-----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, CAH6JmgrdjrF0X17wiWgxP7pbK7LufhVtwdXmWc1XPN1nsKQl9PUDqK8dbM4n4Jq 8Kfc8xfbry3kruZf3Lvmbw== 0000891618-01-501008.txt : 20010604 0000891618-01-501008.hdr.sgml : 20010604 ACCESSION NUMBER: 0000891618-01-501008 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010601 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PLANTRONICS INC /CA/ CENTRAL INDEX KEY: 0000914025 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 770207692 STATE OF INCORPORATION: DE FISCAL YEAR END: 0327 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-12696 FILM NUMBER: 1653021 BUSINESS ADDRESS: STREET 1: 337 ENCINAL ST CITY: SANTA CRUZ STATE: CA ZIP: 95061-1802 BUSINESS PHONE: 8314265858 MAIL ADDRESS: STREET 1: 345 ENCINAL STREET STREET 2: PO BOX 1802 CITY: SANTA CRUZ STATE: CA ZIP: 95061-1802 FORMER COMPANY: FORMER CONFORMED NAME: PI PARENT CORP DATE OF NAME CHANGE: 19931025 10-K 1 f72069e10-k.txt FORM 10-K 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-12696 PLANTRONICS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 77-0207692 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 345 ENCINAL STREET SANTA CRUZ, CALIFORNIA 95060 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE: (831) 426-5858 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE 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 twelve months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the Registrant, based upon the closing price of $21.59 for shares of the Registrant's Common Stock on May 11, 2001 as reported by the New York Stock Exchange, was approximately $825,065,456. In calculating such aggregate market value, shares of Common Stock owned of record or beneficially by officers, directors, and persons known to the Registrant to own more than five percent of the Registrant's voting securities (other than such persons of whom the Registrant became aware only through the filing of a Schedule 13G filed with the Securities and Exchange Commission) were excluded because such persons may be deemed to be affiliates. The Registrant disclaims the existence of control or any admission thereof for any other purpose. Number of shares of Common Stock outstanding as of May 11, 2001: 48,390,671. DOCUMENTS INCORPORATED BY REFERENCE The following documents are incorporated by reference in Parts I, II, III and IV of this Annual Report on Form 10-K: (1) portions of Registrant's annual report to security holders for the fiscal year ended March 31, 2001 (Parts I, II and IV) and (2) portions of Registrant's proxy statement for its annual meeting of stockholders to be held on June 27, 2001 (Part III). ================================================================================ 2 PLANTRONICS, INC. 2001 ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS
PAGE ---- PART I Item 1. Business................................................................................. 3 Item 2. Properties............................................................................... 20 Item 3. Legal Proceedings........................................................................ 20 Item 4. Submission of Matters to a Vote of Security-Holders...................................... 20 PART II Item 5. Market for Registrant's Common Stock and Related Stockholder Matters..................... 21 Item 6. Selected Financial Data.................................................................. 21 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.... 21 Item 7A. Quantitative and Qualitative Disclosures About Market Risk............................... 31 Item 8. Financial Statements and Supplementary Data.............................................. 31 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..... 32 PART III Item 10. Directors and Executive Officers of the Registrant....................................... 33 Item 11. Executive Compensation................................................................... 33 Item 12. Security Ownership of Certain Beneficial Owners and Management........................... 33 Item 13. Certain Relationships and Related Transactions........................................... 33 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......................... 34
--------------- Plantronics, the logo design, Plantronics and the logo design together, Clarity, DuoSet, Encore, FreeHand, Mirage, PLX, SoundGuard, StarBase, StarSet, Supra and TriStar are registered United States trademarks of Plantronics, Inc. AttiTubes, ClearVox, Headset Switcher, PerSono, Practica, QuickAdjust, Quick Disconnect, SoundGuard Plus, the clear color and the curvature of the Plantronics voice tube, Vista and Walker are trademarks of Plantronics, Inc. Certain of the foregoing trademarks are registered trademarks in certain foreign countries. This report also includes trademarks of companies other than Plantronics. 2 3 PART I This Annual Report on Form 10-K is filed with respect to our fiscal year 2001. Each of our fiscal years ends on the Saturday closest to the last day of March. Our fiscal 2001 ended on March 31, 2001. For purposes of consistent presentation, we have indicated in this report that each fiscal year ended "March 31" of the given year, even though the actual fiscal year end may have been on a different date. CERTAIN FORWARD-LOOKING INFORMATION This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. In addition, we may from time to time make oral forward-looking statements. These statements may generally be identified by the use of such words as "expect," "anticipate," "believe," "intend," "plan," "will," or "shall," and include, but are not necessarily limited to, all of the statements marked below with an asterisk ("*"). Such forward-looking statements are based on current expectations and entail various risks and uncertainties. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of a number of factors. For a discussion of such factors, this Annual Report on Form 10-K should be read in conjunction with certain portions of our 2001 Annual Report to Stockholders, consisting of the condensed consolidated financial statements and related notes and the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations." Reference should also be made to the risk factors discussed in the portion captioned "Risk Factors Affecting Future Operating Results," commencing on page 21 of this Annual Report on Form 10-K. ITEM 1. BUSINESS GENERAL Plantronics, Inc. ("we", "our," "us," the "Company" or the "Registrant") is a worldwide leading designer, manufacturer and marketer of lightweight communications headsets, telephone headset systems, headset accessories, and related services. In addition, we manufacture and market specialty telephone products, such as amplified telephone handsets, specialty telephones for hearing-impaired users, and noise-canceling handsets for use in high-noise environments. Our call center and office business is not seasonal; sales of our products through retail channels does have seasonality, with generally higher sales in the period before the winter holiday season. Plantronics' headsets are recognized for their safety, reliability, comfort, and sound quality. Plantronics has come to be highly regarded for leading-edge technological innovations, particularly for our emerging market products, such as cellular and computer headsets. Our headset products are used globally for call center, mobile, computer, and residential applications. Plantronics' broad compatibility with an extensive range of telephony systems has made us the industry standard in call centers worldwide. Our broad range of communications products is sold in more than seventy countries through a global network of distributors, original equipment manufacturers, retailers, and telephony service providers. We have well-developed distribution channels in North America and Europe, where the growth of telemarketing activities and deregulation of the telephone companies have led to more widespread use of telephone headsets. Our headsets are also becoming more widely used in call centers in the Middle East, Africa, Australia, Asia, and Latin America. The potential for growth in foreign markets is the result of developments in the rapidly expanding telecommunications infrastructure and increasing use of telephone-based customer service. Plantronics also sells headsets to business, home and office users who have been identified as user markets with long-term growth potential.* Users in these markets consist of business executives, agents, brokers, lawyers, accountants, home-office business people, and other professionals whose occupations may require extensive use of a telephone. The use of headsets for mobile communications and as a computer peripheral is a potentially significant growth area for headset sales.* Headsets in these markets are proving to be a key communications tool, providing greater mobility and freedom from dial pads and keyboards. Applications in this market include mobile communications, 3 4 voice recognition, personal computer conferencing, computer telephony integration (CTI), and multimedia applications. Our headsets are purchased by a broad and diverse group of business customers worldwide, including telephone-operating companies, operators of private telephone networks, and governmental agencies. Our headset products are also purchased directly by end-users for use in the home and home-office. We distribute our products through specialized headset distributors, large electronics wholesalers, original equipment manufacturers (OEMs), and retail channels, such as office supply stores, consumer electronics stores, mail order catalogs, warehouse clubs, and office supplies distributors. We sell certain products directly to governmental agencies and also distribute products to the government market through distributors, OEMs and other sales channels. Plantronics products may also be purchased from our website, www.plantronics.com. INDUSTRY BACKGROUND GENERAL BACKGROUND Over the past few years, we have broadened our product offerings to target the office, and the emerging mobile and computer markets. The proliferation of desktop computing has made communications headsets a necessity in many occupations, both in terms of functionality as well as ergonomics. In the mobile market, growing awareness of driver safety is increasing the adoption of headsets for mobile phone users. Headsets enhance the communications experience through: MULTI-TASKING BENEFITS which allow people to use a computer, take notes, and organize files while talking hands free; IMPROVED MOBILITY, for example, being able to talk more easily on a cellular or cordless phone while on the go; BETTER SOUND QUALITY for telephone users by reducing background noise; ERGONOMIC RELIEF from repetitive stress injuries and discomfort associated with placing a telephone handset between the shoulder and neck; ENABLING EMERGING PC APPLICATIONS, including speech recognition, Internet telephony and gaming, and premium audio quality; and PROVIDING GREATER PRIVACY than speakerphones. MARKETS CALL CENTER Call center agents comprise the largest group of headset users. Call center agents are on the telephone throughout their workday and a communications headset is a standard piece of their work equipment. Agent productivity in call centers is important in minimizing costs and reducing customer wait time, and, therefore, the ability to effectively and simultaneously use a telephone and keyboard is critical. As the call center market has grown, the benefits of headsets have become widely recognized as an essential component of a productive and ergonomically safe workplace. The number of call center agents has increased as companies endeavor to compete in the marketplace by (i) focusing on customer service to provide a competitive advantage, (ii) reducing costs through the use of real-time centralized information exchange and customer interaction, and (iii) making greater use of cost-effective direct distribution models. As the benefits of call centers have become more widely recognized and the system cost per agent has declined, the establishment of call centers has spread and continues to spread to smaller organizations and international firms.* In late fiscal 2000, we introduced several new headset solutions -- the CA10 (Wireless Amplifier) and A20 (Telephone Headset Amplifier and Accessory Deck) -- for the call center market. In fiscal 2001, we moved these new products into the channel and into the hands of end users. 4 5 OFFICE The office market, both corporate and small office/home office ("SOHO"), has become an increasingly important market for headsets over the last five years. The increasing and simultaneous use of telephones and computers by office workers and a growing awareness of the benefits of headsets, have contributed to headset penetration in this market. Professionals who spend significant time on the telephone have been early adopters of headset products. These professionals include securities brokers, insurance agents, sales executives, credit controllers and purchasing agents. We believe that the level of headset use in the office is low, providing a long-term opportunity to increase headset sales to office workers.* In late fiscal 2000, Plantronics introduced a range of new headset solutions -- the T10, S10, S20, A20 and CS10 -- for the office market and we successfully ramped production and sales of these products to end users in fiscal 2001. CORDLESS AND MOBILE HEADSETS Mobile use of headsets, particularly with cellular phones, is undergoing explosive growth worldwide.* In an increasingly mobile world, people want hands free comfort and convenience. There has also been a growing focus on increased safety when driving. Using a hands free device while in a motor vehicle is perceived to be safer than holding a mobile telephone handset. In fiscal 2001, Plantronics followed on the success of the new M-series line with the introduction of the M130 and the M135 headset in September 2000. The M130 headset has a sleek, stylish design and is available in two colors, which has proven very popular as headsets are increasingly considered for both fashion and functionality. In January, we also launched the M205 premium "earbud" series. "Earbud" headsets do not have a microphone boom, but, instead, have the microphone attached to the cable between the headset speaker and the telephone. The unique feature set of the M205 headset includes technology that provides natural voice delivery and enhanced sound quality, addressing a historical weakness of the earbud-style headset. Our complete range of mobile products meet the growing demand for attractive and comfortable cellular accessories that offer superior sound quality and better voice accuracy. In March 2001, we announced the worldwide launch of the M1000, a Bluetooth(TM) wireless headset. The M1000 Bluetooth headset is the first wireless headset to be powered by second-generation chipset technology, which delivers better sound quality, longer talk time and lighter weight than earlier chipset designs. COMPUTER PC HEADSETS In fiscal 2001, we continued our strategic commitment to design and manufacture communications headsets for emerging speech recognition and Internet telephony applications. We introduced the DSP computer headset series, a new line of digitally-enhanced Universal Serial Bus (USB) headsets for the PC and Mac with superb audio quality. These headsets offer digital-quality stereo and microphone capabilities to make sound clearer, speech more accurate and multimedia applications more realistic. We support the digital headset experience with PerSono(TM) Audio Control Center Software, a proprietary software interface that allows unprecedented ability to control and enhance audio performance in the computer environment. In our DSP line of headsets, we employ the industry's most advanced digital processing technology to create an entirely new listening and interactive voice experience for consumers. INDUSTRY SEGMENTS AND FOREIGN OPERATIONS We are engaged in the design, manufacture, marketing and sales of telecommunications equipment including headsets, telephone headset systems, and other specialty telecommunications products. We operate in one business segment. Our operations are organized to focus on three principle markets: call center and office products; mobile and computer products; and other specialty products (Walker Equipment Division). Because we operate in one segment, all financial segment information required by the Financial Accounting Standards Boards Statement No. 131 (Disclosures about Segments of an Enterprise and Related Information) can be found in the consolidated financial statements and related notes, and are incorporated by reference from our 2001 Annual Report to Stockholders. In fiscal 1999 and 2000, approximately 30.5% and 33.5% of our net sales were derived from sales to foreign customers, respectively. In fiscal 2001, non-US sales accounted for approximately 31.2% of total net sales. Sales to 5 6 foreign customers are generally subject to such additional risks as fluctuations in exchange rates, increased tariffs and the imposition of other trade barriers. In fiscal 2001, we did not engage in any hedging activities to mitigate exchange rate risks and our international revenues were affected by fluctuating currencies. In April 2002, we began hedging our transaction exposure in Europe, specifically hedging both our positions in the Great British Pound and the Euro, as these are where the majority of our currency exposure lies. To the extent that we increase sales to foreign customers, or to the extent that we increase our transactions in foreign currencies, or that we are unsuccessful in our hedging strategies, our results of operations could continue to be materially adversely affected by exchange rate fluctuations. PRODUCTS SUMMARY Our product line consists of lightweight communications headsets, telephone headset systems, headset accessories and services, and specialty telephone products. Our headset products incorporate unique features that we believe offer compelling performance advantages: COMFORT. We believe our focus on ergonomics has been critical to our success. We maintain what we believe is the industry's most extensive database for the design of comfortable headsets. Our database includes measurements from over 800 physical molds taken of different ear types. The measurements are digitized and stored in a CAD/CAM database along with critical head contour measurements. In addition, we study weight drag to determine optimum weight distribution on the ear. SOUND QUALITY. In designing our products, we have conducted headset sound quality (e.g. preference and intelligibility) research on substantially all telephone systems in both listening and speaking modes. We believe we have achieved the industry's best signal-to-noise ratios, the most powerful noise-canceling performance (to block out background sounds in unusually loud environments), and a voice tube design that does not require the microphone boom to be positioned precisely for proper functioning. The clear Voice Tube, a Plantronics trademark, is ideal for most office and call center environments, with the additional benefits of an attractive appearance, easy hygienic replacement, and lighter weight. DURABILITY. We have forty years of experience understanding headset durability and have successfully incorporated this knowledge into our product designs which we believe generally last longer than the best comparable competitive products. In addition to a complete line of industry-leading headsets, headset systems, headset telephones and amplifiers, we also provide headset accessories which include replacement Plantronics Voice Tubes, ear cushions, eartips and wind noise suppressors. These replacement parts allow end users to revitalize their headset to maintain maximum performance and comfort. We also sell a full line of accessory products, including, handset lifters and in-use indicators which allow our customers increased mobility and ease of use. We also provide exceptional customer service and support. We believe that our customer support and service programs offer market leading advantages that provide our end users and customers with easier access to Plantronics. We have consistently received the highest customer satisfaction ratings in the industry and we believe that our customer service programs provide an important competitive advantage. HEADSETS TELEPHONY APPLICATIONS: Headsets for use with corded telephones generally consist of two distinct units. The "top" is the portion that the user wears. This portion is what is generally associated with the term "headset." The headset top contains the speaker and the microphone and a means to have these in the correct location for comfortable use. The headset "base" often referred to as an amplifier or telephone adapter, interfaces with the telephone or other equipment. The headset base is currently required in most standard telephone applications. Increasingly, the headset interface is being built into the corded telephone or call center call distribution system with which the headset is being used, allowing use of the headset top alone. 6 7 MOBILE APPLICATIONS: Many mobile telephones (both cellular and portable units) come with a dedicated standard 2.5mm headset port, permitting the headset to be plugged directly into the telephone handset. On those mobile telephones that do not have a standard headset port, we often sell an adapter that plugs into the telephone and permits attachment of a headset top. As the adoption of headsets increases, we expect that more corded telephones, mobile telephones and other equipment will be equipped with headset interfaces.* COMPUTER APPLICATIONS: Computers and other electronic equipment generally do not require a separate adapter and our headsets are designed to plug directly to the equipment (either to the computer's analog sound card or, in the case of our recently introduced digital signal processing (DSP) line, into the USB port of the computer). HEADSET TOP STYLES: There are four basic headset "top" styles: Over-the-head headsets with ear cushions. The Supra(R) headset, still our most popular model, is an over-the-head model available with sound reception in one or both ears. The Encore(R) headset features all of the qualities of the Supra headset, plus user-controllable tone adjustment. The DuoSet(R) headset has a comfortable and adjustable headband and the flexibility to convert quickly to the over-the-ear style discussed below. Most of our present models of headsets for use with computers, the SR1, LS1 and HS1 models, and the newly introduced line utilizing DSP technology, are over-the-head style. Several of our headsets for use with mobile telephones, the M110, M114, M170 and M175 models, are also over-the-head headsets (with the M170 and M175 models readily converting to the over-the-ear style). Over-the-ear headsets with a receiver that rests on either ear. The Mirage(R) telephone headset uses a miniaturized behind-the-ear capsule. Attached to it is a small disc-shaped receiver that rotates to fit against either ear. The receiver rests gently on the ear, not in it. The M120, M124, M130 and M135 mobile headsets are also designed with the receiver resting on the ear with a comfortable earloop that holds the headset in place. The M1000 Bluetooth headset is an over-the-ear headset. As noted above, the mobile headset models M170 and M175 and the DuoSet telephone headset convert from over-the-head to the over-the-ear style. Over-the-ear headsets with an ear tip. The TriStar(R) headset, the industry's lightest commercial telephone headset, features maximum user adjustments for excellent stability, comfort and sound quality. Sound is delivered to the ear by an acoustic ear tip that attaches to the comfortable earloop of the headset. The StarSet(R) headset is the distinctive Plantronics headset that uses a small capsule that fits behind and in the outer portion of the ear. The headset is extremely lightweight, requiring no headband, and the ear tip's acoustic coupling provides exceptional sound quality. Headsets that rest in the outer portion of the ear. The FreeHand(R) headset offers a functional and lightweight design that allows it to be easily and quickly placed on or removed from its position in the outer portion of the ear with one hand. Its adjustable microphone boom may be rotated for optimum transmit performance. Our M140 and M145 models are versions of the FreeHand headset designed for use with mobile telephones. The CAT132 is a version of the FreeHand headset optimized for use with computer applications. The receiver of the new M205 earbud style headset rests in the outer part of the ear with the microphone incorporated into the cord leading to the mobile telephone. We manufacture a broad line of headset styles that can be worn over the head, in the ear or over either ear. Many of our headsets offer either the proprietary Plantronics Voice Tube (our most popular solution, suitable for the majority of environments) or a noise-canceling microphone (appropriate for users in very loud environments). All telephone-based headsets, in conjunction with their associated amplifiers, are designed for use with substantially all of the different telephone systems currently available. Basic models include features such as user volume control, a mute switch and Quick Disconnect(TM) connector, which allow users to leave the phone without removing their headsets or disconnecting their call. We sell a full range of amplifiers designed to work with substantially all telephone systems. We also sell telephone headset systems that plug directly to the phone line and adapters to allow headsets to connect to mobile telephones. 7 8 PRINCIPAL PRODUCTS: Our principal headset tops, headset amplifiers and telephones are as follows: OFFICE AND CALL CENTER HEADSETS AND ACCESSORIES
PRODUCT DESCRIPTION FEATURES ------- ----------- -------- SUPRA Our most popular headset, Engineered for sound quality ideal for phone-intensive jobs and durability. Sound and call center environments. reception in one or both ears. ENCORE Also used in call centers; User-controllable tone designed for near-universal adjustment and powerful fit and all-day comfort. noise-canceling performance. MIRAGE Uses a miniaturized Rests gently on the ear, not over-the-ear capsule with an in the ear. Can be worn on adjustable receiver. either ear. STARSET Has an acoustic eartip that Ultra-lightweight, with an fits gently in the outer acoustic seal to block out portion of the ear. unwanted background noise. TRISTAR Stylish design for phone Featherweight (1/2 ounce), intensive jobs and call center with maximum user environments. adjustments designed for stability, comfort and sound quality. FREEHAND Designed for business Small and unobtrusive, easy professionals, this headset to put on and take off. features a small earbud which rests comfortably in the ear. DUOSET Appropriate for business Easily convertible from professionals who want a over-the-head to headband for longer calls as over-the-ear for greater well as an over-the-ear versatility. headset for intermittent phone use. Vista(TM) Universal Modular Amplifier -- Unique SoundGuard(R) Plus(TM) compatible with single or and Call Clarity(TM) technology multi-line telephones. provide improved sound quality while delivering automatic audio comfort by reducing the sound received to comfortable levels. E-10 In-Line Amplifier -- designed So small and lightweight for use directly on the that it is worn on the body telephone line. instead of taking up valuable desktop space, yet offers full desktop adapter functionality. A20 Telephone Headset Amplifier Includes an under-the-telephone and Accessory Deck. accessory deck, with top-of-the- Professional headset amplifier line amplifier, cord management, system with easy configuration an online indicator and headset and universal compatibility is stand. ideal for business professionals and executives. Plug Prong Amplifier Perfect for the call center Designed for automatic call environment and, in distribution systems. specialized situations, for air traffic control and other environments.
8 9 OFFICE AND CALL CENTER HEADSETS AND ACCESSORIES
PRODUCT DESCRIPTION FEATURES ------- ----------- -------- CA10 Wireless Amplifier - 900 MHz Built to permit call center cordless amplifier that and office users up to 150 connects to single-line or feet of mobility. multi-line corded telephones. CS10 Cordless Headset System - Provides a turnkey easy to identical to the CA10 model install cordless headset for and comes bundled with a use in the office comfortable and convenient environment. convertible headset. CA20 Wireless Amplifier - DECT Built to permit call center cordless amplifier that and office users up to 150 connects to single-line or feet of mobility. multi-line corded telephones for our European customers.
COMPUTER HEADSETS
PRODUCT DESCRIPTION FEATURES ------- ----------- -------- SR1 Speech recognition headset for Monaural headset with use with speech recognition noise-canceling microphone applications and general use in a lightweight with the computer. over-the-head form. LS1 Multimedia stereo headset for Lightweight stereo headset use with speech recognition with noise-canceling applications and multimedia microphone and an inline applications. control module for speaker volume and microphone mute. HS1 Gaming headset for use with High-fidelity speakers with all multimedia applications dynamic bass response, a and computer games, as well as noise-canceling microphone voice recognition and voice swings out of the way when command applications. not needed. Complete with an inline control module for speaker volume and microphone mute. DSP-100 A digitally-enhanced USB A monaural headset with headset for speech recognition noise-canceling microphone Internet telephony/chat, voice to enhance speech accuracy. and speech recognition Packaged with Plantronics' applications. PerSono Audio Control Center Software, as well as leading speech recognition and voice applications. DSP-300 A digitally-enhanced USB A stereo headset with headset with full-range stereo noise-canceling microphone sound for all multimedia to enhance speech accuracy. applications including Packaged with Plantronics' listening to CDs, DVDs, or PerSono Audio Control Center MP3s in high-quality stereo Software, as well as sound. leading speech recognition and voice applications.
