products and its commitment to service and after-sale support. The Company's ability to compete effectively in the future will depend upon the continued reliability of its products, after-sale support, its ability to keep its market position with new proprietary technology and its ability to develop new products which meet the demands of the printing and publishing industry. EMPLOYEES At June 30, 2003, the Company employed 533 persons (plus 15 temporary and part-time employees), of which 193 are production employees, 67 are marketing, sales and customer service employees, 209 are research, development, engineering and technical service employees and 64 are management and administrative employees. In Europe, employees are represented by various unions under contracts with indefinite terms. In Sweden, 1, 4, and 11 of the Company's 98 employees, are represented by Ledarna (SALF), Metall, and Svenska Industritjanstemanna Forbundet, respectively. In Germany, 42 of the Company's 191 employees, are represented by the IG Metall (Metalworker's Union). The Company considers relations with its employees and with its unions to be good. 8 ITEM 2. PROPERTIES The Company owns and leases various manufacturing and office facilities aggregating approximately 400,000 square feet at June 30, 2003. The table below presents the locations and ownership of these facilities:
SQUARE SQUARE TOTAL FEET FEET SQUARE OWNED LEASED FEET ------ ------- ------- North America.......................................... 0 164,000 164,000 Germany................................................ 0 102,000 102,000 Sweden................................................. 13,000 50,000 63,000 England................................................ 0 8,000 8,000 Japan.................................................. 0 42,000 42,000 All other, foreign..................................... 0 21,000 21,000 ------ ------- ------- Total square feet owned and leased.......... 13,000 387,000 400,000 ====== ======= =======
The Company believes that its facilities are adequate to carry on its business as currently conducted. ITEM 3. LEGAL PROCEEDINGS Baldwin is involved in various legal proceedings from time to time, including actions with respect to commercial, intellectual property, and employment matters. The Company believes that it has meritorious defenses against the claims currently asserted against it and intends to defend them vigorously. However, the outcome of litigation is inherently uncertain, and the Company cannot be sure that it will prevail in any of the cases currently in litigation. The Company believes that the ultimate outcome of any such cases will not have a material adverse effect on its results of operations, financial position or cash flows, however, there can be no assurances that an adverse determination would not have a material adverse effect on the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders since November 21, 2002. 9 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS (a) PRICE RANGE OF CLASS A COMMON STOCK The Company's Class A Common Stock is traded on the American Stock Exchange ("AMEX") under the symbol "BLD". The following chart sets forth, for the calendar periods indicated, the range of closing prices for the Company's Class A Common Stock on the consolidated market, as reported by the AMEX.
HIGH LOW ----- ----- 2001 (CALENDAR YEAR) - ------------------------ First Quarter............................................... $1.85 $1.28 Second Quarter.............................................. $1.40 $1.15 Third Quarter............................................... $1.27 $0.88 Fourth Quarter.............................................. $1.50 $0.60 2002 (CALENDAR YEAR) - ------------------------ First Quarter............................................... $1.63 $1.07 Second Quarter.............................................. $1.75 $1.31 Third Quarter............................................... $1.50 $0.28 Fourth Quarter.............................................. $0.87 $0.20 2003 (CALENDAR YEAR) - ------------------------ First Quarter............................................... $0.65 $0.29 Second Quarter.............................................. $0.71 $0.18 Third Quarter............................................... $0.79 $0.41 Fourth Quarter (through October 9).......................... $1.22 $0.45
(b) CLASS B COMMON STOCK The Company's Class B Common Stock has no established public trading market. (c) APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS As of August 30, 2003, the number of record holders (excluding those listed under a nominee name) of the Company's Class A and Class B Common Stock totaled 311 and 27, respectively. The Company believes, however, that there are approximately 1,800 beneficial owners of its Class A Common Stock. (d) DIVIDENDS Declarations of dividends depend upon the earnings and financial position of the Company and are within the discretion of the Company's Board of Directors. However, certain of the Company's debt agreements prohibit the payment of dividends. No dividend in cash or property shall be declared or paid on shares of the Company's Class B Common Stock unless simultaneously therewith there is declared or paid, as the case may be, a dividend in cash or property on shares of Class A Common Stock of at least 105% of the dividend on shares of Class B Common Stock (see Note 13 to the Consolidated Financial Statements). 10 ITEM 6. SELECTED FINANCIAL DATA The Company's statement of operations and balance sheet data as it relates to the fiscal years ended June 30, 2003, 2002 and 2001 have been derived from the Company's audited financial statements (including the Consolidated Balance Sheets of the Company at June 30, 2003 and 2002 and the related Consolidated Statements of Operations of the Company for the fiscal years ended June 30, 2003, 2002 and 2001 appearing elsewhere herein). Certain transactions have affected comparability, specifically, the Company's disposal of assets of certain businesses. During the fiscal year ended June 30, 2002, the operating results and future prospects of the Baldwin Kansa subsidiary ("BKA") deteriorated. As a result, the goodwill associated with BKA exceeded the assessment of its fair-value made by the Company, and the Company recorded a goodwill impairment charge of $5,434,000 in the fiscal year ended June 30, 2002. In September 2001, the Company sold substantially all of the assets of its Roll Handling Group ("RHG") and its Print On-Demand ("POD") business. The Company recorded impairment charges related to the RHG and the POD business of $14,831,000 and $687,000, respectively, in the fiscal year ended June 30, 2001 and losses on the sale of the RHG of $250,000 and the POD business of $8,000 in the fiscal year ended June 30, 2002. The Company recorded an additional loss on the sale of RHG of $211,000 in the fiscal year ended June 30, 2003. In September 2000, the Company disposed of substantially all of the assets of its Baldwin Stobb Division ("BSD"). The Company recorded a loss on the sale of BSD of $831,000 in the fiscal year ended June 30, 2001. The revenues and corresponding expenses attributable to these divested operations are included in the consolidated financial statement only for the periods that the businesses were owned by the Company. Effective July 1, 2001, the Company adopted the provisions of Statement of Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets." As a result, the Company no longer amortizes goodwill. Goodwill amortization expense amounted to $0, $0, $973,000, $1,028,000 and $995,000 for the fiscal years ended June 30, 2003, 2002, 2001, 2000 and 1999, respectively. The following information should be read in conjunction with the aforementioned financial statements and with "Management's Discussion and Analysis of Financial Condition and Results of Operations."
YEARS ENDED JUNE 30, -------------------------------------------------------- 2003 2002 2001 2000 1999 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Net sales....................... $134,208 $140,091 $173,308 $189,364 $223,215 Cost of goods sold.............. 93,788 98,814 123,546 129,880 154,109 -------- -------- -------- -------- -------- Gross profit.................... 40,420 41,277 49,762 59,484 69,106 Selling, general and administrative expenses....... 26,953 30,627 37,337 39,497 39,402 Research, development and engineering expenses.......... 16,148 15,451 17,135 18,118 19,805 Provision for loss on the disposition of pre-press operations.................... (45) (86) (472) 0 2,400 Restructuring charges........... 3,605 621 2,277 5,664 870 Settlement and impairment charges....................... 1,250 0 15,518 0 0 -------- -------- -------- -------- -------- Operating (loss) income......... (7,491) (5,336) (22,033) (3,795) 6,629 Interest expense................ 2,411 1,792 2,014 1,819 2,299 Interest (income)............... (281) (288) (288) (319) (410) Royalty (income), net........... (3,034) (4,252) (3,899) (3,111) (3,468) Other (income) expense, net..... 2,251 1,037 (940) 98 284
11
YEARS ENDED JUNE 30, -------------------------------------------------------- 2003 2002 2001 2000 1999 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) -------- -------- -------- -------- -------- (Loss) income from continuing operations before income taxes......................... (8,838) (3,625) (18,920) (2,282) 7,924 Provision (benefit) for income taxes......................... 2,578 6,684 698 (5,675) 4,514 -------- -------- -------- -------- -------- (Loss) income from continuing operations.................... (11,416) (10,309) (19,618) 3,393 3,410 Discontinued operations: (Loss) income from operations................. (253) (241) 1,446 1,443 2,215 Impairment charges............ 0 (5,434) 0 0 0 Gain on sale.................. 543 0 0 0 0 -------- -------- -------- -------- -------- Net (loss) income............... $(11,126) $(15,984) $(18,172) $ 4,836 $ 5,625 ======== ======== ======== ======== ======== (Loss) income per share from continuing operations: Basic (loss) income per share...................... $ (0.76) $ (0.69) $ (1.33) $ 0.22 $ 0.20 ======== ======== ======== ======== ======== Diluted (loss) income per share...................... $ (0.76) $ (0.69) $ (1.33) $ 0.22 $ 0.20 ======== ======== ======== ======== ======== (Loss) income per share from discontinued operations: Basic (loss) income per share... $ 0.02 $ (0.38) $ 0.10 $ 0.09 $ 0.13 ======== ======== ======== ======== ======== Diluted (loss) income per share......................... $ 0.02 $ (0.38) $ 0.10 $ 0.09 $ 0.13 ======== ======== ======== ======== ======== Weighted average number of shares: Basic......................... 15,015 14,915 14,787 15,652 16,801 ======== ======== ======== ======== ======== Diluted....................... 15,015 14,915 14,787 15,652 17,148 ======== ======== ======== ======== ========
JUNE 30, ------------------------------------------------------- 2003 2002 2001 2000 1999 ------- -------- -------- -------- -------- (IN THOUSANDS) BALANCE SHEET DATA: Working capital.................. $ 4,064 $ 22,319 $ 22,409 $ 32,575 $ 30,619 Total assets..................... $96,833 $108,488 $133,890 $160,035 $159,355 Short-term debt.................. $19,548 $ 10,788 $ 14,060 $ 11,316 $ 10,290 Long-term debt................... $ 521 $ 11,873 $ 8,428 $ 11,882 $ 16,515 Total debt....................... $20,069 $ 22,661 $ 22,488 $ 23,198 $ 26,805 Shareholders' equity............. $26,281 $ 33,754 $ 45,460 $ 70,369 $ 66,540
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL. The following is management's discussion and analysis of certain factors, which have affected the consolidated financial statements of Baldwin Technology Company, Inc. ("Baldwin" or the "Company"). During the first quarter of the fiscal year ended June 30, 2003, the Company committed to a plan to dispose of substantially all of the assets of its Baldwin Kansa subsidiary ("BKA"); the transaction closed on October 10, 2002. The consideration received for the transaction, after certain post-closing adjustments, was approximately $3,736,000, which approximated the net book value of the assets sold. 12 During the fourth quarter of the fiscal year ended June 30, 2002, the Company recorded an impairment charge of $5,434,000 related to the goodwill associated with this business as the recorded value of this goodwill exceeded the assessment of its fair value made by the Company. For a further discussion, see Note 18 to the Consolidated Financial Statements. The effects of this transaction on the consolidated financial statements are discussed below where significant. For all periods presented, BKA is reported as a discontinued operation and therefore is not included in the continuing operations of the Company. On September 26, 2001, the Company sold substantially all of the assets of its Roll Handling Group ("RHG"). The Company recorded an impairment charge during the fiscal year ended June 30, 2001 of approximately $14,831,000 as a result of the write-off of assets, primarily patents and goodwill, associated with this business. The Company recorded a loss of $211,000 and $250,000 on the sale of RHG in the fiscal years ended June 30, 2003 and 2002, respectively. The Company recorded a similar write-off of goodwill of approximately $687,000, during the fiscal year ended June 30, 2001 associated with the Company's Print On-Demand business ("POD") as the Company also exited this business. As a result, the revenues and corresponding expenses attributable to RHG and the POD business are included in these consolidated financial statements only for the periods their operations were owned by the Company. The Company recorded a loss of $8,000 on the sale of the POD business in the fiscal year ended June 30, 2002. The effects of these transactions on the consolidated financial statements are discussed below where significant. On September 27, 2000, the Company sold substantially all the assets of its Baldwin Stobb Division ("BSD"). As a result, the revenues and corresponding expenses attributable to BSD are included in these consolidated financial statements only for the periods BSD was owned by the Company. The Company recorded a loss of $831,000 on the sale of BSD in the fiscal year ended June 30, 2001. The effects of this transaction on the consolidated financial statements are discussed below where significant. Net sales and operating loss of RHG, POD and BSD as included in the accompanying consolidated financial statements, were as follows for the fiscal years ended June 30:
2003 2002 2001 --------- ---------- ------------ Net sales..................................... $ 0 $4,782,000 $ 40,375,000 Operating loss................................ $(164,000) $ (883,000) $(14,859,000)
The Company does not consider its business to be seasonal. For three of the last five fiscal years, sales in the first six months were greater than the last six months. The decline in net sales in the second half of the fiscal year ended June 30, 2003 is primarily due to the global printing and publishing industry economic slowdown. The decline in net sales in the second half of the fiscal year ended June 30, 2002 is primarily due to the global printing and publishing industry economic slowdown following the events of September 11, 2001, and the disposition of the RHG. The decline in net sales in the second half of fiscal 1999 was primarily due to the lower sales to Goss Graphic Systems, Inc. ("Goss") and lower sales volume in the Japanese markets. The following schedule shows the Company's net sales for such six-month periods, adjusted for the treatment of BKA as a discontinued operation over the last five fiscal years to reflect the comparison. 13
FIRST SIX SECOND SIX FISCAL YEAR MONTHS MONTHS - ----------- ------------ ------------ 2003.................................................. $ 68,092,000 $ 66,116,000 2002.................................................. $ 71,692,000 $ 68,399,000 2001.................................................. $ 85,595,000 $ 87,713,000 2000.................................................. $ 93,608,000 $ 95,756,000 1999.................................................. $116,181,000 $107,034,000
FORWARD-LOOKING STATEMENTS Except for the historical information contained herein, the following statements and certain other statements contained herein are based on current expectations. Similarly, the press releases we issue and other public statements we make from time to time may contain language that is forward-looking. These forward-looking statements may be identified by the use of forward-looking words or phrases such as "forecast," "believe," "expect," "intend," "anticipate," "should," "plan," "estimate," and "potential," among others. Such statements are forward-looking statements that involve a number of risks and uncertainties. The Company cautions investors that any such forward-looking statements made by the Company are not guarantees of future performance and that actual results may differ materially from those in the forward-looking statements. Some of the factors that could cause actual results to differ materially are set forth in Exhibit 99 to this Annual Report on Form 10-K for the fiscal year ended June 30, 2003. CRITICAL ACCOUNTING POLICIES AND ESTIMATES Baldwin's discussion and analysis of its financial condition and results of operations are based on the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires Baldwin to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, Baldwin evaluates its estimates, including those related to product returns, bad debts, inventories, investments, asset impairments, intangible assets, income taxes, financing operations, warranty obligations, restructuring, pensions and other post-retirement benefits, contingencies and litigation. Baldwin bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Baldwin believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements. Baldwin maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of Baldwin's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances could be required. Baldwin provides for the estimated cost of product warranties at the time revenue is recognized. While Baldwin engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of its component suppliers, Baldwin's warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage or service delivery costs differ from Baldwin's estimates, revisions to the estimated warranty liability would be required. Baldwin writes down its 14 inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. Baldwin records a valuation allowance to reduce its net deferred tax assets to the amount that is more likely than not to be realized. Baldwin has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance. In the event Baldwin were to determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax asset valuation allowance would increase income in the period such determination is made. Likewise, should Baldwin determine that it would not be able to realize all or part of its net deferred tax asset in the future, an adjustment to the deferred tax asset valuation allowance would be recorded through a charged to income in the period such determination is made. In addition, Baldwin recognizes reserves for contingencies when it becomes probable that such a contingency exists. Effective July 1, 2001, Baldwin adopted Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). Accordingly, Baldwin no longer amortizes goodwill but instead tests goodwill for impairment at the reporting unit level, at least annually, by determining the fair value of the reporting unit based on a discounted cash flow model, and comparing it with its book value. If, during the annual impairment review, the book value of the reporting unit exceeds its fair value, the implied fair value of the reporting unit's goodwill is compared with the carrying amount of the unit's goodwill. If the carrying amount exceeds the implied fair value, goodwill is written down to its implied fair value. SFAS 142 requires management to estimate the fair value of each reporting unit, as well as the fair value of the assets and liabilities of each reporting unit, other than goodwill. The implied fair value of goodwill is determined as the difference between the fair value of a reporting unit, taken as a whole, and the fair value of the assets and liabilities of such reporting unit. Other long-lived assets are reviewed for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. Events which could trigger an impairment review include, among others, a decrease in the market value of an asset, the asset's inability to generate income from operations and positive cash flow in future periods, a decision to change the manner in which an asset is used, a physical change to the asset or a change in business climate. Baldwin calculates estimated future undiscounted cash flows, before interest and taxes, of the related operation and compares it to the carrying value of the asset in determining whether impairment potentially exists. If a potential impairment exists, a calculation is performed to determine the fair value of the long-lived asset. This calculation is based upon a valuation model and discount rate commensurate with the risks involved. Third party appraised values may also be used in determining whether impairment potentially exits. Future adverse changes in market conditions or poor operating results of a related reporting unit may require the Company to record an impairment charge in the future. 15 RESULTS OF OPERATIONS The following table sets forth certain of the items (expressed as a percentage of net sales) included in the Selected Financial Data and should be read in connection with the Consolidated Financial Statements of the Company, including the notes thereto, presented elsewhere in this report.
YEARS ENDED JUNE 30, ----------------------- 2003 2002 2001 ----- ----- ----- Net sales.............................................. 100.0% 100.0% 100.0% Cost of goods sold..................................... 69.9 70.5 71.3 ----- ----- ----- Gross profit........................................... 30.1 29.5 28.7 Selling, general and administrative expenses........... 20.1 23.9 21.5 Research, development and engineering expenses......... 12.0 11.0 9.9 Provision for loss on the disposition of pre-press operations........................................... 0.0 (0.1) (0.3) Restructuring, impairment and settlement charges....... 3.6 0.5 10.3 ----- ----- ----- Operating loss......................................... (5.6) (3.8) (12.7) Interest expense....................................... (1.8) (1.3) (1.2) Interest income........................................ 0.2 0.2 0.2 Other income, net...................................... 0.6 2.3 2.8 ----- ----- ----- Loss from continuing operations before income taxes.... (6.6) (2.6) (10.9) Provision for income taxes............................. 1.9 4.8 0.4 ----- ----- ----- Loss from continuing operations........................ (8.5) (7.4) (11.3) Discontinued operations: (Loss) income from operations........................ (0.2) (0.2) 0.8 Impairment charge.................................... 0.0 (3.8) 0.0 Gain on sale......................................... 0.4 0.0 0.0 ----- ----- ----- Net loss............................................... (8.3)% (11.4)% (10.5)% ===== ===== =====
FISCAL YEAR ENDED JUNE 30, 2003 VERSUS FISCAL YEAR ENDED JUNE 30, 2002 CONSOLIDATED RESULTS NET SALES. Net sales for the fiscal year ended June 30, 2003 decreased by $5,883,000, or 4.2%, to $134,208,000 from $140,091,000 for the fiscal year ended June 30, 2002. Currency rate fluctuations attributable to the Company's overseas operations increased net sales for the current period by $10,309,000. Otherwise, net sales would have decreased by $16,192,000, of which $4,782,000 relates to the divestiture of the Company's former RHG, BSD and POD businesses. Excluding the divested businesses, and the effects of currency translation, net sales would have decreased by $11,410,000 over the prior fiscal year. GROSS PROFIT. Gross profit for the fiscal year ended June 30, 2003 was $40,420,000 (30.1% of net sales), compared to $41,277,000 (29.5% of net sales) for the fiscal year ended June 30, 2002, a decrease of $857,000 or 2.1%. Gross profit decreased by $1,040,000 due to the effects of dispositions over the prior fiscal year, and increased by $3,471,000 as a result of fluctuations in currency rates. Excluding the divested businesses and the effects of foreign currency translations, gross profit would 16 have decreased by $3,288,000 over the prior fiscal year, due primarily to decreased sales levels, increased warranty costs and higher freight costs and continuing pricing pressures. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses were $26,953,000 (20.1% of net sales) for the fiscal year ended June 30, 2003, compared to $30,627,000 (21.9% of net sales) for the prior fiscal year, a decrease of $3,674,000. Currency rate fluctuations increased the current fiscal year's expenses by $1,407,000 and the effect of net dispositions from the prior fiscal year reduced expenses by $1,267,000. Excluding the divested businesses and the effects of the currency translation, selling expenses would have decreased by $892,000 and general and administrative expenses would have decreased by $2,922,000. Selling expenses decreased primarily as a result of reductions in staffing levels and decreases in sales commissions resulting from lower sales volumes. General and administrative expenses decreased primarily as a result of decreased compensation expense associated with reductions in personnel due to the Company's restructuring efforts and reduced incentive compensation expense resulting from the lower profitability of the Company in the current fiscal year, while the prior fiscal year included a $439,000 bad debt charge related to a major OEM customer, additional compensation of $112,000 related to a loan to an officer of the Company, and increased consulting and subcontracting costs. ENGINEERING AND DEVELOPMENT EXPENSES. Engineering and development expenses increased by $697,000 over the prior fiscal year. Fluctuations in currency rates increased these expenses by $1,687,000, while the exclusion of costs associated with the divested RHG business reduced these expenses by $659,000; otherwise, these expenses would have decreased by $331,000. The decrease in these expenses relates primarily to decreased research and development labor and project costs and reductions in engineering costs primarily in the United States attributed to reduced personnel costs associated with the planned restructurings. As a percentage of net sales, engineering and development expenses increased by 1.0% to 12.0% for the year ended June 30, 2003 compared to 11.0% for the year ended June 30, 2002. RESTRUCTURING AND OTHER CHARGES. Restructuring and other charges consist primarily of restructuring charges of $3,603,000 and a settlement charge of $1,250,000 associated with a customer dispute related to a business unit that was divested in 2000, which is to be settled primarily for product in lieu of cash. The restructuring charges included $220,000 associated with the Company's March 2000 restructuring plan, which were expensed as incurred and $3,385,000 associated with the Company's August 2002 plan. The August 2002 plan consists of $2,840,000 in additional employee severance and benefit costs, $437,000 in lease termination costs, $20,000 in asset write-offs and $88,000 in incremental costs associated with the restructuring plan. INTEREST AND OTHER. Interest expense for the fiscal year ended June 30, 2003 increased by $619,000 to $2,411,000, compared to $1,792,000 for the fiscal year ended June 30, 2002. Currency rate fluctuations increased interest expense by $156,000 in the current period. The remainder of the increase was due primarily to higher interest rates partially offset by lower long-term debt levels outstanding during the current period, primarily as a result of applying the proceeds from the BKA divestiture to reduce outstanding long-term debt. Interest income was $281,000 and $288,000 for the fiscal years ended June 30, 2003 and June 30, 2002, respectively. Currency rate fluctuations increased interest income by $36,000 in the current period. Other income and expense, net, amounted to an expense of $2,251,000 for the fiscal year ended June 30, 2003 compared to $1,037,000 for the fiscal year ended June 30, 2003. These amounts include foreign currency transaction (losses) gains of $(879,000) and $18,000 for the current and prior periods, respectively. Currency rate fluctuations negatively impacted other income and expense by $240,000 in the current period. The ineffective portions of derivative financial instruments, which qualify as hedges pursuant to SFAS No. 133 17 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") amounted to losses of $5,000 and $45,000 for the fiscal years ended June 30, 2003 and 2002, respectively, while derivative financial instruments which do not qualify as hedges pursuant to SFAS 133 amounted to a gain of $200,000 and a loss of $413,000 respectively. Other income and expense in the current fiscal year also includes a $446,000 write-down of deferred financing costs in the current period and an additional $928,000 associated with the pursuit of certain financing and strategic alternatives, and a $211,000 pre-tax loss on the sale of the RHG. The prior year period included a write-down of deferred financing costs of $255,000 and a $250,000 pre-tax loss on the sale of RHG. INCOME TAXES. The Company recorded an income tax provision of $2,578,000 for the fiscal year ended June 30, 2003 as compared to $6,684,000 for the fiscal year ended June 30, 2002. Certain items have significantly affected the Company's tax provision. Specifically, in the current year, foreign income taxed at rates higher than the U.S. statutory tax rate and the recording of $4,911,000 and $6,210,000 valuation allowances primarily against certain of its foreign and domestic deferred tax assets resulted in additional tax charges for the fiscal years ended June 30, 2003 and 2002, respectively. Currency rate fluctuations increased the tax provision by $74,000 in the current period. LOSS FROM CONTINUING OPERATIONS. Loss from continuing operations for the fiscal year ended June 30, 2003 was $11,416,000 as compared to $10,309,000 for the fiscal year ended June 30, 2002, or $0.76 per share, basic and diluted, and $0.69 per share, basic and diluted, respectively. For the current period, currency rate fluctuations increased the net loss by $227,000 and net dispositions decreased the net loss by $735,000. The net loss in the current fiscal year includes a settlement charge related to a customer dispute associated with a business unit that was divested in 2000. DISCONTINUED OPERATIONS. Loss from operations of discontinued operations for the year ended June 30, 2003 was $253,000, as compared to $241,000 for the year ended June 30, 2002, and relates to BKA. The increase in the loss is primarily the result of reduced revenues and gross profit margins, being partially offset by decreased operating expenses in the current period, as the business is included only for three months in the current year period. A gain on the sale of BKA of $543,000 was recorded in the quarter ended December 31, 2002 as a result of the sale of the entity being completed on October 10, 2002. NET LOSS. The Company's net loss amounted to $11,126,000 for the year ended June 30, 2003, compared to $15,984,000 for the year ended June 30, 2002. Currency rate fluctuations increased the net loss by $227,000 in the current period. Net loss per share amounted to $0.74 basic and diluted for the year ended June 30, 2003, as compared to $1.07 basic and diluted for the year ended June 30, 2002. OUTLOOK The Company's business is highly dependant on sales to OEM press manufacturers, newspaper publishers and commercial printers. During the third quarter of the fiscal year ended June 30, 2002, Baldwin began to see signs of softening demand from its principal customers as the advertising industry, which is typically a leading indicator, had weakened. Baldwin had anticipated reduced demand for its products during the subsequent quarters, which adversely affected revenues and earnings over this period. In an effort to reduce operating costs, the Company entered into a new restructuring plan in August 2002, to reduce total employment worldwide by approximately 160. This restructuring plan allowed the Company to reduce operating costs to a level more commensurate with its revenue stream. However, as the industry continued to soften in the third and fourth quarters of the fiscal year ended June 30, 2003, the Company expanded its restructuring plan in the first quarter of the fiscal year ended June 30, 2004, to further reduce employment by approximately 15 in the 18 United States and 8 in the United Kingdom. Additionally, the Company closed its office in Dunstable, England, and is currently running its two separate business operations from its Poole, England location in an effort to reduce or eliminate certain costs as part of its global restructuring efforts. FISCAL YEAR ENDED JUNE 30, 2002 VERSUS FISCAL YEAR ENDED JUNE 30, 2001 CONSOLIDATED RESULTS NET SALES. Net sales for the fiscal year ended June 30, 2002 decreased by $33,217,000, or 19.2%, to $140,091,000 from $173,308,000 for the fiscal year ended June 30, 2001. Currency rate fluctuations attributable to the Company's overseas operations decreased net sales for the fiscal year ended June 30, 2002 by $5,890,000. Otherwise, net sales would have decreased by $27,327,000, of which $35,593,000 relates to the divestiture of the Company's former RHG, BSD and POD businesses. Excluding the divested businesses, and the effects of currency translation, net sales would have increased by $8,266,000 in the fiscal year ended June 30, 2002 over the fiscal year ended June 30, 2001. GROSS PROFIT. Gross profit for the fiscal year ended June 30, 2002 was $41,277,000 (29.5% of net sales), compared to $49,762,000 (28.7% of net sales) for the fiscal year ended June 30, 2001, a decrease of $8,485,000 or 17.1%. Gross profit was lower due primarily to the effects of dispositions from the prior fiscal year, which accounted for approximately $9,143,000, to increased warranty costs primarily on spray dampening equipment and continuing pricing pressures. Gross profit decreased by $1,996,000 as a result of fluctuations in currency rates. Excluding the divested businesses and the effects of currency translation, gross profit would have increased by $2,654,000 in the fiscal year ended June 30, 2002 over the fiscal year ended June 30, 2001. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses were $30,627,000 (21.9% of net sales) for the fiscal year ended June 30, 2002, compared to $37,337,000 (21.5% of net sales) for the prior fiscal year, a decrease of $6,710,000. Currency rate fluctuations decreased expenses for the fiscal year ended June 30, 2002 by $857,000 and the effect of net dispositions from the fiscal year ended June 30, 2001 reduced expenses by $4,189,000. Excluding the divested businesses and the effects of currency translation, selling expenses would have increased by $434,000 while general and administrative expenses would have decreased by $2,098,000. Selling expenses increased primarily as a result of higher trade show and advertising costs (including related travel costs), which more than offset reductions in staffing levels and decreases in sales commissions resulting from lower sales volumes. General and administrative expenses decreased primarily as a result of reductions in personnel due to the Company's restructuring efforts, reduced incentive and deferred compensation expenses resulting from the lower profitability of the Company and decreased goodwill amortization expense due to the adoption of SFAS 142. Goodwill amortization expense for the fiscal years ended June 30, 2002 and 2001 amounted to $0 and $973,000, respectively. These decreases were partially offset by an additional $439,000 bad debt charge related to a major OEM customer, additional compensation of $112,000 related to a loan to an officer of the Company, and increased consulting and subcontracting costs in the fiscal year ended June 30, 2002. ENGINEERING AND DEVELOPMENT EXPENSES. Engineering and development expenses for the fiscal year ended June 30, 2002 decreased by $1,684,000 over the fiscal year ended June 30, 2001. Fluctuations in currency rates decreased these expenses by $491,000; otherwise, these expenses would have decreased by $1,193,000. The decrease in these expenses relates primarily to the exclusion of costs associated with the divested RHG business and to the reduced engineering costs primarily in the United States attributed to reduced personnel costs associated with the planned restructuring, offset by increased research and development labor and project costs. 19 RESTRUCTURING AND OTHER CHARGES. Restructuring and other charges consist primarily of restructuring charges of $621,000 in the fiscal year ended June 30, 2002, while the fiscal year ended June 30, 2001 included restructuring charges of $2,277,000 and asset impairment charges of $15,518,000, primarily patents and goodwill associated with the divestiture of the RHG and POD businesses. The restructuring charges of $621,000 recorded during the fiscal year ended June 30, 2002 were expensed as incurred and included a credit adjustment of $541,000 recorded during the fourth quarter of the fiscal year ended June 30, 2002, relating to severance benefits as those costs were not expected to be paid under this restructuring plan. The $621,000 consists of $115,000 in additional employee severance and benefit costs, $15,000 in facility lease termination costs and $491,000 in incremental costs associated with the restructuring plan. INTEREST AND OTHER. Interest expense for the fiscal year ended June 30, 2002 decreased by $222,000 to $1,792,000, compared to $2,014,000 for the fiscal year ended June 30, 2001. Currency rate fluctuations decreased interest expense by $13,000 in the fiscal year ended June 30, 2002. The remainder of the decrease was due primarily to lower interest rates and lower long-term debt levels outstanding during the fiscal year ended June 30, 2002, primarily as a result of applying the proceeds from the RHG divestiture to reduce outstanding long-term debt. Interest income was $288,000 for each of the fiscal years ended June 30, 2002 and June 30, 2001. Currency rate fluctuations decreased interest income by $37,000 for the fiscal year ended June 30, 2002. Other income and expense, net, amounted to an expense of $1,037,000 for the fiscal year ended June 30, 2002 compared to income of $940,000 for the fiscal year ended June 30, 2001. These amounts include foreign currency transaction gains of $18,000 and $334,000 for the fiscal years ended June 30, 2002 and 2001, respectively. Currency rate fluctuations negatively impacted other income and expense by $7,000 for the fiscal year ended June 30, 2002. The ineffective portions of derivative financial instruments, which qualify as hedges pursuant to SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") amounted to losses of $45,000 and $29,000 for the fiscal years ended June 30, 2002 and 2001, respectively, while derivative financial instruments which do not qualify as hedges pursuant to SFAS 133 amounted to a loss of $413,000 and a gain of $345,000 respectively. Other income and expense also includes a $255,000 write-down of deferred financing costs in the fiscal year ended June 30, 2002, recorded as a result of the renegotiation of the Amended Credit Facility (as defined below under "Liquidity and Capital Resources") and a $250,000 pre-tax loss on the sale of the RHG. The fiscal year ended June 30, 2001 included a pre-tax gain of $1,213,000 related to a favorable settlement of a patent litigation suit and an $831,000 pre-tax loss on the sale of BSD. INCOME TAXES. The Company recorded an income tax provision of $6,684,000 for the fiscal year ended June 30, 2002 as compared to $698,000 for the fiscal year ended June 30, 2001. Certain items have significantly increased the Company's tax provision. Specifically, in the fiscal year ended June 30, 2002, foreign income taxed at rates higher than the U.S. statutory tax rate and the recording of a $6,210,000 valuation allowance primarily against certain of its domestic deferred tax assets resulted in additional tax charges. Currency rate fluctuations reduced the tax provision by $178,000 in the fiscal year ended June 30, 2002. LOSS FROM CONTINUING OPERATIONS. Loss from continuing operations for the fiscal year ended June 30, 2002 was $10,309,000 as compared to $19,618,000 for the fiscal year ended June 30, 2001, or $0.69 per share, basic and diluted, and $1.33 per share, basic and diluted, respectively. For the fiscal year ended June 30, 2002, currency rate fluctuations increased the net loss by $487,000 and net dispositions increased the net loss by $2,115,000. Additionally, the fiscal year ended June 30, 2002 includes a $6,210,000 charge related to increased valuation allowances for certain deferred tax assets. The net loss in the fiscal year ended June 30, 2001 includes asset impairment charges of $14,831,000 20 associated with the sale of the RHG and $687,000 associated with the disposition of the POD business. DISCONTINUED OPERATIONS. Loss from operations of discontinued operations for the year ended June 30, 2002 was $241,000 as compared to income of $1,446,000 for the year ended June 30, 2001 and relates to BKA. The increase in the loss is primarily the result of weak market conditions, which resulted in reduced revenues and gross profit margins, being slightly offset by decreased operating expenses in the fiscal year ended June 30, 2002. In the fourth quarter of the fiscal year ended June 30, 2002, the Company recorded an impairment charge of $5,434,000 related to the goodwill associated with BKA, as the recorded value of this goodwill exceeded the assessment of its fair value made by the Company. NET LOSS. The Company's net loss amounted to $15,984,000 for the year ended June 30, 2002, compared to $18,172,000 for the year ended June 30, 2001. Currency rate fluctuations increased the net loss by $487,000 in the fiscal year ended June 30, 2002. Net loss per share amounted to $1.07 basic and diluted for the year ended June 30, 2002, as compared to $1.23 basic and diluted for the year ended June 30, 2001. IMPACT OF INFLATION The Company's results are affected by the impact of inflation on manufacturing and operating costs. Historically, the Company has used selling price adjustments, cost containment programs and improved operating efficiencies to offset the otherwise negative impact of inflation on its operations. LIQUIDITY AND CAPITAL RESOURCES On August 18, 2003, the Company entered into a $20,000,000 Credit Agreement (the "Credit Agreement") with Maple Bank GmbH ("Maple" or "Lender"), which if not terminated by the Lender on August 15, 2004 or by the Company by payment in full, shall terminate in its entirety on August 15, 2005. The credit facility is collateralized by substantially all of the accounts and notes receivable of the Company and a portion of the Company's inventory up to a maximum amount of $5,000,000. Borrowings under the credit facility are subject to a borrowing base and bear interest at a rate equal to the three-month Eurodollar rate (as defined in the Credit Agreement) plus (i) 10% for loans denominated in U.S. Dollars or (ii) 11.5% for loans denominated in Euros. The interest rate will be reduced by 0.50% or whole increments thereof for each whole increment of Disclosed EBITDA (as defined in the Credit Agreement) that equals or exceeds $1,250,000 for any fiscal quarter commencing with the quarter ending December 31, 2003. In no event however, may the interest rate be less than 10.5% per annum. The initial borrowings under the credit facility amounted to $18,874,000, of which the Company utilized $16,243,000 to retire its previously existing debt and associated interest with Fleet National Bank and Wachovia Bank National Association and the remainder of the borrowings was utilized for closing costs and working capital purposes. The Credit Agreement does not require the Company to meet any financial covenants, except for the limitation on annual capital expenditures; however, it contains a material adverse effect clause, which provides that Maple would not be obligated to fund any loan, convert or continue any loan as a LIBOR loan or issue any new letters of credit in the event of a material adverse effect. Management does not anticipate that such an event will occur; however, there can be no assurance that such an event will not occur. Prior to this refinancing with Maple, and on October 31, 2000, the Company entered into a $35,000,000 revolving credit facility (the "Credit Facility") with Fleet National Bank and First Union National Bank (collectively the "Banks"), which had an original scheduled maturity date of October 31, 2003. The Credit Facility consisted of a $25,000,000 revolving credit line (the 21 "Revolver") and a $10,000,000 credit line to be utilized for acquisitions, (the "Acquisition Line"). On January 28, 2002, the Credit Facility was amended (the "Amended Credit Facility"), to among other things, remove the Acquisition Line, reduce the Revolver to $21,000,000 (subject to a borrowing base), and change the maturity date to October 1, 2002. In addition, $4,000,000 of the existing Revolver was converted into a term loan (the "Term Loan"), which matured on June 28, 2002, resulting in available borrowings under the Revolver from July 1, 2002 to October 1, 2002 of $17,000,000. The Amended Credit Facility required the Company to maintain certain financial covenants including minimum operating income covenants. The Revolver had associated commitment fees, which were calculated quarterly, at a rate of one-half of one percent per annum of the unused portion of the Revolver. Commitment fees for the fiscal years ended June 30, 2003, 2002 and 2001 were $4,000, $24,000 and $47,000, respectively. The Company has experienced operating and net losses, and debt covenant violations over the past three years. During the quarters ended March 31, 2002 and June 30, 2002, the Company did not meet its minimum operating income covenants contained in the Amended Credit Facility, and further the Company did not make the required $4,000,000 principal payment on the Term Loan on June 28, 2002. The Banks granted a forbearance of the collection of the indebtedness until October 1, 2002 and on October 30, 2002, the Company and the Banks entered into an amendment to further amend and extend the Amended Credit Facility and waive the covenant violations and Term Loan default (the "Extended Credit Facility"). The Extended Credit Facility, totaling $20,900,000, consisted of a $17,000,000 revolving credit line (the "Extended Revolver") and a $3,900,000 term loan each due July 1, 2003 (the "Extended Term Loan"). The Extended Credit Facility required the Company to utilize the net proceeds of $3,736,000 from the sale of certain assets of its wholly-owned subsidiary Baldwin Kansa Corporation ("BKA") (see Note 8) plus $464,000 from the Company's cash flows to reduce outstanding borrowings under the Extended Revolver by $4,200,000 before October 30, 2002, of which $2,700,000 permanently reduced the Extended Revolver and $1,036,000 became available for future borrowings, subject to a borrowing base calculation. Additionally, beginning in December 2002 and extending through June 2003, the Company was required to permanently reduce the Extended Revolver by making monthly principal payments of $125,000. The Company was also required to permanently reduce the Extended Revolver by $5,000,000 on December 30, 2002 and by $5,000,000 on March 30, 2003, but only if the Company generated non-operating alternative sources of financing. As the Company did not generate any alternative sources of financing since entering into the Extended Credit Facility on October 30, 2002, the Company was not required to make, and did not make, the $5,000,000 payment on December 30, 2002 or the $5,000,000 payment on March 30, 2003. Additionally, at September 30, 2002 and March 31, 2003, the Company was not in compliance with its debt covenants, and received waivers from the non-compliance. At June 30, 2003, the Company had outstanding borrowings of $16,112,000 under the Extended Revolver and Extended Term Loan and this entire outstanding balance has been classified as current as of June 30, 2003, which was entirely repaid from the proceeds of the refinancing with Maple on August 18, 2003. The ability of the Company to achieve and maintain profitability depends in part on management's successful execution of the restructuring plans discussed in Note 5 to the Consolidated Financial Statements and other business factors outside of the control of management. Management believes, although there can be no guarantee, that as the Company's profitability improves, alternative sources of financing will be available to finance the existing facilities at lower interest rates. The Company maintains relationships with both foreign and domestic banks, which combined have extended credit facilities totaling $21,469,000 at June 30, 2003, including amounts available under the Revolver. As of June 30, 2003, the Company had $19,413,000 outstanding under these credit facilities including $16,112,000 under the Revolver and Term Loan. Total debt levels as 22 reported on the balance sheet at June 30, 2003 are $427,000 higher than they would have been if June 30, 2002 exchange rates had been used. On April 27, 2001, the Company entered into an interest rate swap agreement with Fleet National Bank, which matures on October 30, 2003, to fix the LIBOR portion of its interest rate at 4.98% for a principal amount of $15,000,000 with the maturity the same as the Credit Facility. The effect of this interest rate swap added $525,000 and $383,000 to interest expense for the fiscal years ended June 30, 2003 and 2002, respectively and a pre-tax loss of zero and $63,000 ($54,000 after-tax) loss to Other Comprehensive Income ("OCI") at June 30, 2002, respectively. The Company's working capital decreased by $18,255,000 or 81.8% from $22,319,000 at June 30, 2002, to $4,064,000 at June 30, 2003. Foreign currency rate fluctuations increased working capital by $2,496,000; otherwise working capital would have decreased by $20,751,000. Working capital decreased primarily due to a portion of the long-term debt being reclassified to short-term, decreases in accounts and notes receivable, inventories and other prepaid expenses, and increases in notes payable, accrued compensation, accrued interest and income taxes payable. Offsetting these items were increases in cash and decreases in loans payable, customer deposits, and accrued expenses. On October 10, 2002, the Company divested its BKA business. The proceeds of $3,736,000 plus $464,000 from the Company's cash flows were utilized to reduce outstanding bank debt by $4,200,000. The Company provided $2,366,000 and $4,963,000 for investing activities for the fiscal year ended June 30, 2003, and 2002, respectively. The decrease in the cash provided by investing activities is primarily the result of greater proceeds from the sale of the RHG in the fiscal year ended June 30, 2002, than the proceeds from the sale of BKA in the fiscal year ended June 30, 2003. Net capital expenditures made to meet the normal business needs of the Company for the fiscal years ended June 30, 2003, and June 30, 2002, including commitments for capital lease payments, were $1,370,000 and $2,040,000, respectively. The Company has capital expenditures of approximately $500,000 planned for the fiscal year ending June 30, 2004. The net cash used by financing activities was $3,733,000 for the fiscal year ended June 30, 2003 as compared to $2,786,000 for the fiscal year ended June 30, 2002. The difference was primarily caused by higher net repayments of the Company's long-term and short-term debt and additional payments of debt financing costs in the current fiscal year. On September 10, 2001, one large OEM customer, Goss Graphic Systems, Inc. ("Goss") filed for bankruptcy protection under a prearranged Chapter 11 proceeding in the U.S. Bankruptcy Court. Goss's European and Asian subsidiaries were not included in this proceeding. The Company received timely payments, on a post petition basis, from the foreign subsidiaries of Goss, and continues to monitor the status of all Goss payments. At June 30, 2002, the Company's consolidated balance sheet included approximately $1,979,000 of trade receivables from Goss, of which approximately $1,029,000 relates to Goss's European and Asian subsidiaries, which are not included in the bankruptcy proceeding. The balance of $950,000 was fully reserved. As a result of this bankruptcy filing, the Company increased its bad debt reserve related to Goss by $439,000 and $536,000 during the fiscal years ended June 30, 2002 and 2001, respectively. The bad debt write-off in the fiscal year ended June 30, 2002 relates to sales made in the fiscal year ended June 30, 2002, prior to the bankruptcy filing. At June 30, 2003, the Company's consolidated balance sheet included approximately $1,687,000 of trade receivables from Goss, of which approximately $966,000 relates to Goss's European and Asian subsidiaries, which are not included in the bankruptcy proceeding. The balance of $721,000 is fully reserved. The reserve was decrease of $229,000 was the result of a write-off of an identical amount of domestic accounts receivable of the Company. 23 During March 2000, the Company initiated a restructuring plan (the "March 2000 Plan") that included the consolidation of production into certain facilities, and a reduction in total employment, primarily in the United States. The March 2000 Plan was expanded during the fourth quarter of the fiscal year ended June 30, 2001. The Company recorded restructuring charges in the amounts of $220,000 and $2,277,000 for the fiscal years ended June 30, 2003 and 2002, respectively related to the March 2000 Plan. The $220,000 relates primarily to additional exit costs, which were expensed as incurred. The March 2000 Plan reduced the Company's worldwide cost base and strengthened its competitive position as a leading global supplier of auxiliary equipment to the printing and publishing industry. Prior to initiating the March 2000 Plan, the Company was managed in a decentralized manner through geographically dispersed autonomous business units. Given that many of the Company's significant customers have reorganized on a global basis, management decided to restructure the Company along functional lines on a global basis. Rather than have sales, product development and production activities at each decentralized business unit, the restructuring plan included the centralization of these activities. Product lines that were previously being produced in the Emporia, Kansas, (USA); Shelton, Connecticut, (USA); Malmo, Sweden; Augsburg, Germany; and Lombard, Illinois (USA) facilities, were consolidated with the production facilities located in Augsburg, Germany; Emporia, Kansas (USA) and Malmo, Sweden. Roll handling products previously produced in the Rockford, Illinois (USA) facility were consolidated with similar products designed and manufactured in the Company's facilities in Shanghai, China and Amal, Sweden. These Roll Handling businesses were sold on September 26, 2001. The corporate headquarters was vacated and relocated to the Shelton, Connecticut (USA) facility in order to take advantage of the space created by the downsizing at that facility previously noted. The restructuring charge of $220,000 recorded during the fiscal year ended June 30, 2003 includes approximately $64,000 in employee severance and benefit costs, $149,000 in facility lease termination costs, and $7,000 in additional exit costs related to the March 2000 Plan, which were expensed as incurred. As of June 30, 2003, $660,000 is included in "Other accounts payable and accrued liabilities" and $791,000 is included in "Other long-term liabilities." The Company expects to incur approximately $50,000 (primarily insurance and property tax costs related to the leased facilities) in additional unaccrued restructuring costs related to the March 2000 Plan during the fiscal year ending June 30, 2004, which will be expensed as incurred. The estimated total cash cost of the March 2000 Plan is expected to be approximately $8,324,000, with approximately $660,000 expected to be spent during the fiscal year ending June 30, 2004 and approximately $971,000 (primarily facility lease costs) expected to be spent over the balance of the lease terms of approximately three years. The March 2000 Plan was expected to save the Company approximately $8,843,000 annually following full implementation; however, approximately $1,876,000 of this savings was related to the divested RHG, which due to the sale of RHG, will not be realized under the March 2000 Plan. In response to weak market conditions, in August 2002, the Company announced additional restructuring activities (the August 2002 Plan"), which reduced total worldwide employment by approximately 160. Accordingly, the Company recorded an additional restructuring charge of approximately $3,385,000 during the fiscal year ended June 30, 2003 related to the August 2002 Plan. These reductions are expected to reduce operating costs by approximately $7,500,000 annually after the August 2002 Plan is fully implemented, which is expected to occur by the end of December 2003. The Company expects that the severance costs will be paid through December 2003 and approximately $400,000 in lease termination costs will be paid through December 2004. In August 2003, the Company expanded the August 2002 Plan and announced additional employment reductions of 15 in the United States and 8 in the United Kingdom. In addition, the Company closed 24 one of its offices in the United Kingdom and is currently running its two separate business operations from one location in an effort to reduce certain redundancy costs. The additional costs associated with the expansion of the August 2002 Plan amounted to approximately $400,000, comprised of; $243,000 in severance costs, $130,000 in lease termination costs and $27,000 in other costs associated with this expansion, which will be expensed as incurred. The majority of these costs will be recognized in the first quarter of the fiscal year ended June 30, 2004. During the Company's fiscal year ended June 30, 2002, the German Tax Authority changed its position regarding the taxability of certain intercompany dividends. As a result, several companies, including Baldwin, were assessed additional tax on dividends paid from 1994 through 1996. At this point in time, the proposed assessment would result in a tax charge of approximately $2,570,000 and the elimination of previously reserved tax. However, based on precedent, the Company believes it will prevail in this matter and there will be no material financial impact as a result of the German Tax Authority's change in position. It is expected that the German Tax Authority will assess the Company during the second or third quarter of the fiscal year ended June 30, 2004. Under German tax law, an assessment is payable at the time it is assessed, however, a Company is permitted to request a deferral of the payment from the German Tax Authority through various alternatives. Management believes a deferral will be granted, however no assurances can be given that such deferral will be granted. The Company believes however, that its cash flow from operations, along with the available bank lines of credit and alternative sources of borrowing are sufficient to finance its working capital and other capital requirements over the term of the current financing with Maple. At June 30, 2003 and 2002, the Company did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, the Company is not exposed to any financing, liquidity, market or credit risk that could arise if the Company had engaged in such relationships. The following summarizes the Company's contractual obligations at June 30, 2003 and the effect such obligations are expected to have on its liquidity and cash flow in future periods (in thousands):
FISCAL YEARS ENDING JUNE 30, ------------------------------------------------------------------ 2009 AND TOTAL 2004 2005 2006 2007 2008 THEREAFTER ------- ------- ------ ------ ------ ------ ---------- Contractual Obligations: Loans payable......... $ 3,301 $ 3,301 $ 0 $ 0 $ 0 $ 0 $ 0 Capital lease obligations......... 262 69 74 74 16 16 13 Long-term debt........ 16,768 16,247 129 128 123 113 28 Non-cancelable operating lease obligations......... 14,252 4,117 3,659 3,132 1,590 929 825 ------- ------- ------ ------ ------ ------ ---- Total contractual cash obligations......... $34,583 $23,734 $3,862 $3,334 $1,729 $1,058 $866 ======= ======= ====== ====== ====== ====== ====
25 NEW ACCOUNTING STANDARDS See Note 2 to the Consolidated Financial Statements for information concerning new accounting standards. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company operates internationally and is exposed to certain market risks arising from transactions that in the normal course of business include fluctuations in interest rates and currency exchange rates. While the Company occasionally uses derivative financial instruments in order to manage or reduce these risks, typically currency futures contracts and interest rate swap agreements, the Company does not enter into derivative or other financial instruments for trading or speculative purposes. INTEREST RATE AND DEBT SENSITIVITY As of June 30, 2003, the Company had debt totaling $20,069,000, most of which bears interest at floating rates. The Company entered into an interest rate swap agreement on April 27, 2001, with a notional amount of $15,000,000 and a fixed rate of 4.98%. This interest rate swap matures on October 30, 2003. Interest rate swaps act as hedges of the underlying debt instruments to effectively change the characteristics of the interest rate without actually changing the debt instruments. As of June 30, 2003, the Company had recorded $197,000 in current liabilities; while gains of $200,000 and losses of $413,000 were recognized in other income in the fiscal years ended June 30, 2003 and 2002, respectively, associated with the changes in the fair value of this interest rate swap. The Company performed a sensitivity analysis as of June 30, 2003, assuming a hypothetical one percentage point increase in interest rates. Holding other variables constant (such as foreign exchange rates, swaps and debt levels), a one percentage point increase in interest rates would affect the Company's pre-tax income by approximately $200,000. However, actual increases or decreases in earnings in the future could differ materially from this analysis based on the timing and amount of both interest rate changes and amounts borrowed by the Company. CURRENCY EXCHANGE RATE SENSITIVITY The Company derived approximately 80% of its revenues from countries outside of the United States for the fiscal year ended June 30, 2003. Results were and continue to be affected by fluctuations in foreign currency exchange rates. The Company's policy is to hedge the impact of currency rate fluctuations, which could have a material impact on the Company's financial results. The Company utilizes foreign currency exchange forward contracts to hedge certain of these exposures. The Company also maintains certain levels of cash denominated in various currencies, which acts as a natural overall hedge. The Company adopted the FASB Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" as of July 1, 2000. As of June 30, 2003, the Company had recorded $5,000 in current liabilities and a loss of $4,000 in other comprehensive income; currency exchange losses of $4,000 and gains of $45,000 were recognized in other income in the fiscal years ended June 30, 2003 and 2002, respectively, associated with these currency exchange forward contracts. The Company performed a sensitivity analysis as of June 30, 2003 assuming a hypothetical 10% adverse change in foreign currency exchange rates. Holding all other variables constant, the analysis indicated that such a market movement would affect the Company's pre-tax income by approximately $150,000. However, actual gains and losses in the future could differ materially from this analysis based on the timing and amount of both foreign currency exchange rate movements and the Company's actual exposures and hedges. 26 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of Independent Auditors.............................. 28 Consolidated Balance Sheets at June 30, 2003 and June 30, 2002...................................................... 29 Consolidated Statements of Operations for the years ended June 30, 2003, June 30, 2002 and June 30, 2001............ 31 Consolidated Statements of Changes in Shareholders' Equity for the years ended June 30, 2003, June 30, 2002 and June 30, 2001.................................................. 32 Consolidated Statements of Cash Flows for the years ended June 30, 2003, June 30, 2002 and June 30, 2001............ 33 Notes to Consolidated Financial Statements.................. 34
27 REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Shareholders of BALDWIN TECHNOLOGY COMPANY, INC. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of changes in shareholders' equity and of cash flows present fairly, in all material respects, the financial position of Baldwin Technology Company, Inc. and its subsidiaries at June 30, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2003 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 2 to the consolidated financial statements, the Company adopted the provisions of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, effective July 1, 2001. PricewaterhouseCoopers LLP Stamford, Connecticut September 24, 2003 28 BALDWIN TECHNOLOGY COMPANY, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) ASSETS
JUNE 30, JUNE 30, 2003 2002 -------- -------- CURRENT ASSETS: Cash and cash equivalents............................... $ 6,950 $ 4,679 Accounts receivable trade, net of allowance for doubtful accounts of $2,286 ($1,994 at June 30, 2002)......... 22,102 27,262 Notes receivable, trade................................. 10,336 13,390 Inventories............................................. 22,769 24,928 Deferred taxes.......................................... 532 893 Prepaid expenses and other.............................. 4,611 6,581 ------- -------- Total current assets........................... 67,300 77,733 ------- -------- MARKETABLE SECURITIES: (Cost $505 at June 30, 2003 and $475 at June 30, 2002)................................................ 407 430 ------- -------- PROPERTY, PLANT AND EQUIPMENT, at cost: Land and buildings...................................... 914 2,669 Machinery and equipment................................. 2,896 5,526 Furniture and fixtures.................................. 3,461 3,716 Leasehold improvements.................................. 474 458 Capital leases.......................................... 255 428 ------- -------- 8,000 12,797 Less: Accumulated depreciation and amortization........... (2,978) (6,453) ------- -------- Net property, plant and equipment......................... 5,022 6,344 ------- -------- PATENTS, TRADEMARKS AND ENGINEERING DRAWINGS, at cost, less accumulated amortization of $3,824 ($3,432 at June 30, 2002)............................................... 2,137 2,061 GOODWILL, less accumulated amortization of $3,227 ($3,142 at June 30, 2002)....................................... 10,227 9,618 DEFERRED TAXES............................................ 7,453 6,277 OTHER ASSETS.............................................. 4,287 6,025 ------- -------- TOTAL ASSETS................................... $96,833 $108,488 ======= ========
The accompanying notes to consolidated financial statements are an integral part of these statements. 29 BALDWIN TECHNOLOGY COMPANY, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) LIABILITIES AND SHAREHOLDERS' EQUITY
JUNE 30, JUNE 30, 2003 2002 -------- -------- CURRENT LIABILITIES: Loans payable.......................................... $ 3,301 $ 5,372 Current portion of long-term debt...................... 16,247 5,416 Accounts payable, trade................................ 12,249 12,389 Notes payable, trade................................... 8,168 7,837 Accrued salaries, commissions, bonus and profit-sharing...................................... 4,196 3,432 Customer deposits...................................... 3,175 4,765 Accrued and withheld taxes............................. 2,102 1,719 Income taxes payable................................... 1,975 1,297 Other accounts payable and accrued liabilities......... 11,823 13,187 -------- -------- Total current liabilities..................... 63,236 55,414 -------- -------- LONG-TERM LIABILITIES: Long-term debt......................................... 521 11,873 Other long-term liabilities............................ 6,795 7,447 -------- -------- Total long-term liabilities................... 7,316 19,320 -------- -------- Total liabilities............................. 70,552 74,734 -------- -------- COMMITMENTS AND CONTINGENCIES............................ SHAREHOLDERS' EQUITY: Class A Common Stock, $.01 par, 45,000,000 shares authorized, 16,458,849 shares issued................ 165 165 Class B Common Stock, $.01 par, 4,500,000 shares authorized, 2,185,883 shares issued (4,500,000 at June 30, 2002)...................................... 21 21 Capital contributed in excess of par value............. 56,986 56,986 Retained (deficit) earnings............................ (19,653) (8,527) Accumulated other comprehensive income (loss).......... 1,411 (2,017) Less: Treasury stock, at cost: Class A -- 3,630,202 shares (3,630,202 at June 30, 2002) Class B -- zero shares (zero shares at June 30, 2002)............................................... (12,199) (12,199) Note receivable from key executive for Common Stock Issuance............................................ (450) (675) -------- -------- Total shareholders' equity.................... 26,281 33,754 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............... $ 96,833 $108,488 ======== ========
The accompanying notes to consolidated financial statements are an integral part of these statements. 30 BALDWIN TECHNOLOGY COMPANY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
For the years ended June 30, -------------------------------- 2003 2002 2001 -------- -------- -------- Net sales.......................................... $134,208 $140,091 $173,308 Cost of goods sold................................. 93,788 98,814 123,546 -------- -------- -------- Gross profit....................................... 40,420 41,277 49,762 -------- -------- -------- Operating expenses: General and administrative....................... 15,170 18,337 22,725 Selling.......................................... 11,783 12,290 14,612 Engineering and development...................... 16,148 15,451 17,135 Provision for loss on the disposition of pre-press operations.......................... (45) (86) (472) Restructuring charges............................ 3,605 621 2,277 Settlement charges............................... 1,250 0 0 Impairment charges............................... 0 0 15,518 -------- -------- -------- 47,911 46,613 71,795 -------- -------- -------- Operating loss..................................... (7,491) (5,336) (22,033) -------- -------- -------- Other (income) expense: Interest expense................................. 2,411 1,792 2,014 Interest (income)................................ (281) (288) (288) Royalty (income), net............................ (3,034) (4,252) (3,899) Other expense (income), net...................... 2,251 1,037 (940) -------- -------- -------- 1,347 (1,711) (3,113) -------- -------- -------- Loss from continuing operations before income taxes............................................ (8,838) (3,625) (18,920) -------- -------- -------- Provision (benefit) for income taxes: Domestic: Federal....................................... 500 3,592 (1,067) State......................................... 0 0 (447) Foreign.......................................... 2,078 3,092 2,212 -------- -------- -------- Total income tax provision.............. 2,578 6,684 698 -------- -------- -------- Loss from continuing operations.................... (11,416) (10,309) (19,618) Discontinued operations: (Loss) income from operations (net of applicable income taxes of $0)........................... (253) (241) 1,446 Impairment charge (net of applicable income taxes of $0)........................................ 0 (5,434) 0 Gain on sale (net of applicable income taxes of $0)........................................... 543 0 0 -------- -------- -------- Net loss........................................... $(11,126) $(15,984) $(18,172) ======== ======== ======== Net (loss) income per share -- basic and diluted Continuing operations............................ $ (0.76) $ (0.69) $ (1.33) Discontinued operations -- (loss) income from operations.................................... $ (0.02) $ (0.02) $ 0.10 Discontinued operations -- impairment charge..... $ (0.00) $ (0.36) $ 0.00 Discontinued operations -- gain on sale.......... $ 0.04 $ 0.00 $ 0.00 -------- -------- -------- Net loss per share -- basic and diluted............ $ (0.74) $ (1.07) $ (1.23) ======== ======== ======== Weighted average shares outstanding: Basic............................................ 15,015 14,915 14,787 ======== ======== ======== Diluted.......................................... 15,015 14,915 14,787 ======== ======== ========
The accompanying notes to consolidated financial statements are an integral part of these statements. 31 BALDWIN TECHNOLOGY COMPANY, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARES)
CLASS A CLASS B ACCUMULATED COMMON STOCK COMMON STOCK CAPITAL IN OTHER TREASURY STOCK ------------------- ------------------ EXCESS OF RETAINED COMPREHENSIVE --------------------- SHARES AMOUNT SHARES AMOUNT PAR VALUE EARNINGS LOSS SHARES AMOUNT ---------- ------ --------- ------ ---------- -------- ------------- ---------- -------- Balance at June 30, 2000................... 16,458,849 $165 2,000,000 $20 $57,496 $ 25,629 $ (357) (3,380,419) $(12,584) Year ended June 30, 2001: Net loss for the year................. (18,172) Translation adjustment........... (6,912) Effect of translation adjustment on RHG sale................. 961 Unrealized loss on available-for-sale securities, net of tax.................. (26) Comprehensive loss..... Shares received in connection with sale of business.......... (307,000) (610) Purchase of treasury stock................ (85,400) (150) ---------- ---- --------- --- ------- -------- ------- ---------- -------- Balance at June 30, 2001................... 16,458,849 165 2,000,000 20 57,496 7,457 (6,334) (3,772,819) (13,344) Year ended June 30, 2002: Net loss for the Year................. (15,984) Translation Adjustment........... 4,073 Unrealized loss on available-for sale securities, net of tax.................. (23) Unrealized gain on forward contracts.... 267 Comprehensive loss..... Issuance of Class B Common Stock to Key Executive............ 185,883 1 (510) 189,117 1,184 Purchase of treasury stock................ (46,500) (39) ---------- ---- --------- --- ------- -------- ------- ---------- -------- Balance at June 30, 2002................... 16,458,849 165 2,185,883 21 56,986 (8,527) (2,017) (3,630,202) (12,199) Year ended June 30, 2003: Net loss for the year................. (11,126) Translation adjustment........... 3,431 Unrealized loss on available-for sale securities, net of tax.................. (31) Unrealized gain on forward contracts.... 28 Comprehensive loss..... Reduction in note receivable in exchange for an equal reduction in deferred compensation payments to be made by the Company.............. ---------- ---- --------- --- ------- -------- ------- ---------- -------- Balance at June 30, 2003................... 16,458,849 $165 2,185,883 $21 $56,986 $(19,653) $ 1,411 (3,630,202) $(12,199) ========== ==== ========= === ======= ======== ======= ========== ======== NOTE RECEIVABLE FROM KEY EXECUTIVE FOR COMMON STOCK COMPREHENSIVE ISSUANCE INCOME (LOSS) --------------- ------------- Balance at June 30, 2000................... Year ended June 30, 2001: Net loss for the year................. $(18,172) Translation adjustment........... (6,912) Effect of translation adjustment on RHG sale................. 961 Unrealized loss on available-for-sale securities, net of tax.................. (26) -------- Comprehensive loss..... $(24,149) ======== Shares received in connection with sale of business.......... Purchase of treasury stock................ Balance at June 30, 2001................... Year ended June 30, 2002: Net loss for the Year................. $(15,984) Translation Adjustment........... 4,073 Unrealized loss on available-for sale securities, net of tax.................. (23) Unrealized gain on forward contracts.... 267 -------- Comprehensive loss..... $(11,667) ======== Issuance of Class B Common Stock to Key Executive............ $(675) Purchase of treasury stock................ ----- Balance at June 30, 2002................... (675) Year ended June 30, 2003: Net loss for the year................. $(11,126) Translation adjustment........... 3,431 Unrealized loss on available-for sale securities, net of tax.................. (31) Unrealized gain on forward contracts.... 28 -------- Comprehensive loss..... $ (7,698) ======== Reduction in note receivable in exchange for an equal reduction in deferred compensation payments to be made by the Company.............. (225) ----- Balance at June 30, 2003................... $(450) =====
The accompanying notes to consolidated financial statements are an integral part of these statements. 32 BALDWIN TECHNOLOGY COMPANY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE YEARS ENDED JUNE 30, ------------------------------ 2003 2002 2001 -------- -------- -------- Cash flows from operating activities: Net loss................................................. $(11,126) $(15,984) $(18,172) Adjustments to reconcile net loss to net cash provided (used) by operating activities: Depreciation and amortization......................... 1,931 1,860 3,301 Accrued retirement pay................................ 776 706 (182) Deferred taxes........................................ (774) 9,449 (868) Provision for losses on accounts receivable........... 657 1,107 1,066 Provision for loss on the disposition of pre-press operations......................................... 0 (86) (472) Impairment charges.................................... 0 5,434 15,518 Restructuring charges................................. 3,605 621 2,277 (Gain) loss from disposition of business.............. (543) 258 831 Write-off of deferred debt financing costs............ 446 255 0 Settlement charge..................................... 1,250 0 0 Changes in assets and liabilities, net of effects from dispositions: Accounts and notes receivable...................... 8,586 (1,078) (5,372) Inventories........................................ 1,932 2,766 (2,869) Prepaid expenses and other......................... 2,221 (538) (804) Other assets....................................... 1,327 548 (218) Customer deposits.................................. (1,699) (401) 642 Accrued compensation............................... (103) (1,791) (33) Payments of restructuring charges.................. (3,721) (4,053) (1,129) Accounts and notes payable, trade.................. (280) (993) 3,084 Income taxes payable............................... 765 (4,254) 1,486 Accrued and withheld taxes......................... 175 406 (259) Other accounts payable and accrued liabilities..... (2,431) 1,408 2,474 Interest payable................................... (266) (228) (95) -------- -------- -------- Net cash provided (used) by operating activities........... 2,728 (4,588) 206 -------- -------- -------- Cash flows from investing activities: Proceeds from the disposition of businesses, net......... 3,736 7,003 3,985 Additions of property.................................... (866) (1,683) (2,520) Additions of patents, trademarks and drawings............ (504) (357) (308) -------- -------- -------- Net cash provided by investing activities.................. 2,366 4,963 1,157 -------- -------- -------- Cash flows from financing activities: Long-term and short-term debt borrowings................. 4,434 8,895 46,894 Long-term and short-term debt repayments................. (7,453) (9,652) (46,756) Promissory note in connection with strategic financing alternatives.......................................... 412 0 0 Decrease in book overdraft............................... 0 (914) (1,315) Principal payments under capital lease obligations....... (49) (17) (3) Payment of debt financing costs.......................... (785) (228) Other long-term liabilities.............................. 120 (831) (687) Treasury stock purchased................................. 0 (39) (150) -------- -------- -------- Net cash used by financing activities...................... (3,321) (2,786) (2,017) -------- -------- -------- Effect of exchange rate changes............................ 498 514 (765) -------- -------- -------- Net increase (decrease) in cash and cash equivalents....... 2,271 (1,897) (1,419) Cash and cash equivalents at beginning of year............. 4,679 6,576 7,995 -------- -------- -------- Cash and cash equivalents at end of year................... $ 6,950 $ 4,679 $ 6,576 ======== ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest................................................. $ 2,145 $ 2,020 $ 1,919 Income taxes............................................. $ 1,941 $ 1,493 $ 1,830
The accompanying notes to consolidated financial statements are an integral part of these statements. 33 BALDWIN TECHNOLOGY COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- ORGANIZATION OF BUSINESS: Baldwin Technology Company, Inc. and its subsidiaries ("Baldwin" or the "Company") are engaged primarily in the development, manufacture and sale of accessories and controls for the printing and publishing industry. The Company has experienced operating losses and debt covenant violations over the past three fiscal years. As more fully discussed in the Notes to the Consolidated Financial Statements, the Company has embarked on restructuring plans (see Note 5) and undertaken other actions aimed at improving the Company's competitiveness, operating results and cash flow. These actions have included the sale of certain businesses (see Note 8), the consolidation of other operations and headcount reductions related to the consolidations and weak market conditions. As a result of these actions, combined with the refinancing of certain of the Company's debt obligations (see Note 11), management believes that the Company's cash flow from operations, along with available bank lines of credit and alternative sources of borrowings, if necessary, are sufficient to finance its working capital and other capital requirements over the term of the current financing (see Note 11). Management further believes that additional actions can be taken to reduce operating expenses or that assets can be sold to meet liquidity needs, if necessary. NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The following are the significant accounting policies followed by the Company: CONSOLIDATION. The consolidated financial statements include the accounts of Baldwin, its wholly owned subsidiaries, one 90% owned subsidiary and another 80% owned subsidiary. All significant intercompany transactions have been eliminated in consolidation. CASH AND CASH EQUIVALENTS. The Company considers all highly liquid instruments (cash and short-term securities) with original maturities of three months or less to be cash equivalents. TRANSLATION OF FOREIGN CURRENCIES. All assets and liabilities of foreign subsidiaries are translated into dollars at the fiscal year-end (current) exchange rates and components of revenue and expense are translated at average rates for the fiscal year. The resulting translation adjustments are included in shareholders' equity. Gains and losses on foreign currency exchange transactions are reflected in the statement of operations. Net transaction gains (losses) credited or charged to "Other expense (income), net" for the fiscal years ended June 30, 2003, 2002 and 2001 were $879,000, $18,000 and $334,000, respectively. HEDGING. The Company operates internationally and is exposed to certain market risks arising from transactions that in the normal course of business include fluctuations in interest rates and currency exchange rates. While the Company occasionally uses derivative financial instruments in order to manage or reduce these risks, typically currency futures contracts and interest rate swap agreements, the Company does not enter into derivative or other financial instruments for trading or speculative purposes. The Company's policy is to hedge the impact of currency rate fluctuations, which could have a material impact on the Company's financial results. The Company utilizes foreign currency exchange forward contracts to hedge these exposures. The Company also entered into an interest rate swap agreement to convert a portion of its variable rate debt into fixed rate debt in order to reduce exposure to the changes in interest rates. 34 BALDWIN TECHNOLOGY COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivate Instruments and Hedging Activities" ("SFAS 133"). The effective date of SFAS 133 was July 1, 2000 for the Company. SFAS 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive (loss), depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. Due to the Company's limited use of derivative instruments, the impact of adoption at July 1, 2000 was immaterial and is not expected to have a significant effect on the Company's results of operations in future periods. If a derivative is designated as a fair value hedge, the changes in the fair value of the derivative and the underlying hedged item attributable to the hedged risk are recognized in earnings. If the derivative is designated as a cash flow hedge, the effective portions of changes in fair value of the derivative are recorded in Other Comprehensive Income ("OCI") and are recognized in the statement of operations when the underlying hedged item affects earnings. Ineffectiveness related to cash flow hedges is recognized in earnings and is included in "Other expense (income), net". CONCENTRATION OF CREDIT RISK. Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of trade accounts and notes receivable. The Company controls this risk through credit approvals, customer limits and monitoring procedures. For the fiscal year ended June 30, 2003, one customer accounted for more than 10% of the Company's net sales. Koenig and Bauer Aktiengesellschaft ("KBA") accounted for approximately 13% of the Company's net sales. The Company's ten largest customers accounted for approximately 46%, 44% and 49% of the Company's net sales for each of the fiscal years ended June 30, 2003, 2002 and 2001, respectively. MARKETABLE SECURITIES. The Company classifies all of its marketable securities as available-for-sale securities. Available-for-sale securities are carried at fair value, with the unrealized gains and losses net of income taxes, reported as a component of other comprehensive income (loss) included within shareholders' equity. Cost is determined using the average cost method. INVENTORIES. Inventories are stated at the lower of cost or market. Cost is determined on the last-in, first-out (LIFO) method for domestic inventories and the first-in, first-out (FIFO) method for foreign inventories. If the FIFO method had been used for all inventories, the total stated amount for inventories would have been $505,000 and $635,000 greater as of June 30, 2003 and 2002, respectively. PROPERTY, PLANT AND EQUIPMENT. The Company depreciates its assets over their estimated useful lives. The estimated useful lives range from 27 to 30 years for buildings, 7 to 10 years for machinery and equipment, 3 to 7 years for furniture and fixtures, the life of the lease for leasehold improvements and 5 to 7 years for capital leases. Plant and equipment are carried at historical cost and are depreciated using primarily the straight-line method. Repair and maintenance expenditures are expensed as incurred. Depreciation expense amounted to $1,288,000, $1,423,000 and $1,659,000 for the fiscal years ended June 30, 2003, 2002 and 2001, respectively. LONG-LIVED ASSETS. Whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, the Company evaluates the basis of its long-lived assets 35 BALDWIN TECHNOLOGY COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) based on expectations of undiscounted cash flows related to those assets. Based on its most recent analysis, the Company believes that no impairment of its long-lived assets exists at June 30, 2003. In October 2001, Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS 144 provides guidance on the accounting for long-lived assets to be held and used and for assets to be disposed of through sale or other means. SFAS 144 also broadens the definition of what constitutes a discontinued operation and how such results are to be measured and presented. SFAS 144 was effective for fiscal years beginning after December 15, 2001. The adoption of SFAS 144 did not have a material impact on the earnings or financial position of the Company. GOODWILL AND OTHER INTANGIBLE ASSETS. Goodwill, representing the excess purchase price over the fair market value of net assets of companies acquired, had been amortized over a period not to exceed 40 years on a straight-line basis and had been reviewed for impairment in accordance with SFAS 121. Effective July 1, 2001, the Company adopted the provisions of SFAS No. 142, "Goodwill and Other Intangible Assets." As a result, the Company no longer amortizes goodwill. Instead, goodwill is tested for impairment at the reporting unit level at least annually, by determining the fair value utilizing discounted cash flows of the reporting unit and comparing the fair value with its recorded book value. A reporting unit is the lowest level of an entity that is a business and can be distinguished from other activities, operations, and assets of the entity. If, during the annual impairment review, the book value of the reporting unit exceeds the fair value, the implied fair value of the reporting unit's goodwill is compared with the carrying amount of the unit's goodwill. If the carrying amount exceeds the implied fair value, goodwill is written down to its implied fair value. SFAS No. 142 requires management to estimate the fair value of each reporting unit, as well as the fair value of the assets and liabilities of each reporting unit, other than goodwill. The implied fair value of goodwill is determined as the difference between the fair value of a reporting unit, taken as a whole, and the fair value of the assets and liabilities of such reporting unit. As required by SFAS No. 142, the Company conducted an initial impairment assessment as of the July 1, 2001 date of adoption and determined that no impairment existed. As discussed in Note 18, a goodwill impairment charge of $5,434,000 was recorded during the year ended June 30, 2002, subsequent to adoption of the standard, related to a reporting unit whose operating results and future prospects deteriorated during that fiscal year. Note 18 also discusses goodwill amortization expense for each period. The Company performed its annual impairment assessment by utilizing a discounted cash flow model and determined that no impairment existed as of June 30, 2003. Other intangible assets include patents, trademarks and engineering drawings, which are amortized on a straight-line basis over the estimated useful lives of the related assets, generally 15 to 20 years. Amortization expense amounted to $643,000, $437,000 and $669,000 for the fiscal years ended June 30, 2003, 2002 and 2001, respectively. INCOME TAXES. Deferred taxes are determined under the asset and liability approach. Deferred tax assets and liabilities are recognized on differences between the book and tax basis of assets and liabilities using presently enacted tax rates. Further, deferred tax assets are recognized for the expected benefits of available net operating loss carryforwards, capital loss carryforwards and foreign tax credit carryforwards. A valuation allowance is recorded to reduce a deferred tax asset to an amount, which the Company expects to realize in the future. The Company continually reviews the adequacy of the valuation allowance and recognizes these benefits only as reassessment indicates that it is more likely 36 BALDWIN TECHNOLOGY COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) than not that these benefits will be realized. In addition, the Company continuously evaluates its tax contingencies and recognizes a liability when it believes that it is probable that a liability exists. FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS. The Company's financial instruments consist of cash, short-term securities, accounts receivable, notes receivable, marketable securities, capital lease obligations, accounts payable, notes payable other short and long-term borrowings, and derivative financial instruments. The current carrying amount of these instruments approximates fair market value. DEFERRED LOAN ORIGINATION COSTS. At June 30, 2003, these costs were $953,000 less $743,000 of accumulated amortization ($1,427,000 less $786,000 of accumulated amortization at June 30, 2002) and were included in "Other Assets." WARRANTY. The Company's standard contractual warranty provisions are to repair or replace, at the Company's option, a product that is proven to be defective. The Company estimates its warranty costs as a percentage of revenues on a product-by-product basis, based on actual historical experience within the Company. Hence, the Company accrues estimated warranty costs at the time of sale and is included in "Cost of goods sold". In addition, should the Company become aware of a specific potential warranty claim, a specific charge is recorded and accounted for separately from the percent of revenue discussed above. The Company has accrued estimated future warranty and customer support obligations of $1,649,000 and $1,516,000 at June 30, 2003 and 2002 respectively, which are included in "Other accounts payable and accrued liabilities" (see Note 21). REVENUE RECOGNITION. The Company's products are sold with terms and conditions, which vary depending on particular cultural and business environments in which the Company operates globally. The standard policy of the Company is to recognize revenue in accordance with accounting principles generally accepted in the United States of America. The Company's standard payment terms for equipment include a deposit to be received with the customer order, progress payments until equipment is shipped and a portion of the balance due within a set number of days following shipment. Freight terms are FOB shipping dock with risk of loss passing to the purchaser at the time of shipment. Installation services are provided to the customer on an as needed basis and are contracted for separately. If non-standard terms are negotiated, the impact of the terms of shipment and contractual installation requirements are determined on an individual contract basis. In the case of non-standard terms, revenue is not recognized until, at a minimum, title and risk of loss have passed to the customer, and the customer is obligated to pay. If a loss should occur in transit, the Company is not responsible for, and does not administer insurance claims unless the terms are FOB destination. The customer is not contractually eligible for any refund of the purchase price, or right of return of the contracted product, except if the product fails to meet published product specifications and the Company fails to perform its obligations under product warranty terms. When installation services are a contractual element, and included in the purchase price of the product, the revenue associated with installing the product is generally inconsequential to the total revenue stream. The Company recognizes revenue for the total sales price and accrues the cost of installing the product based on the Company's historical installation costs. The terms of sale are generally on a purchase order basis and as such do not contain formal product acceptance clauses. On certain large orders, usually in the newspaper equipment market, a separately negotiated contract is used to establish the terms of sale. In such cases, the Company recognizes revenue only after all acceptance criteria, if any, have been satisfied. 37 BALDWIN TECHNOLOGY COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Company uses distributors to assist in the sales function. In these cases, the Company does not recognize revenue until title for the equipment and risk of loss has passed to the ultimate customer, who then becomes obligated to pay with no right of return. Otherwise, the equipment is reported as a part of the Company's inventory on consignment and no revenue is reported. RESEARCH AND DEVELOPMENT AND ENGINEERING. Research, development and engineering costs are expensed as incurred. NET INCOME (LOSS) PER SHARE. Basic earnings per share includes no dilution and is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities that could share in the earnings of an entity. The weighted average shares outstanding used to compute diluted income (loss) per share includes 0 (zero) shares for each of the fiscal years ended June 30, 2003, 2002 and 2001, respectively, which represent potentially dilutive securities. Outstanding options to purchase 1,285,000 shares, 1,514,000 shares and 1,361,000 shares of the Company's stock, respectively, for the fiscal years ended June 30, 2003, 2002 and 2001 are not included in the above calculation to compute diluted income (loss) per share as they have an anti-dilutive effect. COMPREHENSIVE INCOME (LOSS). As shown in the Statement of Changes in Shareholders' Equity, comprehensive income (loss) is a measure of net income (loss) and all other changes in equity of the Company that result from recognized transactions and other events of the period other than transactions with shareholders. USE OF ESTIMATES. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant assumptions and estimates relate to the determination of accrued expenses including warranty, accounts receivable and inventory valuations, useful lives of assets and deferred tax asset valuations. Actual results could differ from those estimates. ROYALTY INCOME. The Company owns and licenses a number of patents and patent applications relating to Baldwin's products, some of which provide royalty income to the Company. Patented products represent a significant portion of the Company's net sales for all periods presented. The Company's patents expire at different times during the next twenty years; however, one group of patents, which provide for the majority of the Company's current royalty income, are scheduled to expire in February 2005. The expiration of patents in the near future in general, is not expected to have a material adverse effect on the Company's net sales; however, royalty income and cash flows, are expected to be negatively impacted upon the expiration of this group of patents. The Company has also relied upon and intends to continue to rely upon unpatented proprietary technology, including the proprietary engineering required to adapt its products to a wide range of models and sizes of printing presses. The Company believes its rights under, and interests in, its patents and patent applications, as well as its proprietary technology, are sufficient for its business as currently conducted. RECENTLY ISSUED ACCOUNTING STANDARDS. In May 2003, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 150 ("SFAS 150"), "Accounting for Certain Financial Instruments with Characteristics of both Liability and Equity." 38 BALDWIN TECHNOLOGY COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SFAS 150 improves the accounting for certain financial instruments that, under previous guidance, issuers could account for as equity and requires that those instruments be classified as liabilities (or assets in certain circumstances) in statements of financial position. SFAS 150 affects the issuer's accounting for certain types of freestanding financial instruments and also requires disclosure about alternative ways of settling the instruments and the capital structure of entities -- all of whose shares are mandatorily redeemable. SFAS 150 is generally effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective as of July 1, 2003 for the Company. SFAS 150 is not expected to have a material impact on the Company's current capital structure, but may in the future should the Company enter into transactions with certain types of freestanding financial instruments. In April 2003, the FASB issued SFAS No. 149 ("SFAS 149"), "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS 149 amends and clarifies (1) the accounting guidance on derivative instruments (including certain derivative instruments embedded in other contracts) and (2) hedging activities that fall within the scope of FASB Statement No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities." SFAS 149 amends SFAS 133 to reflect decisions made (1) as part of the Derivatives Implementation Group ("DIG") process that effectively required amendments to SFAS 133, (2) in connection with other projects dealing with financial instruments, and (3) regarding implementation issues related to the application of the definition of a derivative. SFAS 149 is effective (1) for contracts entered into or modified after June 30, 2003, with certain exceptions, and (2) for hedging relationships designated after June 30, 2003. The guidance is to be applied prospectively. Generally, SFAS 149 improves financial reporting by (1) requiring that contracts with comparable characteristics be accounted for similarly and (2) clarifying when a derivative contains a financing component that warrants special reporting in the statement of cash flows. SFAS 149 is not expected to have a material impact on the Company's operations, cash flows or financial position. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation -- Transition and Disclosure, an amendment of FASB Statement No. 123" ("SFAS 148"). SFAS 148 amends FASB Statement No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123"), to provide alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation prescribed by SFAS 123. SFAS 148 also amends the disclosure provisions of SFAS 123 to require prominent disclosure in both annual and interim financial statements about the effects on reported net income of an entity's accounting policy decisions with respect to stock-based employee compensation. The amendment relating to the additional disclosure requirements in the interim financial statements are effective for interim periods beginning after December 14, 2002. SFAS 148 is not expected to have a material impact on the operations or cash flows of the Company. However, additional disclosures have been incorporated into the Company's interim consolidated financial statements beginning with the quarter ended March 31, 2003. 39 BALDWIN TECHNOLOGY COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The pro forma net loss and loss per share information have been determined for employee stock plans under the fair value method using the Black-Scholes option-pricing model at the date of grant. The following table illustrates the effect on net loss and loss per share if the Company had applied the fair value recognition provisions of SFAS 123 for the years ended June 30, 2003, 2002 and 2001 (in thousands):
FOR THE YEARS ENDED JUNE 30, ------------------------------------------ 2003 2002 2001 ------------ ------------ ------------ Net loss as reported.................... $(11,126,000) $(15,984,000) $(18,172,000) Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects.... $ (162,000) $ (288,000) $ (372,000) Pro forma net loss...................... $(11,288,000) $(16,272,000) $(18,544,000) Loss per share as reported (basic and diluted).............................. $ (0.74) $ (1.07) $ (1.23) Pro forma loss per share (basic and diluted).............................. $ (0.75) $ (1.09) $ (1.25)
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured, initially at fair value, only when the liability is incurred; therefore, nullifying Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)" ("EITF 94-3") that required a liability for an exit cost to be recognized at the date of an entity's commitment to an exit plan. The adoption of SFAS 146 is expected to result in delayed recognition for certain types of costs as compared to the provisions of EITF 94-3, especially for facility closure costs. The provisions of SFAS 146 are effective for exit or disposal activities that are initiated after December 31, 2002. Since SFAS 146 is effective only for new exit or disposal activities, the adoption of this standard will not affect amounts currently reported in the Company's consolidated financial statements. However, the adoption of SFAS 146 could affect the types and timing of costs included in future business consolidation and restructuring programs. The Company has expanded its August 2002 restructuring plan as more fully described in Note 5, and as such has expensed certain costs as incurred in the fiscal year ending June 30, 2004, rather than to accrue the costs of this enhancement into the fiscal year ended June 30, 2003 as would have been the previous treatment under EITF 94-3. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 provides new guidance on the recognition of impairment losses on long-lived assets, excluding goodwill, to be held and used or to be disposed of and also broadens the definition of what constitutes a discontinued operation and how the results of a discontinued operation are to be measured and presented. SFAS 144 also requires long-lived assets that are to be abandoned, be treated as held for use and depreciated over their remaining expected lives and broadens the presentation of discontinued operations in the statement of operations to a component of an entity rather than a segment of a business. SFAS 144 was effective for the Company beginning July 1, 2002 and has not materially changed the methods used by the Company to measure impairment losses on long-lived assets, but as a result of the adoption of SFAS 144, BKA has been included as a discontinued operation in the consolidated statements of operations for the year ended 40 BALDWIN TECHNOLOGY COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 2003 and the corresponding amounts relating to BKA for all prior periods presented have been reclassified to conform to this presentation. In November 2002, the FASB issued Interpretation No. 45 "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, (an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB interpretation No. 34)" ("FIN 45"). FIN 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. FIN 45 also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements of FIN 45 were effective for interim and annual financial statements for periods ending after December 15, 2002. The initial recognition and initial measurement provisions did not have a material impact on the operations or cash flows of the Company. See Note 21 regarding additional disclosures about the Company's warranty costs. In January 2003, the FASB issued Interpretation No. 46 "Consolidation of Variable Interest Entities" ("FIN 46"). FIN 46 requires that if an entity is the primary beneficiary of a variable interest entity, the assets, liabilities, and results of operations of the variable interest entity should be included in the Consolidated Financial Statements of the entity. The provisions of FIN 46 are effective immediately for all arrangements entered into after January 31, 2003. For those arrangements entered into prior to January 31, 2003, the provisions of FIN 46 are required to be adopted at the beginning of the first interim or annual period beginning after December 15, 2003. The initial recognition and measurement provisions of FIN 46 are not expected to have a material impact on the financial position or results of operation of the Company. RECLASSIFICATIONS. Certain prior year items have been reclassified to conform to the current year's presentation. NOTE 3 -- ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS): Accumulated Other Comprehensive Income (Loss) ("OCI") is comprised of various items, which affect equity that result from recognized transactions and other economic events other than transactions with owners in their capacity as owners. Accumulated other comprehensive income (loss) consists of the following:
JUNE 30, JUNE 30, 2003 2002 ---------- ----------- Cumulative translation adjustment....................... $1,472,000 $(1,959,000) Unrealized loss on investments, net of deferred Taxes of $41,000 ($19,000 at June 30, 2001).................... (57,000) (26,000) Unrealized loss on forward contracts.................... (4,000) (32,000) ---------- ----------- $1,411,000 $(2,017,000) ========== ===========
41 BALDWIN TECHNOLOGY COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 4 -- PROVISION FOR LOSS ON THE DISPOSITION OF PRE-PRESS OPERATIONS: In June 1997, the Company sold all of the outstanding shares of its former Pre-Press Operations ("PPO") to Kaber Imaging, Inc. ("Kaber" or "Buyer"). The Company recorded a loss on this disposition in the amount of $42,407,000 in the fiscal year ended June 30, 1997. When the Company acquired the PPO in July 1991, the Company assumed the existing guarantees that were being provided by the previous owner. The guarantees consisted of two parts: 1.) a guarantee to Forsakring Pensiongaranti ("FPG"), a Swedish pension obligation surety bond firm, in the form of a guarantee bond covering the quasi Swedish government retirement plan, and 2.) a direct guarantee to a group of individual employees who were members of a separate plan. The assumption of the pension obligations was unconditional. The Company's initial purchase of the PPO in June 1992, included a liability for an unfunded pension obligation of approximately $4,309,000. This obligation was adjusted annually in accordance with SFAS No. 87, "Employer's Accounting for Pensions," until the PPO was sold in June 1997. The purchase and sale agreement for the sale of the PPO to Kaber in June 1997, included provisions for the Buyer to assume all pension liabilities related to the PPO, to use their best efforts to gain the release of the Company from the guarantees and to reimburse the Company for any and all costs incurred by the Company associated with the guarantees. The provisions and liabilities for both the plan covered by the FPG surety bond and the group plan for the individual retirees were assumed by the Buyer and resulted in no curtailment of either plan. At the time that the PPO was sold to Kaber, management conducted due diligence of Kaber and their financial backers and believed that they had the financial ability to satisfy these guarantees. Subsequent to the sale of the PPO, Kaber and their related domestic subsidiaries filed for protection in the United States under Chapter 11 of the bankruptcy code in February 1999 which caused similar filings in Kaber's foreign subsidiaries including Sweden. During the period of July 1997 through February 1999, Kaber failed to gain the release of the Company from the guarantees which remained in place. In March 1999, the Company was contacted by FPG, the surety bondholder, to fulfill the Company's guarantee of the pension obligation. Neither Kaber, nor their Swedish subsidiaries, which were in liquidation, possessed the financial capability to fulfill its obligation. Based on the demands from FPG, and representatives of the members of the separate plan and Kaber's bankruptcy, the Company recognized a liability for the estimated amount of these obligations in its financial results by establishing a reserve of $2,400,000 in the third quarter of the fiscal year ended June 30, 1999. The Company made payments to FPG in the amount of $1,567,000 during the fiscal year ended June 30, 2000. The Company further reduced the reserve by $472,000 to $361,000, during fiscal 2001, the estimated liability at June 30, 2001 based upon then current negotiations with remaining former employees. The Company paid $275,000 during March 2002 as full settlement of this obligation and further reduced the remaining balance of $86,000 to zero at March 31, 2002. In June 2003, the Company received a distribution of $45,000 from the escrow agent. The Company may in the future receive additional distributions either from the sale of certain assets, or from settlements of the litigation, although amounts are not anticipated to be material and the prospects of collection seem remote at the present time. 42 BALDWIN TECHNOLOGY COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 5 -- RESTRUCTURING CHARGES AND RELATED RESERVES: During March 2000, the Company initiated a restructuring plan (the "March 2000 Plan") that included the consolidation of production into certain facilities, and reduction in total employment, primarily in the United States. The March 2000 Plan was expanded during the fourth quarter of the fiscal year ended June 30, 2001. Accordingly, the Company recorded restructuring charges in the amounts of $220,000, $621,000 and $2,277,000 for the fiscal years ended June 30, 2003, 2002 and 2001, respectively related to the March 2000 Plan. The $220,000 relates primarily to additional exit costs, which were expensed as incurred. The initial restructuring charge of $5,664,000 included $509,000 related to asset impairments of property, equipment and certain intangible assets. The March 2000 Plan reduced the Company's worldwide cost base and strengthen its competitive position as a leading global supplier of auxiliary equipment to the printing and publishing industry. Prior to initiating the March 2000 Plan, the Company was managed in a decentralized manner through geographically dispersed autonomous business units. Given that many of the Company's significant customers have been reorganizing on a global basis, management decided to restructure the Company along functional lines on a global basis. Rather than have sales, product development and production activities at each decentralized business unit, the March 2000 Plan included the centralization of these activities. Products that were previously being produced at multiple facilities were consolidated with similar product lines at existing facilities. The following tables detail the components of the restructuring charges and the remaining reserve balances as of June 30, 2003 and 2002 related to the March 2000 Plan. Activity related to the March 2000 Plan in the fiscal year ended June 30, 2002 was as follows:
REMAINING ADDITIONAL CHARGES REMAINING RESERVE RESTRUCTURING AGAINST RESERVE JUNE 30, 2001 CHARGES RESERVES JUNE 30, 2002 ------------- ------------- -------- ------------- (IN THOUSANDS) Severance................... $3,489 $115 $(3,047) $ 557 Facility lease termination costs..................... 2,178 15 (515) 1,678 Other costs................. 0 491 (491) 0 ------ ---- ------- ------ Total program............... $5,667 $621 $(4,053) $2,235 ====== ==== ======= ======
Activity related to the March 2000 Plan in the fiscal year ended June 30, 2003 was as follows:
REMAINING ADDITIONAL CHARGES REMAINING RESERVE RESTRUCTURING AGAINST RECLASSIFICATION RESERVE JUNE 30, 2002 CHARGES RESERVE ADJUSTMENT JUNE 30, 2003 ------------- ------------- ------- ---------------- ------------- Severance............ $ 557 $ 36 $ (243) $(295) $ 55 Facility lease termination costs.............. 1,678 178 (755) 295 1,396 Other costs.......... 0 6 (6) 0 0 ------ ---- ------- ----- ------ Total program........ $2,235 $220 $(1,004) $ 0 $1,451 ====== ==== ======= ===== ======
Severance costs will be paid through October 2003, the majority of which is expected to be paid in the first quarter of fiscal 2004. Facility lease termination costs will be paid through April 2006. As 43 BALDWIN TECHNOLOGY COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) of June 30, 2003, $660,000 is included in "Other accounts payable and accrued liabilities" and $791,000 is included in "Other long-term liabilities" which are discussed below. In June 2003, the Company revised its estimate of severance costs to be paid, and as a result reclassified approximately $295,000 from the severance portion of the liability to the facility lease termination portion of the liability in order to account for the inability of the Company to sublease its facility in Shelton, Connecticut at acceptable terms as initially contemplated in the Company's March 2000 Plan. In response to weak market conditions, in August 2002, the Company announced additional restructuring activities (the "August 2002 Plan"), which reduced total worldwide employment by approximately 160. Accordingly, the Company recorded an initial restructuring charge of approximately $3,385,000 in August 2002 and additional restructuring charges of $144,000 during the balance of the fiscal year ended June 30, 2003 related to the August 2002 Plan. The Company expects that the severance costs will be paid through December 2003 and approximately $400,000 in lease termination costs will be paid through December 2006. The following table details the components of the restructuring charges and the remaining reserve balances as of June 30, 2003 and 2002 related to the August 2002 Plan. Activity related to the August 2002 Plan in the fiscal year ended June 30, 2003 was as follows:
ADDITIONAL CHARGES REMAINING INITIAL RESTRUCTURING AGAINST RESERVE RESERVE CHARGES RESERVE JUNE 30, 2003 ------- ------------- ------- ------------- (IN THOUSANDS) Severance......................... $2,757 $ 36 $(2,535) $258 Facility lease termination costs........................... 437 (92) 345 Asset impairment.................. 20 (20) 0 Other costs....................... 47 88 (88) 47 ------ ---- ------- ---- Total program..................... $3,241 $144 $(2,735) $650 ====== ==== ======= ====
Severance costs will be paid through December 2003, the majority of which is expected to be paid in the first quarter of fiscal 2004. Lease termination costs will be paid through October 2006, the end of the lease term. As of June 30, 2003, $493,000 is included in "Other accounts payable and accrued liabilities" and $157,000 is included in "Other long-term liabilities. In August 2003, the Company expanded the August 2002 Plan and announced additional employment reductions of 15 in the United States and 8 in the United Kingdom. In addition, the Company closed its office in Dunstable, England and is currently running its two separate business operations from its Poole, England location in an effort to reduce or eliminate certain costs as pert of its global restructuring efforts. The additional costs associated with the expansion of the August 2002 Plan amounted to approximately $400,000, comprised of; $243,000 in severance costs, $130,000 in lease termination costs and $27,000 in other costs, which will be expensed as incurred. The majority of these costs will be recognized in the first quarter of the fiscal year ended June 30, 2004. Management believes that the nature and scope of these restructuring activities will be sufficient to restore the Company's profitability and cash flow from operations. 44 BALDWIN TECHNOLOGY COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 6 -- BUSINESS SEGMENT INFORMATION: Operating segments are defined as material components of an enterprise about which separate information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and assess performance. On September 27, 2000, the Company sold substantially all of the assets of BSD and on September 26, 2001 the Company sold substantially all of the assets of the RHG. Together, BSD and the RHG accounted for approximately 91% of net sales and 113% of the operating loss of the Material Handling Group ("MHG") for the fiscal year ended June 30, 2001. The Company also completed the sale of the POD business in November 2001. As a result of the divestitures of these businesses, the Company has realigned its segment structure into one segment, the Accessories and Controls segment. The accounting policies of the operating segments are the same as those described in the Summary of Significant Accounting Policies in Note 2. An operating segment's performance is primarily evaluated based on operating profit. Sales by major country are determined based on the country in which the subsidiary is legally domiciled. Long-lived assets are principally comprised of net property, plant and equipment, patents and trademarks, goodwill, and certain other assets. The tables below present information about reported segments for the years ended June 30, 2003, 2002, and 2001 (in thousands). All prior periods have been restated to conform to the current period's presentation.