9 10 COMPUTER HEADSETS
PRODUCT DESCRIPTION FEATURES ------- ----------- -------- DSP-400 A digitally-enhanced foldable A foldable stereo headset stereo USB headset with well suited to business full-range stereo sound. The travelers. The noise-canceling foldable design allows for microphone enhances speech easy storage and transport. accuracy. Packaged with Listen to CDs, DVDs, or MP3s. Plantronics' PerSono Audio Control Center Software, as well as leading speech recognition and voice applications. DSP-500 A digitally-enhanced USB A stereo headset for premium gaming/multimedia headset with audio sound. The 40mm full-range stereo sound. speakers provide dynamic Perfect for multimedia bass response. Software applications such as games, includes Plantronics' CDs and MP3 music, speech PerSono Audio Control recognition and voice command Center Software, as well as applications. leading speech recognition, voice and gaming applications. CAT 132 Convenient, portable PC Features include a miniature headset ideal for use with wide-band receiver, laptop computers. noise-canceling microphone with adjustable boom for optimal fit in a compact and extremely lightweight (less than 1/3 of an ounce) form factor. Headset A multimedia amplifier -- Switcher(TM) allows for use of a single headset with a telephone or computer by simply flipping a switch.
MOBILE HEADSETS
PRODUCT DESCRIPTION FEATURES ------- ----------- -------- M110/M114 A low-priced headset for use Comfortable adjustable with mobile telephones. headband and noise-canceling microphone. The M114 model comes with a convenient inline volume control. M120/M124 Sleek over-the-ear headset for Quick and easy to put on use with cellular and mobile with one hand, leaving both telephones. hands free to drive or perform other tasks. Both models come with a noise-canceling microphone; the M124 model has a convenient inline volume control. M130/M135 A stylish over-the-ear Lightweight, comfortable telephone headset with a design. Both models come comfortable adjustable earloop. with a noise-canceling microphone; the M135 model has a convenient inline volume control.
10 11 MOBILE HEADSETS
PRODUCT DESCRIPTION FEATURES ------- ----------- -------- M140/M145 This headset features a small Lightweight, comfortable earbud which rests comfortably design. Both models come in the ear with an optional with a noise-canceling earloop to hold the headset microphone; the M145 model securely in place. has a convenient inline volume control. M170/M175 Headset converts from over-the The ultimate in comfort and head to over-the-ear style to choice. Both models come give the maximum freedom of with a noise-canceling choice to the mobile user. microphone; the M175 model has a convenient inline volume control. M205 Announced in January 2001 at The M205 headset features Winter CES and scheduled for microphone technology that shipment in April, the M205 is provides natural voice Plantronics' first delivery, acoustic sound earbud-style headset. protection to help safeguard users' hearing, and Plantronics' Flexfit(TM) design for comfort and improved fit. M1000 Plantronics' first Bluetooth Bluetooth headset profile wireless headset was announced v1.1 compliant, lightweight in March 2001 at CTIA and and compact, with up to 3.5 scheduled for shipment in late hours talk time and range up Summer 2001. to 30 feet. ClearVox C90 An affordably priced Easy-on/easy-off design that earbud-style headset. fits on either ear. ClearVox C300 An affordably priced Support triangle provides a over-the-ear style headset. universal fit. Mobile Phone Adapters Designed for use with mobile Available for most of the telephones lacking built-in commonly used mobile headset ports. telephones not equipped with a headset port.
RESIDENTIAL AND SMALL OFFICE HEADSET SYSTEMS
PRODUCT DESCRIPTION FEATURES ------- ----------- -------- CT10 The CT10 model is a 900 MHz Designed for home and small cordless headset telephone in office applications, the a stylish compact form so CT10 headset telephone small it fits in a pocket. offers the ideal combination of size, mobility and convenience. SP and PLX(R) SERIES Designed specially for the Offers comfort and ease of SOHO user; sold with an use. adapter or telephone. PRACTICA(TM) SERIES Designed for low-to Offers good sound quality medium-intensive phone users and durability at an who require a less expensive attractive retail price. headset; sold with an adapter or telephone with convertible headset. S10 Telephone Headset Full-featured amplifier works Headset stand and full tone System with virtually any phone. control, mute switch, and transmit and receive volume control.
11 12 RESIDENTIAL AND SMALL OFFICE HEADSET SYSTEMS
PRODUCT DESCRIPTION FEATURES ------- ----------- -------- T10 Headset Telephone Complete single-line telephone Automatic noise-canceling with convertible headset. technology, adjustable volume and tone control, redial, flash and mute buttons, as well as built-in online indicator and headset stand. T20 Headset Telephone Complete dual-line telephone All the features of the T10 with headset. telephone plus a hold button with three-way conference calling. StarBase(TM) Headset A full-featured single-line This headset telephone, to Telephone telephone developed for use in which nearly all of our Europe. headsets may be attached, enables businesses to use headsets for non-operator functions.
HEADSET ACCESSORIES AND SERVICES We have developed and sell the HL1 Handset Lifter, an accessory product for use with our CA10 and CS10 wireless amplifier systems, and the HS2 Handset Lifter for use with the A20 amplifier and the S20 Telephone Headset System. The HL1 Lifter allows completely remote call answering. When the phone rings, the HL1 Lifter rings the remote unit of the wireless amplifier and, at the touch of a button on the remote, lifts the telephone handset. The HL2 Lifter allows A20/S20 users to answer the phone with the touch of a button on the A20 or S20 amplifier base. Headset spares and accessories allow end users to revitalize their headset tops to maintain maximum performance and comfort or increase the functionality of the headset solution. Spares and accessories include replacement Plantronics Voice Tubes, training cords, ear cushions, eartips, in-use indicators, theft protection devices and background noise suppressors. In fiscal 2001, we introduced AttiTubes(TM), a new line of accessory color voice tubes for some of our most popular office and call center headsets. AttiTubes are available in two sizes and five colors: Outrageous Orange, Serene Green, Passion Pink, Cool Blue and Peaceful Purple. The trademark Plantronics Voice Tubes are also still available. We support our product offerings with a technical assistance center to assist our customers with technical questions. Our worldwide service center operations provide a quick response to warranty support and out-of-warranty service needs. SPECIALTY PRODUCTS Our Walker Equipment Division sells special amplified and noise-canceling handsets for high-noise environments, and a full line of replacement and original equipment handsets for entry and elevator phones and for use in telephone booths and information kiosks. Through our Walker Equipment Division, we also manufacture line test equipment and sell specialty telephone products, including amplified telephone handsets and telephone amplifier accessories for the hearing-impaired. Our Walker Equipment Division also sells the Clarity(R) telephone, a full-featured, single line telephone designed for hearing-impaired users. It features volume control circuitry, oversized buttons, a ringer volume control and a light that flashes when the telephone rings. In fiscal 2001, the Walker Equipment Division launched the Cordless Clarity telephone, a 900 MHz version of the popular Clarity telephone - giving greater mobility with clarity of hearing to those with hearing impairment. Our specialty products operation provides headsets and other equipment for special applications that are not served by our standard headset product lines. 12 13 PRODUCT DEVELOPMENT Since our introduction of the original lightweight headset in 1962, enhancing communications has been the primary focus of our development efforts. As we expand into the global marketplace, we have increased the scope of these efforts to support international product needs. We maintain an extensive database of head and ear shapes to assist in the development of our products. Our concern for ergonomics and our efforts to design-in comfort and safety have resulted in such product innovations as a conformable earloop designed to conform to the human anatomy and the SoundGuard Plus system, which provides intelligibility and superior sound quality. We have a number of product development programs currently underway, including a new generation of headset systems for our emerging computer and mobile markets. In addition, we are developing long and short-range wireless mobility solutions for the call center, office and home-office markets. Our Computer Audio Systems Division recently completed development efforts on the next generation of digitally-enhanced USB headsets for the PC and Mac. These are the first headsets available offering digital-quality stereo and microphone capabilities to make sound clearer, speech more accurate and multimedia applications more realistic. Our Mobile Communications Division recently developed an innovative earbud-style headset for people who want the ease and subtlety of an earbud-style product, coupled with improved acoustic performance. During fiscal 2001, we previewed the first of our planned Bluetooth compliant headset solutions at the Winter CES 2001 show in Las Vegas. We introduced Bluetooth headset solutions for the mobile telephone market and also solutions for the office and call center markets. Our new M1000 headset allows users of mobile telephones to communicate with other Bluetooth devices such as mobile phones, PDAs and laptops. We recently introduced several new products for the office and call center, developed under the project names "Venus" and "Stargate." These innovative designs, scheduled for general availability in the third quarter of fiscal 2002, extend Bluetooth convenience and interoperability to the office and call center markets. Bluetooth is a low-cost, short-range wireless technology that promises to eliminate the cables and wires that currently connect most computing and communications devices. We were one of the earliest members of the Bluetooth consortium, which now includes over 2000 companies. Our Bluetooth offerings are the result of a major development effort using second-generation chip technology. We believe this new technology will allow us to offer better sound quality and longer battery life at a lower cost than earlier Bluetooth headset offerings.* We are focusing additional development efforts, using Bluetooth wireless technology, to service the needs of all our markets. Most of our research and development is carried out by our in-house engineering staff in the United States and England. We supplement our in-house engineering capabilities through selected outside contracting arrangements. Research, development and engineering expenditures were $19.5 million, $21.9 million and $27.0 million for fiscal years 1999, 2000 and 2001, respectively. We believe that substantial investment in research and development is imperative to maintain our position in the industry and, therefore, intend to increase our spending for research, development and engineering in fiscal 2002 and subsequent fiscal years.* Our product development efforts are directed toward both enhancing our existing products and developing new products that capitalize on our core technology and expand our product offerings to new user markets. The success of new product introductions is dependent on a number of factors, including appropriate new product selection, timely completion and introduction of new product designs, cost-effective manufacturing of such products, quality of new products, the acceptance of new technologies such as Bluetooth, and general market acceptance of all new products. To be successful in the future, we must be able to develop new products, qualify these products with our customers, successfully introduce these products to the market on a timely basis, and commence and sustain volume production to meet customer demands. Although we have attempted to determine the specific needs of the telephone, mobile telephone, computer, individual and home office user markets, there can be no assurance that the market niches identified will, in fact, materialize, or that our existing and future products designed for these markets will gain substantial market acceptance. Further, assuming the markets develop and our products meet customer needs, there is no assurance that such new products can be manufactured cost effectively and in sufficient volumes to meet the potential demand. The technology of telephone headsets has traditionally evolved slowly. Products are currently exhibiting life cycles of three to five years before introduction of the next generation of products, which usually include stylistic changes and quality improvements, but have historically been based on similar technology. Our newer emerging 13 14 technology products, particularly in the mobile and computer markets, are exhibiting shorter life cycles more in line with the consumer electronics market, and are consequently more sensitive to market trends and fashion. We believe that future changes in technology will come at a faster pace.* Our future success will be dependent in part on our ability to develop products that utilize new technologies and to adapt to changing market trends quickly. In addition, in order to avoid product obsolescence, we will have to monitor technological changes in telephony, as well as users' demands for new technologies. Failure to keep pace with future technological changes could materially adversely affect our revenues and operating results. SALES AND DISTRIBUTION We have a well-established multilevel worldwide distribution network. Our principal customers are distributors, OEM partners, retailers and telephony service providers. Specialized headset distributors represent our largest distribution channel. These distributors generally sell on a national basis. Electronics wholesalers represent our second largest channel. They typically offer a wide variety of products from multiple vendors to both resellers and end users. These distribution channels generally maintain inventory of our products, and our revenues may be affected by our distributors' fluctuating inventory levels even when market demand is stable. In fiscal 2001, we were successful in substantially reducing our order lead times as well as inventory levels in the channel. The retail channel consists of office supply and consumer electronics retailers, warehouse clubs, consumer products and office supply distributors, and catalog and mail order companies. Retailers primarily sell headsets to small businesses, small offices and home offices. Call center OEMs and manufacturers of automatic call distributor systems (ACDs) and other telecommunications and computer equipment also utilize Plantronics headsets. Call center equipment OEMs do not typically manufacture their own peripheral products, and therefore distribute our headsets on its own private label, as a Plantronics branded product or as a co-branded product. Mobile telephone OEMs include both manufacturers of mobile telephone handsets and wireless carriers operating cellular, PCS, GSM and other mobile telephone networks. They do not manufacture headsets but increasingly will distribute our headsets on a privately labeled or co-branded basis. Computer OEMs include both manufacturers of computer hardware (including personal computers and specialized components and accessories for personal computers) and software suppliers (such as suppliers of voice recognition systems for use with personal computers). Many companies do not typically manufacture headsets but look to us for bundling our headsets with their products. Currently most of the OEM bundling is done on a Plantronics-labeled basis, with some of the OEMs doing so on a privately labeled or co-branded basis. The telephony service provider channel is comprised of former Regional Bell Operating Companies and other telephone service providers that purchase headsets from us for use by their own agents. Certain of these service providers also resell headsets to their customers. We also make direct sales to certain government agencies, including NASA and the FAA. In addition, certain of our distributors are authorized resellers under a GSA schedule price list and sell our products to government customers pursuant to that agreement. We maintain a direct sales force worldwide to provide ongoing customer support and service globally. We also retain commissioned manufacturers' representatives to assist in selling through the retail channel. BACKLOG Our backlog of unfilled orders was $16.6 million on March 31, 2001, compared to $22.4 million at the end of fiscal 2000. We include in backlog all purchase orders scheduled for delivery over the next twelve months. As part of our commitment to customer service, our goal has been to ship products to meet customers' requested shipment dates. The majority of our orders are fulfilled within two to five business days. Our backlog is occasionally subject 14 15 to cancellation or rescheduling by the customer on short notice with little or no penalty. We do not believe our backlog as of any particular date is indicative of actual sales for any future period and therefore should not be used as a measure of future revenue. COMPETITION We compete in several different markets, specifically the call center, the office, mobile, computer and residential markets. There are a number of different competitors in each of these market niches. We believe the principal competitive factors in each market are product features, comfort and fit; product reliability; customer service and support; reputation; distribution; ability to meet delivery schedules; warranty terms; product life; and price. We believe that our brand name recognition, distribution network, extensive and responsive customer service and support programs, large user base and extensive number of product variations, together with our comprehensive experience in designing safe, comfortable and reliable products and dealing with regulatory agencies, are the key factors necessary in maintaining our position as a leading supplier of lightweight communications headsets. In the call center user market, we face different competitors depending on the channel of distribution and the geographic location. We anticipate that we may face additional indirect competition in this market from technological advances such as wireless and Bluetooth systems. Although we have historically competed very successfully in the call center market, there can be no assurance that we will be able to continue our leadership position in that market. The office market, including both traditional and small or home office, and residential markets, involves the sale of headsets for connection to single line or office telephone systems, cellular and cordless telephones and computers. Certain competitors in the call center user market also sell headsets for use in the office market. Competitors in the mobile market generally come from outside of the call center market. They include the mobile phone manufacturers who typically outsource phone accessories like headsets, and companies that focus primarily on the mobile and/or cordless phone accessories markets. There is indirect competition from hands free car kits that also allow users to drive with both hands on the wheel. Important competitive factors in the mobile market include product styling, product reliability, product features, competitive pricing, sound quality, comfort and fit, customer service and support, reputation, distribution, ability to meet delivery schedules, warranty terms, and product life. In the computer market, we compete for business in both the retail channel and through OEMs. We face competition principally from established computer peripheral vendors. These vendors have established relationships with their distribution channels, enabling them to gain broad and deep global distribution. There is indirect competition from stand-alone microphones and loudspeakers for use with computers. Competition through the retail channel is based upon differentiated retail packaging, superior microphone and speaker performance, price and headset style and color. Competition for OEM business is based upon offering highly accurate microphones optimized to the OEM's software or system, unique styling, competitive pricing, and consistent quality with low defect rates. The residential market involves the sale of headsets, telephones for use by the hearing impaired, and single and multi-line corded and cordless headset telephone solutions. This market is principally served by the retail channel and through certain OEMs. Our competition in the residential market comes principally from competitors in the mobile and computer markets and, in the case of our Walker Clarity telephones for the hearing impaired, from certain niche market manufacturers of similar products. As we develop new generations of products and enter new markets, including the developing business and home office user markets, we anticipate facing additional competition from companies that currently do not offer communications headsets. Such companies may be larger, offer broader product lines and have substantially greater financial resources. Such competition could negatively affect pricing and gross margins. We believe that our experience in design and manufacture of comfortable and well fitting headsets will assist us in our efforts to sell headset products in the face of this new competition.* However, there is no assurance that we will be able to compete successfully. 15 16 We believe that the following key factors enable us to maintain our position as a leading supplier of lightweight communications headsets: - brand name recognition; - large, diverse distribution networks; - strong customer service; - diverse product offerings; - ability to design safe and reliable products; and - an understanding of regulations. Although we believe we compete successfully with respect to these factors, if we do not compete successfully with respect to any of these or other factors, it could materially adversely affect our business, financial condition and results of operations. MANUFACTURING AND SOURCES OF MATERIALS The majority of our manufacturing operations consists of assembly and testing, most of which is performed at our facility in Mexico. We have smaller manufacturing operations in California, Tennessee and the United Kingdom. In addition, we outsource the manufacture of a limited number of products to third parties. We purchase the components for our headset products, including proprietary semi-custom integrated circuits, amplifier boards and other electrical components, from suppliers in Asia, the United States, Mexico, and Europe. The majority of our components and subassemblies used in our manufacturing operations are obtained, or are reasonably available, from dual-source suppliers. We generally manufacture our products to meet forecasted customer requirements. Special products and large orders submitted with short lead times are manufactured to order. Since most manufacturing occurs prior to the receipt of purchase orders, we maintain an inventory of finished goods in addition to inventories of raw materials, work in process and subassemblies and components. ENVIRONMENTAL MATTERS We are subject to various federal, state, local and foreign environmental laws and regulations, including those governing the use, discharge and disposal of hazardous substances in the ordinary course of our manufacturing process. We believe that our current manufacturing operations comply in all material respects with applicable environmental laws and regulations. We have included in our financial statements a reserve of $1.5 million for possible environmental remediation related to one of our discontinued businesses. While no claims have been asserted against us in connection with this matter, there can be no assurance that such claims will not be asserted in the future or that any resulting liability will not exceed the amount of the reserve. It is possible that future environmental legislation may be enacted or current environmental legislation may be interpreted to create environmental liability with respect to our facilities or operations. PATENTS AND TRADEMARKS We maintain a program of seeking patent protection for our technology. Significant product features for which we have, or are currently seeking, patent protection include our A20 detachable phone base configuration, SoundGuard receiver gain compression integrated circuit, features of the Mirage headset, the TriStar headset, Clarity frequency enhancing telephone, adapter serial bus, auditory user interface, adaptive transmit level circuit, battery-powered in-line amplifier with an automatic by-pass feature to provide continuous receive signal when battery power gets low, noise canceling headset configuration, integrated circuit implementation for an audio amplifier 16 17 operating at extremely low power with an expander function for noise reduction in telephony applications, headset receiver mechanical-acoustical tone control devices, earbud receiver positioning mechanisms, self-configuring telephone interface units and various other products and features including certain wireless technology and electronic components. As of June 1, 2001, we have thirty-six United States patents in force, expiring in 2002 to 2019. Some of these patents are also issued in certain foreign countries. Our success will depend in part on our ability to obtain patents and preserve other intellectual property rights covering the design and operation of our products. We intend to continue to seek patents on our inventions when appropriate. The process of seeking patent protection can be lengthy and expensive, and there can be no assurance that patents will be issued for currently pending or future applications or that our existing patents or any new patents issued will be of sufficient scope or strength or provide meaningful protection or any commercial advantage to us. We may be subjected to, or may initiate, litigation or patent office interference proceedings, which may require significant financial and management resources. The failure to obtain necessary licenses or other rights or the advent of litigation arising out of any such claims could have a material adverse effect on our operations. We own registered trademarks with respect to the Plantronics name and our logo design and the names of many of our products and product features, including, but not limited to, our Encore, FreeHand, Mirage, SoundGuard, StarSet, Supra, and TriStar products and features. We currently have United States and foreign trademark applications pending in connection with certain new products and product features. We have such trademark registrations in place on some or all of those marks in the United States and a number of countries throughout the world. We claim common law trademark rights in many of our products and/or product features. We also attempt to protect our trade secrets and other proprietary information through comprehensive security measures, including agreements with customers and suppliers, and proprietary information agreements with employees and consultants. EMPLOYEES On March 31, 2001, we employed 2,208 people worldwide, including 1,532 in our manufacturing facility in Tijuana, Mexico. No employees are currently covered by collective bargaining agreements or are members of any labor organization as far as we are aware. We have not experienced any work stoppages and believe that our employee relations are good. SENIOR MANAGEMENT AND EXECUTIVE OFFICERS Set forth below is certain information regarding the senior management and executive officers of Plantronics and their ages as of June 1, 2001.