FOR THE YEARS ENDED JUNE 30, ------------------------------ 2003 2002 2001 NET SALES: -------- -------- -------- Accessories and Controls.................................. $134,208 $135,309 $132,933 Divested Operations....................................... 0 4,782 40,375 -------- -------- -------- Total Net Sales.................................. $134,208 $140,091 $173,308 ======== ======== ========
FOR THE YEARS ENDED JUNE 30, ------------------------------ 2003 2002 2001 OPERATING (LOSS) INCOME: (A) -------- -------- -------- Accessories and Controls.................................. $ 1,284 $ 4,402 $ 2,540 Corporate................................................. (8,656) (8,941) (10,186) Divested Operations....................................... (164) (883) (14,859) Provision for loss on disposal of pre-press operations.... 45 86 472 -------- -------- -------- Total operating loss from continuing operations............. (7,491) (5,336) (22,033) Interest expense, net....................................... (2,130) (1,504) (1,726) Royalty income, net......................................... 3,034 4,252 3,899 Other (expense) income, net (b)............................. (2,251) (1,037) 940 -------- -------- -------- Loss from continuing operations before income taxes......................................... $ (8,838) $ (3,625) $(18,920) ======== ======== ========
45 BALDWIN TECHNOLOGY COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) - --------------------- (a) Operating loss reported for the segments has been reduced by the following special charges:
FOR THE YEARS ENDED JUNE 30, ----------------------------- 2003 2002 2001 RESTRUCTURING CHARGES: -------- ------ --------- Accessories and Controls.................................. $2,597 $423 $ 1,933 Corporate................................................. 844 181 44 Divested Operations....................................... 164 17 300 ------ ---- ------- Total restructuring charges...................... $3,605 $621 $ 2,277 ====== ==== =======
FOR THE YEARS ENDED JUNE 30, ----------------------------- 2003 2002 2001 IMPAIRMENT CHARGES: -------- ------ --------- Accessories and Controls.................................. $ 0 $ 0 $ 0 Divested Operations....................................... 0 0 15,518 ------ ---- ------- Total asset impairment charges................... $ 0 $ 0 $15,518 ====== ==== =======
FOR THE YEARS ENDED JUNE 30, ----------------------------- 2003 2002 2001 SETTLEMENT CHARGE: -------- ------ --------- Accessories and Controls.................................. $1,250 $ 0 $ 0 Divested Operations....................................... 0 0 0 ------ ---- ------- Total settlement charge.......................... $1,250 $ 0 $ 0 ====== ==== =======
FOR THE YEARS ENDED JUNE 30, ----------------------------- 2003 2002 2001 BAD DEBT CHARGE RELATED TO ONE MAJOR OEM CUSTOMER: -------- ------ --------- Accessories and Controls.................................. $ 0 $ 0 $ 60 Divested Operations....................................... 0 439 476 ------ ---- ------- Total bad debt charge............................ $ 0 $439 $ 536 ====== ==== =======
Two customers, principally of the RHG, accounted for approximately 23% of the Company's net sales for the fiscal year ended June 30, 2001. One of these customers, Goss Graphic Systems, Inc. ("Goss"), which accounted for approximately 11% of the Company's net sales for the fiscal year ended June 30, 2001, filed for bankruptcy protection under a prearranged Chapter 11 proceeding in the United States bankruptcy court, for which the Company recognized bad debt charges of $439,000 and $536,000 for the fiscal years ended June 30, 2002 and 2001, respectively. There were no sales to this customer in the fiscal year ended June 30, 2003. (b) Other expense, net, of $2,251,000 in the fiscal year ended June 30, 2003 consists primarily of a charge of $1,374,000 associated with the Company refinancing and strategic alternative efforts, a $211,000 loss on the sale of the RHG and currency transaction losses of $879,000. Offsetting these charges is a gain of $200,000 associated with an interest rate swap. Other expense, net, of $1,037,000 in the fiscal year ended June 30, 2002 consists primarily of a loss of $413,000 associated with an interest rate swap, $255,000 of expenses relating to deferred financing costs and a $250,000 loss on the sale of the RHG. Other income, net, of $940,000 in the fiscal year ended June 30, 2001 consists primarily of a pre-tax gain of $1,213,000 related to a favorable settlement of a patent litigation suit, a $345,000 pre-tax gain on a derivative financial instrument that did not qualify as a hedge pursuant to SFAS 133, and an $831,000 pre-tax loss on the sale of BSD. 46 BALDWIN TECHNOLOGY COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AT JUNE 30, ------------------------------ 2003 2002 2001 IDENTIFIABLE ASSETS: -------- -------- -------- Accessories and Controls.................................. $ 85,555 $ 94,079 $ 99,069 Corporate................................................. 11,269 14,016 24,466 Divested Operations....................................... 9 393 10,355 -------- -------- -------- Total identifiable assets........................ $ 96,833 $108,488 $133,890 ======== ======== ========
FOR THE YEARS ENDED JUNE 30, ------------------------------ 2003 2002 2001 CAPITAL EXPENDITURES: -------- -------- -------- Accessories and Controls.................................. $ 1,358 $ 1,877 $ 1,832 Corporate................................................. 12 20 383 Divested Operations....................................... 143 613 -------- -------- -------- Total capital expenditures....................... $ 1,370 $ 2,040 $ 2,828 ======== ======== ========
FOR THE YEARS ENDED JUNE 30, ------------------------------ 2003 2002 2001 DEPRECIATION AND AMORTIZATION: -------- -------- -------- Accessories and Controls.................................. $ 1,719 $ 1,502 $ 2,178 Corporate................................................. 212 302 265 Divested Operations....................................... 56 858 -------- -------- -------- Total depreciation and amortization.............. $ 1,931 $ 1,860 $ 3,301 ======== ======== ========
FOR THE YEARS ENDED JUNE 30, ------------------------------ 2003 2002 2001 GEOGRAPHIC INFORMATION: -------- -------- -------- Sales by major country: United States............................................. $ 27,209 $ 29,333 $ 52,422 Japan..................................................... 48,011 48,646 50,639 Germany................................................... 32,866 27,527 28,639 Sweden.................................................... 9,265 20,551 25,905 All other -- foreign...................................... 16,857 14,034 15,703 -------- -------- -------- Total sales by major country..................... $134,208 $140,091 $173,308 ======== ======== ========
AT JUNE 30, ------------------------------ 2003 2002 2001 LONG-LIVED ASSETS BY MAJOR COUNTRY: -------- -------- -------- United States............................................. $ 3,947 $ 5,472 $ 10,762 Japan..................................................... 5,123 5,176 4,596 Germany................................................... 4,099 3,425 2,980 Sweden.................................................... 2,875 2,784 1,865 All other -- foreign...................................... 2,179 2,081 2,089 -------- -------- -------- Total long-lived assets by major country......... $ 18,223 $ 18,938 $ 22,292 ======== ======== ========
Long-lived assets includes the net book value of; "Property, plant and equipment", "Patents, trademarks and engineering drawings", "Goodwill" and certain other amortizable assets included in "Other assets". 47 BALDWIN TECHNOLOGY COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 7 -- DERIVATIVES: During the fiscal year ended June 30, 2003, the Company had currency futures contracts and an interest rate swap agreement that qualified as cash flow hedges; accordingly, the gain or loss was recorded in OCI and will be recognized in income when the hedged item affects earnings. On April 27, 2001, the Company entered into an interest rate swap agreement (the "Swap") with Fleet National Bank. The effect of this agreement was to convert $15,000,000 of the Company's variable rate debt into fixed rate debt with an interest rate of 4.98% with the same maturity as the existing credit facility. Included in interest expense for the fiscal years ended June 30, 2003, 2002 and 2001 is the monthly interest payments of $525,000, $383,000 and $19,000, respectively, associated with this Swap. The adjustment to the fair value of the Swap at June 30, 2003 resulted in a gain for the fiscal year ended June 30, 2003 of $289,000. Of this amount, $89,000 has been recorded in OCI and the remaining $200,000 has been credited to earnings, which was recorded in "Other income and expense" in the accompanying consolidated statement of operations. As a result of entering into the Amended Credit Facility, as defined in Note 11, which changed various provisions of the original agreement including the maturity date, a portion of the Swap no longer qualified as a hedge pursuant to SFAS 133. Future changes in the fair value of this portion of the Swap will be recorded in earnings through its maturity date of October 30, 2003. Hedging ineffectiveness, determined in accordance with SFAS 133, had no material impact on earnings for either of the fiscal years ended June 30, 2003 or 2002. At July 1, 2000, the Company had a derivative that did not qualify as a hedge pursuant to SFAS 133. A $345,000 pre-tax gain was recorded in other income in the first quarter of the fiscal year ended June 30, 2001 related to this derivative instrument. The effect on earnings of the Company's other derivative financial instruments is not material for any fiscal year presented. Unrealized net gains (losses) included in OCI are as follows:
JUNE 30, 2003 JUNE 30, 2002 ------------- ------------- Balance at beginning of year........ $(32,000) $(299,000) Additional gains (losses), net...... 14,000 (102,000) Amounts reclassified to earnings, net............................... 14,000 369,000 -------- --------- Balance at end of year.............. $ (4,000) $ (32,000) ======== =========
The unrealized net loss of $4,000 at June 30, 2003, is primarily comprised of losses on currency futures contracts and is expected to be reclassified against earnings during the next twelve months. The currency futures contracts expired at various times through August 12, 2003, while the interest rate swap agreement expires on October 30, 2003. Other income and expense, net, for the year ended June 30, 2002, includes a $206,000 loss on certain derivative financial instruments which became speculative and no longer qualified as hedges pursuant to SFAS 133 as a result of the divestiture of the RHG. NOTE 8 -- SALE OF BUSINESSES AND IMPAIRMENT CHARGES: During the first quarter of fiscal 2003, the Company committed to a plan to dispose of substantially all the assets of its Baldwin Kansa subsidiary ("BKA"); the transaction closed on 48 BALDWIN TECHNOLOGY COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) October 10, 2002. The consideration received for the transaction, after certain post-closing adjustments, was approximately $3,736,000, which approximated the net book value of the assets sold. As more fully discussed in Note 18, during the fourth quarter of fiscal 2002, the Company recorded an impairment charge of $5,434,000 to write-off goodwill associated with this business. BKA constitutes a discontinued operation in accordance with paragraph 42 of SFAS 144, which became effective on July 1, 2002 for the Company. Accordingly, for all periods presented, amounts previously reported in continuing operations have been reclassified to report BKA as a discontinued operation. Net assets held for disposal related to BKA are included in the following categories as of June 30, 2002: Accounts receivable, net of allowance of $5,000............. $ 635,000 Inventory................................................... 2,107,000 Prepaid expenses and other current assets................... 37,000 Property, plant and equipment, net of accumulated depreciation.............................................. 1,334,000 Accounts payable............................................ (200,000) Accrued salaries, commissions, bonus and profit-sharing..... (135,000) Customer deposits........................................... (24,000) Accrued and withheld taxes.................................. (2,000) Other accounts payable and accrued liabilities.............. (14,000) ---------- Net assets held for disposal as of June 30, 2002............ $3,738,000 ==========
During the fourth quarter of fiscal 2001, the Company committed to a plan to dispose of the RHG. On September 26, 2001, the Company sold substantially all of the assets of its RHG. The consideration received for the transaction, subject to certain post-closing adjustments, amounted to approximately $6,800,000. The Company received $1,808,000 at closing and $4,992,000 in October 2001. Accordingly, during the fourth quarter of fiscal 2001, the Company recorded an impairment charge of approximately $14,831,000 relating primarily to goodwill and certain assets of the RHG, including $961,000 of cumulative translation adjustments related to the foreign operations of the RHG, which were reclassified and reflected as part of the impairment charge. During the fiscal years ended June 30, 2003 and 2002, the Company recognized an additional loss of $211,000 and $250,000, respectively on the sale of RHG, which is recorded in other expense. Also during the fourth quarter of fiscal 2001, the Company decided to exit the POD business, which resulted in the write-off of $687,000 of goodwill, which was included as part of the impairment charge recorded in the fiscal year ended June 30, 2001. In November 2001, the Company sold substantially all of the assets of its subsidiary Baldwin Document Finishing Systems, Inc. ("BDF"), the sole operation unit in the POD business to Finishing and Systems Technology LLC ("FAST"), a new company formed by the management of the POD business. The consideration included the Company retaining a note receivable from FAST in the amount of $137,000 plus interest at 8%, due in three equal annual installments on the anniversary date of the sale. The first installment was due in November 2002, which was not paid, and in May 2003, FAST filed for Chapter 7 bankruptcy protection. As a result, the Company wrote-off the entire amount of the note of $137,000 in May 2003. The remaining assets of the POD business are not material. On September 27, 2000, the Company sold substantially all of the assets of its Baldwin Stobb Division ("BSD") to Systems Technology, Inc., a new company formed by the management of BSD. The consideration received for the transaction, subject to certain post-closing adjustments, was the sum 49 BALDWIN TECHNOLOGY COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) of (i) $6,750,000; minus (ii) all payments received (net of disbursements paid) on behalf of BSD for the period July 1, 2000 through September 27, 2000 amounting to $2,155,000; plus (iii) $175,000 in consideration for income tax obligations to be received at a later date. The total consideration received by the Company included 307,000 shares of the Company's Class A Common Stock valued at the average fair market price of the Company's Class A Common Stock for the ten days immediately prior to closing ($1.9875 per share). The Company recorded a pre-tax loss of $831,000 including associated disposition costs, as a result of this transaction, which is included in other expense in the fiscal year ended June 30, 2001. Net sales and operating loss of RHG, POD and BSD combined, which are included in the Company's consolidated financial statements, were as follows for the years ended June 30:
2003 2002 2001 --------- ---------- ------------ Net sales................................................... $ 0 $4,782,000 $ 40,375,000 Operating loss.............................................. $(164,000) $ (883,000) $(14,859,000)
NOTE 9 -- INVENTORIES: Inventories consist of the following:
JUNE 30, 2003 -------------------------------------- DOMESTIC FOREIGN TOTAL ---------- ----------- ----------- Raw materials.............................. $3,952,000 $ 7,054,000 $11,006,000 In process................................. 33,000 5,636,000 5,669,000 Finished goods............................. 1,729,000 4,365,000 6,094,000 ---------- ----------- ----------- $5,714,000 $17,055,000 $22,769,000 ========== =========== ===========
JUNE 30, 2002 -------------------------------------- DOMESTIC FOREIGN TOTAL ---------- ----------- ----------- Raw materials.............................. $5,314,000 $ 7,376,000 $12,690,000 In process................................. 741,000 5,340,000 6,081,000 Finished goods............................. 2,307,000 3,850,000 6,157,000 ---------- ----------- ----------- $8,362,000 $16,566,000 $24,928,000 ========== =========== ===========
Foreign inventories increased by $1,636,000 (increased by $2,017,000 in 2002) due to translation rates in effect at June 30, 2003 when compared to rates in effect at June 30, 2002. NOTE 10 -- LOANS PAYABLE:
RATE AMOUNT -------------- ---------- LOANS PAYABLE AT JUNE 30, 2003: Foreign subsidiaries.................................. 3.07% (average) $3,301,000 ========== LOANS PAYABLE AT JUNE 30, 2002: Foreign subsidiaries.................................. 3.62% (average) $5,372,000 ==========
The maximum amount of loans payable outstanding during the year ended June 30, 2003 was $6,382,000 ($5,372,000 in 2002). Average interest rates are weighted by month and reflect the 50 BALDWIN TECHNOLOGY COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) monthly amount of short-term borrowing in use and the respective rates of interest thereon. Loans payable increased by $341,000 (increased by $830,000 in 2002), due to translation rates in effect at June 30, 2003 when compared to rates in effect at June 30, 2002. The majority of the loans are uncollateralized, however, certain of these loans are collateralized by the current assets associated with the foreign subsidiaries where the loans are drawn. NOTE 11 -- LONG-TERM DEBT:
JUNE 30, 2003 JUNE 30, 2002 ------------------------ ------------------------ CURRENT LONG-TERM CURRENT LONG-TERM ----------- ---------- ---------- ----------- Revolving Credit Facility due July 1 2003, interest rate 6.00% (2.00% over prime)............................... $ 9,378,000 $ 0 $ 0 $ 1,150,000 Revolving Credit Facility due July 1 2003, interest rate 6.00% (2.00% over prime)............................... 3,709,000 5,200,000 6,300,000 Term Loan due July 1, 2003, interest rate 6.00% (2.00% over Prime)........ 3,025,000 100,000 3,900,000 Note payable by foreign subsidiary through 2008, interest rate 5.95%.... 113,000 479,000 98,000 516,000 Notes payable by foreign subsidiary through February 2007, interest rates ranging from 4.58% to 4.67%.......... 22,000 42,000 18,000 7,000 ----------- -------- ---------- ----------- $16,247,000 $521,000 $5,416,000 $11,873,000 =========== ======== ========== ===========
On August 18, 2003, the Company entered into a $20,000,000 Credit Agreement (the "Credit Agreement") with Maple Bank GmbH ("Maple" or "Lender"), which if not terminated by the Lender on August 15, 2004 or by the Company by payment in full, shall terminate in its entirety on August 15, 2005. The credit facility is collateralized by substantially all of the accounts and notes receivable of the Company and a portion of the Company's inventory up to a maximum amount of $5,000,000. Borrowings under the credit facility are subject to a borrowing base and bear interest at a rate equal to the three-month Eurodollar rate (as defined in the Credit Agreement) plus (i) 10% for loans denominated in U.S. Dollars or (ii) 11.5% for loans denominated in Euros. The interest rate will be reduced by 0.50% or whole increments thereof for each whole increment of Disclosed EBITDA (as defined in the Credit Agreement) that equals or exceeds $1,250,000 for any fiscal quarter commencing with the quarter ending December 31, 2003. In no event however, may the interest rate be less than 10.5% per annum. The initial borrowings under the credit facility amounted to $18,874,000, of which the Company utilized $16,243,000 to retire its previously existing debt and associated interest with Fleet National Bank and Wachovia Bank National Association and the remainder of the borrowings was utilized for closing costs and working capital purposes. The Credit Agreement does not require the Company to meet any financial covenants, except for the limitation on annual capital expenditures; however, it contains a material adverse effect clause, which provides that Maple would not be obligated to fund any loan, convert or continue any loan as a LIBOR loan or issue any new letters of credit in the event of a material adverse effect. Management does not anticipate that such an event will occur; however, there can be no assurance that such an event will not occur. Prior to this refinancing with Maple, and on October 31, 2000, the Company entered into a $35,000,000 revolving credit facility (the "Credit Facility") with Fleet National Bank and First Union National Bank (collectively the "Banks"), which had an original scheduled maturity date of 51 BALDWIN TECHNOLOGY COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) October 31, 2003. The Credit Facility consisted of a $25,000,000 revolving credit line (the "Revolver") and a $10,000,000 credit line to be utilized for acquisitions, (the "Acquisition Line"). On January 28, 2002, the Credit Facility was amended (the "Amended Credit Facility"), to among other things, remove the Acquisition Line, reduce the Revolver to $21,000,000 (subject to a borrowing base), and change the maturity date to October 1, 2002. In addition, $4,000,000 of the existing Revolver was converted into a term loan (the "Term Loan"), which matured on June 28, 2002, resulting in available borrowings under the Revolver from July 1, 2002 to October 1, 2002 of $17,000,000. The Amended Credit Facility required the Company to maintain certain financial covenants including minimum operating income covenants. The Revolver had associated commitment fees, which were calculated quarterly, at a rate of one-half of one percent per annum of the unused portion of the Revolver. Commitment fees for the fiscal years ended June 30, 2003, 2002 and 2001 were $4,000, $24,000 and $47,000, respectively. As a result of the reduction in available borrowings under the Amended Credit Facility, and the revised maturity date, the Company was required to write-down a portion of the related unamortized deferred financing costs initially recorded in connection with obtaining the Credit Facility. Accordingly, the Company recorded a charge against earnings of $255,000 during the quarter ended December 31, 2001, which is included in "Other income and expense." The Company incurred additional costs of approximately $227,000 associated with entering into the Amended Credit Facility. The Company amortized the remaining deferred financing costs through October 1, 2002, the maturity date of the Amended Credit Facility. The Company has experienced operating and net losses, and debt covenant violations over the past three years. During the quarters ended March 31, 2002 and June 30, 2002, the Company did not meet its minimum operating income covenants contained in the Amended Credit Facility, and further the Company did not make the required $4,000,000 principal payment on the Term Loan on June 28, 2002. The Banks granted a forbearance of the collection of the indebtedness until October 1, 2002 and on October 30, 2002, the Company and the Banks entered into an amendment to further amend and extend the Amended Credit Facility and waive the covenant violations and Term Loan default (the "Extended Credit Facility"). The Extended Credit Facility, totaling $20,900,000, consisted of a $17,000,000 revolving credit line (the "Extended Revolver") and a $3,900,000 term loan each due July 1, 2003 (the "Extended Term Loan"). The Extended Credit Facility required the Company to utilize the net proceeds of $3,736,000 from the sale of certain assets of its wholly-owned subsidiary Baldwin Kansa Corporation ("BKA") (see Note 8) plus $464,000 from the Company's cash flows to reduce outstanding borrowings under the Extended Revolver by $4,200,000 before October 30, 2002, of which $2,700,000 permanently reduced the Extended Revolver and $1,036,000 became available for future borrowings, subject to a borrowing base calculation. Additionally, beginning in December 2002 and extending through June 2003, the Company was required to permanently reduce the Extended Revolver by making monthly principal payments of $125,000. The Company was also required to permanently reduce the Extended Revolver by $5,000,000 on December 30, 2002 and by $5,000,000 on March 30, 2003, but only if the Company generated non-operating alternative sources of financing. As the Company did not generate any alternative sources of financing since entering into the Extended Credit Facility on October 30, 2002, the Company was not required to make, and did not make, the $5,000,000 payment on December 30, 2002 or the $5,000,000 payment on March 30, 2003. Additionally, at September 30, 2002 and March 31, 2003, the Company was not in compliance with its debt covenants, and received waivers from the non-compliance. At June 30, 2003, the 52 BALDWIN TECHNOLOGY COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Company had outstanding borrowings of $16,112,000 under the Extended Revolver and Extended Term Loan and this entire outstanding balance has been classified as current as of June 30, 2003, which was entirely repaid from the proceeds of the refinancing with Maple on August 18, 2003. The ability of the Company to achieve and maintain profitability depends in part on management's successful execution of the restructuring plans discussed in Note 5 to the Consolidated Financial Statements and other business factors outside of the control of management. Management believes, although there can be no guarantee, that as the Company's profitability improves, alternative sources of financing are available to finance the existing facilities at lower interest rates. The Company maintains relationships with both foreign and domestic banks, which combined have extended credit facilities to the Company totaling $21,469,000, including amounts available under the Revolver. As of June 30, 2003, the Company had $19,413,000 outstanding under these credit facilities including $16,112,000 under the Revolver and Term Loan. Total debt levels as reported on the balance sheet at June 30, 2003 are $427,000 higher than they would have been if June 30, 2002 exchange rates had been used. Notes payable, denominated in currencies other than the U.S. dollar, increased by $341,000 ($485,000 in 2002), due to translation rates in effect at June 30, 2003 when compared to translation rates in effect at June 30, 2002. The foreign note due through 2008, with an interest rate of 5.95%, is collateralized by buildings as outlined in the indenture relating to this note. Maturities of long-term debt in each fiscal year ending after June 30, 2003 are as follows:
FISCAL YEAR ENDING JUNE 30, - --------------------------- 2004........................................................ $16,247,000 2005........................................................ 129,000 2006........................................................ 128,000 2007........................................................ 123,000 2008........................................................ 113,000 2009 and thereafter......................................... 28,000 ----------- $16,768,000 ===========
53 BALDWIN TECHNOLOGY COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 12 -- TAXES ON INCOME: (Loss) income before income taxes and the (benefit) provision for income taxes are comprised of:
FOR THE YEARS ENDED JUNE 30, ----------------------------------------- 2003 2002 2001 ----------- ------------ ------------ (Loss) income before income taxes: Domestic.............................. $(9,079,000) $(11,067,000) $(22,064,000) Foreign............................... 241,000 7,442,000 3,144,000 ----------- ------------ ------------ $(8,838,000) $ (3,625,000) $(18,920,000) =========== ============ ============ (Benefit) provision for income taxes: Currently payable: Domestic.............................. $ 1,096,000 $ (3,718,000) $ 1,068,000 Foreign............................... 1,591,000 2,167,000 1,825,000 ----------- ------------ ------------ 2,687,000 (1,551,000) 2,893,000 ----------- ------------ ------------ Deferred: Domestic.............................. 0 7,310,000 (2,582,000) ----------- ------------ ------------ Foreign............................... (109,000) 925,000 387,000 ----------- ------------ ------------ (109,000) 8,235,000 (2,195,000) ----------- ------------ ------------ Total income tax provision...... $ 2,578,000 $ 6,684,000 $ 698,000 =========== ============ ============
Deferred income taxes are provided on temporary differences between the financial reporting basis and tax basis of the Company's assets and liabilities. The principal temporary differences which give rise to deferred tax assets and liabilities at June 30, 2003 and 2002 are as follows:
JUNE 30, 2003 JUNE 30, 2002 ------------- ------------- DEFERRED TAX ASSETS (LIABILITIES): Foreign tax credit carryforwards............................ $ 3,853,000 $ 3,988,000 Foreign net operating loss carryforwards.................... 17,801,000 12,715,000 Domestic net operating loss carryforwards................... 8,706,000 5,724,000 Capital loss carryforwards.................................. 1,382,000 1,367,000 Inventories................................................. 2,154,000 1,881,000 Pension..................................................... 0 1,267,000 Restructuring............................................... 747,000 798,000 Other, individually less than 5%............................ 4,877,000 4,036,000 Other deferred tax liabilities, individually less than 5%... (1,892,000) (1,682,000) ------------ ------------ Net Deferred Tax Asset...................................... 37,628,000 30,094,000 Valuation Allowance......................................... (29,643,000) (22,924,000) ------------ ------------ Total Net Deferred Tax Assets.......................... $ 7,985,000 $ 7,170,000 ============ ============
54 BALDWIN TECHNOLOGY COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) At June 30, 2003, net operating loss carryforwards of $69,275,000 and $22,735,000, respectively, which may be available to reduce future foreign and domestic taxable income. The majority of the Company's foreign net operating loss ("NOL") carry-forwards have an indefinite carry-forward period, while the domestic NOLs begin to expire in June 2022. In addition, as of June 30, 2003, the Company has capital loss carry-forwards available in the amount of $4,092,000, of which $3,491,000 is domestic and expires at various dates through fiscal 2006. The remainder is available in England and has an indefinite carry-forward period. The Company establishes valuation allowances in accordance with the provisions of SFAS No. 109, "Accounting for Income Taxes." In the fiscal year ended June 30, 2001, the valuation allowance was increased, primarily for capital loss and foreign tax credit carryforwards that are more likely than not to expire unused. In the fiscal year ended June 30, 2002, the valuation allowance increased primarily because the Company did not believe there was sufficient evidence to indicate that the Company would more likely than not realize its domestic deferred tax assets. This increase was partially offset by a reduction in the valuation allowance for previously reserved loss carryforwards that expired unutilized. In the fiscal year ended June 30, 2003, the valuation allowance increased primarily because the Company did not believe there was sufficient evidence to indicate that the Company would more likely than not realize its domestic and certain of its foreign deferred tax assets. The Company has not had to provide for income taxes on $19,141,000 of cumulative undistributed earnings of subsidiaries outside the United States because of the Company's intention to indefinitely reinvest those earnings. The Company is subject to ongoing tax examinations and assessments in various jurisdictions. Accordingly, the Company provides for additional tax expense based upon the probable outcomes of such matters. In addition, when applicable, the Company adjusts the previously recorded tax expense to reflect examination results. During the Company's fiscal year ended June 30, 2002, the German Tax Authority changed its position regarding the taxability of certain intercompany dividends. As a result, several companies, including Baldwin, were assessed additional tax on dividends paid from 1994 through 1996. At this point in time, the proposed assessment would result in a tax charge of approximately $2,570,000 and the elimination of previously reserved tax losses. However, based on precedent, the Company believes it will prevail in this matter and there will be no material financial impact as a result of the German Tax Authority's change in position. It is expected that the German Tax Authority will assess the Company during the second or third quarter of the fiscal year ended June 30, 2004. Under German tax law, an assessment is payable at the time it is assessed, however, a Company is permitted to request a deferral of the payment from the German Tax Authority through various alternatives. Management believes a deferral will be granted, however no assurances can be given that such deferral will be granted. 55 BALDWIN TECHNOLOGY COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The reconciliation of the computed "expected" (benefit) provision (determined by applying the United States Federal statutory income tax rate of 34% to (loss) income before income taxes) to the actual tax provision is as follows:
FOR THE YEARS ENDED JUNE 30, --------------------------------------- 2003 2002 2001 ----------- ----------- ----------- Computed "expected" tax benefit............ $(2,906,000) $(1,314,000) $(5,941,000) Permanent differences...................... 707,000 147,000 930,000 State income taxes, net of federal income tax benefit.............................. (312,000) (396,000) (295,000) Foreign withholding tax.................... 393,000 468,000 506,000 Foreign income taxed at rates higher than the U.S. statutory rate.................. 382,000 2,268,000 653,000 Change in deferred tax asset valuation allowance, net of changes in other reserves................................. 4,911,000 5,395,000 623,000 Non-deductible goodwill impairment charge................................... 0 0 3,735,000 Pre-press divestiture...................... 0 0 160,000 Other reconciling items.................... (597,000) 116,000 327,000 ----------- ----------- ----------- Total income tax provision...... $ 2,578,000 $ 6,684,000 $ 698,000 =========== =========== ===========
NOTE 13 -- COMMON STOCK: Except with respect to the election or removal of Directors, and certain other matters with respect to which Delaware law requires each class to vote as a separate class, the holders of the Company's Class A Common Stock ("Class A") and Class B Common Stock ("Class B") vote as a single class on all matters, with each share of Class A having one vote per share and each share of Class B having ten votes per share. With respect to the election of Directors, the holders of Class A, voting as a separate class, are entitled to elect 25% of the total number of Directors (or the nearest higher whole number) constituting the entire Board of Directors. The holders of Class B, voting as a separate class, are entitled to elect the remaining Directors, so long as the number of outstanding shares of Class B is equal to at least 12.5% of the number of outstanding shares of both classes of Common Stock as of the record date of the Company's Annual Meeting. If the number of outstanding shares of Class B is less than 12.5% of the total number of outstanding shares of both classes of Common Stock as of the record date of the Company's Annual Meeting, the remaining directors are elected by the holders of both classes of Common Stock voting together as a single class, with the holders of Class A having one vote per share and the holders of Class B having ten votes per share. As of June 30, 2003, the number of outstanding shares of Class B constituted approximately 14.6% (14.6% as of June 30, 2002) of the total number of outstanding shares of both classes of Common Stock. Class A has no conversion rights; however, Class B is convertible into Class A on a one-for-one basis. In addition, no dividend in cash or property may be declared or paid on shares of Class B without a dividend being declared or paid on shares of Class A of at least 105% of the dividend declared or paid on shares of Class B. In November 1999, the Company initiated a new stock repurchase program. Under the new program, the Company is authorized to utilize up to $5,000,000 to repurchase Class A. As of June 30, 2003, 818,300 shares of Class A and 25,000 shares of Class B had been repurchased for $1,784,000, of 56 BALDWIN TECHNOLOGY COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) which $1,721,000 was used to purchase Class A and $63,000 was used to purchase Class B under this new program. There was no activity under this repurchase program during the fiscal year ended June 30, 2003. NOTE 14 -- STOCK OPTIONS: The 1986 Stock Option Plan, as amended and restated (the "1986 Plan"), allowed for the granting, at fair market value on the date of grant, of incentive stock options, non-qualified stock options, and tandem Stock Appreciation Rights ("SARS") for up to a total of 2,220,000 and 590,000 shares of Class A and Class B, respectively. Options to purchase shares of Class B were granted at a price per share of no less than 125% of the fair market value of a share of Class A on the date of grant. All options became exercisable in three equal annual installments commencing on the second anniversary of the date of grant. Unexercised options terminate no later than ten years from the date of grant and canceled shares became available for future grants. The 1986 Plan was terminated on October 14, 1996 provided, however, that outstanding options under the 1986 Plan will continue to be subject to the terms thereof. The 1990 Directors' Stock Option Plan (the "1990 Plan") provided for the granting, at fair market value on the date of grant, of non-qualified stock options to purchase up to a total of 100,000 shares of Class A and Class B to members of the Company's Board of Directors who are not employees ("Eligible Directors") of the Company or any of its subsidiaries. Grants were made on the third business day subsequent to each Annual Meeting of Stockholders, including the 1990 meeting, to each Eligible Director for 1,000 shares of Class A and Class B in proportion to the number of shares of each such class then outstanding. Options to purchase shares of Class B were granted at a price per share of no less than 125% of the fair market value of a share of Class A on the date of grant. Restrictions under the 1990 Plan were similar to those under the 1986 Plan except with regard to the exercise date, which was twelve months after the date of grant, and termination of options, which is generally nine months after termination of service as a director. The 1990 Plan was terminated on November 12, 1998 in connection with the approval of the 1998 Non-Employee Directors' Stock Option Plan (the "1998 Plan"), provided however, that outstanding options under the 1990 Plan will continue to be subject to the terms thereof. The 1996 Stock Option Plan (the "1996 Plan") allows for the granting, at fair market value on the date of grant, of incentive stock options, non-qualified stock options, and tandem SARS for up to a total of 875,000 and 125,000 shares of Class A and Class B, respectively. Options to purchase shares of Class B are granted at a price per share of no less than 125% of the fair market value of a share of Class A on the date of grant. Restrictions under the 1996 Plan are similar to those under the 1986 Plan with regard to the exercise and termination of options. Canceled shares become available for future grants. In August 2002, the Board of Directors approved an amendment to the 1996 Plan to: (a) increase the total number of shares of Class A that may be issued pursuant to Options (as defined in the 1996 Plan) from 875,000 shares to 1,875,000 shares; (b) prohibit the granting of Options to purchase any shares of Class B under the 1996 Plan after the date of the next annual meeting of the Company's stockholders, (c) provide that Eligible Directors shall be eligible to receive Options under the 1996 Plan and (d) make certain other technical and clarifying amendments. The stockholders approved the amendment to the 1996 Plan on November 21, 2002. 57 BALDWIN TECHNOLOGY COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Also in August 2002, the Board of Directors authorized the grant under the 1996 Plan, on the day after the next annual meeting of the Company's stockholders and on the day after each succeeding annual meeting of the Company's stockholders, to each Eligible Director, of an Option to purchase 5,000 shares of Class A of the Company at an exercise price per share equal to 100% of the fair market value of a share of Class A on the date such Option is granted. On August 13, 2002, the Compensation and Stock Option Committee of the Board of Directors (the "Committee") granted non-qualified options to purchase 154,500 shares of Class A to certain executives and key personnel under the 1996 Plan at an exercise price of $0.82 per share, the fair market value on the date of the grant. On November 22, 2002, the Committee granted non-qualified options to purchase 25,000 shares of Class A under the 1996 Plan at an exercise of price of $0.58 per share, the fair market value on the date of the grant. The 1998 Non-Employee Directors' Stock Option Plan (the "1998 Plan") provides for the issuance of options to purchase up to an aggregate of 250,000 shares of Class A to each Eligible Director. Under the 1998 Plan, each year, each Eligible Director receives a grant of options to purchase 3,000 shares of Class A. The options are granted at the fair market value on the date of grant, and vest one-third per year on each succeeding anniversary of the date of grant. Unexercised options terminate no later than ten years from the date of grant and canceled shares become available for future grants. The 1998 Plan was terminated on November 21, 2002 provided, however, that outstanding options under the 1998 Plan will continue to be subject to the terms thereof. 58 BALDWIN TECHNOLOGY COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THE 1986 PLAN THE 1990 PLAN -------------------------------------------------- ----------------------------------------------- WEIGHTED WEIGHTED AVERAGE PRICE AVERAGE PRICE OPTION PRICE ------------- OPTION PRICE ------------- CLASS A CLASS B RANGE A B CLASS A CLASS B RANGE A B --------- -------- ------------ ----- ----- ------- ------- ------------ ----- ----- Outstanding at June 30, 2000...................... 949,667 400,000 $3.00-$9.84 $4.47 $6.60 24,070 3,286 $2.56-$6.88 $4.48 $5.57 --------- -------- ----------- ----- ----- ------- ------- ----------- ----- ----- Granted.................... Canceled................... (184,167) (30,000) $3.00-$9.84 $4.58 $8.23 (1,760) (360) $3.75-$4.69 $3.75 $4.69 Exercised.................. --------- -------- ----------- ----- ----- ------- ------- ----------- ----- ----- Outstanding at June 30, 2001...................... 765,500 370,000 $3.00-$8.75 $4.44 $6.46 22,310 2,926 $2.56-$6.88 $4.54 $5.68 --------- -------- ----------- ----- ----- ------- ------- ----------- ----- ----- Granted.................... Canceled................... (205,000) (215,000) $3.00-$8.75 $4.79 $6.42 (3,549) (570) $2.56-$6.41 $4.29 $5.52 Exercised.................. --------- -------- ----------- ----- ----- ------- ------- ----------- ----- ----- Outstanding at June 30, 2002...................... 560,500 155,000 $3.00-$6.72 $4.32 $6.52 18,761 2,356 $2.56-$6.88 $4.61 $5.72 --------- -------- ----------- ----- ----- ------- ------- ----------- ----- ----- Granted.................... Canceled................... (147,500) $3.00-$5.63 $5.00 (6,237) (880) $2.56-$6.88 $4.58 $5.71 Exercised.................. --------- -------- ----------- ----- ----- ------- ------- ----------- ----- ----- Outstanding at June 30, 2003...................... 413,000 155,000 $3.00-$6.72 $4.07 $6.52 12,524 1,476 $2.56-$6.88 $4.59 $5.73 ========= ======== =========== ===== ===== ======= ======= =========== ===== ===== Exercisable at June 30, 2003...................... 413,000 155,000 $3.00-$6.72 $4.07 $6.52 12,524 1,476 $2.56-$6.88 $4.59 $5.73 ========= ======== =========== ===== ===== ======= ======= =========== ===== ===== Available for future option grants at June 30, 2003... 0 0 0 0 ========= ======== ======= =======
THE 1996 PLAN THE 1998 PLAN -------------------------------------------------- ----------------------------------------------- WEIGHTED WEIGHTED AVERAGE PRICE AVERAGE PRICE OPTION PRICE ------------- OPTION PRICE ------------- CLASS A CLASS B RANGE A B CLASS A CLASS B RANGE A B --------- -------- ------------ ----- ----- ------- ------- ------------ ----- ----- Outstanding at June 30, 2000...................... 570,000 0 $2.19-$5.50 $3.58 $0.00 36,000 0 $2.25-$5.50 $3.88 $0.00 --------- -------- ----------- ----- ----- ------- ------- ----------- ----- ----- Granted.................... 15,000 $1.50 $1.50 $0.00 Canceled................... (151,667) $2.25-$5.50 $3.20 Exercised.................. --------- -------- ----------- ----- ----- ------- ------- ----------- ----- ----- Outstanding at June 30, 2001...................... 418,333 0 $2.19-$5.50 $3.71 $0.00 51,000 0 $1.50-$5.50 $3.18 $0.00 --------- -------- ----------- ----- ----- ------- ------- ----------- ----- ----- Granted.................... 457,500 $1.05-$1.15 $1.06 15,000 $1.13 $5.50 Canceled................... (158,333) $2.19-$5.50 $3.39 (6,000) $3.88 $3.88 Exercised.................. --------- -------- ----------- ----- ----- ------- ------- ----------- ----- ----- Outstanding at June 30, 2002...................... 717,500 0 $1.05-$5.50 $2.09 $0.00 60,000 0 $1.13-$5.50 $2.60 $0.00 --------- -------- ----------- ----- ----- ------- ------- ----------- ----- ----- Granted.................... 179,500 $0.58-$0.82 $0.79 0 Canceled................... (242,500) $1.05-$5.50 $1.96 (12,000) $1.50-$5.50 $2.75 Exercised.................. 0 --------- -------- ----------- ----- ----- ------- ------- ----------- ----- ----- Outstanding at June 30, 2003...................... 654,500 0 $0.58-$5.50 $1.78 $0.00 48,000 -- $1.13-$5.50 $2.56 $0.00 ========= ======== =========== ===== ===== ======= ======= =========== ===== ===== Exercisable at June 30, 2003...................... 147,500 0 $3.00-$5.50 $3.74 $0.00 22,667 0 $1.50-$5.50 $3.86 $0.00 ========= ======== =========== ===== ===== ======= ======= =========== ===== ===== Available for future option grants at June 30, 2003... 1,220,500 0 0 0 ========= ======== ======= =======
59 BALDWIN TECHNOLOGY COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The following table summarizes information regarding stock options outstanding and exercisable at June 30, 2003:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE - --------------------------------------------------------- ---------------------- WEIGHTED WEIGHTED NUMBER WEIGHTED RANGE OF NUMBER OF AVERAGE AVERAGE OF AVERAGE EXERCISE OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE PRICES OPTIONS CONTRACTUAL LIFE PRICE OPTIONS PRICE - ------------- ----------- ---------------- -------- ----------- -------- $0.58 - $3.75.. 719,500 7.1 years $1.59 208,833 $2.95 $3.88 - $5.63.. 408,842 1.6 years $4.61 387,175 $4.56 $5.88 - $6.88.. 156,158 1.8 years $6.52 156,158 $6.52
The Company adopted SFAS No. 123, "Accounting for Stock Based Compensation" ("SFAS 123"), on July 1, 1996, electing the disclosure only provisions of that statement. Accordingly, no charge for compensation has been recorded for stock based employee awards. In accordance with SFAS 123, the fair value method of accounting has not been applied to options granted prior to July 1, 1995. Due to the vesting schedule of options granted under each of the stock option plans, as well as the exclusion of the fair value of options granted prior to July 1, 1995, the fair value of compensation cost calculated to disclose pro forma financial information may not be representative of that to be expected in future years. The fair value method of calculating the value of each option granted subsequent to June 30, 1995 was estimated as of the option grant date using the Black-Scholes option pricing model. The following weighted average assumptions were used to calculate the estimated fair value of the options by the pricing model for the fiscal years ended June 30, 2003, 2002 and 2001: the forfeiture rates and dividend yields were 0% (none) and the expected lives were five years for each of the fiscal years ended June 30, 2003, 2002 and 2001, the weighted average risk free interest rates were 3.26% for 2003, 4.52% for 2002 and 5.70% for 2001, and the average volatility was 66.12% for 2003, 54.76% for 2002 and 50.61% for 2001. On January 1, 2003, the Company adopted the disclosure provisions of Financial Accounting Standards Board ("FASB") Statement No. 148, "Accounting for Stock-Based Compensation -- transition and disclosure" ("SFAS 148"), which amended certain provisions of SFAS 123 to provide alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation, effective as of the beginning of the fiscal year. Baldwin continues to apply the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," ("APB 25") in accounting for stock-based compensation. In accordance with APB 25, compensation costs for stock options is recognized in income based on the excess, if any, of the quoted market price over the exercise price of the stock on the date of grant. The exercise price for all stock option grants equals the fair market value on the date of grant, therefore no compensation expense is recorded. The pro forma net loss and loss per share information have been determined for employee stock plans under the fair value method using the Black-Scholes option-pricing model at the date of grant. The following table illustrates the effect on net loss and loss per share if the Company had applied the 60 BALDWIN TECHNOLOGY COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) fair value recognition provisions of SFAS 123 for the years ended June 30, 2003, 2002 and 2001 (in thousands):
FOR THE YEARS ENDED JUNE 30, ------------------------------------------ 2003 2002 2001 ------------ ------------ ------------ Net loss as reported...................... $(11,126,000) $(15,984,000) $(18,172,000) Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects.............. $ (162,000) $ (288,000) $ (372,000) Pro forma net loss........................ $(11,288,000) $(16,272,000) $(18,544,000) Loss per share as reported (basic and diluted)................................ $ (0.74) $ (1.07) $ (1.23) Pro forma loss per share (basic and diluted)................................ $ (0.75) $ (1.09) $ (1.25)
NOTE 15 -- SUPPLEMENTAL COMPENSATION: Subsidiaries within the Americas maintained profit sharing, savings and retirement plans. The Company previously had three domestic profit sharing plans; The Enkel Corporation Retirement Plan (the "Enkel Plan"), the Kansa Corporation Profit-Sharing/401K Plan and Trust (the "Kansa Plan") and the Baldwin Technology Profit-Sharing and Savings Plan (the "Baldwin Plan"). The Enkel Plan, which covered the domestic employees of the divested RHG, was terminated in accordance with the provisions of the Enkel Plan. The Company amended the Baldwin Plan to allow for combining the remaining two plans, the Baldwin Plan and the Kansa Plan into one plan, the Baldwin Plan, effective January 1, 2002. The amendments also included a change in both the vesting terms and timing of the Company's contribution to the Baldwin Plan. Previously, the Company's contribution was discretionary and made on an annual basis, based on the profitability of the Company and the participants vested in the Company's contribution according to a 7-year vesting schedule. The changes enabled the Company to match up to 5% of eligible compensation and the participants' interest in the Company's contribution to vest immediately. Participant contributions are made on a weekly basis, while the Company's matching contributions are made on a quarterly basis. However, on October 10, 2002, the Company sold the assets of BKA, which included employees covered under the Kansa Plan, and recorded the operation as a discontinued operation in accordance with SFAS 149. Amounts expensed under these plans were as follows:
FOR THE YEARS ENDED JUNE 30, ------------------------------ 2003 2002 2001 -------- -------- -------- Baldwin Technology Corporation and Baldwin Graphic Systems, Inc. ................................... $247,000 $127,000 $205,000 Baldwin Kansa Corporation (reported under discontinued Operations)......................... 25,000 34,000 211,000 Baldwin Enkel Corporation.......................... 0 0 61,000 -------- -------- -------- Total expense........................... $272,000 $161,000 $477,000 ======== ======== ========
Company contributions to each of the above plans were discretionary and subject to approval by their respective Boards of Directors. The assets of the above plans were (and for the Baldwin Plan, are) 61 BALDWIN TECHNOLOGY COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) invested primarily in mutual funds, money market funds, and Class A Common Stock of the Company, which constitutes approximately 1% of the total assets of the Baldwin Plan at June 30, 2003. Certain subsidiaries and divisions within Europe maintain pension plans. The assets of the following plans are invested primarily in insurance contracts, government securities, and guaranteed investment contracts. Amounts expensed under these plans were as follows:
FOR THE YEARS ENDED JUNE 30, ------------------------------ 2003 2002 2001 -------- -------- -------- Baldwin Germany GmbH............................... $174,000 $143,000 $104,000 Baldwin Amal AB.................................... 0 0 221,000 Baldwin IVT AB..................................... 109,000 53,000 93,000 Baldwin Jimek AB................................... 553,000 222,000 157,000 Baldwin UK Ltd. ................................... 68,000 72,000 67,000 Baldwin Globaltec Ltd. ............................ 6,000 5,000 5,000 -------- -------- -------- Total expense........................... $910,000 $495,000 $647,000 ======== ======== ========
The amount of expense relating to the European pension plans is determined based upon, among other things, the age, salary and years of service of employees covered by the plans. The Company's German, English and Swedish subsidiaries make annual contributions to the plans equal to the amounts accrued for pension expense. In Germany, at Baldwin Germany GmbH, there is currently one additional pension plan covering three former employees. This defined benefit plan provides for benefits, at maturity age, in lump sum payments on retirement or death or as a disability pension in case of disability, and is partially funded by insurance contracts. The following tables set forth the components of net periodic benefit costs, the funded status and key actuarial assumptions, and reconciliations of projected benefit obligations and fair values of plan assets of the defined benefit plans:
FOR THE YEARS ENDED JUNE 30, ------------------------------ 2003 2002 2001 -------- -------- -------- Service Cost -- benefits earned during the year..... $ 8,000 $ 6,000 $ 5,000 Interest on projected benefit obligation............ 23,000 17,000 16,000 Annual return on plan assets........................ (6,000) (5,000) (5,000) Amortization of transition obligation............... 27,000 23,000 23,000 Amortization of net actuarial (gain)................ (52,000) (62,000) (61,000) -------- -------- -------- Net periodic pension benefit............. $ 0 $(21,000) $(22,000) ======== ======== ========
62 BALDWIN TECHNOLOGY COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, --------------------- 2003 2002 --------- --------- Funded status (plan assets less than plan obligations)...... $(252,000) $(210,000) Unrecognized net (gain) from past experience different from changes in assumptions.................................... (53,000) (79,000) Unrecognized transition obligation.......................... 90,000 103,000 --------- --------- Accrued benefit cost............................. $(215,000) $(186,000) ========= ========= WEIGHTED AVERAGE ACTUARIAL ASSUMPTIONS: Discount rate............................................... 7.5% 7.5% Rate of increase in compensation levels..................... 3.0% 3.0% Expected rate of return on plan assets...................... 7.0% 7.0%
FOR THE YEARS ENDED JUNE 30, ------------------------------ 2003 2002 2001 -------- -------- -------- Projected benefit obligation -- Beginning of year............................................. $292,000 $217,000 $226,000 Service Cost -- benefits earned during the year.... 8,000 6,000 5,000 Interest on projected benefit obligation........... 23,000 17,000 16,000 Actuarial (gain) loss.............................. (20,000) 13,000 (5,000) Benefits paid...................................... (51,000) 0 0 Foreign currency rate changes...................... 44,000 39,000 (25,000) -------- -------- -------- Projected benefit obligation -- End of year................................. $296,000 $292,000 $217,000 ======== ======== ========
FOR THE YEARS ENDED JUNE 30, ---------------------------- 2003 2002 2001 -------- ------- ------- Fair value of plan assets -- Beginning of year........ $ 82,000 $68,000 $72,000 Actual return on plan assets.......................... 4,000 3,000 3,000 Benefits paid......................................... (51,000) 0 0 Foreign currency rate changes......................... 9,000 11,000 (7,000) -------- ------- ------- Fair value of plan assets -- End of year... $ 44,000 $82,000 $68,000 ======== ======= =======
The Company's Japanese subsidiary maintains two defined contribution retirement plans covering all employees, excluding directors, and a separate plan for its directors. Amounts contributed and expensed under these programs are determined based on participants' salary and length of service. The plans are fully accrued and partially funded through insurance contracts. Expenses relating to these programs were $235,000, $376,000 and $552,000 for the fiscal years ended June 30, 2003, 2002 and 2001, respectively. Officers and key employees of the Company participate in various incentive compensation plans. Amounts expensed under such plans were $0 (zero), $0 (zero) and $74,000 for the fiscal years ended June 30, 2003, 2002 and 2001, respectively. 63 BALDWIN TECHNOLOGY COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 16 -- COMMITMENTS AND CONTINGENCIES: Future minimum annual lease payments under capital leases, which consist of machinery and equipment with accumulated depreciation amounting to $17,000 at June 30, 2003 and $306,000 at June 30, 2002, together with the present value of the minimum lease payments are as follows at June 30, 2003:
FISCAL YEARS ENDING JUNE 30, AMOUNT - ---------------------------- -------- 2004........................................................ $ 83,000 2005........................................................ 93,000 2006........................................................ 72,000 2007........................................................ 29,000 2008........................................................ 12,000 2009 and thereafter......................................... 0 -------- Total minimum lease payments................................ 289,000 Amount representing interest................................ (27,000) -------- Present value of minimum lease payments.......... $262,000 ========
At June 30, 2003, $202,000, ($67,000 at June 30, 2002) is included in "Other long-term liabilities" representing the long-term portion of the present value of minimum lease payments, and $60,000, ($24,000 at June 30, 2002) is included in "Other accounts payable and accrued liabilities" representing the current portion of the present value of minimum lease payments. During the fiscal year ended June 30, 2003, the Company entered into an agreement with a strategic advisor to provide consultation services to the Company as it explores various financing and strategic alternatives. Under the terms of the agreement the advisor is entitled to a monthly management fee and either a success fee should the Company consummate a transaction with the assistance of the advisor or termination fee if the agreement is terminated by the Company. The agreement shall continue until terminated by either party by written notice. For the year ended June 30, 2003, the Company expensed, in "Other expense (income), net", approximately $500,000 associated with these services. On May 1, 2003, the Company entered into an agreement with a second strategic advisor to provide consultation services to the Company as it explores various financing and strategic alternatives. Under the terms of the agreement the advisor is entitled to a cash fee and a contingent transaction fee should the Company consummate a transaction with the assistance of the advisor. The agreement was terminated in June 2003, and the unpaid portion of the contingent transaction fee was converted into a promissory note payable in the amount of $412,500, which bears interest at a rate of 20% per annum. The principal amount of the promissory note, together with all accrued and unpaid interest and all other amounts due and payable thereunder, shall become immediately due and payable upon the earlier of (i) the six-month anniversary of a "Note Event" (as defined in the agreement) of (ii) the consummation of a "Competing Transaction" (as defined in the agreement), but if a Note Event has not occurred within 12 months of the date of the agreement, the promissory note shall be void. Since the Company consummated a financing transaction with a new lender in August 2003, the note matures in February 2004. For the year ended June 30, 2003, the Company expensed, in "Other expense (income), net", approximately $564,000 (including the principal amount related to the 64 BALDWIN TECHNOLOGY COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) promissory note) associated with these services. At June 30, 2003, the Company has recorded the promissory note of approximately $419,000, including interest thereon, in "Other accounts payable and accrued liabilities". Rental expense on operating leases amounted to approximately $4,201,000, $4,422,000 and $4,352,000 for the years ended June 30, 2003, 2002 and 2001, respectively. Aggregate future annual rentals under noncancellable operating leases for periods of more than one year at June 30, 2003 are as follows:
FISCAL YEARS ENDING JUNE 30, AMOUNT - ---------------------------- ---------- 2004........................................................ $3,838,000 2005........................................................ $3,371,000 2006........................................................ $2,837,000 2007........................................................ $1,280,000 2008........................................................ $ 771,000 2009 and thereafter......................................... $ 825,000
From time to time, in the ordinary course of business, the Company is subject to legal proceedings. While it is impossible to determine the ultimate outcome of such matters, it is management's opinion that the resolution of any pending issues will not have a material adverse effect on the consolidated financial position, cash flows or results of operations of the Company. NOTE 17 -- RELATED PARTIES: On October 25, 2002, John T. Heald, Jr. resigned as President, Chief Executive Officer and a Director of the Company. Mr. Heald was employed by the Company from March 21, 2001 to November 21, 2002. In accordance with Mr. Heald's employment agreement, the Company sold 375,000 shares of Class B to Mr. Heald in October 2001 at $1.80 per share in exchange for a recourse demand promissory note in the amount of $675,000. The promissory note bears interest, payable annually, at a rate of 5% per annum. Of the 375,000 shares issued, 189,117 shares were treasury shares and the balance of 185,883 shares, were newly issued shares. The promissory note is collateralized by the shares, pursuant to a loan and pledge agreement between Mr. Heald and the Company dated October 17, 2001. If at any time, Mr. Heald sells any of these shares, he is to pay the Company $1.80 times the number of shares sold within five days of receipt of the funds from such sale. In November 2002, the Company amended the loan and pledge agreement, and the promissory note, to evidence a reduction of the outstanding principal due from Mr. Heald on the loan by $225,000 in exchange for a reduction in deferred compensation payments to be made by the Company to Mr. Heald. The Company agreed not to demand payment of the promissory note for a period of two years following Mr. Heald's termination. The reduction represented the then present value of Mr. Heald's deferred compensation benefit that accrued to Mr. Heald. The balance of the loan, including interest, was $501,000 and $699,000 at June 30, 2003 and June 30, 2002, respectively. In accordance with the terms of the employment agreement between the Company and Gerald A. Nathe, Chairman, President and Chief Executive Officer of the Company, the Company loaned Mr. Nathe $1,817,000 to enable Mr. Nathe to purchase 315,144 shares of Class B from a non-employee shareholder in November 1993 in exchange for a recourse demand promissory note for said 65 BALDWIN TECHNOLOGY COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) amount. The note bore interest, payable on the anniversary dates of the loan, at LIBOR rates plus 1.25%, reset on the first day of each succeeding January, April, July and October. The note was collateralized by the shares pursuant to a loan and pledge agreement between Mr. Nathe and the Company dated November 30, 1993, as amended and restated on November 25, 1997. Upon termination of Mr. Nathe's employment, the Company has agreed not to demand payment for a period of six months following termination, or twelve months following termination if Mr. Nathe's employment terminates by reason of death. Notwithstanding the foregoing, if at any time Mr. Nathe sells any of these shares, he is to pay the Company $5.77 times the number of shares sold within five days of receipt of the funds from such sale. The maximum amount of the loan outstanding including interest during the fiscal years ended June 30, 2003 and 2002 was $1,553,000 and $1,612,000, respectively. The Board of Directors of the Company forgave interest payments due on the loan from Mr. Nathe during the fiscal years ended June 30, 2002 and 2001 in the amounts of $112,000 and $128,000 respectively, however, no interest payments were forgiven during the fiscal year ended June 30, 2003. Such amounts were recorded as compensation expense to Mr. Nathe, and included in "General and administrative expenses" during the fiscal years ended June 30, 2002 and 2001. In February, 2002, the Company amended Mr. Nathe's employment agreement and the loan and pledge agreement, and, following repayment by Mr. Nathe of a portion of the principal on the loan, Mr. Nathe issued a substitute recourse demand promissory note for $1,500,000, the outstanding principal balance on the date thereof, with interest payable annually at an annual rate of 5%. As discussed in Note 21, in August, 2002, the Company amended Mr. Nathe's employment agreement, the loan and pledge agreement, and the promissory note, to evidence reduction of the outstanding principal and interest due from Mr. Nathe on the loan by $750,000 in exchange for an equal reduction in deferred compensation payments to be made by the Company to Mr. Nathe. The reduction represented the then present value of a portion of Mr. Nathe's deferred compensation benefit that had accrued to Mr. Nathe. Mr. Nathe was responsible for his personal taxes on this exchange. At June 30, 2003, the balance of the loan, including interest was $836,000. On February 10, 1997, Wendell M. Smith resigned as Chairman of the Company. The Company has made deferred compensation payments to Mr. Smith in the amount of $103,000 for each of the fiscal years ended June 30, 2002, 2001 and 2000, respectively. In addition, the Company entered into a consulting agreement with Polestar Limited ("Polestar"), a corporation controlled by Mr. Smith, which provides for payments to Polestar of $60,000 per year for consulting services through 2014. The agreement was amended during the fiscal year ended June 30, 2001 to increase payments to $90,000 per year. Samuel B. Fortenbaugh III, a Director of the Company since 1987, rendered legal services to the Company since September 2002. During the fiscal year ended June 30, 2003, the Company paid $82,000 to Mr. Fortenbaugh for legal services rendered. Prior to September 2002, Mr. Fortenbaugh was a Partner of the law firm of Morgan Lewis & Bockius LLP, which firm has rendered legal services to the Company since 1980. 66 BALDWIN TECHNOLOGY COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 18 -- GOODWILL AND OTHER INTANGIBLE ASSETS: As discussed in Note 2, the Company adopted SFAS 142 effective July 1, 2001 and as a result ceased amortization of goodwill. Goodwill amortization expense amounted to zero, zero and $973,000 for the fiscal years ended June 30, 2003, 2002 and 2001, respectively. During the fiscal year ended June 30, 2002, the operating results and future prospects of the Baldwin Kansa subsidiary ("BKA") deteriorated. As a result, the goodwill associated with BKA exceeded the assessment of its fair-value made by the Company, and the Company recorded a goodwill impairment charge of $5,434,000 in the fiscal year ended June 30, 2002. This impairment charge, along with the operating results of BKA, and the gain on the sale of BKA are included as a discontinued operation for all periods presented. The changes in the carrying amount of goodwill by segment for each of the fiscal years ended June 30, 2003 and 2002 are as follows (in thousands): Activity in the fiscal year ended June 30, 2003 is as follows:
GROSS CARRYING AMOUNT ACCUMULATED AMORTIZATION ---------------------------------- --------------------------------- ACCESSORIES ACCESSORIES AND DIVESTED AND DIVESTED NET CONTROLS OPERATIONS TOTAL CONTROLS OPERATIONS TOTAL BOOK VALUE ----------- ---------- ------- ----------- ---------- ------ ---------- Balance as of July 1, 2002... $12,760 $0 $12,760 $3,142 $0 $3,142 $ 9,618 Goodwill Amortization........ 0 0 0 0 0 0 0 Impairment losses recognized................. 0 0 0 0 0 0 0 Effects of currency translation................ 694 0 694 85 0 85 609 ------- -- ------- ------ -- ------ ------- Balance as of June 30, 2003....................... $13,454 $0 $13,454 $3,227 $0 $3,227 $10,227 ======= == ======= ====== == ====== =======
Activity in the fiscal year ended June 30, 2002 is as follows:
GROSS CARRYING AMOUNT ACCUMULATED AMORTIZATION ---------------------------------- ---------------------------------- ACCESSORIES ACCESSORIES AND DIVESTED AND DIVESTED NET BOOK CONTROLS OPERATIONS TOTAL CONTROLS OPERATIONS TOTAL VALUE ----------- ---------- ------- ----------- ---------- ------- ---------- Balance as of July 1, 2001...................... $11,829 $ 7,750 $19,579 $2,968 $ 2,316 $ 5,284 $14,295 Goodwill Amortization....... 0 0 0 0 0 0 0 Impairment losses recognized (discontinued operations)............... 0 (7,750) (7,750) 0 (2,316) (2,316) (5,434) Effects of currency translation............... 931 0 931 174 0 174 757 ------- ------- ------- ------ ------- ------- ------- Balance as of June 30, 2002...................... $12,760 $ 0 $12,760 $3,142 $ 0 $ 3,142 $ 9,618 ======= ======= ======= ====== ======= ======= =======
67 BALDWIN TECHNOLOGY COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Intangible assets subject to amortization at June 30, 2003 are comprised of the following:
AS OF JUNE 30, 2003 AS OF JUNE 30, 2002 ------------------------------ ------------------------------ AMORTIZED INTANGIBLE GROSS ACCUMULATED GROSS ACCUMULATED ASSETS: CARRYING AMOUNT AMORTIZATION CARRYING AMOUNT AMORTIZATION - -------------------- --------------- ------------ --------------- ------------ Patents and trademarks.......... $5,961,000 $3,824,000 $5,493,000 $3,432,000 Other................. 781,000 481,000 1,021,000 746,000 ---------- ---------- ---------- ---------- Total................. $6,742,000 $4,305,000 $6,514,000 $4,178,000 ========== ========== ========== ==========
The weighted average life for intangible assets at June 30, 2003 was 13.4 years and amortization expense for the fiscal year ended June 30, 2003 was $618,000. Estimated amortization expense for each of the five succeeding fiscal years is as follows:
FISCAL YEARS ENDING JUNE 30, AMOUNT - ---------------------------- -------- 2004........................................................ $491,000 2005........................................................ $321,000 2006........................................................ $280,000 2007........................................................ $218,000 2008........................................................ $187,000
The following selected pro forma information for the fiscal years ended June 30, 2003, 2002 and 2001 assumes the provisions of SFAS 142 had been applied as of the beginning of each of the fiscal years:
FOR THE FISCAL YEAR ENDED JUNE 30, -------------------------------- 2002 2002 2001 -------- -------- -------- (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) Reported net loss................................ $(11,126) $(15,984) $(18,172) Goodwill amortization............................ 0 0 973 -------- -------- -------- Adjusted net loss................................ $(11,126) $(15,984) $(17,199) ======== ======== ======== Basic and diluted (loss) earnings per share: Reported net loss................................ $ (0.74) $ (1.07) $ (1.23) Goodwill amortization............................ 0.00 0.00 0.07 -------- -------- -------- Adjusted net loss................................ $ (0.74) $ (1.07) $ (1.16) ======== ======== ========
NOTE 19 -- CUSTOMER BANKRUPTCY: On September 10, 2001, one large OEM customer, Goss Graphic Systems, Inc. ("Goss") filed for bankruptcy protection under a prearranged Chapter 11 proceeding in the U.S. Bankruptcy Court. Goss's European and Asian subsidiaries were not included in this proceeding. The Company received timely payments, on a post petition basis, from the foreign subsidiaries of Goss, and continues to 68 BALDWIN TECHNOLOGY COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) monitor the status of all Goss payments. At June 30, 2002, the Company's consolidated balance sheet included approximately $1,979,000 of trade receivables from Goss, of which approximately $1,029,000 relates to Goss's European and Asian subsidiaries, which are not included in the bankruptcy proceeding. The balance of $950,000 was fully reserved. As a result of this bankruptcy filing, the Company increased its bad debt reserve related to Goss by $439,000 and $536,000 during the fiscal years ended June 30, 2002 and 2001, respectively. The bad debt write-off in the fiscal year ended June 30, 2002 relates to sales made in the fiscal year ended June 30, 2002, prior to the bankruptcy filing. At June 30, 2003, the Company's consolidated balance sheet included approximately $1,687,000 of trade receivables from Goss, of which approximately $966,000 relates to Goss's European and Asian subsidiaries, which are not included in the bankruptcy proceeding. The balance of $721,000 is fully reserved. The decrease in the reserve of $229,000 was the result of a write-off of an identical amount of domestic accounts receivable of the Company. NOTE 20 -- LEGAL PROCEEDINGS AND SETTLEMENTS: On November 14, 2002, the Dusseldorf Higher Regional Court ("DHRC") announced its judgment in favor of Baldwin in a patent infringement dispute against its competitor, technotrans AG ("Technotrans"). Subsequent to November 14, 2002, Technotrans has filed an appeal of the DHRC ruling with the German Supreme Court in Karlsruhe. Technotrans has also filed to invalidate the Company's patent with the German Patent Court in Munich. No amounts have been recorded in the consolidated financial statements with regard to the potential contingent gain from the DHRC judgment. In February 2002, Epic Products International ("EPIC"), a licensee of one of the Company's subsidiaries, filed a demand for arbitration with the American Arbitration Association in Dallas, Texas, claiming breach of the license agreement and demanding, among other things, damages in an unspecified amount alleging that Baldwin failed to make royalty payments to EPIC as and when due. In October 2002, EPIC amended its arbitration claim to add additional damages and allegations. In February 2003, EPIC and the Company agreed to settle their dispute for a net payment of $737,000, representing the settlement of all existing claims and an amendment to the license agreement on a prospective basis. This settlement amount was paid by the Company over a five-month period ending May 31, 2003. As a result of this settlement, the Company included $250,000 in additional royalty income for the year ended June 30, 2003. In August, 2001, R.R. Donnelley & Sons (RRD), a customer of the Company and a licensor to Baldwin Stobb, formerly a division of the Company, filed a complaint against the Company and Systems Technology Inc. (STI), the entity that acquired substantially all the assets of Baldwin Stobb in September 2000, alleging among other things, breach of a license agreement. In March 2002, RRD amended its complaint alleging additional causes of action. In early March 2003, RRD withdrew some of its claims and moved to again amend its complaint to include additional allegations and request specific performance; in late March 2003, RRD moved to file a corrected second amended complaint, alleging new causes of action and increased damages. The parties reached a settlement in June 2003, under which the Company agreed to provide product, in lieu of cash, to RRD for its share of the settlement, over the course of the next two years, limited to $250,000 per quarter. The Company recognized a charge to earnings, which is included in the loss from continuing operations, during its fiscal quarter and year ended June 30, 2003, in the amount of $1,250,000 representing the fair market value of said product. 69 BALDWIN TECHNOLOGY COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 21 -- WARRANTY COSTS: The Company's standard contractual warranty provisions are to repair or replace, at the Company's option, product that is proven to be defective. The Company estimates its warranty costs as a percentage of revenues on a product by product basis, based on actual historical experience within the Company. Hence, the Company accrues estimated warranty costs at the time of sale. In addition, should the Company become aware of a specific potential warranty claim, a specific charge is recorded and accounted for separate from the percent of revenue discussed above.