NAME AGE POSITION ---- --- -------- Owen Brown 54 Vice President - Development and Chief Technology Officer Benjamin Brussell 40 Vice President - Corporate Development Lyndall Fry 44 Vice President - Quality Kevin Goodwin 45 Vice President - Legal, General Counsel and Secretary Don Houston 47 Senior Vice President - Sales Ken Kannappan 41 President and Chief Executive Officer Steve Krug 43 President - Walker Equipment Division Jean-Claude Malraison 54 Managing Director - Europe, Middle East & Africa Craig May 41 Senior Vice President - Marketing and Development and President - Call Center and Office Division Barbara Scherer 45 Senior Vice President - Finance & Administration and Chief Financial Officer Joyce Shimizu 46 President - Mobile Communications Division Neil Snyder 49 President - Computer Audio Systems Division Terry Walters 52 Vice President - Operations
MR. BROWN was appointed Vice President - Development and Chief Technology Officer in July 1999. Prior to joining Plantronics, Mr. Brown worked for Omnipoint Technologies, Inc. as the Product Development Director from 1996 to 1998 and as Vice President, Products and Technology at JRC International, Inc. from 1994 to 1996. He received his Bachelor's degree in Engineering Physics at McMaster University of Canada and went on to receive his 17 18 Masters degree in Electrical Engineering from the same institution. MR. BRUSSELL joined Plantronics in March 1998 as Vice President - Corporate Development and reports directly to the President and Chief Executive Officer. Prior to joining Plantronics, Mr. Brussell was Vice President, Corporate Development at Storage Technology Corporation, a leading provider of enterprise and network information storage systems, from March 1992 to March 1998. From June 1990 until March 1992, Mr. Brussell acted as a consultant to Storage Technology Corporation and other technology and health care industry companies. From January 1985 to June 1990, Mr. Brussell held various positions with Solomon Brothers, the last of which was Vice President, Corporate Finance, Technology Group. Mr. Brussell has a Bachelor of Arts degree in Math/Economics from Wesleyan University and a Masters Degree in Management from M.I.T. Sloan School of Management. Mr. Brussell is a director of Dot Hill Systems Corporation, a manufacturer of high performance data storage systems. MS. FRY joined Plantronics in August of 1998 and is the Vice President of Quality. Prior to joining Plantronics, Ms. Fry was with Siemens A.G. for fourteen years, most recently as the Head of Quality Assurance with the Siemens Wireless Terminals Division in Austin, Texas, from 1993 to 1998. Ms. Fry has over fifteen years of manufacturing, materials and quality experience. Ms. Fry received a Bachelor of Arts from the University of California, Irvine and an M.B.A. in International Business from the College of Notre Dame. MR. GOODWIN has served as Vice President - Legal, General Counsel and Secretary since July 1999. Mr. Goodwin joined Plantronics in July 1996 as a full-time contract counsel and in November 1997 became an employee and General Counsel. In July 1998, Mr. Goodwin was appointed Assistant Secretary of Plantronics. Prior to joining Plantronics, Mr. Goodwin was in private practice with several law firms with offices in Silicon Valley, including Carr & Ferrell (from 1995 to 1996) and Pettit & Martin (from 1989 to 1995). Mr. Goodwin received his law degree from Columbia University and a Bachelor of Arts degree in Economics and Philosophy from Claremont Men's College. MR. HOUSTON joined Plantronics in November 1996 as Vice President Sales and was promoted to Senior Vice President - Sales in March 1998. From February 1995 through November 1996, Mr. Houston served as Vice President - Worldwide Sales for Proxima Corporation, a designer, developer, manufacturer and marketer of multimedia projection products. From 1985 until January of 1995, Mr. Houston held a number of positions at Calcomp, Inc., which is engaged in the business of manufacturing computer peripherals for the CAD and graphic market, including Regional Sales Manager and Vice President of Sales, Service and Marketing. Prior to 1985, Mr. Houston held various sales and marketing management positions with IBM Corporation. Mr. Houston is a graduate of the University of Arizona with a Bachelor of Science degree in Business/Marketing. MR. KANNAPPAN joined Plantronics in February 1995 as Vice President - Sales, responsible for OEM Sales and the Asia Pacific/Latin America markets for Plantronics, Inc. He was promoted to Vice President - Sales, responsible for the United States, Asian and Latin American markets in September 1995. He was promoted to Managing Director of our Plantronics Limited subsidiary in England in March 1996. In March 1997, Mr. Kannappan returned from England and was promoted to Senior Vice President responsible for Plantronics' Worldwide Operations, the Company's Mobile and Walker Equipment Divisions and Plantronics Limited. In March 1998, Mr. Kannappan was promoted to President and Chief Operating Officer. In January 1999, he was promoted to Chief Executive Officer and appointed to the Board of Directors. Prior to joining Plantronics, Mr. Kannappan was Senior Vice President of Investment Banking for Kidder, Peabody & Co. Incorporated, where he was employed from August 1985 through January 1995. Mr. Kannappan has a Bachelor of Arts degree in Economics from Yale University and a Masters of Business Administration from Stanford University. Mr. Kannappan is also a Director of Mattson Technology, Inc., a supplier of advanced process equipment for the semiconductor industry, and Integrated Device Technology, Inc., a manufacturer of communications integrated circuits. MR. KRUG joined Plantronics in December 1996 as President, of Walker Equipment Corporation, then a wholly-owned subsidiary of Plantronics. Walker Equipment Corporation was merged into, and became a division of Plantronics in 1997. Mr. Krug is responsible for all activities of this handset and specialty phone products division. Prior to joining Plantronics, Mr. Krug was Executive Vice President and General Manager of BEL-Tronics, Ltd., a consumer electronics firm, from 1994 to 1996. Mr. Krug also served as Chief Executive Officer and Director of Almor Corporation from 1993 to 1994. Prior to that, he held progressively responsible positions in general 18 19 management and strategic marketing and technology with FLIR Systems, Inc. (an affiliate company of Hughes Aircraft Company - 1990 to 1993) and Hughes Aircraft Company (1978 to 1990). Mr. Krug received his Bachelor degrees in Management Science and Applied Mathematics from University of California, San Diego and has done non-degreed work at Stanford University, MIT and University of California, San Diego. MR. MALRAISON joined Plantronics in July 1999 as the Managing Director - Europe, Middle East & Africa. Mr. Malraison is resident in the Swindon, England and Hoofddorp, the Netherlands offices of Plantronics and is responsible for our European, Middle East and African sales and operations. Mr. Malraison received his Engineering degree at the Institute Superior D'Electronic Du Nord in France. Prior to joining Plantronics, Mr. Malraison spent twenty-eight years with IBM in a number of roles, most recently as Vice-President, Business Partners, EMEA. MR. MAY joined Plantronics in May 1998 as Vice President - Marketing. In July 1999, Mr. May was promoted to Senior Vice President - Marketing and Development. In Fall 1999, Mr. May's responsibilities expanded to include President of the Call Center and Office Division. Prior to joining Plantronics, Mr. May was most recently with Siemens Business Communications Systems, Inc., as Director of Product Management, Desktops and Mobility, from October 1993 to May 1998. Prior to that position, Mr. May served on special assignment to the President of Siemens Business Communications Systems, Inc., from July 1993 to October 1993. From June 1992 to July 1993, Mr. May was ROLM Executive Delegate for Siemens AG, Private Networks Group, Desktop Products, Munich, Germany. Mr. May held a number of positions with ROLM from July 1987 to June 1992, such as Director of Systems Planning, Manager of New Product Planning and Senior Product Manager. From 1981 to June 1987 Mr. May worked for ROLM, an IBM company, and Shell Oil Company in various product manager and engineering positions of increasing authority. Mr. May has a Bachelor of Science degree in Electrical Engineering from the University of Houston. MS. SCHERER joined Plantronics in March 1997, and in April 1997 was named Vice President - Finance & Administration and Chief Financial Officer. In March 1998, Ms. Scherer was promoted to Senior Vice President - Finance & Administration and Chief Financial Officer. Prior to joining us, Ms. Scherer was Senior Vice President and Chief Financial Officer at StreamLogic Corporation, a developer of video delivery, digital media storage, networking RAID and data management products, from October 1996 until March 1997; before that Ms. Scherer was Senior Vice President of Operations from April 1996 until October 1996. Prior to that Ms. Scherer held various positions spanning a nine year career with Micropolis Corporation, a disk drive manufacturer, including, from 1995 until 1996, Vice President Finance, Chief Financial Officer and Treasurer, and from 1993 until 1994, Vice President, Treasurer and Video Systems Division Controller. Ms. Scherer is a graduate of the University of California, Santa Barbara and received her Masters from the Yale School of Organization and Management. MS. SHIMIZU joined Plantronics in July 1983, and was promoted to President of the Mobile Communications Division in 1999. Prior to that, Ms. Shimizu was the Senior Marketing Director for the Computer and Mobile Systems Division, the predecessor to the Mobile Communications Division. Prior to that position, Ms. Shimizu held various positions in our marketing and sales organizations. Ms. Shimizu received an MBA from the Monterey Institute of International Studies and a Bachelor's Degree in Japanese from University of California, Los Angeles. MR. SNYDER joined Plantronics as Vice President and General Manager of the Computer Audio Systems Division in November 1998. Mr. Snyder was promoted to President of the Computer Audio Systems Division in July 1999. Before joining Plantronics, Mr. Snyder was the General Manager of the Zip Aftermarket group at Iomega Corporation from 1997 to 1998. Prior to that Mr. Snyder has held various executive positions at Colordesk, Ltd., Gold Disk Inc., and Borland International. Mr. Snyder attended the Rochester Institute of Technology and Michigan State University. MR. WALTERS has been the Vice President - Operations since April 2000 and is responsible for the worldwide operations of Plantronics. Mr. Walters joined Plantronics in September 1997 as Vice President New Product Introduction and more recently directed development of Plantronics e-commerce business before his current assignment. Prior to joining Plantronics, Mr. Walters spent twenty-four years in Silicon Valley firms developing and manufacturing computer systems. Mr. Walters holds both a Bachelor of Science Degree and a Masters Degree in Industrial Operations from Bradley University. 19 20 Executive officers serve at the discretion of the Board of Directors and senior management serves at the discretion of the President and Chief Executive Officer. There are no family relationships between any of the directors and executive officers of Plantronics. ITEM 2. PROPERTIES Our principal executive offices are located in Santa Cruz, California. As of May 11, 2001, we owned or leased a total of approximately 500,000 square feet of manufacturing, administrative, engineering and office facilities, including: (i) approximately 204,309 square feet of research and development, light assembly operations, and warehouse and administrative facilities in Santa Cruz, California, approximately 40,000 square feet of which are leased to third parties as office and warehouse space; (ii) approximately 6,500 square feet of office and warehouse space in Los Gatos, California, all of which is sub-leased to a third party; (iii) 8,375 square feet of light assembly and administrative facilities in Chattanooga, Tennessee under a lease expiring in 2005; (iv) approximately 215,000 square feet for assembly and related operations in Tijuana, Mexico, under several leases expiring in 2001 and 2005, each with options to renew; (v) approximately 48,684 square feet for research and development, assembly operations, sales and administration in Wootton Bassett, England under leases expiring in 2015; (vi) approximately 13,924 square feet for administrative facilities in Hoofddorp, The Netherlands, under a lease expiring in 2005; and (vii) smaller leased or rented facilities in Australia, Brazil, France, Germany, Hong Kong, Italy, Japan, Spain and Taiwan. We believe that our existing properties are suitable and adequate for our business. We believe that our premises have sufficient capacity available for expansion over the next few years.* We are currently engaging in a long-term space planning process with respect to our Santa Cruz, California headquarters facilities and our Tijuana, Mexico manufacturing plant. We believe that these facilities are unlikely to support all of our requirements for capacity over a mid to longer term planning horizon and are, therefore, evaluating our alternatives. ITEM 3. LEGAL PROCEEDINGS We are presently engaged in a lawsuit filed in the Superior Court in Santa Clara County, California by GN Hello Direct, Inc., a former Plantronics retail catalog distributor that was acquired by our single largest competitor, GN Netcom. GN Hello Direct makes various claims associated with the termination of the distribution relationship between Plantronics and Hello Direct, including that Hello Direct has suffered approximately $11 million in damages as a result of that termination. We consider Hello Direct's claims to be without merit. We will defend the claims vigorously and have filed counterclaims against Hello Direct for, among other claims, breach of contract and material misrepresentations related to our entering into that contract. We are also engaged in the defense of a patent infringement claim, relating to a ClearVox product, brought by Cotron Corporation, a Taiwanese company. We consider the claims in this lawsuit to be without merit. The action was originally filed in the United States District Court, for the Central District of California and we successfully moved the Court to transfer the case to the United States District Court, for the Northern District of California. We will defend this action vigorously and have filed a counterclaim alleging that the Cotron patent is invalid, unenforceable, and not infringed. We are also involved in various other legal actions arising in the normal course of our business. We believe that it is unlikely that any of these actions will have a material adverse impact on our operating results.* However, because of the inherent uncertainties of litigation, the outcome of any of these actions could be unfavorable and could have a material adverse effect on our financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS No matters were submitted to a vote of the security holders of Plantronics during the fourth quarter of the fiscal year ended March 31, 2001. 20 21 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Our Common Stock is publicly traded on the New York Stock Exchange. Information included under the caption "Corporate Information" appearing at page 31 of our 2001 Annual Report to Stockholders concerning the market price of and cash dividends declared on our Common Stock for each quarterly period within the two most recent fiscal years is incorporated herein by reference. As of May 11, 2001, there were 109 holders of record of our Common Stock. ITEM 6. SELECTED FINANCIAL DATA The information appearing under the caption "Selected Financial Data" appearing at page 27 of our 2001 Annual Report to Stockholders is incorporated herein by this reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information appearing under the caption "Management's Discussion and Analysis" appearing at pages 1 through 4 of our 2001 Annual Report to Stockholders is incorporated herein by this reference. RISK FACTORS AFFECTING FUTURE OPERATING RESULTS Investors or potential investors in our stock should carefully consider the risks described below. The performance of our stock will reflect the performance of our business relative to, among other things, our competition, general economic and market conditions and industry conditions. You should carefully consider the following factors in connection with any investment in our stock. Our business, financial condition and results of operations could be materially adversely affected if any of the risks occur. If the risks occur, the trading price of Plantronics stock could decline and an investor could lose all or part of his or her investment. A GENERAL ECONOMIC SLOWDOWN COULD RESULT IN REDUCTION IN OVERALL DEMAND FOR OUR PRODUCTS WHICH WOULD MATERIALLY ADVERSELY AFFECT OUR RESULTS AND WE BELIEVE THIS IS CURRENTLY TAKING PLACE. While our markets have not exhibited highly cyclical behavior in the past, our sales are affected by overall economic activity. In the fourth quarter of fiscal 2001 we saw a drop in the overall level of demand for our products which we attribute principally to a slowing in national and international economic growth. We believe there has been a continued decline in the economy and that a recession may yet occur. Since the beginning of fiscal 2002, we have seen a further reduction in the overall level of demand for our products. If these trends are worse or longer than presently anticipated, this could cause us not to achieve the levels of sales required to achieve our anticipated financial results, which could in turn materially adversely affect the market price of our stock. Also, if the overall economy slows or there is a recession, this could affect the financial health of certain purchasers of our products, potentially resulting in the failure of such purchasers to pay amounts due to us. A SUBSTANTIAL PORTION OF OUR SALES COME FROM THE CALL CENTER MARKET AND A DECREASE OF DEMAND IN THAT MARKET COULD MATERIALLY ADVERSELY AFFECT OUR RESULTS. We have historically derived, and continue to derive, a substantial portion of our net sales from the call center market. This market has grown significantly in recent years as new call centers have proliferated and existing call centers have expanded. We also may have benefited from a short term bubble in call center demand in the first half of fiscal 2001 due to post-year 2000 activities and due to a possibly aberrational growth of internet related businesses. In the fourth quarter of fiscal 2001 and in the portion of fiscal 2002 that has passed before the filing of this report, our sales in the call center market have been below the level of sales in that market in recent prior periods. We do not believe that our decreasing sales are a result of market share gains by our competitors but, instead, believe that the sales slowdown is due to reduction in the level of overall market demand. While we believe that the call center market will grow in future periods,* this growth could slow or revenues from this market could 21 22 continue to decline due to various factors. For example, technological advances such as automated interactive voice response systems could reduce or eliminate the need for call center agents in certain applications. In addition, consumer resistance to telemarketing could materially adversely affect growth in the call center market. A continued deterioration in general economic conditions could result in a reduction in the establishment of new call centers and in capital investments to expand or upgrade existing centers, and we believe this is in fact negatively affecting our business. Due to our reliance on the call center market, we will be affected more by changes in the rate of call center establishment and expansion and the communications products that call center agents use than would a company serving a broader market. Any decrease in the demand for call centers and related headset products could cause a decrease in the demand for our products, which would materially adversely affect our business, financial condition and results of operations. WE ARE COUNTING ON THE OFFICE, MOBILE, COMPUTER AND RESIDENTIAL MARKETS TO DEVELOP AND WE COULD BE MATERIALLY ADVERSELY AFFECTED IF THEY DO NOT DEVELOP AS WE EXPECT. While the call center market is still a substantial portion of our business, we believe that our future prospects will depend in large part on the growth in demand for headsets in the office, mobile, computer and residential markets. These communications headset markets are relatively new and undeveloped. Moreover, we do not have extensive experience in selling headset products to customers in these markets. If the demand for headsets in these markets fails to develop, or develops more slowly than we currently anticipate, or if we are unable to effectively market our products to customers in these markets, it would have a material adverse effect on the potential demand for our products and on our business, financial condition and results of operations. These headset markets are also subject to general economic conditions and if there is a continued slowing of national or international economic growth or a recession, these markets may not materialize to the levels we require to achieve our anticipated financial results, which could in turn materially adversely affect the market price of our stock. OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY DUE TO A NUMBER OF CAUSES OUTSIDE OUR CONTROL. Our quarterly results of operations may vary significantly in the future for a variety of reasons, including the following: - general economic conditions; - changes in demand for our products; - insolvency of purchasers of our products or failure of purchasers of our products to pay amounts due to us; - timing and size of orders from customers; - price erosion; - cancellations or delays of deliveries of components and subassemblies by our suppliers; - variances in the timing and amount of engineering and operating expenses; - distribution channel mix variations; - changes in the levels of cooperative advertising or market development funding required by retail resellers of our products; - delays in shipments of our products; - material product returns and customer credits; - new product introductions by us or our competitors; 22 23 - entrance of new competitors; - changes in actual or target inventory levels of our channel partners; - increases in the costs of our components and subassemblies; - changes in the mix of products sold by us; and - seasonal fluctuations in demand. Each of the above factors is difficult to forecast and thus could have a material adverse effect on our business, financial condition and results of operations. We generally ship most orders during the quarter in which they are received, and, consequently, we do not have a significant backlog of orders. As a result, quarterly net sales and operating results depend primarily on the volume and timing of orders received during the quarter. It is difficult to forecast orders for a given quarter. Since a large portion of our operating expenses, including rent, salaries and certain manufacturing expenses, are fixed and difficult to reduce or modify, if net sales do not meet our expectations, our business, financial condition and results of operations could be materially adversely affected. Our operating results can also vary substantially in any period depending on the mix of products sold and the distribution channels through which they are sold. In the event that sales of lower margin products or sales through lower margin distribution channels in any period represent a disproportionate share of total sales during such period, our operating results would be materially adversely affected. We believe that period-to-period comparisons of our operating results are not necessarily meaningful and should not be relied upon as indicative of future operating results. In addition, our operating results in a future quarter or quarters may fall below the expectations of securities analysts or investors, and, as a result, the price of our Common Stock might fall. IF WE DO NOT MATCH PRODUCTION TO DEMAND WE WILL BE AT RISK OF LOSING BUSINESS OR OUR GROSS MARGINS COULD BE MATERIALLY ADVERSELY AFFECTED. We saw good increases in customer demand for our products through most of fiscal 2001. Historically, we have generally been able to increase production to meet increasing demand. However, the demand for our products is dependent on many factors and such demand is inherently difficult to forecast. Significant unanticipated fluctuations in demand could cause the following operating problems, among others: - If forecasted demand does not develop, we could have excess production or excess capacity. Excess production could result in higher inventories of finished products, components and subassemblies. If we were unable to sell these inventories, we would have to write off some or all of our inventories of obsolete products and unusable components and subassemblies. Excess manufacturing capacity could lead to higher production costs and lower margins. - Significant reduction in production levels to address current decreases in demand may leave us unprepared to meet a rapid increase in demand for our products. - If demand increases beyond that forecasted, we would have to rapidly increase production. We depend on suppliers to provide additional volumes of components and subassemblies, and, therefore, might not be able to increase production rapidly enough to meet unexpected demand. This could cause us to fail to meet customer expectations. There could be short-term losses of sales while we are trying to increase production. If customers turn to competitive sources of supply to meet their needs, there could be a long-term impact on our revenues. 23 24 - Rapid increases in production levels to meet unanticipated demand could result in higher costs for components and subassemblies, increased expenditures for freight to expedite delivery of required materials, and higher overtime costs and other expenses. These higher expenditures could lower our profit margins. Further, if production is increased rapidly, there may be decreased manufacturing yields, which may also lower our margins. Any of the foregoing problems could materially adversely affect our business, financial condition and results of operations. WE DEPEND ON OUR SUPPLIERS AND FAILURE OF OUR SUPPLIERS TO PROVIDE QUALITY COMPONENTS OR SERVICES IN A TIMELY MANNER COULD ADVERSELY AFFECT OUR RESULTS. We buy components and subassemblies from a variety of suppliers and assemble them into finished products. We also have certain of our products manufactured for us by third party suppliers. The cost, quality, and availability of such goods are essential to the successful production and sale of our products. Obtaining components, subassemblies and finished products entails various risks, including the following: - We obtain certain subassemblies, components and products from single suppliers, and alternate sources for these items are not readily available. To date, we have experienced only minor interruptions in the supply of these subassemblies, components and products, none of which has significantly affected our results of operations. Current adverse economic conditions could lead to a higher risk of failure of our suppliers to remain in business or to be able to purchase the subcomponents and parts required by them to produce and provide to us the parts we need. An interruption in supply from any of our single source suppliers in the future would materially adversely affect our business, financial condition and results of operations. - Prices of components and subassemblies may rise. If this occurs and we are not able to pass these increases on to our customers or to achieve operating efficiencies that would offset the increases, it would have a material adverse effect on our business, financial condition and results of operations. - Due to the lead times required in order to obtain certain subassemblies, components and products from certain foreign suppliers, we may not be able to react quickly to changes in demand, potentially resulting in either excess inventories of such goods or shortages of the subassemblies, components and products. In the second quarter of fiscal 2001, we experienced a substantial rise in finished goods inventories in part resulting from purchases of finished products from our suppliers in excess of forecasted demand. Those inventory levels remained high through the fourth quarter of fiscal 2001. Failure in the future to match the timing of purchases of subassemblies, components and products to demand would materially adversely affect our business, financial condition and results of operations. - Most of our suppliers are not obligated to continue to provide us with components and subassemblies. Rather, we buy most components and subassemblies on a purchase order basis. If our suppliers experience increased demand or shortages, it could affect deliveries to us. In turn, this would affect our ability to manufacture and sell products that are dependent on those components and subassemblies. This would materially adversely affect our business, financial condition and results of operations. WE SELL OUR PRODUCTS THROUGH VARIOUS CHANNELS OF DISTRIBUTION AND A FAILURE OF THOSE CHANNELS TO OPERATE AS WE EXPECT COULD DECREASE OUR REVENUES. We sell substantially all of our products through distributors, retailers, OEMs and telephony service providers. Our existing relationships with these parties are nonexclusive and can be terminated by either party without cause. Our channel partners also sell or can potentially sell products offered by our competitors. To the extent that our competitors offer our channel partners more favorable terms, such partners may decline to carry, de-emphasize or discontinue carrying our products. In the future, we may not be able to retain or attract a sufficient number of qualified channel partners. Further, such partners may not recommend, or continue to recommend, our products. In the future, our OEM customers or potential OEM customers may elect to manufacture their own products, similar to those we currently sell to them. The inability to establish or maintain successful relationships with distributors, 24 25 OEMs, retailers and telephony service providers or to expand our distribution channels could materially adversely affect our business, financial condition or results of operations. Our distribution channels generally hold inventories of our products, determined in their own business judgment to be sufficient to meet their customer's delivery requirements. Such inventory levels are subject to market conditions, business judgment by the reseller and our ability to meet their time-to-ship needs. Rapid reductions by our distributors, OEMs, retailers and other customers in the levels of inventories held in our products could materially adversely affect our business, financial condition or results of operations. We generally offer our customers certain credit terms, allowing them to pay for products purchased from us between thirty and sixty days or more after we ship the products. Our receipt of payment for our products depends on the financial liquidity of those customers. If significant customers or a significant number of customers experience liquidity problems, this could affect our ability to collect our accounts receivables, which could materially adversely affect our business, financial condition or results of operations. WE HAVE STRONG COMPETITORS AND WILL LIKELY FACE ADDITIONAL COMPETITION IN THE FUTURE. The markets for our products are highly competitive. We compete with a variety of companies in the various markets for communications headsets. Our single largest competitor is GN Netcom, a subsidiary of GN Great Nordic Ltd., a Danish telecommunications conglomerate. GN Great Nordic reported revenues of 7.0 billion Danish Krone (approximately $884 million) in calendar 2000. In calendar year 2000, GN Netcom continued its practice of acquiring other companies in the headset business. In 2000, GN Netcom acquired Jabra Corporation, a supplier of headsets in the mobile phone market, resulting in an entity with a broader mobile product offering and greater marketing presence than either of the two entities had separately. On October 4, 2000, GN Netcom announced that it had signed an agreement to acquire Hello Direct, Inc., a retail channel seller of communications products and our former customer. On October 25, 2000, we announced that we terminated our contract for the supply of products to Hello Direct due to the impending acquisition of Hello Direct, Inc. by GN Netcom. It is not clear how this acquisition will affect us other than the termination of the product purchase contract, which we do not believe will have a material adverse effect.