WARRANTY AMOUNT ----------- Warranty reserve at June 30, 2002........................... $ 1,516,000 Additional warranty expense accruals........................ 4,738,000 Payments against reserve.................................... (4,778,000) Effects of currency rate fluctuations....................... 189,000 ----------- Warranty reserve at June 30, 2003........................... $ 1,665,000 ===========
70 BALDWIN TECHNOLOGY COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 22 -- QUARTERLY FINANCIAL DATA (UNAUDITED): Summarized quarterly financial data for the fiscal years ended June 30, 2003 and 2002 are as follows (in thousands, except per share data):
QUARTER ---------------------------------------------- FISCAL YEAR ENDED JUNE 30, 2003 FIRST(1) SECOND(2) THIRD(3) FOURTH(4) - ------------------------------- -------- --------- -------- --------- Net sales............................ $32,804 $35,288 $31,061 $35,055 Costs and expenses: Cost of goods sold................. 23,616 23,806 22,957 23,409 Operating expenses................. 11,578 10,475 10,348 10,700 Restructuring charges.............. 3,287 50 67 201 Settlement charges................. 1,250 Provision for loss on disposition of pre-press operations......... 0 0 0 (45) Interest expense, net.............. 642 535 441 512 Other (income), net.................. (273) (453) (1,248) 1,191 ------- ------- ------- ------- (Loss) income from continuing operations before income taxes..... (6,046) 875 (1,504) (2,163) Provision (benefit) for income taxes.............................. 259 363 (387) 943 ------- ------- ------- ------- (Loss) income from continuing operations......................... (6,305) 512 (1,117) (3,106) Discontinued operations: Loss from operations............... (188) (65) 0 0 Gain on sale....................... 0 543 0 0 ------- ------- ------- ------- Net (loss) income.................... $(6,493) $ 990 $(1,117) $(3,106) ======= ======= ======= ======= (Loss) income per share -- basic and diluted: Continuing operations.............. $ (0.42) $ 0.03 $ (0.07) $ (0.21) Discontinued operations............ (0.01) 0.04 (0.00) (0.00) ------- ------- ------- ------- Net (loss) income per share -- basic and diluted........................ $ (0.43) $ 0.07 $ (0.07) $ (0.21) ======= ======= ======= ======= Weighted average shares outstanding: Basic and diluted.................. 15,015 15,015 15,015 15,015 ======= ======= ======= =======
71 BALDWIN TECHNOLOGY COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
QUARTER ---------------------------------------------- FISCAL YEAR ENDED JUNE 30, 2002 FIRST(5) SECOND(6) THIRD(7) FOURTH(8) - ------------------------------- -------- --------- -------- --------- Net sales............................ $37,475 $34,217 $37,867 $ 30,532 Costs and expenses: Cost of goods sold................. 26,653 23,149 25,884 23,128 Operating expenses................. 12,876 10,437 10,955 11,810 Restructuring charges.............. 10 496 289 (174) Provision for loss on disposition of pre-press operations......... 0 (86) 0 0 Interest expense, net.............. 371 342 352 439 Other (income), net.................. (1,295) (335) (1,200) (385) ------- ------- ------- -------- (Loss) income from continuing operations before income taxes..... (1,140) 214 1,587 (4,286) (Benefit) provision for income taxes.............................. (333) 137 513 6,367 ------- ------- ------- -------- (Loss) income from continuing operations......................... (807) 77 1,074 (10,653) Discontinued operations: (Loss) income from operations...... (309) 82 (36) 22 Asset impairment................... 0 0 0 (5,434) ------- ------- ------- -------- Net (loss) income.................... $(1,116) $ 159 $ 1,038 $(16,065) ======= ======= ======= ======== (Loss) income per share -- basic and diluted: Continuing operations.............. $ (0.06) $ 0.01 $ 0.07 $ (0.71) Discontinued operations............ (0.02) 0.00 (0.00) (0.36) ------- ------- ------- -------- Net (loss) income per share -- basic and diluted........................ $ (0.08) $ 0.01 $ 0.07 $ (1.07) ======= ======= ======= ======== Weighted average shares outstanding: Basic and diluted.................. 14,680 14,953 15,015 15,015 ======= ======= ======= ========
72 BALDWIN TECHNOLOGY COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) - --------------------- (1) The first quarter of fiscal 2003 cost of goods sold includes an additional warranty cost of $700,000 related to two customer installations. The first quarter of fiscal 2003 other expenses includes an additional loss on the sale of RHG of $211,000 and a loss of $65,000 on a derivative financial instrument that did not qualify as a hedge pursuant to SFAS 133. See Note 7. (2) The second quarter of fiscal 2003 other expenses includes a gain of $91,000 on a derivative financial instrument that did not qualify as a hedge pursuant to SFAS 133. See Note 7. (3) The third quarter of fiscal 2003 other expenses includes a gain of $122,000 on a derivative financial instrument that did not qualify as a hedge pursuant to SFAS 133. See Note 7. The third quarter of fiscal 2001 includes a reduction to a reserve in the amount of $472,000 related to the sale of the PPO. See Note 4. (4) The fourth quarter of fiscal 2003 operating expenses includes a bad debt charge of $137,000 related to the sale of the POD, which occurred in November 2001. See Note 8. The fourth quarter of fiscal 2003 includes a refund of $45,000 related to the sale of the PPO. See Note 4. The fourth quarter of fiscal 2003 other expenses includes charges relating to the Company's financing and strategic alternatives of $1,289,000 and a currency exchange loss of $263,000 associated with the payoff of a foreign letter of credit. The fourth quarter of fiscal 2003 other expenses also includes a gain of $140,000 on a derivative financial instrument that did not qualify as a hedge pursuant to SFAS 133. See Note 7. (5) The first quarter of fiscal 2002 operating expenses include a $634,000 bad debt charge related to Goss. (6) The second quarter of fiscal 2002 operating expenses include a partial recovery of $195,000 of a bad debt charge related to Goss and a $289,000 profit sharing accrual reversal. The second quarter of fiscal 2002 includes a reduction to a reserve in the amount of $86,000 related to the sale of the PPO. See Note 4. The second quarter of fiscal 2002 other income includes a $206,000 loss on certain derivative financial instruments which became speculative and no longer qualified as hedges pursuant to SFAS 133 as a result of the divestiture of the RHG, a $170,000 charge for an interest rate swap, which ceased to qualify as a hedge pursuant to SFAS 133, and a $255,000 write-down of deferred financing costs. (7) The third quarter of fiscal 2002 cost of goods sold includes a $352,000 charge for inventory write-offs associated with plant consolidations as the Company decided to discard certain inventory rather than incur transfer costs. The third quarter of fiscal 2002 operating expenses includes $112,000 of interest forgiveness related to a note receivable from an officer of the Company. (8) The fourth quarter of fiscal 2002 other income includes a $250,000 loss on the divestiture of the RHG as a result of further negotiations with the purchaser and the finalization of the purchase price. The fourth quarter of fiscal 2002 restructuring charge includes a credit adjustment of $541,000 relating to severance benefits, as these costs are not expected to be paid under the restructuring plan. The fourth quarter of fiscal 2002 provision for income taxes includes a $7,046,000 valuation allowance associated with the current year's domestic net operating losses. 73 BALDWIN TECHNOLOGY COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 23 -- SUBSEQUENT EVENTS: In August 2003, the Company expanded the August 2002 Plan and announced additional employment reductions of 15 in the United States and 8 in the United Kingdom. In addition, the Company closed its office in Dunstable, England and is currently running its two separate business operations from its Poole, England location in an effort to reduce or eliminate certain costs as part of its global restructuring plan. The additional costs associated with the expansion of the August 2002 Plan amounted to approximately $400,000, comprised of; $243,000 in severance costs, $130,000 in lease termination costs and $27,000 in other costs associated with this expansion, which will be expensed as incurred. The majority of these costs will be recognized in the first quarter of the fiscal year ended June 30, 2004. Management believes that the nature and scope of these restructuring activities, in addition to those completed earlier, will be sufficient to restore the Company's profitability and cash flow from operations. On August 18, 2003, the Company entered into a $20,000,000 Credit Agreement (the "Credit Agreement") with Maple Bank GmbH ("Maple" or "Lender"), which if not terminated by the Lender on August 15, 2004 or by the Company by payment in full, shall terminate in its entirety on August 15, 2005. The credit facility is collateralized by substantially all of the accounts and notes receivable of the Company and a portion of the Company's inventory up to a maximum amount of $5,000,000. Borrowings under the credit facility are subject to a borrowing base and bear interest at a rate equal to the three-month Eurodollar rate (as defined in the Credit Agreement) plus (i) 10% for loans denominated in U.S. Dollars or (ii) 11.5% for loans denominated in Euros. The interest rate will be reduced by 0.50% or whole increments thereof for each whole increment of Disclosed EBITDA (as defined in the Credit Agreement) that equals or exceeds $1,250,000 for any fiscal quarter commencing with the quarter ending December 31, 2003. In no event however, may the interest rate be less than 10.5% per annum. The initial borrowings under the credit facility amounted to $18,874,000, of which the Company utilized $16,243,000 to retire its previously existing debt and associated interest with Fleet National Bank and Wachovia Bank National Association. The Credit Agreement does not require the Company to meet any financial covenants. On September 3, 2003, Gus A. Paloian, as the Chapter 7 Trustee of the Bankruptcy Estate of GGSI Liquidation, Inc., (formerly Goss Graphics Systems, Inc.) filed a complaint in Federal Bankruptcy Court against Enkel Corporation, a subsidiary of the Company which prior to the sale of substantially all of its assets in September 2001, had operations in Illinois. The complaint seeks to avoid and recover transfers made to or for the benefit of, and to disallow claims, if any, filed by, Enkel Corporation, claiming the return of an aggregate amount of $929,421.75 as "Transfers" made during a "Preference Period" on or within ninety (90) days before GGSI filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code on September 10, 2001. The Company believes the claims made by the Trustee are without merit, and it intends to vigorously assert several defenses to defend its position. 74 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There has been no Form 8-K filed within 24 months prior to the date of the most recent financial statements reporting a change of accountants and/or reporting a disagreement on any matter of accounting principle or financial statement disclosure. ITEM 9A. CONTROLS AND PROCEDURES Baldwin maintains disclosure controls and procedures designed to ensure that the information required to be disclosed in the reports that Baldwin files or submits under the Securities and Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Baldwin's management, with the participation of Baldwin's Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of these disclosure controls and procedures as of the end of our fiscal year ended June 30, 2003, the period covered by this report. Based on that evaluation, Baldwin's Chief Executive Officer and Chief Financial Officer have concluded that Baldwin's disclosure controls and procedures are effective to achieve their stated purpose. However, there is no assurance that Baldwin's disclosure controls and procedures will operate effectively under all circumstances. No changes were made to Baldwin's internal control over financial reporting during the fourth fiscal quarter of the fiscal year ended June 30, 2003, that has materially affected, or is reasonably likely to materially affect, Baldwin's internal control over financial reporting. PART III ITEMS 10, 11, 12 AND 13 Information required under these items is contained in the Company's 2003 Proxy Statement, which will be filed with the Securities and Exchange Commission within 120 days after the close of the Company's fiscal year end; accordingly, this information is therefore incorporated herein by reference. PART IV ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Information concerning fees billed by PricewaterhouseCoopers LLP, Baldwin's independent accountants, during the fiscal years ended June 30, 2002 and 2003 is incorporated herein by reference to page 24 of Baldwin's Proxy Statement. ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) Financial statements required by Item 14 are listed in the index included in Item 8 of Part II. (a)(2) The following is a list of financial statement schedules filed as part of this Report:
PAGE ---- Report of Independent Auditors on Financial Statement 81 Schedule.................................................. Schedule II -- Valuation and Qualifying Accounts............ 82
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. 75 (a)(3) The following is a list of all exhibits filed as part of this Report: INDEX TO EXHIBITS 3.1 Restated Certificate of Incorporation of the Company as filed with the Secretary of State of the State of Delaware on November 4, 1986. Filed as Exhibit 3.1 to the Company's registration statement (No. 33-10028) on Form S-1 and incorporated herein by reference. 3.2 Certificate of Amendment of the Certificate of Incorporation of the Company as filed with the Secretary of State of the State of Delaware on November 21, 1988. Filed as Exhibit 3.2 to the Company's Registration Statement (No. 33-26121) on Form S-1 and incorporated herein by reference. 3.3 Certificate of Amendment of the Certificate of Incorporation of the Company as filed with the Secretary of State of the State of Delaware on November 20, 1990. Filed as Exhibit 3.3 to the Company's Report on Form 10-K for the fiscal year ended June 30, 1991 and incorporated herein by reference. 3.4 By-Laws of the Company. Filed as Exhibit 3.2 to the Company's Registration Statement (No. 33-10028) on Form S-1 and incorporated herein by reference. 10.1* Baldwin Technology Company, Inc. Amended and Restated 1986 Stock Option Plan. Filed as Exhibit 10.2 to the Company's Registration Statement (No. 33-31163) on Form S-1 and incorporated herein by reference. 10.2* Amendment to the Baldwin Technology Company, Inc. amended and Restated 1986 Stock Option Plan. Filed as Exhibit 10.2 to the Company's Report on Form 10-K for the fiscal year ended June 30, 1991 and incorporated herein by reference. 10.3* Baldwin Technology Company, Inc. 1990 Directors' Stock Option Plan. Filed as Exhibit 10.3 to the Company's Report on Form 10-K for the fiscal year ended June 30, 1991 and incorporated herein by reference. 10.4* Baldwin Technology Company, Inc. 1996 Stock Option Plan. Filed as Exhibit A to the Baldwin Technology Company, Inc. 1996 Proxy Statement and incorporated by reference to the Company's Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by reference. 10.7 Agreement effective as of July 1, 1990 between Baldwin Technology Corporation, Baldwin Graphic Systems, Inc. and Harold W. Gegenheimer, as guaranteed by Baldwin Technology Company, Inc. Filed as Exhibit 10.6 to the Company's Report on Form 10-K for the fiscal year ended June 30, 1991 and incorporated herein by reference. 10.9* Employment Agreement dated as of November 16, 1988 between Baldwin-Japan Limited and Akira Hara. Filed as Exhibit 10.22 to the Company's Registration Statement (No. 33-26121) on Form S-1 and incorporated herein by reference. 10.11 Baldwin Technology Company, Inc. Dividend Reinvestment Plan. Filed as Exhibit 10.49 to the Company's Report on Form 10-K for the fiscal year ended June 30, 1991 and incorporated herein by reference. 10.16* Amendment to Employment Agreement between Baldwin-Japan Limited and Akira Hara effective August 15, 1995. Filed as Exhibit 10.25 to the Company's Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by reference. 10.27* Baldwin Technology Company, Inc. 1998 Non-Employee Directors' Stock Option Plan. Filed as Exhibit A to the
76 Baldwin Technology Company, Inc. 1998 Proxy Statement and incorporated herein by reference. 10.35* Employment Agreement dated and effective as of April 27, 2000 between Baldwin Technology Company, Inc. and Peter E. Anselmo. Filed as Exhibit 10.34 to the Company's Report on Form 10-Q for the quarter ended March 31, 2000 and incorporated herein by reference. 10.38 Asset Purchase Agreement dated as of September 7, 2000 by and among Baldwin Technology Corporation and Systems Technology, Inc. Filed as Exhibit 10.38 to the Company's report on Form 10-K for the fiscal year ended June 30, 2000 and incorporated herein by reference. 10.39 Amendment to Purchase Agreement dated as of September 27, 2000 by and between Baldwin Technology Corporation and Systems Technology, Inc. Filed as Exhibit 10.39 to the Company's report on Form 10-K for the fiscal year ended June 30, 2000 and incorporated herein by reference. 10.41* Employment Agreement dated and effective as of March 19, 2001 between Baldwin Technology Company, Inc. and Gerald A. Nathe. Filed as Exhibit 10.41 to the Company's report on Form 10-Q for the quarter ended March 31, 2001 and incorporated herein by reference. 10.42* Employment Agreement dated June 6, 2001 and effective as of March 21, 2001 between Baldwin Technology Company, Inc. and John T. Heald. Filed as Exhibit 10.42 to the Company's Report on Form 10-K for the fiscal year ended June 30, 2001 and incorporated herein by reference. 10.43* Amendment to Employment Agreement dated and effective as of April 29, 2000 between Baldwin Technology Company, Inc. and Peter E. Anselmo. Filed as Exhibit 10.43 to the Company's Report on Form 10-K for the fiscal year ended June 30, 2001 and incorporated herein by reference. 10.44* Employment Agreement dated June 8, 2001 and effective as of June 18, 2001 between Baldwin Technology Company, Inc. and Vijay C. Tharani. Filed as Exhibit 10.44 to the Company's Report on Form 10-K for the fiscal year ended June 30, 2001 and incorporated herein by reference. 10.45 Asset and Share Purchase Agreement, dated as of July 20, 2001 by and among Sequa Corporation, Megtec Systems, Inc. and the Company. Filed as Exhibit 10.45 to the Company's report on Form 8-K dated September 26, 2001 and incorporated herein by reference. 10.46 Amendment No. 1 to Asset and Share Purchase Agreement dated September 25, 2001 and effective August 31, 2001 by and among Sequa Corporation, Megtec Systems, Inc. and the Company. Filed as Exhibit 10.46 to the Company's report on Form 8-K dated September 26, 2001 and incorporated herein by reference. 10.47* Amendment to employment agreement dated and effective as of October 17, 2001 between Baldwin Technology Company, Inc. and John T. Heald, Jr. Filed as Exhibit 10.47 to the Company's Report on Form 10-Q for the quarter ended September 30, 2001 and incorporated herein by reference.
77 10.48 Amended and Restated Credit Agreement among Baldwin Americas Corporation, Baldwin Europe Consolidated, Inc. and Baldwin Asia Pacific Corporation, as Borrowers, the other credit parties signatory thereto, the Lenders (as defined in the Credit Agreement), Fleet National Bank, as Administrative Agent, and First Union National Bank, as Documentation Agent, dated as of January 29, 2002. Filed as Exhibit 10.48 to the Company's Report on Form 10-Q for the quarter ended December 31, 2001 and incorporated herein by reference. 10.49* Employment Agreement dated September 19, 2001 and effective as of November 1, 2001 between Baldwin Technology Company, Inc. and Karl S. Puehringer. Filed as Exhibit 10.49 to the Company's Report on Form 10-Q for the quarter ended December 31, 2001 and incorporated herein by reference. 10.50* Amendment to Employment Agreement dated February 26, 2002 and effective November 14, 2001 between Baldwin Technology Company, Inc. and Gerald A. Nathe. Filed as Exhibit 10.50 to the Company's Report on Form 10-Q for the quarter ended March 31, 2002 and incorporated herein by reference. 10.51* Amendment to Employment Agreement dated February 26, 2002 and effective November 14, 2001 between Baldwin Technology Company, Inc. and John T. Heald, Jr. Filed as Exhibit 10.51 to the Company's Report on Form 10-Q for the quarter ended March 31, 2002 and incorporated herein by reference. 10.52* Amendment to Employment Agreement dated April 12, 2002 and effective May 1, 2001 between Baldwin Technology Company, Inc. and Pete E. Anselmo. Filed as Exhibit 10.52 to the Company's Report on Form 10-Q for the quarter ended March 31, 2002 and incorporated herein by reference. 10.53* Baldwin Technology Profit Sharing and Savings Plan as Amended (filed herewith). 10.54* Baldwin Technology Management Incentive Compensation Plan. Filed as Exhibit 10.54 to the Company's Report on Form 10-K for the year ended June 30, 2002. 10.55 Asset Purchase Agreement, dated as of October 3, 2002 by and among Baldwin Kansa Corporation and Gerald E. Waddell, Ronnie K. Swint and Vektek, Inc. Filed as Exhibit 10.55 to the Company's Report on Form 10-K for the year ended June 30, 2002. 10.56* Severance Agreement dated September 11, 2002 and effective August 2, 2002 between Baldwin Technology Company, Inc. and Peter E. Anselmo Filed as Exhibit 10.56 to the Company's Report on Form 10-Q for the quarter ended September 30, 2002. 10.57* Consulting Agreement dated and effective August 2, 2002 between Baldwin Technology Company, Inc. and Peter E. Anselmo. Filed as Exhibit 10.57 to the Company's Report on Form 10-Q for the quarter ended September 30, 2002. 10.58 Amended and Restated Loan and Pledge Agreement dated and effective November 21, 2002 between Baldwin Technology Company, Inc. and John T. Heald, Jr. Filed as Exhibit 10.59 to the Company's Report on Form 10-Q for the quarter ended December 31, 2002. 10.59* Employment Agreement dated and effective May 12, 2003 between Baldwin Technology Company, Inc. and Karl S. Puehringer. Filed as Exhibit 10.60 to the Company's Report on Form 10-Q for the quarter ended March 30, 2003. 10.60* Employment Agreement dated February 14, 2003 and effective January 1, 2003 between Baldwin Technology Company, Inc. and Shaun J. Kilfoyle. Filed as Exhibit 10.61 to the Company's Report on Form 10-Q for the quarter ended March 30, 2003. 10.61* Amendment to Employment Agreement dated and effective August 13, 2002 between Baldwin Technology Company, Inc. and Gerald A. Nathe. (filed herewith).
78 10.62* Amendment to Employment Agreement dated July 11, 2003 and effective July 1, 2003 between Baldwin Technology Company, Inc. and Gerald A. Nathe (filed herewith). 10.63 Credit Agreement among Baldwin Europe Consolidated, B.V., as Borrower, and Baldwin Technology Company, Inc., as Parent, Guarantor and Borrower Representative, and Baldwin Americas Corporation, Baldwin Europe Consolidated Inc., Baldwin Asia Pacific Corporation, Baldwin Graphic Systems, Inc., Baldwin Germany GmbH, Baldwin U.K. Holding Limited, Baldwin (U.K) Ltd., Acrotec UK Ltd., Baldwin Globaltec Ltd., Baldwin Sweden Holding AB, Baldwin IVT AB, Baldwin Jimek AB, Japan-Baldwin Ltd., as Guarantors, and Maple Bank GmbH, as Lender, dated as of July 25, 2003. Filed as Exhibit 10.64 to the Company's Current Report on Form 8-K dated August 18, 2003. 21. List of Subsidiaries of Registrant (filed herewith). 23. Consent of PricewaterhouseCoopers LLP (filed herewith). 28. Post-effective Amendment to the Company's previously filed Form S-8's, Nos. 33-20611 and 33-30455. Filed as Exhibit 28 to the Company's Report on Form 10-K for the fiscal year ended June 30, 1991 and incorporated herein by reference. 31.01 Certification of the Principal Executive Officer pursuant to Exchange Act Rule 13a-14(a)/ 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). 31.02 Certification of the Principal Financial Officer pursuant to Exchange Act Rule 13a-14(a)/ 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). 32.01 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 (filed herewith). 32.02 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 (filed herewith). 99. Company statement regarding the Private Securities Litigation Reform Act of 1995, "Safe Harbor for Forward-Looking Statements" (filed herewith).
- --------------------- * Management contract or compensatory plan or arrangement. (b) Reports on Form 8-K The Company filed a Current Report on Form 8-K dated May 7, 2003 relating to items 7 and 9. 79 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. BALDWIN TECHNOLOGY COMPANY, INC. -------------------------------------- (REGISTRANT) By: /s/ GERALD A. NATHE ------------------------------------ GERALD A. NATHE (CHAIRMAN OF THE BOARD) Dated: October 13, 2003 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.
SIGNATURE TITLE DATE --------- ----- ---- /s/ GERALD A. NATHE Chairman of the Board, October 13, 2003 - --------------------------------------------------- President and Chief GERALD A. NATHE Executive Officer /s/ VIJAY C. THARANI Vice President, Chief October 13, 2003 - --------------------------------------------------- Financial Officer and VIJAY C. THARANI Treasurer /s/ ROLF BERGSTROM Director October 13, 2003 - --------------------------------------------------- ROLF BERGSTROM /s/ AKIRA HARA Director October 13, 2003 - --------------------------------------------------- AKIRA HARA /s/ JUDITH A. MULHOLLAND Director October 13, 2003 - --------------------------------------------------- JUDITH A. MULHOLLAND /s/ SAMUEL B. FORTENBAUGH III Director October 13, 2003 - --------------------------------------------------- SAMUEL B. FORTENBAUGH III /s/ MARK T. BECKER Director October 13, 2003 - --------------------------------------------------- MARK T. BECKER /s/ HENRY F. MCINERNEY Director October 13, 2003 - --------------------------------------------------- HENRY F. MCINERNEY /s/ RALPH R. WHITNEY, JR. Director October 13, 2003 - --------------------------------------------------- RALPH R. WHITNEY, JR.
80 (This page intentionally left blank) REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors and Shareholders of BALDWIN TECHNOLOGY COMPANY, INC. Our audits of the consolidated financial statements of Baldwin Technology Company, Inc. referred to in our report dated September 24, 2003 appearing in the 2003 Annual Report to Shareholders of Baldwin Technology Company, Inc. (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 15(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PricewaterhouseCoopers LLP Stamford, Connecticut September 24, 2003 81 (This page intentionally left blank) SCHEDULE II BALDWIN TECHNOLOGY COMPANY, INC VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
BALANCE AT CHARGED TO CHARGED TO BALANCE BEGINNING COSTS AND OTHER AT END OF PERIOD EXPENSES ACCOUNTS DEDUCTION OF PERIOD ---------- ---------- ---------- --------- --------- Year ended June 30, 2003 Allowance for doubtful accounts (deducted from accounts receivable)...................... $ 1,994 $ 674(2) $382(1,2) $ 2,286 Allowance for obsolete inventories (deducted from inventories)...... $ 3,290 $ 779(3) $ 4,069 Valuation allowance for deferred tax asset............................ $22,924 $4,911(5) $2,475(6) $30,310 Year ended June 30, 2002 Allowance for doubtful accounts (deducted from accounts receivable)...................... $ 1,943 $ 955(9) $904(1) $ 1,994 Allowance for obsolete inventories (deducted from inventories)...... $ 3,070 $ 314 $ 94(7) $ 3,290 Valuation allowance for deferred tax asset............................ $16,714 $6,210(4) $22,924 Year ended June 30, 2001 Allowance for doubtful accounts (deducted from accounts receivable)...................... $ 1,705 $1,066(9) $828(1) $ 1,943 Allowance for obsolete inventories (deducted from inventories)...... $ 3,772 $702(10) $ 3,070 Valuation allowance for deferred tax asset............................ $17,356 $642(8) $16,714
- --------------- (1) The decrease in the allowance for doubtful accounts for the fiscal year ended June 30, 2003 resulted from write-off's of $632,000, including $137,000 from the purchaser of the POD business that was sold in November 2001 (See Note 8 to the Consolidated Financial Statements) and accounts receivable of $239,000 from Goss Graphic Systems, Inc. ("Goss"), which was partially offset by currency fluctuations of $250,000. The decrease in the allowance for doubtful accounts for the fiscal year ended June 30, 2002 resulted from $603,000 of write-offs, recoveries of $195,000 and currency fluctuations of $106,000. The decrease in the allowance for doubtful accounts for the fiscal year ended June 30, 2001 resulted from $610,000 of write-offs and currency fluctuations of $218,000. (2) The amounts charged to costs and expenses and the deductions both include a write-off of $137,000 resulting from the filing for Chapter 7 bankruptcy protection by the purchaser of the POD business that was sold in November 2001. (3) The increase in the allowance for obsolete inventories resulted primarily from additional charges of $475,000 and currency fluctuations of $304,000. (4) The decrease in the amount of the valuation allowance is primarily the result of a reduction of the reserve related to foreign net operating loss carryforwards. See Note 12 to the Consolidated Financial Statements. (5) The increase in the amount of the valuation allowance relates primarily to certain domestic deferred tax assets that the Company does not believe it will be more likely than not realize. See Note 12 to the Consolidated Financial Statements. (6) The increase in the amount of the valuation allowance relates primarily to certain foreign and domestic deferred tax assets that the Company does not believe it will be more likely than not realize. See Note 12 to the Consolidated Financial Statements. (7) The increase in the valuation allowance is primarily the result of currency rate fluctuations. See Note 12 to the Consolidated Financial Statements. (8) The decrease in the allowance for obsolete inventories resulted primarily from the write-off of inventory associated with the sale of the Company's former in-line finishing division. 82 (9) The decrease in the amount of the valuation allowance is primarily the result of a reduction of the reserve related to foreign net operating loss carryforwards. See Note 12 to the Consolidated Financial Statements. (10) The amounts charged to costs and expenses include a $634,000 and a $536,000 reserve for Goss for the fiscal years ended June 30, 2002 and 2001, respectively. (11) The decrease in the allowance for obsolete inventories resulted primarily from the write-offs against the reserve for the sale of the Baldwin Stobb Division. 83 EX-10.53 3 y90086kexv10w53.txt PROFIT SHARING AND SAVINGS PLAN AS AMENDED Exhibit 10.53 MFS RETIREMENT SERVICES, INC. PROTOTYPE PAIRED DEFINED CONTRIBUTION PLANS For CORPORATIONS, ASSOCIATIONS AND SELF-EMPLOYED INDIVIDUALS APRIL, 2002 TABLE OF CONTENTS ARTICLE I DEFINITIONS ARTICLE II ADMINISTRATION 2.1 POWERS AND RESPONSIBILITIES OF THE EMPLOYER.......................... 12 2 2 DESIGNATION OF ADMINISTRATIVE AUTHORITY.............................. 12 2.3 ALLOCATION AND DELEGATION OF RESPONSIBILITIES........................ 13 2.4 POWERS AND DUTIES OF THE ADMINISTRATOR............................... 13 2.5 RECORDS AND REPORTS.................................................. 14 2.6 APPOINTMENT OF ADVISERS.............................................. 14 2.7 INFORMATION FROM EMPLOYER............................................ 14 2.8 PAYMENT OF EXPENSES.................................................. 14 2.9 MAJORITY ACTIONS..................................................... 14 2.10 CLAIMS PROCEDURE..................................................... 14 2.11 CLAIMS REVIEW PROCEDURE.............................................. 15 ARTICLE III ELIGIBILITY 3.1 CONDITIONS OF ELIGIBILITY............................................ 15 3.2 EFFECTIVE DATE OF PARTICIPATION...................................... 15 3.3 DETERMINATION OF ELIGIBILITY......................................... 15 3.4 TERMINATION OF ELIGIBILITY........................................... 16 3.5 OMISSION OF ELIGIBLE EMPLOYEE........................................ 16 3.6 INCLUSION OF INELIGIBLE EMPLOYEE..................................... 16 3.7 REHIRED EMPLOYEES.................................................... 16 3.8 ELECTION NOT TO PARTICIPATE.......................................... 17 3.9 CONTROL OF ENTITIES BY OWNER-EMPLOYEE................................ 17 ARTICLE IV CONTRIBUTION AND ALLOCATION 4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION...................... 17 4.2 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION........................... 17 4.3 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS................. 17 4.4 MAXIMUM ANNUAL ADDITIONS............................................. 22 4.5 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS............................ 25 4.6 ROLLOVERS............................................................ 26
4.7 PLAN-TO-PLAN TRANSFERS FROM QUALIFIED PLANS.......................... 27 4.8 VOLUNTARY EMPLOYEE CONTRIBUTIONS..................................... 27 4.9 QUALIFIED VOLUNTARY EMPLOYEE CONTRIBUTIONS........................... 28 4.10 DIRECTED INVESTMENT ACCOUNT.......................................... 28 4.11 INTEGRATION IN MORE THAN ONE PLAN.................................... 29 4.12 UNIFORMED SERVICES................................................... 29 ARTICLE V VALUATIONS 5.1 VALUATION OF THE TRUST FUND.......................................... 30 5.2 METHOD OF VALUATION.................................................. 30 ARTICLE VI DETERMINATION AND DISTRIBUTION OF BENEFITS 6.1 DETERMINATION OF BENEFITS UPON RETIREMENT............................ 30 6.2 DETERMINATION OF BENEFITS UPON DEATH................................. 30 6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY..................... 31 6.4 DETERMINATION OF BENEFITS UPON TERMINATION........................... 31 6.5 DISTRIBUTION OF BENEFITS............................................. 33 6.6 DISTRIBUTION OF BENEFITS UPON DEATH.................................. 37 6.7 TIME OF SEGREGATION OR DISTRIBUTION.................................. 39 6.8 DISTRIBUTION FOR MINOR BENEFICIARY................................... 39 6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN....................... 40 6.10 IN-SERVICE DISTRIBUTION.............................................. 40 6.11 ADVANCE DISTRIBUTION FOR HARDSHIP.................................... 40 6.12 SPECIAL RULE FOR NON-ANNUITY PLANS................................... 40 6.13 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION...................... 41 6.14 DIRECT ROLLOVERS..................................................... 41 6.15 TRANSFER OF ASSETS FROM A MONEY PURCHASE PLAN........................ 42 ARTICLE VII TRUSTEE AND CUSTODIAN 7.1 BASIC RESPONSIBILITIES OF THE TRUSTEE................................ 42 7.2 POWERS AND DUTIES OF DISCRETIONARY TRUSTEE........................... 43 7.3 DIRECTED TRUSTEE..................................................... 45 7.4 POWERS AND DUTIES OF CUSTODIAN....................................... 47 7.5 LIFE INSURANCE....................................................... 47 7.6 LOANS TO PARTICIPANTS................................................ 48 7.7 MAJORITY ACTIONS..................................................... 49
7.8 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES........................ 49 7.9 ANNUAL REPORT OF THE TRUSTEE......................................... 50 7.10 AUDIT................................................................ 50 7.11 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE....................... 50 7.12 TRANSFER OF INTEREST................................................. 51 7.13 TRUSTEE INDEMNIFICATION.............................................. 51 7.14 EMPLOYER SECURITIES AND REAL PROPERTY................................ 51 ARTICLE VIII AMENDMENT, TERMINATION AND MERGERS 8.1 AMENDMENT............................................................ 53 8.2 TERMINATION.......................................................... 53 8.3 MERGER, CONSOLIDATION OR TRANSFER OF ASSETS.......................... 54 ARTICLE IX TOP HEAVY PROVISIONS 9.1 TOP HEAVY PLAN REQUIREMENTS.......................................... 54 9.2 DETERMINATION OF TOP HEAVY STATUS.................................... 54 ARTICLE X MISCELLANEOUS 10.1 EMPLOYER ADOPTIONS................................................... 55 10.2 PARTICIPANT'S RIGHTS................................................. 56 10.3 ALIENATION........................................................... 56 10.4 CONSTRUCTION OF PLAN................................................. 56 10.5 GENDER AND NUMBER.................................................... 56 10.6 LEGAL ACTION......................................................... 56 10.7 PROHIBITION AGAINST DIVERSION OF FUNDS............................... 56 10.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE........................... 57 10.9 INSURER'S PROTECTIVE CLAUSE.......................................... 57 10.10 RECEIPT AND RELEASE FOR PAYMENTS..................................... 57 10.11 ACTION BY THE EMPLOYER............................................... 57 10.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY................... 57 10.13 HEADINGS............................................................. 58 10.14 APPROVAL BY INTERNAL REVENUE SERVICE................................. 58 10.15 UNIFORMITY........................................................... 58 10.16 PAYMENT OF BENEFITS.................................................. 58
ARTICLE XI PARTICIPATING EMPLOYERS 11.1 ELECTION TO BECOME A PARTICIPATING EMPLOYER.......................... 58 11.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS.............................. 58 11.3 DESIGNATION OF AGENT................................................. 58 11.4 EMPLOYEE TRANSFERS................................................... 58 11.5 PARTICIPATING EMPLOYER'S CONTRIBUTION AND FORFEITURES................ 59 11.6 AMENDMENT............................................................ 59 11.7 DISCONTINUANCE OF PARTICIPATION...................................... 59 11.8 ADMINISTRATOR'S AUTHORITY............................................ 59 11.9 PARTICIPATING EMPLOYER CONTRIBUTION FOR AFFILIATE.................... 59 ARTICLE XII CASH OR DEFERRED PROVISIONS 12.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION...................... 60 12.2 PARTICIPANT'S SALARY REDUCTION ELECTION.............................. 60 12.3 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS................. 62 12.4 ACTUAL DEFERRAL PERCENTAGE TESTS..................................... 64 12.5 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS....................... 65 12.6 ACTUAL CONTRIBUTION PERCENTAGE TESTS................................. 68 12.7 ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS................... 70 12.8 SAFE HARBOR PROVISIONS............................................... 72 12.9 ADVANCE DISTRIBUTION FOR HARDSHIP.................................... 74 ARTICLE XIII SIMPLE 401(K) PROVISIONS 13.1 DEFINITIONS.......................................................... 74 13.2 CONTRIBUTIONS........................................................ 75 13.3 ELECTION AND NOTICE REQUIREMENTS..................................... 75 13.4 VESTING REQUIREMENTS................................................. 76 13.5 TOP HEAVY RULES...................................................... 76 13.6 NONDISCRIMINATION TESTS.............................................. 76
ARTICLE I DEFINITIONS As used in this Plan, the following words and phrases shall have the meanings set forth herein unless a different meaning is clearly required by the context: 1.1 "ACP" means the Actual Contribution Percentage determined pursuant to Section 12.6(e). 1.2 "ACT" means the Employee Retirement Income Security Act of 1974, as it may be amended from time to time. 1.3 "ADP" means the Actual Deferral Percentage determined pursuant to Section 12.4(e). 1.4 "ADMINISTRATOR" means the Employer unless another person or entity has been designated by the Employer pursuant to Section 2.2 to administer the Plan on behalf of the Employer. 1.5 "ADOPTION AGREEMENT" means the separate agreement which is executed by the Employer and sets forth the elective provisions of this Plan and Trust as specified by the Employer. 1.6 "AFFILIATED EMPLOYER" means any corporation which is a member of a controlled group of corporations (as defined in Code Section 414(b)) which includes the Employer; any trade or business (whether or not incorporated) which is under common control (as defined in Code Section 414(c)) with the Employer; any organization (whether or not incorporated) which is a member of an affiliated service group (as defined in Code Section 414(m)) which includes the Employer; and any other entity required to be aggregated with the Employer pursuant to Treasury Regulations under Code Section 414(o). 1.7 "ANNIVERSARY DATE" means the last day of the Plan Year. 1.8 "ANNUITY STARTING DATE" means, with respect to any Participant, the first day of the first period for which an amount is paid as an annuity, or, in the case of a benefit not payable in the form of an annuity, the first day on which all events have occurred which entitle the Participant to such benefit. 1.9 "BENEFICIARY" means the person (or entity) to whom all or a portion of a deceased Participant's interest in the Plan is payable, subject to the restrictions of Sections 6.2 and 6.6. 1.10 "CODE" means the Internal Revenue Code of 1986, as amended. 1.11 "COMPENSATION" with respect to any Participant means one of the following as elected or stated in the Adoption Agreement: (a) Information required to be reported under Code Sections 6041, 6051 and 6052 (Wages, tips and other compensation as reported on Form W-2). Compensation means wages, within the meaning of Code Section 3401(a), 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 a written statement under Code Sections 6041(d), 6051(a)(3) and 6052. Compensation must be determined without regard to any rules under Code Section 3401(a) 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 Code Section 3401(a)(2)). (b) Code Section 3401(a) Wages. Compensation means wages within the meaning of Code Section 3401(a) for the purposes of income tax withholding at the source but determined without regard to any rules 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 Code Section 3401(a)(2)). (c) 415 Safe-Harbor Compensation. Compensation means wages, salaries, and fees for professional services and other amounts received (without regard to whether or not an amount is paid in cash) for personal services actually rendered in the course of employment with the Employer maintaining the Plan to the extent that the amounts are includible in gross income (including, but not limited to, commissions paid salespersons, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, bonuses, fringe benefits, and reimbursements, or other expense allowances under a nonaccountable plan (as described in Treasury Regulation Section 1.62-2(c)), and excluding the following: 1 (1) Employer contributions to a plan of deferred compensation which are not includible in the Employee's gross income for the taxable year in which contributed, or Employer contributions under a simplified employee pension plan to the extent such contributions are excludable from the Employee's gross income, or any distributions from a plan of deferred compensation; (2) Amounts realized from the exercise of a nonqualified stock option, or when restricted stock (or property) held by the Employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture; (3) Amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; and (4) Other amounts which receive special tax benefits, or contributions made by the Employer (whether or not under a salary reduction agreement) towards the purchase of an annuity contract described in Code Section 403(b) (whether or not the contributions are actually excludable from the gross income of the Employee). However, Compensation for any Self-Employed Individual shall be equal to Earned Income. Compensation shall include only that Compensation which is actually paid to the Participant during the determination period. Notwithstanding the preceding sentence, Compensation for a Participant in a defined contribution plan who is permanently and totally disabled (as defined in Code Section 22(e)(3)) is the Compensation such Participant would have received for the Limitation Year if the Participant had been paid at the rate of compensation paid immediately before becoming permanently and totally disabled. For Limitation Years beginning before January 1, 1997, such imputed compensation for a disabled Participant may be taken into account only if the Participant is not a Highly Compensated Employee and contributions made on behalf of such Participant are nonforfeitable when made. Except as otherwise provided in this Plan, the determination period shall be the period elected by the Employer in the Adoption Agreement. If the Employer makes no election, the determination period shall be the Plan Year. Furthermore, unless otherwise elected in the Adoption Agreement, Compensation for a determination period shall only be recognized for an Employee's period of participation in the component of the Plan for which Compensation is being used. Notwithstanding the above, if elected or stated in the Adoption Agreement, Compensation shall include all of the following types of elective contributions and all of the following types of deferred compensation: (a) Elective contributions that are made by the Employer on behalf of a Participant that are not includible in gross income under Code Sections 125, 132(f)(4), 402(e)(3), 402(h)(1)(B) and 403(b); (b) Compensation deferred under an eligible deferred compensation plan within the meaning of Code Section 457(b); and (c) Employee contributions (under governmental plans) described in Code Section 414(h)(2) that are picked up by the employing unit and thus are treated as Employer contributions. Compensation in excess of $150,000 (or such other amount as adjusted in accordance with the Code) shall be disregarded for all purposes other than for purposes of salary deferral elections. Such amount shall be adjusted by the Commissioner for increases in the cost-of-living in accordance with Code Section 401(a)(17)(B). The cost-of-living adjustment in effect for a calendar year applies to any determination period beginning in such calendar year. If a determination period consists of fewer than twelve (12) months, the $150,000 annual Compensation limit will be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is twelve (12). Notwithstanding the foregoing, except as otherwise elected in an Adoption Agreement, the family member aggregation rules of Code Sections 401(a)(17) and 414(q)(6) as in effect prior to the enactment of the Small Business Job Protection Act of 1996 shall not apply to this Plan effective with respect to Plan Years beginning after December 31, 1996. If, in the Adoption Agreement, the Employer elects to exclude a class of Employees from the Plan, then Compensation for any Employee who becomes eligible or ceases to be eligible to participate during a determination period shall only include Compensation while the Employee is an Eligible Employee. If, in connection with the adoption of any amendment, the definition of Compensation has been modified, then, except as otherwise provided herein, for Plan Years prior to the Plan Year which includes the adoption date of such amendment, Compensation means compensation determined pursuant to the terms of the Plan then in effect. 1.12 "CONTRACT" OR "POLICY" means any life insurance policy, retirement income policy, or annuity contract (group or individual) issued by the Insurer. In the event of any conflict between the terms of this Plan and the terms of any contract purchased hereunder, the Plan provisions shall control. 2 1.13 "DESIGNATED INVESTMENT ALTERNATIVE" means, as defined under 29 CFR 2550.404c-1, a specific investment identified by name by the Employer (or such other Fiduciary who has been given the authority to select investment options) as an available investment under the Plan to which Plan assets may be invested by the Trustee pursuant to the investment direction of a Participant. 1.14 "DIRECTED INVESTMENT OPTION" means a Designated Investment Alternative and any other investment permitted by the Plan and the Participant Direction Procedures to which Plan assets may be invested pursuant to the investment direction of a Participant. 1.15 "EARLY RETIREMENT DATE" means the date specified in the Adoption Agreement on which a Participant or Former Participant satisfies the requirements specified in the Adoption Agreement (Early Retirement Age). If elected in the Adoption Agreement, a Participant shall become fully Vested upon satisfying such requirements if the Participant is still employed at the Early Retirement Age. A Former Participant who separates from service after satisfying any service requirement but before satisfying the age requirement for Early Retirement Age and who thereafter reaches the age requirement contained herein shall be entitled to receive benefits under this Plan (other than any accelerated vesting and allocations of Employer's contributions) as though the requirements for Early Retirement Age had been satisfied. 1.16 "EARNED INCOME" means the net earnings from self-employment in the trade or business with respect to which the Plan is established, for which the personal services of the individual are a material income-producing factor. Net earnings will be determined without regard to items not included in gross income and the deductions allocable to such items. Net earnings are reduced by contributions by the Employer to a qualified Plan to the extent deductible under Code Section 404. In addition, net earnings shall be determined with regard to the deduction allowed to the taxpayer by Code Section 164(f), for taxable years beginning after December 31, 1989. 1.16A "ELAPSED TIME METHOD" means the service crediting method under which an Employee will receive credit for the aggregate of all time period(s) commencing with the Employee's first day of employment or reemployment and ending on the date a Break in Service begins. The first day of employment or reemployment is the first day the employee performs an Hour of Service. An Employee will also receive credit for any period of severance of less than 12 consecutive months. Fractional periods of a year will be expressed in terms of days. 1.17 "ELECTIVE DEFERRALS" means the Employer's contributions to the Plan that are made pursuant to a Participant's deferral election pursuant to Section 12.2, excluding any such amounts distributed as excess annual additions pursuant to Section 4.5. Elective Deferrals shall be subject to the requirements of Sections 12.2(b) and 12.2(c) and shall, except as otherwise provided herein, be required to satisfy the nondiscrimination requirements of Treasury Regulation Section 1.401(k)-1(b)(2), the provisions of which are specifically incorporated herein by reference. 1.18 "ELIGIBLE EMPLOYEE" means any Eligible Employee as elected in the Adoption Agreement. However, with respect to a non-standardized Adoption Agreement, Employees classified by the Employer as independent contractors who are subsequently determined by the IRS to be Employees shall not be Eligible Employees. Furthermore, with respect to a standardized Adoption Agreement, the Employees of an entity which becomes an Affiliated Employer as the result of a "Section 410(b)(6)(C) transaction" may only be treated as Eligible Employees after the earlier of the date the entity adopts the Plan as a Participating Employer or the first day of the second Plan Year beginning after the date of such transaction (after the expiration of the transition period for certain dispositions or acquisitions set forth in Code Section 410(b)(6)(C)). With respect to a non-standardized Adoption Agreement, the Employees of an Affiliated Employer may not be treated as Eligible Employees until the date the entity adopts the Plan as a Participating Employer. If, in the Adoption Agreement, the Employer elects to exclude union employees, then Employees whose employment is governed by a collective bargaining agreement between the Employer and "employee representatives" under which retirement benefits were the subject of good faith bargaining shall not be eligible to participate in this Plan. For this purpose, the term "employee representatives" does not include any organization more than half of whose members are employees who are owners, officers, or executives of the Employer. If, in the Adoption Agreement, the Employer elects to exclude non-resident aliens, then Employees who are non-resident aliens (within the meaning of Code Section 7701(b)(1)(B)) who received no earned income (within the meaning of Code Section 911(d)(2)) from the Employer which constitutes income from sources within the United States (within the meaning of Code Section 861(a)(3)) shall not be eligible to participate in this Plan. 1.19 "EMPLOYEE" means any person who is employed by the Employer, and excludes any person who is employed as an independent contractor. The term "Employee" shall also include any person who is an employee of an Affiliated Employer and any Leased Employees to the extent required by Code Section 414(n) or (o). 1.20 "EMPLOYER" means the entity specified in the Adoption Agreement, any successor which shall maintain this Plan and any predecessor which has maintained this Plan. In addition, unless the context means otherwise, the term "Employer" shall include any Participating Employer (as defined in Section 11.1) which shall adopt this Plan. 1.21 "EXCESS AGGREGATE CONTRIBUTIONS" means, with respect to any Plan Year, the excess of: 3 (a) The aggregate Contribution Percentage Amounts (as defined in Section 12.6(e)) actually made on behalf of Highly Compensated Participants for such Plan Year and taken into account in computing the numerator of the ACP, over (b) The maximum Contribution Percentage Amounts permitted by the ACP test in Section 12.6 (determined by reducing contributions made on behalf of Highly Compensated Participants in order of their Contribution Percentages, beginning with the highest of such percentages). Such determination shall be made after first taking into account corrections of any Excess Deferrals pursuant to Section 12.2 and then taking into account adjustments of any Excess Contributions pursuant to Section 12.5. 1.22 "EXCESS COMPENSATION" means, with respect to a Plan that is integrated with Social Security (permitted disparity), a Participant's Compensation which is in excess of the amount elected in the Adoption Agreement. However, if Compensation is based on less than a twelve (12) month period, Excess Compensation shall be reduced by a fraction, the numerator of which is the number of full months in the short period and the denominator of which is twelve (12). 1.23 "EXCESS CONTRIBUTIONS" means, with respect to any Plan Year, the excess of: (a) The aggregate amount of Employer contributions actually made on behalf of Highly Compensated Participants for such Plan Year and taken into account in computing the numerator of the ADP, over (b) The maximum amount of such contributions permitted by the ADP test in Section 12.4 (determined by reducing contributions made on behalf of Highly Compensated Participants in order of the actual deferral ratios, beginning with the highest of such ratios). In determining the amount of Excess Contributions to be distributed and/or recharacterized with respect to an affected Highly Compensated Participant as determined herein, such amount shall be reduced by any Excess Deferrals previously distributed to such affected Highly Compensated Participant for the Participant's taxable year ending with or within such Plan Year. 1.24 "EXCESS DEFERRALS" means, with respect to any taxable year of a Participant, those elective deferrals (within the meaning of Code Section 402(g)) that are includible in the Participant's gross income under Code Section 402(g) to the extent such Participant's elective deferrals for the taxable year exceed the dollar limitation under such Code Section. Excess Deferrals shall be treated as an Annual Addition pursuant to Section 4.4 when contributed to the Plan unless distributed to the affected Participant not later than the first April 15th following the close of the Participant's taxable year in which the Excess Deferral was made. Additionally, for purposes of Sections 4.3(f) and 9.2, Excess Deferrals shall continue to be treated as Employer contributions even if distributed pursuant to Section 12.2(e). However, Excess Deferrals of Non-Highly Compensated Participants are not taken into account for purposes of Section 12.4. 1.25 "FIDUCIARY" means any person who (a) exercises any discretionary authority or discretionary control respecting management of the Plan or exercises any authority or control respecting management or disposition of its assets, (b) renders investment advice for a fee or other compensation, direct or indirect, with respect to any monies or other property of the Plan or has any authority or responsibility to do so, or (c) has any discretionary authority or discretionary responsibility in the administration of the Plan. 1.26 "FISCAL YEAR" means the Employer's accounting year as specified in the Adoption Agreement. 1.27 "FORFEITURE" means, with respect to a Former Participant who has severed employment, that portion of the Participant's Account that is not Vested. Unless otherwise elected in the Adoption Agreement, Forfeitures occur pursuant to (a) below. A Forfeiture will occur on the earlier of: (1) The last day of the Plan Year in which a Former Participant who has severed employment with the Employer incurs five (5) consecutive 1-Year Breaks in Service, or (2) The distribution of the entire Vested portion of the Participant's Account of a Former Participant who has severed employment with the Employer. For purposes of this provision, if the Former Participant has a Vested benefit of zero, then such Former Participant shall be deemed to have received a distribution of such Vested benefit as of the year in which the severance of employment occurs. Regardless of the preceding provisions, if a Former Participant is eligible to share in the allocation of Employer contributions or Forfeitures in the year in which the Forfeiture would otherwise occur, then the Forfeiture will not occur until the end of the first Plan Year for which the Former Participant is not eligible to share in the allocation of Employer contributions or Forfeitures. Furthermore, the term Forfeiture shall also include amounts deemed to be Forfeitures pursuant to any other provision of this Plan. 4 1.28 "FORMER PARTICIPANT" means a person who has been a Participant, but who has ceased to be a Participant for any reason. 1.29 "414(S) COMPENSATION" means a definition of compensation that satisfies the nondiscrimination requirements of Code Section 414(s) and the Treasury Regulations thereunder and, if applicable, as elected in the Adoption Agreement. An Employer may limit the period taken into account to that part of the Plan Year or calendar year in which an Employee was a Participant in the component of the Plan being tested. The period used to determine 414(s) Compensation must be applied uniformly to all Participants for the Plan Year. To the extent elected in the Adoption Agreement, 414(s) Compensation shall not include elective amounts that are not includable in gross income of the Participant under Code Section 132(f)(4) for Plan Years beginning on or after January 1, 2001, or the first day of the first Plan Year (no earlier than January 1, 1998) for which the Plan was operated to exclude amounts. 1.30 "415 COMPENSATION" means, with respect to any Participant, such Participant's (a) Wages, tips and other compensation on Form W-2, (b) Section 3401(a) wages or (c) 415 safe-harbor compensation as elected or stated in the Adoption Agreement for purposes of Compensation. 415 Compensation shall be based on the full Limitation Year regardless of when participation in the Plan commences. Furthermore, regardless of any election made in the Adoption Agreement, with respect to Limitation Years beginning after December 31, 1997, 415 Compensation shall include any elective deferral (as defined in Code Section 402(g)(3)) and any amount which is contributed or deferred by the Employer at the election of the Participant and which is not includible in the gross income of the Participant by reason of Code Section 125 or 457. For Limitation Years beginning prior to January 1, 1998, 415 Compensation shall exclude such amounts and for Limitation Years beginning on or after January 1, 2001 or the first day of the first Limitation Year after December 31, 1997, for which the Plan was operated in accordance with the amendment of Section 415(c)(3) pursuant to the Community Renewal Tax Relief Act of 2000 (the "CRA amendment of Section 415(c)(3)"). 415 Compensation shall include any amount not includible in gross income of the Participant by reason of Code Section 132(f)(4). Except as otherwise provided herein, if, in connection with the adoption of any amendment, the definition of 415 Compensation has been modified, then for Plan Years prior to the Plan Year which includes the adoption date of such amendment, 415 Compensation means compensation determined pursuant to the terms of the Plan then in effect. 1.31 "HIGHLY COMPENSATED EMPLOYEE" means, effective for Plan Years beginning after December 31, 1996, an Employee described in Code Section 414(q) and the Treasury Regulations thereunder, and generally means any Employee who: (a) was a five percent (5%) owner as defined in Section 1.37(c) at any time during the determination year or the look-back year; or (b) for the look-back year had 415 Compensation from the Employer in excess of $80,000 and, if elected in the Adoption Agreement, was in the Top-Paid Group for the look-back year. The $80,000 amount is adjusted at the same time and in the same manner as under Code Section 415(d), except that the base period is the calendar quarter ending September 30, 1996. The "determination year" means the Plan Year for which testing is being performed and the look-back year means the immediately preceding twelve (12) month period. However, if the calendar year data election is made in the Adoption Agreement, for purposes of (b) above, the look-back year shall be the calendar year beginning within the twelve (12) month period immediately preceding the determination year. Notwithstanding the preceding sentence, if the calendar year data election is effective with respect to a Plan Year beginning in 1997, then for such Plan Year the look-back year shall be the calendar year ending with or within the Plan Year for which testing is being performed, and the determination year shall be the period of time, if any, which extends beyond the look-back year and ends on the last day of the Plan Year for which testing is being performed. A highly compensated former employee is based on the rules applicable to determining highly compensated employee status as in effect for that determination year," in accordance with Treasury Regulation Section 1.414(q)-1T, A-4 and IRS Notice 97-45 (or any superseding guidance). In determining whether an employee is a Highly Compensated Employee for a Plan Year beginning in 1997, the amendments to Code Section 414(q) stated above are treated as having been in effect for years beginning in 1996. For purposes of this Section, for Plan Years beginning prior to January 1, 1998, the determination of 415 Compensation shall be made by including amounts that would otherwise be excluded from a Participant's gross income by reason of the application of Code Sections 125, 402(e)(3), 402(h)(1)(B) and, in the case of Employer contributions made pursuant to a salary reduction agreement, Code Section 403(b). For purposes of this Section, for limitation years beginning on or after January 2, 2001, or the first day of the first limitation year for which the Plan was operated in accordance with the CRA Amendment of Section 415(c)(3), but in no case earlier than the first day of the first limitation year beginning on or after January 1, 1998, the compensation paid or made available during such limitation year shall include elective amounts that are not includable in the gross income of the employee by reason of Section 132(f)(4). In determining who is a Highly Compensated Employee, Employees who are non-resident aliens and who received no earned income (within the meaning of Code Section 911(d)) from the Employer constituting United States source income within the meaning of Code Section 861(a)(3) shall not be treated as Employees. Additionally, all Affiliated Employers shall be taken into account as a single employer and Leased Employees within the meaning of Code Sections 414(n)(2) and 414(o)(2) shall be considered Employees 5 unless such Leased Employees are covered by a plan described in Code Section 414(n)(5) and are not covered in any qualified plan maintained by the Employer. The exclusion of Leased Employees for this purpose shall be applied on a uniform and consistent basis for all of the Employer's retirement plans. 1.32 "HIGHLY COMPENSATED PARTICIPANT" means any Highly Compensated Employee who is eligible to participate in the component of the Plan being tested. 1.33 "HOUR OF SERVICE" means (1) each hour for which an Employee is directly or indirectly compensated or entitled to compensation by the Employer for the performance of duties during the applicable computation period (these hours will be credited to the Employee for the computation period in which the duties are performed); (2) each hour for which an Employee is directly or indirectly compensated or entitled to compensation by the Employer (irrespective of whether the employment relationship has terminated) for reasons other than performance of duties (such as vacation, holidays, sickness, jury duty, disability, lay-off, military duty or leave of absence) during the applicable computation period (these hours will be calculated and credited pursuant to Department of Labor Regulation Section 2530.200b-2 which is incorporated herein by reference); (3) each hour for which back pay is awarded or agreed to by the Employer without regard to mitigation of damages (these hours will be credited to the Employee for the computation period or periods to which the award or agreement pertains rather than the computation period in which the award, agreement or payment is made). The same Hours of Service shall not be credited both under (1) or (2), as the case may be, and under (3). Notwithstanding (2) above, (i) no more than 501 Hours of Service are required to be credited to an Employee on account of any single continuous period during which the Employee performs no duties (whether or not such period occurs in a single computation period); (ii) an hour for which an Employee is directly or indirectly paid, or entitled to payment, on account of a period during which no duties are performed is not required to be credited to the Employee if such payment is made or due under a plan maintained solely for the purpose of complying with applicable workers' compensation, or unemployment compensation or disability insurance laws; and (iii) Hours of Service are not required to be credited for a payment which solely reimburses an Employee for medical or medically related expenses incurred by the Employee. Furthermore, for purposes of (2) above, a payment shall be deemed to be made by or due from the Employer regardless of whether such payment is made by or due from the Employer directly, or indirectly through, among others, a trust fund, or insurer, to which the Employer contributes or pays premiums and regardless of whether contributions made or due to the trust fund, insurer, or other entity are for the benefit of particular Employees or are on behalf of a group of Employees in the aggregate. Hours of Service will be credited for employment with all Affiliated Employers and for any individual considered to be a Leased Employee pursuant to Code Section 414(n) or 414(o) and the Treasury Regulations thereunder. Furthermore, the provisions of Department of Labor Regulations Section 2530.200b-2(b) and (c) are incorporated herein by reference. Hours of Service will be determined on the basis of the method elected in the Adoption Agreement. 1.34 "INSURER" means any legal reserve insurance company which shall issue one or more Contracts or Policies under the Plan. 1.35 "INVESTMENT MANAGER" means an entity that (a) has the power to manage, acquire, or dispose of Plan assets and (b) acknowledges fiduciary responsibility to the Plan in writing. Such entity must be a person, firm, or corporation registered as an investment adviser under the Investment Advisers Act of 1940, a bank, or an insurance company. 1.35A "IRS" means the United States Internal Revenue Service. 1.36 "JOINT AND SURVIVOR ANNUITY" means an annuity for the life of a Participant with a survivor annuity for the life of the Participant's spouse which is not less than fifty percent (50%), nor more than one-hundred percent (100%) of the amount of the annuity payable during the joint lives of the Participant and the Participant's spouse which can be purchased with the Participant's Vested interest in the Plan reduced by any outstanding loan balances pursuant to Section 7.6. 1.37 "KEY EMPLOYEE" means an Employee as defined in Code Section 416(i) and the Treasury Regulations thereunder. Generally, any Employee or former Employee (as well as each of such Employee's or former Employee's Beneficiaries) is considered a Key Employee if, the individual at any time during the Plan Year that contains the Determination Date or any of the preceding four (4) Plan Years, has been included in one of the following categories: (a) an officer of the Employer (as that term is defined within the meaning of the Treasury Regulations under Code Section 416) having annual 415 Compensation greater than fifty percent (50%) of the amount in effect under Code Section 415(b)(1)(A) for any such Plan Year; (b) one of the ten Employees having annual 415 Compensation from the Employer for a Plan Year greater than the dollar limitation in effect under Code Section 415(c)(1)(A) for the calendar year in which such Plan Year ends and owning (or considered as owning within the meaning of Code Section 318) both more than one-half percent (1/2%) interest and the largest interests in the Employer; 6 (c) a "five percent (5%) owner" of the Employer. Five percent (5%) owner means any person who owns (or is considered as owning within the meaning of Code Section 318) more than five percent (5%) of the value of the outstanding stock of the Employer or stock possessing more than five percent (5%) of the total combined voting power of all stock of the Employer or, in the case of an unincorporated business, any person who owns more than five percent (5%) of the capital or profits interest in the Employer; and (d) a "one percent (1%) owner" of the Employer having an annual 415 Compensation from the Employer of more than $150,000. One percent (1%) owner means any person who owns (or is considered as owning within the meaning of Code Section 318) more than one percent (1%) of the value of the outstanding stock of the Employer or stock possessing more than one percent (1%) of the total combined voting power of all stock of the Employer or, in the case of an unincorporated business, any person who owns more than one percent (1%) of the capital or profits interest in the Employer. In determining percentage ownership hereunder, employers that would otherwise be aggregated under Code Sections 414(b), (c), (m) and (o) shall be treated as separate employers. 011230 In determining whether an individual has 415 Compensation of more than $150,000, 415 Compensation from each employer required to be aggregated under Code Sections 414(b), (c), (m) and (o) shall be taken into account. Furthermore, for purposes of this Section, for Plan Years beginning prior to January 1, 1998, the determination of 415 Compensation shall be made by including amounts that would otherwise be excluded from a Participant's gross income by reason of the application of Code Sections 125, 402(e)(3), 402(h)(1)(B) and, in the case of Employer contributions made pursuant to a salary reduction agreement, Code Section 403(b). For Limitation Years beginning on and after the earlier of January 1, 2001 or the first day of the first Limitation Year for which the plan was operated in accordance with the CRA amendment of Section 415(c)(3), but in no case earlier than the first day of the first Limitation Year beginning on or after January 1, 1998, for purposes of this Section 415 Compensation paid or made available during such Limitation Years shall include elective amounts that are not includable in the gross income of the Employee by reason of Section 132(f)(4). 1.38 "LATE RETIREMENT DATE" means the date of, or the first day of the month or the Anniversary Date coinciding with or next following, whichever corresponds to the election in the Adoption Agreement for the Normal Retirement Date, a Participant's actual retirement after having reached the Normal Retirement Date. 1.39 "LEASED EMPLOYEE" means, effective with respect to Plan Years beginning on or after January 1, 1997, any person (other than an Employee of the recipient Employer) who, pursuant to an agreement between the recipient Employer and any other person or entity ("leasing organization"), has performed services for the recipient (or for the recipient and related persons determined in accordance with Code Section 414(n)(6)) on a substantially full time basis for a period of at least one year, and such services are performed under primary direction or control by the recipient Employer. Contributions or benefits provided a Leased Employee by the leasing organization which are attributable to services performed for the recipient Employer shall be treated as provided by the recipient Employer. Furthermore, Compensation for a Leased Employee shall only include Compensation from the leasing organization that is attributable to services performed for the recipient Employer. A Leased Employee shall not be considered an employee of the recipient Employer if: (a) such employee is covered by a money purchase pension plan providing: (1) a nonintegrated employer contribution rate of at least 10 percent of compensation, as defined in Code Section 415(c)(3), but for Plan Years beginning prior to January 1, 1998, including amounts contributed pursuant to a salary reduction agreement which are excludable from the employee's gross income under Code Sections 125, 402(e)(3), 402(h)(1)(B), or 403(b), (2) immediate participation, and (3) full and immediate vesting; and (b) leased employees do not constitute more than 20 percent of the recipient Employer's nonhighly compensated workforce. 1.40 "LIMITATION YEAR" means the determination period used to determine Compensation. However, the Employer may elect a different Limitation Year in the Adoption Agreement or by adopting a written resolution to such effect. All qualified plans maintained by the Employer must use the same Limitation Year. Furthermore, unless there is change to a new Limitation Year, the Limitation Year will be a twelve (12) consecutive month period. In the case of an initial Limitation Year, the Limitation Year will be the twelve (12) consecutive month period ending on the last day of the period specified in the Adoption Agreement (or written resolution). If the Limitation Year is amended to a different twelve (12) consecutive month period, the new Limitation Year must begin on a date within the Limitation Year in which the amendment is made. 1.41 "NET PROFIT" means, with respect to any Fiscal Year, the Employer's net income or profit for such Fiscal Year determined upon the basis of the Employer's books of account in accordance with generally accepted accounting principles, without any reduction for taxes based upon income, or for contributions made by the Employer to this Plan and any other qualified plan. 1.42 "NON-ELECTIVE CONTRIBUTION" means the Employer's contributions to the Plan other than Elective Deferrals, any Qualified Non-Elective Contributions and any Qualified Matching Contributions. Employer matching contributions which are not Qualified Matching Contributions shall be considered a Non-Elective Contribution for purposes of the Plan. 1.42A "NON-HIGHLY COMPENSATED EMPLOYEE" means any Employee who is not a Highly Compensated Employee. 7 1.43 "NON-HIGHLY COMPENSATED PARTICIPANT" means any Participant who is not a Highly Compensated Employee. However, if pursuant to Sections 12.4 or 12.6 the prior year testing method is used to calculate the ADP or the ACP, a Non-Highly Compensated Participant shall be determined using the definition of Highly Compensated Employee in effect for the preceding Plan Year. 1.44 "NON-KEY EMPLOYEE" means any Employee or former Employee (and such Employee's or former Employee's Beneficiaries) who is not, and has never been, a Key Employee. 1.45 "NORMAL RETIREMENT AGE" means the age elected in the Adoption Agreement at which time a Participant's Account shall be nonforfeitable (if the Participant is employed by the Employer on or after that date). 1.46 "NORMAL RETIREMENT DATE" means the date elected in the Adoption Agreement. 1.47 "1-YEAR BREAK IN SERVICE" means, if the Hour of Service method is elected in the Adoption Agreement, the applicable computation period during which an Employee has not completed more than 500 Hours of Service. Further, solely for the purpose of determining whether a Participant has incurred a 1-Year Break in Service, Hours of Service shall be recognized for authorized leaves of absence and maternity and paternity leaves of absence. "Authorized leave of absence" means an unpaid, temporary cessation from active employment with the Employer pursuant to an established nondiscriminatory policy, whether occasioned by illness, military service, or any other reason. A "maternity or paternity leave of absence" means an absence from work for any period by reason of the Employee's pregnancy, birth of the Employee's child, placement of a child with the Employee in connection with the adoption of such child, or any absence for the purpose of caring for such child for a period immediately following such birth or placement. For this purpose, Hours of Service shall be credited for the computation period in which the absence from work begins, only if credit therefore is necessary to prevent the Employee from incurring a 1-Year Break in Service, or, in any other case, in the immediately following computation period. The Hours of Service credited for a maternity or paternity leave of absence shall be those which would normally have been credited but for such absence, or, in any case in which the Administrator is unable to determine such hours normally credited, eight (8) Hours of Service per day. The total Hours of Service required to be credited for a maternity or paternity leave of absence shall not exceed the number of Hours of Service needed to prevent the Employee from incurring a 1-Year Break in Service. If the Elapsed Time method is elected in the Adoption Agreement, a 1-Year Break in Service means a twelve (12) consecutive month period beginning on the severance from service date or any anniversary thereof and ending on the next succeeding anniversary of such date; provided, however, that the Employee during such twelve (12) consecutive month period does not perform an Hour of Service for the Employer. 1.48 "OWNER-EMPLOYEE" means a sole proprietor who owns the entire interest in the Employer or a partner (or member in the case of a limited liability company treated as a partnership or sole proprietorship for federal income tax purposes) who owns more than ten percent (10%) of either the capital interest or the profits interest in the Employer and who receives income for personal services from the Employer. 1.49 "PARTICIPANT" means any Eligible Employee who has satisfied the requirements of Section 3.2 and has not for any reason become ineligible to participate further in the Plan. 1.50 "PARTICIPANT DIRECTED ACCOUNT" means that portion of a Participant's interest in the Plan with respect to which the Participant has directed the investment in accordance with the Participant Direction Procedures. 1.51 "PARTICIPANT DIRECTION PROCEDURES" means such instructions, guidelines or policies, the terms of which are incorporated herein, as shall be established pursuant to Section 4.10 and observed by the Administrator and applied and provided to Participants who have Participant Directed Accounts. 1.52 "PARTICIPANT'S ACCOUNT" means the account established and maintained by the Administrator for each Participant with respect to such Participant's total interest under the Plan resulting from (a) the Employer's contributions in the case of a Profit Sharing Plan or Money Purchase Plan, and (b) the Employer's Non-Elective Contributions in the case of a 401(k) Profit Sharing Plan. Separate accountings shall be maintained with respect to that portion of a Participant's Account attributable to Employer matching, contributions and to Employer discretionary contributions made pursuant to Section 12.1(a)(3). 1.53 "PARTICIPANT'S COMBINED ACCOUNT" means the total aggregate amount of a Participant's interest under the Plan resulting from Employer contributions (including Elective Deferrals). 1.54 "PARTICIPANT'S ELECTIVE DEFERRAL ACCOUNT" means the account established and maintained by the Administrator for each Participant with respect to such Participant's total interest in the Plan resulting from Elective Deferrals. Amounts in the Participant's Elective Deferral Account are nonforfeitable when made and are subject to the distribution restrictions of Section 12.2(c). 8 1.55 "PARTICIPANT'S ROLLOVER ACCOUNT" means the separate account established and maintained by the Administrator for each Participant with respect to such Participant's interest in the Plan resulting from amounts transferred from another qualified plan or conduit Individual Retirement Account in accordance with Section 4.6. 1.56 "PARTICIPANT'S TRANSFER ACCOUNT" means the account established and maintained by the Administrator for each Participant with respect to the total interest in the Plan resulting from amounts transferred to this Plan from a direct plan-to-plan transfer in accordance with Section 4.7 1.57 "PERIOD OF SERVICE" means the aggregate of all periods commencing with an Employee's first day of employment or reemployment with the Employer or an Affiliated Employer and ending on the first day of a Period of Severance. The first day of employment or reemployment is the first day the Employee performs an Hour of Service. An Employee will also receive partial credit for any Period of Severance of less than twelve (12) consecutive months. Fractional periods of a year will be expressed in terms of days. Periods of Service with any Affiliated Employer shall be recognized. Furthermore, Periods of Service with any predecessor employer which maintained this Plan shall be recognized. Periods of Service with any other predecessor employer shall be recognized as elected in the Adoption Agreement. In determining Periods of Service for purposes of vesting under the Plan, Periods of Service will be excluded as elected in the Adoption Agreement and as specified in Section 3.7. In the event the method of crediting service is amended from the Hour of Service method to the Elapsed Time method, an Employee will receive credit for a period of service consisting of: (a) A number of years equal to the number of Years of Service credited to the Employee before the computation period during which the amendment occurs; and (b) The greater of (1) the period of service that would be credited to the Employee under the Elapsed Time Method for service during the entire computation period in which the transfer occurs or (2) the service taken into account under the Hour of Service Method as of the date of the amendment. In addition, the Employee will receive credit for service subsequent to the amendment commencing on the day after the last day of the computation period in which the transfer occurs. 1.58 "PERIOD OF SEVERANCE" means a continuous period of time during which an Employee is not employed by the Employer. Such period begins on the date the Employee retires, quits or is discharged, or if earlier, the twelve (12) month anniversary of the date on which the Employee was otherwise first absent from service. In the case of an individual who is absent from work for maternity or paternity reasons, the twelve (12) consecutive month period beginning on the first anniversary of the first day of such absence shall not constitute a one year Period of Severance. For purposes of this paragraph, an absence from work for maternity or paternity reasons means an absence (a) by reason of the pregnancy of the individual, (b) by reason of the birth of a child of the individual, (c) by reason of the placement of a child with the individual in connection with the adoption of such child by such individual, or (d) for purposes of caring for such child for a period beginning immediately following such birth or placement. 1.59 "PLAN" means this instrument (also referred to as MFS Retirement Services, Inc. Prototype Paired Defined Contribution Plans for Corporations, Associations and Self-Employed Individuals, Basic Plan Document #01 and the Adoption Agreement as adopted by the Employer, including all amendments thereto and any addendum which is specifically permitted pursuant to the terms of the Plan. 1.60 "PLAN YEAR" means the Plan's accounting year as specified in the Adoption Agreement. 1.61 "PRE-RETIREMENT SURVIVOR ANNUITY" means an immediate annuity for the life of a Participant's spouse, the payments under which must be equal to the benefit which can be provided with the percentage, as specified in the Adoption Agreement, of the Participant's Vested interest in the Plan as of the date of death. If no election is made in the Adoption Agreement, the percentage shall be equal to fifty percent (50%). Furthermore, if less than one hundred percent (100%) of the Participant's Vested interest in the Plan is used to provide the Pre-Retirement Survivor Annuity, a proportionate share of each of the Participant's accounts shall be used to provide the Pre-Retirement Survivor Annuity. 1.62 "QUALIFIED MATCHING CONTRIBUTION" means any Employer matching contributions that are made pursuant to Sections 12.1(a)(2), if elected in the Adoption Agreement, 12.5 and 12.7. 1.63 "QUALIFIED MATCHING CONTRIBUTION ACCOUNT" means the account established hereunder to which Qualified Matching Contributions are allocated. Amounts in the Qualified Matching Contribution Account are nonforfeitable when made and are subject to the distribution restrictions of Section 12.2(c). 9 1.64 "QUALIFIED NON-ELECTIVE CONTRIBUTION" means the Employer's contributions to the Plan that are made pursuant to Sections 12.1(a)(4), if elected in the Adoption Agreement, 12.5 and 12.7. 1.65 "QUALIFIED NON-ELECTIVE CONTRIBUTION ACCOUNT" means the account established hereunder to which Qualified Non-Elective Contributions are allocated. Amounts in the Qualified Non-Elective Contribution Account are nonforfeitable when made and are subject to the distribution restrictions of Section 12.2(c). 1.66 "QUALIFIED VOLUNTARY EMPLOYEE CONTRIBUTION ACCOUNT" means the account established hereunder to which a Participant's tax deductible qualified voluntary employee contributions made pursuant to Section 4.9 are allocated. 1.67 "TREASURY REGULATION" means the Income Tax Regulations as promulgated by the Secretary of the Treasury or a delegate of the Secretary of the Treasury, and as amended from time to time. 1.68 "RETIRED PARTICIPANT" means a person who has been a Participant, but who has become entitled to retirement benefits under the Plan. 1.69 "RETIREMENT DATE" means the date as of which a Participant retires for reasons other than Total and Permanent Disability, whether such retirement occurs on a Participant's Normal Retirement Date, Early Retirement Date or Late Retirement Date (see Section 6.1). 1.70 "SELF-EMPLOYED INDIVIDUAL" means an individual who has Earned Income for the taxable year from the trade or business for which the Plan is established, and, also, an individual who would have had Earned Income but for the fact that the trade or business had no net profits for the taxable year. A Self-Employed Individual shall be treated as an Employee. 1.71 "SHAREHOLDER-EMPLOYEE" means a Participant who owns more than five percent (5%) of the Employer's outstanding capital stock during any year in which the Employer elected to be taxed as a Small Business Corporation (S Corporation) under the applicable Code sections relating to Small Business Corporations. 1.72 "SHORT PLAN YEAR" means, if specified in the Adoption Agreement, a Plan Year of less than a twelve (12) month period. If there is a Short Plan Year, the following rules shall apply in the administration of this Plan. In determining whether an Employee has completed a Year of Service (or Period of Service if the Elapsed Time Method is used) for benefit accrual purposes in the Short Plan Year, the number of the Hours of Service (or months of service if the Elapsed Time Method is used) required shall be proportionately reduced based on the number of days (or months) in the Short Plan Year. The determination of whether an Employee has completed a Year of Service (or Period of Service) for vesting and eligibility purposes shall be made in accordance with Department of Labor Regulation Section 2530.203-2(c). In addition, if this Plan is integrated with Social Security, then the integration level shall be proportionately reduced based on the number of months in the Short Plan Year. 1.73 "SUPER TOP HEAVY PLAN" means a plan which would be a Top Heavy Plan if sixty percent (60%) is replaced with ninety percent (90%) in Section 9.2(a). However, effective as of the first Plan Year beginning after December 31, 1999, no Plan shall be considered a Super Top Heavy Plan. 1.74 "TAXABLE WAGE BASE" means, with respect to any Plan Year, the contribution and benefit base under Section 230 of the Social Security Act at the beginning of such Plan Year. 1.75 "TERMINATED PARTICIPANT" means a person who has been a Participant, but whose employment has been terminated other than by death, Total and Permanent Disability or retirement. 1.76 "TOP HEAVY PLAN" means a plan described in Section 9.2(a). 1.77 "TOP HEAVY PLAN YEAR" means a Plan Year commencing after December 31, 1983, during which the Plan is a Top Heavy Plan. 1.78 "TOP-PAID GROUP" shall be determined pursuant to Code Section 414(q) and the Treasury Regulations thereunder and generally means the top twenty percent (20%) of Employees who performed services for the Employer during the applicable year, ranked according to the amount of 415 Compensation received from the Employer during such year. All Affiliated Employers shall be taken into account as a single employer, and Leased Employees shall be treated as Employees if required pursuant to Code Section 414(n) or (o). Employees who are non-resident aliens who received no earned income (within the meaning of Code Section 911(d)(2)) from the Employer constituting United States source income within the meaning of Code Section 861(a)(3) shall not be treated as Employees. Furthermore, for the purpose of determining the number of active Employees in any year, the following additional Employees may also be excluded, however, such Employees shall still be considered for the purpose of identifying the particular Employees in the Top-Paid Group: (a) Employees with less than six (6) months of service; 10 (b) Employees who normally work less than 171/2hours per week; (c) Employees who normally work less than six (6) months during a year; and (d) Employees who have not yet attained age twenty-one (21). In addition, if ninety percent (90%) or more of the Employees of the Employer are covered under agreements the Secretary of Labor finds to be collective bargaining agreements between Employee representatives and the Employer, and the Plan covers only Employees who are not covered under such agreements, then Employees covered by such agreements shall be excluded from both the total number of active Employees as well as from the identification of particular Employees in the Top- Paid Group. The foregoing exclusions set forth in this Section shall be applied on a uniform and consistent basis for all purposes for which the Code Section 414(q) definition is applicable. Furthermore, in applying such exclusions, the Employer may substitute any lesser service, hours or age. 1.79 "TOTAL AND PERMANENT DISABILITY" Unless elected otherwise in the Adoption Agreement, means the inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve (12) months. The permanence and degree of such impairment shall be supported by medical evidence. The disability of a Participant shall be determined by a licensed physician chosen by the Administrator. However, if the condition constitutes total disability under the federal Social Security Acts, the Administrator may rely upon such determination that the Participant is Totally and Permanently Disabled for the purposes of this Plan. The determination shall be applied uniformly to all Participants. 1.80 "TRUSTEE" means the person or entity named in the Adoption Agreement, or any successors thereto. 1.81 "TRUST FUND" means the assets of the Plan and Trust as the same shall exist from time to time. 1.82 "VALUATION DATE" means the date or dates specified in the Adoption Agreement. Regardless of any election to the contrary or in the absence of any election, the Valuation Date shall include the Anniversary Date and may include any other date or dates deemed necessary or appropriate by the Administrator for the valuation of Participants' Accounts during the Plan Year, which may include any day that the Trustee, any transfer agent appointed by the Trustee or the Employer, or any stock exchange used by such agent, are open for business. 1.83 "VESTED" means the nonforfeitable portion of any account maintained on behalf of a Participant. 1.84 "VOLUNTARY CONTRIBUTION ACCOUNT" means the account established and maintained by the Administrator for each Participant with respect to such Participant's total interest in the Plan resulting from the Participant's after-tax voluntary Employee contributions made pursuant to Section 4.8. Amounts recharacterized as after-tax voluntary Employee contributions pursuant to Section 12.5 shall remain subject to the limitations of Section 12.2. Therefore, a separate accounting shall be maintained with respect to that portion of the Voluntary Contribution Account attributable to after-tax voluntary Employee contributions made pursuant to Section 4.8. 1.85 "YEAR OF SERVICE" means the computation period of twelve (12) consecutive months, herein set forth, and during which an Employee has completed at least 1000 Hours of Service or, if less, the number of Hours of Service specified in the Adoption Agreement. For purposes of eligibility for participation, the initial computation period shall begin with the date on which the Employee first performs an Hour of Service (employment commencement date). The initial computation period beginning after a 1-Year Break in Service shall be measured from the date on which an Employee again performs an Hour of Service. The succeeding computation periods shall begin on the anniversary of the Employee's employment commencement date. However, if elected in the Adoption Agreement, the computation period after the initial computation period shall shift to the current Plan Year which includes the anniversary of the date on which the Employee first performed an Hour of Service, and subsequent computation periods shall be the Plan Year. If there is a shift to the Plan Year, an Employee who is credited with the number of Hours of Service to be credited with a Year of Service in both the initial eligibility computation period and the first Plan Year which commences prior to the first anniversary of the Employee's initial eligibility computation period will be credited with two (2) Years of Service for purposes of eligibility to participate. If two (2) Years of Service are required as a condition of eligibility, a Participant will only have completed two (2) Years of Service for eligibility purposes upon completing two (2) consecutive Years of Service without an intervening 1-Year Break-in-Service. For vesting purposes, and all other purposes not specifically addressed in this Section, the computation period shall be the period elected in the Adoption Agreement. If no election is made in the Adoption Agreement, the computation period shall be the Plan Year. 11 In determining Years of Service for purposes of vesting under the Plan, Years of Service will be excluded as elected in the Adoption Agreement and as specified in Section 3.7. Years of Service and 1-Year Breaks in Service will be measured on the same computation period. Years of Service with any Affiliated Employer shall be recognized. Furthermore, Years of Service with any predecessor employer which maintained this Plan shall be recognized. Years of Service with any other predecessor employer shall be recognized as elected in the Adoption Agreement. In the event the method of crediting service is amended from the Elapsed Time Method to the Hour of Service Method, an Employee will receive credit: (a) The number of Years of Service equal to the number of 1-year Periods of Service credited to the Employee as of the date of the amendment; and (b) In the computation period which includes the date of the amendment, a number of Hours of Service (using the Hours of Service equivalency method elected in the Adoption Agreement) to any fractional part of a year credited to the Employee under this Section as of the date of the amendment. ARTICLE II ADMINISTRATION 2.1 POWERS AND RESPONSIBILITIES OF THE EMPLOYER (a) In addition to the general powers and responsibilities otherwise provided for in this Plan, the Employer shall be empowered to appoint and remove the Trustee and the Administrator from time to time as it deems necessary for the proper administration of the Plan to ensure that the Plan is being operated for the exclusive benefit of the Participants and their Beneficiaries in accordance with the terms of the Plan, the Code, and the Act. The Employer may appoint counsel, specialists, advisers, agents (including any nonfiduciary agent) and other persons as the Employer deems necessary or desirable in connection with the exercise of its fiduciary duties under this Plan. The Employer may compensate such agents or advisers from the assets of the Plan as fiduciary expenses (but not including any business (settlor) expenses of the Employer), to the extent not paid by the Employer. (b) The Employer shall establish a funding policy and method, i.e., it shall determine whether the Plan has a short run need for liquidity (e.g., to pay benefits) or whether liquidity is a long run goal and investment growth (and stability of same) is a more current need, or shall appoint a qualified person to do so. If the Trustee has discretionary authority, the Employer or its delegate shall communicate such needs and goals to the Trustee, who shall coordinate such Plan needs with its investment policy. The communication of such a funding policy and method shall not, however, constitute a directive to the Trustee as to the investment of the Trust Funds. Such funding policy and method shall be consistent with the objectives of this Plan and with the requirements of Title I of the Act. (c) The Employer may appoint, at its option, an Investment Manager, investment adviser, or other agent to provide direction to the Trustee with respect to any or all of the Plan assets. Such appointment shall be given by the Employer in writing in a form acceptable to the Trustee and shall specifically identify the Plan assets with respect to which the Investment Manager or other agent shall have the authority to direct the investment. (d) The Employer shall periodically review the performance of any Fiduciary or other person to whom duties have been delegated or allocated by it under the provisions of this Plan or pursuant to procedures established hereunder. This requirement may be satisfied by formal periodic review by the Employer or by a qualified person specifically designated by the Employer, through day-to-day conduct and evaluation, or through other appropriate ways. 2.2 DESIGNATION OF ADMINISTRATIVE AUTHORITY The Employer may appoint one or more Administrators. If the Employer does not appoint an Administrator, the Employer will be the Administrator. Any person, including, but not limited to, the Employees of the Employer, shall be eligible to serve as an Administrator. Any person so appointed shall signify acceptance by filing written acceptance with the Employer. An Administrator may resign by delivering a written resignation to the Employer or be removed by the Employer by delivery of written notice of removal, to take effect at a date specified therein, or upon delivery to the Administrator if no date is specified. Upon the resignation or removal of an Administrator, the Employer may designate in writing a successor to this position. 12 2.3 ALLOCATION AND DELEGATION OF RESPONSIBILITIES If more than one person is appointed as Administrator, the responsibilities of each Administrator may be specified by the Employer and accepted in writing by each Administrator. In the event that no such delegation is made by the Employer, the Administrators may allocate the responsibilities among themselves, in which event the Administrators shall notify the Employer and the Trustee in writing of such action and specify the responsibilities of each Administrator. The Trustee thereafter shall accept and rely upon any documents executed by the appropriate Administrator until such time as the Employer or the Administrators file with the Trustee a written revocation of such designation. 2.4 POWERS AND DUTIES OF THE ADMINISTRATOR The primary responsibility of the Administrator is to administer the Plan for the exclusive benefit of the Participants and their Beneficiaries, subject to the specific terms of the Plan. The Administrator shall administer the Plan in accordance with its terms and shall have the power and discretion to construe the terms of the Plan and determine all questions arising in connection with the administration, interpretation, and application of the Plan. Any such determination by the Administrator shall be conclusive and binding upon all persons. The Administrator may establish procedures, correct any defect, supply any information, or reconcile any inconsistency in such manner and to such extent as shall be deemed necessary or advisable to carry out the purpose of the Plan; provided, however, that any procedure, discretionary act, interpretation or construction shall be done in a nondiscriminatory manner based upon uniform principles consistently applied and shall be consistent with the intent that the Plan continue to be deemed a qualified plan under the terms of Code Section 401(a), and shall comply with the terms of the Act and all regulations issued pursuant thereto. The Administrator shall have all powers necessary or appropriate to accomplish its duties under this Plan. The Administrator shall be charged with the duties of the general administration of the Plan as set forth under the terms of the Plan, including, but not limited to, the following: (a) the discretion to determine all questions relating to the eligibility of an Employee to participate or remain a Participant hereunder and to receive benefits under the Plan; (b) to compute, certify, and direct the Trustee with respect to the amount and the kind of benefits to which any Participant shall be entitled hereunder; (c) to authorize and direct the Trustee with respect to all discretionary or otherwise directed disbursements from the Trust Fund; (d) to maintain all necessary records for the administration of the Plan; (e) to interpret the provisions of the Plan and to make and publish such rules for regulation of the Plan that are consistent with the terms hereof; (f) to determine the size and type of any Contract to be purchased from any Insurer, and to designate the Insurer from which such Contract shall be purchased; (g) to compute and certify to the Employer and to the Trustee from time to time the sums of money necessary or desirable to be contributed to the Plan; (h) to consult with the Employer and the Trustee regarding the short and long-term liquidity needs of the Plan in order that the Trustee can exercise any investment discretion (if the Trustee has such discretion), in a manner designed to accomplish specific objectives; (i) to prepare and implement a procedure for notifying Participants and Beneficiaries of their rights to elect Joint and Survivor Annuities and Pre-Retirement Survivor Annuities if required by the Plan, Code and Treasury Regulations thereunder; (j) to assist Participants regarding their rights, benefits, or elections available under the Plan; (k) to act as the named Fiduciary responsible for communicating with Participants as needed to maintain Plan compliance with Act Section 404(c) (if the Employer intends to comply with Act Section 404(c)) including, but not limited to, the receipt and transmission of Participants' directions as to the investment of their accounts under the Plan and the formation of policies, rules, and procedures pursuant to which Participants may give investment instructions with respect to the investment of their accounts; (l) to determine the validity of, and take appropriate action with respect to, any qualified domestic relations order received by it; and 13 (m) to carry out the duties, rights, powers and authority ascribed to it under the provisions of Article VII of the Plan, including, without limitation, the duties, rights, powers and authority of the Administrator when the Trustee is a Directed Trustee. 2.5 RECORDS AND REPORTS The Administrator shall keep a record of all actions taken and shall keep all other books of account, records, and other data that may be necessary for proper administration of the Plan and shall be responsible for supplying all information and reports to the IRS, Department of Labor, Participants, Beneficiaries and others as required by law. 2.6 APPOINTMENT OF ADVISERS The Administrator, or the Trustee with the consent of the Administrator, may appoint counsel, specialists, advisers, agents (including nonfiduciary agents) and other persons as the Administrator or the Trustee deems necessary or desirable in connection with the administration of this Plan, including but not limited to agents and advisers to assist with the administration and management of the Plan, and thereby to provide, among such other duties as the Administrator may delegate,assistance with maintaining Plan records and the providing of investment information to the Plan's investment fiduciaries and, if applicable, to Plan Participants. 2.7 INFORMATION FROM EMPLOYER The Employer shall supply full and timely information to the Administrator on all pertinent facts as the Administrator may require in order to perform its functions hereunder and the Administrator shall advise the Trustee of such of the foregoing facts as may be pertinent to the Trustee's duties under the Plan. The Administrator may rely upon such information as is supplied by the Employer and shall have no duty or responsibility to verify such information. 2.8 PAYMENT OF EXPENSES All expenses of administration may be paid out of the Trust Fund unless paid by the Employer. Such expenses shall include any expenses incident to the functioning of the Administrator, or any person or persons retained or appointed by any named Fiduciary incident to the exercise of their duties under the Plan, including, but not limited to, fees of accountants, counsel, Investment Managers, agents (including nonfiduciary agents) appointed for the purpose of assisting the Administrator or Trustee in carrying out the instructions of Participants as to the directed investment of their accounts (if permitted) and other specialists and their agents, the costs of any bonds required pursuant to Act Section 412, and other costs of administering the Plan. Until paid, the expenses shall constitute a liability of the Trust Fund. Any administration expense paid to the Trust Fund as a reimbursement shall not be considered an Employer Contribution. 2.9 MAJORITY ACTIONS Except where there has been an allocation and delegation of administrative authority pursuant to Section 2.3, if there is more than one Administrator, then they shall act by a majority of their number, but may authorize one or more of them to sign all papers on their behalf. 2.10 CLAIMS PROCEDURE Claims for benefits under the Plan may be filed in writing with the Administrator. Written notice of the disposition of a claim shall be furnished to the claimant within ninety (90) days after the application is filed, or such period as is required by applicable law or Department of Labor regulation. In the event the claim is denied, the reasons for the denial shall be specifically set forth in the notice in language calculated to be understood by the claimant, pertinent provisions of the Plan shall be cited, and, where appropriate, an explanation as to how the claimant can perfect the claim will be provided. In addition, the claimant shall be furnished with an explanation of the Plan's claims review procedure. 14 2.11 CLAIMS REVIEW PROCEDURE Any Employee, former Employee, or Beneficiary of either, who has been denied a benefit by a decision of the Administrator pursuant to Section 2.10 shall be entitled to request the Administrator to give further consideration to the claim by filing with the Administrator a written request for a hearing. Such request, together with a written statement of the reasons why the claimant believes such claim should be allowed, shall be filed with the Administrator no later than sixty (60) days after receipt of the written notification provided for in Section 2.10. The Administrator shall then conduct a hearing within the next sixty (60) days, at which the claimant may be represented by an attorney or any other representative of such claimant's choosing and expense and at which the claimant shall have an opportunity to submit written and oral evidence and arguments in support of the claim. At the hearing (or prior thereto upon five (5) business days written notice to the Administrator) the claimant or the claimant's representative shall have an opportunity to review all documents in the possession of the Administrator which are pertinent to the claim at issue and its disallowance. Either the claimant or the Administrator may cause a court reporter to attend the hearing and record the proceedings. In such event, a complete written transcript of the proceedings shall be furnished to both parties by the court reporter. The full expense of any such court reporter and such transcripts shall be borne by the party causing the court reporter to attend the hearing. A final decision as to the allowance of the claim shall be made by the Administrator within sixty (60) days of receipt of the appeal (unless there has been an extension of sixty (60) days due to special circumstances, provided the delay and the special circumstances occasioning it are communicated to the claimant within the sixty (60) day period). Such communication shall be written in a manner calculated to be understood by the claimant and shall include specific reasons for the decision and specific references to the pertinent Plan provisions on which the decision is based. Notwithstanding the preceding, to the extent any of the time periods specified in this Section are amended by law or Department of Labor regulation, then the time frames specified herein shall automatically be changed in accordance with such law or regulation. ARTICLE III ELIGIBILITY 3.1 CONDITIONS OF ELIGIBILITY Any Eligible Employee shall be eligible to participate hereunder on the date such Employee has satisfied the conditions of eligibility elected in the Adoption Agreement. 3.2 EFFECTIVE DATE OF PARTICIPATION An Eligible Employee who has satisfied the conditions of eligibility pursuant to Section 3.1 shall become a Participant effective as of the date elected in the Adoption Agreement. If said Employee is not employed on such date, but is reemployed before a 1-Year Break in Service has occurred, then such Employee shall become a Participant on the date of reemployment or, if later, the date that the Employee would have otherwise entered the Plan had the Employee not terminated employment. Unless specifically provided otherwise in the Adoption Agreement, an Eligible Employee who satisfies the Plan's eligibility requirement conditions by reason of recognition of service with a predecessor employer will become a Participant as of the day the Plan credits service with a predecessor employer or, if later, the date the Employee would have otherwise entered the Plan had the service with the predecessor employer been service with the Employer. If an Employee, who has satisfied the Plan's eligibility requirements and would otherwise have become a Participant, shall go from a classification of a noneligible Employee to an Eligible Employee, such Employee shall become a Participant on the date such Employee becomes an Eligible Employee or, if later, the date that the Employee would have otherwise entered the Plan had the Employee always been an Eligible Employee. If an Employee, who has satisfied the Plan's eligibility requirements and would otherwise become a Participant, shall go from a classification of an Eligible Employee to a noneligible class of Employees, such Employee shall become a Participant in the Plan on the date such Employee again becomes an Eligible Employee, or, if later, the date that the Employee would have otherwise entered the Plan had the Employee always been an Eligible Employee. However, if such Employee incurs a 1-Year Break in Service, eligibility will be determined under the break in service rules set forth in Section 3.7. 3.3 DETERMINATION OF ELIGIBILITY The Administrator shall determine the eligibility of each Employee for participation in the Plan based upon information furnished by the Employer. Such determination shall be conclusive and binding upon all persons, as long as the same is made pursuant to the Plan and the Act. Such determination shall be subject to review pursuant to Section 2.11. 15 3.4 TERMINATION OF ELIGIBILITY In the event a Participant shall go from a classification of an Eligible Employee to an ineligible Employee, such Former Participant shall continue to vest in the Plan for each Year of Service (or Period of Service, if the Elapsed Time Method is used) completed while an ineligible Employee, until such time as the Participant's Account is forfeited or distributed pursuant to the terms of the Plan. Additionally, the Former Participant's interest in the Plan shall continue to share in the earnings of the Trust Fund. 3.5 OMISSION OF ELIGIBLE EMPLOYEE If, in any Plan Year, any Employee who should have been included as a Participant in the Plan is erroneously omitted and discovery of such omission is not made until after a contribution by the Employer for the year has been made and allocated, then the Employer shall make a subsequent contribution, if necessary after the application of Section 4.3(e), so that the omitted Employee receives the total amount which the Employee would have received (including both Employer contributions and earnings thereon) had the Employee not been omitted. Such contribution shall be made regardless of whether it is deductible in whole or in part in any taxable year under applicable provisions of the Code. Any corrections or adjustments under this Section shall be made in accordance with the IRS Employee Plans Compliance Resolution System. 3.6 INCLUSION OF INELIGIBLE EMPLOYEE If, in any Plan Year, any person who should not have been included as a Participant in the Plan is erroneously included and discovery of such inclusion is not made until after a contribution for the year has been made and allocated, the Employer shall be entitled to recover the contribution made with respect to the ineligible person provided the error is discovered within twelve (12) months of the date on which it was made. Otherwise, the amount contributed with respect to the ineligible person shall constitute a Forfeiture for the Plan Year in which the discovery is made. Notwithstanding the forgoing, any Elective Deferrals made by an ineligible person shall be distributed to the person (along with any earnings attributable to such Elective Deferrals). Any corrections or adjustments under this Section shall be made in accordance with the IRS Employee Plans Compliance Resolution System. 3.7 REHIRED EMPLOYEES AND BREAKS IN SERVICE (a) If any Participant becomes a Former Participant due to severance from employment with the Employer and is reemployed by the Employer before a 1-Year Break in Service occurs, the Former Participant shall become a Participant as of the reemployment date. (b) If any Participant becomes a Former Participant due to severance from employment with the Employer and is reemployed after a 1-Year Break in Service has occurred, Years of Service (or Periods of Service if the Elapsed Time Method is being used) shall include Years of Service (or Periods of Service if the Elapsed Time Method is being used) prior to the 1-Year Break in Service subject to the following rules: (1) In the case of a Former Participant who under the Plan does not have a nonforfeitable right to any interest in the Plan resulting from Employer contributions, Years of Service (or Periods of Service) before a period of 1-Year Breaks in Service will not be taken into account if the number of consecutive 1-Year Breaks in Service equals or exceeds the greater of (A) five (5) or (B) the aggregate number of pre-break Years of Service (or Periods of Service). Such aggregate number of Years of Service (or Periods of Service) will not include any Years of Service (or Periods of Service) disregarded under the preceding sentence by reason of prior 1-Year Breaks in Service; (2) A Former Participant who has not had Years of Service (or Periods of Service) before a 1-Year Break in Service disregarded pursuant to (1) above, shall participate in the Plan as of the date of reemployment; (c) After a Former Participant who has severed employment with the Employer incurs five (5) consecutive 1-Year Breaks in Service, the Vested portion of such Former Participant's Account attributable to pre-break service shall not be increased as a result of post-break service. In such case, separate accounts will be maintained as follows: (1) one account for nonforfeitable benefits attributable to pre-break service; and (2) one account representing the Participant's Employer-derived account balance in the Plan attributable to post-break service. (d) If any Participant becomes a Former Participant due to separation from service with the Employer and is reemployed by the Employer before five (5) consecutive 1-Year Breaks in Service, and such Former Participant had received a distribution of the entire Vested interest prior to reemployment, then the forfeited account shall be reinstated only if the Former Participant repays the full amount which had been distributed. Such repayment must be made before the earlier of five (5) years after the first date on which the Participant is subsequently reemployed by the Employer or the close of the first period of five (5) consecutive 1-Year Breaks in Service commencing after the distribution. If a distribution occurs for any reason other than a severance of employment, the time for repayment may not end earlier than five (5) years after the date of distribution. In the 16 event the Former Participant does repay the full amount distributed, the undistributed forfeited portion of the Participant's Account must be restored in full, unadjusted by any gains or losses occurring subsequent to the Valuation Date preceding the distribution. The source for such reinstatement may be Forfeitures occurring during the Plan Year. If such source is insufficient, then the Employer will contribute an amount which is sufficient to restore the Participant's Account, provided, however, that if a discretionary contribution is made for such year, such contribution will first be applied to restore any such accounts and the remainder shall be allocated in accordance with the terms of the Plan. If a non-Vested Former Participant was deemed to have received a distribution and such Former Participant is reemployed by the Employer before five (5) consecutive 1-Year Breaks in Service, then such Participant will be deemed to have repaid the deemed distribution as of the date of reemployment. 3.8 ELECTION NOT TO PARTICIPATE An Employee may, subject to the approval of the Employer, elect voluntarily not to participate in the Plan provided, however that such election is a one-time irrevocable election made pursuant to Treasury Regulation Section 1.401(k) - 1(a)(3)(iv). The election not to participate must be communicated to the Employer, in writing, within a reasonable period of time before the beginning of a Plan Year. For standardized Plans, a Participant or an Eligible Employee may not elect not to participate. 3.9 CONTROL OF ENTITIES BY OWNER-EMPLOYEE Effective with respect to Plan Years beginning after December 31, 1996, if this Plan provides contributions or benefits for one or more Owner-Employees, the contributions on behalf of any Owner-Employee shall be made only with respect to the Earned Income for such Owner-Employee which is derived from the trade or business with respect to which such Plan is established. ARTICLE IV CONTRIBUTION AND ALLOCATION 4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION (a) For a money purchase plan: (1) The Employer will make contributions on the following basis. On behalf of each Participant eligible to share in allocations, for each year of such Participant's participation in this Plan, the Employer will contribute the amount elected in the Adoption Agreement. The Employer must obtain a waiver from the IRS for any Plan Year in which it is unable to make the full required contribution to the Plan. In the event a waiver is obtained, this Plan shall be deemed to be an individually designed plan. (2) Notwithstanding the foregoing, with respect to an Employer which is not a tax-exempt entity, the Employer's contribution for any Fiscal Year will generally not exceed the maximum amount allowable as a deduction to the Employer under the provisions of Code Section 404. However, to the extent necessary to provide the top heavy minimum allocations, the Employer shall make a contribution even if it exceeds the amount that is deductible under Code Section 404. (b) For a profit sharing plan: (1) For each Plan Year, the Employer will contribute to the Plan such amount as elected by the Employer in the Adoption Agreement. (2) Additionally, the Employer will contribute to the Plan the amount necessary, if any, to provide the top heavy minimum allocations, even if it exceeds current or accumulated Net Profit or the amount that is deductible under Code Section 404. 4.2 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION Unless otherwise provided by contract, the Employer may make its contribution to the Plan for a particular Plan Year at such time as the Employer, in its sole discretion, determines. If the Employer makes a contribution for a particular Plan Year after the close of that Plan Year, the Employer will designate to the Trustee the Plan Year for which the Employer is making its contribution. 4.3 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS (a) The Administrator shall establish and maintain an account in the name of each Participant to which the Administrator shall credit as of each Anniversary Date, or other Valuation Date, all amounts allocated to each such Participant as set forth herein. 17 (b) The Employer shall provide the Administrator with all information required by the Administrator to make a proper allocation of the Employer's contribution, if any, for each Plan Year. Within a reasonable period of time after the date of receipt by the Administrator of such information, the Administrator shall allocate any contributions as follows: (1) For a money purchase plan (other than a money purchase plan which is integrated by allocation): (i) The Employer's contribution shall be allocated to Participant's Account in the manner set forth in 4.1 herein and as specified in the Adoption Agreement. (ii) However, regardless of the preceding, a Participant shall only be eligible to share in the allocations of the Employer's contribution for the Plan Year if the conditions set forth in the Adoption Agreement are satisfied, unless a contribution is required pursuant to Section 4.3(f). Furthermore, for non-standardized Plans, regardless of any election in the Adoption Agreement to the contrary, for the Plan Year in which this Plan terminates, a Participant shall only be eligible to share in the allocation of the Employer's contributions for the Plan Year if the Participant is employed at the end of the Plan Year and has completed a Year of Service (or Period of Service if the Elapsed Time Method is elected). (2) For an integrated profit sharing plan or a money purchase plan which is integrated by allocation: (i) Subject to the overall permitted disparity limits, Employer contributions for the Plan Year plus any forfeitures will be allocated to the account of each Participant who either completes more than 500 hours of service during the Plan Year or who is employed on the last day of the Plan Year as follows: STEP ONE: Contributions and forfeitures will be allocated to each Participant's Account in the ratio that each Participant's total Compensation bears to all Participants total Compensation, but not in excess of 3% of each Participant's Compensation. STEP TWO: Any contributions and forfeitures remaining after the allocation in Step One will be allocated to each Participant's account in the ratio that each Participant's Compensation for the Plan Year in excess of the integration level bears to the Excess Compensation of all Participants, but not in excess of 3% of each Participant's Compensation. For purposes of this Step Two, in the case of any Participant who has exceeded the cumulative permitted disparity limit described below, such Participant's total Compensation for the Plan Year will be taken into account. STEP THREE: Any contributions and forfeitures remaining after the allocation in Step Two will be allocated to each Participant's Account in the ratio that the sum of each Participant's total Compensation and Excess Compensation bears to the sum of all Participant's total Compensation and Excess Compensation, but not in excess of the profit-sharing maximum disparity rate. For purposes of this Step Three, in the case of any Participant who has exceeded the cumulative permitted disparity limit described below, two times such Participant's total Compensation for the Plan Year will be taken into account. STEP FOUR: Any remaining Employer contributions or forfeitures will be allocated to each Participant's account in the ratio that each Participant's total Compensation for the Plan Year bears to all Participants' total Compensation for that year. (ii) The integration level shall be equal to the taxable wage base or such lesser amount elected by the Employer in the Adoption Agreement. The taxable wage base is the contribution and benefit base under section 230 of the Social Security Act at the beginning of the Plan Year. (iii) However, regardless of the preceding, a Participant shall only be eligible to share in the allocations of the Employer's contribution for the year if the conditions set forth in the Adoption Agreement are satisfied, unless a contribution is required pursuant to Section 4.3(f). Furthermore, for non-standardized Plans, regardless of any election in the Adoption Agreement to the contrary, for the Plan Year in which this Plan terminates, a Participant shall only be eligible to share in the allocation of the Employer's contributions for the Plan Year if the Participant is employed at the end of the Plan Year and has completed a Year of Service (or Period of Service if the Elapsed Time Method is elected). (3) For a non-integrated profit sharing plan: (i) The Employer's contribution shall be allocated to each Participant's Account in accordance with the allocation method elected in the Adoption Agreement. (ii) However, regardless of the preceding, a Participant shall only be eligible to share in the allocations of the Employer's contribution for the Plan Year if the conditions set forth in the Adoption Agreement are satisfied, unless a contribution is required pursuant to Section 4.3(f). Furthermore, for non-standardized Plans, regardless of 18 any election in the Adoption Agreement to the contrary, for the Plan Year in which this Plan terminates, a Participant shall only be eligible to share in the allocation of the Employer's contributions for the Plan Year if the Participant is employed at the end of the Plan Year and has completed a Year of Service (or Period of Service if the Elapsed Time Method is elected). (4) Overall Permitted Disparity Limits: Annual Overall Permitted Disparity Limit: Notwithstanding the preceding paragraphs, if in any Plan Year this Plan benefits any Participant who benefits under another qualified plan or simplified employee pension, as defined in Code Section 408(k), maintained by the Employer that either provides for or imputes permitted disparity (integrates), then such plans will be considered to be one plan and will be considered to comply with the permitted disparity rules if the extent of the permitted disparity of all such plans does not exceed 100%. For purposes of the preceding sentence, the extent of the permitted disparity of a plan is the ratio, expressed as a percentage, which the actual benefits, benefit rate, offset rate, or employer contribution rate, whatever is applicable under the Plan, bears to the limitation under Code Section 401(l) applicable to such Plan. The annual disparity limit will be determined in accordance with Treasury Reg. Section 1.401(l)-5(b). Notwithstanding the foregoing, if the Employer maintains two or more standardized paired plans, only one plan may provide for permitted disparity. Cumulative Permitted Disparity Limit: With respect to a Participant who benefits or has benefited under a defined benefit or target benefit plan of the Employer, effective for Plan Years beginning on or after January 1, 1994, the cumulative permitted disparity limit for the Participant is thirty five (35) total cumulative permitted disparity years. Total cumulative permitted disparity years means the number of years credited to the Participant for allocation or accrual purposes under the Plan, any other qualified plan or simplified employee pension plan (whether or not terminated) ever maintained by the Employer, while such plan either provides for or imputes permitted disparity. For purposes of determining the Participant's cumulative permitted disparity limit, all years ending in the same calendar year are treated as the same year. If the Participant has not benefited under a defined benefit or target benefit plan which neither provides for nor imputes permitted disparity for any year beginning on or after January 1, 1994, then such Participant has no cumulative permitted disparity limit. For purposes of this Section, benefiting means benefiting under the Plan for any Plan Year during which a Participant received or is deemed to receive an allocation in accordance with Treasury Regulation Section 1.410(b)-3(a). (c) Except as otherwise elected in the Adoption Agreement or as provided in Section 4.10 with respect to Participant Directed Accounts, as of each Valuation Date, before allocation of any Employer contributions and Forfeitures, any earnings or losses (net appreciation or net depreciation) of the Trust Fund (exclusive of assets segregated for distribution) shall be allocated in the same proportion that each Participant's and Former Participant's nonsegregated accounts bear to the total of all Participants' and Former Participants' nonsegregated accounts as of such date. If any nonsegregated account of a Participant has been distributed prior to the Valuation Date subsequent to a Participant's termination of employment, no earnings or losses shall be credited to such account. (d) Participants' Accounts shall be debited for any insurance or annuity premiums paid, if any, and credited with any dividends or interest received on Contracts. (e) On or before each Anniversary Date any amounts which became Forfeitures may be made available to reinstate previously forfeited account balances of Former Participants, if any, in accordance with Section 3.7(d), used to satisfy any contribution that may be required pursuant to Section 3.5 and/or 6.9, or used to pay any administrative expenses of the Plan. The remaining Forfeitures, if any, shall be treated in accordance with the Adoption Agreement. If no election is made in the Adoption Agreement, any remaining Forfeitures will be used to reduce any future Employer contributions under the Plan. Regardless of the preceding sentences, in the event the allocation of Forfeitures provided herein shall cause the annual additions (as defined in Section 4.4) to any Participant's Account to exceed the amount allowable by the Code, an adjustment shall be made in accordance with Section 4.5. Except, however, a Participant shall only be eligible to share in the allocations of Forfeitures for the year if the conditions set forth in the Adoption Agreement are satisfied, unless a contribution is required pursuant to Section 4.3(f). (f) Minimum Allocations Required for Top Heavy Plan Years: Notwithstanding the foregoing, for any Top Heavy Plan Year, the sum of the Employer's contributions and Forfeitures allocated to the Participant's Combined Account of each Non-Key Employee shall be equal to at least three percent (3%) of such Non-Key Employee's 415 Compensation (reduced by contributions and forfeitures, if any, allocated to each Non-Key Employee in any defined contribution plan included with this Plan in a required aggregation group (as defined in Section 9.2(f)). However, if (i) the sum of the Employer's contributions and Forfeitures allocated to the Participant's Combined Account of each Key Employee for such Top Heavy Plan Year is less than three percent (3%) of each Key Employee's 415 Compensation and (ii) this Plan is not required to be included in a required aggregation group (as defined in Section 9.2(f)) to enable a defined benefit plan to meet the requirements of Code Section 401(a)(4) or 410, the sum of the Employer's contributions and Forfeitures allocated to the Participant's Combined 19 Account of each Non-Key Employee shall be equal to the largest percentage allocated to the Participant's Combined Account of any Key Employee. However, for each Non-Key Employee who is a Participant in a paired profit sharing plan or 401(k) profit sharing plan and a paired money purchase plan, the minimum three percent (3%) allocation specified above shall be provided in the money purchase plan. If this is an integrated Plan, then for any Top Heavy Plan Year the Employer's contribution shall be allocated as follows and shall still be required to satisfy the other provisions of this subsection: (1) An amount equal to three percent (3%) multiplied by each Participant's Compensation for the Plan Year shall be allocated to each Participant's Account. If the Employer does not contribute such amount for all Participants, the amount shall be allocated to each Participant's Account in the same proportion that such Participant's total Compensation for the Plan Year bears to the total Compensation of all Participants for such year. (2) The balance of the Employer's contribution over the amount allocated under subparagraph (1) hereof shall be allocated to each Participant's Account in a dollar amount equal to three percent (3%) multiplied by a Participant's Excess Compensation. If the Employer does not contribute such amount for all Participants, each Participant will be allocated a share of the contribution in the same proportion that such Participant's Excess Compensation bears to the total Excess Compensation of all Participants for that year. For purposes of this paragraph, in the case of any Participant who has exceeded the cumulative permitted disparity limit described in Section 4.3(b)(4), such Participant's total Compensation will be taken into account. (3) The balance of the Employer's contribution over the amount allocated under subparagraph (2) hereof shall be allocated to each Participant's Account in a dollar amount equal to 2.7% multiplied by the sum of each Participant's total Compensation plus Excess Compensation. If the Employer does not contribute such amount for all Participants, each Participant will be allocated a share of the contribution in the same proportion that such Participant's total Compensation plus Excess Compensation for the Plan Year bears to the total Compensation plus Excess Compensation of all Participants for that year. For purposes of this paragraph in the case of any Participant who has exceeded the cumulative permitted disparity limit described in Section 4.3(b)(4), such Participant's total Compensation rather than Compensation plus Excess Compensation will be taken into account Regardless of the preceding, 1.3% shall be substituted for 2.7% above if Excess Compensation is based on more than 20% and less than or equal to 80% of the Taxable Wage Base. If Excess Compensation is based on less than 100% and more than 80% of the Taxable Wage Base, then 2.4% shall be substituted for 2.7% above. (4) The balance of the Employer's contributions over the amount allocated above, if any, shall be allocated to each Participant's Account in the same proportion that such Participant's total Compensation for the Plan Year bears to the total Compensation of all Participants for such year. For each Non-Key Employee who is a Participant in this Plan and another non-paired defined contribution plan maintained by the Employer, the minimum three percent (3%) allocation specified above shall be provided as specified in the Adoption Agreement. (g) For purposes of the minimum allocations set forth above, the percentage allocated to the Participant's Combined Account of any Key Employee shall be equal to the ratio of the sum of the Employer's contributions and Forfeitures allocated on behalf of such Key Employee divided by the 415 Compensation for such Key Employee. (h) For any Top Heavy Plan Year, the minimum allocations set forth in this Section shall be allocated to the Participant's Combined Account of all Non-Key Employees who are Participants and who are employed by the Employer on the last day of the Plan Year, including Non-Key Employees who have (1) failed to complete a Year of Service; or (2) declined to make mandatory contributions (if required) or, in the case of a cash or deferred arrangement, Elective Deferrals to the Plan. (i) Notwithstanding anything herein to the contrary, in any Plan Year in which the Employer maintains both this Plan and a defined benefit pension plan included in a required aggregation group (as defined in Section 9.2(f)) which is top heavy, the Employer will not be required (unless otherwise elected in the Adoption Agreement) to provide a Non-Key Employee with both the full separate minimum defined benefit plan benefit and the full separate defined contribution plan allocations. In such case, the top heavy minimum benefits will be provided as elected in the Adoption Agreement and, if applicable, as follows: (1) If the 5% defined contribution minimum is elected in the Adoption Agreement: (i) The requirements of Section 9.1 will apply except that each Non-Key Employee who is a Participant in the profit sharing plan or money purchase plan and who is also a Participant in the defined benefit 20 plan will receive a minimum allocation of five percent (5%) of such Participant's 415 Compensation from the applicable defined contribution plan(s). (ii) For each Non-Key Employee who is a Participant only in the defined benefit plan the Employer will provide a minimum non-integrated benefit equal to two percent (2%) of such Participant's highest five (5) consecutive year average 415 Compensation for each Year of Service while a participant in the plan, in which the Plan is top heavy, not to exceed ten (10). (iii) For each Non-Key Employee who is a Participant only in this defined contribution plan, the Employer will provide a minimum allocation equal to three percent (3%) of such Participant's 415 Compensation. (2) If the 7 1/2% defined contribution minimum is elected in the Adoption Agreement, the provisions of (1) above shall apply except as provided below: (i) The minimum allocation specified in Section 4.3(i)(1)(i) will be seven and one-half percent (7 1/2%) for Plan Years beginning prior to January 1, 2000, in which the Plan is a Top Heavy Plan, but not a Super Top Heavy Plan. (ii) The minimum benefit specified in Section 4.3(i)(1)(ii) will be three percent (3%) for years beginning prior to January 1, 2000, in which the Plan is a Top Heavy Plan, but not a Super Top Heavy Plan. (iii) The minimum allocation specified in Section 4.3(i)(1)(iii) will be four percent (4%) for years beginning prior to January 1, 2000, in which the Plan is a Top Heavy Plan, but not a Super Top Heavy Plan. (3) If the 2% defined benefit minimum is elected in the Adoption Agreement, for each Non-Key Employee who is a Participant only in the defined benefit plan the Employer will provide a minimum non-integrated benefit equal to two percent (2%) of such Participant's highest five (5) consecutive year average of 415 Compensation for each Year of Service while a participant in the plan, in which the Plan is top heavy, not to exceed ten (10). (4) If the 3% defined benefit minimum is elected in the Adoption Agreement, for each Non-Key Employee who is a Participant only in the defined benefit plan, the Employer will provide a minimum non-integrated benefit equal to three percent (3%) of such Participant's highest five (5) consecutive year average of 415 Compensation for each Year of Service while a participant in the plan, in which the Plan is top heavy, not to exceed ten (10). Regardless of the preceding, for years in which the Plan is Super Top Heavy and for years beginning after December 31, 1999, two percent (2%) shall be substituted for three percent (3%). (j) For the purposes of this Section, 415 Compensation will be limited to the same dollar limitations set forth in Section 1.11 adjusted in such manner as permitted under Code Section 415(d). (k) Notwithstanding anything in this Section to the contrary, all information necessary to properly reflect a given transaction may not be available until after the date specified herein for processing such transaction, in which case the transaction will be reflected when such information is received and processed. Subject to express limits that may be imposed under the Code, the processing of any contribution, distribution or other transaction may be delayed for any legitimate business reason (including, but not limited to, failure of systems or computer programs, failure of the means of the transmission of data, force majeure, the failure of a service provider to timely receive values or prices, and correction for errors or omissions or the errors or omissions of any service provider). The processing date of a transaction will be binding for all purposes of the Plan. (l) Notwithstanding anything to the contrary, if this is a non-standardized Plan that would otherwise fail to meet the requirements of Code Section 410(b)(1) or 410(b)(2)(A)(i) and the Treasury Regulations thereunder (including Treasury Regulation Section 1.401(a)(4)-2(b)(4)(vi)(D)(3) which treats Participants only receiving top heavy minimums as not benefiting) because Employer contributions would not be allocated to a sufficient number or percentage of Participants for a Plan Year, then the following rules may be applied: (1) The group of Participants eligible to share in the Employer's contributions or Forfeitures for the Plan Year will be expanded to include the minimum number of Participants who would not otherwise be eligible as are necessary to satisfy the requirements of Code section 410(b)(1)(B). The specific Participants who shall become eligible under the terms of this paragraph shall be those who have not separated from service prior to the last day of the Plan Year and, when compared to similarly situated Participants, have completed the greatest number of Hours of Service in the Plan Year. (2) If after application of paragraph (1) above, the requirements of Code section 410(b)(1)(B) are still not satisfied, then the group of Participants eligible to share in the Employer's contributions or Forfeitures for the Plan Year shall be further expanded to include the minimum number of Participants who have separated from service prior to the 21 last day of the Plan Year as are necessary to satisfy the applicable test. The specific Participants who shall become eligible to share shall be those Participants, when compared to similarly situated Participants, who have completed the greatest number of Hours of Service in the Plan Year before separation from service. Nothing in this subsection shall permit the reduction of a Participant's accrued benefit. Therefore any amounts that have previously been allocated to Participants may not be reallocated to satisfy these requirements. In such event, the Employer shall make an additional contribution equal to the amount such affected Participants would have received had they been included in the allocations, even if it exceeds the amount that would be deductible under Code Section 404. Any adjustment to the allocations pursuant to this paragraph shall be considered a retroactive amendment adopted by the last day of the Plan Year. 4.4 MAXIMUM ANNUAL ADDITIONS (a)(1) If a Participant does not participate in, and has never participated in another qualified plan maintained by the Employer, or a welfare benefit fund (as defined in Code Section 419(e)) maintained by the Employer, or an individual medical account (as defined in Code Section 415(l)(2)) maintained by the Employer, or a simplified employee pension (as defined in Code Section 408(k)) maintained by the Employer which provides Annual Additions (as defined below), the amount of Annual Additions which may be credited to the Participant's accounts for any Limitation Year shall not exceed the lesser of the Maximum Permissible Amount or any other limitation contained in this Plan. If the Employer contribution that would otherwise be contributed or allocated to the Participant's accounts would cause the Annual Additions for the Limitation Year to exceed the Maximum Permissible Amount, the amount contributed or allocated will be reduced so that the Annual Additions for the Limitation Year will equal the Maximum Permissible Amount, and any amount in excess of the Maximum Permissible Amount which would have been allocated to such Participant may be allocated to other Participant's accounts in a manner consistent with that specified in the Adoption Agreement. (2) Prior to determining the Participant's actual 415 Compensation for the Limitation Year, the Employer may determine the Maximum Permissible Amount for a Participant on the basis of a reasonable estimation of the Participant's 415 Compensation for the Limitation Year, uniformly determined for all Participants similarly situated. (3) As soon as is administratively feasible after the end of the Limitation Year the Maximum Permissible Amount for such Limitation Year shall be determined on the basis of the Participant's actual 415 Compensation for such Limitation Year. For Limitation Years beginning after December 31, 1997, for purposes of applying the limitations of this Article, Compensation paid or made available during such Limitation Year shall include any elective deferral (as defined in Code Section 402(g)(3)), and any amount which is contributed or deferred by the Employer at the election of the Employee and which is not includible in the gross income of the Employee by reason of Code Section 125 or 457. For Limitation Years beginning on or after January 1, 2001 (or, if applicable, a date no earlier than January 1, 1998) to the extent elected in the Adoption Agreement, for purposes of applying the limitations of this Article, Compensation shall include any amount not includible in gross income of the Participant by reason of Code Section 132(f)(4). (b)(1) This subsection applies if, in addition to this Plan, a Participant is covered under another qualified master or prototype defined contribution plan maintained by the Employer, a welfare benefit fund (as defined in Code Section 419(e)) maintained by the Employer, an individual medical account (as defined in Code Section 415(l)(2)) maintained by the Employer, or a simplified employee pension (as defined in Code Section 408(k)) maintained by the Employer, which provides Annual Additions, during any Limitation Year. The Annual Additions which may be credited to a Participant's accounts under this Plan for any such Limitation Year shall not exceed the Maximum Permissible Amount reduced by the Annual Additions credited to a Participant's accounts under the other plans and welfare benefit funds, individual medical accounts, and simplified employee pensions for the same Limitation Year. If the Annual Additions with respect to the Participant under other defined contribution plans and welfare benefit funds maintained by the Employer are less than the Maximum Permissible Amount and the Employer contribution that would otherwise be contributed or allocated to the Participant's accounts under this Plan would cause the Annual Additions for the Limitation Year to exceed this limitation, the amount contributed or allocated will be reduced so that the Annual Additions under all such plans and welfare benefit funds for the Limitation Year will equal the Maximum Permissible Amount, and any amount in excess of the Maximum Permissible Amount which would have been allocated to such Participant may be allocated to other Participants. If the Annual Additions with respect to the Participant under such other defined contribution plans, welfare benefit funds, individual medical accounts and simplified employee pensions in the aggregate are equal to or greater than the Maximum Permissible Amount, no amount will be contributed or allocated to the Participant's account under this Plan for the Limitation Year. (2) Prior to determining the Participant's actual 415 Compensation for the Limitation Year, the Employer may determine the Maximum Permissible Amount for a Participant on the basis of a reasonable estimation of the Participant's 415 Compensation for the Limitation Year, uniformly determined for all Participants similarly situated. 22 (3) As soon as is administratively feasible after the end of the Limitation Year, the Maximum Permissible Amount for the Limitation Year will be determined on the basis of the Participant's actual 415 Compensation for the Limitation Year. (4) If, pursuant to Section 4.4(b)(3) or Section 4.5, a Participant's Annual Additions under this Plan and such other plans would result in an Excess Amount (as defined below) for a Limitation Year, the Excess Amount will be deemed to consist of the Annual Additions last allocated, except that Annual Additions attributable to a simplified employee pension will be deemed to have been allocated first, followed by Annual Additions to a welfare benefit fund or individual medical account, and then by Annual Additions to a plan subject to Code Section 412, regardless of the actual allocation date. (5) If an Excess Amount was allocated to a Participant on an allocation date of this Plan which coincides with an allocation date of another plan, the Excess Amount attributed to this Plan will be the product of: (i) the total Excess Amount allocated as of such date, times (ii) the ratio of (1) the Annual Additions allocated to the Participant for the Limitation Year as of such date under this Plan to (2) the total Annual Additions allocated to the Participant for the Limitation Year as of such date under this and all the other qualified defined contribution plans. (6) Any Excess Amount attributed to this Plan will be disposed of in the manner described in Section 4.5. (c) If the Participant is covered under another qualified defined contribution plan maintained by the Employer which is not a Master or Prototype Plan (as defined below), Annual Additions which may be credited to the Participant's Combined Account under this Plan for any Limitation Year will be limited in accordance with Section 4.4(b), unless the Employer provides other limitations in the Adoption Agreement. (d) For any Limitation Year beginning prior to the date the Code Section 415(e) limits are repealed with respect to this Plan (as specified in the Adoption Agreement for the GUST transitional rules), if the Employer maintains, or at any time maintained, a qualified defined benefit plan covering any Participant in this Plan, then the sum of the Participant's Defined Benefit Plan Fraction (as defined below) and Defined Contribution Plan Fraction (as defined below) may not exceed 1.0. In such event, the rate of accrual in the defined benefit plan will be reduced to the extent necessary so that the sum of the Defined Contribution Fraction and Defined Benefit Fraction will equal 1.0. However, the Employer may specify an alternative method under which the plans involved will satisfy the limitations of Code Section 415(e), including increased top heavy minimum benefits so that the combined limitation is 1.25 rather than 1.0. This subsection 4.4(d) does not apply for Limitation Years beginning on or after January 1, 2000. (e) For purposes of applying the limitations of Code Section 415, the transfer of funds from one qualified plan to another is not an Annual Addition. In addition, the following are not Employee contributions for the purposes of Section 4.4(f)(1)(b): (1) rollover contributions (as defined in Code Sections 402(c), 403(a)(4), 403(b)(8) and 408(d)(3)); (2) repayments of loans made to a Participant from the Plan; (3) repayments of distributions received by an Employee pursuant to Code Section 411(a)(7)(B) (cash-outs); (4) repayments of distributions received by an Employee pursuant to Code Section 411(a)(3)(D) (mandatory contributions); and (5) Employee contributions to a simplified employee pension excludable from gross income under Code Section 408(k)(6). (f) For purposes of this Section, the following terms shall be defined as follows: (1) "Annual Additions" means the sum credited to a Participant's accounts for any Limitation Year of (a) Employer contributions, (b) Employee contributions (except as provided below), (c) forfeitures, (d) amounts allocated, after March 31, 1984, to an individual medical account, as defined in Code Section 415(l)(2), which is part of a pension or annuity plan maintained by the Employer, (e) amounts derived from contributions paid or accrued after December 31, 1985, in taxable years ending after such date, which are attributable to post-retirement medical benefits allocated to the separate account of a key employee (as defined in Code Section 419A(d)(3)) under a welfare benefit fund (as defined in Code Section 419(e)) maintained by the Employer and (f) allocations under a simplified employee pension. Except, however, the Compensation percentage limitation referred to in paragraph (f)(9)(ii) below shall not apply to: (1) any contribution for medical benefits (within the meaning of Code Section 419A(f)(2)) after separation from service which is otherwise treated as an Annual Addition, or (2) any amount otherwise treated as an Annual Addition under Code Section 415(l)(1). Notwithstanding the foregoing, for Limitation Years beginning prior to January 1, 1987, only that portion of Employee contributions equal to the lesser of Employee contributions in excess of six percent (6%) of 415 Compensation or one-half of Employee contributions shall be considered an Annual Addition. For this purpose, any Excess Amount applied under Section 4.5 in the Limitation Year to reduce Employer contributions shall be considered Annual Additions for such Limitation Year. 23 (2) "Defined Benefit Fraction" means a fraction, the numerator of which is the sum of the Participant's Projected Annual Benefits (as defined below) under all the defined benefit plans (whether or not terminated) maintained by the Employer, and the denominator of which is the lesser of one hundred twenty-five percent (125%) of the dollar limitation determined for the Limitation Year under Code Sections 415(b)(1)(A) as adjusted by Code Section 415(d) or one hundred forty percent (140%) of the Highest Average Compensation (as defined below) including any adjustments under Code Section 415(b). Notwithstanding the above, if the Participant was a Participant as of the first day of the first Limitation Year beginning after December 31, 1986, in one or more defined benefit plans maintained by the Employer which were in existence on May 6, 1986, the denominator of this fraction will not be less than one hundred twenty-five percent (125%) of the sum of the annual benefits under such plans which the Participant had accrued as of the end of the close of the last Limitation Year beginning before January 1, 1987, disregarding any changes in the terms and conditions of the plan after May 5, 1986. The preceding sentence applies only if the defined benefit plans individually and in the aggregate satisfied the requirements of Code Section 415 for all Limitation Years beginning before January 1, 1987. Notwithstanding the foregoing, for any Top Heavy Plan Year, one hundred percent (100%) shall be substituted for one hundred twenty-five percent (125%) unless the extra minimum allocation or benefit is being made pursuant to the Employer's election in the Adoption Agreement. However, for any Plan Year in which this Plan is a Super Top Heavy Plan, one hundred percent (100%) shall always be substituted for one hundred twenty-five percent (125%). (3) "Defined Contribution Dollar Limitation" means $30,000 as adjusted under Code Section 415(d). (4) "Defined Contribution Fraction" means a fraction, the numerator of which is the sum of the Annual Additions to the Participant's accounts under all the defined contribution plans (whether or not terminated) maintained by the Employer for the current and all prior Limitation Years, (including the Annual Additions attributable to the Participant's nondeductible voluntary employee contributions to any defined benefit plans, whether or not terminated, maintained by the Employer and the Annual Additions attributable to all welfare benefit funds (as defined in Code Section 419(e)), individual medical accounts (as defined in Code Section 415(l)(2)), and simplified employee pensions (as defined in Code Section 408(k)) maintained by the Employer), and the denominator of which is the sum of the maximum aggregate amounts for the current and all prior Limitation Years in which the Employee had service with 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 determined under Code Section 415(c)(1)(A) as adjusted by Code Section 415(d) or thirty-five percent (35%) of the Participant's 415 Compensation for such year. If the Employee was a Participant as of the end of the first day of the first Limitation Year beginning after December 31, 1986, in one or more defined contribution plans maintained by the Employer which were in existence on May 5, 1986, the numerator of this fraction will be adjusted if the sum of this fraction and the Defined Benefit Fraction would otherwise exceed 1.0 under the terms of this Plan. Under the adjustment, an amount equal to the product of (1) the excess of the sum of the fractions over 1.0 times (2) the denominator of this fraction, will be permanently subtracted from the numerator of this fraction. The adjustment is calculated using the fractions as they would be computed as of the end of the last Limitation Year beginning before January 1, 1987, and disregarding any changes in the terms and conditions of the plan made after May 5, 1986, but using the Code Section 415 limitation applicable to the first Limitation Year beginning on or after January 1, 1987. For Limitation Years beginning prior to January 1, 1987, the Annual Additions shall not be recomputed to treat all Employee contributions as Annual Additions. Notwithstanding the foregoing, for any Top Heavy Plan Year, one hundred percent (100%) shall be substituted for one hundred twenty-five percent (125%) unless the extra minimum allocation or benefit is being made pursuant to the Employer's election in the Adoption Agreement. However, for any Plan Year in which this Plan is a Super Top Heavy Plan, one hundred percent (100%) shall always be substituted for one hundred twenty-five percent (125%). (5) "Employer" means the Employer that adopts this Plan and all Affiliated Employers, except that for purposes of this Section, the determination of whether an entity is an Affiliated Employer shall be made by applying Code Section 415(h). (6) "Excess Amount" means the excess of the Participant's Annual Additions for the Limitation Year over the Maximum Permissible Amount. 24 (7) "Highest Average Compensation" means the average Compensation for the three (3) consecutive Years of Service with the Employer while a Participant in the Plan that produces the highest average. A Year of Service with the Employer is the twelve (12) consecutive month period ending on the last day of the Limitation Year. (8) "Master or Prototype Plan" means a plan the form of which is the subject of a favorable opinion letter from the IRS. (9) "Maximum Permissible Amount" means the maximum Annual Addition that may be contributed or allocated to a Participant's accounts under the Plan for any Limitation Year, which shall not exceed the lesser of: (i) the Defined Contribution Dollar Limitation, or (ii) twenty-five percent (25%) of the Participant's 415 Compensation for the Limitation Year. The Compensation Limitation referred to in (ii) shall not apply to any contribution for medical benefits (within the meaning of Code Sections 401(h) or 419A(f)(2)) which is otherwise treated as an Annual Addition under Code Section 415(l)(1) or Code Section 419A(d)(2). If a short Limitation Year is created because of an amendment changing the Limitation Year to a different twelve (12) consecutive month period, the Maximum Permissible Amount will not exceed the Defined Contribution Dollar Limitation multiplied by a fraction, the numerator of which is the number of months in the short Limitation Year and the denominator of which is twelve (12). (10) "Projected Annual Benefit" means the annual retirement benefit (adjusted to an actuarially equivalent straight life annuity if such benefit is expressed in a form other than a straight life annuity or qualified joint and survivor annuity) to which the Participant would be entitled under the terms of the plan assuming: (i) the Participant will continue employment until Normal Retirement Age (or current age, if later), and (ii) the Participant's 415 Compensation for the current Limitation Year and all other relevant factors used to determine benefits under the Plan will remain constant for all future Limitation Years. For purposes of this subsection, straight life annuity means an annuity that is payable in equal installments for the life of the Participant that terminates upon the Participant's death. (g) Notwithstanding anything contained in this Section to the contrary, the limitations, adjustments and other requirements prescribed in this Section shall at all times comply with the provisions of Code Section 415 and the Treasury Regulations thereunder, the terms of which are specifically incorporated herein by reference. 4.5 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS Allocation of Annual Additions to a Participant's Combined Account for a Limitation Year generally will cease once the limits of Section 4.4 have been reached for such Limitation Year. However, if as a result of the allocation of Forfeitures, a reasonable error in estimating a Participant's annual 415 Compensation, a reasonable error in determining the amount of elective deferrals (within the meaning of Code Section 402(g)(3)) that may be made with respect to any Participant under the limits of Section 4.4, or other facts and circumstances to which Treasury Regulation Section 1.415-6(b)(6) shall be applicable, the Annual Additions under this Plan would cause the maximum provided in Section 4.4 to be exceeded, the Excess Amount will be disposed of in one of the following manners, as uniformly determined by the Plan Administrator for all Participants similarly situated: (a) Any after-tax voluntary Employee contributions (plus attributable earnings), to the extent they would reduce the Excess Amount, will be distributed to the Participant; (b) If, after the application of subparagraph (a), an Excess Amount still exists, any unmatched Elective Deferrals (and for Limitation Years beginning after December 31, 1995, any earnings attributable to such Elective Deferrals), to the extent they would reduce the Excess Amount, will be distributed to the Participant; (c) To the extent necessary, matched Elective Deferrals and Employer matching contributions will be proportionately reduced from the Participant's Account. The Elective Deferrals (and for Limitation Years beginning after December 31, 1995, any earnings attributable to such Elective Deferrals) will be distributed to the Participant and the related Employer matching contributions will be forfeited; 25 (d) If, after the application of subparagraphs (a), (b) and (c), an Excess Amount still exists, and the Participant is covered by the Plan at the end of the Limitation Year, the Excess Amount in the Participant's Account will be used to reduce Employer contributions (including any allocation of Forfeitures) for such Participant in the next Limitation Year, and each succeeding Limitation Year if necessary; (e) If, after the application of subparagraphs (a), (b) and (c), an Excess Amount still exists, and the Participant is not covered by the Plan at the end of a Limitation Year, the Excess Amount will be held unallocated in a suspense account. The suspense account will be applied to reduce future Employer contributions (including allocation of any Forfeitures) for all remaining Participants in the next Limitation Year, and each succeeding Limitation Year if necessary; and (f) If a suspense account is in existence at any time during a Limitation Year pursuant to this Section, no investment gains and losses shall be allocated to such suspense account. If a suspense account is in existence at any time during a particular Limitation Year, all amounts in the suspense account must be allocated to Participants' Accounts before any Employer contributions or any Employee contributions may be made to the Plan for that Limitation Year. Except as provided in (a), (b) and (c) above, Excess Amounts may not be distributed to Participants or Former Participants. 4.6 ROLLOVERS (a) Unless elected otherwise in the Adoption Agreement, with the consent of the Administrator, the Plan may accept a rollover, provided the rollover will not jeopardize the tax-exempt status of the Plan or create adverse tax consequences for the Employer. The amounts rolled over shall be placed in a Participant's Rollover Account. Such account shall be fully Vested at all times and shall not be subject to forfeiture for any reason. For purposes of this Section, the term Participant shall include any Eligible Employee who is not yet a Participant if, pursuant to the Adoption Agreement, a rollover is permitted by such Eligible Employee. (b) Amounts in a Participant's Rollover Account shall be held by the Trustee pursuant to the provisions of this Plan and may not be withdrawn by, or distributed to the Participant, in whole or in part, except as elected in the Adoption Agreement and subsection (c) below. The Trustee shall have no duty or responsibility to inquire as to the propriety of the amount, value or type of assets transferred, nor to conduct any due diligence with respect to such assets; provided, however, that such assets are otherwise eligible to be held by the Trustee under the terms of this Plan. (c) At Normal Retirement Date, or such other date when the Participant or Eligible Employee or such Participant's or Eligible Employee's Beneficiary shall be entitled to receive benefits, the Participant's Rollover Account shall be used to provide additional benefits to the Participant or the Participant's Beneficiary. Any distribution of amounts held in a Participant's Rollover Account shall be made in a manner which is consistent with and satisfies the provisions of Sections 6.5 and 6.6, including, but not limited to, all notice and consent requirements of Code Sections 411(a)(11) and 417 and the Treasury Regulations thereunder. Furthermore, such amounts shall be considered to be part of a Participant's benefit in determining whether an involuntary cash-out of benefits may be made without Participant consent. (d) The Administrator may direct that rollovers made after a Valuation Date be segregated into a separate account for each Participant until such time as the allocations pursuant to this Plan have been made, at which time they may remain segregated, invested as part of the general Trust Fund or, if elected in the Adoption Agreement, directed by the Participant. (e) For purposes of this Section, the term "qualified plan" shall mean any tax qualified plan under Code Section 401(a), or any other plans from which distributions are eligible to be rolled over into this Plan pursuant to the Code. The term "rollover" means: (i) amounts transferred to this Plan directly from another qualified plan; (ii) distributions received by an Employee from other qualified plans which are eligible for tax-free rollover to a qualified plan and which are transferred by the Employee to this Plan within sixty (60) days following receipt thereof; (iii) amounts transferred to this Plan from a conduit individual retirement account provided that the conduit individual retirement account has no assets other than assets which (A) were previously distributed to the Employee by another qualified plan (B) were eligible for tax-free rollover to a qualified plan and (C) were deposited in such conduit individual retirement account within sixty (60) days of receipt thereof; (iv) amounts distributed to the Employee from a conduit individual retirement account meeting the requirements of clause (iii) above, and transferred by the Employee to this Plan within sixty (60) days of receipt thereof from such conduit individual retirement account; and (v) any other amounts which are eligible to be rolled over to this Plan pursuant to the Code. (f) Prior to accepting any rollovers to which this Section applies, the Administrator may require the Employee to establish (by providing opinion of counsel or otherwise) that the amounts to be rolled over to this Plan meet the requirements of this Section and the Code. 26 4.7 PLAN-TO-PLAN TRANSFERS FROM QUALIFIED PLANS (a) With the consent of the Administrator, amounts may be transferred (within the meaning of Code Section 414(l)) to this Plan from other tax qualified plans under Code Section 401(a), provided the plan from which such funds are transferred permits the transfer to be made and the transfer will not jeopardize the tax-exempt status of the Plan or Trust or create adverse tax consequences for the Employer. Prior to accepting any transfers to which this Section applies, the Administrator may require an opinion of counsel that the amounts to be transferred meet the requirements of this Section. The amounts transferred shall be placed in a Participant's Transfer Account. Furthermore, for Vesting purposes, the Participant's Transfer Account shall be treated as a separate Participant's Account. (b) Amounts in a Participant's Transfer Account shall be held by the Trustee pursuant to the provisions of this Plan and may not be withdrawn by, or distributed to the Participant, in whole or in part, except as elected in the Adoption Agreement and subsection (d) below, provided the restrictions of subsection (c) below and Section 6.15 are satisfied. The Trustee shall have no duty or responsibility to inquire as to the propriety of the amount, value or type of assets transferred, nor to conduct any due diligence with respect to such assets; provided, however, that such assets are otherwise eligible to be held by the Trustee under the terms of this Plan. (c) Except as permitted by Treasury Regulations (including Treasury Regulation Section 1.411(d)-4), amounts attributable to elective contributions (as defined in Treasury Regulation Section 1.401(k)-1(g)(3)), including amounts treated as elective contributions, which are transferred from another qualified plan in a plan-to-plan transfer (other than a direct rollover) shall be subject to the distribution limitations provided for in Treasury Regulation Section 1.401(k)-1(d). (d) At Normal Retirement Date, or such other date when the Participant or the Participant's Beneficiary shall be entitled to receive benefits, the Participant's Transfer Account shall be used to provide additional benefits to the Participant or the Participant's Beneficiary. Any distribution of amounts held in a Participant's Transfer Account shall be made in a manner which is consistent with and satisfies the provisions of Sections 6.5 and 6.6, including, but not limited to, all notice and consent requirements of Code Sections 411(a)(11) and 417 and the Treasury Regulations thereunder. Furthermore, such amounts shall be considered to be part of a Participant's benefit in determining whether an involuntary cash-out of benefits may be made without Participant consent. (e) The Administrator may direct that Employee transfers made after a Valuation Date be segregated into a separate account for each Participant until such time as the allocations pursuant to this Plan have been made, at which time they may remain segregated, invested as part of the general Trust Fund or, if elected in the Adoption Agreement, directed by the Participant. (f) Notwithstanding anything herein to the contrary, a transfer directly to this Plan from another qualified plan (or a transaction having the effect of such a transfer) shall only be permitted if it will not result in the elimination or reduction of any Section 411(d)(6) protected benefit as described in Section 8.1(e). 4.8 VOLUNTARY EMPLOYEE CONTRIBUTIONS (a) If elected in the Adoption Agreement, each Participant may, in accordance with nondiscriminatory procedures established by the Administrator, elect to make after-tax voluntary Employee contributions to this Plan. Such contributions must generally be paid to the Trustee within a reasonable period of time after being received by the Employer. (b) The balance in each Participant's Voluntary Contribution Account shall be fully Vested at all times and shall not be subject to Forfeiture for any reason. (c) A Participant may elect at any time to withdraw after-tax voluntary Employee contributions from such Participant's Voluntary Contribution Account and the actual earnings thereon in a manner which is consistent with and satisfies the provisions of Section 6.5, including, but not limited to, all notice and consent requirements of Code Sections 411(a)(11) and 417 and the Treasury Regulations thereunder. If the Administrator maintains sub-accounts with respect to after-tax voluntary Employee contributions (and earnings thereon) which were made on or before a specified date, a Participant shall be permitted to designate which sub-account shall be the source for the withdrawal. Forfeitures of Employer contributions shall not occur solely as a result of an Employee's withdrawal of after-tax voluntary Employee contributions. In the event a Participant has received a hardship distribution pursuant to Treasury Regulation Section 1.401(k)-1(d)(2)(iii)(B) from any plan maintained by the Employer, then the Participant shall be barred from making any after-tax voluntary Employee contributions for a period of twelve (12) months after receipt of the hardship distribution. (d) At Normal Retirement Date, or such other date when the Participant or the Participant's Beneficiary is entitled to receive benefits, the Participant's Voluntary Contribution Account shall be used to provide additional benefits to the Participant or the Participant's Beneficiary. 27 4.9 QUALIFIED VOLUNTARY EMPLOYEE CONTRIBUTIONS (a) If this is an amendment to a Plan that previously permitted deductible voluntary Employee contributions, then each Participant who made Qualified Voluntary Employee Contributions within the meaning of Code Section 219(e)(2) as it existed prior to the enactment of the Tax Reform Act of 1986, shall have such contributions held in a separate Qualified Voluntary Employee Contribution Account which shall be fully Vested at all times. Such contributions, however, shall not be permitted for taxable years beginning after December 31, 1986. (b) A Participant may, upon written request delivered to the Administrator, make withdrawals from such Participant's Qualified Voluntary Employee Contribution Account. Any distribution shall be made in a manner which is consistent with and satisfies the provisions of Section 6.5, including, but not limited to, all notice and consent requirements of Code Sections 411(a)(11) and 417 and the Regulations thereunder. (c) At Normal Retirement Date, or such other date when the Participant or the Participant's Beneficiary is entitled to receive benefits, the Qualified Voluntary Employee Contribution Account shall be used to provide additional benefits to the Participant or the Participant's Beneficiary. 4.10 DIRECTED INVESTMENT ACCOUNT (a) If elected in the Adoption Agreement, all Participants may direct the Trustee as to the investment of all or a portion of their individual account balances as set forth in the Adoption Agreement and within limits set by the Employer. Participants may direct the Trustee, in writing (or in such other form which is acceptable to the Trustee), to invest their accounts in specific assets, specific funds or other investments permitted under the Plan and the Participant Direction Procedures. That portion of the account of any Participant that is subject to investment direction of such Participant will be considered a Participant Directed Account. (b) The Administrator will establish a Participant Direction Procedure, to be applied in a uniform and nondiscriminatory manner, setting forth the permissible investment options under this Section, how often changes between investments may be made, and any other limitations and provisions that the Administrator may impose on a Participant's right to direct investments. (c) The Administrator may, in its discretion, include or exclude by amendment or other action from the Participant Direction Procedures such instructions, guidelines or policies as it deems necessary or appropriate to ensure proper administration of the Plan, and may interpret the same accordingly. (d) As of each Valuation Date, all Participant Directed Accounts shall be charged or credited with the net earnings, gains, losses and expenses as well as any appreciation or depreciation in the market value using publicly listed fair market values when available or appropriate as follows: (1) to the extent the assets in a Participant Directed Account are accounted for as pooled assets or investments, the allocation of earnings, gains and losses of each Participant's Account shall be based upon the total amount of funds so invested in a manner proportionate to the Participant's share of such pooled investment; and (2) to the extent the assets in a Participant Directed Account are accounted for as segregated assets, the allocation of earnings, gains on and losses from such assets shall be made on a separate and distinct basis. (e) Investment directions will be processed as soon as administratively practicable after proper investment directions are received from the Participant. No guarantee is made by the Plan, Employer, Administrator or Trustee that investment directions will be processed on a daily basis, and no guarantee is made in any respect regarding the processing time of an investment direction. Notwithstanding any other provision of the Plan, the Employer, Administrator or Trustee reserves the right to not value an investment option on any given Valuation Date for any reason deemed appropriate by the Employer, Administrator or Trustee. Furthermore, the processing of any investment transaction may be delayed for any legitimate business reason (including, but not limited to, failure of systems or computer programs, failure of the means of the transmission of data, force majeure, the failure of a service provider to timely receive values or prices, and correction for errors or omissions or the errors or omissions of any service provider). The processing date of a transaction will be binding for all purposes of the Plan and considered the applicable Valuation Date for an investment transaction. (f) If the Employer has elected in the Adoption Agreement that it intends to operate any portion of this Plan as an Act Section 404(c) plan, the Participant Direction Procedures should provide an explanation of the circumstances under which Participants and their Beneficiaries may give investment instructions, including but not limited to, the following: (1) the conveyance of instructions by the Participants and their Beneficiaries to invest Participant Directed Accounts in a Directed Investment Option; 28 (2) the name, address and phone number of the Fiduciary (and, if applicable, the person or persons designated by the Fiduciary to act on its behalf) responsible for providing information to the Participant or a Beneficiary upon request relating to the Directed Investment Options; (3) applicable restrictions on transfers to and from any Designated Investment Alternative; (4) any restrictions on the exercise of voting, tender and similar rights related to a Directed Investment Option by the Participants or their Beneficiaries; (5) a description of any transaction fees and expenses which affect the balances in Participant Directed Accounts in connection with the purchase or sale of a Directed Investment Option; and (6) general procedures for the dissemination of investment and other information relating to the Designated Investment Alternatives as deemed necessary or appropriate, including but not limited to a description of the following: (i) the investment vehicles available under the Plan, including specific information regarding any Designated Investment Alternative; (ii) any designated Investment Managers; and (iii) a description of the additional information that may be obtained upon request from the Fiduciary designated to provide such information. (g) With respect to those assets in a Participant Directed Account, the Participant or Beneficiary shall direct the Trustee with regard to any voting, tender and similar rights associated with the ownership of such assets (hereinafter referred to as the "Stock Rights"), unless elected otherwise in the Adoption Agreement, as follows: (1) each Participant or Beneficiary shall direct the Trustee to vote or otherwise exercise such Stock Rights in accordance with the provisions, conditions and terms of any such Stock Rights; (2) such directions shall be provided to the Trustee by the Participant or Beneficiary in accordance with the procedure as established by the Administrator and the Trustee shall vote or otherwise exercise such Stock Rights with respect to which it has received directions to do so under this Section; and (3) to the extent to which a Participant or Beneficiary does not instruct the Trustee to vote or otherwise exercise such Stock Rights, such Participants or Beneficiaries shall be deemed to have directed the Trustee that such Stock Rights remain nonvoted and unexercised. (h) Any information regarding investments available under the Plan, to the extent not required to be described in the Participant Direction Procedures, may be provided to Participants in one or more documents (or in any other form, including, but not limited to, electronic media) which are separate from the Participant Direction Procedures and are not thereby incorporated by reference into this Plan. 4.11 INTEGRATION IN MORE THAN ONE PLAN If the Employer maintains qualified retirement plans that provide for permitted disparity (integration), the provisions of Section 4.3(b)(4) will apply. Furthermore, If the Employer maintains two or more standardized paired plans, only one plan may provide for permitted disparity. 4.12 QUALIFIED MILITARY SERVICE Notwithstanding any provisions of this Plan to the contrary, effective as of the later of December 12, 1994, or the Effective Date of the Plan, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with Code Section 414(u). Furthermore, loan repayments may be suspended under this Plan as permitted under Code Section 414(u)(4). 29 ARTICLE V VALUATIONS 5.1 VALUATION OF THE TRUST FUND The Administrator shall direct the Trustee, as of each Valuation Date, to determine the net worth of the assets comprising the Trust Fund as it exists on the Valuation Date. In determining such net worth, the Trustee shall value the assets comprising the Trust Fund at their fair market value (or their contractual value in the case of a Contract or Policy) as of the Valuation Date and shall deduct all expenses for which the Trustee has not yet been paid by the Employer or the Trust Fund. The Trustee may update the value of any shares held in a Participant Directed Account by reference to the number of shares held on behalf of the Participant, priced at the market value as of the Valuation Date. 5.2 METHOD OF VALUATION In determining the fair market value of securities held in the Trust Fund which are listed on a registered stock exchange, the Administrator shall direct the Trustee to value the same at the prices they were last traded on such exchange preceding the close of business on the Valuation Date. If such securities were not traded on the Valuation Date, or if the exchange on which they are traded was not open for business on the Valuation Date, then the securities shall be valued at the prices at which they were last traded prior to the Valuation Date. Any unlisted security held in the Trust Fund shall be valued at its bid price next preceding the close of business on the Valuation Date, which bid price shall be obtained from a registered broker or an investment banker. In determining the fair market value of assets other than securities for which trading or bid prices can be obtained, the Trustee may appraise such assets itself, or in its discretion, employ one or more appraisers for that purpose and rely on the values established by such appraiser or appraisers. ARTICLE VI DETERMINATION AND DISTRIBUTION OF BENEFITS 6.1 DETERMINATION OF BENEFITS UPON RETIREMENT Every Participant may terminate employment with the Employer and retire for purposes hereof on the Participant's Normal Retirement Date or Early Retirement Date. However, a Participant may postpone the termination of employment with the Employer to a later date, in which event the participation of such Participant in the Plan, including the right to receive allocations pursuant to Section 4.3, shall continue until such Participant's Retirement Date. Upon a Participant's Retirement Date, or, if elected in the Adoption Agreement, the attainment of Normal Retirement Date without termination of employment with the Employer, or as soon thereafter as is practicable, the Administrator shall direct the distribution, at the election of the Participant, of all amounts credited to such Participant's Combined Account in accordance with Section 6.5. 