* However, the acquisition by GN Netcom of Hello Direct does give it a directly owned retail channel presence it did not have before the acquisition. We currently operate principally in a multilevel distribution model - we sell most of our products to distributors who, in turn, resell to dealers or end-customers. GN Netcom's acquisition of Hello Direct and its recent acquisition of one or more European distributors indicates it may be moving to a direct sales model. While we believe that our business and our customers benefit from our current distribution structure, if GN Netcom or other competitors sell directly, they may offer lower prices which could materially adversely affect our business and results of operations. On February 7, 2001, Logitech International S.A., a manufacturer and seller of computer accessory products, announced that it had agreed to purchase Labtec Inc., a Vancouver, Washington-based provider of, among other products, headsets for use with computers. The acquisition was completed in March 2001. Due to this acquisition, Labtec will have greater resources with which to compete with us than it did prior to its acquisition. We anticipate that we will face additional competition from companies that currently do not offer communications headsets. This is particularly true in the office, mobile, computer and residential markets. As these markets mature, we will face increased competition from consumer electronics companies and other companies that currently manufacture and sell mobile phones or computer peripheral equipment. These new competitors are likely to be larger, offer broader product lines, bundle or integrate with other products communications headset tops and bases manufactured by them or others, offer products containing bases that are incompatible with our headset tops and have substantially greater financial, marketing and other resources than we do. We anticipate that we will also face additional competition from companies, principally located in the Far East, which offer very low cost headset products, including products which are modeled on or direct copies of our products. These new competitors are likely to offer very low cost products which may result in price pressure in the 25 26 market. If market prices are substantially reduced by such new entrants into the headset market, our business, financial condition or results of operations could be materially adversely affected. Historically, our expertise in acoustics and design has allowed us to design, develop and manufacture products with the levels of sound quality enabling us to meet the needs of our customers. Due to technological advances, including but not limited to better digital signal processing, our current and future competitors may be able to develop products with the same or better audio quality at lower costs. These technological advances may allow current and future competitors to compete more effectively in terms of product quality or price that could materially adversely affect our business and results of operations. We believe that important competitive factors for us are product reliability, product features, customer service and support, reputation, distribution, ability to meet delivery schedules, warranty terms, product life and price. If we do not compete successfully with respect to any of these or other factors it could materially adversely affect our business, financial condition and results of operations. Further, if we do not successfully develop and market products that compete successfully with those of our competitors, it would materially adversely affect our business, financial condition and results of operations. NEW PRODUCT DEVELOPMENT IS RISKY AND WE WILL BE MATERIALLY ADVERSELY AFFECTED IF WE DO NOT RESPOND TO CHANGING CUSTOMER REQUIREMENTS AND NEW TECHNOLOGIES. Our product development efforts historically have been directed toward enhancement of existing products and development of new products that capitalize on our core capabilities. The success of new product introductions is dependent on a number of factors, including the proper selection of new product features, timely completion and introduction of new product designs, cost-effective manufacture of such products, quality of new products and market acceptance. To be successful in the future, we must develop new products, qualify these new products, successfully introduce these products to the market on a timely basis, and commence and sustain low-cost, volume production to meet customers' demands. Although we attempt to determine the specific needs of headset users in our target markets, because almost all of our sales are indirect, we may not always be able to timely and accurately predict end-user requirements. As a result, our products may not be timely developed, designed to address current or future end-user requirements, offered at competitive prices or accepted, which could materially adversely affect our business, financial condition and results of operations. Moreover, we generally incur substantial research and development costs before the technical feasibility and commercial viability of a new product can be ascertained. Accordingly, revenues from new products may not be sufficient to recover the associated development costs. Historically, the technology used in lightweight communications headsets has evolved slowly. New products have primarily offered stylistic changes and quality improvements, rather than significant new technologies. We anticipate that the technology used in hands free communications devices, including our products, will begin to evolve more rapidly in the future. We believe that this is particularly true of the office, mobile and residential markets, which may require us to develop new headset technologies to support cordless and wireless operation and to interface with new communications and computing devices. As a result, our success depends upon our ability to enhance existing products, to respond to changing market requirements, and to develop and introduce in a timely manner new products that keep pace with technological developments. If we are unable to develop and introduce enhanced products or new products in a timely manner in response to changing market conditions or customer requirements, it will materially adversely affect our business, financial condition and results of operations. Due to the historically slow evolvement of our products, we have generally been able to phase out obsolete products without significant impact to our operating margins. However, as we develop new generations of products more quickly, we expect that the pace of product obsolescence will increase concurrently. The disposition of inventories of obsolete products may result in reductions to our operating margins and materially adversely affect our earnings and results of operations. CHANGES IN REGULATORY REQUIREMENTS MAY ADVERSELY IMPACT OUR GROSS MARGINS AS WE COMPLY WITH SUCH CHANGES OR REDUCE OUR ABILITY TO GENERATE REVENUES IF WE ARE UNABLE TO COMPLY. Our products must meet the requirements set by regulatory authorities in the numerous jurisdictions in which we sell them. As regulations and local laws change, we must modify our products to address those changes. 26 27 Regulatory restrictions may increase the costs to design and manufacture our products, resulting in a decrease in demand for our products if the costs are passed along or a decrease in our margins. Compliance with regulatory restrictions may impact the technical quality and capabilities of our products, reducing their marketability. We are currently facing a substantial change in the regulations applicable to our products in the European Union and there is no certainty that we can meet those regulatory requirements in a timely and cost-effective manner. Failure to conform our products to these new European regulatory requirements would result in our inability to sell such products in Europe, resulting in a material adverse impact to our financial condition and results of operations. WE HAVE SIGNIFICANT FOREIGN OPERATIONS AND THERE ARE INHERENT RISKS IN OPERATING ABROAD. In fiscal 2001, approximately 31.2% of our net sales were derived from customers outside the United States. Approximately 33.5% of our net sales in fiscal 2000 were derived from customers outside the United States, compared with approximately 30.5% of our net sales in fiscal 1999. In addition, we conduct substantially all of our headset assembly operations in our manufacturing facility located in Mexico, and we obtain most of the components and subassemblies used in our products from various foreign suppliers. The inherent risks of international operations, particularly in Mexico, could materially adversely affect our business, financial condition and results of operations. The types of risks faced in connection with international operations and sales include: - cultural differences in the conduct of business; - greater difficulty in accounts receivable collection; - unexpected changes in regulatory requirements; - tariffs and other trade barriers; - economic and political conditions in each country; - management and operation of an enterprise spread over various countries; and - the burden of complying with a wide variety of foreign laws. In fiscal 2001, the value of major European currencies dropped against the U.S. dollar. To date, we have partially but not fully reflected that change in currency value in our selling prices. In order to maintain a competitive price for our products in Europe, we may have to effectively reduce our current prices further, resulting in a lower margin on products sold in Europe. Continued change in the values of European currencies or changes in the values of other foreign currencies could have a material adverse effect on our business, financial condition and results of operations. OUR FOREIGN OPERATIONS PUT US AT RISK OF LOSS IF THERE ARE MATERIAL CHANGES IN CURRENCY VALUES AS COMPARED TO THE U.S. DOLLAR. A significant portion of our business is conducted in currencies other than the U.S. dollar. As a result, fluctuations in exchange rates create risk to us in both the sale of our products and our purchase of supplies. Fluctuations in the value of the currencies in which we conduct our business relative to the U.S. dollar have caused and will continue to cause currency transaction gains and losses. In fiscal 2001, the value of major European currencies dropped against the U.S. dollar, resulting in currency transaction losses. Although we did not engage in any hedging activities in fiscal 2001 to mitigate exchange rate risks, in fiscal 2002 we have introduced programs designed to reduce our foreign currency net asset exposure and thus have a goal to reduce transaction gains and losses that are accounted for in other income/expense. Substantially all of our revenues throughout Europe are priced and thus denominated in local currencies. Thus, our economic exposure to foreign currency fluctuations has not changed and revenues and margins can be adversely impacted by such fluctuations. There can be no assurance that we will not continue to experience currency losses in the future, nor can we predict the effects of future exchange rate fluctuations on future operating results. To the extent that sales to our foreign customers increase or 27 28 transactions in foreign currencies increase, our business, financial condition and results of operations could be materially adversely affected by exchange rate fluctuations. WE MAY HAVE EXPERIENCED IN CALENDAR 2000 A NON-SUSTAINABLE INCREASE IN SALES AS A RESULT OF PENT-UP DEMAND FROM Y2K CONCERNS AND THE RAPID GROWTH OF INTERNET RELATED BUSINESSES. Our results for the first half of calendar year 2000 may not be indicative of longer-term market conditions. Our results of operations for that period, including the first three quarters of fiscal 2001, may reflect a non-sustainable increase in sales as a result of purchases by call center and office customers who delayed investment in new call centers or information technologies due to concerns over the effects of Y2K. Further, there may have been an unsustainable increase in calendar 2000 in the level of spending on information technology infrastructure, including telecommunications devices which use headsets, due to customers addressing the rapid growth of Internet related businesses. IF THERE ARE PROBLEMS THAT AFFECT OUR PRINCIPAL MANUFACTURING FACILITY IN MEXICO, WE COULD FACE LOSSES IN REVENUES OR MATERIAL INCREASES IN COSTS OF OUR OPERATIONS. The majority of our manufacturing operations are currently performed in a single facility in Tijuana, Mexico. A fire, flood or earthquake, political unrest or other disaster or condition affecting our facility could have a material adverse effect on our business, financial condition and results of operations. While we have developed a disaster recovery plan and believe we are adequately insured with respect to this facility, we may not be able to implement the plan effectively or on a timely basis or recover under applicable insurance policies. WE RELY ON A CONTINUOUS POWER SUPPLY TO CONDUCT OUR BUSINESS OPERATIONS AND CALIFORNIA'S CURRENT ENERGY CRISIS COULD DISRUPT OR MAKE SUBSTANTIALLY MORE EXPENSIVE THE OPERATIONS AT OUR HEADQUARTERS FACILITY. California is in the midst of an energy crisis that could disrupt the conduct of sales, marketing, research and development, finance and other operations at our headquarters facilities. In the event of an acute power shortage, California has, on some occasions, implemented, and may in the future continue to implement, rolling blackouts throughout California. We have emergency back-up generators which keep our business information systems in operation but we do not have sufficient back-up generating capacity or alternate sources of power to keep our headquarters in full operation in the event of a blackout. If blackouts interrupt our power supply, we would be temporarily unable to continue full operations at our headquarters. Any such interruption could damage our reputation, harm our ability to retain existing customers and to obtain new customers, and could result in lost revenue, any of which could substantially harm our business and results of operations. Further, it is likely that the cost of electrical power at our California facilities is going to increase substantially. We do not currently believe that the increased expense for electrical power will be a material impact on our financial condition* but if prices increase beyond that currently expected, we could be materially adversely affected. WE HAVE INTELLECTUAL PROPERTY RIGHTS THAT COULD BE INFRINGED BY OTHERS AND WE ARE POTENTIALLY AT RISK OF INFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS. Our success will depend in part on our ability to protect our proprietary technology. We rely primarily on a combination of nondisclosure agreements and other contractual provisions as well as patent, trademark, trade secret, and copyright laws to protect our proprietary rights. We currently hold thirty-six United States patents and additional foreign patents and intend to continue to seek patents on our inventions when we believe it to be appropriate. The process of seeking patent protection can be lengthy and expensive. Patents may not be issued in response to our applications, and patents that are issued may be invalidated, circumvented or challenged by others. If we are required to enforce our patents or other proprietary rights through litigation, the costs and diversion of management's attention could be substantial. In addition, the rights granted under any patents may not provide us competitive advantages or be adequate to safeguard and maintain our proprietary rights. Moreover, the laws of certain countries do not protect our proprietary rights to the same extent as do the laws of the United States. If we do not enforce and protect our intellectual property rights, it could materially adversely affect our business, financial condition and results of operations. 28 29 From time to time, third parties, including our competitors, may assert patent, copyright and other intellectual property rights against us. Such claims, if they are asserted, could result in costly litigation and diversion of management's attention. In addition, we may not ultimately prevail in any such litigation or be able to license any valid and infringed patents from such third parties on commercially reasonable terms, if at all. Any infringement claim or other litigation against us could materially adversely affect our business, financial condition and results of operations. WE ARE EXPOSED TO POTENTIAL LAWSUITS ALLEGING DEFECTS IN OUR PRODUCTS. The use of our products exposes us to the risk of product liability claims. Product liability claims have in the past been, and are currently being, asserted against us. None of the previously resolved claims have materially affected our business, financial condition or results of operations, nor do we believe that any of the pending claims will have such an effect.* Although we maintain product liability insurance, the coverage provided under our policies could be unavailable or insufficient to cover the full amount of any such claim. Therefore, successful product liability claims brought against us could have a material adverse effect upon our business, financial condition and results of operations. Our mobile headsets are used with mobile telephones. There has been continuing public controversy over whether the radio frequency emissions from mobile telephones are harmful to users of mobile phones. We believe that there is no conclusive proof of any health hazard from the use of mobile telephones but that research in this area is incomplete. We have tested our headsets through independent laboratories and have found that use of our headsets reduces radio frequency emissions at the user's head to virtually zero. However, if research was to establish a health hazard from the use of mobile telephones or public controversy grows even in the absence of conclusive research findings, there could be an adverse impact on the demand for our mobile headsets. There is also continuing and increasing public controversy over the use of mobile telephones by operators of motor vehicles. While we believe that our products enhance driver safety by permitting a motor vehicle operator to generally be able to keep both hands free to operate the vehicle, there is no certainty that this is the case and we may be subject to claims arising from allegations that use of a mobile telephone and headset contributed to a motor vehicle accident. We maintain product liability insurance and general liability insurance that we believe would cover any such claims. However, the coverage provided under our policies could be unavailable or insufficient to cover the full amount of any such claim. Therefore, successful product liability claims brought against us could have a material adverse effect upon our business, financial condition and results of operations. WHILE WE BELIEVE WE COMPLY WITH ENVIRONMENTAL LAWS AND REGULATIONS, WE ARE STILL EXPOSED TO POTENTIAL RISKS FROM ENVIRONMENTAL MATTERS. We are subject to various federal, state, local and foreign environmental laws and regulations, including those governing the use, discharge and disposal of hazardous substances in the ordinary course of our manufacturing process. Although we believe that our current manufacturing operations comply in all material respects with applicable environmental laws and regulations, environmental legislation has been enacted and may in the future be enacted or interpreted to create environmental liability with respect to our facilities or operations. We have included in our financial statements a reserve of $1.5 million for possible environmental remediation of the site of one of our previous businesses. While no claims have been asserted against us in connection with this matter, such claims could be asserted in the future and any liability that might result could exceed the amount of the reserve. OUR BUSINESS COULD BE MATERIALLY ADVERSELY AFFECTED IF WE LOSE THE BENEFIT OF THE SERVICES OF KEN KANNAPPAN OR OTHER KEY PERSONNEL. Our success depends to a significant extent upon the services of a limited number of executive officers and other key employees. The unanticipated loss of the services of our president and chief executive officer, Mr. Kannappan, or one or more of our other executive officers or key employees could have a material adverse effect upon our business, financial condition and results of operations. We also believe that our future success will depend in large part upon our ability to attract and retain additional highly skilled technical, management, sales and marketing personnel. Competition for such personnel is intense. 29 30 We may not be successful in attracting and retaining such personnel, and our failure to do so could have a material adverse effect on our business, operating results or financial condition. OUR STOCK PRICE MAY BE VOLATILE AND YOUR INVESTMENT IN PLANTRONICS STOCK COULD BE LOST. The market price for our Common Stock may continue to be affected by a number of factors, including the announcement of new products or product enhancements by us or our competitors, the loss of services of one or more of our executive officers or other key employees, quarterly variations in our or our competitors' results of operations, changes in our published forecasts of future results of operations, changes in earnings estimates or recommendations by securities analysts, developments in our industry, sales of substantial numbers of shares of our Common Stock in the public market, general market conditions and other factors, including factors unrelated to our operating performance or the operating performance of our competitors. Stock prices for many companies, particularly in the technology sector, have experienced wide fluctuations that have often been unrelated to the operating performances of such companies. Such factors and fluctuations, as well as general economic, political and market conditions, such as recessions, could materially adversely affect the market price of our Common Stock. ANTI-TAKEOVER PROVISIONS IN OUR CURRENT BY-LAWS OR WHICH COULD BE PUT INTO PLACE BY OUR BOARD OF DIRECTORS COULD AFFECT MARKET PRICES OF OUR STOCK. Our board of directors has the authority to issue preferred stock and to determine the price, rights, preferences, privileges and restrictions, including voting and conversion rights, of those shares without any further vote or action by the stockholders. The issuance of our preferred stock could have the effect of making it more difficult for a third party to acquire us. In addition, we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which could also have the effect of delaying or preventing our acquisition by a third party. Further, certain provisions of our Certificate of Incorporation and bylaws could delay or make more difficult a merger, tender offer or proxy contest, which could adversely affect the market price of our Common Stock. CITICORP VENTURE CAPITAL HAS SIGNIFICANT CONTROL OVER OUR BUSINESS. Our largest stockholder, Citicorp Venture Capital, Ltd. ("CVC"), beneficially owns 8,995,824 shares of our Common Stock (excluding any shares that may be owned by employees of CVC or its affiliates), which represents approximately 18.3% of our outstanding Common Stock as of February 15, 2001. We also have an agreement with CVC under which it is entitled to have up to three of its designees serve on our Board of Directors, depending on the level of CVC's continuing stock ownership. Based on its current ownership of our outstanding Common Stock, CVC is entitled to designate two nominees. Messrs. M. Saleem Muqaddam and John M. O'Mara are currently serving as CVC's designees pursuant to that agreement (having been nominated for election in a period in which the agreement with CVC required us to nominate and support the election of three designees of CVC). In addition, our bylaws contain provisions that require a two-thirds (66 2/3%) supermajority vote of the Board of Directors to approve certain transactions, including amendments of our Certificate of Incorporation, certain provisions of our bylaws, mergers and sales of substantial assets, acquisitions of other companies and sales of capital stock. These provisions may have the effect of giving a small number of directors the ability to block such transactions. WE HAVE SEVERAL SIGNIFICANT STOCKHOLDERS AND, GIVEN THE LOW TRADING VOLUME OF OUR STOCK, IF THEY SELL THEIR SHARES IN A SHORT PERIOD OF TIME, WE COULD SEE AN ADVERSE EFFECT ON THE MARKET PRICES OF OUR STOCK. As of May 11, 2001, we had 48,390,671 shares of Common Stock outstanding and in the public market. All of these shares are freely tradable except for approximately 10,176,000 shares held by affiliates of Plantronics (including CVC and the directors and officers of Plantronics). These approximately 10,176,000 shares may be sold in reliance on Rule 144 under the Securities Act of 1933, as amended (the "Securities Act"), or pursuant to an effective registration statement filed with the Securities and Exchange Commission. Some of our current stockholders, including CVC and certain of our directors, also have certain contractual rights to require Plantronics to register their shares for public sale. Approximately 7,531,988 additional shares are subject to outstanding stock options as of May 11, 2001. As of May 11, 2001, Ms. Louise Cecil, the widow of our former CEO and Chairman, Robert S. Cecil, held options on approximately 433,000 shares of our Common Stock, 30 31 transferred to her by Mr. Cecil during his life. She has registered those shares for resale and can sell any or all of those shares at any time. Plantronics stock is not heavily traded. The average daily trading volume of our stock in fiscal year 2001 was approximately 328,226 shares per day with a median volume in that period of 225,800 shares per day. Sales of a substantial number of shares of our Common Stock in the public market by CVC or any of our officers, directors or other stockholders could adversely affect the prevailing market price of our Common Stock and impair our ability to raise capital through the sale of equity securities. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The following discusses our exposure to market risk related to changes in interest rates and foreign currency exchange rates. This discussion contains forward-looking statements that are subject to risks and uncertainties. Actual results could vary materially as a result of a number of factors including those set forth in "Risk Factors Affecting Future Operating Results" beginning on page 21. INTEREST RATE RISK At March 31, 2001, we had cash and cash equivalents totaling $60.5 million, compared to $40.3 million at March 31, 2000. At March 31, 2001, we had marketable securities totaling $13.4 million compared to $5 million at March 31, 2000. Cash equivalents have an original maturity of ninety days or less; marketable securities have an original maturity of greater than ninety days, but less than one year. We believe we are not currently exposed to significant interest rate risk as the majority of our cash and marketable securities were invested in securities or interest bearing accounts with maturities of less than ninety days. The average maturity period for our marketable securities at March 31, 2001 was ten months. The interest rates locked in on those investments ranged from 4.7% to 6.4%. Our investment policy requires that we only invest in deposit accounts, certificates of deposit or commercial paper with minimum ratings of A1/P1 and money market mutual funds with minimum ratings of AAA. In fiscal 2001, we renewed our $100 million revolving credit facility, including a $10 million letter-of-credit subfacility with a major bank. The revolving credit facility and letter of credit subfacility both expire in November 2001. As of March 31, 2001, we have no cash borrowings under the revolving credit facility. If we choose to borrow under this facility in the future, and market interest rates rise, then our interest payments would increase accordingly. FOREIGN CURRENCY EXCHANGE RATE RISK Approximately 31% of our revenue was realized outside of the United States, with approximately 18% denominated in foreign currencies, predominately the Great British Pound and the Euro. During fiscal years 2000 and 2001 we did not engage in any hedging activities. In fiscal 2002, we implemented a hedging strategy to minimize the effect of these currency fluctuations. Specifically, we began to hedge our European transaction exposure, hedging both our Great British Pound and Euro Positions. However, we have no assurance that exchange rate fluctuations will not materially adversely affect our business in the future. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following information appearing in our 2001 Annual Report to Stockholders is incorporated herein by this reference: Consolidated Balance Sheets -- March 31, 2001 and March 31, 2000 Consolidated Financial Statements for fiscal years ended March 31, 2001, March 31, 2000, and March 31, 1999: Consolidated Statements of Operations Consolidated Statements of Cash Flows 31 32 Consolidated Statements of Stockholders' Equity Notes to Consolidated Financial Statements Market price and dividend information. Report of Independent Accountants, dated April 23, 2001. With the exception of the information mentioned in Items 5, 6, 7 and 8, our 2001 Annual Report to Stockholders is not to be deemed filed as part of this Annual Report on Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no disagreements with accountants on any matter of accounting principles and practices or financial disclosure. 32 33 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information regarding the identification and business experience of our directors under the caption "Nominees" under the main caption "Proposal One -- Election of Directors" in our definitive 2001 Proxy Statement for the annual meeting of stockholders to be held on June 27, 2001, as filed with the Securities and Exchange Commission on or about June 1, 2001, is incorporated herein by this reference. For information regarding the identification and business experience of our executive officers, see "Executive Officers" at the end of Item 1 in Part I of this Annual Report on Form 10-K. Information concerning filing requirements applicable to our executive officers and directors under the caption "Compliance With Section 16(a) of the Exchange Act" in our 2001 Proxy Statement is incorporated herein by this reference. ITEM 11. EXECUTIVE COMPENSATION The information under the captions "Executive Compensation" and "Compensation of Directors" in our 2001 Proxy Statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information under the caption "Security Ownership of Principal Stockholders and Management" under the main caption "Additional Information" in the 2001 Proxy Statement is incorporated herein by this reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information under the caption "Certain Transactions" in the 2001 Proxy Statement is incorporated herein by this reference. With the exception of the information specifically incorporated by reference from the 2001 Proxy Statement in Part III of this Annual Report on Form 10-K, the 2001 Proxy Statement shall not be deemed to be filed as part of this report. Without limiting the foregoing, the information under the captions "Report of the Compensation Committee of the Board of Directors" and "Company's Stock Performance" under the main caption "Additional Information" in the 2001 Proxy Statement is not incorporated by reference in this Annual Report on Form 10-K. 33 34 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Incorporation by Reference. The following documents are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K: (1) Financial Statements. The consolidated financial statements of Plantronics (including the notes thereto) are incorporated by reference from our 2001 Annual Report to Stockholders as indicated in Item 8 of this report. (2) Financial Statement Schedules. PLANTRONICS, INC. SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (IN THOUSANDS)
BALANCE AT CHARGED TO BALANCE AT BEGINNING EXPENSES OR END OF PERIOD OTHER ACCOUNTS DEDUCTIONS OF PERIOD --------- -------------- ---------- --------- Allowance for doubtful accounts: Year ended March 31, 1999 $1,752 $1,348 $ (774) $2,326 Year ended March 31, 2000 2,326 205 (387) 2,144 Year ended March 31, 2001 2,144 1,433 (904) 2,673 Inventory reserves: Year ended March 31, 1999 8,177 2,263 (4,397) 6,043 Year ended March 31, 2000 6,043 159 (2,484) 3,718 Year ended March 31, 2001 3,718 1,328 (1,276) 3,770
(3) Exhibits. The exhibits listed under Item 14(c) hereof are filed with, or incorporated by reference into, this Annual Report on Form 10-K. (b) Reports on Form 8-K. No reports on Form 8-K were filed by Registrant during the fourth quarter of the fiscal year ended March 31, 2001. (c) Exhibits. The following exhibits are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K: 3.1 Amended and Restated By-Laws of the Registrant. 3.2 Restated Certificate of Incorporation of the Registrant filed with the Secretary of State of Delaware on January 19, 1994 (incorporated herein by reference to Exhibit (3.1) to the Registrant's Quarterly Report on Form 10-Q, SEC File Number 1-12696, for the fiscal quarter ended December 25, 1993, filed on March 4, 1994). Certificate of Retirement and Elimination of Preferred Stock and Common Stock of the Registrant filed with the Secretary of State of Delaware on January 11, 1996 (incorporated herein by reference to Exhibit (3.3) of the Registrant's Annual Report on Form 10-K, SEC File Number 1-12696, for the fiscal year ended March 30, 1996, filed on June 27, 1996). Certificate of Amendment of Restated Certificate of Incorporation of the Registrant filed with the Secretary of State of Delaware on August 7, 1997 (incorporated herein by reference to Exhibit (3.1) to the Registrant's Quarterly Report on Form 10-Q, SEC File Number 1-12696, for the fiscal quarter ended June 28, 1997, filed on August 8, 1997).