6.2 DETERMINATION OF BENEFITS UPON DEATH (a) Upon the death of a Participant before the Participant's Retirement Date or other termination of employment, all amounts credited to such Participant's Combined Account shall, unless elected otherwise in the Adoption Agreement, become fully Vested. The Administrator shall direct, in accordance with the provisions of Sections 6.6 and 6.7, the distribution of the deceased Participant's Vested accounts to the Participant's Beneficiary. (b) Upon the death of a Former Participant, the Administrator shall direct, in accordance with the provisions of Sections 6.6 and 6.7, the distribution of any remaining Vested amounts credited to the accounts of such deceased Former Participant to such Former Participant's Beneficiary. (c) The Administrator may require such proper proof of death and such evidence of the right of any person to receive payment of the value of the account of a deceased Participant or Former Participant as the Administrator may deem desirable. The Administrator's determination of death and of the right of any person to receive payment shall be conclusive. (d) Unless otherwise elected in the manner prescribed in Section 6.6, the Beneficiary of the Pre-Retirement Survivor Annuity shall be the Participant's surviving spouse. Except, however, the Participant may designate a Beneficiary other than the spouse for the Pre-Retirement Survivor Annuity if: (1) the Participant and the Participant's spouse have validly waived the Pre-Retirement Survivor Annuity in the manner prescribed in Section 6.6, and the spouse has waived the right to be the Participant's Beneficiary, (2) the Participant is legally separated or has been abandoned (within the meaning of local law) and the Participant has a court order to such effect (and there is no qualified domestic relations order as defined in Code Section 414(p) which provides otherwise), (3) the Participant has no spouse, or 30 (4) the spouse cannot be located. In such event, the designation of a Beneficiary shall be made on a form satisfactory to the Administrator. A Participant may at any time revoke a designation of a Beneficiary or change a Beneficiary by filing written (or in such other form as permitted by the IRS) notice of such revocation or change with the Administrator. However, the Participant's spouse must again consent in writing (or in such other form as permitted by the IRS) to any change in Beneficiary unless the original consent acknowledged that the spouse had the right to limit consent only to a specific Beneficiary and that the spouse voluntarily elected to relinquish such right. (e) A Participant may, at any time, designate a Beneficiary for death benefits, if any, payable under the Plan that are in excess of the Pre-Retirement Survivor Annuity without the waiver or consent of the Participant's spouse. In the event no valid designation of Beneficiary exists, or if the Beneficiary is not alive at the time of the Participant's death, the death benefit will be paid in the following order of priority, unless the Employer specifies a different order of priority in an addendum to the Adoption Agreement, to: (1) The Participant's surviving spouse; (2) The Participant's children, including adopted children, per stirpes (3) The Participant's surviving parents, in equal shares; or (4) The Participant's estate. If the Beneficiary does not predecease the Participant, but dies prior to distribution of the death benefit, the death will be paid to the Beneficiary's estate. (f) If the Plan provides an insured death benefit and a Participant dies before any insurance coverage to which the Participant is entitled under the Plan is effected, the death benefit from such insurance coverage shall be limited to the standard rated premium which was or should have been used for such purpose. (g) In the event of any conflict between the terms of this Plan and the terms of any Contract issued hereunder, the Plan provisions shall control. 6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY In the event of a Participant's Total and Permanent Disability prior to the Participant's Retirement Date or other termination of employment, all amounts credited to such Participant's Combined Account shall, unless elected otherwise in the Adoption Agreement, become fully Vested. In the event of a Participant's Total and Permanent Disability, the Administrator, in accordance with the provisions of Sections 6.5 and 6.7, shall direct the distribution to such Participant of all Vested amounts credited to such Participant's Combined Account. 6.4 DETERMINATION OF BENEFITS UPON TERMINATION (a) If a Participant's employment with the Employer is terminated for any reason other than death, Total and Permanent Disability, or retirement, then such Participant shall be entitled to such benefits as are provided hereinafter pursuant to this Section. Distribution of the funds due to a Terminated Participant shall be made on the occurrence of an event which would result in the distribution had the Terminated Participant remained in the employ of the Employer (upon the Participant's death, Total and Permanent Disability, Early or Normal Retirement). However, at the election of the Participant, the Administrator shall direct that the entire Vested portion of the Terminated Participant's Combined Account be payable to such Terminated Participant provided the conditions, if any, set forth in the Adoption Agreement have been satisfied. Any distribution under this paragraph shall be made in a manner which is consistent with and satisfies the provisions of Section 6.5, including but not limited to, all notice and consent requirements of Code Sections 411(a)(11) and 417 and the Treasury Regulations thereunder. Regardless of whether distributions in kind are permitted, in the event that the amount of the Vested portion of the Terminated Participant's Combined Account equals or exceeds the fair market value of any insurance Contracts, the Trustee, when so directed by the Administrator and agreed to by the Terminated Participant, shall assign, transfer, and set over to such Terminated Participant all Contracts on such Terminated Participant's life in such form or with such endorsements, so that the settlement options and forms of payment are consistent with the provisions of Section 6.5. In the event that the Terminated Participant's Vested portion does not at least equal the fair market value of the Contracts, if any, the Terminated Participant may pay over to the Trustee the sum needed to make the distribution equal to the value of the Contracts being assigned or transferred, or the Trustee, pursuant to the Participant's election, may borrow the cash value of the Contracts from 31 the Insurer so that the value of the Contracts is equal to the Vested portion of the Terminated Participant's Combined Account and then assign the Contracts to the Terminated Participant. Notwithstanding the above, unless otherwise elected in the Adoption Agreement, if the value of a Terminated Participant's Vested benefit derived from Employer and Employee contributions does not exceed $5,000 (or, $3,500 for distributions made prior to the later of the first day of the first Plan Year beginning on or after August 5, 1997, or the date specified in the Adoption Agreement) the Administrator shall direct that the entire Vested benefit be paid to such Participant in a single lump-sum without regard to the consent of the Participant or the Participant's spouse. A Participant's Vested benefit shall not include Qualified Voluntary Employee Contributions within the meaning of Code Section 72(o)(5)(B) for Plan Years beginning prior to January 1, 1989. Furthermore, the determination of whether the $5,000 (or, if applicable, $3,500) threshold has been exceeded is generally based on the value of the Vested benefit as of the Valuation Date preceding the date of the distribution. However, if the lookback rule applies, the applicable threshold is deemed to be exceeded if the Vested benefit exceeded the applicable threshold at the time of any prior distribution. The lookback rule generally applies to all distributions made prior to March 22, 1999. With respect to distributions made on or after March 22, 1999, the lookback rule applies if either (1) the provisions of Section 6.12 do not apply or (2) a Participant has begun to receive distributions pursuant to an optional form of benefit under which at least one scheduled periodic distribution has not yet been made, and if the value of the Participant's benefit, determined at the time of the first distribution under that optional form of benefit exceeded the applicable threshold. However, the Plan does not fail to satisfy the requirements of this paragraph if, prior to the adoption of this Prototype Plan, the lookback rule was applied to all distributions. Notwithstanding the preceding, the lookback rule will not apply to any distributions made on or after October 17, 2000, the effective date of Treasury Regulations that repeal the lookback rule for distributions that are not already exempt from such rules. (b) The Vested portion of any Participant's Account shall be a percentage of such Participant's Account determined on the basis of the Participant's number of Years of Service (or Periods of Service if the Elapsed Time Method is elected) according to the vesting schedule specified in the Adoption Agreement. However, a Participant's entire interest in the Plan shall be non-forfeitable upon the Participant's Normal Retirement Age (if the Participant is employed by the Employer on or after such date). (c) For any Top Heavy Plan Year, the minimum top heavy vesting schedule elected by the Employer in the Adoption Agreement will automatically apply to the Plan. If no top heavy vesting schedule is elected and the regular vesting schedule(s) elected in the Adoption Agreement do not satisfy the minimum top heavy vesting requirements under Code Section 416(b), a 6 year graded or, if applicable, a 3 year cliff schedule (as provided under Code Section 416(b)) will automatically apply to the Plan and shall be treated as a Plan amendment pursuant to this Plan.. The minimum top heavy vesting schedule applies to all benefits within the meaning of Code Section 411(a)(7) except those attributable to Employee contributions, including benefits accrued before the effective date of Code Section 416 and benefits accrued before the Plan became top heavy. Further, no decrease in a Participant's Vested percentage shall occur in the event the Plan's status as top heavy changes for any Plan Year. However, this Section does not apply to the account balances of any Employee who does not have an Hour of Service after the Plan has initially become top heavy and the Vested percentage of such Employee's Participant's Account shall be determined without regard to this Section 6.4(c). If in any subsequent Plan Year the Plan ceases to be a Top Heavy Plan, then unless a specific Plan amendment is made to provide otherwise, the Administrator will continue to use the vesting schedule in effect while the Plan was a Top Heavy Plan. (d) Notwithstanding the vesting schedule above, upon the complete discontinuance of the Employer's contributions to the Plan (if this is a profit sharing plan) or upon any full or partial termination of the Plan, all amounts then credited to the account of any affected Participant shall become 100% Vested and shall not thereafter be subject to Forfeiture. (e) If this is an amended or restated Plan, then notwithstanding the vesting schedule specified in the Adoption Agreement, the Vested percentage of a Participant's Account shall not be less than the Vested percentage attained as of the later of the effective date or adoption date of this amendment and restatement. The computation of a Participant's nonforfeitable percentage of such Participant's interest in the Plan shall not be reduced as the result of any direct or indirect amendment to this Article, or due to changes in the Plan's status as a Top Heavy Plan. (f) If the Plan's vesting schedule is amended, or if the Plan is amended in any way that directly or indirectly affects the computation of the Participant's nonforfeitable percentage or if the Plan is deemed amended by an automatic change to a top heavy vesting schedule, then each Participant with at least three (3) Years of Service (or Periods of Service if the Elapsed Time Method is elected) as of the expiration date of the election period may elect to have such Participant's nonforfeitable percentage computed under the Plan without regard to such amendment or change. If a Participant fails to make such election, then such Participant shall be subject to the new vesting schedule. The Participant's election period shall commence on the adoption date of the amendment and shall end sixty (60) days after the latest of: (1) the adoption date of the amendment, 32 (2) the effective date of the amendment, or (3) the date the Participant receives written notice of the amendment from the Employer or Administrator. (g) In determining Years of Service or Periods of Service for purposes of vesting under the Plan, Years of Service or Periods of Service shall be excluded as elected in the Adoption Agreement. 6.5 DISTRIBUTION OF BENEFITS (a)(1) Unless otherwise elected as provided below, a Participant who is married on the Annuity Starting Date and who does not die before the Annuity Starting Date shall receive the value of all Plan benefits in the form of a Joint and Survivor Annuity. The Joint and Survivor Annuity is an annuity that commences immediately and shall be equal in value to a single life annuity. Such joint and survivor benefits following the Participant's death shall continue to the spouse during the spouse's lifetime at a rate equal to fifty percent (50%) of the rate at which such benefits were payable to the Participant. This Joint and Survivor Annuity shall be considered the designated qualified Joint and Survivor Annuity and the automatic form of payment for the purposes of this Plan. However, the Participant may, without spousal consent, elect to receive a smaller annuity benefit with continuation of payments to the spouse at a rate of seventy-five percent (75%) or one hundred percent (100%) of the rate payable to a Participant during the Participant's lifetime, which alternative Joint and Survivor Annuities shall be equal in value to the automatic Joint and 50% Survivor Annuity. An unmarried Participant shall receive the value of such Participant's benefit in the form of a life annuity. Such unmarried Participant, however, may elect to waive the life annuity. The election must comply with the provisions of this Section as if it were an election to waive the Joint and Survivor Annuity by a married Participant, but without fulfilling the spousal consent requirement. The Participant may elect to have any annuity provided for in this Section distributed upon the attainment of the earliest retirement age under the Plan. The "earliest retirement age" is the earliest date on which, under the Plan, the Participant could elect to receive retirement benefits. (2) Any election to waive the Joint and Survivor Annuity must be made by the Participant in writing (or in such other form as permitted by the IRS) during the election period and be consented to in writing (or in such other form as permitted by the IRS) by the Participant's spouse. If the spouse is legally incompetent to give consent, the spouse's legal guardian, even if such guardian is the Participant, may give consent. Such election shall designate a Beneficiary (or a form of benefits) that may not be changed without spousal consent (unless the consent of the spouse expressly permits designations by the Participant without the requirement of further consent by the spouse). Such spouse's consent shall be irrevocable and must acknowledge the effect of such election and be witnessed by a Plan representative or a notary public. Such consent shall not be required if it is established to the satisfaction of the Administrator that the required consent cannot be obtained because there is no spouse, the spouse cannot be located, or other circumstances that may be prescribed by Treasury Regulations. The election made by the Participant and consented to by such Participant's spouse may be revoked by the Participant in writing (or in such other form as permitted by the IRS) without the consent of the spouse at any time during the election period. A revocation of a prior election shall cause the Participant's benefits to be distributed as a Joint and Survivor Annuity. The number of revocations shall not be limited. Any new election must comply with the requirements of this paragraph. A former spouse's waiver shall not be binding on a new spouse. (3) The election period to waive the Joint and Survivor Annuity shall be the ninety (90) day period ending on the Annuity Starting Date. (4) For purposes of this Section, spouse or surviving spouse means the spouse or surviving spouse of the Participant, provided that a former spouse will be treated as the spouse or surviving spouse and a current spouse will not be treated as the spouse or surviving spouse to the extent provided under a qualified domestic relations order as described in Code Section 414(p) (5) With regard to the election, except as otherwise provided herein, the Administrator shall provide to the Participant no less than thirty (30) days and no more than ninety (90) days before the Annuity Starting Date a written (or such other form as permitted by the IRS) explanation of: (i) the terms and conditions of the Joint and Survivor Annuity, (ii) the Participant's right to make and the effect of an election to waive the Joint and Survivor Annuity, (iii) the right of the Participant's spouse to consent to any election to waive the Joint and Survivor Annuity, and (iv) the right of the Participant to revoke such election, and the effect of such revocation. (6) Notwithstanding the above, with respect to distributions made on or after December 31, 1996, if the Participant elects (with spousal consent if applicable) to waive the requirement that the explanation be provided at least thirty (30) days before the Annuity Starting Date, the election period shall be extended to the thirtieth (30th) day after 33 the date on which such explanation is provided to the Participant, unless the thirty (30) day period is waived pursuant to the following provisions. Any distribution provided for in this Section made on or after December 31, 1996, may commence less than thirty (30) days after the notice required by Code Section 417(a)(3) is given provided the following requirements are satisfied: (i) the Administrator clearly informs the Participant that the Participant has a right to a period of thirty (30) days after receiving the notice to consider whether to waive the Joint and Survivor Annuity and to elect (with spousal consent) a form of distribution other than a Joint and Survivor Annuity; (ii) the Participant is permitted to revoke any affirmative distribution election at least until the Annuity Starting Date or, if later, at any time prior to the expiration of the seven (7) day period that begins the day after the explanation of the Joint and Survivor Annuity is provided to the Participant; (iii) the Annuity Starting Date is after the time that the explanation of the Joint and Survivor Annuity is provided to the Participant. However, the Annuity Starting Date may be before the date that any affirmative distribution election is made by the Participant and before the date that the distribution is permitted to commence under (iv) below; and (iv) distribution in accordance with the affirmative election does not commence before the expiration of the seven (7) day period that begins the day after the explanation of the Joint and Survivor Annuity is provided to the Participant. (b) In the event a married Participant duly elects pursuant to paragraph (a)(2) above not to receive the benefit in the form of a Joint and Survivor Annuity, or if such Participant is not married, in the form of a life annuity, the Administrator, pursuant to the election of the Participant, shall direct the distribution to a Participant or Beneficiary any amount to which the Participant or Beneficiary is entitled under the Plan in one or more of the following methods which are permitted pursuant to the Adoption Agreement: (1) One lump-sum payment in cash or in property; (2) Partial withdrawals; (3) Payments over a period certain in monthly, quarterly, semiannual, or annual cash installments. In order to provide such installment payments, the Administrator may (A) segregate the aggregate amount thereof in a separate, federally insured savings account, certificate of deposit in a bank or savings and loan association, money market certificate or other liquid short-term security or (B) purchase a nontransferable annuity contract for a term certain (with no life contingencies) providing for such payment. The period over which such payment is to be made shall not extend beyond the Participant's life expectancy (or the life expectancy of the Participant and the Participant's designated Beneficiary); (4) Purchase of or providing an annuity. However, such annuity may not be in any form that will provide for payments over a period extending beyond either the life of the Participant (or the lives of the Participant and the Participant's designated Beneficiary) or the life expectancy of the Participant (or the life expectancy of the Participant and the Participant's designated Beneficiary). (c) The present value of a Participant's Joint and Survivor Annuity derived from Employer and Employee contributions may not be paid without the Participant's written (or in such other form as permitted by the IRS) consent if the value exceeds, or has ever exceeded at the time of any prior distribution, $5,000 (or $3,500, for distributions made prior to the later of the first day of the first Plan Year beginning after August 5, 1997, or the date specified in the Adoption Agreement) and if the account balance is not immediately distributable. Further, the spouse of a Participant must consent in writing (or in such other form as permitted by the IRS) to any immediate distribution. If the value of the Participant's benefit derived from Employer and Employee contributions does not exceed, and has never exceeded at the time of any prior distribution, $5,000 (or $3,500, for distributions made prior to the later of the first day of the first Plan Year beginning after August 5, 1997, or the date specified in the Adoption Agreement) the Administrator will distribute such benefit in a lump-sum without such Participant's consent. No distribution may be made under the preceding sentence after the Annuity Starting Date unless the Participant and the Participant's spouse consent in writing (or in such other form as permitted by the IRS) to such distribution. Any consent required under this paragraph must be obtained not more than ninety (90) days before commencement of the distribution and shall be made in a manner consistent with Section 6.5(a)(2). Notwithstanding the preceding, the lookback rule (which provides that if the present value at the time of a distribution exceeds the applicable dollar threshold, then the present value at any subsequent time is deemed to exceed the threshold) will not apply to any distributions made after October 16, 2000, the effective date of Treasury Regulations that repeal such rule. 34 (d) If the value of a Participant's vested benefit: (1) for Plan Years beginning before the later of August 6, 1997 or the date specified in the Adoption Agreement, exceeds $3,500 (or exceeded $3,500 at the time of any prior distribution), (2) for Plan Years beginning after the later of August 5, 1997 or the date specified in the Adoption Agreement, and for a distribution made prior to March 22, 1999, exceeds $5,000 (or exceeded $5,000 at the time of any prior distribution), (3) and for Plan Years beginning after the later of August 5, 1997 or the date specified in the Adoption Agreement and for a distribution made after March 21, 1999, that either exceeds $5,000 or is a remaining payment under a selected optional form of payment that exceeded $5,000 at the time the selected payment began, and the account balance is immediately distributable, the Participant and the Participant's spouse (or where either the Participant or the spouse has died, the survivor) must consent to any distribution of such account balance. A benefit is "immediately distributable" if any part of the benefit could be distributed to the Participant (or surviving spouse) before the Participant attains (or would have attained if not deceased) the later of the Participant's Normal Retirement Age or age 62. With regard to this required consent: (1) No consent shall be valid unless the Participant has received a general description of the material features and an explanation of the relative values of the optional forms of benefit available under the Plan that would satisfy the notice requirements of Code Section 417; (2) The Participant must be informed of the right to defer receipt of the distribution. If a Participant fails to consent, it shall be deemed an election to defer the commencement of payment of any benefit. However, any election to defer the receipt of benefits shall not apply with respect to distributions that are required under Section 6.5(e); (3) Notice of the rights specified under this paragraph shall be provided no less than thirty (30) days and no more than ninety (90) days before the Annuity Starting Date; (4) Written (or such other form as permitted by the IRS) consent of the Participant to the distribution must not be made before the Participant receives the notice and must not be made more than ninety (90) days before the Annuity Starting Date; and (5) No consent shall be valid if a significant detriment is imposed under the Plan on any Participant who does not consent to the distribution. (e) Notwithstanding any provision in the Plan to the contrary, for Plan Years beginning after December 31, 1996, the distribution of a Participant's benefits, whether under the Plan or through the purchase of an annuity Contract, shall be made in accordance with the following requirements and shall otherwise comply with Code Section 401(a)(9) and the Treasury Regulations thereunder (including Treasury Regulation Section 1.401(a)(9)-2), the provisions of which are incorporated herein by reference: (1) A Participant's benefits will be distributed or must begin to be distributed not later than the Participant's required beginning date. Alternatively, distributions to a Participant must begin no later than the Participant's required beginning date and must be made over the life of the Participant (or the lives of the Participant and the Participant's designated Beneficiary) or the life expectancy of the Participant (or the life expectancies of the Participant and the Participant's designated Beneficiary) in accordance with Treasury Regulations. However, if the distribution is to be in the form of a joint and survivor annuity or single life annuity, then distributions must begin no later than the required beginning date and must be made over the life of the Participant (or the lives of the Participant and the Participant's designated Beneficiary) in accordance with Treasury Regulations. (2) The "required beginning date" for a Participant who is a five percent (5%) owner with respect to the Plan Year ending in the calendar year in which such Participant attains age 70 1/2 means, unless the Employer has elected to continue the pre-SBJPA (Small Business Job Protection Act of 1996) rules in the Adoption Agreement, April 1st of the calendar year following the calendar year in which the Participant attains age 70 1/2. Once distributions have begun to a five percent (5%) owner under this subsection, they must continue to be distributed, even if the Participant ceases to be a five percent (5%) owner in a subsequent year. (3) The "required beginning date" for a Participant other than a five percent (5%) owner means, unless the Employer has elected to continue the pre-SBJPA rules in the Adoption Agreement, April 1st of the calendar year following the later of the calendar year in which the Participant attains age 70 1/2 or the calendar year in which the Participant retires. 35 (4) If the election is made to continue the pre-SBJPA rules, then except as provided below, the "required beginning date" is April 1st of the calendar year following the calendar year in which a Participant attains age 70 1/2. (i) However, the required beginning date for a Participant who had attained age 70 1/2 before January 1, 1988, and was not a five percent (5%) owner (within the meaning of Code Section 416) at any time during the Plan Year ending with or within the calendar year in which the Participant attained age 66 1/2 or any subsequent Plan Year, is April 1st of the calendar year following the calendar in which the Participant retires. (ii) Notwithstanding (i) above, the required beginning date for a Participant who was a five percent (5%) owner (within the meaning of Code Section 416) at any time during the five (5) Plan Year period ending in the calendar year in which the Participant attained age 70 1/2 is April 1st of the calendar year in which the Participant attained age 70 1/2. In the case of a Participant who became a five percent (5%) owner during any Plan Year after the calendar year in which the Participant attained age 70 1/2, the required beginning date is April 1st of the calendar year following the calendar year in which such subsequent Plan Year ends. (5) If this is an amendment or restatement of a plan that contained the pre-SBJPA rules and an election is made to use the post-SBJPA rules, then the transition rules elected in the Adoption Agreement will apply. (6) Except as otherwise provided herein, five percent (5%) owner means, for purposes of this Section, a Participant who is a five percent (5%) owner as defined in Code Section 416 at any time during the Plan Year ending with or within the calendar year in which such owner attains age 70 1/2. (7) Distributions to a Participant and such Participant's Beneficiaries will only be made in accordance with the incidental death benefit requirements of Code Section 401(a)(9)(G) and the Treasury Regulations thereunder. (f) For purposes of this Section, the life expectancy of a Participant and/or a Participant's spouse (other than in the case of a life annuity) shall or shall not be redetermined annually as elected in the Adoption Agreement and in accordance with RegulationsTreasury Regulations. If the Participant or the Participant's spouse may elect, pursuant to the Adoption Agreement, to have life expectancies recalculated, then the election, once made shall be irrevocable. If no election is made by the time distributions must commence, then the life expectancy of the Participant and the Participant's spouse shall not be subject to recalculation. Life expectancy and joint and last survivor life expectancy shall be computed using the return multiples in Tables V and VI of Treasury Regulation Section 1.72-9. (g) All annuity Contracts under this Plan shall be non-transferable when distributed. Furthermore, the terms of any annuity Contract purchased and distributed to a Participant or spouse shall comply with all of the requirements of this Plan. (h) Subject to the spouse's right of consent afforded under the Plan, the restrictions imposed by this Section shall not apply if a Participant has, prior to January 1, 1984, made a written designation to have retirement benefits paid in an alternative method acceptable under Code Section 401(a) as in effect prior to the enactment of the Tax Equity and Fiscal Responsibility Act of 1982 ("TEFRA"). (i) If a distribution is made to a Participant who has not severed employment and who is not fully Vested in the Participant's Account and the Participant may increase the Vested percentage in such account: (1) A separate account shall be established for the Participant's interest in the Plan as of the time of the distribution, and (2) At any relevant time the Participant's Vested portion of the separate account shall be equal to an amount ("X") determined by the formula: X equals P(AB plus RxD)) - (R x D) For purposes of applying the formula: P is the Vested percentage at the relevant time, AB is the account balance at the relevant time, D is the amount of distribution, and R is the ratio of the account balance at the relevant time to the account balance after distribution. (j) Notwithstanding any provision of this Plan to the contrary, with respect to distributions under the Plan made in calendar years beginning on or after January 1, 2002 (or earlier as specified in the Adoption Agreement), the Plan will apply the minimum distribution requirements of Section 401(a)(9) of the Code in accordance with the Treasury Regulations under Code Section 401(a)(9) that were proposed in January 2001. This provision shall continue in effect until the end of the last calendar year beginning before the effective date of final Treasury Regulations under Code Section 401(a)(9) or such other date specified in guidance published by the IRS. 36 6.6 DISTRIBUTION OF BENEFITS UPON DEATH (a) Unless otherwise elected as provided below, a Vested Participant who dies before the Annuity Starting Date and who has a surviving spouse shall have the Pre-Retirement Survivor Annuity paid to the surviving spouse. The Participant's spouse may direct that payment of the Pre-Retirement Survivor Annuity commence within a reasonable period after the Participant's death. If the spouse does not so direct, payment of such benefit will commence at the time the Participant would have attained the later of Normal Retirement Age or age 62. However, the spouse may elect a later commencement date. Any distribution to the Participant's spouse shall be subject to the rules specified in Section 6.6(h). (b) Any election to waive the Pre-Retirement Survivor Annuity before the Participant's death must be made by the Participant in writing (or in such other form as permitted by the IRS) during the election period and shall require the spouse's irrevocable consent in the same manner provided for in Section 6.5(a)(2). Further, the spouse's consent must acknowledge the specific nonspouse Beneficiary. Notwithstanding the foregoing, the nonspouse Beneficiary need not be acknowledged, provided the consent of the spouse acknowledges that the spouse has the right to limit consent only to a specific Beneficiary and that the spouse voluntarily elects to relinquish such right. (c) The election period to waive the Pre-Retirement Survivor Annuity shall begin on the first day of the Plan Year in which the Participant attains age 35 and end on the date of the Participant's death. An earlier waiver (with spousal consent) may be made provided a written (or such other form as permitted by the IRS) explanation of the Pre-Retirement Survivor Annuity is given to the Participant and such waiver becomes invalid at the beginning of the Plan Year in which the Participant turns age 35. In the event a Participant separates from service prior to the beginning of the election period, the election period shall begin on the date of such separation from service. (d) With regard to the election, the Administrator shall provide each Participant within the applicable election period, with respect to such Participant (and consistent with Treasury Regulations), a written (or such other form as permitted by the IRS) explanation of the Pre-Retirement Survivor Annuity containing comparable information to that required pursuant to Section 6.5(a)(5). For the purposes of this paragraph, the term "applicable period" means, with respect to a Participant, whichever of the following periods ends last: (1) The period beginning with the first day of the Plan Year in which the Participant attains age 32 and ending with the close of the Plan Year preceding the Plan Year in which the Participant attains age 35; (2) A reasonable period after the individual becomes a Participant. For this purpose, in the case of an individual who becomes a Participant after age 32, the explanation must be provided by the end of the three-year period beginning with the first day of the first Plan Year for which the individual is a Participant; (3) A reasonable period ending after the Plan no longer fully subsidizes the cost of the Pre-Retirement Survivor Annuity with respect to the Participant; or (4) A reasonable period ending after Code Section 401(a)(11) applies to the Participant. For purposes of applying this subsection, a reasonable period ending after the enumerated events described in (2), (3) and (4) is the end of the two (2) year period beginning one (1) year prior to the date the applicable event occurs, and ending one (1) year after that date. In the case of a Participant who separates from service before the Plan Year in which age 35 is attained, notice shall be provided within the two (2) year period beginning one (1) year prior to separation and ending one (1) year after separation. If such a Participant thereafter returns to employment with the Employer, the applicable period for such Participant shall be redetermined. (e) The Pre-Retirement Survivor Annuity provided for in this Section shall apply only to Participants who are credited with an Hour of Service on or after August 23, 1984. Former Participants who are not credited with an Hour of Service on or after August 23, 1984, shall be provided with rights to the Pre-Retirement Survivor Annuity in accordance with Section 303(e)(2) of the Retirement Equity Act of 1984. (f) If the value of the Pre-Retirement Survivor Annuity derived from Employer and Employee contributions does not exceed, and has never exceeded at the time of any prior distribution, $5,000 (or, $3,500 for distributions made prior to the later of the first day of the first Plan Year beginning after August 5, 1997, or the date specified in the Adoption Agreement) the Administrator shall direct the distribution of such amount to the Participant's spouse as soon as practicable. No distribution may be made under the preceding sentence after the Annuity Starting Date unless the spouse consents in writing (or in such other form as permitted by the IRS). If the value exceeds, or has ever exceeded at the time of any prior distribution, $5,000 (or, if applicable, $3,500), an immediate distribution of the entire amount may be made to the surviving spouse, provided such surviving spouse consents in writing (or in such other form as permitted by the IRS) to such distribution. Any consent required under this paragraph must be obtained not more than ninety (90) days before commencement of the distribution and shall be made in a manner consistent with Section 6.5(a)(2). Notwithstanding the preceding, the lookback rule (which provides that if 37 the present value at the time of a distribution exceeds the applicable dollar threshold, then the present value at any subsequent time is deemed to exceed the threshold) will not apply to any distributions made after October 16, 2000, the effective date of Treasury Regulations that repeal such rule. (g) Death benefits may be paid to a Participant's Beneficiary in one of the following optional forms of benefits subject to the rules specified in Section 6.6(h) and the elections made in the Adoption Agreement. Such optional forms of distributions may be elected by the Participant in the event there is an election to waive the Pre-Retirement Survivor Annuity, and for any death benefits in excess of the Pre-Retirement Survivor Annuity. However, if no optional form of distribution was elected by the Participant prior to death, then the Participant's Beneficiary may elect the form of distribution. (1) One lump-sum payment in cash or in property. (2) Partial withdrawals. (3) Payment in monthly, quarterly, semi-annual, or annual cash installments over a period to be determined by the Participant or the Participant's Beneficiary. In order to provide such installment payments, the Administrator may (A) segregate the aggregate amount thereof in a separate, federally insured savings account, certificate of deposit in a bank or savings and loan association, money market certificate or other liquid short-term security or (B) purchase a nontransferable annuity contract for a term certain (with no life contingencies) providing for such payment. After periodic installments commence, the Beneficiary shall have the right to reduce the period over which such periodic installments shall be made, and the cash amount of such periodic installments shall be adjusted accordingly. (4) In the form of an annuity over the life expectancy of the Beneficiary. (5) If death benefits in excess of the Pre-Retirement Survivor Annuity are to be paid to the surviving spouse, such benefits may be paid pursuant to (1), (2) or (3) above, or used to purchase an annuity so as to increase the payments made pursuant to the Pre-Retirement Survivor Annuity. (h) Notwithstanding any provision in the Plan to the contrary, distributions upon the death of a Participant shall be made in accordance with the following requirements and shall otherwise comply with Code Section 401(a)(9) and the Treasury Regulations thereunder. (1) If it is determined, pursuant to Treasury Regulations, that the distribution of a Participant's interest has begun and the Participant dies before the entire interest has been distributed, the remaining portion of such interest shall be distributed at least as rapidly as under the method of distribution elected pursuant to Section 6.5 as of the date of death. (2) If a Participant dies before receiving any distributions of the interest in the Plan or before distributions are deemed to have begun pursuant to Treasury Regulations, then the death benefit shall be distributed to the Participant's Beneficiaries in accordance with the following rules subject to the elections made in the Adoption Agreement and Subsections 6.6(h)(3) and 6.6(i) below: (i) The entire death benefit shall be distributed to the Participant's Beneficiaries by December 31st of the calendar year in which the fifth anniversary of the Participant's death occurs; (ii) The 5-year distribution requirement of (i) above shall not apply to any portion of the deceased Participant's interest which is payable to or for the benefit of a designated Beneficiary. In such event, such portion shall be distributed over the life of such designated Beneficiary (or over a period not extending beyond the life expectancy of such designated Beneficiary) provided such distribution begins not later than December 31st of the calendar year immediately following the calendar year in which the Participant died (or such later date as may be prescribed by Treasury Regulations); (iii) However, in the event the Participant's spouse (determined as of the date of the Participant's death) is the designated Beneficiary, the provisions of (ii) above shall apply except that the requirement that distributions commence within one year of the Participant's death shall not apply. In lieu thereof, distributions must commence on or before the later of: (1) December 31st of the calendar year immediately following the calendar year in which the Participant died; or (2) December 31st of the calendar year in which the Participant would have attained age 70 1/2. If the surviving spouse dies before distributions to such spouse begin, then the 5-year distribution requirement of this Section shall apply as if the spouse was the Participant. (3) Notwithstanding subparagraph (2) above, or any elections made in the Adoption Agreement, if a Participant's death benefits are to be paid in the form of a Pre-Retirement Survivor Annuity, then distributions to the Participant's surviving spouse must commence on or before the later of: (1) December 31st of the calendar year immediately following the calendar year in which the Participant died; or (2) December 31st of the calendar year in which the Participant would have attained age 70 1/2. 38 (i) For purposes of Section 6.6(h)(2), the election by a designated Beneficiary to be excepted from the 5-year distribution requirement must be made no later than December 31st of the calendar year following the calendar year of the Participant's death. Except, however, with respect to a designated Beneficiary who is the Participant's surviving spouse, the election must be made by the earlier of: (1) December 31st of the calendar year immediately following the calendar year in which the Participant died or, if later, December 31st of the calendar year in which the Participant would have attained age 70 1/2; or (2) December 31st of the calendar year which contains the fifth anniversary of the date of the Participant's death. An election by a designated Beneficiary must be in writing (or in such other form as permitted by the IRS) and shall be irrevocable as of the last day of the election period stated herein. In the absence of an election by the Participant or a designated Beneficiary, the 5-year distribution requirement shall apply. (j) For purposes of this Section, the life expectancy of a Participant and a Participant's spouse (other than in the case of a life annuity) shall or shall not be redetermined annually as elected in the Adoption Agreement and in accordance with RegulationsTreasury Regulations. If the Participant may elect, pursuant to the Adoption Agreement, to have life expectancies recalculated, then the election, once made shall be irrevocable. If no election is made by the time distributions must commence, then the life expectancy of the Participant and the Participant's spouse shall not be subject to recalculation. Life expectancy and joint and last survivor life expectancy shall be computed using the return multiples in Tables V and VI of Treasury Regulation Section 1.72-9. (k) For purposes of this Section, any amount paid to a child of the Participant will be treated as if it had been paid to the surviving spouse if the amount becomes payable to the surviving spouse when the child reaches the age of majority. (l) In the event that less than 100% of a Participant's interest in the Plan is distributed to such Participant's spouse, the portion of the distribution attributable to the Participant's Voluntary Contribution Account shall be in the same proportion that the Participant's Voluntary Contribution Account bears to the Participant's total interest in the Plan. (m) Subject to the spouse's right of consent afforded under the Plan, the restrictions imposed by this Section shall not apply if a Participant has, prior to January 1, 1984, made a written designation to have death benefits paid in an alternative method acceptable under Code Section 401(a) as in effect prior to the enactment of TEFRA. (n) Notwithstanding any provision of this Plan to the contrary, with respect to distributions under the Plan made in calendar years beginning on or after January 1, 2002 (or earlier as specified in the Adoption Agreement), the Plan will apply the minimum distribution requirements of Section 401(a)(9) of the Code in accordance with the Treasury Regulations under Code Section 401(a)(9) that were proposed in January 2001. This provision shall continue in effect until the end of the last calendar year beginning before the effective date of final Treasury Regulations under Code Section 401(a)(9) or such other date specified in guidance published by the IRS. 6.7 TIME OF DISTRIBUTION Except as limited by Sections 6.5 and 6.6, whenever a distribution is to be made, or a series of payments are to commence, the distribution or series of payments may be made or begun on such date or as soon thereafter as is practicable. However, unless a Former Participant elects in writing to defer the receipt of benefits (such election may not result in a death benefit that is more than incidental), the payment of benefits shall begin not later than the sixtieth (60th) day after the close of the Plan Year in which the latest of the following events occurs: (a) the date on which the Participant attains the earlier of age 65 or the Normal Retirement Age specified herein; (b) the tenth (10th) anniversary of the year in which the Participant commenced participation in the Plan; or (c) the date the Participant terminates service with the Employer. Notwithstanding the foregoing, the failure of a Participant and, if applicable, the Participant's spouse, to consent to a distribution that is immediately distributable (within the meaning of Section 6.5(d)), shall be deemed to be an election to defer the commencement of payment of any benefit sufficient to satisfy this Section. 6.8 DISTRIBUTION FOR MINOR OR INCOMPETENT BENEFICIARY In the event a distribution is to be made to a minor or incompetent Beneficiary, then the Administrator may direct that such distribution be paid to the legal guardian, or if none in the case of a minor Beneficiary, to a parent of such Beneficiary, or to the custodian for such Beneficiary under the Uniform Gifts to Minors Act or the Uniform Transfers to Minors Act, if such is permitted by the laws of the state in which said Beneficiary resides. Such a payment to the legal guardian, custodian or parent of a minor or incompetent Beneficiary shall fully discharge the Trustee, Employer, and Plan from further liability on account thereof. 39 6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN In the event that all, or any portion, of the distribution payable to a Participant or Beneficiary hereunder shall, at the later of the Participant's attainment of age 62 or Normal Retirement Age, remain unpaid solely by reason of the inability of the Administrator, after sending a registered letter, return receipt requested, to the last known address, and after further diligent effort, to ascertain the whereabouts of such Participant or Beneficiary, the amount so distributable shall be treated as a Forfeiture pursuant to the Plan. Notwithstanding the foregoing, if the value of a Participant's Vested benefit derived from Employer and Employee contributions does not exceed $5,000, then the amount distributable shall be treated as a Forfeiture at the time it is determined that the whereabouts of the Participant or the Participant's Beneficiary can not be ascertained. In the event a Participant or Beneficiary is located subsequent to the Forfeiture, such benefit shall be restored, first from Forfeitures, if any, and then from an additional Employer contribution, if necessary. However, regardless of the preceding, a benefit that is lost by reason of escheat under applicable state law is not treated as a Forfeiture for purposes of this Section nor as an impermissible forfeiture under the Code. 6.10 IN-SERVICE DISTRIBUTION If elected in the Adoption Agreement, at such time as the conditions set forth in the Adoption Agreement have been satisfied, then the Administrator, at the election of a Participant who has not severed employment with the Employer, shall direct the distribution of up to the entire Vested amount then credited to the accounts as elected in the Adoption Agreement maintained on behalf of such Participant. In the event that the Administrator makes such a distribution, the Participant shall continue to be eligible to participate in the Plan on the same basis as any other Employee. Any distribution made pursuant to this Section shall be made in a manner consistent with Section 6.5, including, but not limited to, all notice and consent requirements of Code Sections 411(a)(11) and 417 and the Treasury Regulations thereunder. 6.11 ADVANCE DISTRIBUTION FOR HARDSHIP (a) For profit sharing plans and 401(k) profit sharing plans (except to the extent Section 12.9 applies), if elected in the Adoption Agreement, the Administrator, at the election of the Participant, shall direct the distribution to any Participant in any one Plan Year up to the lesser of 100% of the Vested interest of the Participant's Combined Account valued as of the last Valuation Date or the amount necessary to satisfy the immediate and heavy financial need of the Participant. Any distribution made pursuant to this Section shall be deemed to be made as of the first day of the Plan Year or, if later, the Valuation Date immediately preceding the date of distribution, and the account from which the distribution is made shall be reduced accordingly. Withdrawal under this Section shall be authorized only if the distribution is for an immediate and heavy financial need. The Administrator will determine whether there is an immediate and heavy financial need based on the facts and circumstances. An immediate and heavy financial need includes, but is not limited to, a distribution for one of the following: (1) Medical expenses described in Code Section 213(d) incurred by the Participant, the Participant's spouse, or any of the Participant's dependents (as defined in Code Section 152) or necessary for these persons to obtain medical care as described in Code Section 213(d); (2) Costs directly related to the purchase (excluding mortgage payments) of a principal residence for the Participant; (3) Funeral expenses for a member of the Participant's family; (4) Payment of tuition, related educational fees, and room and board expenses, for the next twelve (12) months of post-secondary education for the Participant, the Participant's spouse, children, or dependents (as defined in Code Section 152); or (5) Payments necessary to prevent the eviction of the Participant from the Participant's principal residence or foreclosure on the mortgage on that residence. (b) If elected in the Adoption Agreement, no distribution shall be made pursuant to this Section from the Participant's Account until such Account has become fully Vested. (c) Any distribution made pursuant to this Section shall be made in a manner which is consistent with and satisfies the provisions of Section 6.5, including, but not limited to, all notice and consent requirements of Code Sections 411(a)(11) and 417 and the Treasury Regulations thereunder. 6.12 SPECIAL RULE FOR CERTAIN PROFIT SHARING PLANS (a) The provisions of this Section apply, if elected in the Adoption Agreement, to a Participant in a profit sharing plan or 401(k) profit sharing plan. However, regardless of the preceding and any election in the Adoption Agreement, this Section shall not apply to any Participant if it is determined that this Plan is a direct or indirect transferee of assets (other than through a direct rollover) of a defined benefit plan or money purchase plan (including a target benefit plan). Furthermore, if any election is 40 made to use the provisions of this Section and this Plan is a direct or indirect transferee of assets (other than through a direct rollover) from a stock bonus or profit sharing plan which would otherwise provide for a life annuity form of payment to the Participant, then the provisions of subsection (c) below will apply. (b) If an election is made to not offer a life annuity form of distribution, a Participant shall be prohibited from electing benefits in the form of a life annuity and the Joint and Survivor Annuity provisions of Section 6.5 shall not apply. (c) If an election is made to offer annuities as a form of distribution but not as the normal form of distribution, then the Joint and Survivor Annuity provisions of Section 6.5 shall not apply if a Participant does not elect an annuity form of distribution. Furthermore, subsection (e) shall not apply if a Participant elects an annuity form of distribution. (d) Upon the death of a Participant, the Participant's entire Vested account balances will be paid to the Participant's surviving spouse, or, if there is no surviving spouse or the surviving spouse has consented to waive the benefit, in accordance with Section 6.6, to the Participant's designated Beneficiary. (e) Except to the extent otherwise provided in this Section, the provisions of Sections 6.2, 6.5 and 6.6 regarding spousal consent shall be inoperative with respect to this Plan. (f) If a distribution is one to which Code Sections 401(a)(11) and 417 do not apply, such distribution may commence 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 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. 6.13 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION All rights and benefits, including elections, provided to a Participant in this Plan shall be subject to the rights afforded to any alternate payee under a qualified domestic relations order. Furthermore, a distribution to an alternate payee shall be permitted if such distribution is authorized by a qualified domestic relations order, even if the affected Participant has not reached the earliest retirement age under the Plan. For the purposes of this Section, "alternate payee," "qualified domestic relations order" and "earliest retirement age" shall have the meanings set forth under Code Section 414(p). 6.14 DIRECT ROLLOVERS (a) Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee's election under this Section, a distributee may elect, at the time and in the manner prescribed by the Administrator, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a direct rollover. (b) For purposes of this Section, the following definitions shall apply: (1) An "eligible rollover distribution" means any distribution described in Code Section 402(c)(4) and generally includes any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee's designated beneficiary, or for a specified period of ten (10) years or more; any distribution to the extent such distribution is required under Code Section 401(a)(9); the portion of any other distribution(s) that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities); for distributions made after December 31, 1998, any hardship distribution described in Code Section 401(k)(2)(B)(i)(V); and any other distribution reasonably expected to total less than $200 during a year. (2) An "eligible retirement plan" is an individual retirement account described in Code Section 408(a), an individual retirement annuity described in Code Section 408(b), an annuity plan described in Code Section 403(a), or a qualified plan described in Code Section 401(a), that accepts the distributee's eligible rollover distribution. However, in the case of an eligible rollover distribution to the surviving spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity. (3) A "distributee" includes an Employee or former Employee. In addition, the Employee's or former Employee's surviving spouse and the Employee's or former Employee's spouse or former spouse who is the alternate payee under a 41 qualified domestic relations order, as defined in Code Section 414(p), are distributees with regard to the interest of the spouse or former spouse. (4) A "direct rollover" is a payment by the Plan to the eligible retirement plan specified by the distributee. 6.15 TRANSFER OF ASSETS FROM A MONEY PURCHASE PLAN (a) This Section shall be effective as of the following date: (1) for Plans not entitled to extended reliance as described in Revenue Ruling 94-76, the first day of the first Plan Year beginning on or after December 12, 1994, or if later, 90 days after December 12, 1994; or (2) for Plans entitled to extended reliance as described in Revenue Ruling 94-76, as of the first day of the first Plan Year following the Plan Year in which the extended reliance period applicable to the Plan ends. However, in the event of a transfer of assets to the Plan from a money purchase plan that occurs after the date of the most recent determination letter, the effective date of the amendment shall be the date immediately preceding the date of such transfer of assets. (b) Notwithstanding any provision of this Plan to the contrary, to the extent that any optional form of benefit under this Plan permits a distribution prior to the Employee's retirement, death, disability, or severance from employment, and prior to Plan termination, the optional form of benefit is not available with respect to benefits attributable to assets (including the post-transfer earnings thereon) and liabilities that are transferred, within the meaning of Code Section 414(l), to this Plan from a money purchase pension plan qualified under Code Section 401(a) (other than any portion of those assets and liabilities attributable to after-tax voluntary Employee contributions or to a direct or indirect rollover contribution). ARTICLE VII TRUSTEE AND CUSTODIAN 7.1 BASIC RESPONSIBILITIES OF THE TRUSTEE (a) The provisions of this Article, other than Section 7.6 shall not apply to this Plan if a separate trust agreement is being used as specified in the Adoption Agreement. (b) The Trustee is accountable to the Employer for the funds contributed to the Trust Fund by the Employer, but the Trustee does not have any duty to see that the contributions received comply with the provisions of the Plan. The Trustee is not obligated to collect any contributions from the Employer, nor is it under a duty to see that funds deposited with it are deposited in accordance with the provisions of the Plan. (c) The Trustee will credit and distribute the Trust Fund as directed by the Administrator. The Trustee shall not be responsible in any way to determine whether any payee or distributee is entitled to any payment or whether the distribution is proper or within the terms of the Plan, or as to the manner of making any payment or distribution. The Trustee is accountable only to the Administrator for any payment or distribution made by it in good faith on the order or direction of the Administrator. (d) The Trustee shall have no liability with respect to the investment of assets when directed by a Participant (pursuant to the Participant Direction Procedures if the Plan permits Participant directed investments), the Employer, Administrator or an Investment Manager or other agent appointed by the Employer with respect to the investment of any or all Plan assets, but shall be responsible only to execute such investment instructions as so directed. (1) The Trustee shall be entitled to rely fully on the written (or other form acceptable to the Administrator and the Trustee, including but not limited to voice recorded and electronically mailed) instructions of a Participant (pursuant to the Participant Direction Procedures), the Employer, or any Fiduciary or nonfiduciary agent of the Employer, in the discharge of such duties, and shall not be liable for any loss or other liability, resulting from such direction (or lack of direction) of the investment of any part of the Plan assets. (2) The Trustee may delegate the duty to execute such instructions to any nonfiduciary agent, which may be an affiliate of the Trustee or any Plan representative. (3) The Trustee may refuse to comply with any direction from a Participant in the event the Trustee, in its sole and absolute discretion, deems such directions improper. The Trustee shall not be responsible or liable for any loss or expense, which may result from the Trustee's refusal or failure to comply with any directions from a Participant. In no event 42 shall this provision be construed to impose any additional duty or obligation on the Trustee to determine the legality or propriety of any direction from a Participant. (4) Any costs and expenses related to compliance with the Participant's directions shall be borne by the Participant's Directed Account, unless paid by the Employer. (e) The Trustee will maintain records of receipts and disbursements and furnish to the Employer and/or Administrator for each Plan Year a written annual report pursuant to Section 7.9. (f) The Trustee may employ a bank or trust company pursuant to the terms of its usual and customary bank agency agreement, under which the duties of such bank or trust company shall be of a custodial, clerical or record-keeping nature. (g) No amendment to the Plan shall place any greater burden on the Trustee without its written consent. (h) The Trustee shall not be liable for interest on any cash or cash balances maintained in the Trust Fund. (i) The Trustee may consult with legal counsel concerning any questions which may arise with reference to its rights and duties under the Plan, and the opinion of such counsel shall be full and complete protection in respect of any action taken or omitted by the Trustee hereunder in good faith and in accordance with the opinion of such counsel. (j) Any notice from the Trustee provided for in this Agreement shall be effective if sent by first-class mail to the recipient's last address on the Trustee's records. (k) The Trustee may rely upon and shall be protected in acting upon any communication from the person signing the Adoption Agreement or from any other persons authorized by the Employer or Administrator to give instructions concerning the Plan. The Trustee shall be entitled to rely conclusively upon, and shall be fully protected in any action or omitting to take an action in good faith in reliance upon, any instructions, notices, communications or instruments believed to be genuine and properly communicated. Any such notification may be proved by original copy or reproduced copy thereof, including, without limitation, a photocopy, a facsimile transmission, an electronic image or any other electronic reproduction. For purposes of this Section, the Trustee may (but is not required to) give the same effect to a telephonic instructions, voice recording, or any instruction received through electronic commerce as it gives to a written instruction, and the Trustee's action in doing so shall be protected to the same extent as if such telephonic or electronic instructions were, in fact, a written instruction. Any such instruction may be proved by audio-recorded tape, electronic reproduction or other means acceptable to the Trustee, as the case may be. If the Trustee receives an instruction or other information that is, in the opinion of the Trustee, incomplete or not clear, the Trustee may request instructions or other information from the Administrator. Pending receipt of any such instructions or other information, the Trustee shall not be liable to anyone for any loss resulting from any delay, action or inaction on the part of the Trustee. (l) Neither the Trustee nor the Employer shall knowingly cause the Plan to engage in any transaction prohibited by Section 406 or Section 407(a) of the Act or Section 4975 of the Code, for which there is no general or specific exemption. If the Trustee is a Directed Trustee, the Employer or the Administrator represents and covenants that it shall be fully responsible for identifying all investments or other transactions that may constitute a prohibited transaction and any instructions or directions to the Directed Trustee under the terms of this Plan shall constitute a certification that such directions or instructions will not result in the Plan engaging in a prohibited transaction. 7.2 POWERS AND DUTIES OF DISCRETIONARY TRUSTEE (a) This Section applies to and describes the authority of the Trustee, if the Employer, in the Adoption Agreement, designates the Trustee to administer the trust as a discretionary Trustee. If so designated, then the Trustee has the discretion and authority to invest, manage, and control the Plan assets except, however, with respect to those assets which are subject to the investment direction of a Participant (if Participant directed investments are permitted), or an Investment Manager, the Administrator, or other agent of the Employer if the Employer should appoint such manager, the Administrator or agent as to all or a portion of the assets of the Plan. The exercise of any investment discretion hereunder shall be consistent with the funding policy and method determined by the Employer. This Section also applies to, and describes the authority of, the Administrator (or another party to whom the Administrator has properly delegated its authority) to instruct and direct a Directed Trustee if the Employer, in the Adoption Agreement, designates a Directed Trustee. In that event, the term "Trustee" refers to the Administrator (or delegate) in its capacity to instruct or direct the Directed Trustee. (b) The Trustee shall, except as otherwise provided in this Plan, invest and reinvest the Trust Fund to keep the Trust Fund invested without distinction between principal and income and in such securities or property, real or 43 personal, wherever situated, as the Trustee shall deem advisable, including, but not limited to, stocks, common or preferred, open-end or closed-end mutual funds, bonds and other evidences of indebtedness or ownership, and real estate or any interest therein. The Trustee shall at all times in making investments of the Trust Fund consider, among other factors, the short and long-term financial needs of the Plan on the basis of information furnished by the Employer. In making such investments, the Trustee shall not be restricted to securities or other property of the character expressly authorized by the applicable law for trust investments; however, the Trustee shall give due regard to any limitations imposed by the Code or the Act so that at all times this Plan may qualify as a qualified Plan and Trust. (c) The Trustee, in addition to all powers and authorities under common law, statutory authority, including the Act, and other provisions of this Plan, shall have the following powers and authorities to be exercised in the Trustee's sole discretion: (1) To purchase, or subscribe for, any securities or other property and to retain the same. In conjunction with the purchase of securities, margin accounts may be opened and maintained; (2) To sell, exchange, convey, transfer, grant options to purchase, or otherwise dispose of any securities or other property held by the Trustee, by private contract or at public auction. No person dealing with the Trustee shall be bound to see to the application of the purchase money or to inquire into the validity, expediency, or propriety of any such sale or other disposition, with or without advertisement; (3) To vote upon any stocks, bonds, or other securities; to give general or special proxies or powers of attorney with or without power of substitution; to exercise any conversion privileges, subscription rights or other options, and to make any payments incidental thereto; to oppose, or to consent to, or otherwise participate in, corporate reorganizations or other changes affecting corporate securities, and to delegate discretionary powers, and to pay any assessments or charges in connection therewith; and generally to exercise any of the powers of an owner with respect to stocks, bonds, securities, or other property. However, the Trustee shall not vote proxies relating to securities for which it has not been assigned full investment management responsibilities. In those cases where another party has such investment authority or discretion, the Trustee will deliver all proxies to said party who will then have full responsibility for voting those proxies; (4) To cause any securities or other property to be registered in the Trustee's own name, in the name of one or more of the Trustee's nominees, in a clearing corporation, in a depository, or in book entry form or in bearer form, or in one or more brokerage accounts with securities held in the broker-dealer's street name, but the books and records of the Trustee shall at all times show that all such investments are part of the Trust Fund; (5) To invest in a common, collective, or pooled trust fund (the provisions of which are incorporated herein by reference) maintained by any corporate Trustee hereunder pursuant to Revenue Ruling 81-100, all or such part of the Trust Fund as the Trustee may deem advisable, and such part or all of the Trust Fund so transferred shall be subject to all the terms and provisions of the common, collective, or pooled trust fund which contemplate the commingling for investment purposes of such trust assets with trust assets of other trusts. The Trustee may withdraw from such common, collective, or pooled trust fund all or such part of the Trust Fund as the Trustee may deem advisable; (6) To borrow or raise money for the purposes of the Plan in such amount, and upon such terms and conditions, as the Trustee shall deem advisable; and for any sum so borrowed, to issue a promissory note as Trustee, and to secure the repayment thereof by pledging all, or any part, of the Trust Fund; and no person lending money to the Trustee shall be bound to see to the application of the money lent or to inquire into the validity, expediency, or propriety of any borrowing; (7) To accept and retain for such time as it may deem advisable any securities or other property received or acquired by it as Trustee hereunder, whether or not such securities or other property would normally be purchased as investments hereunder; (8) To make, execute, acknowledge, and deliver any and all documents of transfer and conveyance and any and all other instruments that may be necessary or appropriate to carry out the powers herein granted; (9) To settle, compromise, or submit to arbitration any claims, debts, or damages due or owing to or from the Plan, to commence or defend suits or legal or administrative proceedings, and to represent the Plan in all suits and legal and administrative proceedings; (10) To employ suitable agents and counsel and to pay their reasonable expenses and compensation, and such agents or counsel may or may not be agents or counsel for the Employer; 44 (11) To apply for and procure from the Insurer as an investment of the Trust Fund such annuity, or other Contracts (on the life of any Participant, or in the case of a Profit Sharing Plan, on the joint life of a Participant and any person in whom the Participant has an insurable interest) as the Administrator shall deem proper; to exercise, at any time or from time to time, whatever rights and privileges may be granted under such annuity, or other Contracts; to collect, receive, and settle for the proceeds of all such annuity, or other Contracts as and when entitled to do so under the provisions thereof; (12) To invest funds of the Trust in time deposits or savings accounts bearing a reasonable rate of interest or in cash or cash balances without liability for interest thereon, including specific authority to invest in any type of deposit of the Trustee (or of a financial institution related to a Trustee); (13) To invest in Treasury Bills and other forms of United States government obligations; (14) To sell, purchase and acquire put or call options if the options are traded on and purchased through a national securities exchange registered under the Securities Exchange Act of 1934, as amended, or, if the options are not traded on a national securities exchange, are guaranteed by a member firm of the New York Stock Exchange; (15) To deposit monies in federally insured savings accounts or certificates of deposit in banks or savings and loan associations; (16) To pool all or any of the Trust Fund, from time to time, with assets belonging to any other qualified employee pension benefit trust created by the Employer or any Affiliated Employer, and to commingle such assets and make joint or common investments and carry joint accounts on behalf of this Plan and such other trust or trusts, allocating undivided shares or interests in such investments or accounts or any pooled assets of the two or more trusts in accordance with their respective interests; (17) Notwithstanding anything hereinabove to the contrary, the Trustee shall not, at any time after December 31, 1981, invest any portion of a Participant's Directed Account in collectibles within the meaning of Code Section 408(m); (18) To distribute loan proceeds to Participants and Beneficiaries in accordance with Section 7.6 and to accept such documentation, notices, communications and validations (including signatures) in connection with such loans as the Trustee determines or as directed by the Administrator if the Trustee is a Directed Trustee; and (19) To do all such acts and exercise all such rights and privileges, although not specifically mentioned herein, as the Trustee may deem necessary to carry out the purposes of the Plan. 7.3 DIRECTED TRUSTEE (a) Notwithstanding any of the provisions of this Plan to the contrary, and to the extent permitted by applicable law, this Section 7.3 shall apply in the event MFS Heritage Trust (or any successor appointed by the sponsoring organization of this Plan) or any other eligible entity is designated to serve as a Directed Trustee of this Plan. A Directed Trustee shall serve in accordance with this Section. (b) The Administrator, which for purposes of this Section shall also mean a person who has been delegated the authority of Administrator in accordance with the terms of the Plan, shall direct the Directed Trustee in the performance of the duties and obligations of the Trustee set forth in the Plan, or as may exist under common law or statutory authority (including the Act), unless the Administrator has properly delegated its authority hereunder to another party other than the Directed Trustee in accordance with the terms of the Plan. The Employer represents that all directions given by it or the Administrator or any other person, whether to the Trustee or to any service agent, shall comply with the terms of the Plan, the Act and all other applicable law. (c) Powers, rights and authority of a Trustee under the terms of the Plan or under common law or statutory authority (including the Act) shall vest in, and shall be exercised solely by, the Administrator by directing the Directed Trustee, or if the Plan Administrator has properly delegated its authority hereunder to another party other than the Directed Trustee in accordance with the terms of the Plan, by such other party directing the Trustee. (d) The duties and obligations of a Directed Trustee shall be limited to holding title to Plan assets and performing such clerical, administrative, ministerial or recordkeeping duties as may be associated therewith or pursuant to instructions or directions from the Plan Administrator in the exercise of the Administrator's fiduciary authority hereunder (including Trustee direction authority pursuant to Section 7.3(b) or Section 7.3(c). No amendment to the Plan shall place any other duties and obligations on the Trustee without its written consent. The Trustee may consult with legal counsel 45 concerning any questions that may arise with reference to its rights and duties under the Plan, and the opinion of such counsel shall be full and complete protection in respect of any action taken or omitted by the Trustee hereunder in good faith and in accordance with the opinion of such counsel. (e) The Employer, Administrator and Trustee expressly acknowledge and agree that the Trustee is a directed trustee as described in Section 403(a) of the Act, that this Section shall constitute an allocation of fiduciary duties for purposes of Section 403(a) of the Act and that the Directed Trustee shall have no residual fiduciary obligations whatsoever with respect to Plan assets or Plan operations, no responsibility or obligation whatsoever to ascertain or to inquire with respect to the propriety of any action, of any Plan fiduciary, and in all respects shall have no obligation other than the Trustee function of holding title to Plan Assets and such administrative, clerical or ministerial duties as may be associated therewith or with the exercise of authority (including Trustee authority to direct or instruct the Trustee hereunder) by the Administrator. The Employer, Administrator and Trustee intend that the provisions of this Section be construed and interpreted accordingly. (f) A Directed Trustee shall be under no duty whatsoever to question or otherwise ascertain the propriety or authority of any fiduciary action, instructions or directions hereunder including, without limitation, any instructions or directions received from the Employer, Administrator or Participant. (g) The performance by the Directed Trustee of any act or exercise of any right or power of a Trustee as enumerated under the terms of the Plan or as may exist under common law or statutory authority, including the Act, shall be taken only as directed by the Employer, by the Administrator in its fulfillment of its duties and obligations or the exercise of its powers and rights hereunder or as directed by the Participants as to matters that may be directed by Participants. The Trustee shall be under no duty to take any action other than as herein specified with respect to the Trust Fund unless the Administrator, Employer or Participant shall furnish the Trustee with instructions in proper form and such instructions shall have been specifically agreed to by the Trustee in writing; or to defend or engage in any suit with respect to the Trust Fund unless the Trustee shall have first agreed in writing to do so and shall have been fully indemnified to the satisfaction of the Trustee. The Trustee shall be entitled to rely conclusively upon, and shall be fully protected in taking any action or omitting to take an action in good faith in reliance upon, any instructions, notices, communications or instruments believed to be genuine and properly communicated. Any such notification may be proved by original copy or reproduced copy thereof, including, without limitation, a photocopy, a facsimile transmission, an electronic image or any other electronic reproduction. For purposes of this Section, the Trustee may (but is not required to) give the same effect to a telephonic instruction, voice recording, or any instruction received through electronic commerce as it gives to a written instruction, and the Trustee's action in doing so shall be protected to the same extent as if such telephonic or electronic instructions were, in fact, a written instruction. Any such instruction may be proved by audio-recorded tape, electronic reproduction or other means acceptable to the Trustee, as the case may be. If the Trustee receives instructions or other information that are, in the opinion of the Trustee, incomplete or not clear, the Trustee may request instructions or other information from the Administrator. Pending receipt of any such instructions or other information, the Trustee shall not be liable to anyone for any loss resulting from any delay, action or inaction on the part of the Trustee. (h) A reference to a Trustee in Sections 7.1, 7.3, 7.8, 7.9, 7.11, 7.12 and 7.13 shall include a Directed Trustee. A reference to a Trustee in Sections 7.2, 7.5, 7.6, 7.10 and 7.14 shall not apply to a Directed Trustee provided, however, that a Directed Trustee may, upon the instruction of the Administrator or other fiduciary designated by the Administrator exercising authority under such provisions, or, as to matters subject to Participant direction, upon instruction of a Participant, perform any clerical, administrative or ministerial tasks required to permit the fiduciary to perform under such Sections or the Participant to exercise his or her authority under the Plan. (i) The receipt by the Directed Trustee of (a) Instructions or direction from the Plan Administrator to the Directed Trustee concerning the voting of securities (including Employer securities) pursuant to Section 7.14(b)(ii) or tendering or exchanging of securities (including Employer securities) pursuant to Section 7.14(b) as to which the Administrator is directing the Trustee pursuant to the Administrator's authority under Section 7.14 ("Administrator Instructions") and/or (b) instructions from Participants to the Directed Trustee as to the voting of shares or other action concerning shares credited to their accounts ("Participant Instructions"), shall be deemed to be a certification by the Plan Administrator, to the effect that: (1) the Employer (or Administrator) has complied with the Employer's or Administrator's obligation under Section 7.14(b); (2) in connection with Participant Instructions: (i) the Employer or Administrator has established procedures for the collection and timely transmission of Participants' voting, tender, exchange or other directions to the Directed Trustee; (ii) the Employer or Administrator has furnished to Participants all information required by law to be provided to Participants and has furnished such information in a timely basis as required by law; and 46 (iii) the Employer or Administrator has informed Participants of the manner in which unallocated shares if any will be voted or tendered and how the Administrator will instruct the Directed Trustee to treat non-responses from Participants. (3) The execution by the Directed Trustee of any such Administrator Instructions or Participants Instructions is in compliance with all applicable laws and regulations including the Act and regulations thereunder. (j) Neither the Directed Trustee nor any custodian shall exercise rights (including voting rights) with respect to securities held by the Directed Trustee or a custodian under the Plan, except as instructed by the person authorized (the "Authorized Person") to exercise such rights under the Plan including the Employer, Administrator or Participant (in the case of Participant Directed Accounts or Participant voting rights). The Directed Trustee and each custodian are individually authorized and instructed to furnish to any issuer (an "Issuer") of securities (including the Employer in the case of "qualifying employer securities" as permitted under Section 7.14 of this Plan) or to other appropriate parties, including, without limitation, proxy solicitation firms, proxy tabulation firms, and transfer agents, such authorization (including executed proxies) as the Issuer or other party may require from the Trustee or custodian, as the legal owner or the person recognized as having the authority of the legal owner of the securities, for the Issuer or other party to accept, process and otherwise follow the instructions of the Authorized Party in connection with the exercise of any right with respect to such securities. A Directed Trustee, to the extent permitted by applicable law, and in the manner consistent with this Article, may satisfy its obligations to follow directions from an Authorized Person in connection with the exercise of rights with respect to securities or other property held by the Directed Trustee by: (i) causing, or establishing a mechanism for, the communication of instructions of the Authorized Person to the appropriate recipient or collector of the votes or other communications from the holders of the securities or other property; (ii) utilizing such agents and designees as the Directed Trustee may from time to time deem appropriate including, without limitation, proxy solicitation and/or proxy tabulation firms; (iii) utilizing such means of communication as the Directed Trustee deems appropriate including, without limitation, telephonic and electronic communications of all kinds (such as electronic mail) and (iv) to accept and recognize signatures (and all other forms of validation) in electronic or other format. Such mechanism may permit instructions of the Authorized Person to automatically constitute the direction of the legal owner of the securities or other property. Notwithstanding the foregoing, the Administrator is the Authorized Person who shall vote the proxies of mutual fund shares and the Participants are the Authorized Persons who shall vote the proxies of Employer securities and securities held in brokerage accounts. With respect to the exercise of any other rights, including voting rights, associated with any other securities held by the Trustee or custodian under the Plan, the Administrator shall exercise such rights unless otherwise agreed to by the Employer and the Trustee. The Administrator shall be responsible for determining whether all Authorized Persons have properly exercised rights to securities, including voting rights, and whether the proxy solicitation and/or proxy tabulation firms have received the votes or other communications from such Authorized Persons. (k) Unless otherwise elected in the Adoption Agreement, if MFS Heritage Trust Company is the Directed Trustee, Participant Directed Investments will be required for all accounts and Section 4.10 shall apply. 47 7.4 CUSTODIANS (a) If there is a discretionary Trustee, the Employer may appoint, or instruct the Trustee to appoint, one or more custodians. Such custodians shall have the same powers, rights and duties as a Directed Trustee. Any reference in the Plan to a Directed Trustee also is a reference to a custodian unless the context of the Plan indicates otherwise. (b) If there is a Directed Trustee, the Employer may appoint, or instruct the Directed Trustee to appoint, one or more custodians and to enter into custody agreements with such custodians pursuant to which the custodians may hold assets of the Plan and perform such services as may be specified in such custody agreements including, without limitation, establishing appropriate asset accounts and reporting and accounting procedures. (c) A limitation of the Trustee's or Directed Trustee's liability by Plan provision is also a limitation of each custodian's liability. Any action taken by the custodian at the direction of a discretionary Trustee or Administrator satisfies any provision in the Plan requiring the Trustee to take such action. 7.5 LIFE INSURANCE (a) The Trustee, at the direction of the Administrator and pursuant to instructions from the individual designated in the Adoption Agreement for such purpose and subject to the conditions set forth in the Adoption Agreement, shall ratably apply for, own, and pay all premiums on Contracts on the lives of the Participants or, in the case of a profit sharing plan (including a 401(k) profit sharing plan), on the joint lives of a Participant and any person in whom the Participant has an insurable interest. Any initial or additional Contract purchased on behalf of a Participant shall have a face amount of not less than $1,000, the amount set forth in the Adoption Agreement, or the limitation of the Insurer, whichever is greater. If a life insurance Contract is to be purchased for a Participant, the aggregate premium for ordinary life insurance for each Participant must be less than 50% of the aggregate employer contributions and Forfeitures allocated to a Participant's Combined Account. For purposes of this limitation, ordinary life insurance Contracts are Contracts with both non-decreasing death benefits and non-increasing premiums. If term insurance or universal life insurance is purchased with such contributions, the aggregate premium must be 25% or less of the aggregate contributions and Forfeitures allocated to a Participant's Combined Account. If both term insurance and ordinary life insurance are purchased with such contributions, the amount expended for term insurance plus one-half of the premium for ordinary life insurance may not in the aggregate exceed 25% of the aggregate Employer contributions and Forfeitures allocated to a Participant's Combined Account. Notwithstanding the preceding, the limitations imposed herein with respect to the purchase of life insurance shall not apply, in the case of a Profit Sharing Plan, to the portion of a Participant's Account that has accumulated for at least two (2) Plan Years or to the entire Participant's Account if a Participant has been a Participant in the Plan for at least five (5) years. (b) The Trustee must distribute the Contracts to the Participant or convert the entire value of the Contracts at or before retirement into cash or provide for a periodic income so that no portion of such value may be used to continue life insurance protection beyond retirement. Furthermore, if a policy is purchased on the joint lives of the Participant and another person and such other person predeceases the Participant, then the Trustee may not maintain the Contract under this Plan. (c) Notwithstanding anything hereinabove to the contrary, amounts credited to a Participant's Qualified Voluntary Employee Contribution Account pursuant to Section 4.9, shall not be applied to the purchase of life insurance Contracts. (d) The Trustee will be the owner of any life insurance Contract purchased under the terms of this Plan. The Contract must provide that the proceeds will be payable to the Trustee; however, the Trustee shall be required to pay over all proceeds of the Contract to the Participant's designated Beneficiary in accordance with the distribution provisions of Article VI. A Participant's spouse will be the designated Beneficiary pursuant to Section 6.2, unless a qualified election has been made in accordance with Sections 6.5 and 6.6 of the Plan, if applicable. Under no circumstances shall the Trust retain any part of the proceeds. However, the Trustee shall not pay the proceeds in a method that would violate the requirements of the Act, as stated in Article VI of the Plan, or Code Section 401(a)(9) and the Treasury Regulations thereunder. In the event of any conflict between the terms of this Plan and the terms of any insurance Contract purchased hereunder, the Plan provisions shall control. 48 7.6 LOANS TO PARTICIPANTS (a) If specified in the Adoption Agreement, the Trustee (or the Administrator if the Trustee is a Directed Trustee or if loans are treated as Participant directed investments pursuant to the Adoption Agreement) may, in the Trustee's (or, if applicable, the Administrator's) sole discretion, make loans to Participants or Beneficiaries under the following circumstances: (1) loans shall be made available to all Participants and Beneficiaries on a reasonably equivalent basis; (2) loans shall not be made available to Highly Compensated Employees in an amount greater than the amount made available to other Participants; (3) loans shall bear a reasonable rate of interest; (4) loans shall be adequately secured; and (5) loans shall provide for periodic repayment over a reasonable period of time. (b) Loans shall not be made to any Shareholder-Employee or Owner-Employee unless an exemption for such loan is obtained pursuant to Act Section 408 or such loan would otherwise not be a prohibited transaction pursuant to Code Section 4975 and Act Sections 406 and 408. (c) Loans made pursuant to this Section (when added to the outstanding balance of all other loans made by the Plan to the Participant) may, in accordance with a uniform and nondiscriminatory policy established by the Administrator, be limited to the lesser of: (1) $50,000 reduced by the excess (if any) of the highest outstanding balance of loans from the Plan to the Participant during the one year period ending on the day before the date on which such loan is made, over the outstanding balance of loans from the Plan to the Participant on the date on which such loan was made, or (2) one-half(1/2) of the present value of the non-forfeitable accrued benefit of the Participant under this Plan and all other plans of the Employer. (d) No Participant loan shall take into account the present value of such Participant's Qualified Voluntary Employee Contribution Account. (e) Loans shall be required to provide for level amortization with payments to be made not less frequently than quarterly, over a period not to exceed five (5) years. However, loans used to acquire any dwelling unit which, within a reasonable time, is to be used (determined at the time the loan is made) as the principal residence of the Participant shall provide for periodic repayment over a reasonable period of time that may exceed five (5) years. For this purpose, principal residence has the same meaning as principal residence under Code Section 1034. Notwithstanding the foregoing, loan repayments may be suspended under this Plan as permitted under Code Section 414(u)(4) for qualified military service. (f) An assignment or pledge of any portion of a Participant's interest in the Plan and a loan, pledge, or assignment with respect to any insurance Contract purchased under the Plan, shall be treated as a loan under this Section. (g) If the Vested interest of a Participant is used to secure any loan made pursuant to this Section, then the written (or such other form as permitted by the IRS) consent of the Participant's spouse shall be required in a manner consistent with Section 6.5(a), provided the spousal consent requirements of such Section apply to the Plan. Such consent must be obtained within the 90-day period prior to the date the loan is made. Any security interest held by the Plan by reason of an outstanding loan to the Participant or Former Participant shall be taken into account in determining the amount of the death benefit or Pre-Retirement Survivor Annuity. However, unless the loan program established pursuant to this Section provides otherwise, no spousal consent shall be required under this paragraph if the total Vested interest subject to the security is not in excess of $5,000 (or, $3,500 effective for loans made prior to the later of the first day of the first Plan Year beginning after August 5, 1997, or the date specified in the Adoption Agreement). (h) A Participant loan program shall be established which must include, but need not be limited to, the following: (1) the identity of the person or positions authorized to administer the Participant loan program; (2) a procedure for applying for loans; (3) the basis on which loans will be approved or denied; (4) limitations, if any, on the types and amounts of loans offered, including what constitutes a hardship or financial need if selected in the Adoption Agreement; (5) the procedure under the program for determining a reasonable rate of interest; (6) the types of collateral which may secure a Participant loan; and (7) the events constituting default and the steps that will be taken to preserve Plan assets. 49 Such Participant loan program shall be contained in a separate written document which, when properly executed, is hereby incorporated by reference and made a part of this Plan. Furthermore, such Participant loan program may be modified or amended in writing from time to time without the necessity of amending this Section of the Plan. (i) Notwithstanding anything in this Plan to the contrary, if a Participant or Beneficiary defaults on a loan made pursuant to this Section, then the loan default will be a distributable event to the extent permitted by the Code and Treasury Regulations. (j) Notwithstanding anything in this Section to the contrary, if this is an amendment and restatement of an existing plan, any loans made prior to the date this amendment and restatement is adopted shall be subject to the terms of the plan in effect at the time such loan was made. (k) For purposes of this Section, the term "Participant" shall mean any Employee as defined in Article I. 7.7 MAJORITY ACTIONS Except where there has been an allocation and delegation of powers, if there shall be more than one Trustee, they shall act by a majority of their number, but they may authorize one or more of them to sign papers on their behalf. 7.8 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES The Trustee shall be paid such reasonable compensation as set forth in the Trustee's fee schedule (if the Trustee has such a schedule) or as agreed upon in writing by the Employer and the Trustee. However, an individual serving as Trustee who already receives full-time compensation from the Employer shall not receive compensation from this Plan. In addition, the Trustee shall be reimbursed for any reasonable expenses, including reasonable counsel fees incurred by it as Trustee. Such compensation and expenses shall be paid from the Trust Fund unless paid or advanced by the Employer. All taxes of any kind whatsoever that may be levied or assessed under existing or future laws upon, or in respect of, the Trust Fund or the income thereof, shall be paid from the Trust Fund. 7.9 ANNUAL REPORT OF THE TRUSTEE (a) Within a reasonable period of time after the later of the Anniversary Date or receipt of the Employer's contribution for each Plan Year, the Trustee, or its agent, shall furnish to the Employer and Administrator a written statement of account with respect to the Plan Year for which such contribution was made setting forth: (1) the net income, or loss, of the Trust Fund; (2) the gains, or losses, realized by the Trust Fund upon sales or other disposition of the assets; (3) the increase, or decrease, in the value of the Trust Fund; (4) all payments and distributions made from the Trust Fund; and (5) such further information as the Trustee and/or Administrator deems appropriate. (b) The Employer, promptly upon its receipt of each such statement of account, shall acknowledge receipt thereof in writing and advise the Trustee and/or Administrator of its approval or disapproval thereof. Failure by the Employer to disapprove any such statement of account within thirty (30) days after its receipt thereof shall be deemed an approval thereof. The approval by the Employer of any statement of account shall be binding on the Employer and the Trustee as to all matters contained in the statement to the same extent as if the account of the Trustee had been settled by judgment or decree in an action for a judicial settlement of its account in a court of competent jurisdiction in which the Trustee, the Employer and all persons having or claiming an interest in the Plan were parties. However, nothing contained in this Section shall deprive the Trustee of its right to have its accounts judicially settled if the Trustee so desires. 7.10 AUDIT (a) If an audit of the Plan's records shall be required by the Act and the regulations thereunder for any Plan Year, the Administrator shall direct the Trustee to engage on behalf of all Participants an independent qualified public accountant for that purpose. Such accountant shall, after an audit of the books and records of the Plan in accordance with generally accepted auditing standards, within a reasonable period after the close of the Plan Year, furnish to the Administrator and the Trustee a report of the audit setting forth the accountant's opinion as to whether any statements, schedules or lists, that are required by Act Section 103 or the Secretary of Labor to be filed with the Plan's annual report, are presented fairly in conformity with generally accepted accounting principles applied consistently. 50 (b) All auditing and accounting fees shall be an expense of and may, at the election of the Employer, be paid from the Trust Fund. (c) If some or all of the information necessary to enable the Administrator to comply with Act Section 103 is maintained by a bank, insurance company, or similar institution, regulated, supervised, and subject to periodic examination by a state or federal agency, then it shall transmit and certify the accuracy of that information to the Administrator as provided in Act Section 103(b) within one hundred twenty (120) days after the end of the Plan Year or such other date as may be prescribed under regulations of the Secretary of Labor. 7.11 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE (a) Unless otherwise agreed to by both the Trustee and the Employer, a Trustee may resign at any time by delivering to the Employer, at least thirty (30) days before its effective date, a written notice of resignation. (b) Unless otherwise agreed to by both the Trustee and the Employer, the Employer may remove a Trustee at any time by delivering to the Trustee, at least thirty (30) days before its effective date, a written notice of such Trustee's removal. (c) Upon the death, resignation, incapacity, or removal of any Trustee, a successor may be appointed by the Employer; and such successor, upon accepting such appointment in writing and delivering same to the Employer, shall, without further act, become vested with all the powers and responsibilities of the predecessor as if such successor had been originally named as a Trustee herein. Until such a successor is appointed, any remaining Trustee or Trustees shall have full authority to act under the terms of the Plan. (d) The Employer may designate one or more successors prior to the death, resignation, incapacity, or removal of a Trustee. In the event a successor is so designated by the Employer and accepts such designation, the successor shall, without further act, become vested with all the powers and responsibilities of the predecessor as if such successor had been originally named as Trustee herein immediately upon the death, resignation, incapacity, or removal of the predecessor. (e) Whenever any Trustee hereunder ceases to serve as such, the Trustee shall furnish to the Employer and Administrator a written statement of account with respect to the portion of the Plan Year during which the individual or entity served as Trustee. This statement shall be either (i) included as part of the annual statement of account for the Plan Year required under Section 7.9 or (ii) set forth in a special statement. Any such special statement of account should be rendered to the Employer no later than the due date of the annual statement of account for the Plan Year. The procedures set forth in Section 7.9 for the approval by the Employer of annual statements of account shall apply to any special statement of account rendered hereunder and approval by the Employer of any such special statement in the manner provided in Section 7.9 shall have the same effect upon the statement as the Employer's approval of an annual statement of account. No successor to the Trustee shall have any duty or responsibility to investigate the acts or transactions of any predecessor who has rendered all statements of account required by Section 7.9 and this subparagraph. 7.12 TRANSFER OF INTEREST Notwithstanding any other provision contained in this Plan, the Trustee at the direction of the Administrator shall transfer the Vested interest, if any, of a Participant to another trust forming part of a pension, profit sharing, or stock bonus plan maintained by such Participant's new employer and represented by said employer in writing as meeting the requirements of Code Section 401(a), provided that the trust to which such transfers are made permits the transfer to be made. 7.13 TRUSTEE INDEMNIFICATION The Trustee shall not be responsible in any way for the collection of contributions provided for under the Plan, the purpose or propriety of any distribution made pursuant to Section V hereof, or any action or inaction taken pursuant to the direction of the Administrator and/or Employer. The Plan and Employer shall at all times fully indemnify and save harmless the Trustee, its agents, affiliates, successors and assigns, and their officers, directors, and employees, from any and all liability arising from distributions so made or actions so taken (or not taken), and from any and all other liability whatsoever which may arise in connection with this Agreement, except liability arising form the gross negligence or willful misconduct of the Trustee. The Trustee shall be under no duty to take any action other than as herein specified with respect to the Trust Account unless the Administrator or Employer shall furnish the Trustee with instructions in proper form and such instructions shall have been specifically agreed to by the Trustee in writing; or to defend or engage in any suit with respect to the Trust Account unless the Trustee shall have first agreed in writing to do so and shall have been fully indemnified to the satisfaction of the Trustee. 7.14 EMPLOYER SECURITIES AND REAL PROPERTY (a) The Trustee shall be empowered to acquire and hold qualifying Employer securities and qualifying Employer real property, as those terms are defined in the Act. However, no more than 100%, in the case of a Profit Sharing Plan or 401(k) 51 Plan or ten percent (10%), in the case of a money purchase plan of the fair market value of all the assets in the Trust Fund may be invested in qualifying Employer securities and qualifying Employer real property. Notwithstanding the above, for Plan Years beginning after December 31, 1998, if the Plan does not permit Participants to direct the investment of the portion of their Elective Account attributable to Elective Deferrals, then the Trustee shall not be permitted to acquire or hold qualifying Employer securities and qualifying Employer real property if the fair market value of such securities and property should amount to more than ten percent (10%) of the portion of a Participant's Elective Account attributable to Elective Deferrals. (b) The following provisions shall apply in the event and to the extent that the Plan permits each Participant to direct the investment of the Participant Accounts: (i) Voting of Stock. Each Participant shall have the right to instruct the Trustee as to the manner in which to vote that number of shares of Employer stock credited to the Participant Account. The number of shares deemed credited to a Participant's Account shall be determined as of the date of record determined by the Employer for which an allocation has been completed under Section 4.3 and Employer stock has actually been credited to a Participant's Account. To facilitate the Participants' voting rights, the Employer shall deliver to each Participant, on a timely basis, a copy of all proxies, notices and other information which it distributes to shareholders generally and such other information as may be required by law or as may be necessary to permit a Participant to exercise the Participant's authority to direct action with respect to all shares in such Participant's Account and as may be necessary to permit the Administrator to direct action with respect to unallocated shares. The directions of Participants shall be communicated in writing, telephonically or electronically and shall be held in confidence by the Trustee or the Intermediary as defined in paragraph (iii) below and not divulged to the Employer or any officer or employee thereof. Upon receipt of the directions, the Trustee shall vote as directed by the Participants. The Trustee shall not vote those shares of Employer stock credited to Participants' Accounts for which no voting directions have been received. The party having the voting authority under Section 7.2(c)(3) above shall instruct the Trustee how to vote any shares of Employer stock that have not been credited to Participants' Accounts. (ii) Tender Offer or Exchange Offer. In the event of a tender offer or exchange offer, each Participant shall have the right to direct the Trustee as to whether the shares of Employer stock credited to his or her Participant's Account shall be tendered or exchanged in response to such offer. The number of shares credited to Participants' accounts shall be determined as of the date of record determined by the Employer for which an allocation has been completed under Section 4.3 and Employer stock has actually been credited to Participants' Accounts. To facilitate the right to instruct the Trustee as to a tender or exchange offer, the Employer shall distribute to each Participant the same information as may be distributed to the stockholders of the Employer in connection with such offer and such additional information as may be required by law or as may be necessary to permit a Participant to exercise the Participant's authority to direct action with respect to all shares in such Participant's Account and as may be necessary to permit the Administrator to direct action with respect to unallocated shares. The directions of Participants shall be communicated in writing, telephonically or electronically and shall be held in confidence by the Trustee or the Intermediary, as defined in paragraph (iii) below and not divulged to the Employer, or any officer or employee thereof. Upon receipt of the directions, the Trustee shall take such action as directed by the Participants. The Trustee shall not tender or exchange those shares of Employer stock credited to Participants' Accounts for which no directions have been received. The Administrator shall instruct the Trustee whether to tender or exchange those shares of Employer stock that have not been credited to Participants' Accounts. (iii) The Employer shall be responsible for determining whether, under the circumstances prevailing at a given time, its fiduciary duty to Participants and Beneficiaries under the Plan and the Act requires that the Employer follow the advice of independent counsel as to the voting of Employer stock. The Employer will, in addition, establish procedures for the collection and timely transmission of each Participant's directions to the Trustee. Such procedures shall include such measures as may be necessary to insure the confidentiality of each Participant's directions, which measures may include, without limitation, appointment of an independent third party (the "Intermediary") to receive directions from each Participant, to compile the aggregate results of Participant directions 52 and to communicate such results to the Trustee. For purposes of this Section 7.14, the term Participant includes any Beneficiary with an account in the Plan that is invested in Employer stock. (c) In addition, the following provisions shall apply in the event that MFS Heritage Trust Company (or any successor appointed by the sponsoring organization of this Plan) or other entity is designated to serve as a Directed Trustee of this Plan: (i) Employer Stock Limitation. The investment in qualifying Employer securities shall be restricted to publicly-traded common stock of the Employer or of an affiliate of the Employer. (ii) Employer Certification. The receipt by the Directed Trustee of instructions or directions from the Employer or Administrator pursuant to this Section 7.14 shall be deemed to be certifications by the Employer or Administrator that the provisions of this Section 7.14, the Act and all applicable securities laws and regulations have been complied with by the Employer or Administrator. (d) In addition to its duties as described in Section 2.4 of the Plan, the Administrator will be responsible for filing all reports required under the Act and federal or state securities laws with respect to the Plan's ownership interest in Employer stock. The Administrator will establish such procedures, as it shall deem necessary for compliance with such reporting requirements and to monitor and restrict transfers into and out of Employer stock pursuant to the applicable requirements, if any, of Section 16 of the Securities Act of 1934, Section 404(c) of the Act and any other applicable law. ARTICLE VIII AMENDMENT, TERMINATION AND MERGERS 8.1 AMENDMENT (a) The Employer shall have the right at any time to amend this Plan subject to the limitations of this Section. However, any amendment that affects the rights, duties or responsibilities of the Trustee or Administrator may only be made with the Trustee's or Administrator's written consent. Any such amendment shall become effective as provided therein upon its execution. The Trustee shall not be required to execute any such amendment unless the amendment affects the duties of the Trustee hereunder. (b) The Employer may (1) change the choice of options in the Adoption Agreement, (2) add any addendum to the Adoption Agreement that is specifically permitted pursuant to the terms of Revenue Procedure 2000-20 or other Internal Revenue Service guidance applicable to master and prototype plans; (3) add overriding language to the Adoption Agreement when such language is necessary to satisfy Code Sections 415 or 416 because of the required aggregation of multiple plans, and (4) add certain model amendments published by the IRS which specifically provide that their adoption will not cause the Plan to be treated as an individually designed plan. An Employer that amends the Plan for any other reason, including a waiver of the minimum funding requirement under Code Section 412(d), will no longer participate in this prototype plan and this Plan will be considered to be an individually designed plan. Notwithstanding the preceding, the attachment to the Adoption Agreement of any addendum specifically authorized by the Plan or a list of any Section 411(d)(6) protected benefits which must be preserved shall not be considered an amendment to the Plan. (c) The Employer expressly delegates authority to the sponsoring organization of this Plan, the right to amend this Plan by submitting a copy of the amendment to each Employer who has adopted this Plan, after first having received a ruling or favorable determination from the IRS that the Plan as amended qualifies under Code Section 401(a) and the Act (unless a ruling or determination is not required by the IRS). (d) No amendment to the Plan shall be effective if it authorizes or permits any part of the Trust Fund (other than such part as is required to pay taxes and administration expenses) to be used for or diverted to any purpose other than for the exclusive benefit of the Participants or their Beneficiaries or estates; or causes any reduction in the amount credited to the account of any Participant; or causes or permits any portion of the Trust Fund to revert to or become property of the Employer. (e) Except as permitted by Regulations (including Treasury Regulation Section 1.411(d)-4) or other IRS guidance, no Plan amendment or transaction having the effect of a Plan amendment (such as a merger, plan transfer or similar transaction) shall be effective if it eliminates or reduces any Section 411(d)(6) protected benefit or adds or modifies conditions relating to Section 411(d)(6) protected benefits which results in a further restriction on such benefits unless such Section 411(d)(6) protected benefits are preserved with respect to benefits accrued as of the later of the adoption date or effective date of the amendment. Section 411(d)(6) protected benefits are benefits described in Code Section 411(d)(6)(A), early retirement benefits and retirement-type subsidies, and optional forms of benefit. 53 No amendment to the Plan shall be effective or restrict an optional form of benefit. The preceding sentence shall not apply to a Plan amendment that eliminates or restricts the ability or a Participant to receive payment of his or her account balance under a particular optional form of benefit if the amendment satisfies the conditions in (1) and (2) below: (1) The amendment provides a single-sum distribution form that is otherwise identical to the optional form of benefit eliminated or restricted. For purposes of this condition (1), a single-sum distribution form is otherwise identical only if it is identical in all respects to the eliminated or restricted optional form of benefit (or would be identical except that it provides greater rights to the Participant) except with respect to the timing of payments after commencement. (2) The amendment is not effective unless the amendment provides that the amendment shall not apply to any distribution with an annuity starting date earlier than the earlier of: (i) the 90th day after the date the Participant receiving the distribution has been furnished a summary that reflects the amendment and that satisfies the requirements of the Act and 29 CFR 2520.104b-3 relating to a summary of material modifications or (ii) the first day of the second Plan Year following the Plan Year in which the amendment is adopted. 8.2 TERMINATION (a) The Employer shall have the right at any time to terminate the Plan by delivering to the Trustee and Administrator written notice of such termination. Upon any full or partial termination, all amounts credited to the affected Participants' Combined Accounts shall become 100% Vested and shall not thereafter be subject to forfeiture, and all unallocated amounts, including Forfeitures, shall be allocated to the accounts of all Participants in accordance with the provisions hereof. (b) Upon the full termination of the Plan, the Employer shall direct the distribution of the assets to Participants in a manner that is consistent with and satisfies the provisions of Section 6.5. Distributions to a Participant shall be made in cash (or in property if permitted in the Adoption Agreement) or through the purchase of irrevocable nontransferable deferred commitments from the Insurer. Except as permitted by Treasury Regulations, the termination of the Plan shall not result in the reduction of Section 411(d)(6) protected benefits as described in Section 8.1(e). (c) This Plan and Trust shall automatically terminate when all assets have been distributed. In addition to the Employer's termination of this Plan and Trust, the Employer directs the Trustee to distribute all assets of this Plan and Trust upon the occurrence of any of the following events: (i) an order or a direction by the Department of Labor, by a trustee in bankruptcy, or by a court of competent jurisdiction that requires a distribution of Plan assets; (ii) the merger, consolidation or reorganization of the Employer, unless all assets are merged into the surviving entity's plan and trust or the surviving entity adopts this Plan and Trust within a reasonable period following such merger, consolidation or reorganization; and/or (iii) when the Employer or Administrator fails to provide rollover, transfer or distribution instructions to the Trustee within a reasonable period following the liquidation, dissolution or complete cessation of the Employer's business. In such circumstances, the Trustee shall distribute all assets in the Plan pursuant to rollover, transfer or distribution instructions from the Employer or Administrator or, in the absence of such instructions, the Trustee shall distribute or transfer all assets in the Plan in accordance with the directions of the Participants or Beneficiaries and in accordance with their interests in the Plan. 8.3 MERGER, CONSOLIDATION OR TRANSFER OF ASSETS This Plan may be merged or consolidated with, or its assets and/or liabilities may be transferred to any other plan only if the benefits which would be received by a Participant of this Plan, in the event of a termination of the plan immediately after such transfer, merger or consolidation, are at least equal to the benefits the Participant would have received if the Plan had terminated immediately before the transfer, merger or consolidation and such transfer, merger or consolidation does not otherwise result in the elimination or reduction of any Section 411(d)(6) protected benefits as described in Section 8.1(e). ARTICLE IX TOP HEAVY PROVISIONS 9.1 TOP HEAVY PLAN REQUIREMENTS For any Top Heavy Plan Year, the Plan shall provide the special vesting requirements of Code Section 416(b) pursuant to Section 6.4 of the Plan and the special minimum allocation requirements of Code Section 416(c) pursuant to Section 4.3(f) of the Plan. 54 9.2 DETERMINATION OF TOP HEAVY STATUS (a) This Plan shall be a Top Heavy Plan for any Plan Year beginning after December 31, 1983, if any of the following conditions exists: (1) if the top heavy ratio for this Plan exceeds sixty percent (60%) and this Plan is not part of any required aggregation group or permissive aggregation group; (2) if this Plan is a part of a required aggregation group but not part of a permissive aggregation group and the top heavy ratio for the group of plans exceeds sixty percent (60%); or (3) if this Plan is a part of a required aggregation group and part of a permissive aggregation group and the top heavy ratio for the permissive aggregation group exceeds sixty percent (60%). (b) "Top heavy ratio" means, with respect to a determination date: (1) If the Employer maintains one or more defined contribution plans (including any simplified employee pension plan (as defined in Code Section 408(k)) and the Employer has not maintained any defined benefit plan which during the 5-year period ending on the determination date has or has had accrued benefits, the top heavy ratio for this plan alone or for the required aggregation group or permissive aggregation group as appropriate is a fraction, the numerator of which is the sum of the account balances of all Key Employees as of the determination date (including any part of any account balance distributed in the 5-year period ending on the determination date), and the denominator of which is the sum of all account balances (including any part of any account balance distributed in the 5-year period ending on the determination date), both computed in accordance with Code Section 416 and the Treasury Regulations thereunder. Both the numerator and denominator of the top heavy ratio are increased to reflect any contribution not actually made as of the determination date, but which is required to be taken into account on that date under Code Section 416 and the Treasury Regulations thereunder. (2) If the Employer maintains one or more defined contribution plans (including any Simplified Employee Pension Plan) and the Employer maintains or has maintained one or more defined benefit plans which during the 5-year period ending on the determination date has or has had any accrued benefits, the top heavy ratio for any required aggregation group or permissive aggregation group as appropriate is a fraction, the numerator of which is the sum of account balances under the aggregated defined contribution plan or plans for all Key Employees, determined in accordance with (1) above, and the present value of accrued benefits under the aggregated defined benefit plan or plans for all Key Employees as of the determination date, and the denominator of which is the sum of the account balances under the aggregated defined contribution plan or plans for all participants, determined in accordance with (1) above, and the present value of accrued benefits under the defined benefit plan or plans for all participants as of the determination date, all determined in accordance with Code Section 416 and the Treasury Regulations thereunder. The accrued benefits under a defined benefit plan in both the numerator and denominator of the top heavy ratio are increased for any distribution of an accrued benefit made in the five-year period ending on the determination date. (3) For purposes of (1) and (2) above, the value of account balances and the present value of accrued benefits will be determined as of the most recent valuation date that falls within or ends with the 12-month period ending on the determination date, except as provided in Code Section 416 and the Treasury Regulations thereunder for the first and second plan years of a defined benefit plan. The account balances and accrued benefits of a participant (i) who is not a Key Employee but who was a Key Employee in a prior year, or (ii) who has not been credited with at least one Hour of Service with any Employer maintaining the plan at any time during the 5-year period ending on the determination date will be disregarded. The calculation of the top heavy ratio, and the extent to which distributions, rollovers, and transfers are taken into account will be made in accordance with Code Section 416 and the Treasury Regulations thereunder. Deductible Employee contributions will not be taken into account for purposes of computing the top heavy ratio. When aggregating plans the value of account balances and accrued benefits will be calculated with reference to the determination dates that fall within the same calendar year. The accrued benefit of a participant other than a Key Employee shall be determined under (i) the method, if any, that uniformly applies for accrual purposes under all defined benefit plans maintained by the employer, or (ii) if there is no such method, as if such benefit accrued not more rapidly than the slowest accrual rate permitted under the fractional rule of Code Section 411(b)(1)(C). (c) "Determination date" means, for any Plan Year subsequent to the first Plan Year, the last day of the preceding Plan Year. For the first Plan Year of the Plan, determination date means the last day of that Plan Year. (d) "Permissive aggregation group" means the required aggregation group of plans plus any other plan or plans of the Employer which, when considered as a group with the required aggregation group, would continue to satisfy the requirements of Code Sections 401(a)(4) and 410. 55 (e) "Present value" means the present value based only on the interest and mortality rates specified in the Adoption Agreement. (f) "Required aggregation group" means: (1) each qualified plan of the Employer in which at least one Key Employee participates or participated at any time during the determination period (regardless of whether the plan has terminated), and (2) any other qualified plan of the Employer which enables a plan described in (l) to meet the requirements of Code Sections 401(a)(4) or 410. (g) "Valuation date" means the date elected by the Employer in the Adoption Agreement as of which account balances or accrued benefits are valued for purposes of calculating the top heavy ratio. Regardless of any election to the contrary or in the absence of any election, the Valuation Date shall include the Anniversary Date and may include any other date or dates deemed necessary or appropriate by the Administrator for the valuation of Participants' Accounts during the Plan Year, which may include any day that the Trustee, any transfer agent appointed by the Trustee or the Employer, or any stock exchange used by such agent, are open for business. ARTICLE X MISCELLANEOUS 10.1 EMPLOYER ADOPTIONS (a) Any organization may become the Employer hereunder by executing the Adoption Agreement in a form satisfactory to the Trustee, and it shall provide such additional information as the Trustee may require. The consent of the Trustee to act as such shall be signified by its execution of the Adoption Agreement or a separate Trust agreement (if elected in the Adoption Agreement). (b) Except as otherwise provided in this Plan, the affiliation of the Employer and the participation of its Participants shall be separate and apart from that of any other employer and its participants hereunder. 10.2 PARTICIPANT'S RIGHTS This Plan shall not be deemed to constitute a contract between the Employer and any Participant or to be a consideration or an inducement for the employment of any Participant or Employee. Nothing contained in this Plan shall be deemed to give any Participant or Employee the right to be retained in the service of the Employer or to interfere with the right of the Employer to discharge any Participant or Employee at any time regardless of the effect which such discharge shall have upon the Employee as a Participant of this Plan. 10.3 ALIENATION (a) Subject to the exceptions provided below and as otherwise permitted by the Code and the Act, no benefit which shall be payable to any person (including a Participant or the Participant's Beneficiary) shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge the same shall be void; and no such benefit shall in any manner be liable for, or subject to, the debts, contracts, liabilities, engagements, or torts of any such person, nor shall it be subject to attachment or legal process for or against such person, and the same shall not be recognized except to such extent as may be required by law. (b) Subsection (a) shall not apply to the extent a Participant or Beneficiary is indebted to the Plan by reason of a loan made pursuant to Section 7.6. At the time a distribution is to be made to or for a Participant's or Beneficiary's benefit, such portion of the amount to be distributed as shall equal such indebtedness shall be paid to the Plan, to apply against or discharge such indebtedness. Prior to making a payment, however, the Participant or Beneficiary must be given notice by the Administrator that such indebtedness is to be so paid in whole or part from the Participant's interest in the Plan. If the Participant or Beneficiary does not agree that the indebtedness is a valid claim against the Participant's interest in the Plan, the Participant or Beneficiary shall be entitled to a review of the validity of the claim in accordance with procedures provided in Sections 2.10 and 2.11. (c) Subsection (a) shall not apply to a qualified domestic relations order defined in Code Section 414(p), and those other domestic relations orders permitted to be so treated by the Administrator under the provisions of the Retirement Equity Act of 1984. The Administrator shall establish a written procedure to determine the qualified status of domestic relations orders and to administer distributions under such qualified orders. Further, to the extent provided under a qualified domestic relations order, a former spouse of a Participant shall be treated as the spouse or surviving spouse for all purposes under the Plan. (d) Notwithstanding any provision of this Section to the contrary, an offset to a Participant's accrued benefit against an amount that the Participant is ordered or required to pay the Plan with respect to a judgment, order, or decree issued, 56 or a settlement entered into, on or after August 5, 1997, shall be permitted in accordance with Code Sections 401(a)(13)(C) and (D). 10.4 CONSTRUCTION OF PLAN This Plan and Trust shall be construed and enforced according to the Code, the Act and the laws of the state or commonwealth in which the Employer's (or if there is a corporate Trustee, the Trustee's) principal office is located (unless otherwise designated in the Adoption Agreement), other than its laws respecting choice of law, to the extent not pre-empted by the Act. 10.5 GENDER AND NUMBER Wherever any words are used herein in the masculine, feminine or neuter gender, they shall be construed as though they were also used in another gender in all cases where they would so apply, and whenever any words are used herein in the singular or plural form, they shall be construed as though they were also used in the other form in all cases where they would so apply. 10.6 LEGAL ACTION In the event any claim, suit, or proceeding is brought regarding the Trust and/or Plan established hereunder to which the Trustee, the Employer or the Administrator may be a party, and such claim, suit, or proceeding is resolved in favor of the Trustee, the Employer or the Administrator, they shall be entitled to be reimbursed from the Trust Fund for any and all costs, attorney's fees, and other expenses pertaining thereto incurred by them for which they shall have become liable. 10.7 PROHIBITION AGAINST DIVERSION OF FUNDS (a) Except as provided below and otherwise specifically permitted by law, it shall be impossible by operation of the Plan or of the Trust, by termination of either, by power of revocation or amendment, by the happening of any contingency, by collateral arrangement or by any other means, for any part of the corpus or income of any Trust Fund maintained pursuant to the Plan or any funds contributed thereto to be used for, or diverted to, purposes other than the exclusive benefit of Participants, Former Participants, or their Beneficiaries. (b) In the event the Employer shall make a contribution under a mistake of fact pursuant to Act Section 403(c)(2)(A), the Employer may demand repayment of such contribution at any time within one (1) year following the time of payment and the Trustee shall return such amount to the Employer within the one (1) year period. Earnings of the Plan attributable to the contributions may not be returned to the Employer but any losses attributable thereto must reduce the amount so returned. (c) Except as specifically stated in the Plan, any contribution by the Employer (if the Employer is not tax-exempt) to the Plan is conditioned upon the deductibility of the contribution by the Employer under the Code and, to the extent any such deduction is disallowed, the Employer may, within one (1) year following a final determination of the disallowance, whether by agreement with the IRS or by final decision of a court of competent jurisdiction, demand repayment of such disallowed contribution and the Trustee shall return such contribution within one (1) year following the disallowance. Earnings of the Plan attributable to the contribution may not be returned to the Employer, but any losses attributable thereto must reduce the amount so returned. 10.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE The Employer, Administrator and Trustee, and their successors, shall not be responsible for the validity of any Contract issued hereunder or for the failure on the part of the Insurer to make payments provided by any such Contract, or for the action of any person which may delay payment or render a Contract null and void or unenforceable in whole or in part. 10.9 INSURER'S PROTECTIVE CLAUSE Except as otherwise agreed upon in writing between the Employer and the Insurer, an Insurer which issues any Contracts hereunder shall not have any responsibility for the validity of this Plan or for the tax or legal aspects of this Plan. The Insurer shall be protected and held harmless in acting in accordance with any written direction of the Administrator or Trustee, and shall have no duty to see to the application of any funds paid to the Trustee, nor be required to question any actions directed by the Administrator or Trustee. Regardless of any provision of this Plan, the Insurer shall not be required to take or permit any action or allow any benefit or privilege contrary to the terms of any Contract which it issues hereunder, or the rules of the Insurer. 57 10.10 RECEIPT AND RELEASE FOR PAYMENTS Any payment to any Participant, the Participant's legal representative, Beneficiary, or to any guardian or committee appointed for such Participant or Beneficiary in accordance with the provisions of this Plan, shall, to the extent thereof, be in full satisfaction of all claims hereunder against the Trustee and the Employer. 10.11 ACTION BY THE EMPLOYER Whenever the Employer under the terms of the Plan is permitted or required to do or perform any act or matter or thing, it shall be done and performed by a person duly authorized by its legally constituted authority. 10.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY The named Fiduciaries of this Plan are (1) the Employer, (2) the Administrator, (3) the Trustee (if the Trustee has discretionary authority as elected in the Adoption Agreement or as otherwise agreed upon by the Employer and the Trustee), and (4) any Investment Manager appointed hereunder. The named Fiduciaries shall have only those specific powers, duties, responsibilities, and obligations as are specifically given them under the Plan including, but not limited to, any agreement allocating or delegating their responsibilities, the terms of which are incorporated herein by reference. In general, the Employer shall have the sole responsibility for making the contributions provided for under the Plan; and shall have the sole authority to appoint and remove the Trustee and the Administrator; to formulate the Plan's funding policy and method; and to amend the elective provisions of the Adoption Agreement or terminate, in whole or in part, the Plan. The Administrator shall have the sole responsibility for the administration of the Plan, which responsibility is specifically described in the Plan. If the Trustee has discretionary authority, it shall have the sole responsibility of management of the assets held under the Trust, except those assets, the management of which has been assigned to an Investment Manager or Administrator, who shall be solely responsible for the management of the assets assigned to it, all as specifically provided in the Plan. Each named Fiduciary warrants that any directions given, information furnished, or action taken by it shall be in accordance with the provisions of the Plan, authorizing or providing for such direction, information or action. Furthermore, each named Fiduciary may rely upon any such direction, information or action of another named Fiduciary as being proper under the Plan, and is not required under the Plan to inquire into the propriety of any such direction, information or action. It is intended under the Plan that each named Fiduciary shall be responsible for the proper exercise of its own powers, duties, responsibilities and obligations under the Plan. No named Fiduciary shall guarantee the Trust Fund in any manner against investment loss or depreciation in asset value. Any person or group may serve in more than one Fiduciary capacity. 10.13 HEADINGS The headings and subheadings of this Plan have been inserted for convenience of reference and are to be ignored in any construction of the provisions hereof. 10.14 APPROVAL BY INTERNAL REVENUE SERVICE Notwithstanding anything herein to the contrary, if, pursuant to a timely application filed by or on behalf of the Plan, the Commissioner of Internal Revenue Service or the Commissioner's delegate should determine that the Plan does not initially qualify as a tax-exempt plan under Code Sections 401 and 501, and such determination is not contested, or if contested, is finally upheld, then if the Plan is a new plan, it shall be void ab initio and all amounts contributed to the Plan, by the Employer, less expenses paid, shall be returned within one (1) year and the Plan shall terminate, and the Trustee shall be discharged from all further obligations. If the disqualification relates to an amended plan, then the Plan shall operate as if it had not been amended. If the Employer's Plan fails to attain or retain qualification, such Plan will no longer participate in this prototype plan and will be considered an individually designed plan. 10.15 UNIFORMITY All provisions of this Plan shall be interpreted and applied in a uniform, nondiscriminatory manner. 10.16 PAYMENT OF BENEFITS Except as otherwise provided in the Plan, benefits under this Plan shall be paid, subject to Sections 6.10, 6.11 and 12.9, only upon death, Total and Permanent Disability, normal or early retirement, termination of employment, or termination of the Plan. 58 ARTICLE XI PARTICIPATING EMPLOYERS 11.1 ELECTION TO BECOME A PARTICIPATING EMPLOYER Notwithstanding anything herein to the contrary, with the consent of the Employer and Trustee, any Affiliated Employer may adopt the Employer's Plan and all of the provisions hereof, and participate herein and be known as a Participating Employer, by a properly executed document evidencing said intent and will of such Participating Employer. Regardless of the preceding, an entity that ceases to be an Affiliated Employer may continue to be a Participating Employer through the end of the transition period for certain dispositions set forth in Code Section 410(b)(6)(C). In the event a Participating Employer is not an Affiliated Employer and the transition period in the preceding sentence, if applicable, has expired, then this Plan will be considered an individually designed plan. 11.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS (a) Each Participating Employer shall be required to select the same Adoption Agreement provisions as those selected by the Employer other than the Plan Year, the Fiscal Year, and such other items that must, by necessity, vary among employers. (b) The Trustee may, but shall not be required to, commingle, hold and invest as one Trust Fund all contributions made by Participating Employers, as well as all increments thereof. (c) Any expenses of the Plan which are to be paid by the Employer or borne by the Trust Fund shall be paid by each Participating Employer in the same proportion that the total amount standing to the credit of all Participants employed by such Employer bears to the total standing to the credit of all Participants. 11.3 DESIGNATION OF AGENT Each Participating Employer shall be deemed to be a part of this Plan; provided, however, that with respect to all of its relations with the Trustee and Administrator for purposes of this Plan, each Participating Employer shall be deemed to have designated irrevocably the Employer as its agent. Unless the context of the Plan clearly indicates the contrary, the word Employer shall be deemed to include each Participating Employer as related to its adoption of the Plan. 11.4 EMPLOYEE TRANSFERS In the event an Employee is transferred between Participating Employers, accumulated service and eligibility shall be carried with the Employee involved. No such transfer shall effect a termination of employment hereunder, and the Participating Employer to which the Employee is transferred shall thereupon become obligated hereunder with respect to such Employee in the same manner as was the Participating Employer from whom the Employee was transferred. 11.5 PARTICIPATING EMPLOYER'S CONTRIBUTION AND FORFEITURES Any contribution or Forfeiture subject to allocation during each Plan Year shall be allocated among all Participants of all Participating Employers in accordance with the provisions of this Plan. However, if a Participating Employer is not an Affiliated Employer (due to the transition rule for certain dispositions set forth in Code Section 410(b)(6)(C)) then any contributions made by such Participating Employer will only be allocated among the Participants eligible to share of the Participating Employer. On the basis of the information furnished by the Administrator, the Trustee may keep separate books and records concerning the affairs of each Participating Employer hereunder and as to the accounts and credits of the Employees of each Participating Employer. The Trustee may, but need not, register Contracts so as to evidence that a particular Participating Employer is the interested Employer hereunder, but in the event of an Employee transfer from one Participating Employer to another, the employing Participating Employer shall immediately notify the Trustee thereof. 11.6 AMENDMENT Amendment of this Plan by the Employer at any time when there shall be a Participating Employer that is an Affiliated Employer hereunder shall only be by the written action of each and every Participating Employer and with the consent of the Trustee where such consent is necessary in accordance with the terms of this Plan. 59 11.7 DISCONTINUANCE OF PARTICIPATION Except in the case of a standardized Plan, any Participating Employer that is an Affiliated Employer shall be permitted to discontinue or revoke its participation in the Plan at any time. At the time of any such discontinuance or revocation, satisfactory evidence thereof and of any applicable conditions imposed shall be delivered to the Trustee. The Trustee shall thereafter transfer, deliver and assign Contracts and other Trust Fund assets allocable to the Participants of such Participating Employer to such new trustee or custodian as shall have been designated by such Participating Employer, in the event that it has established a separate qualified retirement plan for its employees provided, however, that no such transfer shall be made if the result is the elimination or reduction of any Section 411(d)(6) protected benefits as described in Section 8.1(e). If no successor is designated, the Trustee shall retain such assets for the Employees of said Participating Employer pursuant to the provisions of Article VII hereof. In no such event shall any part of the corpus or income of the Trust Fund as it relates to such Participating Employer be used for or diverted to purposes other than for the exclusive benefit of the employees of such Participating Employer. 11.8 ADMINISTRATOR'S AUTHORITY The Administrator shall have authority to make any and all necessary rules or regulations, binding upon all Participating Employers and all Participants, to effectuate the purpose of this Article. 11.9 PARTICIPATING EMPLOYER CONTRIBUTION FOR AFFILIATE If any Participating Employer is prevented in whole or in part from making a contribution which it would otherwise have made under the Plan by reason of having no current or accumulated earnings or profits, or because such earnings or profits are less than the contribution which it would otherwise have made, then, pursuant to Code Section 404(a)(3)(B), so much of the contribution which such Participating Employer was so prevented from making may be made, for the benefit of the participating employees of such Participating Employer, by other Participating Employers who are members of the same affiliated group within the meaning of Code Section 1504 to the extent of their current or accumulated earnings or profits, except that such contribution by each such other Participating Employer shall be limited to the proportion of its total current and accumulated earnings or profits remaining after adjustment for its contribution to the Plan made without regard to this paragraph which the total prevented contribution bears to the total current and accumulated earnings or profits of all the Participating Employers remaining after adjustment for all contributions made to the Plan without regard to this paragraph. A Participating Employer on behalf of whose employees a contribution is made under this paragraph shall not be required to reimburse the contributing Participating Employers. ARTICLE XII CASH OR DEFERRED PROVISIONS Except as specifically provided elsewhere in this Plan, the provisions of this Article shall apply with respect to any 401(k) profit sharing plan regardless of any provisions in the Plan to the contrary. 12.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION (a) For each Plan Year, the Employer will (or may with respect to any discretionary contributions) contribute to the Plan: (1) The amount of the total salary reduction elections of all Participants made pursuant to Section 12.2(a), which amount shall be deemed Elective Deferrals, plus (2) If elected in the Adoption Agreement, a matching contribution and/or a Qualified Matching Contribution equal to the percentage, if any, specified in the Adoption Agreement of the Elective Deferrals or Voluntary Employee Contributions, if applicable, of each Participant eligible to share in the allocations of the matching contribution and/or qualified matching contributions, plus (3) If elected in the Adoption Agreement, a fixed amount, a prevailing wage contribution or a discretionary amount determined each year by the Employer, which amount if any, shall be deemed an Employer's Non-Elective Contribution, plus (4) If elected in the Adoption Agreement, a discretionary Qualified Non-Elective Contribution. (b) Notwithstanding the foregoing, if the Employer is not a tax-exempt entity, then the Employer's contributions for any Fiscal Year may generally not exceed the maximum amount allowable as a deduction to the Employer under the provisions of Code Section 404. However, to the extent necessary to provide the top heavy minimum allocations, the Employer 60 shall make a contribution even if it exceeds current or accumulated Net Profit or the amount which is deductible under Code Section 404. All contributions by the Employer shall be made in cash or in such property as is acceptable to the Trustee. 12.2 PARTICIPANT'S SALARY REDUCTION ELECTION (a) Each Participant may elect to defer a percentage or dollar amount of Compensation which would have been received in the Plan Year, but for the salary reduction election, subject to the limitations of this Section and the Adoption Agreement. A salary reduction election (or modification of an earlier election) may not be made with respect to Compensation which is currently available on or before the date the Participant executed such election, or if later, the later of the date the Employer adopts this cash or deferred arrangement or the date such arrangement first became effective. Any elections made pursuant to this Section shall become effective as soon as is administratively feasible. If the automatic election option is elected in the Adoption Agreement, then in the event a Participant fails to make a deferral election and does not affirmatively elect to receive cash, such Participant shall be deemed to have made a deferral election equal to the percentage of Compensation set forth in the Adoption Agreement. The automatic election may, in accordance with procedures established by the Administrator, be applied to all Participants or to Eligible Employees who become Participants after a certain date. For purposes of this Section, Compensation in excess of the annual dollar limitation of Code Section 401(a)(17) ($150,000 as adjusted) shall not apply. Additionally, if elected in the Adoption Agreement, each Participant may elect to defer a different percentage or amount of any cash bonus to be paid by the Employer during the Plan Year. A deferral election may not be made with respect to cash bonuses which are currently available on or before the date the Participant executes such election. The amount by which Compensation and/or cash bonuses are reduced shall be that Participant's Elective Deferrals and shall be treated as an Employer contribution and allocated to that Participant's Elective Deferral Account. Once made, a Participant's election to reduce Compensation shall remain in effect until modified or terminated. Modifications may be made as specified in the Adoption Agreement, and terminations may be made at any time. Any modification or termination of an election will become effective as soon as is administratively feasible. The Employer may allow Participants upon proper notice and approval to enter into a special salary reduction agreement to make Elective Deferrals in an amount up to one hundred percent of their compensation for one or more payroll periods in the final month of the Plan Year. However, catch-up contributions and annual bonus contributions may not cause a Participant's elective Deferral contributions for the Plan Year to exceed his Compensation times the Plan's maximum allowable deferral percentage or the maximum dollar amount permitted under Section 402(g) of the Code. The Employer has the right to refuse to allow a Participant to make such contributions if they would adversely affect the Plan's ability to pass the ADP Test and/or the A C P Test. (b) The balance in each Participant's Elective Deferral Account, Qualified Matching Contribution Account and Qualified Non-Elective Contribution Account shall be fully Vested at all times and, except as otherwise provided herein, shall not be subject to Forfeiture for any reason. (c) Amounts held in a Participant's Elective Deferral Account, Qualified Matching Contribution Account and Qualified Non-Elective Account may only be distributable as provided in (4), (5) or (6) below or as provided under the other provisions of this Plan, but in no event prior to the earlier of the following events or any other events permitted by the Code or Treasury Regulations: (1) the Participant's separation from service, Total and Permanent Disability, or death; (2) the Participant's attainment of age 59 1/2; (3) the proven financial hardship of the Participant, subject to the limitations of Section 12.9; (4) the termination of the Plan without the existence at the time of Plan termination of another defined contribution plan or the establishment of a successor defined contribution plan by the Employer or an Affiliated Employer within the period ending twelve months after distribution of all assets from the Plan maintained by the Employer. For this purpose, a defined contribution does not include an employee stock ownership plan (as defined in Code Section 4975(e)(7) or 409), a simplified employee pension plan (as defined in Code Section 408(k)), or a simple individual retirement account plan (as defined in Code Section 408(p)); (5) the date of the sale by the Employer to an entity that is not an Affiliated Employer of substantially all of the assets (within the meaning of Code Section 409(d)(2)) with respect to a Participant who continues employment with the corporation acquiring such assets; or 61 (6) the date of the sale by the Employer or an Affiliated Employer of its interest in a subsidiary (within the meaning of Code Section 409(d)(3)) to an entity that is not an Affiliated Employer with respect to a Participant who continues employment with such subsidiary. Distributions that are made because of (4), (5), or (6) above must be made in a lump-sum. (d) A Participant's elective deferrals made under this Plan and all other plans, contracts or arrangements of the Employer maintaining this Plan during any calendar year shall not exceed the dollar limitation imposed by Code Section 402(g), as in effect at the beginning of such calendar year. This dollar limitation shall be adjusted annually pursuant to the method provided in Code Section 415(d) in accordance with Treasury Regulations. For this purpose, elective deferrals means, with respect to a calendar year, the sum of all Employer contributions made on behalf of such Participant pursuant to an election to defer under any qualified cash or deferred arrangement as described in Code Section 401(k), any simple IRA Plan described in Code Section 408(p)(2), any salary reduction simplified employee pension (as defined in Code Section 408(k)(6)), any eligible deferred compensation plan under Code Section 457, any plans described under Code Section 501(c)(18), and any Employer contributions made on the behalf of a Participant for the purchase of an annuity contract under Code Section 403(b) pursuant to a salary reduction agreement. Elective deferrals shall not include any deferrals properly distributed as excess Annual Additions pursuant to Section 4.5. (e) If a Participant has Excess Deferrals for a taxable year, the Participant may, not later than March 1st following the close of such taxable year, notify the Administrator in writing of such excess and request that the Participant's Elective Deferrals under this Plan be reduced by an amount specified by the Participant. In such event, the Administrator shall direct the distribution of such excess amount (and any Income allocable to such excess amount) to the Participant not later than the first April 15th following the close of the Participant's taxable year. Any distribution of less than the entire amount of Excess Deferrals and Income shall be treated as a pro rata distribution of Excess Deferrals and Income. The amount distributed shall not exceed the Participant's Elective Deferrals under the Plan for the taxable year. Any distribution on or before the last day of the Participant's taxable year must satisfy each of the following conditions: (1) the Participant shall designate the distribution as Excess Deferrals; (2) the distribution must be made after the date on which the Plan received the Excess Deferrals; and (3) the Plan must designate the distribution as a distribution of Excess Deferrals. Regardless of the preceding, if a Participant has Excess Deferrals solely from elective deferrals made under this Plan or under any other plan maintained by the Employer, a Participant will be deemed to have notified the Administrator of such excess amount and the Administrator shall direct the distribution of such Excess Deferrals in a manner consistent with the provisions of this subsection. Any distribution made pursuant to this subsection shall be made first from unmatched Elective Deferrals and, thereafter, from Elective Deferrals which are matched. Matching contributions which relate to Excess Deferrals which are distributed pursuant to this Section 12.2(e) shall be treated as a Forfeiture to the extent required pursuant to Code Section 401(a)(4) and the Treasury Regulations thereunder. For the purpose of this subsection, "Income" means the amount of income or loss allocable to a Participant's Excess Deferrals for the Plan Year, which amount shall be allocated in the same manner as income or losses are allocated pursuant to Section 4.3(c). However, Income for the period between the end of the taxable year of the Participant and the date of the distribution (the "gap period") is not required to be distributed. (f) Notwithstanding the preceding, a Participant's Excess Deferrals shall be reduced, but not below zero, by any distribution and/or recharacterization of Excess Deferrals pursuant to Section 12.5(a) for the Plan Year beginning with or within the taxable year of the Participant. (g) In the event a Participant has received a hardship distribution pursuant to Treasury Regulation Section 1.401(k)-1(d)(2)(iii)(B) from any other plan maintained by the Employer or from the Participant's Elective Deferral Account pursuant to Section 12.9, then such Participant shall not be permitted to elect to have Elective Deferrals contributed to the Plan for a period of twelve (12) months following the receipt of the distribution. Furthermore, the dollar limitation under Code Section 402(g) shall be reduced, with respect to the Participant's taxable year following the taxable year in which the hardship distribution was made, by the amount of such Participant's Elective Deferrals, if any, made pursuant to this Plan (and any other plan maintained by the Employer) for the taxable year of the hardship distribution. (h) At Normal Retirement Date, or such other date when the Participant shall be entitled to receive benefits, the fair market value of the Participant's Elective Deferral Account shall be used to provide benefits to the Participant or the Participant's Beneficiary. 62 (i) If during a Plan Year, it is projected that the aggregate amount of Elective Deferrals to be allocated to all Highly Compensated Participants under this Plan would cause the Plan to fail the actual deferral percentage tests set forth in Section 12.4, then the Administrator may automatically reduce the deferral amount of affected Highly Compensated Participants, beginning with the Highly Compensated Participant who has the highest actual deferral ratio until it is anticipated the Plan will pass the tests or until the actual deferral ratio equals the actual deferral ratio of the Highly Compensated Participant having the next highest actual deferral ratio. This process may continue until it is anticipated that the Plan will satisfy one of the tests set forth in Section 12.4. (j) The Employer and the Administrator shall establish procedures necessary to implement the salary reduction elections provided for herein. Such procedures may contain limits on salary deferral elections such as limiting elections to whole percentages of Compensation or to equal dollar amounts per pay period that an election is in effect. Such procedures shall also include procedures for providing each newly hired Employee, and each current Employee on an annual basis, with a notice that explains the Compensation reduction elections (including any automatic Compensation deduction election) and the Employee's right to elect to have or not have such Compensation reduction contributions made to the Plan or to alter the amount of those contributions, including the procedure for exercising that right and the timing for implementation of any such election. 12.3 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS (a) The Administrator shall establish and maintain an account in the name of each Participant to which the Administrator shall credit as of each Anniversary Date, or other Valuation Date, all amounts allocated to each such Participant as set forth herein. (b) The Employer shall provide the Administrator with all information required by the Administrator to make a proper allocation of Employer contributions for each Plan Year. Within a reasonable period of time after the date of receipt by the Administrator of such information, the Administrator shall allocate contributions as follows: (1) With respect to Elective Deferrals made pursuant to Section 12.1(a)(1), to each Participant's Elective Deferral Account in an amount equal to each such Participant's Elective Deferrals for the year. (2) With respect to the Employer's matching contribution made pursuant to Section 12.1(a)(2), to each Participant's Account, or Participant's Qualified Matching Contribution Account, as elected in the Adoption Agreement, in accordance with Section 12.1(a)(2). Except, however, in order to be entitled to receive any Employer matching contribution, a Participant must satisfy the conditions for sharing in the Employer matching contribution as set forth in the Adoption Agreement. Furthermore, regardless of any election in the Adoption Agreement to the contrary, for the Plan Year in which this Plan terminates, a Participant shall only be eligible to share in the allocation of the Employer's contributions for the Plan Year if the Participant is employed at the end of the Plan Year and has completed a Year of Service (or Period of Service if the Elapsed Time Method is elected). (3) With respect to the Employer's Non-Elective Contribution made pursuant to Section 12.1(a)(3), to each Participant's Account in accordance with the provisions of Section 4.3(b)(2) or (3) whichever is applicable. (4) With respect to the Employer's Qualified Non-Elective Contribution made pursuant to Section 12.1(a)(4), to each Participant's (excluding Highly Compensated Employees, if elected in the Adoption Agreement) Qualified Non-Elective Contribution Account in accordance with the Adoption Agreement. (c) Notwithstanding anything in the Plan to the contrary, in determining whether a Non-Key Employee has received the required minimum allocation pursuant to Section 4.3(f) such Non-Key Employee's Elective Deferrals and matching contributions used to satisfy the ADP tests of Section 12.4 or the ACP tests of Section 12.6 shall not be taken into account. (d) Notwithstanding anything herein to the contrary, Participants who terminated employment during the Plan Year shall share in the salary reduction contributions made by the Employer for the year of termination without regard to the Hours of Service credited. (e) Notwithstanding anything herein to the contrary (other than Sections 4.3(f) and 11.3(f)), Participants shall only share in the allocations of the Employer's matching contribution made pursuant to Section 12.1(a)(2), the Employer's Non-Elective Contributions made pursuant to Section 12.1(a)(3), the Employer's Qualified Non-Elective Contribution made pursuant to Section 12.1(a)(4), and Forfeitures as provided in the Adoption Agreement. Furthermore, for non-standardized plans, regardless of any election in the Adoption Agreement to the contrary, for the Plan Year in which this Plan terminates, a Participant shall only be eligible to share in the allocation of the Employer's contributions for the Plan Year if the Participant is 63 employed at the end of the Plan Year and has completed a Year of Service (or Period of Service if the Elapsed Time Method is elected). (f) Notwithstanding anything to the contrary, if this is a non-standardized Plan that would otherwise fail to meet the requirements of Code Section 410(b)(1) or 410(b)(2)(A)(i) and the Treasury Regulations thereunder (including Treasury Regulation Section 1.401(a)(4)-2(b)(4)(vi)(D)(3) which treats Participants only receiving top heavy minimums as not benefiting) because Employer contributions would not be allocated to a sufficient number or percentage of Participants for a Plan Year, then the following rules may be applied: (1) The group of Participants eligible to share in the Employer's contributions or Forfeitures for the Plan Year will be expanded to include the minimum number of Participants who would not otherwise be eligible as are necessary to satisfy the requirements of Code Section 410(b)(1)(B). The specific Participants who shall become eligible under the terms of this paragraph shall be those who have not separated from service prior to the last day of the Plan Year and, when compared to similarly situated Participants, have completed the greatest number of Hours of Service in the Plan Year. (2) If after application of paragraph (1) above, the requirements of Code Section 410(b)(1)(B) are still not satisfied, then the group of Participants eligible to share in the Employer's contribution or Forfeitures for the Plan Year shall be further expanded to include the minimum number of Participants who have separated from service prior to the last day of the Plan Year as are necessary to satisfy the applicable test. The specific Participants who shall become eligible to share shall be those Participants, when compared to similarly situated Participants, who have completed the greatest number of Hours of Service in the Plan Year before separation from service. Nothing in this subsection shall permit the reduction of a Participant's accrued benefit. Therefore any amounts that have previously been allocated to Participants may not be reallocated to satisfy these requirements. In such event, the Employer shall make an additional contribution equal to the amount such affected Participants would have received had they been included in the allocations, even if it exceeds the amount that would be deductible under Code Section 404. Any adjustment to the allocations pursuant to this paragraph shall be considered a retroactive amendment adopted by the last day of the Plan Year. 12.4 ACTUAL DEFERRAL PERCENTAGE TESTS (a) Except as otherwise provided herein, this subsection applies if the prior year testing method is elected in the Adoption Agreement. The Actual Deferral Percentage ("ADP") for a Plan Year for Participants who are Highly Compensated Employees ("HCEs") for each Plan Year and the prior year's ADP for Participants who were Non-Highly Compensated Employees ("NHCEs") for the prior Plan Year must satisfy one of the following tests: (1) The ADP for a Plan Year for Participants who are HCEs for the Plan Year shall not exceed the prior year's ADP for Participants who were NHCEs for the prior Plan Year multiplied by 1.25; or (2) The ADP for a Plan Year for Participants who are HCEs for the Plan Year shall not exceed the prior year's ADP for Participants who were NHCEs for the prior Plan Year multiplied by 2.0, provided that the ADP for Participants who are HCEs does not exceed the prior year's ADP for Participants who were NHCEs in the prior Plan Year by more than two (2) percentage points. Notwithstanding the above, for purposes of applying the foregoing tests with respect to the first Plan Year in which the Plan permits any Participant to make Elective Deferrals, the ADP for the prior year's NHCEs shall be deemed to be three percent (3%) unless the Employer has elected in the Adoption Agreement to use the current Plan Year's ADP for these Participants. However, the provisions of this paragraph may not be used if the Plan is a successor plan or is otherwise prohibited from using such provisions pursuant to IRS Notice 98-1 (or superceding guidance). (b) Notwithstanding the foregoing, if the current year testing method is elected in the Adoption Agreement, the ADP tests in (a)(1) and (a)(2), above shall be applied by comparing the current Plan Year's ADP for Participants who are HCEs with the current Plan Year's ADP (rather than the prior Plan Year's ADP) for Participants who are NHCEs for the current Plan Year. Once made, this election can only be changed if the Plan meets the requirements for changing to the prior year testing method set forth in IRS Notice 98-1 (or superseding guidance). (c) This subsection applies to prevent the multiple use of the test set forth in subsection (a)(2) above. Any HCE eligible to make Elective Deferrals pursuant to Section 12.2 and to make after-tax voluntary Employee contributions or to receive matching contributions under this Plan or under any other plan maintained by the Employer or an Affiliated Employer, shall have either the actual deferral ratio adjusted in the manner described in Section 12.5 or the actual contribution ratio adjusted in the manner described in Section 12.7 so that the Aggregate Limit is not exceeded pursuant to Treasury Regulation Section 1.401(m)-2, the provisions of which are incorporated herein by reference. The amounts in excess of the Aggregate Limit shall be treated as either an Excess Contribution or an Excess Aggregate Contribution. The ADP and ACP of the HCEs 64 are determined after any corrections required to meet the ADP and ACP tests and are deemed to be the maximum permitted under such tests for the Plan Year. Multiple use does not occur if either the ADP or ACP of the HCEs does not exceed 1.25 multiplied by the ADP and ACP of the NHCEs. "Aggregate Limit" means the sum of (i) 125 percent of the greater of the ADP of the NHCEs for the prior Plan Year or the ACP of such NHCEs under the Plan subject to Code Section 401(m) for the Plan Year beginning with or within the prior Plan Year of the cash or deferred arrangement and (ii) the lesser of 200% or two (2) plus the lesser of such ADP or ACP. "Lesser" is substituted for "greater" in (i) above, and "greater" is substituted for "lesser" after "two (2) plus the" in (ii) above if it would result in a larger Aggregate Limit. If the Employer has elected in the Adoption Agreement to use the current year testing method, then in calculating the Aggregate Limit for a particular Plan Year, the NHCEs ADP and ACP for that Plan Year, instead of the prior Plan Year, is used. (d) A Participant is an HCE for a particular Plan Year if the Participant meets the definition of an HCE in effect for that Plan Year. Similarly, a Participant is an NHCE for a particular Plan Year if the Participant does not meet the definition of an HCE in effect for that Plan Year. (e) For the purposes of this Section and Section 12.5, ADP means, for a specific group of Participants for a Plan Year, the average of the ratios (calculated separately for each Participant in such group) of (1) the amount of Employer contributions actually paid over to the Plan on behalf of such Participant for the Plan Year to (2) the Participant's 414(s) Compensation for such Plan Year. Employer contributions on behalf of any participant shall include: (1) any Elective Deferrals made pursuant to the Participant's deferral election (including Excess Deferrals of HCEs), but excluding (i) Excess Deferrals of NHCEs that arise solely from Elective Deferrals made under the plan or plans of this Employer and (ii) Elective Deferrals that are taken into account in the ACP Test set forth in Section 12.6 (provided the ADP test is satisfied both with and without exclusion of these Elective Deferrals); and (2) at the election of the Employer, Qualified Non-Elective Contributions and Qualified Matching Contributions to the extent such contributions are not used to satisfy the ACP test. The actual deferral ratio for each Participant and the ADP for each group shall be calculated to the nearest one-hundredth of one percent. Elective Deferrals allocated to each Non-Highly Compensated Participant's Elective Deferral Account shall be reduced by Excess Deferrals to the extent such excess amounts are made under this Plan or any other plan maintained by the Employer. Elective Deferrals allocated to each Highly Compensated Participant's Elective Deferral Account shall not be reduced by Excess Deferrals to the extent such excess amounts are made under this Plan or any other plan maintained by the Employer. (f) For purposes of this Section and Section 12.5, a Highly Compensated Participant and a Non-Highly Compensated Participant shall include any Employee eligible to make salary deferrals pursuant to Section 12.2 for the Plan Year. Such Participants who fail to make Elective Deferrals shall be treated for ADP purposes as Participants on whose behalf no Elective Deferrals are made. (g) In the event this Plan satisfies the requirements of Code Sections 401(a)(4), 401(k), or 410(b) 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 shall be applied by determining the ADP of Employees as if all such plans were a single plan. Any adjustments to the NHCE ADP for the prior year will be made in accordance with IRS Notice 98-1 and any superseding guidance, unless the Employer has elected in the Adoption Agreement to use the current year testing method. Plans may be aggregated in order to satisfy Code Section 401(k) only if they have the same Plan Year and use the same ADP testing method. (h) The ADP for any Participant who is an HCE for the Plan Year and who is eligible to have Elective Deferrals (and Qualified Non-Elective Contributions or Qualified Matching Contributions, or both, if treated as Elective Deferrals for purposes of the ADP test) allocated to such Participant's accounts under two (2) or more arrangements described in Code Section 401(k), that are maintained by the Employer, shall be determined as if such Elective Deferrals (and, if applicable, such Qualified Non-Elective Contributions or Qualified Matching Contributions, or both) were made under a single arrangement for purposes of determining such HCE's actual deferral ratio. However, if the cash or deferred arrangements have different Plan Years, this paragraph shall be applied by treating all cash or deferred arrangements ending with or within the same calendar year as a single arrangement. Notwithstanding the foregoing, certain plans shall be treated as separate if mandatorily disaggregated under Treasury Regulations under Code Section 401. (i) For purposes of determining the ADP and the amount of Excess Contributions pursuant to Section 12.5, only Elective Deferrals, Qualified Non-elective Contributions and Qualified Matching Contributions contributed to the Plan prior to the end of the twelve (12) month period immediately following the Plan Year to which the contributions relate shall be considered. (j) Notwithstanding anything in this Section to the contrary, the provisions of this Section and Section 12.5 may be applied separately (or will be applied separately to the extent required by Treasury Regulations) to each plan within the meaning of Treasury Regulation Section 1.401(k)-1(g)(11). Furthermore, for Plan Years beginning after December 31, 1998, 65 the provisions of Code Section 401(k)(3)(F) may be used to exclude from consideration all NHCEs who have not satisfied the minimum age and service requirements of Code Section 410(a)(1)(A). 12.5 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS (a) In the event (or, with respect to subsection (c) when the prior year testing method is being used, if it is anticipated) that for Plan Years beginning after December 31, 1996, the Plan does not satisfy one of the tests set forth in Section 12.4, the Administrator shall adjust Excess Contributions or the Employer shall make contributions pursuant to the options set forth below or any combination thereof. However, if the prior year testing method is being used and it is anticipated that the Plan might not satisfy one of such tests, then the Employer may make contributions pursuant to the options set forth in subsection (c) below. (b) On or before the fifteenth day of the third month following the end of each Plan Year, but in no event later than the close of the following Plan Year, the Highly Compensated Participant having the largest amount of Elective Deferrals shall have a portion of such Elective Deferrals (and "Income" allocable to such amounts) distributed (and/or, at the Participant's election, recharacterized as an after-tax voluntary Employee contribution pursuant to Section 4.8) until the total amount of Excess Contributions has been distributed, or until the amount of the Participant's Elective Deferrals equals the Elective Deferrals of the Highly Compensated Participant having the next largest amount of Elective Deferrals. This process shall continue until the total amount of Excess Contributions has been distributed. Any distribution and/or recharacterization of Excess Contributions shall be made in the following order: (1) With respect to the distribution of Excess Contributions, such distribution: (i) may be postponed but not later than the close of the Plan Year following the Plan Year to which they are allocable; (ii) shall be made first from unmatched Elective Deferrals and, thereafter, from Elective Deferrals which are matched. Matching contributions which relate to Excess Contributions shall be forfeited unless they are considered distributed as an Excess Aggregate Contribution pursuant to Section 12.7; (iii) shall be adjusted for Income; and (iv) shall be designated by the Employer as a distribution of Excess Contributions (and Income). (2) With respect to the recharacterization of Excess Contributions pursuant to (a) above, such recharacterized amounts: (i) shall be deemed to have occurred on the date on which the last of those Highly Compensated Participants with Excess Contributions to be recharacterized is notified of the recharacterization and the tax consequences of such recharacterization; (ii) shall not exceed the amount of Elective Deferrals on behalf of any Highly Compensated Participant for any Plan Year; (iii) shall be treated as after-tax voluntary Employee contributions for purposes of Code Section 401(a)(4) and Treasury Regulation Section 1.401(k)-1(b). However, for purposes of Sections 4.3(f) and 9.2 (top heavy rules), recharacterized Excess Contributions continue to be treated as Employer contributions that are Elective Deferrals. Excess Contributions (and Income attributable to such amounts) recharacterized as after-tax voluntary Employee contributions shall continue to be nonforfeitable and subject to the same distribution rules provided for in Section 12.2(c); and (iv) are not permitted if the amount recharacterized plus after-tax voluntary Employee contributions actually made by such Highly Compensated Participant, exceed the maximum amount of after-tax voluntary Employee contributions (determined prior to application of Section 12.6) that such Highly Compensated Participant is permitted to make under the Plan in the absence of recharacterization. (3) Any distribution and/or recharacterization of less than the entire amount of Excess Contributions shall be treated as a pro rata distribution and/or recharacterization of Excess Contributions and Income. (4) For the purpose of this Section, "Income" means the income or losses allocable to Excess Contributions for the Plan Year, which amount shall be allocated at the same time and in the same manner as income or losses are allocated pursuant to Section 4.3(c). However, Income for the period between the end of the Plan Year and the date of the distribution (the "gap period") is not required to be distributed. 66 (5) Excess Contributions shall be treated as Employer contributions for purposes of Code Sections 404 and 415 even if distributed from the Plan. (c) Notwithstanding the above, within twelve (12) months after the end of the Plan Year, if the Employer has elected in the Adoption Agreement to use the current year testing method under Treasury Reg. Section 1.401(k)-1(b)(5)(i), the Employer may make a special Qualified Non-Elective Contribution or Qualified Matching Contribution in accordance with one of the following provisions which contribution shall be allocated to the Qualified Non-Elective Contribution Account or Qualified Matching Contribution Account of each Non-Highly Compensated Participant eligible to share in the allocation in accordance with such provision. The Employer shall provide the Administrator with written notification of the amount of the contribution being made and to which provision it relates. (1) A Qualified Non-Elective Contribution may be made on behalf of Non-Highly Compensated Participants in an amount sufficient to satisfy (or to prevent an anticipated failure of) one of the tests set forth in Section 12.4. Such contribution shall be allocated in the same proportion that each Non-Highly Compensated Participant's 414(s) Compensation for the year (or prior year if the prior year testing method is being used) bears to the total 414(s) Compensation of all Non-Highly Compensated Participants for such year. (2) A Qualified Non-Elective Contribution may be made on behalf of Non-Highly Compensated Participants in an amount sufficient to satisfy (or to prevent an anticipated failure of) one of the tests set forth in Section 12.4. Such contribution shall be allocated in the same proportion that each Non-Highly Compensated Participant's 414(s) Compensation for the year (or prior year if the prior year testing method is being used) bears to the total 414(s) Compensation of all Non-Highly Compensated Participants for such year. However, for purposes of this contribution, Non-Highly Compensated Participants in non-standardized plans who are not employed at the end of the Plan Year (or at the end of the prior Plan Year if the prior year testing method is being used) shall not be eligible to share in the allocation and shall be disregarded. (3) A Qualified Non-Elective Contribution may be made on behalf of Non-Highly Compensated Participants in an amount sufficient to satisfy (or to prevent an anticipated failure of) one of the tests set forth in Section 12.4. Such contribution shall be allocated in equal amounts (per capita). (4) A Qualified Non-Elective Contribution may be made on behalf of Non-Highly Compensated Participants in an amount sufficient to satisfy (or to prevent an anticipated failure of) one of the tests set forth in Section 12.4. Such contribution shall be allocated in equal amounts (per capita). However, for purposes of this contribution, Non-Highly Compensated Participants in non-standardized plans who are not employed at the end of the Plan Year (or at the end of the prior Plan Year if the prior year testing method is being used) shall not be eligible to share in the allocation and shall be disregarded. (5) A Qualified Non-Elective Contribution may be made on behalf of Non-Highly Compensated Participants in an amount sufficient to satisfy (or to prevent an anticipated failure of) one of the tests set forth in Section 12.4. Such contribution shall be allocated to the Qualified Non-Elective Contribution Account of the Non-Highly Compensated Participant having the lowest 414(s) Compensation, until one of the tests set forth in Section 12.4 is satisfied (or is anticipated to be satisfied), or until such Non-Highly Compensated Participant has received the maximum Annual Addition pursuant to Section 4.4. This process shall continue until one of the tests set forth in Section 12.4 is satisfied (or is anticipated to be satisfied). (6) Qualified Non-Elective Contribution may be made on behalf of Non-Highly Compensated Participants in an amount sufficient to satisfy (or to prevent an anticipated failure of) one of the tests set forth in Section 12.4. Such contribution shall be allocated to the Qualified Non-Elective Contribution Account of the Non-Highly Compensated Participant having the lowest 414(s) Compensation, until one of the tests set forth in Section 12.4 is satisfied (or is anticipated to be satisfied), or until such Non-Highly Compensated Participant has received the maximum Annual Addition pursuant to Section 4.4. This process shall continue until one of the tests set forth in Section 12.4 is satisfied (or is anticipated to be satisfied). However, for purposes of this contribution, Non-Highly Compensated Participants in non-standardized plans who are not employed at the end of the Plan Year (or at the end of the prior Plan Year if the prior year testing method is being used) shall not be eligible to share in the allocation and shall be disregarded. (7) A Qualified Matching Contribution may be made on behalf of Non-Highly Compensated Participants in an amount sufficient to satisfy (or to prevent an anticipated failure of) one of the tests set forth in Section 12.4. Such contribution shall be allocated to the Qualified Matching Contribution Account of each Non-Highly Compensated Participant in the same proportion that each Non-Highly Compensated Participant's Elective Deferrals for the year bears to the total Elective Deferrals of all Non-Highly Compensated Participants. (8) A Qualified Matching Contribution on behalf of Non-Highly Compensated Participants in an amount sufficient to satisfy (or to prevent an anticipated failure of) one of the tests set forth in Section 12.4. Such contribution 67 shall be allocated to the Qualified Matching Contribution Account of each Non-Highly Compensated Participant in the same proportion that each Non-Highly Compensated Participant's Elective Deferrals for the year bears to the total Elective Deferrals of all Non-Highly Compensated Participants. However, for purposes of this contribution, Non-Highly Compensated Participants in non-standardized plans who are not employed at the end of the Plan Year (or at the end of the prior Plan Year if the prior year testing method is being used) shall not be eligible to share in the allocation and shall be disregarded. (9) A Qualified Matching Contribution may be made on behalf of Non-Highly Compensated Participants in an amount sufficient to satisfy (or to prevent an anticipated failure of) one of the tests set forth in Section 12.4. Such contribution shall be allocated to the Qualified Matching Contribution Account of the Non-Highly Compensated Participant having the lowest Elective Deferrals until one of the tests set forth in Section 12.4 is satisfied (or is anticipated to be satisfied), or until such Non-Highly Compensated Participant has received the maximum Annual Addition pursuant to Section 4.4. This process shall continue until one of the tests set forth in Section 12.4 is satisfied (or is anticipated to be satisfied). (10) A Qualified Matching Contribution may be made on behalf of Non-Highly Compensated Participants in an amount sufficient to satisfy (or to prevent an anticipated failure of) one of the tests set forth in Section 12.4. Such contribution shall be allocated to the Qualified Matching Contribution Account of the Non-Highly Compensated Participant having the lowest Elective Deferrals until one of the tests set forth in Section 12.4 is satisfied (or is anticipated to be satisfied), or until such Non-Highly Compensated Participant has received the maximum Annual Addition pursuant to Section 4.4. This process shall continue until one of the tests set forth in Section 12.4 is satisfied (or is anticipated to be satisfied). However, for purposes of this contribution, Non-Highly Compensated Participants in non-standardized plans who are not employed at the end of the Plan Year (or at the end of the prior Plan Year if the prior year testing method is being used) shall not be eligible to share in the allocation and shall be disregarded. (d) If during a Plan Year, it is projected that the aggregate amount of Elective Deferrals to be allocated to all Highly Compensated Participants under this Plan would cause the Plan to fail the tests set forth in Section 12.4, then the Administrator may automatically reduce the deferral amount of affected Highly Compensated Participants, beginning with the Highly Compensated Participant who has the highest actual deferral ratio until it is anticipated the Plan will pass the tests or until the actual deferral ratio equals the actual deferral ratio of the Highly Compensated Participant having the next highest actual deferral ratio. This process may continue until it is anticipated that the Plan will satisfy one of the tests set forth in Section 12.4. Alternatively, the Employer may specify a maximum percentage of Compensation that may be deferred by Highly Compensated Participants. (e) Any Excess Contributions (and Income) which are distributed on or after 2-1/2 months after the end of the Plan Year shall be subject to the ten percent (10%) Employer excise tax imposed by Code Section 4979. 12.6 ACTUAL CONTRIBUTION PERCENTAGE TESTS (a) Except as otherwise provided herein, this subsection applies if the prior year testing method is elected in the Adoption Agreement. The "Actual Contribution Percentage" ("ACP") for Participants who are HCEs for each Plan Year and the prior year's ACP for Participants who were NHCEs for the prior Plan Year must satisfy one of the following tests: (1) The ACP for a Plan Year for Participants who are HCEs for the Plan Year shall not exceed the prior year's ACP for Participants who were NHCEs for the prior Plan Year multiplied by 1.25; or (2) The ACP for a Plan Year for Participants who are HCEs for the Plan Year shall not exceed the prior year's ACP for Participants who were NHCEs for the prior Plan Year multiplied by 2.0, provided that the ACP for Participants who are HCEs does not exceed the prior year's ACP for Participants who were NHCEs in the prior Plan Year by more than two (2) percentage points. Notwithstanding the above, for purposes of applying the foregoing tests with respect to the first Plan Year in which the Plan permits any Participant to make Employee contributions, provides for matching contributions, or both, the ACP for the prior year's NHCEs shall be deemed to be three percent (3%) unless the Employer has elected in the Adoption Agreement to use the current Plan Year's ACP for these Participants. However, the provisions of this paragraph may not be used if the Plan is a successor plan or is otherwise prohibited from using such provisions pursuant to IRS Notice 98-1 (or superceding guidance). (b) Notwithstanding the preceding, if the current year testing method is elected in the Adoption Agreement, the ACP tests in (a)(1) and (a)(2), above shall be applied by comparing the current Plan Year's ACP for Participants who are HCEs with the current Plan Year's ACP (rather than the prior Plan Year's ACP) for Participants who are NHCEs for the current Plan Year. Once made, this election can only be changed if the Plan meets the requirements for changing to the prior year testing method set forth in IRS Notice 98-1 (or superseding guidance). 