34 35 Certificate of Amendment of Restated Certificate of Incorporation of the Registrant filed with the Secretary of State of Delaware on May 23, 2000 (incorporated herein by reference to Exhibit (4.2) to the Registrant's Registration Statement on Form S-8, No. 33-70744, filed on July 31, 2000). 10.1 Quarterly Profit Sharing Plan (as amended) (incorporated herein by reference to Exhibit (10.2) to Registrant's predecessor, Plantronics, Inc.'s Report on Form 10-K, SEC File Number 1-6642, for the fiscal year ended May 29, 1982, filed on August 27, 1982). Plantronics, Inc. Non-EMEA Quarterly Profit Sharing Plan. 10.2 Form of Indemnification Agreement between the Registrant and certain directors and executives and Schedule of Other Documents Omitted (incorporated herein by reference to Exhibit (10.1) to PI Holdings Inc.'s Quarterly Report on Form 10-Q for the fiscal quarter ended December 26, 1992, SEC File Number 33-26770, filed February 9, 1993). 10.3 Form of Employment Agreement, Addendum to Employment Agreement and Second Addendum to Employment Agreement between the Registrant and certain executives; and Schedule of Other Documents Omitted (incorporated herein by reference to Exhibit (10.2) to PI Holdings Inc.'s Quarterly Report on Form 10-Q for the fiscal quarter ended December 26, 1992, SEC File Number 33-26770, filed February 9, 1993). 10.4(a) Regular and Supplemental Bonus Plan. 10.4(b) Overachievement Bonus Plan. 10.5 Board Designation Agreement dated as of October 22, 1993 between the Registrant and Citicorp Venture Capital, Ltd. (incorporated herein by reference to Exhibit (10.21) to the Registrant's Registration Statement on Form S-1 (as amended), No. 33-70744, filed October 20, 1993). 10.6 Lease Agreement dated July 1993 between Inmobiliara Mexhong S.A. de C.V. and Plamex, S.A. de C.V., a subsidiary of the Registrant, for premises located in Tijuana, Mexico (translation from Spanish original) (incorporated herein by reference to Exhibit (10.30) to the Registrant's Registration Statement on Form S-1 (as amended), No. 33-70744, filed on October 20, 1993). 10.7 Lease dated December 7, 1990 between Canyge Bicknell Limited and Plantronics Limited, a subsidiary of the Registrant, for premises located in Wootton Bassett, England (incorporated herein by reference to Exhibit (10.32) to the Registrant's Registration Statement on Form S-1 (as amended), No.33-70744, filed on October 20, 1993). 10.8 1993 Stock Option Plan. 10.9 1993 Director Stock Option Plan (incorporated herein by reference to Exhibit (10.29) to the Registrant's Registration Statement on Form S-1 (as amended), SEC File Number 33-70744, filed on October 20, 1993). Amendment Effective as of April 23, 1996 to the 1993 Director Stock Option Plan (incorporated herein by reference to Exhibit (4.4) to the Registrant's Registration Statement on Form S-8, SEC File Number 333-14833, filed on October 25, 1996). 10.9(a) Amendment No. 2 effective as of November 4, 1996 to the 1993 Director Stock Option Plan. 10.9(b) Amendment No. 3 to the 1993 Director Stock Option Plan effective as of June 29, 2000. 10.10 1996 Employee Stock Purchase Plan (incorporated herein by reference to Exhibit (4.5) to the Registrant's Registration Statement on Form S-8, SEC File Number 333-14833, filed on October 25, 1996).
35 36 10.11 Trust Agreement Establishing the Plantronics, Inc. Annual Profit Sharing/Individual Savings Plan Trust (incorporated herein by reference to Exhibit (4.3) to the Registrant's Registration Statement on Form S-8, SEC File Number 333-19351, filed on January 7, 1997). Plantronics, Inc. 401(k) Plan, effective as of April 2, 2000. 10.12 Resolutions of the Board of Directors of Plantronics, Inc. Concerning Executive Stock Purchase Plan (incorporated herein by reference to Exhibit (4.4) to the Registrant's Registration Statement on Form S-8 (as amended), SEC File Number 333-19351, filed on March 25, 1997). 10.13 Plantronics, Inc. Basic Deferred Compensation Plan, as amended August 8, 1996 (incorporated herein by reference to Exhibit (4.5) to the Registrant's Registration Statement on Form S-8 (as amended), SEC File Number 333-19351, filed on March 25, 1997). Trust Agreement Under the Plantronics, Inc. Basic Deferred Stock Compensation Plan (incorporated herein by reference to Exhibit (4.6) to the Registrant's Registration Statement on Form S-8 (as amended), SEC File Number 333-19351, filed on March 25, 1997). Plantronics, Inc. Basic Deferred Compensation Plan Participant Election (incorporated herein by reference to Exhibit (4.7) to the Registrant's Registration Statement on Form S-8 (as amended), SEC File Number 333-19351, filed on March 25, 1997). 10.14 Employment Agreement dated as of July 4, 1999 between Registrant and Ken Kannappan (incorporated herein by reference to Exhibit (10.15) of the Registrant's Annual Report on Form 10-K405, SEC File Number 001-12696, for the fiscal year ended April 1, 2000, filed on June 1, 2000). 10.15 Credit Agreement dated as of November 29, 1999 between Registrant and Wells Fargo Bank N.A (incorporated herein by reference to Exhibit (10.16) of the Registrant's Annual Report on Form 10-K405, SEC File Number 001-12696, for the fiscal year ended April 1, 2000, filed on June 1, 2000). First Amendment to Credit Agreement, dated as of November 27, 2000. 13 Portions of Registrants 2001 Annual Report to Security Holders which have been incorporated by reference in Parts I, II and IV of this Annual Report on Form 10-K. 21 Subsidiaries of the Registrant. 23 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
36 37 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. PLANTRONICS, INC. Dated: June 1, 2001 By: /s/ S. Kenneth Kannappan ------------------------------------- S. Kenneth Kannappan, Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. /s/ S. Kenneth Kannappan President, Chief Executive Officer and June 1, 2001 - ------------------------------- Director (S. Kenneth Kannappan) (Principal Executive Officer) /s/ Barbara V. Scherer Senior Vice President and Chief Financial June 1, 2001 - ------------------------------- Officer (Principal Financial Officer and (Barbara V. Scherer) Principal Accounting Officer) /s/ Marvin Tseu Chairman of the Board and Director June 1, 2001 - ------------------------------- (Marvin Tseu) /s/ Patti Hart Director June 1, 2001 - ------------------------------- (Patti Hart) /s/ Robert F.B. Logan Director June 1, 2001 - ------------------------------- (Robert F.B. Logan) /s/ M. Saleem Muqaddam Director June 1, 2001 - ------------------------------- (M. Saleem Muqaddam) /s/ John M. O'Mara Director June 1, 2001 - ------------------------------- (John M. O'Mara) /s/ Trude C. Taylor Director June 1, 2001 - ------------------------------- (Trude C. Taylor) /s/ David A. Wegmann Director June 1, 2001 - ------------------------------- (David A. Wegmann)
37 38 EXHIBITS INDEX
EXHIBIT NUMBER DESCRIPTION 3.1 Amended and Restated By-Laws of the Registrant. 3.2 Restated Certificate of Incorporation of the Registrant filed with the Secretary of State of Delaware on January 19, 1994 (incorporated herein by reference to Exhibit (3.1) to the Registrant's Quarterly Report on Form 10-Q, SEC File Number 1-12696, for the fiscal quarter ended December 25, 1993, filed on March 4, 1994). Certificate of Retirement and Elimination of Preferred Stock and Common Stock of the Registrant filed with the Secretary of State of Delaware on January 11, 1996 (incorporated herein by reference to Exhibit (3.3) of the Registrant's Annual Report on Form 10-K, SEC File Number 1-12696, for the fiscal year ended March 30, 1996, filed on June 27, 1996). Certificate of Amendment of Restated Certificate of Incorporation of the Registrant filed with the Secretary of State of Delaware on August 7, 1997 (incorporated herein by reference to Exhibit (3.1) to the Registrant's Quarterly Report on Form 10-Q, SEC File Number 1-12696, for the fiscal quarter ended June 28, 1997, filed on August 8, 1997). Certificate of Amendment of Restated Certificate of Incorporation of the Registrant filed with the Secretary of State of Delaware on May 23, 2000 (incorporated herein by reference to Exhibit (4.2) to the Registrant's Registration Statement on Form S-8, No. 33-70744, filed on July 31, 2000). 10.1 Quarterly Profit Sharing Plan (as amended) (incorporated herein by reference to Exhibit (10.2) to Registrant's predecessor, Plantronics, Inc.'s Report on Form 10-K, SEC File Number 1-6642, for the fiscal year ended May 29, 1982, filed on August 27, 1982). Plantronics, Inc. Non-EMEA Quarterly Profit Sharing Plan. 10.2 Form of Indemnification Agreement between the Registrant and certain directors and executives and Schedule of Other Documents Omitted (incorporated herein by reference to Exhibit (10.1) to PI Holdings Inc.'s Quarterly Report on Form 10-Q for the fiscal quarter ended December 26, 1992, SEC File Number 33-26770, filed February 9, 1993). 10.3 Form of Employment Agreement, Addendum to Employment Agreement and Second Addendum to Employment Agreement between the Registrant and certain executives; and Schedule of Other Documents Omitted (incorporated herein by reference to Exhibit (10.2) to PI Holdings Inc.'s Quarterly Report on Form 10-Q for the fiscal quarter ended December 26, 1992, SEC File Number 33-26770, filed February 9, 1993). 10.4(a) Regular and Supplemental Bonus Plan. 10.4(b) Overachievement Bonus Plan. 10.5 Board Designation Agreement dated as of October 22, 1993 between the Registrant and Citicorp Venture Capital, Ltd. (incorporated herein by reference to Exhibit (10.21) to the Registrant's Registration Statement on Form S-1 (as amended), No. 33-70744, filed October 20, 1993). 10.6 Lease Agreement dated July 1993 between Inmobiliara Mexhong S.A. de C.V. and Plamex, S.A. de C.V., a subsidiary of the Registrant, for premises located in Tijuana, Mexico (translation from Spanish original) (incorporated herein by reference to Exhibit (10.30) to the Registrant's Registration Statement on Form S-1 (as amended), No. 33-70744, filed on October 20, 1993). 10.7 Lease dated December 7, 1990 between Canyge Bicknell Limited and Plantronics Limited, a subsidiary of the Registrant, for premises located in Wootton Bassett, England (incorporated herein by reference to Exhibit (10.32) to the Registrant's Registration Statement on Form S-1 (as amended), No.33-70744, filed on October 20, 1993). 10.8 1993 Stock Option Plan.
38 39
EXHIBIT NUMBER DESCRIPTION 10.9 1993 Director Stock Option Plan (incorporated herein by reference to Exhibit (10.29) to the Registrant's Registration Statement on Form S-1 (as amended), SEC File Number 33-70744, filed on October 20, 1993). Amendment Effective as of April 23, 1996 to the 1993 Director Stock Option Plan (incorporated herein by reference to Exhibit (4.4) to the Registrant's Registration Statement on Form S-8, SEC File Number 333-14833, filed on October 25, 1996). 10.9(a) Amendment No. 2 effective as of November 4, 1996 to the 1993 Director Stock Option Plan. 10.9(b) Amendment No. 3 to the 1993 Director Stock Option Plan effective as of June 29, 2000. 10.10 1996 Employee Stock Purchase Plan (incorporated herein by reference to Exhibit (4.5) to the Registrant's Registration Statement on Form S-8, SEC File Number 333-14833, filed on October 25, 1996). 10.11 Trust Agreement Establishing the Plantronics, Inc. Annual Profit Sharing/Individual Savings Plan Trust (incorporated herein by reference to Exhibit (4.3) to the Registrant's Registration Statement on Form S-8, SEC File Number 333-19351, filed on January 7, 1997). Plantronics, Inc. 401(k) Plan, effective as of April 2, 2000. 10.12 Resolutions of the Board of Directors of Plantronics, Inc. Concerning Executive Stock Purchase Plan (incorporated herein by reference to Exhibit (4.4) to the Registrant's Registration Statement on Form S-8 (as amended), SEC File Number 333-19351, filed on March 25, 1997). 10.13 Plantronics, Inc. Basic Deferred Compensation Plan, as amended August 8, 1996 (incorporated herein by reference to Exhibit (4.5) to the Registrant's Registration Statement on Form S-8 (as amended), SEC File Number 333-19351, filed on March 25, 1997). Trust Agreement Under the Plantronics, Inc. Basic Deferred Stock Compensation Plan (incorporated herein by reference to Exhibit (4.6) to the Registrant's Registration Statement on Form S-8 (as amended), SEC File Number 333-19351, filed on March 25, 1997). Plantronics, Inc. Basic Deferred Compensation Plan Participant Election (incorporated herein by reference to Exhibit (4.7) to the Registrant's Registration Statement on Form S-8 (as amended), SEC File Number 333-19351, filed on March 25, 1997). 10.14 Employment Agreement dated as of July 4, 1999 between Registrant and Ken Kannappan (incorporated herein by reference to Exhibit (10.15) of the Registrant's Annual Report on Form 10-K405, SEC File Number 001-12696, for the fiscal year ended April 1, 2000, filed on June 1, 2000). 10.15 Credit Agreement dated as of November 29, 1999 between Registrant and Wells Fargo Bank N.A (incorporated herein by reference to Exhibit (10.16) of the Registrant's Annual Report on Form 10-K405, SEC File Number 001-12696, for the fiscal year ended April 1, 2000, filed on June 1, 2000). First Amendment to Credit Agreement, dated as of November 27, 2000. 13 Portions of Registrants 2001 Annual Report to Security Holders which have been incorporated by reference in Parts I, II and IV of this Annual Report on Form 10-K. 21 Subsidiaries of the Registrant. 23 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
39 EX-3.1 2 f72069ex3-1.txt EXHIBIT 3.1 1 Exhibit 3.1 AMENDED & RESTATED BY-LAWS OF PLANTRONICS, INC. A DELAWARE CORPORATION [Effective as of May 16, 2001] 2 TABLE OF CONTENTS
Page ---- ARTICLE 1. OFFICES.............................................................. 1 Section 1.1. Registered Office......................................... 1 Section 1.2. Other Offices............................................. 1 ARTICLE 2. MEETINGS OF STOCKHOLDERS............................................. 1 Section 2.1. Place and Time of Meetings................................ 1 Section 2.2. Special Meetings.......................................... 1 Section 2.3. Place of Meetings......................................... 2 Section 2.4. Notice.................................................... 2 Section 2.5. Stockholders List......................................... 2 Section 2.6. Quorum.................................................... 2 Section 2.7. Adjourned Meetings........................................ 3 Section 2.8. Vote Required............................................. 3 Section 2.9. Voting Rights............................................. 3 Section 2.10. Proxies................................................... 3 Section 2.11. Prohibitions on Action by Written Consent................. 3 Section 2.12. Advance Notice of Stockholder Nominations................. 4 Section 2.13. Advance Notice of Stockholder Business.................... 4 ARTICLE 3. DIRECTORS............................................................ 5 Section 3.1. General Powers............................................ 5 Section 3.2. Number, Election and Term of Office....................... 5 Section 3.3. Removal and Resignation................................... 5 Section 3.4. Vacancies................................................. 5 Section 3.5. Annual Meetings........................................... 6 Section 3.6. Other Meetings and Notice................................. 7 Section 3.7. Quorum, Required Vote and Adjournment..................... 7 Section 3.8. Committees................................................ 8 Section 3.9. Committee Rules........................................... 8 Section 3.10. Communications Equipment.................................. 9 Section 3.11. Waiver of Notice and Presumption of Assent................ 9 Section 3.12. Action by Written Consent................................. 9 ARTICLE 4. OFFICERS............................................................. 9 Section 4.1. Number.................................................... 9 Section 4.2. Election and Term of Office............................... 10 Section 4.3. Removal................................................... 10 Section 4.4. Vacancies................................................. 10 Section 4.5. Compensation.............................................. 10 Section 4.6. The President............................................. 10
-i- 3
Page ---- Section 4.7. Vice-Presidents........................................... 11 Section 4.8. The Secretary and Assistant Secretaries................... 11 Section 4.9. The Treasurer and Assistant Treasurer..................... 11 Section 4.10. Other Officers, Assistant Officers and Agents............. 12 Section 4.11. Absence or Disability of Officers......................... 12 ARTICLE 5. INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS.................... 12 Section 5.1. Nature of Indemnity....................................... 12 Section 5.2. Procedure for Indemnification of Directors and Officers... 12 Section 5.3. Article Not Exclusive..................................... 13 Section 5.4. Insurance................................................. 13 Section 5.5. Expenses.................................................. 13 Section 5.6. Employees and Agents...................................... 14 Section 5.7. Contract Rights........................................... 14 Section 5.8. Merger or Consolidation................................... 14 ARTICLE 6. CERTIFICATES OF STOCK................................................ 14 Section 6.1. Form...................................................... 14 Section 6.2. Lost Certificate.......................................... 15 Section 6.3. Fixing a Record Date for Stockholder Meetings............. 15 Section 6.4. Fixing a Record Date for Other Purposes................... 16 Section 6.5. Registered Stockholders................................... 16 Section 6.6. Subscriptions for Stock................................... 16 ARTICLE 7. GENERAL PROVISIONS................................................... 16 Section 7.1. Dividends................................................. 16 Section 7.2. Checks, Drafts or Orders.................................. 17 Section 7.3. Contracts................................................. 17 Section 7.4. Loans..................................................... 17 Section 7.5. Fiscal Year............................................... 17 Section 7.6. Voting Securities Owned By Corporation.................... 17 Section 7.7. Inspection of Books and Records........................... 17 Section 7.8. Section Headings.......................................... 18 Section 7.9. Inconsistent Provisions................................... 18 ARTICLE 8. AMENDMENTS........................................................... 18
-ii- 4 AMENDED AND RESTATED BY-LAWS OF PLANTRONICS, INC. A DELAWARE CORPORATION ARTICLE 1. OFFICES Section 1.1. Registered Office. The registered office of the corporation in the State of Delaware shall be located at 1209 Orange Street, Wilmington, Delaware 19801, County of New Castle. The name of the corporation's registered agent at such address shall be The Corporation Trust Company. The registered office and/or registered agent of the corporation may be changed from time to time by action of the board of directors. Section 1.2. Other Offices. The corporation may also have offices at such other places, both within and without the State of Delaware, as the board of directors may from time to time determine or the business of the corporation may require. ARTICLE 2. MEETINGS OF STOCKHOLDERS Section 2.1. Place and Time of Meetings. An annual meeting of the stockholders shall be held each year within one hundred twenty (120) days after the close of the immediately preceding fiscal year of the corporation for the purpose of electing directors and conducting such other proper business as may come before the meeting. The date, time and place of the annual meeting shall be determined by the president of the corporation; provided, that if the president does not act, the board of directors shall determine the date, time and place of such meeting. Section 2.2. Special Meetings 5 Special meetings of stockholders may be called for any purpose and may be held at such time and place, within or without the State of Delaware, as shall be stated in a notice of meeting or in a duly executed waiver of notice thereof. Such meetings may be called at any time by the board of directors, the chairman of the board of directors, the president or the holders of twenty percent (20%) or more of the outstanding Common Stock of the corporation. No business may be conducted at a special meeting other than the business brought before the meeting by the Board of Directors, the chairman of the board of directors, the president or the holders of twenty percent (20%) or more of the outstanding Common Stock of the corporation, as the case may be. Section 2.3. Place of Meetings. The board of directors may designate any place, either within or without the State of Delaware, as the place of meeting for any annual meeting or for any special meeting called by the board of directors. If no designation is made, or if a special meeting be otherwise called, the place of meeting shall be the principal executive office of the corporation. Section 2.4. Notice. Whenever stockholders are required or permitted to take action at a meeting, written or printed notice stating the place, date, time, and, in the case of special meetings, the purpose or purposes, of such meeting, shall be given to each stockholder entitled to vote at such meeting not less than ten (10) nor more than sixty (60) days before the date of the meeting. All such notices shall be delivered, either personally or by mail, by or at the direction of the board of directors, the president or the secretary, and if mailed, such notice shall be deemed to be delivered when deposited in the United States mail, postage prepaid, addressed to the stockholder at his, her or its address as the same appears on the records of the corporation. Section 2.5. Stockholders List. The officer having charge of the stock ledger of the corporation shall make, at least 10 days before every meeting of the stockholders, a complete list of the stockholders entitled to vote at such meeting arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting or, if not so specified in the notice of the meeting or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 2.6. Quorum. The holders of the outstanding shares of capital stock representing a majority of the voting power of the corporation, present in person or represented by proxy, shall constitute a quorum at all -2- 6 meetings of the stockholders, except as otherwise provided by law or by the certificate of incorporation. If a quorum is not present, the holders of the shares representing a majority of the voting power present in person or represented by proxy at the meeting, and entitled to vote at the meeting, may adjourn the meeting to another time and/or place. When a specified item of business requires a vote by a class or series (if the corporation shall then have outstanding shares of more than one class or series) voting as a class, the holders of a majority of the shares of such class or series shall constitute a quorum (as to such class or series) for the transaction of such item of business. When a quorum is once present to commence a meeting of stockholders, it is not broken by the subsequent withdrawal of any stockholder or their proxies. Section 2.7. Adjourned Meetings. When a meeting is adjourned to another time and place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record day is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting. Section 2.8. Vote Required. When a quorum is present, the affirmative vote of the holders of the shares representing a majority of the voting power present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless the question is one upon which by express provisions of an applicable law or of the certificate of incorporation a different vote is required, in which case such express provision shall govern and control the decision of such question. Where a separate vote by class may be required, the affirmative vote of the majority of shares of such class present in person or represented by proxy at the meeting shall be the act of such class. Section 2.9. Voting Rights. Except as otherwise provided by the General Corporation Law of the State of Delaware or by the certificate of incorporation of the corporation or any amendments thereto and subject to Section 3 of Article 6 hereof, every stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of Common Stock held by such stockholder. Section 2.10. Proxies. Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for him or her by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. Section 2.11. Prohibitions on Action by Written Consent -3- 7 Unless otherwise provided in the certificate of incorporation, no action may be taken by the stockholders of the corporation pursuant to a written consent in lieu of an annual or special meeting of the stockholders of the corporation. Section 2.12. Advance Notice of Stockholder Nominations. Nominations of persons for election to the board of directors of the corporation may be made at a meeting of stockholders by or at the direction of the board of directors or by any stockholder of the corporation entitled to vote in the election of directors at the meeting who complies with the notice procedures set forth in this Section. Such nominations, other than those made by or at the direction of the board of directors, shall be made pursuant to timely notice in writing to the Secretary of the corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the corporation not less than twenty (20) days prior to the meeting; provided, however, that in the event less than thirty (30) days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such stockholder's notice shall set forth (a) as to each person, if any, whom the stockholder proposes to nominate for election or re-election as a director: (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of the corporation which are beneficially owned by such person, (iv) any other information relating to such person that is required by law to be disclosed in solicitations of proxies for election of directors, and (v) such person's written consent to being named as a nominee and to serving as a director if elected; and (b) as to the stockholder giving the notice: (i) the name and address, as they appear on the corporation's books, of such stockholder, (ii) the class and number of shares of the corporation which are beneficially owned by such stockholder, and (iii) a description of all arrangements or understandings between such stockholder and each nominee and any other person or persons (naming such person or persons) relating to the nomination. At the request of the board of directors any person nominated by the board of directors for election as a director shall furnish to the Secretary of the corporation that information required to be set forth in the stockholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth in this Section. The chairman of the meeting shall, if the facts warrant, determine and declare at the meeting that a nomination was not made in accordance with the procedures prescribed by these bylaws, and if he should so determine, he shall so declare at the meeting and the defective nomination shall be disregarded. Section 2.13. Advance Notice of Stockholder Business. At the annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be: (a) as specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board of directors, (b) otherwise properly brought before the meeting by or at the -4- 8 direction of the board of directors, or (c) otherwise properly brought before the meeting by a stockholder. Business to be brought before the meeting by a stockholder shall not be considered properly brought if the stockholder has not given timely notice thereof in writing to the Secretary of the corporation. To be timely, a stockholder's notice must be delivered to the principal executive offices of the corporation not less than forty five (45) days prior to the date on which the corporation first mailed proxy materials for the prior year's annual meeting; provided, however, that if the corporation's annual meeting of stockholders occurs on a date more than thirty (30) days earlier or later than the corporation's prior year's annual meeting, then the corporation's board of directors shall determine a date a reasonable period prior to the corporation's annual meeting of stockholders by which date the stockholders notice must be delivered and publicize such date in a filing pursuant to the Securities Exchange Act of 1934, as amended, or via press release. Such publication shall occur at least ten (10) days prior to the date set by the Board of Directors. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address of the stockholder proposing such business, (iii) the class and number of shares of the corporation, which are beneficially owned by the stockholder, (iv) any material interest of the stockholder in such business, and (v) any other information that is required by law to be provided by the stockholder in his capacity as proponent of a stockholder proposal. Notwithstanding anything in these bylaws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this Section. The chairman of the annual meeting shall, if the facts warrant, determine and declare at the meeting that business was not properly brought before the meeting and in accordance with the provisions of this Section, and, if he should so determine, he shall so declare at the meeting that any such business not properly brought before the meeting shall not be transacted. ARTICLE 3. DIRECTORS Section 3.1. General Powers. The business and affairs of the corporation shall be managed by or under the direction of the board of directors. Section 3.2. Number, Election and Term of Office. The authorized number of directors constituting the board of directors shall be nine (9). This number may be changed by an amendment to these by-laws adopted by (a) the vote of 66-2/3% of the outstanding Common Stock of the corporation or (b) by a resolution of the board of directors adopted by the affirmative vote of at least 66-2/3% of such authorized number of directors. No reduction of the authorized number of directors shall have the effect of removing any director before that director's term expires. The directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote in the election of directors. The directors shall be elected in this manner at the annual meeting of the stockholders, except as provided in Section 4 of this Article 3. Each director elected shall hold office until a -5- 9 successor is duly elected and qualified or until his or her earlier death, resignation or removal as hereinafter provided. Section 3.3. Removal and Resignation. Any director or the entire board of directors may be removed at any time, with or without cause, by the holders of the shares representing a majority of the voting power of the corporation then entitled to vote at an election of directors. Whenever the holders of any class or series are entitled to elect one or more directors by the provisions of the corporation's certificate of incorporation, the provisions of this section shall apply, in respect to the removal without cause of a director or directors so elected, to the vote of the holders of the outstanding shares of that class or series and not to the vote of the outstanding shares as whole. Any director may resign at any time upon written notice to the corporation. Section 3.4. Vacancies. (a) Vacancies in the unexpired term of any directorship shall be filled as follows: (i)If such vacancy has resulted from the death, resignation or removal of a director that was designated by Citicorp Venture Capital, Ltd. ("CVC") to serve on the Board of Directors pursuant to the terms of that certain Board Designation Agreement between the Company and CVC (a "CVC Designee"), such vacancy shall be filled by a majority of the remaining CVC Designees then in office, though such directors may constitute less than a quorum; or (ii) If such vacancy has resulted from the death, resignation or removal of a director that is not a CVC Designee, such vacancy shall be filled by a majority of those remaining directors then in office that are neither (x) a CVC Designee or (y) the Chief Executive Officer of the corporation, though such directors may constitute less than a quorum; provided, however, that if the Chief Executive Officer of the corporation is the sole remaining director that is not a CVC Designee, the Chief Executive Officer shall fill any such vacancy. (b) Newly created directorships resulting from any increase in the authorized number of directors shall be filled by a majority of the directors then in office. (c) Each director so chosen shall hold office until a successor is duly elected and qualified or until his or her earlier death, resignation or removal as herein provided. Section 3.5. Annual Meetings. The annual meeting of each newly elected board of directors shall be held without other notice than this by-law immediately after, and at the same place as, the annual meeting of stockholders. -6- 10 Section 3.6. Other Meetings and Notice. Regular meetings, other than the annual meeting, of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by resolution of the board. Special meetings of the board of directors may be called by or at the request of the president on at least 24 hours notice to each director, either personally, by telephone, by mail or by telegraph; special meetings shall be called by the president or the secretary in like manner and on like notice on written request of two (2) directors unless the board consists of only one (1) director at such time. Section 3.7. Quorum, Required Vote and Adjournment. (a) A majority of the total number of directors shall constitute a quorum for the transaction of business. Except as otherwise set forth in clause (b), the vote of a majority of directors present at a meeting at which a quorum is present shall be the act of the board of directors. If a quorum shall not be present at any meeting of the board of directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. (b) The affirmative vote of at least 66 2/3% of the directors then in office shall be required to adopt a resolution necessary to: (i)amend, alter or repeal any provisions of the certificate of incorporation or by-laws of the corporation; (ii) sell, lease or convey all or substantially all of the property or business of the corporation or permit any Subsidiary to sell, lease or convey all or substantially all of the property or business of such Subsidiary (other than to the corporation or another Subsidiary in a consolidation or merger in which the corporation is the surviving person) or permit any Subsidiary to consolidate or merge with any other corporation (other than the corporation or a Subsidiary in a consolidation or merger in which the corporation or such Subsidiary is the surviving person), or voluntarily liquidate, dissolve or wind up the corporation; (iii) issue or sell, or agree to issue or sell, or permit any Subsidiary to issue or sell, its capital stock or any securities consisting of or containing any options or rights to acquire any shares of capital stock or any securities convertible or exchangeable or exercisable for any of its capital stock, other than any issuance of capital stock (A) pursuant to any stock split or dividend effected by the corporation on a pro-rata basis to all stockholders, (B) pursuant to a dividend on shares of Common Stock that is paid in shares of capital stock of the corporation on a pro-rata basis to all stockholders or (C) upon the exercise of rights or options under the 1993 Option Plan. -7- 11 (iv) enter into any stock option plan, other than the 1993 Stock Option Plan dated as of September 25, 1993 or amend any stock option plan to increase the number of shares issuable thereunder; or (v)acquire the business or assets of, or enter into any joint venture or partnership with, any Person (except the corporation may acquire the business or assets of, or enter into any joint venture or partnership with, any Subsidiary) or permit any Subsidiary to acquire the business or assets of, or enter into any joint venture or partnership with, any Person (except any Subsidiary may acquire the business or assets of any other Subsidiary or enter into any joint venture or partnership with the Corporation or any other Subsidiary) if the aggregate amount of all expenditures incurred by the corporation (on a consolidated basis) in its then current fiscal year in connection with acquisitions or investments in joint ventures or partnerships would, after giving effect to expenditures to be incurred by the corporation (on a consolidated basis) in such fiscal year in connection with such proposed acquisition or investment in joint venture or partnership, exceed $10 million. For purposes of this clause (b), the following terms shall have the following respective meanings: "Person" shall mean and include an individual, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof. "Subsidiary" shall mean any corporation, at least a majority of the total combined voting power of all classes of stock having general voting power of which shall, at the time as of which any determination is being made, be owned by the corporation either directly or through one or more Subsidiaries. Section 3.8. Committees. Subject to the voting requirements set forth in Article 3, the board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, each committee to consist of one or more of the directors of the corporation, which to the extent provided in such resolution or these by-laws shall have and may exercise the powers of the board of directors in the management and affairs of the corporation except as otherwise limited by law. The board of directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors. Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. Section 3.9. Committee Rules. Each committee of the board of directors may fix its own rules of procedure and shall hold its meetings as provided by such rules, except as may otherwise be provided by a resolution of the -8- 12 board of directors designating such committee. Unless otherwise provided in such a resolution, the presence of at least a majority of the members of the committee shall be necessary to constitute a quorum. In the event that a member and that member's alternate, if alternates are designated by the board of directors as provided in Section 8 of this Article 3, of such committee is or are absent or disqualified, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in place of any such absent or disqualified member. Section 3.10. Communications Equipment. Members of the board of directors or any committee thereof may participate in and act at any meeting of such board or committee through the use of a conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in the meeting pursuant to this section shall constitute presence in person at the meeting. Section 3.11. Waiver of Notice and Presumption of Assent. Any member of the board of directors or any committee thereof who is present at a meeting shall be conclusively presumed to have waived notice of such meeting except when such member attends for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Such member shall be conclusively presumed to have assented to any action taken unless his or her dissent shall be entered in the minutes of the meeting or unless his or her written dissent to such action shall be filed with the person acting as the secretary of the meeting before the adjournment thereof or shall be forwarded by registered mail to the secretary of the corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to any member who voted in favor of such action. Section 3.12. Action by Written Consent. Unless otherwise restricted by the certificate of incorporation, any action required or permitted to be taken at any meeting of the board of directors, or of any committee thereof, may be taken without a meeting if all members of the board or committee, as the case may be consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board or committee. ARTICLE 4. OFFICERS Section 4.1. Number. The officers of the corporation shall be elected by the board of directors and shall consist of a president, one or more vice-presidents, a secretary, a treasurer, and such other offices and assistant -9- 13 officers as may be deemed necessary or desirable by the board of directors. Any number of offices may be held by the same person. In its discretion, the board of directors may choose not to fill any office for any period as it may deem advisable, except that the offices of president and secretary shall be filled as expeditiously as possible. Section 4.2. Election and Term of Office. The officers of the corporation shall be elected annually by the board of directors at its first meeting held after each annual meeting of stockholders or as soon thereafter as conveniently may be. Vacancies may be filled or new offices created and filled at any meeting of the board of directors. Each officer shall hold office until a successor is duly elected and qualified or until his or her earlier death, resignation or removal as hereinafter provided. Section 4.3. Removal. Any officer or agent elected by the board of directors may be removed by the board of directors whenever in its judgment the best interests of the corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Section 4.4. Vacancies. Any vacancy occurring in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the board of directors for the unexpired portion of the term by the board of directors then in office. Section 4.5. Compensation. Compensation of all officers shall be fixed by the board of directors, and no officer shall be prevented from receiving such compensation by virtue of his or her also being a director of the corporation. Section 4.6. The President. The president shall be the chief executive officer of the corporation; shall preside at all meetings of the stockholders and board of directors at which he or she is present; subject to the powers of the board of directors, shall have general charge of the business, affairs and property of the corporation, and control over its officers, agents and employees; and shall see that all orders and resolutions of the board of directors are carried into effect. The president shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the corporation. The president shall have such other powers and perform such other duties as may be prescribed by the board of directors or as may be provided in these by-laws. -10- 14 Section 4.7. Vice-Presidents. The vice-president, or if there shall be more than one, the vice-presidents in the order determined by the board of directors, shall, in the absence or disability of the president, act with all of the powers and be subject to all the restrictions of the president. The vice-presidents shall also perform such other duties and have such other powers as the board of directors, the president or these by-laws, from time to time, prescribe. Section 4.8. The Secretary and Assistant Secretaries. The secretary shall attend all meetings of the board of directors, all meetings of the committees thereof and all meetings of the stockholders and record all the proceedings of the meetings in a book or books to be kept for that purpose. Under the president's supervision, the secretary shall give, or cause to be given, all notices required to be given by these by-laws or by law; shall have such powers and perform such duties as the board of directors, the president or these by-laws may, from time to time, prescribe; and shall have custody of the corporate seal of the corporation. The secretary, or an assistant secretary, shall have authority to affix the corporate seal to any instrument requiring it and when so affixed, it may be attested by his or her signature or by the signature of such assistant secretary. The board of directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his or her signature. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the board of directors, shall, in the absence or disability of the secretary, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors, the president, or secretary may, from time to time, prescribe. Section 4.9. The Treasurer and Assistant Treasurer. The treasurer shall have the custody of the corporate funds and securities; shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation; shall deposit all monies and other valuable effects in the name and to the credit of the corporation as may be ordered by the board of directors; shall cause the funds of the corporation to be disbursed when such disbursements have been duly authorized, taking proper vouchers for such disbursements; and shall render to the president and the board of directors, at its regular meeting or when the board of directors so requires, an account of the corporation; shall have such powers and perform such duties as the board of directors, the president or these by-laws may, from time to time, prescribe. If required by the board of directors, the treasurer shall give the corporation a bond (which shall be rendered every six years) in such sums and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of the office of treasurer and for the restoration to the corporation, in case of death, resignation, retirement, or removal from office, of all books, papers, vouchers, money, and other property of whatever kind in the possession or under the control of the treasurer belonging to the corporation. The assistant treasurer, or if there shall be more than one, the assistant treasurers in the order determined by the board of directors, shall in the absence or disability of the treasurer, perform the duties and exercise the powers of the treasurer. -11- 15 The assistant treasurers shall perform such other duties and have such other powers as the board of directors, the president or treasurer may, from time to time, prescribe. Section 4.10. Other Officers, Assistant Officers and Agents. Officers, assistant officers and agents, if any, other than those whose duties are provided for in these by-laws, shall have such authority and perform such duties as may from time to time be prescribed by resolution of the board of directors. Section 4.11. Absence or Disability of Officers. In the case of the absence or disability of any officer of the corporation and of any person hereby authorized to act in such officer's place during such officer's absence or disability, the board of directors may by resolution delegate the powers and duties of such officer to any other officer or to any director, or to any other person whom it may select. ARTICLE 5. INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS Section 5.1. Nature of Indemnity. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer, of the corporation or is or was serving at the request of the corporation as a director, officer, employee, fiduciary, or agent of another corporation or of a partnership, joint venture, trust or other enterprise, shall be indemnified and held harmless by the corporation to the fullest extent which it is empowered to do so by the General Corporation Law of the State of Delaware, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the corporation to provide broader indemnification rights than said law permitted the corporation to provide prior to such amendment) against all expense, liability and loss (including attorneys' fees actually and reasonably incurred by such person in connection with such proceeding and such indemnification shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that, except as provided in Section 2 hereof, the corporation shall indemnify any such person seeking indemnification in connection with a proceeding initiated by such person only if such proceeding was authorized by the board of directors of the corporation. The right to indemnification conferred in this Article 5 shall be a contract right and, subject to Sections 2 and 5 hereof, shall include the right to be paid by the corporation the expenses incurred in defending any such proceeding in advance of its final disposition. The corporation may, by action of its board of directors, provide indemnification to employees and agents of the corporation with the same scope and effect as the foregoing indemnification of directors and officers. Section 5.2. Procedure for Indemnification of Directors and Officers. -12- 16 Any indemnification of a director or officer of the corporation under Section 1 of this Article 5 or advance of expenses under Section 5 of this Article 5 shall be made promptly, and in any event within thirty (30) days, upon the written request of the director or officer. If a determination by the corporation that the director or officer is entitled to indemnification pursuant to this Article 5 is required, and the corporation fails to respond within sixty (60) days to a written request for indemnity, the corporation denies a written request for indemnification or advancing of expenses, in whole or in part, of if payment in full pursuant to such request is not made within thirty (30) days, the right to indemnification or advances as granted by this Article 5 shall be enforceable by the director or officer in any court of competent jurisdiction. Such person's costs and expenses incurred in connection with successfully establishing his or her right to indemnification, in whole or in part, in any such action shall also be indemnified by the corporation. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any, has been tendered to the corporation) that the claimant has not met the standards of conduct which make it permissible under the General Corporation Law of the State of Delaware for the corporation to indemnify the claimant for the amount claimed, but the burden of such defense shall be on the corporation. Neither the failure of the corporation (including its board of directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the General Corporation Law of the State of Delaware, nor an actual determination by the corporation (including its board of directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. Section 5.3. Article Not Exclusive. The rights to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article 5 shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the certificate of incorporation, by-law, agreement, vote of stockholders or disinterested directors or otherwise. Section 5.4. Insurance. The corporation may purchase and maintain insurance on its own behalf and on behalf of any person who is or was a director, officer, employee, fiduciary, or agent of the corporation or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, whether or not the corporation would have the power to indemnify such person against such liability under this Article 5. Section 5.5. Expenses. -13- 17 Expenses incurred by any person described in Section 1 of this Article 5 in defending a proceeding shall be paid by the corporation in advance of such proceeding's final disposition upon receipt of an undertaking by or on behalf of the director or officer to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the corporation. Such expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the board of directors deems appropriate. Section 5.6. Employees and Agents. Persons who are not covered by the foregoing provisions of this Article 5 and who are or were employees or agents of the corporation, or who are or were serving at the request of the corporation as employees or agents of another corporation, partnership, joint venture, trust or other enterprise, may be indemnified to the extent authorized at any time or from time to time by the board of directors. Section 5.7. Contract Rights. The provisions of this Article 5 shall be deemed to be a contract right between the corporation and each director or officer who serves in any such capacity at any time while this Article 5 and the relevant provisions of the General Corporation Law of the State of Delaware or other applicable law are in effect, and any repeal or modification of this Article 5 or any such law shall not affect any rights or obligations then existing with respect to any state of facts or proceeding then existing. Section 5.8. Merger or Consolidation. For purposes of this Article 5, references to "the corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under this Article 5 with respect to the resulting or surviving corporation as he or she would have with respect to such constituent corporation if its separate existence had continued. ARTICLE 6. CERTIFICATES OF STOCK Section 6.1. Form. Every holder of stock in the corporation shall be entitled to have a certificate, signed by, or in the name of the corporation by the president or a vice-president and the secretary or an assistant secretary of the corporation, certifying the number of shares owned by such holder in the corporation. -14- 18 If such a certificate is countersigned (1) by a transfer agent or an assistant transfer agent other than the corporation or its employee or (2) by a registrar, other than the corporation or its employee, the signature of any such president, vice-president, secretary or assistant secretary may be facsimiles. In case any officer or officers who have signed, or whose facsimile signature or signatures have been used on, any such certificate or certificates shall cease to be such officer or officers of the corporation whether because of death, resignation or otherwise before such certificate or certificates have been delivered by the corporation, such certificate or certificates may nevertheless be issued and delivered as though the person or persons who signed such certificate of certificates or whose facsimile signature or signatures have been used thereon had not ceased to be such officer or officers of the corporation. All certificates for shares shall be consecutively numbered or otherwise identified. The name of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the books of the corporation. Shares of stock of the corporation shall only be transferred on the books of the corporation by the holder of record thereof or by such holder's attorney duly authorized in writing, upon surrender to the corporation of the certificate or certificates for such shares endorsed by the appropriate person or persons, with such evidence of the authenticity of such endorsement, transfer, authorization, and other matters as the corporation may reasonably require, and accompanied by all necessary stock transfer stamps. In that event, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate or certificates, and record the transaction on its books. The board of directors may appoint a bank or trust company organized under the laws of the United States or any state thereof to act as its transfer agent or registrar, or both in connection with the transfer of any class or series of securities of the corporation. Section 6.2. Lost Certificate. The board of directors may direct a new certificate or certificates to be issued in place of any certificate or certificates previously issued by the corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. When authorizing such issue of a new certificate or certificates, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen, or destroyed certificate or certificates, or his or her legal representative, to give the corporation a bond sufficient to indemnify the corporation against any claim that may be made against the corporation on account of the loss, theft or destruction of any such certificate or the issuance of such new certificate. Section 6.3. Fixing a Record Date for Stockholder Meetings. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the board of directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of -15- 19 stockholders shall be the close of business on the next day preceding the day on which notice is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjournment meeting. Section 6.4. Fixing a Record Date for Other Purposes. In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment or any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purposes of any other lawful action, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to written action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto. Section 6.5. Registered Stockholders. Prior to the surrender to the corporation of the certificate or certificates for a share or shares of stock with a request to record the transfer of such share or shares, the corporation may treat the registered owner as the person entitled to receive dividends, to vote, to receive notifications, and otherwise to exercise all the rights and powers of an owner. Section 6.6. Subscriptions for Stock. Unless otherwise provided for in the subscription agreement, subscriptions for shares all be paid in full at such time, or in such installments and at such times, as shall be determined by the board of directors. Any call made by the board of directors for payment on subscriptions shall be uniform as to all shares of the same class or as to all shares of the same series. In case of default in the payment of any installment or call when such payment is due, the corporation may proceed to collect the amount due in the same manner as any debt due the corporation. ARTICLE 7. GENERAL PROVISIONS Section 7.1. Dividends. Dividends upon the capital stock of the corporation, subject to the provisions of the certificate of incorporation, if any, may be declared by the board of directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to -16- 20 meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or any other purpose and the directors may modify or abolish any such reserve in the manner in which it was created. Section 7.2. Checks, Drafts or Orders. All checks, drafts, or other orders for the payment of money by or to the corporation and all notes and other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers, agent or agents of the corporation, and in such manner, as shall be determined by resolution of the board of directors or a duly authorized committee thereof. Section 7.3. Contracts. The board of directors may authorize any officer or officers, or any agent or agents, of the corporation to enter into any contract or to execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances. Section 7.4. Loans. The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiary, including any officer or employee who is a director of the corporation or its subsidiary, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the corporation. The loan, guaranty or other assistance may be with or without interest, and may be unsecured, or secured in such manner as the board of directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in this section contained shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. No loans shall be made or contracted on behalf of the corporation and no evidences of indebtedness shall be issued in its name unless authorized by resolution of the board of directors. Such authority may be general or confined to specific instances. Section 7.5. Fiscal Year. The fiscal year of the corporation shall be fixed by resolution of the board of directors. Section 7.6. Voting Securities Owned By Corporation. Voting securities in any other corporation held by the corporation shall be voted by the president or the secretary, unless the board of directors specifically confers authority to vote with respect there to, which authority may be general or confined to specific instances, upon some other person or officer. Any person authorized to vote securities shall have the power to appoint proxies, with general power of substitution. Section 7.7. Inspection of Books and Records. -17- 21 Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders, and its other books and records, and to make copies or extracts therefrom. A proper purpose shall mean any purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent shall be the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing which authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its registered office in the State of Delaware or at its principal place of business. Section 7.8. Section Headings. Section headings in these by-laws are for convenience of reference only and shall not be given any substantive effect in limiting or otherwise construing any provision herein. Section 7.9. Inconsistent Provisions. In the event that any provision of these by-laws is or becomes inconsistent with any provision of the certificate of incorporation, the General Corporation Law of the State of Delaware or any other applicable law, the provision of these by-laws shall not be given any effect to the extent of such inconsistency but shall otherwise be given full force and effect. ARTICLE 8. AMENDMENTS Except as set forth in the next sentence, these by-laws may be amended, altered, or repealed and new by-laws adopted at any meeting of the board of directors by a majority vote. The provisions set forth in Article 3, Section 2, Article 3, Section 7(b) and this Article 8 may only be amended, altered or repealed upon the affirmative of at least 66 2/3% of the directors then in office. The fact that the power to adopt, amend, alter, or repeal the by-laws has been conferred upon the board of directors shall not divest the stockholders of the same powers. -18- EX-10.1 3 f72069ex10-1.txt EXHIBIT 10.1 1 EXHIBIT 10.1 PLANTRONICS, INC. NON-EMEA QUARTERLY PROFIT-SHARING PLAN Effective March 26, 2000 1.1 INTRODUCTION The Plantronics, Inc. Non-EMEA Quarterly Profit Sharing Plan is structured to provide associates in the North, Central and South America, Asia, and the Pacific region with an ability to share in company profitability based on their combined efforts. At the end of each quarter, adjusted Company profit will be determined and a bonus pool created using 5% of adjusted Company pre-tax profit. Funds in the pool will be disbursed to eligible associates according to their prorata eligible earnings for the quarter. 2.1 DEFINITIONS Adjusted Profit Consolidated Company pre-tax earnings and profits -- including all expenses and changes other than i) federal and foreign tax and ii) extraordinary gains or losses as defined by the Financial Accounting Standards Board, and following an addback of profit sharing estimates previously expensed during the period. Beneficiary: Any legally entitled beneficiary to an employee's estate and corresponding entitlement to payment under the Plan, as established by Human Resources. Company: Plantronics, Inc. or a successor entity or corporation that may, at its sole discretion, choose to continue this Plan. Consultant: Any person who provides service to the Company under a Consulting Agreement with Plantronics, Inc. or through employment by an outside agency, contract service, or educational institution and who is so designated as a Consultant by Human Resources. Disability/Death: A permanent medical condition that renders the associate unable to perform usual duties and requires the Participant to cease employment with the Company. A Participant or Beneficiaries seeking Disability or Death benefits under this Plan shall be required to provide evidence and records as appropriate for Human Resources to determine whether Disability or Death have occurred. Effective Date: The Effective Date of the Plan is March 26, 2000. Eligible Associate: All active indirect Company employees providing service through a Participating Employer payroll except those designated as a Consultant by Human Resources. Eligible Earnings: All current base compensation paid or payable in cash by the Participating Employer to a Participant for services performed during the Fiscal Quarter. Compensation shall not include overtime, bonuses, severance, sales commissions, or other cash incentive payments, but will include vacation, disability pay and sick pay.