68 (c) This subsection applies to prevent the multiple use of the test set forth in subsection (a)(2) above. Any HCE eligible to make Elective Deferrals pursuant to Section 12.2 and to make nondeductible voluntary Employee contributions or to receive matching contributions under this Plan or under any other plan maintained by the Employer or an Affiliated Employer, shall have either the actual deferral ratio adjusted in the manner described in Section 12.5 or the actual contribution ratio reduced in the manner described in Section 12.7 so that the Aggregate Limit is not exceeded pursuant to Treasury Regulation Section 1.401(m)-2, the provisions of which are incorporated herein by reference. The amounts in excess of the Aggregate Limit shall be treated as either an Excess Contribution or an Excess Aggregate Contribution. The ADP and ACP of the HCEs are determined after any corrections required to meet the ADP and ACP tests and are deemed to be the maximum permitted under such test for the Plan Year. Multiple use does not occur if either the ADP or ACP of the HCEs does not exceed 1.25 multiplied by the ADP and ACP of the NHCEs. "Aggregate Limit" means the sum of (i) 125 percent of the greater of the ADP of the NHCEs for the Plan Year or the ACP of such NHCEs under the plan subject to Code Section 401(m) for the Plan Year beginning with or within the prior Plan Year of the cash or deferred arrangement and (ii) the lesser of 200% or two plus the lesser of such ADP or ACP. "Lesser" is substituted for "greater" in (i) above, and "greater" is substituted for "lesser" after "two plus the" in (ii) above if it would result in a larger Aggregate Limit. If the Employer has elected in the Adoption Agreement to use the current year testing method, then in calculating the Aggregate Limit for a particular Plan Year, the NHCEs ADP and ACP for that Plan Year, instead of the prior Plan Year, is used. (d) A Participant is an HCE for a particular Plan Year if the Participant meets the definition of a HCE in effect for that Plan Year. Similarly, a Participant is a NHCE for a particular Plan Year if the Participant does not meet the definition of an HCE in effect for that Plan Year. (e) For the purposes of this Section and Section 12.7, ACP for a specific group of Participants for a Plan Year means the average of the Contribution Percentages (calculated separately for each Participant in such group). For this purpose, "Contribution Percentage" means the ratio (expressed as a percentage) of the Participant's Contribution Percentage Amounts to the Participant's 414(s) Compensation. The actual contribution ratio for each Participant and the ACP for each group, shall be calculated to the nearest one-hundredth of one percent of the Participant's 414(s) Compensation. (f) "Contribution Percentage Amounts" means the sum of (i) nondeductible voluntary Employee contributions, (ii) Employer Matching Contributions made pursuant to Section 12.1(b) (including Qualified Matching Contributions to the extent such Qualified Matching Contributions are not used to satisfy the tests set forth in Section 12.4), (iii) Excess Contributions recharacterized as nondeductible voluntary Employee contributions pursuant to Section 12.5, and (iv) Qualified Non-Elective Contributions (to the extent not used to satisfy the tests set forth in Section 12.4). However, Contribution Percentage Amounts shall not include Matching Contributions that are forfeited either to correct Excess Aggregate Contributions or due to Code Section 401(a)(4) and the Treasury Regulations thereunder because the contributions to which they relate are Excess Deferrals, Excess Contributions, or Excess Aggregate Contributions. In addition, Contribution Percentage Amounts may include Elective Deferrals provided the ADP test in Section 12.4 is met before the Elective Deferrals are used in the ACP test and continues to be met following the exclusion of those Elective Deferrals that are used to meet the ACP test. (g) For purposes of determining the ACP and the amount of Excess Aggregate Contributions pursuant to Section 12.7, only Employer Matching Contributions (excluding Matching Contributions forfeited or distributed pursuant to Section 12.2(e), 12.5(b), or 12.7(b)) contributed to the Plan prior to the end of the succeeding Plan Year shall be considered. In addition, the Administrator may elect to take into account, with respect to Employees eligible to have Employer Matching Contributions made pursuant to Section 12.1(b) or after-tax voluntary Employee contributions made pursuant to Section 4.8 allocated to their accounts, elective deferrals (as defined in Treasury Regulation Section 1.402(g)-1(b)) and qualified non-elective contributions (as defined in Code Section 401(m)(4)(C)) contributed to any plan maintained by the Employer. Such elective deferrals and qualified non-elective contributions shall be treated as Employer matching contributions subject to Treasury Regulation Section 1.401(m)-1(b)(2) which is incorporated herein by reference. The Plan Year must be the same as the plan year of the plan to which the elective deferrals and the qualified non-elective contributions are made. (h) In the event that this Plan satisfies the requirements of Code Sections 401(a)(4), 401(m), or 410(b) 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 shall be applied by determining the ACP of Employees as if all such plans were a single plan. Plans may be aggregated in order to satisfy Code section 401(m) only if they have the same Plan Year. Any adjustments to the NHCE ACP for the prior year will be made in accordance with IRS Notice 98-1 and any superseding guidance, unless the Employer has elected in the Adoption Agreement to use the current year testing method. Plans may be aggregated in order to satisfy Code Section 401(k) only if they have the same Plan Year and use the same ACP testing method. (i) For the purposes of this Section, if an HCE is a Participant under two (2) or more plans (other than an employee stock ownership plan as defined in Code Section 4975(e)(7)) which are maintained by the Employer or an Affiliated 69 Employer to which Matching Contributions, nondeductible voluntary Employee contributions, or both, are made, all such contributions on behalf of such HCE shall be aggregated for purposes of determining such HCE's actual contribution ratio. However, if the plans have different plan years, this paragraph shall be applied by treating all plans ending with or within the same calendar year as a single plan. (j) For purposes of this Section and Section 12.7, a Highly Compensated Participant and a Non-Highly Compensated Participant shall include any Employee eligible to have Matching Contributions made pursuant to Section 12.1(a)(2) (whether or not a deferral election was made or suspended pursuant to Section 12.2(g)) allocated to such Participant's account for the Plan Year or to make salary deferrals pursuant to Section 12.2 (if the Employer uses salary deferrals to satisfy the provisions of this Section) or after-tax voluntary Employee contributions pursuant to Section 4.8 (whether or not nondeductible voluntary Employee contributions are made) allocated to the Participant's Account for the Plan Year. (k) For purposes of this Section, "Matching Contribution" means an Employer contribution made to the Plan, or to a contract described in Code Section 403(b), on behalf of a Participant on account of a nondeductible voluntary Employee contribution made by such Participant, or on account of a Participant's elective deferrals under a plan maintained by the Employer. (l) For purposes of determining the ACP and the amount of Excess Aggregate Contributions pursuant to Section 12.7, only Elective Deferrals, Qualified Non-elective Contributions and Qualified Matching Contributions contributed to the Plan prior to the end of the twelve (12) month period immediately following the Plan Year to which the contributions relate shall be considered. (m) Notwithstanding anything in this Section to the contrary, the provisions of this Section and Section 12.7 may be applied separately (or will be applied separately to the extent required by Treasury Regulations) to each plan within the meaning of Treasury Regulation Section 1.401(k)-1(g)(11). Furthermore, for Plan Years beginning after December 31, 1998, the provisions of Code Section 401(k)(3)(F) may be used to exclude from consideration all NHCEs who have not satisfied the minimum age and service requirements of Code Section 410(a)(1)(A). 12.7 ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS (a) In the event (or, with respect to subsection (g) below when the prior year testing method is being used, if it is anticipated) that for Plan Years beginning after December 31, 1996, the Plan does not satisfy one of the tests set forth in Section 12.6, the Administrator shall adjust Excess Aggregate Contributions or the Employer shall make contributions pursuant to the options set forth below or any combination thereof. However, if the prior year testing method is being used and it is anticipated that the Plan might not satisfy one of such tests, then the Employer may make contributions pursuant to the options set forth in subsection (c) below. (b) On or before the fifteenth day of the third month following the end of the Plan Year, but in no event later than the close of the following Plan Year the Highly Compensated Participant having the largest Contribution Percentage Amounts shall have a portion of such Contribution Percentage Amounts (and Income allocable to such amounts) distributed or, if non-Vested, Forfeited (including Income allocable to such Forfeitures) until the total amount of Excess Aggregate Contributions has been distributed, or until the amount of the Participant's Contribution Percentage Amounts equals the Contribution Percentage Amounts of the Highly Compensated Participant having the next largest amount of Contribution Percentage Amounts. This process shall continue until the total amount of Excess Aggregate Contributions has been distributed or forfeited. Any distribution and/or Forfeiture of Contribution Percentage Amounts shall be made in the following order: (1) After-tax voluntary Employee contributions including Excess Contributions recharacterized as after-tax voluntary Employee contributions pursuant to Section 12.5(b)(2). Matching contributions which relate to Excess Aggregate Contributions shall be forfeited; (2) Employer matching contributions forfeited above. (3) Remaining Employer matching contributions. (c) Any distribution or Forfeiture of less than the entire amount of Excess Aggregate Contributions (and Income) shall be treated as a pro rata distribution of Excess Aggregate Contributions and Income. Distribution of Excess Aggregate Contributions shall be designated by the Employer as a distribution of Excess Aggregate Contributions (and Income). Forfeitures of Excess Aggregate Contributions shall be treated in accordance with Section 4.3. However, no such Forfeiture may be allocated to a Highly Compensated Participant whose contributions are reduced pursuant to this Section. (d) For the purpose of this Section, Income means the income or losses allocable to Excess Aggregate Contributions for the Plan Year, which amount shall be allocated at the same time and in the same manner as income or losses 70 are allocated pursuant to Section 4.3(c). However, Income for the period between the end of the Plan Year and the date of the distribution (the "gap period") is not required to be distributed. (e) Excess Aggregate Contributions attributable to amounts other than nondeductible voluntary Employee contributions, including forfeited matching contributions, shall be treated as Employer contributions for purposes of Code Sections 404 and 415 even if distributed from the Plan. (f) The determination of the amount of Excess Aggregate Contributions with respect to any Plan Year shall be made after first determining the Excess Contributions, if any, to be treated as nondeductible voluntary Employee contributions due to recharacterization for the plan year of any other qualified cash or deferred arrangement (as defined in Code Section 401(k)) maintained by the Employer that ends with or within the Plan Year or which are treated as after-tax voluntary Employee contributions due to recharacterization pursuant to Section 12.5. (g) Notwithstanding the above, within twelve (12) months after the end of the Plan Year, if the Employer has elected in the Adoption Agreement to use the current year testing method under Treasury Reg. Section 1.401(k)-1(b)(5)(i), the Employer may make a special Qualified Non-Elective Contribution or Qualified Matching Contribution in accordance with one of the following provisions which contribution shall be allocated to the Qualified Non-Elective Contribution Account or Qualified Matching Contribution Account of each Non-Highly Compensated eligible to share in the allocation in accordance with such provision. The Employer shall provide the Administrator with written notification of the amount of the contribution being made and for which provision it is being made pursuant to. (1) A Qualified Non-Elective Contribution may be made on behalf of Non-Highly Compensated Participants in an amount sufficient to satisfy (or to prevent an anticipated failure of) one of the tests set forth in Section 12.6. Such contribution shall be allocated in the same proportion that each Non-Highly Compensated Participant's 414(s) Compensation for the year (or prior year if the prior year testing method is being used) bears to the total 414(s) Compensation of all Non-Highly Compensated Participants for such year. (2) A Qualified Non-Elective Contribution may be made on behalf of Non-Highly Compensated Participants in an amount sufficient to satisfy (or to prevent an anticipated failure of) one of the tests set forth in Section 12.6. Such contribution shall be allocated in the same proportion that each Non-Highly Compensated Participant's 414(s) Compensation for the year (or prior year if the prior year testing method is being used) bears to the total 414(s) Compensation of all Non-Highly Compensated Participants for such year. However, for purposes of this contribution, Non-Highly Compensated Participants in non-standardized plans who are not employed at the end of the Plan Year (or at the end of the prior Plan Year if the prior year testing method is being used) shall not be eligible to share in the allocation and shall be disregarded. (3) A Qualified Non-Elective Contribution may be made on behalf of Non-Highly Compensated Participants in an amount sufficient to satisfy (or to prevent an anticipated failure of) one of the tests set forth in Section 12.6. Such contribution shall be allocated in equal amounts (per capita). (4) A Qualified Non-Elective Contribution may be made on behalf of Non-Highly Compensated Participants in an amount sufficient to satisfy (or to prevent an anticipated failure of) one of the tests set forth in Section 12.6. Such contribution shall be allocated in equal amounts (per capita). However, for purposes of this contribution, Non-Highly Compensated Participants in non-standardized plans who are not employed at the end of the Plan Year (or at the end of the prior Plan Year if the prior year testing method is being used) shall not be eligible to share in the allocation and shall be disregarded. (5) A Qualified Non-Elective Contribution may be made on behalf of Non-Highly Compensated Participants in an amount sufficient to satisfy (or to prevent an anticipated failure of) one of the tests set forth in Section 12.6. Such contribution shall be allocated to the Qualified Non-Elective Contribution Account of the Non-Highly Compensated Participant having the lowest 414(s) Compensation, until one of the tests set forth in Section 12.6 is satisfied (or is anticipated to be satisfied), or until such Non-Highly Compensated Participant has received the maximum Annual Addition pursuant to Section 4.4. This process shall continue until one of the tests set forth in Section 12.6 is satisfied (or is anticipated to be satisfied). (6) A Qualified Non-Elective Contribution may be made on behalf of Non-Highly Compensated Participants in an amount sufficient to satisfy (or to prevent an anticipated failure of) one of the tests set forth in Section 12.6. Such contribution shall be allocated to the Qualified Non-Elective Contribution Account of the Non-Highly Compensated Participant having the lowest 414(s) Compensation, until one of the tests set forth in Section 12.6 is satisfied (or is anticipated to be satisfied), or until such Non-Highly Compensated Participant has received the maximum Annual Addition pursuant to Section 4.4. This process shall continue until one of the tests set forth in Section 12.6 is satisfied (or is anticipated to be satisfied). However, for purposes of this contribution, Non-Highly Compensated Employees in non-standardized plans who are not employed at the end of the Plan Year (or at the end of the prior Plan Year if the prior year testing method is being used) shall not be eligible to share in the allocation and shall be disregarded. 71 (7) A Qualified Matching Contribution may be made on behalf of Non-Highly Compensated Participants in an amount sufficient to satisfy (or to prevent an anticipated failure of) one of the tests set forth in Section 12.6. Such contribution shall be allocated on behalf of each Non-Highly Compensated Participant in the same proportion that each Non-Highly Compensated Participant's Elective Deferrals for the Plan Year bears to the total Elective Deferrals of all Non-Highly Compensated Participants. The Employer shall designate, at the time the contribution is made, whether the contribution made pursuant to this provision shall be a Qualified Matching Contribution allocated to a Participant's Qualified Matching Contribution Account or a Qualified Non-Elective Contribution allocated to a Participant's Qualified Non-Elective Contribution Account. (8) A Qualified Matching Contribution may be made on behalf of Non-Highly Compensated Participants in an amount sufficient to satisfy (or to prevent an anticipated failure of) one of the tests set forth in Section 12.6. Such contribution shall be allocated on behalf of each Non-Highly Compensated Participant in the same proportion that each Non-Highly Compensated Participant's Elective Deferrals for the year bears to the total Elective Deferrals of all Non-Highly Compensated Participants. The Employer shall designate, at the time the contribution is made, whether the contribution made pursuant to this provision shall be a Qualified Matching Contribution allocated to a Participant's Qualified Matching Contribution Account or an Employer Non-Elective Contribution allocated to a Participant's Non-Elective Account. However, for purposes of this contribution, Non-Highly Compensated Participants in non-standardized plans who are not employed at the end of the Plan Year (or at the end of the prior Plan Year if the prior year testing method is being used) shall not be eligible to share in the allocation and shall be disregarded. (9) A Qualified Matching Contribution may be made on behalf of Non-Highly Compensated Participants in an amount sufficient to satisfy (or to prevent an anticipated failure of) one of the tests set forth in Section 12.4. Such contribution shall be allocated on behalf of the Non-Highly Compensated Participant having the lowest Elective Deferrals until one of the tests set forth in Section 12.4 is satisfied (or is anticipated to be satisfied), or until such Non-Highly Compensated Participant has received the maximum Annual Addition pursuant to Section 4.4. This process shall continue until one of the tests set forth in Section 12.4 is satisfied (or is anticipated to be satisfied). The Employer shall designate, at the time the contribution is made, whether the contribution made pursuant to this provision shall be a Qualified Matching Contribution allocated to a Participant's Qualified Matching Contribution Account or an Employer Non-Elective Contribution allocated to a Participant's Non-Elective Account. (10) A Qualified Matching Contribution may be made on behalf of Non-Highly Compensated Participants in an amount sufficient to satisfy (or to prevent an anticipated failure of) one of the tests set forth in Section 12.4. Such contribution shall be allocated on behalf of the Non-Highly Compensated Participant having the lowest Elective Deferrals until one of the tests set forth in Section 12.4 is satisfied (or is anticipated to be satisfied), or until such Non-Highly Compensated Participant has received the maximum Annual Addition pursuant to Section 4.4. This process shall continue until one of the tests set forth in Section 12.4 is satisfied (or is anticipated to be satisfied). The Employer shall designate, at the time the contribution is made, whether the contribution made pursuant to this provision shall be a Qualified Matching Contribution allocated to a Participant's Qualified Matching Contribution Account or a Qualified Non-Elective Contribution allocated to a Participant's Qualified Non-Elective Contribution Account. However, for purposes of this contribution, Non-Highly Compensated Participants in non-standardized plans who are not employed at the end of the Plan Year (or at the end of the prior Plan Year if the prior year testing method is being used) shall not be eligible to share in the allocation and shall be disregarded. (h) Any Excess Aggregate Contributions (and Income) which are distributed on or after 2-1/2 months after the end of the Plan Year shall be subject to the ten percent (10%) Employer excise tax imposed by Code Section 4979. 12.8 SAFE HARBOR PROVISIONS (a) The provisions of this Section will apply if the Employer has elected, in the Adoption Agreement, to use the ADP Test Safe Harbor or ACP Test Safe Harbor. If the Employer has elected to use the ADP Test Safe Harbor for a Plan Year, then the provisions relating to the ADP test described in Section 12.4 and in Code Section 401(k)(3) do not apply for such Plan Year. In addition, if the Employer has also elected to use the ACP Test Safe Harbor for a Plan Year, then the provisions relating to the ACP test described in Section 12.6 and in Code Section 401(m)(2) do not apply for such Plan Year. Furthermore, to the extent any other provision of the Plan is inconsistent with the provisions of this Section, the provisions of this Section will govern. (b) For purposes of this Section, the following definitions apply: (1) "ACP Test Safe Harbor" means the method described in subsection (c) below for satisfying the ACP test of Code Section 401(m)(2). (2) "ACP Test Safe Harbor Matching Contributions" means Matching Contributions described in subsection (d)(1). 72 (3) "ADP Test Safe Harbor" means the method described in subsection (c) for satisfying the ADP test of Code Section 401(k)(3). (4) "ADP Test Safe Harbor Contributions" means Matching Contributions and nonelective contributions described in subsection (c)(1) below. (5) "Compensation" means Compensation as defined in Section 1.11, except, for purposes of this Section, no dollar limit, other than the limit imposed by Code Section 401(a)(17), applies to the Compensation of a Non-Highly Compensated Employee. However, solely for purposes of determining the Compensation subject to a Participant's deferral election, the Employer may use an alternative definition to the one described in the preceding sentence, provided such alternative definition is a reasonable definition within the meaning of Treasury Regulation Section 1.414(s)-1(d)(2), permits each Participant to elect sufficient Elective Deferrals to receive the maximum amount of Matching Contributions (determined using the definition of Compensation described in the preceding sentence) available to the Participant under the Plan and does not limit the dollar amount of Compensation taken into account for Non-Highly Compensated Participants. (6) "Eligible Participant" means a Participant who is eligible to make Elective Deferrals under the Plan for any part of the Plan Year (or who would be eligible to make Elective Deferrals but for a suspension due to a hardship distribution described in Section 12.9 or to statutory limitations, such as Code Sections 402(g) and 415) and who is not excluded as an Eligible Participant under the 401(k) Safe Harbor elections in the Adoption Agreement. (7) "Matching Contributions" means contributions made by the Employer on account of an Eligible Participant's Elective Deferrals. (c) The provisions of this subsection apply for purposes of satisfying the ADP Test Safe Harbor. (1) The ADP Test Safe Harbor Contribution is the contribution elected by the Employer in the Adoption Agreement to be used to satisfy the ADP Test Safe Harbor. However, if no contribution is elected in the Adoption Agreement, the Employer will contribute to the Plan for the Plan Year a Basic Matching Contribution on behalf of each Eligible Employee. The Basic Matching Contribution is equal to (i) one-hundred percent (100%) of the amount of an Eligible Participant's Elective Deferrals that do not exceed three percent (3%) of the Participant's Compensation for the Plan Year, plus (ii) fifty percent (50%) of the amount of the Participant's Elective Deferrals that exceed three percent (3%) of the Participant's Compensation but do not exceed five percent (5%) of the Participant's Compensation. (2) Except as provided in subsection (e) below, for purposes of the Plan, a Basic Matching Contribution or an Enhanced Matching Contribution will be treated as a Qualified Matching Contribution and a Nonelective Safe Harbor Contribution will be treated as a Qualified Non-Elective Contribution. Accordingly, the ADP Test Safe Harbor Contribution will be fully Vested and subject to the distribution restrictions set forth in Section 12.2(c) (i.e., may generally not be distributed earlier than separation from service, death, disability, an event described in Section 401(k)(1), or, in case of a profit sharing plan, the attainment of age 59-1/2.). In addition, such contributions must satisfy the ADP Test Safe Harbor without regard to permitted disparity under Code Section 401(1). (3) Except as otherwise permitted by the IRS, at least thirty (30) days, but not more than ninety (90) days, before the beginning of the Plan Year, the Employer will provide each Eligible Participant a comprehensive notice of the Participant's rights and obligations under the Plan, written in a manner calculated to be understood by the average Participant. If an Employee becomes eligible after the 90th day before the beginning of the Plan Year and does not receive the notice for that reason, the notice must be provided no more than ninety (90) days before the Employee becomes eligible but not later than the date the Employee becomes eligible. (4) In addition to any other election periods provided under the Plan, each Eligible Participant may make or modify a deferral election during the thirty (30) day period immediately following receipt of the notice described in subsection (3) above. Furthermore, if the ADP Test Safe Harbor is a Matching Contribution each Eligible Employee must be permitted to elect sufficient Elective Deferrals to receive the maximum amount of Matching Contributions available to the Participant under the Plan. (d) The provisions of this subsection apply if the Employer has elected to satisfy the ACP Test Safe Harbor. 73 (1) In addition to the ADP Test Safe Harbor Contributions, the Employer will make any Matching Contributions in accordance with elections made in the Adoption Agreement. Such additional Matching Contributions will be considered ACP Test Safe Harbor Matching Contributions. (2) Notwithstanding any election in the Adoption Agreement to the contrary, an Eligible Participant's Elective Deferrals in excess of six percent (6%) of Compensation may not be taken into account in applying ACP Test Safe Harbor Matching Contributions. In addition, effective with respect to Plan Years beginning after December 31, 1999, any portion of an ACP Test Safe Harbor Matching Contribution attributable to a discretionary Matching Contribution may not exceed four percent (4%) of an Eligible Participant's Compensation. (e) The Plan is required to satisfy the ACP test of Code Section 401(m)(2), using the current year testing method, if the Plan permits after-tax voluntary Employee contributions or if matching contributions that do not satisfy the ACP Test Safe Harbor may be made to the Plan. In such event, only ADP Test Safe Harbor Contributions or ACP Test Safe Harbor Contributions that exceed the amount needed to satisfy the ADP Test Safe Harbor or ACP Test Safe Harbor (if the Employer has elected to use the ACP Test Safe Harbor) may be treated as Qualified Non-Elective Contributions or Qualified Matching Contributions in applying the ACP test. In addition, in applying the ACP test, elective contributions may not treated as matching contributions under Code Section 401(m)(3). Furthermore, in applying the ACP test, the Employer may elect to disregard with respect to all Eligible Participants (1) all Matching Contributions if the only Matching Contributions made to the Plan satisfy the ADP Test Safe Harbor Contribution (the "Basic Matching Contribution" or the "Enhanced Matching Contribution") and (2) if the ACP Test Safe Harbor is satisfied, Matching Contributions that do not exceed four (4%) of each Participant's Compensation. 12.9 ADVANCE DISTRIBUTION FOR HARDSHIP (a) The Administrator, at the election of a Participant, shall direct the Trustee to distribute to the Participant in any one Plan Year up to the lesser of (1) 100% of the Participant's total account or, if less, 100% of the Participant's accounts as elected in the Adoption Agreement valued as of the last Valuation Date or (2) the amount necessary to satisfy the immediate and heavy financial need of the Participant. Any distribution made pursuant to this Section shall be deemed to be made as of the first day of the Plan Year or, if later, the Valuation Date immediately preceding the date of distribution, and the account from which the distribution is made shall be reduced accordingly. Withdrawal under this Section shall be authorized only if the distribution is for one of the following or any other item permitted under Treasury Regulation Section 1.401(k)-1(d)(2)(iv): (1) Medical expenses described in Code Section 213(d) incurred by the Participant, the Participant's spouse, or any of the Participant's dependents (as defined in Code Section 152) or necessary for these persons to obtain medical care as described in Code Section 213(d); (2) Costs directly related to the purchase (excluding mortgage payments) of a principal residence for the Participant; (3) Payment of tuition and related educational fees, and room and board expenses, for the next twelve (12) months of post-secondary education for the Participant, the Participant's spouse, children, or dependents (as defined in Code Section 152); or (4) Payments necessary to prevent the eviction of the Participant from the Participant's principal residence or foreclosure on the mortgage on that residence. (b) No distribution shall be made pursuant to this Section unless the Administrator, based upon the Participant's representation and such other facts as are known to the Administrator, determines that all of the following conditions are satisfied: (1) The distribution is not in excess of the amount of the immediate and heavy financial need of the Participant (including any amounts necessary to pay any federal, state, or local taxes or penalties reasonably anticipated to result from the distribution); (2) The Participant has obtained all distributions, other than hardship distributions, and all nontaxable loans currently available under all plans maintained by the Employer (to the extent the loan would not increase the hardship); (3) The Plan, and all other plans maintained by the Employer, provide that the Participant's elective deferrals and nondeductible voluntary Employee contributions will be suspended for at least twelve (12) months after receipt of the hardship distribution; and (4) The Plan, and all other plans maintained by the Employer, provide that the Participant may not make elective deferrals for the Participant's taxable year immediately following the taxable year of the hardship distribution in excess 74 of the applicable limit under Code Section 402(g) for such next taxable year less the amount of such Participant's elective deferrals for the taxable year of the hardship distribution. (c) Notwithstanding the above, distributions from the Participant's Elective Deferral Account, Qualified Matching Contribution Account and Qualified Non-Elective Account pursuant to this Section shall be limited solely to the Participant's Elective Deferrals and any income attributable thereto credited to the Participant's Elective Deferral Account as of December 31, 1988. (d) Any distribution made pursuant to this Section shall be made in a manner which is consistent with and satisfies the provisions of Section 6.5, including, but not limited to, all notice and consent requirements of Code Sections 411(a)(11) and 417 and the Treasury Regulations thereunder. ARTICLE XIII SIMPLE 401(K) PROVISIONS 13.1 DEFINITIONS (a) "Compensation" means, for purposes of this Article, the sum of the wages, tips, and other compensation from the Employer subject to federal income tax withholding (as described in Code Section 6051(a)(3)) and the Employee's salary reduction contributions made under this or any other 401(k) plan, and, if applicable, elective deferrals under a Code Section 408(p) SIMPLE plan, a SARSEP, or a Code Section 403(b) annuity contract and compensation deferred under a Code Section 457 plan, required to be reported by the Employer on Form W-2 (as described in Code Section 6051(a)(8)). For self-employed individuals, compensation means net earnings from self-employment determined under Code Section 1402(a) prior to subtracting any contributions made under this Plan on behalf of the individual. The provisions of the plan implementing the limit on Compensation under Code Section 401(a)(17) apply to the compensation under this Article. (b) "Eligible employee" means, for purposes of this Article, any Participant who is entitled to make Elective Deferrals described in Code Section 402(g) under the terms of the Plan. (c) "Year" means the calendar year. 13.2 CONTRIBUTIONS (a) Salary Reduction Contributions (1) Each eligible employee may make a salary reduction election to have compensation reduced for the year in any amount selected by the Employee subject to the limitation in subsection (c) below. The Employer will make a salary reduction contribution to the Plan, as an Elective Deferral, in the amount by which such employee's compensation has been reduced. (2) The total salary reduction contribution for the year cannot exceed $6,000 for any Employee. To the extent permitted by law, this amount will be adjusted to reflect any annual cost-of-living increases announced by the IRS. (b) Other Contributions (1) Matching Contributions -- Unless (2) below is elected, each year the Employer will contribute a matching contribution to the Plan on behalf of each Employee who makes a salary reduction election under Section 13.3(a). The amount of the matching contribution will be equal to the Employee's salary reduction contribution up to a limit of three percent (3%) of the Employee's compensation for the full year. (2) Nonelective Contribution -- For any year, instead of a matching contribution, the Employer may elect to contribute a nonelective contribution of two percent (2%) of compensation for the year for each eligible employee who received at least $5,000 of compensation from the Employer for the year. (c) Limitation on Other Contributions No Employer or Employee contributions may be made to this Plan for the year other than salary reduction contributions described in Section 13.3(a), matching or nonelective contributions described in Section 13.3(b) and rollover contributions described in Treasury Regulation Section 1.402(c)-2, Q&A-1(a). Furthermore, the provisions of Section 4.4 which implement the limitations of Code Section 415 apply to contributions made pursuant to this Section. 75 13.3 ELECTION AND NOTICE REQUIREMENTS (a) Election Period (1) In addition to any other election periods provided under the Plan, each eligible employee may make or modify a salary reduction election during the 60-day period immediately preceding each January 1st. (2) For the year an Employee becomes eligible to make salary reduction contributions under this Article, the 60-day election period requirement of subsection (a)(1) is deemed satisfied if the Employee may make or modify a salary reduction election during a 60-day period that includes either the date the Employee becomes eligible or the day before. (3) Each eligible employee may terminate a salary reduction election at any time during the year. (b) Notice Requirements (1) The Employer will notify each eligible employee prior to the 60-day election period described in Section 13.4(a) that a salary reduction election or a modification to a prior election may be made during that period. (2) The notification described in (1) above will indicate whether the Employer will provide a matching contribution described in Section 13.3(b)(1) or a two percent (2%) nonelective contribution described in section 13.3(b)(2). 13.4 VESTING REQUIREMENTS All benefits attributable to contributions made pursuant to this Article are nonforfeitable at all times. 13.5 TOP HEAVY RULES The Plan is not treated as a Top Heavy Plan under Code Section 416 for any year for which the provisions of this Article are effective and satisfied. 13.6 NONDISCRIMINATION TESTS The Plan is treated as meeting the requirements of Code Sections 401(k)(3)(A)(ii) and 401(m)(2) for any year for which the provisions of this Article are effective and satisfied. Accordingly, Sections 12.4, 12.5, 12.6 and 12.7 shall not apply to the Plan. 76 ADOPTION AGREEMENT FOR MFS RETIREMENT SERVICES, INC. NON-STANDARDIZED 401(K) PROFIT SHARING PLAN AND TRUST The undersigned Employer adopts the MFS Retirement Services, Inc. Prototype Non-Standardized 401(k) Profit Sharing Plan and Trust and elects the following provisions: CAUTION: Failure to properly fill out this Adoption Agreement may result in disqualification of the Plan. EMPLOYER INFORMATION (An amendment to the Adoption Agreement is not needed solely to reflect a change in the information in this Section.) 1. EMPLOYER'S NAME, ADDRESS AND TELEPHONE NUMBER Name: Baldwin Americas Corporation Address: 12 Commerce Drive Street Shelton Connecticut 06484 ------------------------- ---------------- ---------- City State Zip Telephone: 203-402-1000 2. EMPLOYER'S TAXPAYER IDENTIFICATION NUMBER 06-1316654 3. TYPE OF ENTITY a. [X] Corporation (including Tax-exempt or Non-profit Corporation). b. [ ] Professional Service Corporation. c. [ ] S Corporation. d. [ ] Limited Liability Company that is taxed as: 1. [ ] a partnership or sole proprietorship. 2. [ ] a Corporation. 3. [ ] an S Corporation. e. [ ] Sole Proprietorship. f. [ ] Partnership (including Limited Liability). g. [ ] Other:________________________________________________________ AND, the Employer is a member of... h. [ ] a controlled group? i. [ ] an affiliated service group? 4. EMPLOYER FISCAL YEAR means the 12 consecutive month period: Beginning on July 1st (e.g., January 1st) ----------------------------------- month day and ending on June 30th ----------------------------------- month day PLAN INFORMATION (An amendment to the Adoption Agreement is not needed solely to reflect a change in the information in items 9 through 11 of this Section.) 5. PLAN NAME: Baldwin Technology Profit Sharing and Savings Plan _______________________________________________________________________ _______________________________________________________________________ _______________________________________________________________________ _______________________________________________________________________ (C) Copyright 2002 MFS Retirement Services, Inc. April, 2002 1 6. EFFECTIVE DATE a. [ ] This is a new Plan effective as of_____________ (hereinafter called the "Effective Date"). b. [ ] This is an amendment and restatement of a previously established qualified Plan and Trust of the Employer which was originally effective_______________ (hereinafter called the "Effective Date"). The effective date of this amendment and restatement is_____________________. c. [X] FOR GUST RESTATEMENTS: This is an amendment and restatement of a previously established qualified Plan and Trust of the Employer to bring the Plan into compliance with GUST (GATT, USERRA, SBJPA and TRA '97). The original Plan effective date was June 29, 1955 (hereinafter called the "Effective Date"). Except as specifically provided in the Plan, the effective date of this amendment and restatement is September 1, 2003 . (Enter a date during the current Plan Year. The Plan contains appropriate retroactive effective dates with respect to provisions for the appropriate laws.) 7. PLAN YEAR means the 12 consecutive month period: Beginning on January 1st (e.g., January 1st) ---------------------------------- month day and ending on December 31st ---------------------------------- month day except that there will be a short Plan Year: a. [X] N/A b. [ ] beginning on ___________________________ (e.g., July 1, 2000) month day, year and ending on __________________________ month day, year 8. VALUATION DATE means: a. [X] Every day that the Trustee, any transfer agent appointed by the Trustee or the Employer, and any stock exchange used by such agent are open for business (daily valuation). b. [ ] Other (specify day or dates):_________________________________ 9. PLAN NUMBER assigned by the Employer (select one) a. [X] 001. b. [ ] 002. c. [ ] 003. d. [ ] Other:________________________________________________________ 10. TRUSTEE(S): (Please complete either a., b., or c. and d. and e. if applicable) a. [ ] NAME(S) AND TITLE(S) OF INDIVIDUAL TRUSTEE(S): ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ NOTE: An Individual Trustee may not act as a Directed (Nondiscretionary) Trustee. b. [ ] NAME(S) OF BANK OR TRUST COMPANY TRUSTEE(S):__________________ c. [X] MFS HERITAGE TRUST COMPANY (MHTC) (C) Copyright 2002 MFS Retirement Services, Inc. April, 2002 2 NOTE: MHTC serves only as Directed (Nondiscretionary) Trustee and only when all Plan investments are maintained on a participant recordkeeping system used by MFS Retirement Services, Inc. pursuant to a contract for recordkeeping and administrative support services and all other requirements imposed by MHTC are satisfied. The Plan Administrator is responsible for directing MHTC in the performance of the rights, powers, duties, and obligations of the Trustee, including, without limitation, those rights, powers, duties and obligations with respect to the investment and distribution of Plan assets. d. AND, if b. above is completed, is the Trustee a Directed (Nondiscretionary) Trustee? (If so, Plan assets are invested in accordance with directions provided by the Plan Administrator). 1. [ ] Yes. 2. [ ] No. 3. [ ] N/A. e. AND, shall a separate trust agreement be used with this Plan? 1. [ ] Yes. 2. [ ] No. NOTE: If Yes, an executed copy of the trust agreement between the Trustee and the Employer must be attached to this Plan. The Plan and trust agreement will be read and construed together. The responsibilities, rights and powers of the Trustee shall be those specified in the trust agreement. 11. TRUSTEES' MAILING ADDRESS: a. [ ] Use Employer Address and Telephone Number. b. [ ] Use other Address: ______________________________________________________________ Street _______________________ _______________ __________________ City State Zip _______________________ Telephone c. [X] If MFS HERITAGE TRUST COMPANY is selected as trustee. c/o RSI P.O. Box 55274, Boston, MA 02205-5274 12. PLAN ADMINISTRATOR'S NAME, ADDRESS AND TELEPHONE NUMBER: (If none is named, the Employer will become the Administrator.) a. [X] Employer (Use Employer address and telephone number). b. [ ] Use name, address and telephone number below: Name:_________________________________________________________ Address:______________________________________________________ Street _______________________ _______________ __________________ City State Zip Telephone:_______________________________ 13. CONSTRUCTION OF PLAN This Plan shall be governed by the laws of the state or commonwealth where the Employer's (or, in the case of a corporate Trustee, such Trustee's) principal place of business is located unless another state or commonwealth is specified: New Hampshire. If MFS Heritage Trust Company is selected as directed (nondiscretionary) Trustee in Section 10. above, the Plan shall be governed by the laws of the state of New Hampshire. (C) Copyright 2002 MFS Retirement Services, Inc. April, 2002 3 ELIGIBILITY REQUIREMENTS 14. ELIGIBLE EMPLOYEES (Plan Section 1.18) For all purposes of the Plan (except as elected below) Eligible Employees are all Employees (including Leased Employees) except: a. [ ] N/A. No exclusions. b. [X] The following are excluded (select all that apply): 1. [ ] Union Employees (as defined in Plan Section 1.18) 2. [ ] Non-resident aliens (as defined in Plan Section 1.18) 3. [ ] Salaried Employees. 4. [ ] Highly Compensated Employees. 5. [X] Leased Employees. 6. [ ] Other (must not be based upon hours worked):__________________________ However, for purposes of Employer Matching Contributions, Eligible Employees are all Employees (including Leased Employees) except: c. [X] N/A. The option elected in either a. or b. above applies for Employer Matching Contributions. d. [ ] The following are excluded (select all that apply): 1. [ ] Union Employees (as defined in Plan Section 1.18) 2. [ ] Non-resident aliens (as defined in Plan Section 1.18) 3. [ ] Salaried Employees 4. [ ] Highly Compensated Employees 5. [ ] Leased Employees 6. [ ] Other (must not be based upon hours worked):______________________ And, for purposes of Employer Profit Sharing Contributions, Eligible Employees are all Employees (including Leased Employees) except: e. [X] N/A. The option elected in either a. or b. above applies for Employer Profit Sharing Contributions. f. [ ] No exclusions g. [ ] The following are excluded (select all that apply): 1. [ ] Union Employees (as defined in Plan Section 1.18) 2. [ ] Non-resident aliens (as defined in Plan Section 1.18) 3. [ ] Salaried Employees 4. [ ] Highly Compensated Employees 5. [ ] Leased Employees 6. [ ] Other (must not be based upon hours worked):___________________________ 15. THE FOLLOWING AFFILIATED EMPLOYERS (Plan Section 1.6) will adopt this Plan as Participating Employers (if there is more than one, or if Affiliated Employers adopt this Plan after the date the Adoption Agreement is executed, attach additional executed "Affiliated Employer Participation Agreement(s)" to this Adoption Agreement): a. [X] N/A b. [ ] Name of Employer:_____________________________________________ Address:______________________________________________________ City: ____________________ State:_____________ Zip:_________ Telephone:________________ Federal Tax Identification Number:____________ Type of Entity (select one): c. [ ] Corporation (including Tax-exempt or Non-profit Corporation) d. [ ] Professional Service Corporation e. [ ] S Corporation f. [ ] Limited Liability Company g. [ ] Sole Proprietorship h. [ ] Partnership (including Limited Liability Partnership) i. [ ] Other:________________________________________________________ NOTE: Employees of an Affiliated Employer that does not adopt this Adoption Agreement as a Participating Employer shall not be Eligible Employees. This Plan could violate the Code Section 410(b) coverage rules if all Affiliated Employers do not adopt the Plan. (C) Copyright 2002 MFS Retirement Services, Inc. April, 2002 4 16. CONDITIONS OF ELIGIBILITY (Plan Section 3.1) Any Eligible Employee will be eligible to participate in the Plan upon satisfaction of the following: NOTE: If the Year(s) of Service selected is or includes a fractional year, an Employee will not be required to complete any specified number of Hours of Service to receive credit for such fractional year. If expressed in months of service, an Employee will not be required to complete any specified number of Hours of Service in a particular month, unless elected below. Eligibility for all purposes of the Plan (except as elected below): a. [X] No age or service required. (skip b. and c. below) b. [ ] Completion of the following service requirement which is based on Years of Service (or Periods of Service if the Elapsed Time Method is elected): 1. [ ] No service requirement 2. [ ] 1/2 Year of Service or Period of Service 3. [ ] 1 Year of Service or Period of Service 4. [ ] ______________Hours of Service within_______________ months from the Eligible Employee's employment commencement date, but in no event more than 1 Year of Service. 5. [ ] Other:____________________(may not exceed one (1) Year of Service or Period of Service) c. [ ] Attainment of age: 1. [ ] No Age Requirement 2. [ ] 20 1/2 3. [ ] 21 4. [ ] Other:______________(may not exceed 21) d. [ ] The service and/or age requirements specified above shall be waived with respect to any Eligible Employee who was employed on______________ and such Eligible Employee shall enter the Plan as of such date. The requirements to be waived are (select one or both): 1. [ ] service requirement 2. [ ] age requirement NOTE: If d. is elected, the Plan may violate the nondiscrimination rules. However, the following eligibility requirements will apply for purposes of Employer Matching Contributions: e. [X] N/A. The options elected in a. - d. above apply for Employer Matching Contributions. f. [ ] No age or service requirements. (skip g. and h. below) g. [ ] Completion of the following service requirement which is based on Years of Service (or Periods of Service if the Elapsed Time Method is elected): 1. [ ] No service requirement 2. [ ] 1/2 Year of Service or Period of Service 3. [ ] 1 Year of Service or Period of Service 4. [ ] ______________Hours of Service within_______________ months from the Eligible Employee's employment commencement date, but in no event more than 1 Year of Service. 5. [ ] 2 Years of Service or Periods of Service 6. [ ] Other____________________(may not exceed two (2) Years of Service or Periods of Service) h. [ ] Attainment of age: 1. [ ] No Age Requirement 2. [ ] 20 1/2 3. [ ] 21 4. [ ] Other:_____________________________ (may not exceed 21) i. [ ] The service and/or age requirements specified above shall be waived with respect to any Eligible Employee who was employed on___________ and such Eligible Employee shall enter the Plan as of such date. The requirements to be waived are (select one or both): 1. [ ] service requirement 2. [ ] age requirement NOTE: If more than 1 Year of Service is elected, 100% immediate vesting is required. Also, if i. is elected, the Plan may violate the nondiscrimination rules. (C) Copyright 2002 MFS Retirement Services, Inc. April, 2002 5 And, the following eligibility requirements will apply for purposes of Employer Profit Sharing Contributions: j. [X] N/A. The options elected in a. - d. above apply for Employer Profit Sharing Contributions. k. [ ] No age or service requirements (skip l. and m. below). l. [ ] Completion of the following service requirement which is based on Years of Service (or Periods of Service if the Elapsed Time Method is elected): 1. [ ] No service requirement 2. [ ] 1/2 Year of Service or Period of Service 3. [ ] 1 Year of Service or Period of Service 4. [ ] _______________Hours of Service within_________________ months from the Eligible Employee's employment commencement date, but in no event more than 1 Year of Service. 5. [ ] 2 Years of Service or Periods of Service 6. [ ] Other:___________________(may not exceed two (2) Years of Service or Periods of Service) m. [ ] Attainment of age: 1. [ ] No Age Requirement 2. [ ] 20 1/2 3. [ ] 21 4. [ ] Other:_________________________________________________ (may not exceed 21) n. [ ] The service and/or age requirements specified above shall be waived with respect to any Eligible Employee who was employed on_________________ and such Eligible Employee shall enter the Plan as of such date. The requirements to be waived are (select one or both): 1. [ ] service requirement 2. [ ] age requirement NOTE: If more than 1 Year of Service is elected, 100% immediate vesting is required. Also, if n. is elected, the Plan may violate the nondiscrimination rules. (C) Copyright 2002 MFS Retirement Services, Inc. April, 2002 6 17. EFFECTIVE DATE OF PARTICIPATION (Plan Section 3.2) An Eligible Employee who has satisfied the applicable eligibility requirements will become a Participant for all purposes of the Plan (except as elected below) on (select one): a. [X] the day on which such requirements are satisfied. b. [ ] the first day of the month coinciding with or next following the date on which such requirements are satisfied. c. [ ] the first day of the Plan Year quarter coinciding with or next following the date on which such requirements are satisfied. d. [ ] the earlier of the first day of the seventh month or the first day of the Plan Year coinciding with or next following the date on which such requirements are satisfied. e. [ ] the first day of the Plan Year next following the date on which such requirements are satisfied. (Eligibility must be 1/2 Year of Service (or Period of Service) or less and age must be 20 1/2 or less.) f. [ ] Other:______________________ , provided that an Eligible Employee who has satisfied the maximum age 21 and service requirements (one (1) Year or Period of Service) and who is otherwise entitled to participate, shall commence participation no later than the earlier of (a) 6 months after such requirements are satisfied, or (b) the first day of the first Plan Year after such requirements are satisfied, unless the Employee separates from service before such participation date. However, an Eligible Employee who has satisfied the applicable eligibility requirements will become a Participant for purposes of Employer Matching Contributions on (select one): g. [X] N/A. The options elected in a. - f. above apply for Employer Matching Contributions. h. [ ] the day on which such requirements are satisfied. i. [ ] the first day of the month coinciding with or next following the date on which such requirements are satisfied. j. [ ] the first day of the Plan Year quarter coinciding with or following the date on which such requirements are satisfied. k. [ ] the first day of the Plan Year in which such requirements are satisfied. l. [ ] the first day of the Plan Year in which such requirements are satisfied, if such requirements are satisfied in the first 6 months of the Plan Year, or as of the first day of the next succeeding Plan Year if such requirements are satisfied in the last 6 months of the Plan Year. m. [ ] the earlier of the first day of the seventh month or the first day of the Plan Year coinciding with or next following the date on which such requirements are satisfied. n. [ ] the first day of the Plan Year next following the date on which such requirements are satisfied, (Eligibility must be 1/2 Year of Service (or Period of Service) or less and age 20 1/2 or less.) o. [ ] Other:_____________ , provided that an Eligible Employee who has satisfied the maximum age 21 and service requirements (one (1) Year or Period of Service (or more than one (1) year if full and immediate vesting)) and who is otherwise entitled to participate, shall commence participation no later than the earlier of (a) 6 months after such requirements are satisfied, or (b) the first day of the first Plan Year after such requirements are satisfied, unless the Employee separates from service before such participation date. And, an Eligible Employee who has satisfied the applicable eligibility requirements will become a Participant for purposes of Employer Profit Sharing Contributions on (select one): p. [X] N/A. The options elected in a. - f. above apply for Employer Profit Sharing Contributions. q. [ ] the day on which such requirements are satisfied. r. [ ] the first day of the month coinciding with or next following the date on which such requirements are satisfied. s. [ ] the first day of the Plan Year quarter coinciding with or following the date on which such requirements are satisfied. t. [ ] the first day of the Plan Year in which such requirements are satisfied. u. [ ] the first day of the Plan Year in which such requirements are satisfied, if such requirements are satisfied in the first 6 months of the Plan Year, or as of the first day of the next succeeding Plan Year if such requirements are satisfied in the last 6 months of the Plan Year. v. [ ] the earlier of the first day of the seventh month or the first day of the Plan Year coinciding with or next following the date on which such requirements are satisfied. w. [ ] the first day of the Plan Year next following the date on which such requirements are satisfied, (Eligibility must be 1/2 Year of Service (or Period of Service) or less and age 20 1/2 or less.) x. [ ] Other:___________________ , provided that an Eligible Employee who has satisfied the maximum age 21 and service requirements (one (1) Year or Period of Service (or more than one (1) year if full and immediate vesting)) and who is otherwise entitled to participate, shall commence participation no later than the earlier of (a) 6 months after such requirements are satisfied, or (b) the first day of the first Plan Year after such requirements are satisfied, unless the Employee separates from service before such participation date. (C) Copyright 2002 MFS Retirement Services, Inc. April, 2002 7 SERVICE 18. RECOGNITION OF SERVICE WITH PREDECESSOR EMPLOYER a. [ ] No service with a predecessor employer shall be recognized. b. [X] Service with: 1. [X] Kansa will be recognized except as follows (select a. or all that apply of b. through d.): a. [X] N/A, no limitations. b. [ ] service will only be recognized for vesting purposes. c. [ ] service will only be recognized for eligibility purposes. d. [ ] service prior to_________________________ will not be recognized. 2. [ ] ________________ will be recognized except as follows (select a. or all that apply of b. through d.): a. [ ] N/A, no limitations. b. [ ] service will only be recognized for vesting purposes. c. [ ] service will only be recognized for eligibility purposes. d. [ ] service prior to_________________________ will not be recognized. NOTE: If the predecessor Employer maintained this qualified Plan or maintained a qualified plan that has been merged with this qualified Plan, then Years of Service (and/or Periods of Service) with such predecessor Employer shall be recognized pursuant to Plan Sections 1.57 and 1.85 and b(1) above being marked. Attach additional sections for other predecessor Employers. 19. SERVICE CREDITING METHOD Elapsed Time Method (If the Plan only uses the Hours of Service Method, skip to d. - h. below) a. Shall be used for all money types under the Plan (except as selected below) for purposes of: 1. [X] eligibility to participate. 2. [ ] vesting. 3. [ ] sharing in allocations or contributions. b. However, for Employer Matching Contributions, the Elapsed Time Method shall be used for purposes of: 1. [ ] N/A. The options elected in a. above apply for Employer Matching Contributions. 2. [X] N/A. The Hours of Service Method will be used for Employer Matching Contributions as selected in 19(d) - (h) below. 3. [ ] eligibility to participate. 4. [ ] vesting. 5. [ ] sharing in allocations or contributions. c. And, for Employer Profit Sharing Contributions, the Elapsed Time Method shall be used for purposes of: 1. [ ] N/A. The options elected in a. above apply for Employer Profit Sharing Contributions. 2. [X] N/A. The Hours of Service Method will be used for Employer Profit Sharing Contributions as selected in 19(d) - (h) below. 3. [ ] eligibility to participate. 4. [ ] vesting. 5. [ ] sharing in allocations or contributions. Hours of Service Method. (If the Plan only uses the Elapsed Time Method, skip to 20., Vesting) d. Shall be used for all money types under the Plan (except as selected below) for purposes of: 1. [ ] Eligibility Computation. The eligibility computation period after the initial eligibility computation period shall... a. [ ] be based on the date an Employee first performs an Hour of Service (initial computation period) and subsequent computation periods shall be based on each anniversary date thereof. b. [ ] shift to the Plan Year after the initial computation period. 2. [X] Vesting. The vesting computation period shall be... a. [ ] the date an Employee first performs an Hour of Service and each anniversary thereof. b. [X] the Plan Year. 3. [ ] Sharing in Allocations or Contributions (the computation period shall be the Plan Year). (C) Copyright 2002 MFS Retirement Services, Inc. April, 2002 8 e. However, for Employer Matching Contributions, the Hours of Service Method shall be used for purposes of: 1. [X] N/A. The options elected in d. above apply for Employer Matching Contributions. 2. [ ] N/A. The Elapsed Time Method will be used for Employer Matching Contributions as selected in 19(a) - (c) above. 3. [ ] Eligibility Computation. The eligibility computation period after the initial eligibility computation period shall... a. [ ] be based on the date an Employee first performs an Hour of Service (initial computation period) and subsequent computation periods shall be based on each anniversary date thereof. b. [ ] shift to the Plan Year after the initial computation period. 4. [ ] Vesting. The vesting computation period shall be... a. [ ] the date an Employee first performs an Hour of Service and each anniversary thereof. b. [ ] the Plan Year. 5. [ ] Sharing in Allocations or Contributions (the computation period shall be the Plan Year). f. And, for Employer Profit Sharing Contributions, the Hours of Service Method shall be used for purposes of: 1. [X] N/A. The options elected in d. above apply for Employer Profit Sharing Contributions. 2. [ ] N/A. The Elapsed Time Method will be used for Employer Profit Sharing Contributions as selected in 19(a) - (c) above. 3. [ ] Eligibility Computation. The eligibility computation period after the initial eligibility computation period shall... a. [ ] be based on the date an Employee first performs an Hour of Service (initial computation period) and subsequent computation periods shall be based on each anniversary date thereof. b. [ ] shift to the Plan Year after the initial computation period. 4. [ ] Vesting. The vesting computation period shall be... a. [ ] the date an Employee first performs an Hour of Service and each anniversary thereof. b. [ ] the Plan Year. 5. [ ] Sharing in Allocations or Contributions (the computation period shall be the Plan Year). g. And, if the Hours of Service Method is being used, the Hours of Service will be determined on the basis of the method selected below. Only one method may be selected. The method selected below will be applied to: 1. [X] all Employees. 2. [ ] salaried Employees only (for hourly Employees, actual Hours of Service will be used). On the basis of: 3. [X] actual hours for which an Employee is paid or entitled to payment. 4. [ ] days worked. An Employee will be credited with ten Hours of Service if under the Plan such Employee would be credited with at least one Hour of Service during the day. 5. [ ] weeks worked. An Employee will be credited with forty-five Hours of Service if under the Plan such Employee would be credited with at least one Hour of Service during the week. 6. [ ] semi-monthly payroll periods. An Employee will be credited with ninety-five Hours of Service if under the Plan such Employee would be credited with at least one Hour of Service during the semi-monthly payroll period. 7. [ ] months worked. An Employee will be credited with one hundred ninety Hours of Service if under the Plan such Employee would be credited with at least one Hour of Service during the month. h. And, a Year of Service means the applicable computation period during which an Employee has completed at least 1000 (may not be more than 1,000) Hours of Service (if left blank, the Plan will use 1,000 Hours of Service). (C) Copyright 2002 MFS Retirement Services, Inc. April, 2002 9 VESTING 20. VESTING OF PARTICIPANT'S INTEREST (Plan Section 6.4(b)) Vesting for Employer Contributions (except as otherwise elected in 20(j) - (s) below for Employer Matching Contributions). The vesting schedule, based on a Participant's Years of Service (or Periods of Service if the Elapsed Time Method is elected), shall be as follows: a. [ ] N/A. No Employer Contributions. b. [ ] 100% upon entering Plan. (Required if eligibility requirement is greater than one (1) Year of Service or Period of Service.) c. [ ] 3 Year Cliff: d. [ ] 5 Year Cliff: 0-2 years 0% 0-4 years 0% 3 years 100% 5 years 100% e. [X] 6 Year Graded f. [ ] 4 Year Graded: 0-1 year 0% 1 year 25% 2 years 20% 2 years 50% 3 years 40% 3 years 75% 4 years 60% 4 years 100% 5 years 80% 6 years 100% g. [ ] 5 Year Graded: h. [ ] 7 Year Graded: 1 year 20% 0-2 years 0% 2 years 40% 3 years 20% 3 years 60% 4 years 40% 4 years 80% 5 years 60% 5 years 100% 6 years 80% 7 years 100% i. [ ] Other - Must be at least as li beral as either d. or h. above.
Service Percentage 1. % 2. % 3. % 4. % 5. % 6. % 7. %
(C) Copyright 2002 MFS Retirement Services, Inc. April, 2002 10 VESTING FOR EMPLOYER MATCHING CONTRIBUTIONS The vesting schedule for Employer matching contributions, based on a Participant's Years of Service (or Periods of Service if the Elapsed Time Method is elected) shall be as follows: j. [ ] N/A. No Employer Matching Contributions. k. [ ] N/A. The schedule in 20(a) - (i) above shall also apply to Employer Matching Contributions. l. [X] 100% upon entering Plan. (Required if eligibility requirement is greater than one (1) Year of Service or Period of Service.) m. [ ] 3 Year Cliff n. [ ] 5 Year Cliff o. [ ] 6 Year Graded p. [ ] 4 Year Graded q. [ ] 5 Year Graded r. [ ] 7 Year Graded s. [ ] Other - Must be at least as liberal as either n. or r. above.
Service Percentage 1. 2. 3. 4. 5. 6. 7.
21. FOR AMENDED PLANS (Plan Section 6.4(f)) If the vesting schedule has been amended to a less favorable schedule, enter the pre-amended schedule below: a. [X] Vesting schedule has not been amended, amended schedule is more favorable in all years or prior schedule was immediate 100% vesting. b. [ ] Pre-amended schedule for all Employer Contributions except for [ ] Employer Profit Sharing Contributions, [ ] Employer Matching Contributions, [ ] N/A [ ] Other: _____________________________________________________
Service Percentage 1. 2. 3. 4. 5. 6. 7.
(C) Copyright 2002 MFS Retirement Services, Inc. April, 2002 11 22. TOP HEAVY VESTING (Plan Section 6.4(c)) If this Plan becomes a Top Heavy Plan, the following vesting schedule, based on number of Years of Service (or Periods of Service if the Elapsed Time Method is elected), shall apply and shall be treated as a Plan amendment pursuant to this Plan. Once effective, this schedule shall also apply to any contributions made before the Plan became a Top Heavy Plan and shall continue to apply if the Plan ceases to be a Top Heavy Plan unless an amendment is made to change the vesting schedule. a. [ ] N/A (the regular vesting schedule(s) already satisfies one of the minimum top heavy schedules.) b. [X] 6 Year Graded c. [ ] 3 Year Cliff d. [ ] Other - Must be at least as liberal as either b. or c. above.
Service Percentage 1. 2. 3. 4. 5. 6. 7.
NOTE: This Section does not apply to the account balances of any Participant who does not have an Hour of Service after the Plan has initially become top heavy. Such Participant's Account balance attributable to Employer contributions and Forfeitures will be determined without regard to this Section. 23. FOR VESTING PURPOSES, Years of Service (or Periods of Service) attributable to the following shall be excluded (select all that apply): a. [X] No exclusions. b. [ ] Service prior to the Effective Date of the Plan or a predecessor plan. c. [ ] Service prior to the time an Employee has attained age 18. 24. VESTING FOR DEATH AND TOTAL AND PERMANENT DISABILITY Regardless of the vesting schedule(s), Participants shall become fully Vested upon (select a. or all that apply of b. and c.) a. [ ] N/A. Apply vesting schedule(s). b. [X] Death. c. [X] Total and Permanent Disability. 25. NORMAL RETIREMENT AGE ("NRA") (Plan Section 1.45) means the: a. [X] date of a Participant's 65th birthday (not to exceed 65th). b. [ ] later of a Participant's _______ birthday (not to exceed 65th) or the ______ (not to exceed 5th) anniversary of the: 1. [ ] first day of the Plan Year in which participation in the Plan commenced. 2. [ ] Participant's date of hire. 26. NORMAL RETIREMENT DATE (Plan Section 1.46) means the: a. [ ] Participant's "NRA." b. [X] first day of the month... 1. [X] coinciding with or next following the Participant's "NRA." 2. [ ] nearest the Participant's "NRA." c. [ ] Anniversary Date (Plan Section 1.7)... 1. [X] coinciding with or next following the Participant's "NRA." 2. [ ] nearest the Participant's "NRA." (C) Copyright 2002 MFS Retirement Services, Inc. April, 2002 12 27. EARLY RETIREMENT DATE (Plan Section 1.15). a. Early retirement date means the: 1. [ ] No Early Retirement provision provided. 2. [ ] date on which a Participant... a. [ ] attains age ___________ b. [ ] attains age ___________and completes at least ________ Years of Service (or Periods of Service) for vesting purposes. 3. [ ] first day of the month coinciding with or next following the date on which a Participant... a. [ ] attains age _______________ b. [ ] attains age _______________and completes at least ____ Years of Service (or Periods of Service) for vesting purposes. 4. [X] Anniversary Date (Plan Section 1.7) coinciding with or next following the date on which a Participant... a. [X] attains age 55 b. [ ] attains age _______and completes at least ___________ Years of Service (or Periods of Service) for vesting purposes. b. And, if 2., 3. or 4. is selected, shall a Participant become fully Vested upon attainment of the Early Retirement Date? 1. [X] Yes. 2. [ ] No. 28. TOTAL AND PERMANENT DISABILITY (Plan Section 1.79) For purposes of this Plan, Total and Permanent Disability shall mean: a. [X] the inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve (12) months. b. [ ] the inability to engage in any substantial, gainful activity in the Employee's trade or profession for which the Employee is best qualified through training or experience. c. [ ] ________________________________________________________________ COMPENSATION (PLAN SECTION 1.11) 29. FOR ALL PURPOSES OF THE PLAN, other than Employer Matching Contributions, Employer Profit Sharing Contributions, and 414(s) Compensation, compensation: a. With respect to any Participant means: 1. [X] Wages, tips and other compensation on Form W-2. 2. [ ] Section 3401(a) wages (wages for withholding purposes). 3. [ ] 415 safe-harbor compensation. b. And, compensation shall be adjusted by (for salary deferral purposes the Plan automatically includes amounts in 2 below): (select all that apply) 1. [ ] N/A. No adjustments. 2. [X] including compensation which is not currently includible in the Participant's gross income by reason of the application of Code Sections 125 (cafeteria plan), 402(e)(3) (401(k) plan), 402(h)(1)(B) (simplified employee pension plan), 414(h) (employer pickup contributions under a governmental plan), 403(b) (tax sheltered annuity) or 457(b) (eligible deferred compensation plan). 3. [ ] including elective amounts that are not includable in the gross income of the employee by reason of Code Section 132(f) (4) for Plan Years beginning on and after _______ (may not be earlier than the first day of the first Plan Year beginning on or after January 1, 1998). 4. [X] excluding reimbursements or other expense allowances, fringe benefits (cash or non-cash), moving expenses, deferred compensation (other than deferrals specified in 2. above) to a qualified plan and welfare benefits. 5. [X] excluding Compensation paid during the determination period prior to the period of participation in the component of the Plan for which the definition is being used. 6. [ ] excluding overtime. 7. [ ] excluding bonuses. 8. [ ] excluding commissions. 9. [X] other: severance payments. NOTE: If 6., 7., 8. or 9. is elected the definition of Compensation could violate the nondiscrimination rules. (C) Copyright 2002 MFS Retirement Services, Inc. April, 2002 13 30. FOR PURPOSES OF EMPLOYER MATCHING CONTRIBUTIONS, compensation: a. With respect to any Participant means: 1. [X] Wages, tips and other compensation on Form W-2. 2. [ ] Section 3401(a) wages (wages for withholding purposes). 3. [ ] 415 safe-harbor compensation. b. And, compensation shall be adjusted by: (select all that apply) 1. [ ] N/A. No adjustments. 2. [X] including compensation which is not currently includible in the Participant's gross income by reason of the application of Code Sections 125 (cafeteria plan), 402(e)(3) (401(k) plan), 402(h)(1)(B) (simplified employee pension plan), 414(h) (employer pickup contributions under a governmental plan), 403(b) (tax sheltered annuity) or 457(b) (eligible deferred compensation plan). 3. [ ] including elective amounts that are not includable in the gross income of the employee by reason of Code Section 132(f) (4) for Plan Years beginning on and after _______ (may not be earlier than the first day of the first Plan Year beginning on or after January 1, 1998). 4. [X] excluding reimbursements or other expense allowances, fringe benefits (cash or non-cash), moving expenses, deferred compensation (other than deferrals specified in 2. above) to a qualified plan and welfare benefits. 5. [X] excluding Compensation paid during the determination period prior to the period of participation in the component of the Plan for which the definition is being used. 6. [ ] excluding overtime. 7. [ ] excluding bonuses. 8. [ ] excluding commissions. 9. [X] other: severance payments. NOTE: If 6., 7., 8. or 9. is elected the definition of Compensation could violate the nondiscrimination rules. 31. FOR PURPOSES OF EMPLOYER PROFIT SHARING CONTRIBUTIONS, compensation: a. With respect to any Participant means: 1. [X] Wages, tips and other compensation on Form W-2. 2. [ ] Section 3401(a) wages (wages for withholding purposes). 3. [ ] 415 safe-harbor compensation. b. And, compensation shall be adjusted by: (select all that apply) 1. [ ] N/A. No adjustments. 2. [X] including compensation which is not currently includible in the Participant's gross income by reason of the application of Code Sections 125 (cafeteria plan), 402(e)(3) (401(k) plan), 402(h)(1)(B) (simplified employee pension plan), 414 (h) (employer pickup contributions under a governmental plan), 403(b) (tax sheltered annuity) or 457(b) (eligible deferred compensation plan). 3. [ ] including elective amounts that are not includable in the gross income of the employee by reason of Code Section 132(f) (4) for Plan Years beginning on and after ______ (may not be earlier than the first day of the first Plan Year beginning on or after January 1, 1998). 4. [X] excluding reimbursements or other expense allowances, fringe benefits (cash or non-cash), moving expenses, deferred compensation (other than deferrals specified in 2. above) to a qualified plan and welfare benefits. 5. [X] excluding Compensation paid during the determination period prior to the period of participation in the component of the Plan for which the definition is being used. 6. [ ] excluding overtime. 7. [ ] excluding bonuses. 8. [ ] excluding commissions. 9. [X] other: severance payments. NOTE: If 6., 7., 8. or 9. is elected the definition of Compensation could violate the nondiscrimination rules. (C) Copyright 2002 MFS Retirement Services, Inc. April, 2002 14 32. FOR PURPOSES OF 414(s) COMPENSATION (Plan Section 1.29), compensation: a. With respect to any Participant means: 1. [X] Wages, tips and other compensation on Form W-2. 2. [ ] Section 3401(a) wages (wages for withholding purposes). 3. [ ] 415 safe-harbor compensation. b. And, compensation shall be adjusted by: (select all that apply) 1. [ ] N/A. No adjustments. 2. [X] including compensation which is not currently includible in the Participant's gross income by reason of the application of Code Sections 125 (cafeteria plan), 402(e)(3) (401(k) plan), 402(h)(1)(B) (simplified employee pension plan), 414(h) (employer pickup contributions under a governmental plan), 403(b) (tax sheltered annuity) or 457(b) (eligible deferred compensation plan). 3. [ ] including elective amounts that are not includable in the gross income of the employee by reason of Code Section 132(f)(4) for Plan Years beginning on and after ______ (may not be earlier than the first day of the first Plan Year beginning on or after January 1, 1998). 4. [X] excluding reimbursements or other expense allowances, fringe benefits (cash or non-cash), moving expenses, deferred compensation (other than deferrals specified in 2. above) to a qualified plan and welfare benefits. 5. [X] excluding Compensation paid during the determination period prior to the period of participation in the component of the Plan for which the definition is being used. 6. [X] other: severance payments. NOTE: If this is a GUST restatement, it may be necessary to complete section 65. Also, if 6. is elected, the definition of Compensation could violate the nondiscrimination rules. 33. COMPENSATION, for all purposes of the plan, shall be based on the following determination period: 1. [X] the Plan Year. 2. [ ] the Fiscal Year coinciding with or ending within the Plan Year. 3. [ ] the calendar year coinciding with or ending within the Plan Year. NOTE: The Limitation Year for Code Section 415 purposes shall be the same as the determination period for Compensation unless an alternative period is specified:________ CONTRIBUTIONS AND ALLOCATIONS 34. SALARY REDUCTION ARRANGEMENT - ELECTIVE DEFERRALS (Plan Section 12.2) a. Each Participant may elect to have Compensation reduced by: 1. [ ] ______________%. 2. [ ] up to ____________%. 3. [X] from 1 % to 20 %. 4. [ ] up to the maximum percentage allowable not to exceed the limits of Code Sections 401(k), 402(g), 404 and 415. b. Highly Compensated Employees may only elect to reduce Compensation by: 1. [X] N/A. Same limits as specified above. 2. [ ] up to _______________% (should not be greater than the limits specified above). 3. [ ] the percentage equal to the deferral limit in effect under Code Section 402(g)(3) for the calendar year that begins with or within the Plan Year divided by the annual compensation limit in effect for the Plan Year under Code Section 401(a) (17). (C) Copyright 2002 MFS Retirement Services, Inc. April, 2002 15 c. May a special salary reduction election with respect to bonuses be made. 1. [ ] Yes, any Participant may elect to defer up to the entire amount of any bonus. 2. [ ] Yes, any Participant may elect to defer up to _______________ % of any bonus. 3. [ ] Yes, any Non-Highly Compensated Employee may elect to defer up to the entire amount of any bonus. 4. [ ] Yes, any Non-Highly Compensated Employee may elect to defer up to ________________% of a bonus. 5. [X] No. d. Participants may commence salary deferrals on the effective date of participation and on any payroll period thereafter. Participants may modify salary deferral elections: 1. [X] As of each payroll period. 2. [ ] On the first day of the month. 3. [ ] On the first day of each Plan Year quarter. 4. [ ] On the first day of the Plan Year or the first day of the 7th month of the Plan Year. 5. [ ] Other: ____________________________(specify a date or dates). e. Automatic Election: Shall Participants who do not affirmatively elect to receive cash, to have Compensation deferred to the Plan, or, for those participants eligible on ________, to have at least the amount specified in 1. below contributed to the Plan automatically have Compensation reduced? 1. [ ] Yes, by _________% of Compensation for Participants. 2. [X] No. NOTE: If 1. is selected, certain notices must be provided to employees. f. Shall there be a special effective date for the salary deferral component of the Plan? 1. [X] No. 2. [ ] Yes, the effective date of the salary deferral component of the Plan is _________________(enter month, day and year). 35. 401(K) SAFE HARBOR PROVISIONS (Plan Section 12.8) Will the ADP and/or ACP test safe harbor provisions be used? (select a., b. or c.) a. [ ] No. (If selected, skip to Question 36.) b. [ ] Yes, but only the ADP (and NOT the ACP) Test Safe Harbor provisions will be used. c. [X] Yes, both the ADP and ACP Test Safe Harbor provisions will be used. IF c. is selected, does the Plan permit matching contributions in addition to any safe harbor contributions elected in d. or e. below? 1. [X] No or N/A. Any matching contributions, other than any Safe Harbor Matching Contributions elected in d. below, will be suspended in any Plan Year in which the safe harbor provisions are used. 2. [ ] Yes, the Employer may make matching contributions in addition to any Safe Harbor Matching contributions elected in d. below. (If elected, complete the provisions of the Adoption Agreement relating to matching contributions that will apply in addition to any elections made in d. below.) NOTE: Regardless of any election made, the Plan automatically provides that only Elective Deferrals up to 6% of Compensation are taken into account in applying the match set forth in that Question and that the maximum discretionary matching contribution that may be made on behalf of any Participant is 4% of Compensation. (C) Copyright 2002 MFS Retirement Services, Inc. April, 2002 16 THE EMPLOYER WILL MAKE THE FOLLOWING ADP TEST SAFE HARBOR CONTRIBUTION FOR THE PLAN YEAR: NOTE: The ACP Test Safe Harbor is automatically satisfied if the only matching contribution made to the Plan is either (1) a Basic Matching Contribution or (2) an Enhanced Matching Contribution that does not provide a match on Elective Deferrals in excess of 6% of Compensation. d. [X] Safe Harbor Matching Contribution (select 1. or 2. AND 3.) 1. [X] BASIC MATCHING CONTRIBUTION. The Employer will make Matching Contributions to the account of each "Eligible Participant" in an amount equal to the sum of 100% of the amount of the Participant's Elective Deferrals that do not exceed 3% of the Participant's Compensation, plus 50% of the amount of the Participant's Elective Deferrals that exceed 3% of the Participant's Compensation but do not exceed 5% of the Participant's Compensation. 2. [ ] ENHANCED MATCHING CONTRIBUTION. The Employer will make Matching Contributions to the account of each "Eligible Participant" in an amount equal to the sum of: a. [ ] _________% (may not be less than 100%) of the Participant's Elective Deferrals that do not exceed __________% (if over 6% or if left blank, the ACP test will still apply) of the Participant's Compensation, plus b. [ ] _____________% of the Participant's Elective Deferrals that exceed _______________% of the Participant's Compensation but do not exceed _____ % (if over 6% or if left blank the ACP test will still apply) of the Participant's Compensation. NOTE: a. and b. must be completed so that, at any rate of Elective Deferrals, the matching contribution is at least equal to the matching contribution receivable if the Employer were making Basic Matching Contributions, but the rate of match cannot increase as deferrals increase. For example, if a. is completed to provide a match equal to 100% of deferrals up to 4% of Compensation, then b. need not be completed. 3. [X] The safe harbor matching contribution will be made on the following basis (and Compensation for such purpose will be based on the applicable period): a. [X] the entire Plan Year. b. [ ] each payroll period. c. [ ] all payroll periods ending with or within each month. d. [ ] all payroll periods ending with or within the Plan Year quarter. e. [ ] Nonelective Safe Harbor Contributions (select one) 1. [ ] The Employer will make a Safe Harbor Nonelective Contribution to the account of each "Eligible Participant" in an amount equal to _________% (may not be less than 3%) of the Employee's Compensation for the Plan Year. 2. [ ] The Employer will make a Safe Harbor Nonelective Contribution to another defined contribution plan maintained by the Employer (specify the name of the other plan):__________. FOR PURPOSES OF THE ADP Test Safe Harbor contribution, the term "Eligible Participant" means any Participant who is eligible to make Elective Deferrals with the following exclusions: f. [ ] Highly Compensated Employees. g. [X] Employees who have not satisfied the greatest minimum age and service conditions permitted under Code Section 410(a). h. [ ] Other: _________________________________________________________ (must be a category that could be excluded under the permissive or mandatory disaggregation rules of Regulations 1.401(k)-1(b) (3) and 1.401(m)-1(b)(31)). SPECIAL EFFECTIVE DATE OF ADP AND ACP TEST SAFE HARBOR PROVISIONS i. [X] N/A. The safe harbor provisions are effective as of the later of the Effective Date of this Plan or, if this is an amendment or restatement, the effective date of the amendment or restatement. j. [ ] The ADP and ACP Test Safe Harbor provisions are effective for the Plan Year beginning:________ (enter the first day of the Plan Year for which the provisions are (or, for GUST updates, were) effective and, if necessary, enter any other special effective dates that apply with respect to the provisions). (C) Copyright 2002 MFS Retirement Services, Inc. April, 2002 17 36. FORMULA FOR DETERMINING EMPLOYER MATCHING CONTRIBUTIONS (Plan Section 12.1(a)(2)) NOTE: Regardless of any election below, if the ACP test safe harbor is being used then the Plan automatically provides that only Elective Deferrals up to 6% of Compensation are taken into account in applying the match set forth below and that the maximum discretionary matching contribution that may be made on behalf of any Participant is 4% of Compensation. a. [X] N/A. There will not be any matching contributions (Skip to Question 37). b. [ ] The Employer will make matching contributions equal to _________ % of the Participant's Elective Deferrals, plus: 1. [ ] N/A. 2. [ ] an additional discretionary percentage, to be determined by the Employer. c. [ ] The Employer may make matching contributions equal to a discretionary percentage of the Participant's Elective Deferrals, to be determined by the Employer. AND, in determining the matching contributions in b. and c. above, only Elective Deferrals up to the percentage or dollar amount specified below will be matched: (select 1. and/or 2. OR 3.) 1. [ ] __________________% of a Participant's Compensation. 2. [ ] $ ________________. 3. [ ] a discretionary percentage of a Participant's Compensation or a discretionary dollar amount, the percentage or dollar amount to be determined by the Employer on a uniform basis to all Participants. d. [ ] The Employer may make matching contributions equal to a discretionary percentage, to be determined by the Employer, of each tier, to be determined by the Employer, of the Participant's Elective Deferrals. e. [ ] The Employer will make matching contributions equal to the sum of _______% of the portion of the Participant's Elective Deferrals which do not exceed ________% of the Participant's Compensation or $_______ plus ________% of the portion of the Participant's Elective Deferrals which exceed ________% of the Participant's Compensation or $_______, but does not exceed _______% of the Participant's Compensation or $_______. f. [ ] The Employer will make matching contributions equal to the percentage of Elective Deferrals determined under the following schedule based on a Participant's Years of Service for Vesting purposes (or Periods of Service if the Elapsed Time Method is selected):
Participant's Total Service Matching Percentage 1. ____________________________ __________________________ 2. ____________________________ __________________________ 3. ____________________________ __________________________ 4. ____________________________ __________________________ 5. ____________________________ __________________________
g. [ ] Other Formula: _________________________________________________ NOTE: If d., e., f. or g. above is elected, the Plan may violate the Code Section 401(a)(4) nondiscrimination requirements if the rate of matching contributions increases as a Participant's Elective Deferrals or Years of Service (or Periods of Service) increase. If g. is elected, matching contributions can only be made with respect to a Participant's Elective Deferrals. (C) Copyright 2002 MFS Retirement Services, Inc. April, 2002 18 PERIOD OF DETERMINING MATCHING CONTRIBUTIONS Matching contributions will be made on the following basis (and any Compensation or dollar limitation used in determining the match will be based on the applicable period): h. [ ] the entire Plan Year. i. [ ] each payroll period. j. [ ] all payroll periods ending within each month. k. [ ] all payroll periods ending with or within the Plan Year quarter. l. [ ] Other: _________________________________________________________ THE MATCHING CONTRIBUTION MADE ON BEHALF OF ANY PARTICIPANT for any plan year will not exceed: m. [ ] N/A. n. [ ] $ __________________. MATCHING CONTRIBUTIONS WILL BE MADE ON BEHALF OF: o. [ ] all Participants. p. [ ] only Non-Highly Compensated Employees. 37. FORMULA FOR DETERMINING QUALIFIED MATCHING CONTRIBUTIONS (Plan Section 12.1(a)(2)) NOTE: Regardless of any election below, if the ACP test safe harbor is being used then the Plan automatically provides that only Elective Deferrals up to 6% of Compensation are taken into account in applying the match set forth below and that the maximum discretionary matching contribution that may be made on behalf of any Participant is 4% of Compensation. a. [X] N/A. There will not be any qualified matching contributions except for ADP/ACP Test Safe Harbor contributions or as provided in Section 12.5(c) and 12.7(g). (Skip to Question 38). b. [ ] The Employer will make qualified matching contributions equal to ___________________% of the Participant's Elective Deferrals, plus: 1. [ ] N/A. 2. [ ] an additional discretionary percentage, to be determined by the Employer. c. [ ] The Employer may make qualified matching contributions equal to a discretionary percentage of the Participant's Elective Deferrals, to be determined by the Employer. AND, in determining the qualified matching contribution in b. and c. above, only Elective Deferrals up to the percentage or dollar amount specified below will be matched: (select 1. and/or 2. OR 3.) 1. [ ] _______________________% of a Participant's Compensation. 2. [ ] $ _____________________. 3. [ ] a discretionary percentage of a Participant's Compensation or a discretionary dollar amount, the percentage or dollar amount to be determined by the Employer on a uniform basis to all Participants. d. [ ] The Employer may make qualified matching contributions equal to a discretionary percentage, to be determined by the Employer, of each tier, to be determined by the Employer, of the Participant's Elective Deferrals. e. [ ] The Employer will make qualified matching contributions equal to the sum __________of % of the portion of the Participant's Elective Deferrals which do not exceed _______________% of the Participant's Compensation or $ ____________plus ___________% of the portion of the Participant's Elective Deferrals which exceed ________________________% of the Participant's Compensation or $ ________________________, but does not exceed ________________% of the Participant's Compensation or $ ________________. (C) Copyright 2002 MFS Retirement Services, Inc. April, 2002 19 PERIOD OF DETERMINING QUALIFIED MATCHING CONTRIBUTIONS Qualified Matching contributions will be made on the following basis (and any Compensation or dollar limitation used in determining the match will be based on the applicable period): f. [ ]the entire Plan Year. g. [ ]each payroll period. h. [ ]all payroll periods ending within each month. i. [ ]all payroll periods ending with or within the Plan Year quarter. j. [ ]Other: _________________________________________________________. THE QUALIFIED MATCHING CONTRIBUTION MADE ON BEHALF OF ANY PARTICIPANT for any plan year will not exceed: k. [ ] N/A. l. [ ] $ _____________. QUALIFIED MATCHING CONTRIBUTIONS WILL BE MADE ON BEHALF OF: m. [ ] all Participants. n. [ ] only Non-Highly Compensated Employees. 38. MAY EMPLOYER MATCHING OR QUALIFIED MATCHING CONTRIBUTIONS BE MADE IN EMPLOYER STOCK? a. [ ] Yes. b. [ ] No. 39. ONLY PARTICIPANTS WHO SATISFY THE FOLLOWING CONDITIONS WILL BE ELIGIBLE TO SHARE IN THE ALLOCATION OF MATCHING CONTRIBUTIONS OR QUALIFIED MATCHING CONTRIBUTIONS (other than Qualified Matching Contributions under Plan Sections 12.5(c) and 12.7(g)): a. Requirements for Participants who are actively employed at the end of the Plan Year. 1. [ ] No additional conditions. 2. [ ] A Participant must complete more than ____________Hours of Service (not more than 1000) or__________________months of service (not more than twelve (12)) if the Elapsed Time Method is elected). 3. [ ] A Participant must complete a Year of Service (or Period of Service if the Elapsed Time Method is elected). (Could cause Plan to violate coverage requirements under Code Section 410.) b. Requirements for Participants who are not actively employed at the end of the Plan Year (except as otherwise provided in c(1) through c(3) below). 1. [ ] No additional conditions. 2. [ ] A Participant must complete more than __________Hours of Service (not more than 1000) or, if the Elapsed Time Method is elected, ___________ months of service (not more than twelve (12)). 3. [ ] A Participant must complete a Year of Service (or Period of Service if the Elapsed Time Method is elected). 4. [ ] Participants will not share in such allocations, regardless of service. NOTE: If 2., 3. or 4. is elected, the Plan may violate the coverage rules of Code Section 410(b). c. Participants who are not actively employed at the end of the Plan Year due to the following shall be eligible to share in the allocation of matching contributions regardless of the above conditions (select all that apply): 1. [ ] Death. 2. [ ] Total and Permanent Disability. 3. [ ] Early or Normal Retirement. (C) Copyright 2002 MFS Retirement Services, Inc. April, 2002 20 40. EMPLOYER PROFIT SHARING CONTRIBUTIONS (Plan Section 12.1(a)(3)). a. Will a fixed Employer Profit Sharing Contribution be provided under the Plan? 1. [X] No. 2. [ ] Yes, the Employer shall make a profit sharing contribution each Plan Year in an amount equal to ____% of each eligible Participant's Compensation. 3. [ ] Yes, the Employer shall make a profit sharing contribution each Plan Year in an amount equal to $______ for each eligible Participant. 4. [ ] Prevailing Wage Contribution. The Employer will make a Prevailing Wage Contribution on behalf of each Participant who performs services subject to the Service Contract Act, Davis-Bacon Act or similar Federal, State, or Municipal Prevailing Wage statutes. The Prevailing Wage Contribution shall be an amount equal to the balance of the fringe benefit payment for health and welfare for each Participant (after deducting the cost of cash differential payments for the Participant) based on the hourly contribution rate for the Participant's employment classification, as designated on Schedule A as attached to this Adoption Agreement. Schedule A is incorporated herein by reference. Notwithstanding anything in the Plan to the contrary, the Prevailing Wage Contribution shall be fully Vested. Furthermore, the Prevailing Wage Contribution shall not be subject to any age or service requirements set forth in Question 16. nor to any service or employment conditions set forth in Question 43. If selected, is the Prevailing Wage Contribution considered a Qualified Non-Elective Contribution? 1. [ ] Yes. 2. [ ] No. 5. [ ] Yes, the following Integrated Allocation with Fixed Contribution: 1. [ ] Subject to the overall permitted disparity limits, the Employer will contribute an amount equal to ______% (base percentage) of each Participant's TOTAL Compensation 2. [ ] plus ______% (excess contribution percentage (see Note below)) of such Compensation in excess of: a. [ ] The Taxable Wage Base b. [ ] ____% (not to exceed 100%) of the Taxable Wage Base (See Note below) c. [ ] $___(not greater than the Taxable Wage Base) (See Note below). NOTE: The excess contribution percentage specified in 2. above may not exceed the lesser of the FOLLOWING limits and shall be adjusted each year as appropriate. However, in the case of any Participant who has exceeded the cumulative permitted disparity limit, the Employer will contribute an amount equal to the base plus excess contribution percentages, multiplied by the Participant's total Compensation. 1. The base percentage specified in 1. above. 2. 5.7%. 3. 4.3% if b. or c. above is more than 20% and less than or equal to 80% of the Taxable Wage Base. 4. 5.4% if b. or d. above is more than 80% of the Taxable Wage Base. b. Will a discretionary Employer Profit Sharing Contribution be provided under the Plan? 1. [ ] No. 2. [ ] Yes, the Employer may make a discretionary profit sharing contribution out of its current or accumulated Net Profit. 3. [X] Yes, the Employer may make a discretionary profit sharing contribution which is not limited to its current or accumulated Net Profit. (C) Copyright 2002 MFS Retirement Services, Inc. April, 2002 21 c. The Employer's discretionary profit sharing contribution for a Plan Year will be allocated as follows: 1. [X] NON-INTEGRATED ALLOCATION a. [X] In the same ratio as each Participant's Compensation bears to the total of such Compensation of all Participants. b. [ ] In the same dollar amount to all Participants (per capita). c. [ ] In the same dollar amount per Hour of Service completed by each Participant. d. [ ] In the same proportion that each Participant's points bears to the total of such points of all Participants. A Participant's points with respect to any Plan Year shall be computed as follows (select all that apply): 1. [ ] ______point(s) shall be allocated for each Year of Service (or Period of Service if the Elapsed Time Method is elected). However, the maximum Years of Service (or Periods of Service taken into account shall not exceed _____ (leave blank if no limit on service applies)). 2. [ ] _____point(s) shall be allocated for each full $_______ (may not exceed $200) of Compensation. 3. [ ] _____point(s) shall be allocated for each year of attained age as of the end of the Plan Year. 2. [ ] INTEGRATED ALLOCATION In accordance with Plan Section 4.3(b)(2) based on a Participant's Compensation in excess of: a. [ ] The Taxable Wage Base. b. [ ] _____% (not to exceed 100%) of the Taxable Wage Base. (See Note below) c. [ ] 80% of the Taxable Wage Base plus $1.00. d. [ ] $____ (not greater than the Taxable Wage Base). (See Note below) NOTE: The integration percentage of 5.7% shall be reduced to: 1. 4.3% if b. or d. above is more than 20% and less than or equal to 80% of the Taxable Wage Base. 2. 5.4% if b. or d. above is more than 80% of the Taxable Wage Base. 41. QUALIFIED NON-ELECTIVE CONTRIBUTIONS (Plan Section 12.1(a)(4)) a. Will a Qualified Non-Elective Contribution be provided under the Plan? 1. [X] N/A. There will be no Qualified Non-Elective Contributions except for ADP/ACP Test Safe Harbor contributions or as provided in Section 12.5(c) and 12.7(g). 2. [ ] The Employer will make a Qualified Non-Elective Contribution equal to _________ % of the total Compensation of those Participants eligible to share in the allocations. 3. [ ] The Employer may make a Qualified Non-Elective Contribution in an amount to be determined by the Employer, to be allocated in proportion to the Compensation of those eligible to share in the allocations. 4. [ ] The Employer may make a Qualified Non-Elective Contribution in the same dollar amount, to be determined by the Employer, to all Participants eligible to share in the allocations (per capita). b. And, Qualified Non-Elective Contributions will be made on behalf of: 1. [ ] all Participants. 2. [ ] only Non-Highly Compensated Employees. 42. MAY EMPLOYER PROFIT SHARING OR QUALIFIED NON-ELECTIVE CONTRIBUTIONS BE MADE IN EMPLOYER STOCK? a. [ ] Yes b. [X] No (C) Copyright 2002 MFS Retirement Services, Inc. April, 2002 22 43. ONLY PARTICIPANTS WHO SATISFY THE FOLLOWING CONDITIONS WILL BE ELIGIBLE TO SHARE IN THE ALLOCATION OF EMPLOYER PROFIT SHARING CONTRIBUTIONS, QUALIFIED NON-ELECTIVE CONTRIBUTIONS (other than Qualified Non-Elective Contributions under Plan Sections 12.5(c) and 12.7(g)) AND FORFEITURES. a. Requirements for Participants who are actively employed at the end of the Plan Year. 1. [X] No additional conditions 2. [ ] A Participant must complete more than ___ Hours of Service (not more than 1000) or ____ months of service (not more than twelve (12)) if the Elapsed Time Method is elected. 3. [ ] A Participant must complete a Year of Service (or Period of Service if the Elapsed Time Method is elected). (Could cause Plan to violate coverage requirements under Code Section 410.) b. Requirements for Participants who are not actively employed at the end of the Plan Year (except as otherwise provided in c(1) through c(3) below). 1. [ ] No additional conditions 2. [ ] A Participant must complete more than ____ Hours of Service (not more than 1000) or _____ months of service (not more than twelve (12)) if the Elapsed Time Method is elected. 3. [ ] A Participant must complete a Year of Service (or Period of Service if the Elapsed Time Method is elected). 4. [X] Participants will not share in such allocations, regardless of service. NOTE: If 2., 3. or 4. is elected, the Plan may violate the coverage rules of Code Section 410(b). c. Participants who are not actively employed at the end of the Plan Year due to the following will be eligible to share in the allocations regardless of the above conditions (select all that apply): 1. [X] Death. 2. [X] Total and Permanent Disability. 3. [X] Early or Normal Retirement. 44. FORFEITURES (Plan Sections 1.27 and 4.3(e)) a. Except as provided in Plan Section 1.27, a Forfeiture will occur as of the earlier of : 1. the last day of the Plan Year in which the Former Participant incurs five (5) consecutive 1-Year Breaks in Service, or 2. the distribution of the entire Vested portion of the Participant's Account. b. Except as otherwise provided in c. below with respect to Forfeitures attributable to matching contributions, Forfeitures will be... 1. [ ] added to any Employer profit sharing contribution. 2. [X] used to reduce any Employer contribution. 3. [ ] added to any Employer matching contribution and allocated as an additional matching contribution. 4. [ ] allocated to all Participants eligible to share in the profit sharing allocations in the same proportion that each Participant's Compensation for the Plan Year bears to the Compensation of all Participants for such year. 5. [ ] allocated to all Non-Highly Compensated Employees eligible to share in the profit sharing allocations (regardless of whether a Participant elected any salary reductions) in proportion to each such Participant's Compensation for the year. 6. [ ] other:______________________________________________________ c. Forfeitures of matching contributions will be... 1. [ ] N/A. Same as above or no matching contributions. 2. [X] used to reduce the Employer's matching contribution. 3. [ ] added to any Employer matching contribution and allocated as an additional matching contribution. 4. [ ] added to any Employer profit sharing contribution. 5. [ ] allocated to all Participants eligible to share in the matching allocations (regardless of whether a Participant elected any salary reductions) in proportion to each such Participant's Compensation for the year. 6. [ ] allocated to all Non-Highly Compensated Employees eligible to share in the matching allocations (regardless of whether a Participant elected any salary reductions) in proportion to each such Participant's Compensation for the year. 7. [ ] other:______________________________________________________ NOTE: Plan Section 4.3(e) automatically provides that Forfeitures may be used to pay administrative expenses. (C) Copyright 2002 MFS Retirement Services, Inc. April, 2002 23 45. ALLOCATIONS OF EARNINGS (Plan Section 4.3(c)) Allocations of earnings with respect to amounts which are not subject to Participant directed investments and which are contributed to the Plan after the previous Valuation Date will be determined... a. [X] N/A, all assets in the Plan are subject to Participant directed investments. b. [ ] by using the actual investment experience of individual accounts. c. [ ] other: ________________________________________________ 46. LIMITATIONS ON ALLOCATIONS (Plan Section 4.4) a. If any Participant is covered under another qualified defined contribution plan maintained by the Employer, other than a Master or Prototype Plan, or if the Employer maintains a welfare benefit fund, as defined in Code Section 419(e), or an individual medical account, as defined in Code Section 415(l)(2), under which amounts are treated as Annual Additions with respect to any Participant in this Plan: 1. [X] N/A. The Employer does not maintain another qualified defined contribution plan. 2. [ ] The provisions of Section 4.4(b) of the Plan will apply as if the other plan were a master or prototype plan. 3. [ ] Specify the method under which the plans will limit total Annual Additions to the Maximum Permissible Amount, and will properly reduce any Excess Amounts, in a manner that precludes Employer discretion: _____________________________________________________________ b. If any Participant is a Participant in a qualified defined benefit plan maintained by the Employer: 1. [X] N/A. The Employer does not maintain, and has never maintained, a qualified defined benefit plan OR the provisions of Code Section 415(e) no longer apply to the Plan. 2. [ ] N/A. The provisions of Code Section 415(e) no longer apply to this Plan effective with respect to Limitation Years beginning after December 31, 1999, or if later _____ (if a later date is entered, this Plan will not be considered a safe harbor plan under Code Section 401(a)(4) and the Regulations thereunder). 3. [ ] In any Limitation Year, the Annual Additions credited to the Participant under this Plan may not cause the sum of the Defined Benefit Plan Fraction and the Defined Contribution Fraction to exceed 1.0. If the Employer's contribution that would otherwise be made on the Participant's behalf during the Limitation Year would cause the 1.0 limitation to be exceeded, the rate of contribution under this Plan will be reduced so that the sum of the fractions equals 1.0. If the 1.0 limitation is exceeded because of an Excess Amount, such Excess Amount will be reduced in accordance with Section 4.5 of the Plan. 4. [ ] Specify and attach to the Adoption Agreement the method under which the plans involved will satisfy the 1.0 limitation in a manner that precludes Employer discretion. DISTRIBUTIONS 47. FORM OF DISTRIBUTIONS (Plan Sections 6.5 and 6.6) a. Distributions under the Plan may be made in (select all that apply)... 1. [X] lump sums. 2. [X] substantially equal installments. 3. [ ] partial withdrawals provided the minimum withdrawal is $____. b. And, pursuant to Plan Section 6.12, 1. [ ] no annuities are allowed (Plan Section 6.12(b) will apply and the joint and survivor rules of Code Sections 401(a)(11) and 417 will not apply to the Plan). 2. [X] annuities are allowed as the normal form of distribution (Plan Section 6.12 will not apply and the joint and survivor rules of Code Sections 401(a)(11) and 417 will automatically apply). If elected, the Pre-Retirement Survivor Annuity (minimum spouse's death benefit) will be equal to: a. [X] 100% of Participant's interest in the Plan. b. [ ] 50% of Participant's interest in the Plan. c. [ ] ___% (may not be less than 50%) of a Participant's interest in the Plan. 3. [ ] annuities are allowed but are not the normal form of distribution (Plan Section 6.12(c) will apply and the joint and survivor rules of Code Sections 401(a)(11) and 417 will only apply if an annuity form of distribution is elected by a Participant). If elected, the optional forms of annuities allowed are: a. [ ] Life annuity b. [ ] Other:________________________________________________ (C) Copyright 2002 MFS Retirement Services, Inc. April, 2002 24 AND if 2. or 3. is elected, the normal form of the Qualified Joint and Survivor Annuity will be a joint and 50% survivor annuity unless otherwise elected below: 1. [X] N/A. 2. [ ] Joint and 100% survivor annuity. 3. [ ] Joint and 75% survivor annuity. 4. [ ] Joint and 66 2/3% survivor annuity. NOTE: If this is an amendment to a plan which permitted annuities as a form of distribution with respect to any portion of the Plan's assets (or if this Plan has accepted a plan-to-plan transfer (other than a direct rollover) of assets from a plan which permitted annuities as a form of distribution) and the joint and survivor annuity rules only apply to a Participant's interest in the Plan attributable to such amounts, then select b(1). AND b(2). or b(3). (whichever is applicable to such amounts) and attach an addendum to this Adoption Agreement specifying the assets subject to the joint and survivor annuity provisions. c. And, distributions may be made in... 1. [ ] cash only (except for insurance or annuity contracts). 2. [X] cash or property. 48. CONDITIONS FOR DISTRIBUTIONS UPON TERMINATION OF EMPLOYMENT Distributions upon termination of employment pursuant to Plan Section 6.4(a) of the Plan will not be made unless the following conditions have been satisfied: a. [ ] No distributions may be made until a Participant has reached Early or Normal Retirement Date. b. [X] Distributions may be made as soon as administratively feasible at the Participant's election. c. [ ] The Participant has incurred____________ 1-Year Break(s) in Service (or Period(s) of Severance if the Elapsed Time Method is elected). d. [ ] Distributions may be made at the Participant's election as soon as administratively feasible after the Plan Year coincident with or next following termination of employment. e. [ ] Distributions may be made at the Participant's election as soon as administratively feasible after the Plan Year quarter coincident with or next following termination of employment. f. [ ] Distributions may be made at the Participant's election as soon as administratively feasible after the Valuation Date coincident with or next following termination of employment. g. [ ] Distributions may be made at the Participant's election as soon as administratively feasible after _________ months following termination of employment. h. [ ] Other _________ (must be objective conditions which are ascertainable and are not subject to Employer discretion except as otherwise permitted in Regulation 1.411(d)-4). 49. INVOLUNTARY DISTRIBUTIONS Can involuntary distributions of amounts less than $5,000 be made in accordance with the provisions of Sections 6.4, 6.5 and 6.6? a. [ ] No. b. [X] Yes. (C) Copyright 2002 MFS Retirement Services, Inc. April, 2002 25 50. MINIMUM DISTRIBUTION TRANSITIONAL RULES (Plan Section 6.5(e)) NOTE: This Section does not apply to (1) a new Plan or (2) an amendment or restatement of an existing Plan that never contained the provisions of Code Section 401(a)(9) as in effect prior to the amendments made by the Small Business Job Protection Act of 1996 (SBJPA). The "required beginning date" for a Participant who is not a "five percent (5%) owner" is: a. [ ] N/A. (This is a new Plan or this Plan has never included the pre-SBJPA provisions.) b. [ ] April 1st of the calendar year following the year in which the Participant attains age 70 1/2. (The pre-SBJPA rules will continue to apply.) c. [X] April 1st of the calendar year following the later of the year in which the Participant attains age 70 1/2 or retires (the post-SBJPA rules), with the following exceptions (select one or both and if no election is made, both will apply effective as of January 1, 1996): 1. [X] A Participant who was already receiving required minimum distributions under the pre-SBJPA rules as of January 1, 1996 (not earlier than January 1, 1996) may elect to stop receiving distributions and have them recommence in accordance with the post-SBJPA rules. Upon the recommencement of distributions, if the Plan permits annuities as a form of distribution then the following will apply: a. [X] N/A. Annuity distributions are not permitted. b. [ ] Upon the recommencement of distributions, the original Annuity Starting Date will be retained. c. [ ] Upon the recommencement of distributions, a new Annuity Starting Date is created. 2. [X] A Participant who had not begun receiving required minimum distributions as of January 1, 1996 (not earlier than January 1, 1996) may elect to defer commencement of distributions until retirement. The option to defer the commencement of distributions (i.e., to elect to receive in-service distributions upon attainment of age 70 1/2) will apply to all such Participants unless the option below is elected: a. [ ] N/A. b. [X] This in-service distribution option will be eliminated with respect to Participants who attain age 70 1/2 in or after the calendar year that begins after the later of (1) December 31, 1998, or (2) the adoption date of the amendment and restatement to bring the Plan into compliance with SBJPA. (This option may only be elected if the amendment to eliminate the in-service distribution is adopted no later than the last day of the remedial amendment period that applies to the Plan for changes under SBJPA.) 51. LIFE EXPECTANCIES (Plan Section 6.5(f)) for minimum distributions required pursuant to Code Section 401(a)(9) shall... a. [ ] be recalculated at the Participant's election. b. [ ] be recalculated. c. [ ] not be recalculated. d. [X] N/A. 52. DISTRIBUTIONS UPON DEATH (Plan Section 6.6(h)) Distributions upon the death of a Participant prior to receiving any benefits shall... a. [X] be made pursuant to the election of the Participant or beneficiary. b. [ ] begin within 1 year of death for a designated beneficiary and be payable over the life (or over a period not exceeding the life expectancy) of such beneficiary, except that if the beneficiary is the Participant's spouse, begin prior to December 31st of the year in which the Participant would have attained age 70 1/2. c. [ ] be made within 5 years of death for all beneficiaries. d. [ ] Other:__________________________________________________________ (must comply with 401(a)(9)). (C) Copyright 2002 MFS Retirement Services, Inc. April, 2002 26 53. HARDSHIP DISTRIBUTIONS (Plan Sections 6.11 and/or 12.9) a. Will hardship distributions be permitted? 1. [ ] No hardship distributions are permitted. 2. [X] Hardship distributions are permitted from the following accounts (select all that apply): a. [ ] all accounts (except as otherwise provided below). b. [X] Participant's Elective Deferral Account. c. [ ] Participant's Matching Contribution Account. d. [ ] Participant's Profit Sharing Account. e. [X] Participant's Rollover Account. f. [ ] Participant's Transfer Account. g. [ ] Participant's Voluntary Contribution Account. h. [ ] Other:________________________________________________ NOTE: Distributions from a Participant's Elective Deferral Account are limited to the portion of such account attributable to such Participant's Elective Deferrals (and earnings attributable thereto up to December 31, 1988). Hardship distributions are not permitted from a Participant's Qualified Non-Elective Account, Qualified Matching Contribution Account or Safe Harbor Contribution Account. b. Shall the safe harbor hardship rules of Section 12.9 apply to distributions made from all accounts other than a Participant's Elective Deferral Account? 1. [X] No or N/A. The provisions of Section 6.11 apply to distributions from all accounts other than a Participant's Elective Deferral Account. 2. [ ] Yes. The provisions of Section 12.9 apply to all distributions. c. Are distributions restricted to those accounts selected above in which a Participant is fully Vested? 1. [X] Yes, distributions may only be made from accounts which are fully Vested. 2. [ ] No. (If elected, the fraction at Plan Section 6.5(i) shall apply in determining vesting of the portion of the account balance not withdrawn). d. The minimum hardship distribution shall be... 1. [X] N/A. There is no minimum. 2. [ ] $________(may not exceed $1,000). 54. IN-SERVICE DISTRIBUTIONS (Plan Section 6.10) a. Will In-Service Distributions be permitted? 1. [ ] In-service distributions may not be made (except as otherwise elected for Hardship Distributions). 2. [X] In-service distributions may be made to a Participant who has not separated from service provided any one of the following conditions have been satisfied (select all that apply): a. [X] the Participant has attained age 59 1/2 . b. [ ] the Participant has reached Normal Retirement Age. c. [ ] the Participant has reached Early Retirement Age. d. [ ] the Participant has been a Participant in the Plan for at least_________ years (may not be less than five (5)). e. [ ] the amounts being distributed have accumulated in the Plan for at least two (2) years. b. In-Service Distributions are permitted from the following accounts (select all that apply): 1. [X] all accounts (except as otherwise provided below). 2. [ ] Participant's Elective Deferral Account. 3. [ ] Participant's Matching Contribution Account. 4. [ ] Participant's Profit Sharing Account. 5. [ ] Participant's Safe Harbor Contribution Account. 6. [ ] Participant's Qualified Matching Contribution Account. 7. [ ] Participant's Qualified Non-Elective Contribution Account. 8. [ ] Participant's Rollover Account. 9. [ ] Participant's Transfer Account. 10. [ ] Participant's Voluntary Contribution Account. 11. [ ] Other: __________________________________________________ NOTE: Distributions from a Participant's Elective Deferral Account, Qualified Matching Contribution Account, Qualified Non-Elective Account and Safe Harbor Contribution Account are subject to restrictions and generally may not be distributed prior to age 59 1/2. (C) Copyright 2002 MFS Retirement Services, Inc. April, 2002 27 c. Are distributions restricted to those accounts selected above in which a Participant is fully Vested? 1. [ ] Yes, distributions may only be made from accounts which are fully Vested. 2. [X] No. (If elected, the fraction at Section 6.5(i) will apply in determining vesting of the portion of the account balance not withdrawn.) d. The minimum in-service distribution shall be... 1. [X] N/A. There is no minimum. 2. [ ] $______(may not exceed $1,000). NONDISCRIMINATION TESTING 55. HIGHLY COMPENSATED EMPLOYEE (Plan Section 1.31) a. Shall the Top Paid Group election apply when determining Highly Compensated Employees? (The election made below for the latest year shall continue to apply to subsequent Plan Years unless the Plan is amended to a different election.) 1. [ ] Yes, for Plan Years beginning in: a. [ ] 1997 b. [ ] 1998 c. [ ] 1999 d. [ ] 2000 e. [ ] 2001 f. [ ] _______ 2. [X] No, for Plan Years beginning in: a. [X] 1997 b. [X] 1998 c. [X] 1999 d. [X] 2000 e. [X] 2001 f. [ ] _______ b. Will the calendar year data election be used? (For Plan Years beginning after 1997, the calendar year look-back year data election may not be made if the Plan Year is a calendar year. The election made below for the latest year shall continue to apply to subsequent Plan Years unless the Plan is amended to a different election.) 1. [ ] Yes, for Plan Years beginning in: a. [ ] 1997 b. [ ] 1998 c. [ ] 1999 d. [ ] 2000 e. [ ] 2001 f. [ ] ______ 2. [X] No, for Plan Years beginning in: a. [X] 1997 b. [ ] 1998 c. [ ] 1999 d. [ ] 2000 e. [ ] 2001 f. [ ] ______ 56. ADP AND ACP TESTS (Plan Sections 12.4 and 12.6). The actual deferral ratio and actual contribution ratio for Non-Highly Compensated Employees shall be based on the following. The election made below for the latest year shall continue to apply to subsequent Plan Years unless the Plan is amended to a different election. a. [ ] N/A. This Plan is using the ADP and ACP Test Safe Harbor rules for all years after the later of the Effective Date of the Plan or, in the case of an amendment and restatement, the effective date of the amendment and restatement. b. [ ] PRIOR YEAR TESTING: The prior year ratio shall be used for the Plan Year beginning in the year specified below. Furthermore, in the case of the first year the 401(k) or 401(m) feature is added to this Plan (unless this Plan is a successor plan), the amount taken into account as the ADP and ACP of Non-Highly Compensated Employees for the preceding Plan Year shall be 3%. 1. [ ] 1997 2. [ ] 1998 3. [ ] 1999 4. [ ] 2000 5. [ ] 2001 6. [ ] ________ c. [X] CURRENT YEAR TESTING: The current year ratio shall be used for the Plan Year beginning in the year specified below: 1. [X] 1997 2. [X] 1998 3. [X] 1999 4. [X] 2000 5. [ ] 2001 6. [ ] _______ 57. TRANSITIONAL RULE FOR PLAN YEARS BEGINNING PRIOR TO THE PLAN YEAR IN WHICH THE PLAN IS AMENDED TO REFLECT THE PROVISIONS OF SBJPA. Notwithstanding the above, if the method used to determine the ADP is different than the method used to determine the ACP, then the method selected in 56. above will apply for determining the ADP and the method selected below will be used to determine the ACP ratio for Non-Highly Compensated Employees for Plan Years beginning prior to the date the Plan is amended to reflect the provisions of SBJPA. (C) Copyright 2002 MFS Retirement Services, Inc. April, 2002 28 a. [X] N/A (Plan has already been amended for SBJPA or the ADP and ACP ratios are determined using the same methods). b. [ ] PRIOR YEAR TESTING: The prior year ratio shall be used for the Plan Years beginning in the years specified below. Furthermore, in the case of the first year the 401(m) feature is added to this Plan (unless this Plan is a successor plan), the amount taken into account as the ACP of Non-Highly Compensated Employees for the preceding Plan Year shall be 3%. 1. [ ] 1997 2. [ ] 1998 3. [ ] 1999 4. [ ] 2000 5. [ ] 2001 6. [ ] _______ c. [ ] CURRENT YEAR TESTING: The current year ratio will be used for the Plan Years beginning in the years specified below: 1. [ ] 1997 2. [ ] 1998 3. [ ] 1999 4. [ ] 2000 5. [ ] 2001 6. [ ] ______ TOP HEAVY REQUIREMENTS 58. TOP HEAVY DUPLICATIONS (Plan Section 4.3(i)): When a Non-Key Employee is a Participant in this Plan and a Defined Benefit Plan maintained by the Employer, indicate which method shall be utilized to avoid duplication of top heavy minimum benefits (If b., c., d. or e. is elected, f. must be completed) a. [X] N/A. The Employer does not maintain a Defined Benefit Plan. (Go to next Question) b. [ ] The full top heavy minimum will be provided in each plan (if selected, Plan Section 4.3(i) shall not apply). c. [ ] 5% defined contribution minimum. d. [ ] 2% defined benefit minimum. e. [ ] Specify the method under which the Plans will provide top heavy minimum benefits for Non-Key Employees that will preclude Employer discretion and avoid inadvertent omissions: ________________________________________________________________ NOTE: If c., d., or e. is selected and the Defined Benefit Plan and this Plan do not benefit the same Participants, the uniformity requirement of the Section 401(a)(4) Regulations may be violated. AND, the "Present Value of Accrued Benefit" (Plan Section 9.2) for Top Heavy purposes shall be based on... f. [ ] Interest Rate:__________________________________________________ Mortality Table:________________________________________________ 59. TOP HEAVY DUPLICATIONS (Plan Section 4.3(f)): Employer maintaining two (2) or more Defined Contribution Plans. a. [X] N/A. The Employer does not maintain another qualified defined contribution plan. b. [ ] A minimum, non-integrated contribution of 3% of each Non-Key Employee's 415 Compensation shall be provided in the Money Purchase Plan (or other plan subject to Code Section 412), where the Employer maintains two (2) or more non-paired Defined Contribution Plans. c. [ ] Specify and attach to the Adoption Agreement the method under which the Plans will provide top heavy minimum benefits for Non-Key Employees that will preclude Employer discretion and avoid inadvertent omissions, including any adjustments required under Code Section 415(e). MISCELLANEOUS 60. LOANS TO PARTICIPANTS (Plan Section 7.6) a. Will Loans be permitted? 1. [X] Loans shall be permitted. 2. [ ] Loans shall not be permitted. b. If loans are permitted (select all that apply)... 1. [ ] loans will only be made for hardship or financial necessity. 2. [X] the minimum loan will be $ 1000.00 (may not exceed $1,000). 3. [X] a Participant may only have one (1) (e.g., one (1)) loan(s) outstanding at any time. (C) Copyright 2002 MFS Retirement Services, Inc. April, 2002 29 c. Loans will only be permitted from the following accounts (select all that apply): 1. [X] all accounts. 2. [ ] Participant's Elective Deferral Account. 3. [ ] Participant's Matching Contribution Account. 4. [ ] Participant's Profit Sharing Account. 5. [ ] Participant's Safe Harbor Contribution Account. 6. [ ] Participant's Qualified Matching Contributions Account. 7. [ ] Participant's Qualified Non-Elective Contribution Account. 8. [ ] Participant's Rollover Account. 9. [ ] Participant's Transfer Account. 10. [ ] Participant's Voluntary Contribution Account. 11. [ ] Other:_____________________________________________________ NOTE: All loans will be treated as Participant directed investments under the Plan. Department of Labor Regulations require the adoption of a separate written loan program setting forth the requirements outlined in Plan Section 7.6. 61. DIRECTED INVESTMENT ACCOUNTS (Plan Section 4.10) a. Does the Plan intend to comply with Act Section 404(c)? 1. [X] Yes. 2. [ ] No. b. Will Participant directed investments be permitted? 1. [ ] No. Participant directed investments are not permitted. 2. [X] Participant directed investments are permitted for the following accounts (select all that apply): a. [X] all accounts. b. [ ] Participant's Elective Deferral Account. c. [ ] Participant's Matching Contribution Account. d. [ ] Participant's Profit Sharing Account. e. [ ] Participant's Safe Harbor Contribution Account. f. [ ] Participant's Qualified Matching Contributions Account. g. [ ] Participant's Qualified Non-Elective Contribution Account. h. [ ] Participant's Rollover Account. i. [ ] Participant's Transfer Account. j. [ ] Participant's Voluntary Contribution Account. k. [ ] Other:________________________________________________ c. If Participant directed investments are permitted, investment in Employer Stock will be limited to the following amounts: 1. [X] N/A, there will be no limitations. 2. [ ] ____% of a Participant's Elective Deferral Account. 3. [ ] ____% of a Participant's Matching Contribution Account. 4. [ ] ____% of a Participant's Profit Sharing Account. 5. [ ] ____% of a Participant's Safe Harbor Contribution Account. 6. [ ] ____% of a Participant's Qualified Matching Contributions Account. 7. [ ] ____% of a Participant's Qualified Non-Elective Contribution Account. 8. [ ] ____% of a Participant's Rollover Account. 9. [ ] ____% of a Participant's Transfer Account. 10. [ ] ____% of a Participant's Voluntary Contribution Account. 11. [ ] ____% of __________________________________________________ d. If Participant directed investments are permitted, will voting rights on directed investments be passed through to Participants? 1. [ ] No. Employer stock is not an alternative OR Plan is not intended to comply with Act Section 404(c). 2. [X] Yes, for Employer stock and securities held in brokerage accounts. 3. [ ] Yes, for all investments. 62. ROLLOVERS (Plan Section 4.6) a. Will Rollovers be accepted by this Plan? 1. [ ] Rollovers will not be accepted by this Plan. 2. [X] Rollovers will be accepted by this Plan. (C) Copyright 2002 MFS Retirement Services, Inc. April, 2002 30 b. If Rollovers are accepted by this Plan, rollovers may be accepted... 1. [X] from any Eligible Employee, even if not a Participant. 2. [ ] from Participants only. c. And, distributions from a Participant's Rollover Account may be made... 1. [ ] at any time. 2. [X] only when the Participant is otherwise entitled to a distribution under the Plan. 63. EMPLOYEES' VOLUNTARY CONTRIBUTIONS (Plan Section 4.8) a. [ ] After-tax voluntary Employee contributions will not be allowed. b. [X] Each Participant may elect to make after-tax voluntary Employee contributions: 1. [ ] up to _______ % of Compensation. 2. [X] from 1% to 10% of Compensation. 3. [ ] up to a percentage of Compensation equal to _____% minus the rate of Salary Deferrals made by the Participant. 4. [ ] up to the maximum percentage allowable not to exceed the limits of the Internal Revenue Code. c. [X] If b. is selected, Highly Compensated Employees may only make after-tax voluntary Employee contributions (should not be greater than the limits specified above): 1. [X] N/A. Same limits as specified above. 2. [ ] up to ______% of Compensation. 3. [ ] from ______% to _______% of Compensation. 4. [ ] up to a percentage of Compensation equal to _______% minus the rate of Salary Deferrals made by the Highly Compensated Employees. 64. LIFE INSURANCE (Plan Section 7.5) a. May life insurance be purchased? 1. [X] Life insurance may not be purchased. 2. [ ] Life insurance may be purchased at the option of the Administrator. 3. [ ] Life insurance may be purchased at the option of the Participant. b. If life insurance may be purchased, the purchase of initial or additional life insurance will be subject to the following limitations (select all that apply): 1. [ ] N/A, no limitations. 2. [ ] The following limitations: a. [ ] each initial Contract will have a minimum face amount of $__________. b. [ ] each additional Contract will have a minimum face amount of $__________. c. [ ] the Participant has completed ___________ Years of Service (or Periods of Service). d. [ ] the Participant has completed ___________ Years of Service (or Periods of Service) while a Participant in the Plan. e. [ ] the Participant is under age ________ on the Contract issue date. f. [ ] the maximum amount of all Contracts on behalf of a Participant may not exceed $ _____. g. [ ] the maximum face amount of any life insurance Contract will be $ ________. GUST TRANSITION RULES The following questions only apply if this is a GUST RESTATEMENT (i.e., Question 6.c. is selected). If this is not a GUST restatement, then this Plan will not be considered an individually designed plan merely because the following questions are deleted from the Adoption Agreement. 65. COMPENSATION The family aggregation rules of Code Section 401(a)(17) as in effect under Code Section 414(q)(6) prior to the enactment of SBJPA do not apply to this Plan effective as of: a. [X] The first day of the first Plan Year beginning after 1996. b. [ ] ________ (may not be prior to the first day of the first Plan Year beginning in 1997 and may not be later than the first day of the Plan Year following the Plan Year in which this GUST restatement is adopted). NOTE: If family aggregation continued to apply after 1996, the Plan is not a safe harbor plan for Code Section 401(a)(4) purposes. (C) Copyright 2002 MFS Retirement Services, Inc. April, 2002 31 AND, for Limitation Years beginning on and after January 1, 2001 or, if earlier, (may not be earlier than the first day of the first Limitation Year beginning on or after January 1, 1998), for purposes of 415 Compensation and for purposes of applying the limitations described in section 4.4 of the Plan, compensation paid or made available during such limitation years shall include elective amounts that are not includable in the gross income of the employee by reason of Code Section 132(f)(4). [ ] Check and complete the following if the Plan has excluded from 414(s) Compensation amounts that are not includable in gross income by reason of Code Section 132(f)(4): [ ] For Plan Years beginning on and after ___________ (may not be earlier than the first day of the first Plan Year for which the Plan was operated to exclude such amounts in accordance with Section 414(s) as amended by the Community Renewal Tax Relief Act of 2000, but in no case earlier than the first day of the first Plan Year beginning on or after January 1, 1998), 414(s) Compensation shall not include elective amounts that are not includible in the gross income of the Employee under Code Section 132(f)(4). 66. LIMITATION ON ALLOCATIONS AND TOP HEAVY RULES If any Participant is a Participant in this Plan and a qualified defined benefit plan maintained by the Employer, then the limitations of Code Section 415(e) as in effect under Code Section 414(q)(6) prior to the enactment of SBJPA do not apply to this Plan effective with respect to Limitation Years beginning in or after: a. [X] N/A. The Employer does not maintain, and has never maintained, a qualified defined benefit plan OR the provisions of Code Section 415(e) have already been removed from this Plan. b. [ ] ________(may not be prior to the first Limitation Year beginning in 2000 and may not be later than the first Limitation Year beginning after the Limitation Year in which this GUST restatement is adopted). NOTE: If the Code Section 415(e) limits continued to apply to Limitation Years beginning after 1999, the Plan is not a safe harbor plan for Code Section 401(a)(4) purposes. AND, if b. is selected with a date that is later than the effective date of this GUST restatement, then with respect to the Limitation Year in which this restatement is adopted, if any Participant is a Participant in this Plan and a qualified defined benefit plan maintained by the Employer, specify the method under which the plans involved will provide top heavy minimum benefits for Non-Key Employees and will satisfy the limitations of Code Section 415(e) in a manner that precludes Employer discretion: c. [ ] N/A. The effective date of the GUST restatement is the date the provisions of Code Section 415(e) no longer apply to this Plan. d. [ ] ____ NOTE: If the top heavy minimum benefit is only provided in one plan and the Defined Benefit Plan and this Plan do not benefit the same Participants, the uniformity requirement of the Section 401(a)(4) Regulations may be violated. 67. INVOLUNTARY DISTRIBUTIONS If the Plan provides for involuntary distributions (i.e., 49.b. is elected) then the increase in the involuntary amount threshold from $3,500 to $5,000 became effective with respect to distributions made on or after: a. [ ] N/A. The plan doesn't provide for involuntary distributions less than $5,000. b. [X] August 6, 1997, or if later January 1, 1998 (leave blank if not applicable). 68. 2001 MINIMUM DISTRIBUTION TRANSITION RULES (Plan Section 6.5(e)) With respect to required minimum distributions under the Plan made on or after January 1, 2002 or, as of ___________ (not earlier than January 1, 2001), the Plan will apply the minimum distribution requirements of section 401(a)(9) of the Internal Revenue Code in accordance with the regulations under section 401(a)(9) that were proposed on January 17, 2001 (the 2001 Proposed Regulations), notwithstanding any provision of the Plan to the contrary. If a date earlier than January 1, 2002 is selected above and the total amount of required minimum distributions made to a participant for 2001 prior to such date are equal to or greater than the amount of required minimum distributions determined under the 2001 Proposed Regulations, then no additional distributions are required for such participant for 2001 on or after such date. In addition, if a date earlier than January 1, 2002 is selected above and the total amount of required minimum distributions made to a participant for 2001 prior to such date are less than the amount determined under the 2001 Proposed Regulations, then the amount of required minimum distributions for 2001 on or after such date will be determined so that the total amount of required minimum distributions for 2001 is the amount determined under the 2001 Proposed Regulations. This amendment shall continue in effect until the last calendar year beginning before the effective date of the final regulations under section 401(a)(9) or such other date as may be published by the Internal Revenue Service. (C) Copyright 2002 MFS Retirement Services, Inc. April, 2002 32 The Employer may not rely on the opinion letter in certain other circumstances or with respect to certain qualification requirements, which are specified in the opinion letter issued with respect to the Plan and in Announcement 2001-77. In order to have reliance in such circumstances or with respect to such qualification requirements, application for a determination letter must be made to Employee Plans Determinations of the Internal Revenue Service. This Adoption Agreement may be used only in conjunction with the MFS Retirement Services, Inc. Prototype Paired Defined Contribution Plans for Corporations, Associations and Self-Employed Individuals, Basic Plan Document #01. This Adoption Agreement and the basic Plan document shall together be known as MFS Retirement Services, Inc. Non-Standardized 401(k) Profit Sharing Plan and Trust # 001. The adoption of this Plan, its qualification by the IRS, and the related tax consequences are the responsibility of the Employer and its independent tax and legal advisors. MFS Retirement Services, Inc. will notify the Employer of any amendments made to the Plan or of the discontinuance or abandonment of the Plan provided this Plan has been acknowledged by MFS Retirement Services, Inc. or its authorized representative. Furthermore, in order to be eligible to receive such notification, we agree to notify MFS Retirement Services, Inc. of any change in address. The Employer fully acknowledges and agrees that MFS HERITAGE TRUST COMPANY (MHTC) will act as Directed Trustee only when all Plan investments are maintained on a participant recordkeeping system used by MFS Retirement Services, Inc. pursuant to a contract for recordkeeping and administrative support service and all other requirements imposed by MHTC are satisfied. The Plan Administrator is responsible for directing MHTC in the performance of the rights, powers, duties, and obligations of the Trustee, including without limitation, those rights, powers, duties and obligations with respect to the investment and distribution of Plan assets. The Employer in adopting this prototype Plan hereby accepts full responsibility for the tax and legal aspects of the Plan and Trust and hereby confirms that it has received independent legal and tax advice from its own attorneys and advisors. It is hereby agreed and understood by the parties hereto that neither MFS nor any of its agents or employees has any responsibility with respect to the legal or tax aspects of the Plan and Trust. The Employer acknowledges that it has sole responsibility for maintaining all original documents relating to this Plan. (C) Copyright 2002 MFS Retirement Services, Inc. April, 2002 33 IN WITNESS WHEREOF, the Employer and Trustee hereby cause this Plan to be executed on this ________________ day of ________________________, _______________. Furthermore, this Plan may not be used unless acknowledged by MFS Retirement Services, Inc. or its authorized representative. EMPLOYER: Baldwin Americas Corporation - ----------------------------------------- (enter name) By: _____________________________________ The signature of the Trustee appears on a separate trust agreement attached to the Plan, or, _________________________________________ _________________________________________ _________________________________________ The following Acceptance of the MFS Heritage Trust Company will be completed if MHTC is named as Trustee: By: [ILLEGIBLE] ------------------------------------- Authorized Officer MFS Heritage Trust Company This Plan may not be used, and shall not be deemed to be a Prototype Plan, unless an authorized representative of MFS Retirement Services, Inc. has acknowledged the use of the Plan. Such acknowledgment is for administerial purposes only. It acknowledges that the Employer is using the Plan but does not represent that this Plan, including the choices selected on the Adoption Agreement, has been reviewed by a representative of the prototype sponsor or constitutes a qualified retirement plan. By: [ILLEGIBLE] ------------------------------------- Authorized Officer MFS Retirement Services, Inc. With regard to any questions regarding the provisions of the Plan, adoption of the Plan, or the effect of an opinion letter from the IRS, call or write (this information must be completed by the sponsor of this Plan or its designated representative): Name Christian Giorgi Address MFS Retirement Services, Inc. 500 Boylston Street, Boston, Massachusetts 02116 Telephone (617) 954-5000 (C) Copyright 2002 MFS Retirement Services, Inc. April, 2002 34 AMENDMENT #1 TO THE MFS RETIREMENT SERVICES, INC. PROTOTYPE PAIRED DEFINED CONTRIBUTION PLANS FOR CORPORATIONS, ASSOCIATIONS AND SELF-EMPLOYED INDIVIDUALS EGTRRA AMENDMENT ARTICLE I PREAMBLE 1.1 Adoption and effective date of amendment. This amendment of the plan is adopted to reflect certain provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 ("EGTRRA"). This amendment is intended as good faith compliance with the requirements of EGTRRA and is to be construed in accordance with EGTRRA and guidance issued thereunder. Except as otherwise provided, this amendment shall be effective as of the first day of the first plan year beginning after December 31, 2001. 1.2 Adoption by prototype sponsor. Except as otherwise provided herein, pursuant to Section 5.01 of Revenue Procedure 2000-20 (or pursuant to the corresponding provision in Revenue Procedure 89-9 or Revenue Procedure 89-13), the sponsor hereby adopts this amendment on behalf of all adopting employers. ARTICLE II ADOPTION AGREEMENT ELECTIONS THE QUESTIONS IN THIS ARTICLE II ONLY NEED TO BE COMPLETED IN ORDER TO OVERRIDE THE DEFAULT PROVISIONS SET FORTH BELOW. IF ALL OF THE DEFAULT PROVISIONS WILL APPLY, THEN THESE QUESTIONS SHOULD BE SKIPPED AND THE EMPLOYER DOES NOT NEED TO EXECUTE THIS AMENDMENT. UNLESS THE EMPLOYER ELECTS OTHERWISE IN THIS ARTICLE II, THE FOLLOWING DEFAULTS APPLY: 1) THE VESTING SCHEDULE FOR MATCHING CONTRIBUTIONS WILL BE A 6-YEAR GRADED SCHEDULE (IF THE PLAN CURRENTLY HAS A GRADED SCHEDULE THAT DOES NOT SATISFY EGTRRA) OR A 3 YEAR CLIFF SCHEDULE (IF THE PLAN CURRENTLY HAS A CLIFF SCHEDULE THAT DOES NOT SATISFY EGTRRA), AND SUCH SCHEDULE WILL APPLY TO ALL MATCHING CONTRIBUTIONS (EVEN THOSE MADE PRIOR TO 2002). 2) ROLLOVERS ARE AUTOMATICALLY EXCLUDED IN DETERMINING WHETHER THE $5,000 THRESHOLD HAS BEEN EXCEEDED FOR AUTOMATIC CASH-OUTS. THIS IS APPLIED TO ALL PARTICIPANTS REGARDLESS OF WHEN THE DISTRIBUTABLE EVENT OCCURRED. 3) THE SUSPENSION PERIOD AFTER A HARDSHIP DISTRIBUTION IS MADE WILL BE 6 MONTHS AND THIS WILL ONLY APPLY TO HARDSHIP DISTRIBUTIONS MADE AFTER 2001. 4) CATCH-UP CONTRIBUTIONS WILL BE ALLOWED. 5) THE EMPLOYER MAY LIMIT THE SOURCE OF ROLLOVER CONTRIBUTIONS RECEIVED BY THE PLAN ON AN OPERATIONAL AND NON-DISCRIMINATORY BASIS. 2.1 VESTING SCHEDULE FOR MATCHING CONTRIBUTIONS If there are matching contributions subject to a vesting schedule that does not satisfy EGTRRA, then unless otherwise elected below, for participants who complete an hour of service in a plan year beginning after December 31, 2001, the following vesting schedule will apply to all matching contributions subject to a vesting schedule: If the plan has a graded vesting schedule (i.e., the vesting schedule includes a vested percentage that is more than 0% and less than 100%) the following will apply:
Years of vesting service Nonforfeitable percentage 2 20% 3 40% 4 60% 5 80% 6 100%
If the plan does not have a graded vesting schedule, then matching contributions will be nonforfeitable upon the completion of 3 years of vesting service. The vesting schedule set forth herein shall only apply to participants who complete an hour of service in a plan year beginning after December 31, 2001, and shall apply to ALL matching contributions subject to a vesting schedule. (C) Copyright 2002 MFS Retirement Services, Inc. April, 2002 1 2.2 EXCLUSION OF ROLLOVERS IN APPLICATION OF INVOLUNTARY CASH-OUT PROVISIONS. Unless one of the options below is elected, effective for distributions made after December 31, 2001, rollover contributions will be excluded in determining the value of the participant's nonforfeitable account balance for purposes of the plan's involuntary cash-out rules. a. [ ] Rollover contributions will not be excluded. b. [ ] Rollover contributions will be excluded only with respect to distributions made after _______. (Enter a date no earlier than December 31, 2001). 2.3 SUSPENSION PERIOD OF HARDSHIP DISTRIBUTIONS. If the plan provides for hardship distributions upon satisfaction of the safe harbor (deemed) standards as set forth in Treas. Reg. Section 1.401(k)-1(d)(2)(iv), then, unless the option below is elected, the 6 month suspension period following a hardship distribution shall only apply to hardship distributions made after December 31, 2001. a. [ ] With regard to hardship distributions made during 2001, a participant shall be prohibited from making elective deferrals and employee contributions under this and all other plans until the later of January 1, 2002, or 6 months after receipt of the distribution. b. [X] N/A. 2.4 CATCH-UP CONTRIBUTIONS (FOR 401(k) PROFIT SHARING PLANS ONLY): For plan years beginning after December 31, 2001, or, as of_______ (not earlier than January 1, 2002), the plan permits catch-up contributions and such contributions shall be matched in accordance with the plan's matching contribution formula (Article VI) unless elected below. a. [ ] The plan does not permit catch-up contributions to be made. b. [ ] The plan will not match catch-up contributions. 2.5 ROLLOVERS FROM OTHER PLANS. The plan permits the employer, operationally and on a non-discriminatory basis, to limit the source of rollover contributions that may be accepted (Article XII) except as elected below. a. [ ] The plan will not accept rollovers of after-tax employee contributions. b. [X] N/A. ARTICLE III VESTING OF MATCHING CONTRIBUTIONS 3.1 Applicability. This Article shall apply to participants who complete an Hour of Service after December 31, 2001, with respect to accrued benefits derived from employer matching contributions. 3.2 Vesting schedule. A participant's accrued benefit derived from employer matching contributions shall vest as provided in Section 2.1 of this amendment. ARTICLE IV INVOLUNTARY CASH-OUTS 4.1 Applicability and effective date. If the plan provides for involuntary cash-outs of amounts less than $5,000, then unless otherwise elected in Section 2.2 of this amendment, this Article shall apply for distributions made after December 31, 2001, and shall apply to all participants. 4.2 Rollovers disregarded in determining value of account balance for involuntary distributions. For purposes of the Sections of the plan that provide for the involuntary distribution of vested accrued benefits of $5,000 or less, the value of a participant's nonforfeitable account balance shall be determined without regard to that portion of the account balance that is attributable to rollover contributions (and earnings allocable thereto) within the meaning of Sections 402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and 457(e)(16) of the Code. If the value of the participant's nonforfeitable account balance as so determined is $5,000 or less, then the plan shall immediately distribute the participant's entire nonforfeitable account balance. (C) Copyright 2002 MFS Retirement Services, Inc. April, 2002 2 ARTICLE V HARDSHIP DISTRIBUTIONS 5.1 Applicability and effective date. If the plan provides for hardship distributions upon satisfaction of the safe harbor (deemed) standards as set forth in Treas. Reg. Section 1.401(k)-1(d)(2)(iv), then this Article shall apply for calendar years beginning after 2001. 5.2 Suspension period following hardship distribution. A participant who receives a distribution of elective deferrals after December 31, 2001, on account of hardship shall be prohibited from making elective deferrals and employee contributions under this and all other plans of the employer for 6 months after receipt of the distribution. Furthermore, if elected by the employer in Section 2.3 of this amendment, a participant who receives a distribution of elective deferrals in calendar year 2001 on account of hardship shall be prohibited from making elective deferrals and employee contributions under this and all other plans until the later of January 1, 2002, or 6 months after receipt of the distribution. ARTICLE VI CATCH-UP CONTRIBUTIONS Catch-up Contributions. Unless otherwise elected in Section 2.4 of this amendment, all employees who are eligible to make elective deferrals under this plan and who have attained age 50 before the close of the plan year shall be eligible to make catch-up contributions in accordance with, and subject to the limitations of, Section 414(v) of the Code. Such catch-up contributions shall not be taken into account for purposes of the provisions of the plan implementing the required limitations of Sections 402(g) and 415 of the Code. The plan shall not be treated as failing to satisfy the provisions of the plan implementing the requirements of Section 401(k)(3), 401(k)(11), 401(k)(12), 410(b), or 416 of the Code, as applicable, by reason of the making of such catch-up contributions. ARTICLE VII INCREASE IN COMPENSATION LIMIT Increase in Compensation Limit. The annual compensation of each participant taken into account in determining allocations for any plan year beginning after December 31, 2001, shall not exceed $200,000, as adjusted for cost-of-living increases in accordance with Section 401(a)(17)(B) of the Code. Annual compensation means compensation during the plan year or such other consecutive 12-month period over which compensation is otherwise determined under the plan (the determination period). The cost-of-living adjustment in effect for a calendar year applies to annual compensation for the determination period that begins with or within such calendar year. ARTICLE VIII PLAN LOANS Plan loans for owner-employees or shareholder-employees. If the plan permits loans to be made to participants, then effective for plan loans made after December 31, 2001, plan provisions prohibiting loans to any owner-employee or shareholder-employee shall cease to apply. ARTICLE IX LIMITATIONS ON CONTRIBUTIONS (IRC SECTION 415 LIMITS) 9.1 Effective date. This Section shall be effective for limitation years beginning after December 31, 2001. 9.2 Maximum annual addition. Except to the extent permitted under Article XIV of this amendment and Section 414(v) of the Code, if applicable, the annual addition that may be contributed or allocated to a participant's account under the plan for any limitation year shall not exceed the lesser of: (a) $40,000, as adjusted for increases in the cost-of-living under Section 415(d) of the Code, or (b) 100 percent of the participant's compensation, within the meaning of Section 415(c)(3) of the Code, for the limitation year. (C) Copyright 2002 MFS Retirement Services, Inc. April, 2002 3 The compensation limit referred to in (b) shall not apply to any contribution for medical benefits after separation from service (within the meaning of Section 401(h) or Section 419A(f)(2) of the Code) which is otherwise treated as an annual addition. ARTICLE X MODIFICATION OF TOP-HEAVY RULES 10.1 Effective date. This Article shall apply for purposes of determining whether the plan is a top-heavy plan under Section 416(g) of the Code for plan years beginning after December 31, 2001, and whether the plan satisfies the minimum benefits requirements of Section 416(c) of the Code for such years. This Article amends the top-heavy provisions of the plan. 10.2 Determination of top-heavy status. 10.2.1 Key employee. Key employee means any employee or former employee (including any deceased employee) who at any time during the plan year that includes the determination date was an officer of the employer having annual compensation greater than $130,000 (as adjusted under Section 416(i)(1) of the Code for plan years beginning after December 31, 2002), a 5-percent owner of the employer, or a 1-percent owner of the employer having annual compensation of more than $150,000. For this purpose, annual compensation means compensation within the meaning of Section 415(c)(3) of the Code. The determination of who is a key employee will be made in accordance with Section 416(i)(1) of the Code and the applicable regulations and other guidance of general applicability issued thereunder. 10.2.2 Determination of present values and amounts. This Section 10.2.2 shall apply for purposes of determining the present values of accrued benefits and the amounts of account balances of employees as of the determination date. a. Distributions during year ending on the determination date. The present values of accrued benefits and the amounts of account balances of an employee as of the determination date shall be increased by the distributions made with respect to the employee under the plan and any plan aggregated with the plan under Section 416(g)(2) of the Code during the 1-year period ending on the determination date. The preceding sentence shall also apply to distributions under a terminated plan which, had it not been terminated, would have been aggregated with the plan under Section 416(g)(2)(A)(i) of the Code. In the case of a distribution made for a reason other than separation from service, death, or disability, this provision shall be applied by substituting "5-year period" for "1-year period." b. Employees not performing services during year ending on the determination date. The accrued benefits and accounts of any individual who has not performed services for the employer during the 1-year period ending on the determination date shall not be taken into account. 10.3 Minimum benefits. 10.3.1 Matching contributions. Employer matching contributions shall be taken into account for purposes of satisfying the minimum contribution requirements of Section 416(c)(2) of the Code and the plan. The preceding sentence shall apply with respect to matching contributions under the plan or, if the plan provides that the minimum contribution requirement shall be met in another plan, such other plan. Employer matching contributions that are used to satisfy the minimum contribution requirements shall be treated as matching contributions for purposes of the actual contribution percentage test and other requirements of Section 401(m) of the Code. 10.3.2 Contributions under other plans. The employer may provide, in an addendum to this amendment, that the minimum benefit requirement shall be met in another plan (including another plan that consists solely of a cash or deferred arrangement which meets the requirements of Section 401(k)(12) of the Code and matching contributions with respect to which the requirements of Section 401(m)(11) of the Code are met). The addendum should include the name of the other plan, the minimum benefit that will be provided under such other plan, and the employees who will receive the minimum benefit under such other plan. (C) Copyright 2002 MFS Retirement Services, Inc. April, 2002 4 ARTICLE XI DIRECT ROLLOVERS 11.1 Effective date. This Article shall apply to distributions made after December 31, 2001. 11.2 Modification of definition of eligible retirement plan. For purposes of the direct rollover provisions of the plan, an eligible retirement plan shall also mean an annuity contract described in Section 403(b) of the Code and an eligible plan under Section 457(b) of the Code which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state and which agrees to separately account for amounts transferred into such plan from this plan. The definition of eligible retirement plan shall also apply in the case of a distribution to a surviving spouse, or to a spouse or former spouse who is the alternate payee under a qualified domestic relation order, as defined in Section 414(p) of the Code. 11.3 Modification of definition of eligible rollover distribution to exclude hardship distributions. For purposes of the direct rollover provisions of the plan, any amount that is distributed on account of hardship shall not be an eligible rollover distribution and the distributee may not elect to have any portion of such a distribution paid directly to an eligible retirement plan. 11.4 Modification of definition of eligible rollover distribution to include after-tax employee contributions. For purposes of the direct rollover provisions in the plan, a portion of a distribution shall not fail to be an eligible rollover distribution merely because the portion consists of after-tax employee contributions which are not includible in gross income. However, such portion may be transferred only to an individual retirement account or annuity described in Section 408(a) or (b) of the Code, or to a qualified defined contribution plan described in Section 401(a) or 403(a) of the Code that agrees to separately account for amounts so transferred, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible. ARTICLE XII ROLLOVERS FROM OTHER PLANS Rollovers from other plans. Except as otherwise elected in Section 2.5 of this amendment, the employer, operationally and on a nondiscriminatory basis, may limit the source of rollover contributions that may be accepted by this plan. ARTICLE XIII REPEAL OF MULTIPLE USE TEST Repeal of Multiple Use Test. The multiple use test described in Treasury Regulation Section 1.401(m)-2 and the plan shall not apply for plan years beginning after December 31, 2001. ARTICLE XIV ELECTIVE DEFERRALS 14.1 Elective Deferrals - Contribution Limitation. No participant shall be permitted to have elective deferrals made under this plan, or any other qualified plan maintained by the employer during any taxable year, in excess of the dollar limitation contained in Section 402(g) of the Code in effect for such taxable year, except to the extent permitted under Article VI of this amendment and Section 414(v) of the Code, if applicable. 14.2 Maximum Salary Reduction Contributions for SIMPLE plans. If this is a SIMPLE 401(k) plan, then except to the extent permitted under Article VI of this amendment and Section 414(v) of the Code, if applicable, the maximum salary reduction contribution that can be made to this plan is the amount determined under Section 408(p)(2)(A)(ii) of the Code for the calendar year. ARTICLE XV SAFE HARBOR PLAN PROVISIONS Modification of Top-Heavy Rules. The top-heavy requirements of Section 416 of the Code and the plan shall not apply in any year beginning after December 31, 2001, in which the plan consists solely of a cash or deferred arrangement which meets the requirements of Section 401(k)(12) of the Code and matching contributions with respect to which the requirements of Section (C) Copyright 2002 MFS Retirement Services, Inc. April, 2002 5 401(m)(11) of the Code are met. ARTICLE XVI DISTRIBUTION UPON SEVERANCE OF EMPLOYMENT 16.1 Effective date. This Article shall apply for distributions and transactions made after December 31, 2001, regardless of when the severance of employment occurred. 16.2 New distributable event. A participant's elective deferrals, qualified nonelective contributions, qualified matching contributions, and earnings attributable to these contributions shall be distributed on account of the participant's severance from employment. However, such a distribution shall be subject to the other provisions of the plan regarding distributions, other than provisions that require a separation from service before such amounts may be distributed. (C) Copyright 2002 MFS Retirement Services, Inc. April, 2002 6 Except with respect to any election made by the employer in Article II, this amendment is hereby adopted by the prototype sponsor on behalf of all adopting employers on January 1, 2002. MFS Retirement Services, Inc. By: /s/ [ILLEGIBLE] ------------------ Authorized Officer NOTE: THE EMPLOYER ONLY NEEDS TO EXECUTE THIS AMENDMENT IF AN ELECTION HAS BEEN MADE IN ARTICLE II OF THIS AMENDMENT. This amendment has been executed this __________ day of ________________________ ______, ________. Name of Employer: Baldwin Americas Corporation By: _____________________________________ EMPLOYER Name of Plan: Baldwin Technology Profit Sharing and Savings Plan (C) Copyright 2002 MFS Retirement Services, Inc. April, 2002 7 AMENDMENT #2 TO THE MFS RETIREMENT SERVICES, INC. PROTOTYPE PAIRED DEFINED CONTRIBUTION PLANS FOR CORPORATIONS, ASSOCIATIONS AND SELF-EMPLOYED INDIVIDUALS RMD MODEL AMENDMENT ARTICLE I PREAMBLE Adoption by prototype sponsor. This amendment of the MFS Retirement Services, Inc. Prototype Paired Defined Contribution Plans for Corporations, Associations and Self-Employed Individuals, Basic Plan Document #01 ("Plan") is a model amendment as provided in Revenue Procedure 2002-29 and is adopted as Article XIV of the Plan to comply with the final and temporary regulations under Section 401(a)(9) of the Internal Revenue Code. Except as otherwise provided herein, pursuant to Section 5.01 of Revenue Procedure 2000-20 and Section 3.03 of Revenue Procedure 2002-29, the sponsor hereby adopts this amendment on behalf of all adopting employers. Supersession of inconsistent provisions. This amendment shall supersede the provisions of the Plan to the extent those provisions are inconsistent with the provisions of this amendment. MINIMUM DISTRIBUTION REQUIREMENTS Section 1. General Rules. 1.1. Effective Date. Unless an earlier effective date is specified in the adoption agreement, the provisions of this article will apply for purposes of determining required minimum distributions for calendar years beginning with the 2003 calendar year. 1.2. Coordination with Minimum Distribution Requirements Previously in Effect. If the adoption agreement specifies an effective date of this article that is earlier than calendar years beginning with the 2003 calendar year, required minimum distributions for 2002 under this article will be determined as follows. If the total amount of 2002 required minimum distributions under the Plan made to the distributee prior to the effective date of this article equals or exceeds the required minimum distributions determined under this article, then no additional distributions will be required to be made for 2002 on or after such date to the distributee. If the total amount of 2002 required minimum distributions under the Plan made to the distributee prior to the effective date of this article is less than the amount determined under this article, then required minimum distributions for 2002 on and after such date will be determined so that the total amount of required minimum distributions for 2002 made to the distributee will be the amount determined under this article. 1.3. Precedence. The requirements of this article will take precedence over any inconsistent provisions of the Plan. 1.4. Requirements of Treasury Regulations Incorporated. All distributions required under this article will be determined and made in accordance with the Treasury regulations under section 401(a)(9) of the Internal Revenue Code. 1.5. TEFRA Section 242(b)(2) Elections. Notwithstanding the other provisions of this article, distributions may be made under a designation made before January 1, 1984, in accordance with section 242(b)(2) of the Tax Equity and Fiscal Responsibility Act (TEFRA) and the provisions of the Plan that relate to section 242(b)(2) of TEFRA. Section 2. Time and Manner of Distribution. 2.1. Required Beginning Date. The participant's entire interest will be distributed, or begin to be distributed, to the participant no later than the participant's required beginning date. 2.2. Death of Participant Before Distributions Begin. If the participant dies before distributions begin, the participant's entire interest will be distributed, or begin to be distributed, no later than as follows: (a) If the participant's surviving spouse is the participant's sole designated beneficiary, then, except as provided in the adoption agreement, distributions to the surviving spouse will begin by December 31 of the calendar year immediately following the calendar year in which the participant died, or by December 31 of the calendar year in which the participant would have attained age 70 1/2, if later. (b) If the participant's surviving spouse is not the participant's sole designated beneficiary, then, except as provided in the adoption agreement, distributions to the designated beneficiary will begin by December 31 of the calendar year immediately following the calendar year in which the participant died. (c) If there is no designated beneficiary as of September 30 of the year following the year of the participant's death, the participant's entire interest will be distributed by December 31 of the calendar year containing the fifth anniversary of the participant's death. (C) Copyright 2002 MFS Retirement Services, Inc. April, 2002 1 (d) If the participant's surviving spouse is the participant's sole designated beneficiary and the surviving spouse dies after the participant but before distributions to the surviving spouse begin, this section 2.2, other than section 2.2(a), will apply as if the surviving spouse were the participant. For purposes of this section 2.2 and section 4, unless section 2.2(d) applies, distributions are considered to begin on the participant's required beginning date. If section 2.2(d) applies, distributions are considered to begin on the date distributions are required to begin to the surviving spouse under section 2.2(a). If distributions under an annuity purchased from an insurance company irrevocably commence to the participant before the participant's required beginning date (or to the participant's surviving spouse before the date distributions are required to begin to the surviving spouse under section 2.2(a)), the date distributions are considered to begin is the date distributions actually commence. 2.3. Forms of Distribution. Unless the participant's interest is distributed in the form of an annuity purchased from an insurance company or in a single sum on or before the required beginning date, as of the first distribution calendar year distributions will be made in accordance with sections 3 and 4 of this article. If the participant's interest is distributed in the form of an annuity purchased from an insurance company, distributions thereunder will be made in accordance with the requirements of section 401(a)(9) of the Code and the Treasury regulations. Section 3. Required Minimum Distributions During Participant's Lifetime. 3.1. Amount of Required Minimum Distribution For Each Distribution Calendar Year. During the participant's lifetime, the minimum amount that will be distributed for each distribution calendar year is the lesser of: (a) the quotient obtained by dividing the participant's account balance by the distribution period in the Uniform Lifetime Table set forth in section 1.401(a)(9)-9 of the Treasury regulations, using the participant's age as of the participant's birthday in the distribution calendar year; or (b) if the participant's sole designated beneficiary for the distribution calendar year is the participant's spouse, the quotient obtained by dividing the participant's account balance by the number in the Joint and Last Survivor Table set forth in section 1.401(a)(9)-9 of the Treasury regulations, using the participant's and spouse's attained ages as of the participant's and spouse's birthdays in the distribution calendar year. 3.2. Lifetime Required Minimum Distributions Continue Through Year of Participant's Death. Required minimum distributions will be determined under this section 3 beginning with the first distribution calendar year and up to and including the distribution calendar year that includes the participant's date of death. Section 4. Required Minimum Distributions After Participant's Death. 4.1. Death On or After Date Distributions Begin. (a) Participant Survived by Designated Beneficiary. If the participant dies on or after the date distributions begin and there is a designated beneficiary, the minimum amount that will be distributed for each distribution calendar year after the year of the participant's death is the quotient obtained by dividing the participant's account balance by the longer of the remaining life expectancy of the participant or the remaining life expectancy of the participant's designated beneficiary, determined as follows: (1) The participant's remaining life expectancy is calculated using the age of the participant in the year of death, reduced by one for each subsequent year. (2) If the participant's surviving spouse is the participant's sole designated beneficiary, the remaining life expectancy of the surviving spouse is calculated for each distribution calendar year after the year of the participant's death using the surviving spouse's age as of the spouse's birthday in that year. For distribution calendar years after the year of the surviving spouse's death, the remaining life expectancy of the surviving spouse is calculated using the age of the surviving spouse as of the spouse's birthday in the calendar year of the spouse's death, reduced by one for each subsequent calendar year. (3) If the participant's surviving spouse is not the participant's sole designated beneficiary, the designated beneficiary's remaining life expectancy is calculated using the age of the beneficiary in the year following the year of the participant's death, reduced by one for each subsequent year. (b) No Designated Beneficiary. If the participant dies on or after the date distributions begin and there is no designated beneficiary as of September 30 of the year after the year of the participant's death, the minimum amount that will be distributed for each distribution calendar year after the year of the participant's death is the quotient obtained by dividing the participant's account balance by the participant's remaining life expectancy calculated using the age of the participant in the year of death, reduced by one for each subsequent year. 4.2. Death Before Date Distributions Begin. (a) Participant Survived by Designated Beneficiary. Except as provided in the adoption agreement, if the participant dies before the date distributions begin and there is a designated beneficiary, the minimum amount that will be distributed for each distribution calendar year after the year of the participant's death is the quotient obtained by dividing the participant's account balance by the remaining life expectancy of the participant's designated beneficiary, determined (C) Copyright 2002 MFS Retirement Services, Inc. April, 2002 2 as provided in section 4.1. (b) No Designated Beneficiary. If the participant dies before the date distributions begin and there is no designated beneficiary as of September 30 of the year following the year of the participant's death, distribution of the participant's entire interest will be completed by December 31 of the calendar year containing the fifth anniversary of the participant's death. (c) Death of Surviving Spouse Before Distributions to Surviving Spouse Are Required to Begin. If the participant dies before the date distributions begin, the participant's surviving spouse is the participant's sole designated beneficiary, and the surviving spouse dies before distributions are required to begin to the surviving spouse under section 2.2(a), this section 4.2 will apply as if the surviving spouse were the participant. Section 5. Definitions. 5.1. Designated beneficiary. The individual who is designated as the beneficiary under section 1.9 of Article I of the Plan and is the designated beneficiary under section 401(a)(9) of the Internal Revenue Code and section 1.401(a)(9)-1, Q&A-4, of the Treasury regulations. 5.2. Distribution calendar year. A calendar year for which a minimum distribution is required. For distributions beginning before the participant's death, the first distribution calendar year is the calendar year immediately preceding the calendar year which contains the participant's required beginning date. For distributions beginning after the participant's death, the first distribution calendar year is the calendar year in which distributions are required to begin under section 2.2. The required minimum distribution for the participant's first distribution calendar year will be made on or before the participant's required beginning date. The required minimum distribution for other distribution calendar years, including the required minimum distribution for the distribution calendar year in which the participant's required beginning date occurs, will be made on or before December 31 of that distribution calendar year. 5.3. Life expectancy. Life expectancy as computed by use of the Single Life Table in section 1.401(a)(9)-9 of the Treasury regulations. 5.4. Participant's account balance. The account balance as of the last valuation date in the calendar year immediately preceding the distribution calendar year (valuation calendar year) increased by the amount of any contributions made and allocated or forfeitures allocated to the account balance as of dates in the valuation calendar year after the valuation date and decreased by distributions made in the valuation calendar year after the valuation date. The account balance for the valuation calendar year includes any amounts rolled over or transferred to the Plan either in the valuation calendar year or in the distribution calendar year if distributed or transferred in the valuation calendar year. 5.5. Required beginning date. The date specified in section 6.5 of Article VI of the Plan. ADOPTION AGREEMENT ELECTIONS (Check and complete section 2.1 below if any required minimum distributions for the 2002 distribution calendar year were made in accordance with the Section 401(a)(9) Final and Temporary Regulations.) 1. Effective Date of Plan Amendment for Section 401(a)(9) Final and Temporary Treasury Regulations. [X] Article XIV, Minimum Distribution Requirements, applies for purposes of determining required minimum distributions for distribution calendar years beginning with the 2003 calendar year, as well as required minimum distributions for the 2002 distribution calendar year that are made on or after October 15, 2002. (Check and complete any of the remaining sections if you wish to modify the rules in sections 2.2 and 4.2 of Article XIV of the Plan.) 2. Election to Apply 5-Year Rule to Distributions to Designated Beneficiaries. [ ] If the participant dies before distributions begin and there is a designated beneficiary, distribution to the designated beneficiary is not required to begin by the date specified in section 2.2 of Article XIV of the Plan, but the participant's entire interest will be distributed to the designated beneficiary by December 31 of the calendar year containing the fifth anniversary of the participant's death. If the participant's surviving spouse is the participant's sole designated beneficiary and the surviving spouse dies after the participant but before distributions to either the participant or the surviving spouse begin, this election will apply as if the surviving spouse were the participant. (C) Copyright 2002 MFS Retirement Services, Inc. April, 2002 3 This election will apply to: [ ] All distributions. [ ] The following distributions:_____________________________________. 3. Election to Allow Participants or Beneficiaries to Elect 5-Year Rule. [X] Participants or beneficiaries may elect on an individual basis whether the 5-year rule or the life expectancy rule in sections 2.2 and 4.2 of Article XIV of the Plan applies to distributions after the death of a participant who has a designated beneficiary. The election must be made no later than the earlier of September 30 of the calendar year in which distribution would be required to begin under section 2.2 of Article XIV of the Plan, or by September 30 of the calendar year which contains the fifth anniversary of the participant's (or, if applicable, surviving spouse's) death. If neither the participant nor beneficiary makes an election under this paragraph, distributions will be made in accordance with sections 2.2 and 4.2 of Article XIV of the Plan and, if applicable, the elections in section 2 above. 4. Election to Allow Designated Beneficiary Receiving Distributions Under 5-Year Rule to Elect Life Expectancy Distributions. [ ] A designated beneficiary who is receiving payments under the 5-year rule may make a new election to receive payments under the life expectancy rule until December 31, 2003, provided that all amounts that would have been required to be distributed under the life expectancy rule for all distribution calendar years before 2004 are distributed by the earlier of December 31, 2003 or the end of the 5-year period. Except with respect to any adoption agreement elections made by the employer above, this amendment is hereby adopted by the prototype sponsor on behalf of all adopting employers on __________________________, ______. MFS Retirement Services, Inc. By: /s/ [ILLEGIBLE] ------------------ Authorized Officer NOTE: THE EMPLOYER ONLY NEEDS TO EXECUTE THIS AMENDMENT IF AN ADOPTION AGREEMENT ELECTION HAS BEEN MADE ABOVE. This amendment has been executed this _________________ day of _________________ _____________, ________. Name of Employer: Baldwin Americas Corporation By:_______________________________________________ EMPLOYER Name of Plan: Baldwin Technology Profit Sharing and Savings Plan (C) Copyright 2002 MFS Retirement Services, Inc. April, 2002 4 EX-10.61 4 y90086kexv10w61.txt AMENDMENT TO EMPLOYMENT AGEEMENT EXHIBIT 10.61 Baldwin Technology Company, Inc. 12 Commerce Drive P.O. Box 901 Shelton, CT 06484-0941 Tel: 203-402-1000 Fax: 203-402-5500 August 13, 2002 Mr. Gerald A. Nathe 11448 Bronzedale Drive Oakton, VA 22124 Dear Mr. Nathe: Pursuant to Paragraph 18 of our agreement dated March 19, 2001 as amended on February 26, 2002 (the "Agreement") which sets forth the terms of your employment with Baldwin Technology Company, Inc. (the "Company"), the Agreement is hereby changed, effective August 13, 2002, as follows: (1) Paragraph 2D of the Agreement is changed by deleting that Paragraph in its entirety, and inserting in its place the following: D. Deferred Compensation. You shall be paid, at such times as are set forth in this Agreement, annual deferred compensation of one hundred one thousand seven hundred eighteen and 60/100 dollars ($101,718.60), which on a monthly basis is eight thousand four hundred seventy-six and 55/100 dollars ($8,476.55) (the "Monthly Amount"). The Monthly Amount shall be paid monthly, to you or your estate, as the case may be, beginning on the day set forth in this Agreement, for a period of one hundred eighty (180) months or the period ending with the month of your death, whichever is longer. In this regard, if you die after the date on which you first become entitled to payment of the Deferred Compensation, whether or not the first payment of the Monthly Amount has been made, and prior to the payment of the Monthly Amount for one hundred eighty (180) months, the Monthly Amount shall be paid monthly for the balance of such one hundred eighty (180) month period to the beneficiary or beneficiaries designated by you in writing to the Company, or, if none are designated, to your estate. (6) Paragraph 3B(i) of the Agreement is changed by deleting that paragraph in its entirety, and inserting in its place the following: (i) In order to facilitate your purchase of three hundred fifteen thousand one hundred forty-four (315,144) shares of the Company's Class B Common Stock, par value $.01 per share (the "Class B Stock"), the Company, on November 30, 1993, loaned to you one million eight hundred seventeen thousand three hundred twenty-one dollars and sixteen cents ($1,817,321.16) (the "Loan"). The Loan was made pursuant to a Loan and Pledge Agreement dated November 30, 1993, which was amended on November 25, 1997, and further amended on February 26, 2002, and which is being amended effective August 13, 2002 by an Amended and Restated Loan and Pledge Agreement. The Loan was evidenced by a demand promissory note dated November 30, 1993 (the "Note"), which was replaced by an amended demand promissory note dated February 26, 2002 (the "Amended Note") in the principal amount of one million five hundred thousand dollars ($1,500,000.00). The Amended Note is being replaced effective August 13, 2002 by an amended demand promissory note (the "Second Amended Note") in the principal amount of seven hundred fifty thousand dollars ($750,000.00). The Second Amended Note bears interest, payable annually, at a rate equal to five percent (5%) per annum effective August 13, 2002. If your employment under this Agreement terminates for any reason other than death or for "cause," as the term "cause" is defined in Paragraph 9C hereof, the Company will not demand payment of the outstanding principal of or accrued interest on the Second Amended Note for a period of six (6) months after such termination, or for a period of twelve (12) months after termination of your employment in the case of your death. Notwithstanding anything to the contrary contained in this Paragraph, at any time that you sell any of the shares of Class B Stock while any amount of the Second Amended Note remains unpaid, you shall, within five (5) days of receipt of the funds from such sale, pay to the Company, in repayment of part or all, as the case may be, of the Second Amended Note, an amount equal to five dollars and seventy-seven cents ($5.77) times the number of shares of the Class B Stock so sold, but not in excess of the unpaid balance of the Second Amended Note, plus interest as set forth in the Second Amended Note, on the amount so repaid to the extent that such interest accrued to the date of such repayment. As so changed by this letter agreement, the Agreement shall remain in full force and effect. Very truly yours, BALDWIN TECHNOLOGY COMPANY, INC. By: John T. Heald, Jr. Its President and CEO AGREED TO AND ACCEPTED: Gerald A. Nathe EX-10.62 5 y90086kexv10w62.txt AMENDMENT TO EMPLOYMENT AGREEMENT EXHIBIT 10.62 Baldwin Technology Company, Inc. 12 Commerce Drive P.O. Box 901 Shelton, CT 06484-0941 Tel: 203-402-1000 Fax: 203-402-5500 July 11, 2003 Mr. Gerald A. Nathe 11448 Bronzedale Drive Oakton, VA 22124 Dear Mr. Nathe: Pursuant to Paragraph 18 of our agreement dated March 19, 2001, as amended by our subsequent agreements dated February 26, 2002 and August 13, 2002 (the "Agreement"), which sets forth the terms of your employment with Baldwin Technology Company, Inc. (the "Company"), the Agreement is hereby further amended, effective July 1, 2003, as follows: 1. Each of Paragraph 1, Paragraph 9D(i), and Paragraph 9D(v) of the Agreement are amended by deleting "Chairman of the Board", and inserting in its place "Chairman of the Board, President and Chief Executive Officer". 2. Paragraph 1 of the Agreement is amended by deleting "oversee", and inserting in its place "direct and manage". 3. Paragraph 2A of the Agreement is amended by deleting "two hundred fifty thousand dollars ($250,000)", and inserting in its place "three hundred thousand dollars ($300,000)". 4. Paragraph 9(D)(ii) of the Agreement is amended by deleting the following: "provided, however, that you shall not have approved such transaction, in your capacity as a director, by voting for it" 5. Paragraph 9(D)(iii) of the Agreement is amended by deleting the following: "that you shall not have approved such change in directors or acquisition, in your capacity as a shareholder or director, by voting for any of such new directors or for such acquisition and" 6. Paragraph 9(G) is amended by deleting "August 5, 2003" and inserting in its place "August 5, 2005". As so amended by this letter agreement, the Agreement shall remain in full force and effect. Very truly yours, BALDWIN TECHNOLOGY COMPANY, INC. By: --------------------------- AGREED TO AND ACCEPTED: - ----------------------- Gerald A. Nathe EX-21 6 y90086kexv21.txt LIST OF SUBSIDIARIES . . . EXHIBIT 21 to Registrant's Report on Form 10-K for the year-ended June 30, 2003
SUBSIDIARIES OF BALDWIN TECHNOLOGY COMPANY, INC. Jurisdiction ------------ Baldwin Americas Corporation Delaware Baldwin Europe Consolidated Inc. Delaware Baldwin Asia Pacific Corporation Delaware Baldwin Technology Limited Bermuda Baldwin Document Finishing Systems, Inc. Delaware Baldwin Technology India Private Limited India SUBSIDIARIES OF BALDWIN AMERICAS CORPORATION Baldwin Technology Corporation Connecticut Baldwin Rockford Corporation Delaware Baldwin Graphic Systems, Inc. Delaware Baldwin Americas do Brasil Ltda Brazil Baldwin India Private, Ltd. India SUBSIDIARIES OF BALDWIN TECHNOLOGY CORPORATION Baldwin Midwest Corporation Kansas SUBSIDIARIES OF BALDWIN EUROPE CONSOLIDATED INC. Baldwin Europe Consolidated BV Netherlands SUBSIDIARIES OF BALDWIN EUROPE CONSOLIDATED BV Baldwin Graphic Equipment BV Netherlands Baldwin Germany GmbH Germany Baldwin U.K. Holding Limited United Kingdom Baldwin Sweden Holding AB Sweden Baldwin France Sarl France SUBSIDIARIES OF BALDWIN U.K. HOLDING LIMITED Baldwin (UK) Ltd. United Kingdom Acrotec UK Ltd. United Kingdom SUBSIDIARIES OF BALDWIN SWEDEN HOLDING AB L-Company AB Sweden Baldwin IVT AB Sweden Baldwin Jimek AB Sweden SUBSIDIARIES OF ACROTEC UK LTD. Baldwin Globaltec Ltd. United Kingdom SUBSIDIARIES OF BALDWIN ASIA PACIFIC CORPORATION Baldwin Japan Ltd. Japan Baldwin Printing Control Equipment (Beijing) Company, Ltd. China Baldwin Graphic Equipment Pty. Ltd. Australia Baldwin Printing Controls Ltd. Hong Kong
EX-23 7 y90086kexv23.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectuses constituting part of the Registration Statements on Form S-8 (No. 33-20611, No. 33-30455, No. 33-58104, No. 33-58106, No. 33-56329, No. 333-44631 and No. 333-95743) and the Registration Statements on Form S-3 (No. 33-33104, No. 33-42265 and No. 33-41586) of Baldwin Technology Company, Inc. of our report dated September 24, 2003 relating to the consolidated financial statements and financial statement schedule, which appears in this Form 10-K. PricewaterhouseCoopers LLP Stamford, CT October 13, 2003 EX-31.01 8 y90086kexv31w01.txt CERTIFICATION EXHIBIT 31.01 CERTIFICATIONS I, Gerald A. Nathe, certify that: 1. I have reviewed this Annual Report on Form 10-K of Baldwin Technology Company, Inc. ("the registrant"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ Gerald A. Nathe -------------------------------------- Gerald A. Nathe Chairman, President and Chief Executive Officer Date: October 13, 2003 EX-31.02 9 y90086kexv31w02.txt CERTIFICATION EXHIBIT 31.02 CERTIFICATIONS I, Vijay C. Tharani, certify that: 1. I have reviewed this Annual Report on Form 10-K of Baldwin Technology Company, Inc. ("the registrant"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ Vijay C. Tharani ------------------------------------------ Vijay C. Tharani Vice President, Chief Financial Officer and Treasurer Date: October 13, 2003 EX-32.01 10 y90086kexv32w01.txt CERTIFICATION EXHIBIT 32.01 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002, 18 U.S.C. SECTION 1350 In connection with the Annual Report of Baldwin Technology Company, Inc. (the "Company") on Form 10-K for the period ended June 30, 2003 to be filed with Securities and Exchange Commission on or about the date hereof (the "Report"), I, Gerald A. Nathe, Chief Executive Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods covered by the Report. It is not intended that this statement be deemed to be filed for purposes of the Securities Exchange Act of 1934. Date: October 13, 2003 By: /s/ Gerald A. Nathe ----------------------- Gerald A. Nathe Chief Executive Officer EX-32.02 11 y90086kexv32w02.txt CERTIFICATION EXHIBIT 32.02 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002, 18 U.S.C. SECTION 1350 In connection with the Annual Report of Baldwin Technology Company, Inc. (the "Company") on Form 10-K for the period ended June 30, 2003 to be filed with Securities and Exchange Commission on or about the date hereof (the "Report"), I, Vijay C. Tharani, Chief Financial Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods covered by the Report. It is not intended that this statement be deemed to be filed for purposes of the Securities Exchange Act of 1934. Date: October 13, 2003 By: /s/ Vijay C. Tharani ----------------------- Vijay C. Tharani Chief Financial Officer EX-99 12 y90086kexv99.txt COMPANY STATEMENT EXHIBIT 99 to Registrant's Report on Form 10-K for the year-ended June 30, 2003 RISK FACTORS OR CAUTIONARY STATEMENTS PURSUANT TO "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Except for historical information, the Annual Report on Form 10-K for the fiscal year ended June 30, 2003, to which this exhibit is appended, the Company's quarterly reports to the Securities and Exchange Commission on Form 10-Q and periodic press releases, as well as other public documents and statements, may contain "forward-looking statements" within the meaning of the federal securities laws. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by the statements, including, among others: The ability to obtain, maintain, and defend challenges against, valid patent protection on certain technology, primarily as it relates to the Company's Cleaning Systems. Significant price reductions or improvements in competing imaging technologies. A decline in the rate of growth of the installed base of printing press units and the timing of new press orders. Material changes in foreign currency exchange rates versus the U.S. Dollar. Some dependence on a small number of large customers. Competitive product offerings and pricing actions. The availability and pricing of key raw materials. The ability to generate productivity improvements in the Company's product designing and manufacturing processes. Dependence on key members of management. Changes in the mix of products and services comprising revenues. The ability to maximize profits in jurisdictions to allow the Company to utilize tax benefits. The ability of the Company to successfully implement its restructuring initiatives and return to profitability. Readers are cautioned not to place undue reliance on forward-looking statements. The Company undertakes no obligation to publish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrences of unanticipated events. -----END PRIVACY-ENHANCED MESSAGE-----