2 PLANTRONICS, INC. NON-EMEA QUARTERLY PROFIT-SHARING PLAN Effective March 26, 2000 Fiscal Quarter: The stated Company quarterly financial accounting periods during each Fiscal Year ending on the Saturday closest to June 30, September 31, December 31 and March 31 each year. Lay-off The termination of employment by the Company under an announced Layoff program due to lack of work or the re-positioning of work within the Company for which the employee has received severance payments from the Company, and as determined by Human Resources. Leave of Absence An authorized leave of absence during the Fiscal Quarter that has been approved by Human Resources Participant: Any Eligible Associate who provides service to the Company during a Fiscal Quarter and is employed with the Company on the last day of the Fiscal Quarter. Participating Employers: All non-EMEA subsidiaries and divisions and their payrolling agencies are the Participating Employers under this Plan. Non-EMEA organizations are those outside the Plantronics, Inc. Europe, Middle East, and Asia division -- including but not limited to locations in North America, Central and South America, Asia, and the Pacific region. Payroll Quarter: The stated Participating Employer payroll period that corresponds to a Fiscal Quarter, as determined by the local Payroll or Human Resource Manager with such responsibility. Plan The Plantronics, Inc. Non-EMEA Quarterly Profit Sharing Plan. Retirement The associate's termination of employment based on company defined and allowed retirement from service, as determined by Human Resources. Transfer-In: The transfer of an Eligible Employee from an EMEA subsidiary or division payroll to a Non-EMEA subsidiary or division payroll. Transfer-Out: The transfer of an Eligible Employee from a Non-EMEA subsidiary or division payroll to an EMEA subsidiary or division payroll.
3 PLANTRONICS, INC. NON-EMEA QUARTERLY PROFIT-SHARING PLAN Effective March 26, 2000 III. ELIGIBILITY 3.1 PARTICIPATION For each Fiscal Quarter following the Effective Date, a Non-EMEA associate is a Participant if they are considered an Eligible Associate on the last working day of the Fiscal Quarter. Eligible Earnings for each Participant during the quarter are determined based on prorated earnings during the Payroll Quarter, based on the Participant's actual payroll earnings in the Non-EMEA division or subsidiary. Payroll and Fiscal Quarters do not necessarily match the same time periods during a quarter. 3.2 DEATH/DISABILITY/RETIREMENT/LAYOFF/LEAVE OF ABSENCE/TRANSFER-OUT Any Eligible Employee who ceases employment with the Company for reason of Death, Disability, Retirement, Layoff, Leave of Absence or Transfer-Out will be considered a Participant through the end of that Fiscal Quarter. Payment will be calculated based on the Eligible Earnings earned during that quarter. 3.3 TRANSFER-IN Any Eligible Employee who Transfers-In during a Fiscal Quarter will have payment calculated based on the Eligible Earnings earned during that quarter from a Participating Employer. 3.4 OTHER TERMINATING EVENTS Any Eligible Employee who ceases employment with the Company for reasons other than Death, Disability, Retirement, Layoff, or Leave of Absence during the Fiscal Quarter -- whether voluntary or involuntary -- will no longer be considered a Participant in the Plan. IV. PROFIT SHARING POOL FUNDING As soon as practicable at the end of any fiscal quarter and following review of financial statements by an independent accounting firm, a profit sharing pool will be funded by the Company in an amount equal to 5% of Adjusted Profit for distribution under this Plan. V. METHOD OF CALCULATION Once the Profit Sharing Pool is created, these funds are allocated to individual Participants, based on their prorata share of total Eligible Earnings. The method for determining the individual allocation shall be the Eligible Earnings paid to a Participant during the Fiscal Quarter divided by the aggregate Eligible Earnings paid to all Participants during the same Fiscal Quarter. VI. METHOD OF PAYMENT Upon completion of appropriate calculations and approval to proceed, each Participating Employer will pay to the Participant the amount determined under the Method of Calculation in a cash payment, subject to any locally required tax withholding. Payment will be made as soon as practicable following the completion of the review of Fiscal Quarter financials by an independent accounting firm. 4 PLANTRONICS, INC. NON-EMEA QUARTERLY PROFIT-SHARING PLAN Effective March 26, 2000 VII. ADMINISTRATION COMMITTEE An internal Administration Committee consisting of the Chief Executive Officer, Chief Financial Officer and each Participating Employer Human Resource and Payroll Manager administers the Plan. The Company indemnifies the committee members from all liability or claim against them. VIII. PLAN AMENDMENT OR TERMINATION The Plan can be amended or terminated by the Administration Committee at any time, for any reason, either retroactively or prospectively. IX. RIGHTS AND CLAIMS UNDER THE PLAN The Company intends to make contributions to the Plan indefinitely, however, the Company is not under any obligation or liability to continue its contributions to the Plan or to maintain the Plan for any given length of time. The Company may discontinue contributions or terminate the Plan with respect to all or part of the Participating Associates at any time. Any payment to a Participant or his/her Beneficiary, in accordance with the Plan, shall to the extent thereof be in full satisfaction of all claims such person may have against the Company. The Company may require the Participant or Beneficiary to execute a receipt and release as a condition precedent to payment, in a manner determined by the Administrative Committee. Neither the establishment of the Plan, nor any modification thereof, nor the creation of any fund or payment from such fund shall be construed so as to grant a Participant any legal or equitable right or any presumed contract of employment with the Company. EX-10.4(A) 4 f72069ex10-4a.txt EXHIBIT 10.4(A) 1 EXHIBIT 10.4(a) [PLANTRONICS LOGO] HUMAN RESOURCE ADMINISTRATIVE GUIDE No. H0xxx Rev 3.0 7/1/00 REGULAR AND SUPPLEMENTAL BONUS GUIDELINES 1.0 PURPOSE The following Bonus guidelines shall apply to Fiscal Year 2001 and subsequent fiscal years, unless amended. These guidelines will determine how regular and supplemental bonuses are administered and calculated. 2.0 SCOPE Selected employees may be eligible to participate in the Plantronics, Inc. Regular and/or Supplemental Bonus Plan. Participants must receive appropriate approval, as designated by the Company's signature authority policy. 3.0 GENERAL Plantronics has introduced numerous forms of variable compensation to incent employees to achieve. The regular and supplemental bonus plans were created to reward performance against documented objectives. 4.0 GUIDELINE To become a Participant in the Regular or Supplemental Bonus Plan, an associate must receive confirmation by way of a fully executed offer letter or pay adjustment memo, received from the Human Resource department. The Regular and Supplemental Bonus Plan targets bonus amounts for participants as a percentage of base salary. Target base salary for the regular bonus plan is computed as one quarter of the ending pay rate. Payout of the regular bonus will be made on a quarterly basis -- 25% of the bonus target percentage each quarter times the individual performance score. Target base salary for the supplemental bonus plan is computed based on actual salary earned for the year. Actual payment is based on company and individual performance scores. The Supplemental Bonus is paid following the close of the fiscal year. Supplemental Bonus Plan is paid only on the basis of relative achievement against the Board approved plan for adjusted net income excluding one-time gains/losses from sales of capital assets and write-offs. Should adjusted net income fall below the Board-approved plan, supplemental bonus payments will be reduced proportionately, i.e., 95% achievement of net income funds a pool equal to 95% of target bonuses. Each participant will receive payment only to the extent of actual accomplishment of individual objectives. NO SUPPLEMENTAL BONUS WILL BE PAID IF RESULTS WERE LOWER THAN THE RESULTS FROM THE PRIOR YEAR. MAXIMUM PAYOUT FOR ANY INDIVIDUAL IS 100% OF TARGET.
-------------------------------------------- EXAMPLE: FISCAL YEAR -------------------------------------------- Fiscal Year Base Salary $150,000 -------------------------------------------- Bonus Percentage 20% -------------------------------------------- Target Supplemental Bonus 30,000 -------------------------------------------- Company Performance 96% -------------------------------------------- Personal Performance 80% -------------------------------------------- Payout $23,040 --------------------------------------------
1 2 [PLANTRONICS LOGO] HUMAN RESOURCE ADMINISTRATIVE GUIDE No. H0xxx Rev 3.0 7/1/00 REGULAR AND SUPPLEMENTAL BONUS GUIDELINES The actual Regular Bonus payment is based upon the attainment of individual objectives, as determined. Payouts will be made using an actual performance factor (0% to 100% of target) as determined by the supervisor, department Vice President, and/or the CEO, and based upon the participant's achievement of goals and objectives. For example, assume a participant earns $100,000 per year and is targeted to earn a 20% Regular Bonus. If the participant receives a 4% increase in Q2 and achieved objective factors of 80% in Q1, 85% in Q2, 90% in Q3 and 85% in Q4, the bonus would be calculated as follows:
- ------------------------------------------------------------------------------------------ Q1 Q2 Q3 Q4 - ------------------------------------------------------------------------------------------ Fiscal Year Base Salary $100,000 $104,000 $104,000 $104,000 - ------------------------------------------------------------------------------------------ Bonus Percentage 20% 20% 20% 20% - ------------------------------------------------------------------------------------------ Maximum Quarterly Bonus 5,000 5,200 5,200 5,200 - ------------------------------------------------------------------------------------------ Personal Performance Factor 80% 85% 90% 85% - ------------------------------------------------------------------------------------------ Quarterly Payout 4,000 4,420 4,680 4,420 - ------------------------------------------------------------------------------------------ Maximum Year-to-Date Bonus 5,000 10,000 15,000 20,000 - ------------------------------------------------------------------------------------------ CUMULATIVE ANNUAL PAYOUT $4,000 $8,420 $13,100 $17,520 - ------------------------------------------------------------------------------------------
Regular Bonuses will be paid as soon as practicable following the close of a quarter. A participant must be employed by Plantronics on the payment date to be eligible. If not employed on the payment date, the participant shall not be entitled to any funds. If the participant dies, or is disabled and therefore unable to work during the relevant quarter or prior to the payment date, the participant will be treated as being employed on the payment date and the participant or the participant's estate will be entitled to the portion of the quarterly bonus actually earned on a pro rata basis using the time actually worked during the relevant quarter. 2 EX-10.4(B) 5 f72069ex10-4b.txt EXHIBIT 10.4(B) 1 EXHIBIT 10.4(b) [PLANTRONICS LOGO] HUMAN RESOURCE ADMINISTRATIVE GUIDE No. H0xxx Rev 1.0 7/7/00 OVERACHIEVEMENT BONUS GUIDELINES 1.0 PURPOSE The Overachievement Bonus guidelines shall apply to fiscal year 2001 and subsequent fiscal years, unless amended. These guidelines will determine how the key management overachievement bonus plan funding and individual bonuses are administered and calculated. 2.0 SCOPE Selected employees may be eligible to participate in the Plantronics, Inc. Overachievement Bonus Plan. Eligible participants include all senior members of our worldwide management team, excluding sales managers already on commission plans with accelerators. Specifically, the participating group includes the CEO, direct reports to the CEO, and all directors and vice-presidents of the company. In addition, some associates with the title of senior manager in EMEA will be eligible to participate. 3.0 GENERAL Plantronics has numerous forms of variable compensation to incent associates to achieve. The overachievement bonus plan was created to reward extraordinary corporate and individual performance against annual targeted objectives. To receive bonus funds from the pool, the company must have surpassed its annual targets and an associate must also have achieved greater than 90% weighted average individual performance scores for the fiscal year. 4.0 GUIDELINE ELIGIBILITY To become an Eligible Participant in the Overachievement Bonus Plan, an associate must receive confirmation by way of a fully executed offer letter or memo from the Corporate Human Resource department. FUNDING The funding for the bonus pool will be based on ANNUAL ADJUSTED OPERATING INCOME, as follows: - less than 100% of Board approved income: 0% - 100% of Board Plan and less than 108%: 5.0% of incremental income - 108% of Board Plan and less than 115%: 7.5% of incremental income - 115% of Board Plan and less than 120%: 10.0% of incremental income - 120% of Board Plan and above: 20.0% of incremental income A cap at 125% achievement of the Board Plan will be established. Adjusted net income (net income adjusted for extraordinary items such as capital gains/losses) was selected as the measurement of success as it holds the closest relationship to controllable shareholder 1 2 [PLANTRONICS LOGO] HUMAN RESOURCE ADMINISTRATIVE GUIDE No. H0xxx Rev 1.0 7/7/00 OVERACHIEVEMENT BONUS GUIDELINES value creation -- earnings per share has a diluted effect in measuring overall performance by taking into account the shares outstanding. ALLOCATION The Overachievement Pool will be distributed in two steps. The overall pool will be split into 2 sub-pools, the first (80%) to reward individual performance based on achievement as measured by objective scoring throughout the year, and the second (20%) to be provide the CEO discretionary ability to reward participants. POOL 1 is distributed using a formula of 1) the individual's salary as a percent of the combined salaries of all participants, times 2) the weighted average of an individual's quarterly and annual (if any) objective bonus payout for the year, as follows: (Pool x 80%) * (Individual Salary/All Participant Salaries) * Weighted Ave. Individual Objective Score NOTE: In general, individual scores of greater than 100% on objectives for the fiscal year as a whole are not allowed. Approval for such scoring must come from the CEO, with recommendations from the manager, functional VP and local head of HR. POOL 2 is distributed by the CEO to any participant or set of participants in the pool, other than himself, on a purely discretionary basis. The CEO also has the discretion not to award all of the funds in this pool. Bonus payments for unbudgeted new hires may also be taken from the excess pool in the first year of hire. There is no maximum per individual from this pool. TIMING AND PAYMENT Overachievement bonuses will be paid annually, following the completion of year-end audited financial statements. Finance will be responsible for accruing amounts quarterly -- consistent with the degree of cumulative over-achievement to plan as of each quarter end, so that operating income will not change as a result of payments under the plan. A participant must be employed by Plantronics on the payment date to be eligible. If not employed on the payment date, the participant shall not be entitled to any funds. If the participant dies, or is disabled and therefore unable to work during the relevant quarter or prior to the payment date, the participant will be treated as being employed on the payment date and the participant or the participant's estate will be entitled to the portion of the bonus actually earned on a pro rata basis using the time actually worked during the year. 2 EX-10.8 6 f72069ex10-8.txt EXHIBIT 10.8 1 EXHIBIT 10.8 [PLANTRONICS LOGO] PLANTRONICS, INC. 1993 STOCK OPTION PLAN 1. Purposes of the Plan. The purposes of this Stock Option Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees and Consultants of the Company and its Subsidiaries and to promote the success of the Company's business. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant. 2. Definitions. As used herein, the following definitions shall apply: (a) "Administrator" means the Board or any of its Committees as shall be administering the Plan in accordance with Section 4 hereof. (b) "Applicable Laws" means the requirements relating to the administration of stock option plans under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any other country or jurisdiction where Options are granted under the Plan. (c) "Board" means the Board of Directors of the Company. (d) "Code" means the Internal Revenue Code of 1986, as amended. (e) "Committee" means the Compensation Committee appointed by the Board in accordance with Section 4 hereof. (f) "Common Stock" means the Common Stock of the Company. (g) "Company" means Plantronics Inc., a Delaware corporation. (h) "Consultant" means any person who is engaged by the Company or any Parent or Subsidiary to render consulting or advisory services to such entity and who is compensated for such services and who does not render such services as an Employee. (i) "Director" means a member of the Board of Directors of the Company. (j) "Disability" means total and permanent disability as defined in Section 22(e)(3) of the Code. (k) "Employee" means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. A Service Provider shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. For purposes of Incentive Stock Options, no such leave may exceed ninety (90) days, unless reemployment upon expiration of such leave is guaranteed by contract (including certain Company policies) or statute. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the 181st day of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company. (l) "Exchange Act" means the Securities Exchange Act of 1934, as amended. 2 PLANTRONICS, INC. 1993 STOCK OPTION PLAN (m) "Fair Market Value" means, as of any date, the value of Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination; or (iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator in conjunction with a qualified independent appraiser. (n) "Incentive Stock Option" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code. (o) "Nonstatutory Stock Option" means an Option not intended to qualify as an Incentive Stock Option. (p) "Officer" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (q) "Option" means a stock option granted pursuant to the Plan. (r) "Option Agreement" means a written or electronic agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan. (s) "Optioned Stock" means the Common Stock subject to an Option. (t) "Optionee" means an Employee or Consultant who receives an outstanding Option, or in the event of death or disability, such individual's estate or personal representative, granted under the Plan. (u) "Parent" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code. (v) "Plan" means this 1993 Stock Option Plan. (w) "Section 16(b)" means Section 16(b) of the Securities Exchange Act of 1934, as amended. (x) "Service Provider" means an Employee or Consultant. (y) "Share" means a share of the Common Stock, as adjusted in accordance with Section 11 below. Page 2 3 PLANTRONICS, INC. 1993 STOCK OPTION PLAN (z) "Subsidiary" means a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code. 3. Stock Subject to the Plan. Subject to the provisions of Section 11 of the Plan, the maximum aggregate number of Shares which may be subject to option and sold under the Plan is 18,927,726 Shares. The Shares may be authorized but unissued, or reacquired Common Stock, or both. If an Option expires or becomes unexercisable without having been exercised in full, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated). However, Shares that have actually been issued under the Plan, upon exercise of either an Option, shall not be returned to the Plan and shall not become available for future distribution under the Plan. 4. Administration of the Plan. (a) The Plan shall be administered by the Board or a Committee appointed by the Board, which Committee shall be constituted to comply with Applicable Laws. (b) Powers of the Administrator. Subject to the provisions of the Plan and, in the case of a Committee, the specific duties delegated by the Board to such Committee, and subject to the approval of any relevant authorities, the Administrator shall have the authority in its discretion: (i) to determine the Fair Market Value of the Common Stock, in accordance with Section 2(m) of the Plan; (ii) to select the Service Providers to whom Options may from time to time be granted hereunder; (iii) to determine the number of Shares to be covered by each such award granted hereunder; (iv) to approve forms of agreement for use under the Plan; (v) to determine the terms and conditions, of any Option granted hereunder. Such terms and conditions are subject to the provisions of this Plan and may include, but are not limited to, the time or times when Options may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or the Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine; (vi) to determine whether and under what circumstances an Option may be settled in cash under subsection 9(e) instead of Common Stock; (vii) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of qualifying for preferred tax treatment under foreign tax laws; (viii) to allow Optionees to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Option that number of Shares having a Fair Market Value equal to the amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by Optionees to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable; and Page 3 4 PLANTRONICS, INC. 1993 STOCK OPTION PLAN (ix) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan. (c) Effect of Administrator's Decision. All decisions, determinations and interpretations of the Administrator shall be final and binding on all Optionees. 5. Eligibility. (a) Nonstatutory Stock Options may be granted to Service Providers. Incentive Stock Options may be granted only to Employees. (b) Each Option shall be designated in the Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted. (c) Neither the Plan nor any Option shall confer upon any Optionee any right with respect to continuing the Optionee's relationship as a Service Provider with the Company, nor shall it interfere in any way with his or her right or the Company's right to terminate such relationship at any time, with or without cause. (d) The following limitations shall apply to grants of Options: (i) No Service Provider shall be granted in any fiscal year of the Company, options to purchase more than 500,000 shares, or 1,000,000 shares, if such Service Provider is a new hire; (ii) The foregoing limitations set forth in this Section 5(d) are intended to satisfy the requirements applicable to Options intended to qualify as "performance-based compensation" (within the meaning of Section 162(m) of the Code) and are subject to an automatic proportionate increase in the event of an increase to either the Shares issuable pursuant to the Plan or to the Shares issuable pursuant to a particular Option under Sections 3 and 11 herein. In the event the Administrator determines that such limitations are not required to qualify an Option as performance-based compensation, the Administrator may modify or eliminate such limitations. 6. Term of Plan. The Plan shall become effective upon its adoption by the Board. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 13 of the Plan. 7. Term of Option. The term of each Option shall be stated in the Option Agreement; provided, however, that the term shall be no more than ten (10) years from the date of grant thereof. In the case of an Incentive Stock Option granted to an Optionee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Option shall be five (5) years from the date of grant or such shorter term as may be provided in the Option Agreement. 8. Option Exercise Price and Consideration. (a) The per share exercise price for the Shares to be issued upon exercise of an Option shall be such price as is determined by the Administrator, but shall be subject to the following: Page 4 5 PLANTRONICS, INC. 1993 STOCK OPTION PLAN (i) In the case of an Incentive Stock Option (1) granted to an Employee who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. (2) granted to any other Employee, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (ii) In the case of a Nonstatutory Stock Option (1) granted to a Service Provider who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the exercise price shall be no less than 110% of the Fair Market Value per Share on the date of the grant. (2) granted to any other Service Provider, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (iii) Notwithstanding the foregoing, Options may be granted with a per Share exercise price other than as required above pursuant to a merger or other corporate transaction, provided that shareholders' approval has been obtained for all such grants. (b) The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant). Such consideration may consist of (1) cash, (2) check, (3) other Shares which (x) in the case of Shares acquired upon exercise of an Option, have been owned by the Optionee for more than six months on the date of surrender, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which such Option shall be exercised, (4) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan, or (5) any combination of the foregoing methods of payment, or (6) such other consideration and method of payment for the issuance of Shares to the extent permitted under Applicable Laws. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company. 9. Exercise of Option. (a) Procedure for Exercise; Rights as a Shareholder. (i) Any Option granted hereunder shall be exercisable according to the terms hereof at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement, but in no case prior to the first anniversary of the date the Option is granted. An Option may not be exercised for a fraction of a Share. (ii) An Option shall be deemed exercised when the Company receives: (i) written or electronic notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise the Option, and (ii) full payment for the Shares with Page 5 6 PLANTRONICS, INC. 1993 STOCK OPTION PLAN respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Option Agreement and allowable under Section 8(b) of the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Shares, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 11 of the Plan. (iii) Exercise of an Option in any manner shall result in a decrease in the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Relationship as a Service Provider. If an Optionee ceases to be a Service Provider, such Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement (of at least thirty (30) days) to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of the Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for ninety (90) days following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (c) Disability of Optionee. If an Optionee ceases to be a Service Provider as a result of the Optionee's Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement (of at least six (6) months) to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (d) Death of Optionee. If an Optionee dies while a Service Provider, the Option may be exercised within such period of time as is specified in the Option Agreement (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant), by the Optionee's estate or by a person who acquires the right to exercise the Option by bequest or inheritance, but only to the extent that the Option is vested on the date of death. In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, at the time of death, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall immediately revert to the Plan. The Option may be exercised by the executor or administrator of the Optionee's estate or, if none, by the person(s) entitled to exercise the Option under the Optionee's will or the laws of descent or distribution. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. Page 6 7 PLANTRONICS, INC. 1993 STOCK OPTION PLAN (e) Buyout Provisions. The Administrator may at any time offer to buy out for a payment in cash or Shares, an Option previously granted, based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made. 10. Non-Transferability of Options. Options may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. 11. Adjustments Upon Changes in Capitalization, Merger or Asset Sale. (a) Changes in Capitalization. Subject to any required action by the shareholders of the Company, the number of shares of Common Stock covered by each outstanding Option, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company. The conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option. (b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each Optionee at least thirty (30) days prior to the effective date of such proposed transaction. The Administrator in its discretion may provide for an Optionee to have the right to exercise his or her Option until fifteen (15) days prior to such transaction as to all of the Optioned Stock covered thereby, including Shares as to which the Option would not otherwise be exercisable. In addition, the Administrator may provide that any Company repurchase option applicable to any Shares purchased upon exercise of an Option shall lapse as to all such Shares, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an Option will terminate immediately prior to the consummation of such proposed action. (c) Merger or Asset Sale. In the event of a merger of the Company with or into another corporation, or the sale of substantially all of the assets of the Company, each outstanding Option shall be assumed or an equivalent option substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the Option, the Optionee shall fully vest in and have the right to exercise the Option as to all of the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable. If an Option becomes fully vested and exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee in writing or electronically that the Option shall be fully exercisable for a period of not less than thirty (30) days from the date of such notice, and the Option shall terminate upon the expiration of such period. For the purposes of this paragraph, the Option shall be considered assumed if, following the merger or sale of assets, the option confers the right to purchase or receive, for each Share of Optioned Stock subject to the Page 7 8 PLANTRONICS, INC. 1993 STOCK OPTION PLAN Option immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or sale of assets is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option, for each Share of Optioned Stock subject to the Option, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received 12. Time of Granting Options. The date of grant of an Option shall, for all purposes, be the date on which the Administrator makes the determination granting such Option, or such other date as is determined by the Administrator. Notice of the determination shall be given to each Service Provider to whom an Option is so granted within a reasonable time after the date of such grant. 13. Amendment and Termination of the Plan. (a) Amendment and Termination. The Board may at any time amend, alter, suspend or terminate the Plan, but no amendment, alteration, suspension or discontinuation shall be made which would impair the rights of any Optionee under any grant theretofore made, without his or her consent. (b) Shareholder Approval. The Board shall obtain shareholder approval with respect to any Plan amendment to the extent necessary and desirable to comply with Applicable Laws. (c) Effect of Amendment or Termination. No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Optionee, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company. Termination of the Plan shall not affect the Administrator's ability to exercise the powers granted to it hereunder with respect to Options granted under the Plan prior to the date of such termination. 14. Conditions Upon Issuance of Shares. (a) Legal Compliance. Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance. (b) Investment Representations. As a condition to the exercise of an Option, the Administrator may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required. 15. Reservation of Shares. The Company, during the term of this Plan, shall at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 16. Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. Page 8 9 PLANTRONICS, INC. 1993 STOCK OPTION PLAN 17. Shareholder Approval. The Plan shall be subject to approval by the shareholders of the Company within twelve (12) months after the date the Plan is adopted and within twelve (12) months after the date of any increase in the number of Shares available for issuance pursuant to the Plan, to the extent required by Section 422 of the Code and the regulations thereunder. Such shareholder approval shall be obtained in the degree and manner required under Applicable Laws. Page 9 EX-10.9(A) 7 f72069ex10-9a.txt EXHIBIT 10.9(A) 1 EXHIBIT 10.9(a) 1993 DIRECTOR STOCK OPTION PLAN AMENDMENT NO. 2 I. Section 4(a)(vii) of the 1993 Director Stock Option Plan (the "Director Plan") is hereby amended as follows: (vii) The terms of a Subsequent Option granted hereunder shall be as follows: (A) the term of the Subsequent Option shall be ten (10) years. (B) the Subsequent Option shall be exercisable only while the Outside Director remains a Director of the Company, except as set forth in Section 8 hereof. (C) the exercise price per Share shall be 100% of the Fair Market Value per Share on the date of grant of the Subsequent Option. (D) The Subsequent Option shall vest and become exercisable as to 25% of the Shares subject to the Subsequent Option on the first anniversary of the date of grant of the Subsequent Option and shall vest and become exercisable as to 6.25% of the Shares subject to the Subsequent Option at the end of each three month period thereafter, if on such dates Optionee has remained in Continuous Status as a Director. II. The foregoing amendment shall be effective as of November 4, 1996, including as to Subsequent Options that are outstanding as of such date. EX-10.9(B) 8 f72069ex10-9b.txt EXHIBIT 10.9 1 EXHIBIT 10.9(b) 1993 DIRECTOR STOCK OPTION PLAN AMENDMENT NO. 3 The 1993 Director Stock Option Plan (the "Plan") is amended effective as of June 29, 2000, as follows: Section 3 of the Director Plan is amended to read in its entirety as follows: Stock Subject to the Plan. Subject to the provisions of Section 10 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is 100,000 Shares(1) (the "Pool") of Common Stock. The Shares may be authorized but unissued or reacquired Common Stock. If an Option should expire or become unexercisable for any reason without having been exercised in full, the unpurchased Shares which were subject thereto shall, unless the Plan shall have been terminated, become available for future grant under the Plan. - -------- (1) Includes increase of 40,000 Shares on June 29, 2000. EX-10.11 9 f72069ex10-11.txt EXHIBIT 10.11 1 Exhibit 10.11 PLANTRONICS, INC. 401(k) PLAN ORIGINAL EFFECTIVE DATE: JUNE 1, 1968 RESTATEMENT EFFECTIVE DATE: APRIL 2, 2000 WILSON SONSINI GOODRICH & ROSATI 650 PAGE MILL ROAD PALO ALTO, CA 94304-1050 (650) 493-9300 2 TABLE OF CONTENTS
Page ---- ARTICLE I INTRODUCTION......................................................... 1 ARTICLE II DEFINITIONS......................................................... 2 2.1 Account......................................................... 2 2.2 Adjustment Factor............................................... 2 2.3 Administrator................................................... 2 2.4 Base Compensation............................................... 2 2.5 Beneficiary..................................................... 3 2.6 Board........................................................... 3 2.7 Break in Service................................................ 3 2.8 Code............................................................ 3 2.9 Committee....................................................... 3 2.10 Company......................................................... 3 2.11 Company Stock................................................... 3 2.12 Compensation.................................................... 3 2.13 Contributions................................................... 4 2.14 Days of Service................................................. 4 2.15 Department of Labor Regulations................................. 4 2.16 Disability...................................................... 5 2.17 Early Retirement................................................ 5 2.18 Earnings........................................................ 5 2.19 Effective Date.................................................. 5 2.20 Eligible Employees.............................................. 5 2.21 Eligible Participant............................................ 6 2.22 Employee........................................................ 6 2.23 Employer........................................................ 7 2.24 Employer Discretionary Contributions............................ 7 2.25 Employer Matching Contributions................................. 7 2.26 Employment Commencement Date.................................... 7 2.27 Entry Dates..................................................... 7 2.28 ERISA........................................................... 7 2.29 Highly Compensated Employee..................................... 7 2.30 Hour of Service................................................. 8 2.31 Income Tax Regulations.......................................... 9 2.32 Leased Employee................................................. 9 2.33 Non-Highly Compensated Employee................................. 9 2.34 Normal Retirement or Normal Retirement Date..................... 9 2.35 Participant..................................................... 9 2.36 Participating Employer.......................................... 9 2.37 Period of Service............................................... 9
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Page ---- 2.38 Plan............................................................ 10 2.39 Plan Year....................................................... 10 2.40 Qualified Matching Contributions................................ 10 2.41 Qualified Nonelective Contributions............................. 10 2.42 Reemployment Commencement Date.................................. 10 2.43 Rollover Contributions.......................................... 10 2.44 Safe Harbor Contributions....................................... 10 2.45 Safe Harbor Matching Contributions.............................. 10 2.46 Safe Harbor Nonelective Contributions........................... 10 2.47 Salary Deferral Contributions................................... 10 2.48 Section 415 Compensation........................................ 11 2.49 Severance Date.................................................. 11 2.50 Spouse or Surviving Spouse...................................... 12 2.51 Trust........................................................... 12 2.52 Trust Agreement................................................. 12 2.53 Trustee......................................................... 12 2.54 Valuation Date.................................................. 12 2.55 Year of Service................................................. 12 2.56 Other Definitions............................................... 12 ARTICLE III ELIGIBILITY........................................................ 14 3.1 Participation................................................... 14 3.2 Reemployment.................................................... 14 3.3 Change in Employment Status..................................... 14 3.4 Enrollment of Participants...................................... 14 3.5 Erroneous Participation......................................... 14 ARTICLE IV CONTRIBUTIONS....................................................... 16 4.1 Salary Deferral Contributions................................... 16 4.2 Safe Harbor Nonelective Contributions........................... 16 4.3 Safe Harbor Matching Contributions.............................. 17 4.4 Safe Harbor Contributions Requirements.......................... 18 4.5 Employer Matching Contributions and Qualified Matching Contributions................................................... 19 4.6 Employer Discretionary and Qualified Nonelective Contributions.. 19 4.7 Limitations on Contributions.................................... 20 4.8 Time and Manner of Payment of Contributions..................... 20 4.9 Receipt of Assets from Another Plan............................. 20 ARTICLE V ACCOUNTS............................................................. 21 5.1 Participant's Accounts.......................................... 21 5.2 Allocation of Contributions..................................... 22
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Page ---- 5.3 Allocation of Earnings.......................................... 22 5.4 Section 415 Limitations......................................... 22 5.5 Discrimination Testing of Salary Deferral Contributions......... 26 5.6 Distribution of Excess Elective Deferrals....................... 31 5.7 Discrimination Testing of Employer Matching Contributions....... 32 5.8 Corrective Procedure for Discriminatory Matching Contributions.. 34 ARTICLE VI VESTING AND DISTRIBUTION OF ACCOUNTS................................ 37 6.1 Vested Interest................................................. 37 6.2 Forfeitures..................................................... 38 6.3 Early Retirement................................................ 39 6.4 Normal Retirement Date.......................................... 39 6.5 Death Benefits.................................................. 39 6.6 Termination of Employment....................................... 39 6.7 Commencement of Distribution.................................... 39 6.8 Special Rule for Salary Deferral Contributions, Safe Harbor Nonelective Contributions, Safe Harbor Matching Contributions and Qualified Nonelective Contributions......................... 41 6.9 Direct Rollovers and Withholding................................ 42 6.10 Form of Distribution............................................ 42 6.11 Form of Benefit................................................. 43 6.12 Minimum Distribution Requirements............................... 43 6.13 Distribution to Minor or Incompetent............................ 47 6.14 Beneficiary Designation......................................... 47 6.15 Location of Participant or Beneficiary Unknown.................. 47 6.16 Hardship Distributions.......................................... 48 6.17 Loans........................................................... 49 6.18 In-Service Withdrawals at Age Fifty-Nine and One-Half (59 1/2).. 50 ARTICLE VII ADMINISTRATION..................................................... 51 7.1 Powers of the Administrator..................................... 51 7.2 Absolute Discretion of the Administrator........................ 51 7.3 Committee....................................................... 52 7.4 Domestic Relations Orders....................................... 53 ARTICLE VIII LEAVES OF ABSENCE AND TRANSFERS................................... 56 8.1 Military Leave of Absence....................................... 56 8.2 Other Leaves of Absence......................................... 56 8.3 Transfers....................................................... 56
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Page ---- ARTICLE IX TRUST PROVISIONS.................................................... 58 9.1 Trust Agreement................................................. 58 9.2 Voting.......................................................... 58 ARTICLE X FEES AND EXPENSES.................................................... 59 ARTICLE XI AMENDMENT, TERMINATION OR MERGER.................................... 60 11.1 Amendment....................................................... 60 11.2 Termination of Plan............................................. 60 11.3 Merger.......................................................... 61 ARTICLE XII ADOPTION OF PLAN BY RELATED ENTITIES............................... 62 12.1 Adoption of the Plan............................................ 62 12.2 Withdrawal...................................................... 62 ARTICLE XIII CLAIMS PROCEDURE.................................................. 63 13.1 Right to File Claim............................................. 63 13.2 Denial of Claim................................................. 63 13.3 Claim Review Procedure.......................................... 63 ARTICLE XIV TOP-HEAVY PROVISIONS............................................... 65 14.1 Purpose......................................................... 65 14.2 Definitions..................................................... 65 14.3 Minimum Allocation.............................................. 67 ARTICLE XV MISCELLANEOUS....................................................... 68 15.1 Legal or Equitable Action....................................... 68 15.2 Indemnification................................................. 68 15.3 No Enlargement of Plan Rights................................... 68 15.4 No Enlargement of Employment Rights............................. 68 15.5 Interpretation.................................................. 68 15.6 Governing Law................................................... 68 15.7 Non-Alienation of Benefits...................................... 69 15.8 No Reversion.................................................... 69 15.9 Conflict........................................................ 69 15.10 Severability.................................................... 70 15.11 Conditional Restatement......................................... 70
-iv- 6 ARTICLE I INTRODUCTION Plantronics, Inc. maintains the Plantronics, Inc. 401(k) Plan, (the "Plan") consisting of the following provisions, for the exclusive benefit of Participants and their Beneficiaries (and for defraying reasonable administrative expenses of the Plan). The Plan was originally established effective as of June 1, 1968, and was subsequently restated on three (3) occasions. The Company further amends and restates this Plan in its entirety, including changing the name of the Plan from the Plantronics, Inc. Annual Profit Sharing/Individual Savings Plan to the Plantronics, Inc. 401(k) Plan, effective as of April 2, 2000 (except as otherwise stated herein). The Plan is intended to be a tax-qualified profit sharing plan and related tax-exempt trust under Code Sections 401(a) and 501(a), which includes a cash or deferred arrangement under Code Section 401(k) and provides for a matching contribution arrangement under Code Section 401(m). The Plan is also intended to provide participant-directed investment accounts in compliance with ERISA Section 404(c), and to allow for investment in Company Stock. Finally, the Plan is intended to meet certain safe harbor requirements such that it is automatically deemed to pass certain nondiscrimination testing requirements. 7 ARTICLE II DEFINITIONS Wherever used in this Plan, the following terms shall have the meanings indicated below, unless a different meaning is plainly required by the context. The singular shall include the plural, unless the context indicates otherwise. Headings of sections are used for convenience of reference only, and in case of conflict, the text of the Plan, rather than such headings, shall control: 2.1 ACCOUNT. "Account" means a Participant's interest in the Trust which may consist of any or all of the following: Salary Deferral Contributions Account, Employer Matching Contributions Account, Qualified Matching Contributions Account, Employer Discretionary Contributions Account, Qualified Nonelective Contributions Account, Rollover Contributions Account, Safe Harbor Matching Contributions Account, Safe Harbor Nonelective Contributions Account, Quarterly Plan Account, Pre-97 Employee 401(k) Contributions Account, Pre-97 Employer 401(k) Matching Contributions Account, and such other Account(s) as the Administrator shall determine. Any reference to Account in the Plan shall include reference to any or all of the above-mentioned accounts, as applicable. 2.2 ADJUSTMENT FACTOR. "Adjustment Factor" means the cost-of-living adjustment factor prescribed by the Secretary of the Treasury under Code Section 415(d), as applied to such items and in such manner as the Secretary of the Treasury shall provide from time to time. 2.3 ADMINISTRATOR. "Administrator" (as defined in ERISA Section 3(16)(A)), means the Company, which also shall be a named fiduciary, within the meaning of ERISA Section 402(a)(2). 2.4 BASE COMPENSATION (a) "Base Compensation" means all of an Employee's base wages as reportable on IRS Form W-2 and shall not include an Employee's profit sharing, overtime, bonuses, sales commissions, and other cash incentive payments that are subject to Federal Income tax withholdings. Base Compensation shall include only those amounts which are actually paid or made available to the Employee during the portion of the Plan Year during which the Employee was an Eligible Participant. Base Compensation shall include any amount which is contributed by the Employer pursuant to a salary deferral agreement, and which is not includable in the gross income of the Employee under Code Section 125, 402(e)(3), 402(h), or 403(b). (b) The annual Base Compensation of each Employee that is taken into account under the Plan shall not exceed the limit prescribed under Code Section 401(a)(17), as adjusted by -2- 8 the Adjustment Factor for a twelve (12)-month Plan Year (One Hundred Seventy Thousand Dollars ($170,000) for the Plan Year beginning on April 2, 2000). The Adjustment Factor in effect for a calendar year applies to the Plan Year that begins in such calendar year. If a Plan Year consists of less than twelve (12) months, then the annual Base Compensation limit shall be adjusted to an amount equal to the otherwise applicable limit for such Plan Year multiplied by a fraction, the numerator of which is the number of months in the short Plan Year and the denominator of which is twelve (12). (c) The determination of the amount of Base Compensation shall be made by the Participating Employer (or its designee) who employs the Employee, in accordance with the records of the Participating Employer, and shall be conclusive. 2.5 BENEFICIARY. "Beneficiary" means the individual person or entity who is entitled to receive benefits payable from the Plan on account of a Participant's death. 2.6 BOARD. "Board" means the Board of Directors of the Company. 2.7 BREAK IN SERVICE. "Break in Service" means: (a) A period of time commencing with an Employee's Severance Date of at least twelve (12)-consecutive months during which the Employee is not credited with any Period of Service under Section 2.37. If an Employee is absent on account of maternity or paternity leave, as described in subsection (b) below, or on account of an authorized leave of absence as described in Section 8.1 or 8.2, then the Employee will not be considered to have incurred a one (1)-year Break in Service for the first twelve (12)-consecutive month period in which he or she would otherwise have had a one (1)-year Break in Service. (b) For purposes of paragraph (a) above, "maternity or paternity leave" means a period during which an Employee is absent because of (i) the pregnancy of the Employee, (ii) the birth of a child of the Employee, (iii) the placement of a child with the Employee in connection with the Employee's adoption of the child, or (iv) the caring for a child by the Employee immediately after the birth or placement of the child. 2.8 CODE. "Code" means the Internal Revenue Code of 1986, as amended from time to time, and applicable valid Income Tax Regulations issued thereunder. 2.9 COMMITTEE -3- 9 "Committee" means the Plantronics, Inc. 401(k) Plan Committee that shall assist in the day-to-day oversight and administration of the Plan pursuant to Section 7.3. 2.10 COMPANY. "Company" means Plantronics, Inc., and any successor by merger, consolidation or otherwise. 2.11 COMPANY STOCK. "Company Stock" means common and/or preferred stock, as applicable, of the Company, or any successor by merger, consolidation or otherwise, that meets the requirements of "qualifying employer security" under ERISA Section 407(d)(5) and "employer securities" under Code Section 409(1). 2.12 COMPENSATION. (a) "Compensation," subject to paragraphs (b) and (c) below, means all of an Employee's "wages" within the meaning of Code Section 3401(a) in connection with income tax withholding as reportable on IRS Form W-2, and all other compensation paid to the Employee by the Employer in the course of its trade or business, for which the Employer is required to furnish the Employee with a written statement under Code Sections 6041(d), 6051(a)(3) and 6052, determined without regard to exclusions 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)) Compensation shall include only those amounts which are actually paid or made available to the Employee during the portion of the Plan Year during which the Employee was a Participant. Compensation shall include any amount which is contributed by the Employer pursuant to a salary deferral agreement and which is not includable in the gross income of the Employee under Code Section 125, 402(e)(3), 402(h) or 403(b). (b) The annual Compensation of each Employee that is taken into account under the Plan shall not exceed the limit prescribed under Code Section 401(a)(17), as adjusted by the Adjustment Factor for a twelve (12) month Plan Year (One Hundred Seventy Thousand Dollars ($170,000) for the Plan Year beginning on April 2, 2000). The Adjustment Factor in effect for a calendar year applies to the Plan Year that begins in such calendar year. If a Plan Year consists of less than twelve (12) months, then the annual Compensation limit shall be adjusted to an amount equal to the otherwise applicable limit for such Plan Year multiplied by a fraction, the numerator of which is the number of months in the short Plan Year and the denominator of which is twelve (12). (c) The determination of the amount of Compensation shall be made by the Participating Employer (or its designee) who employs the Employee, in accordance with the records of the Participating Employer, and shall be conclusive. 2.13 CONTRIBUTIONS -4- 10 "Contributions" means Salary Deferral Contributions, Safe Harbor Nonelective Contributions, Safe Harbor Matching Contributions, Employer Matching Contributions, Qualified Matching Contributions, Employer Discretionary Contributions, and Qualified Nonelective Contributions. 2.14 DAYS OF SERVICE. "Days of Service" means the total number of days in an Employee's service periods, whether or not such periods were completed consecutively. Days of Service shall also include the number of days in all severance periods, if any, in which: (a) the Employee severs from service by reason of quit, discharge or retirement, if the Employee performs an Hour of Service within twelve (12) months of the date of such severance; provided that immediately prior to such quit, discharge or retirement, the Employee was not absent from service; or (b) notwithstanding paragraph (a) above, the Employee severs from service by reason of quit, discharge or retirement during an absence from service of twelve (12) months or less for any reason other than a quit, discharge, retirement or death and the Employee then performs an Hour of Service within twelve (12) months of the date on which the Employee was first absent from service. 2.15 DEPARTMENT OF LABOR REGULATIONS. "Department of Labor Regulations" means the regulations prescribed by the Secretary of Labor from time to time under ERISA. 2.16 DISABILITY. "Disability" means the inability of the Participant, as determined by the Administrator, to perform the customary duties of the Participant's employment with an Employer for an indefinite, continuous period of time that the Administrator determines will be of long duration. The Administrator may require the Participant to submit to an examination by a licensed physician chosen by the Administrator to determine the degree and permanence of the disability, which shall be supported by medical evidence. 2.17 EARLY RETIREMENT. "Early Retirement" means the date on which a Participant terminates employment with an Employer on or after attaining age fifty-five (55) and completing two (2) Years of Service. 2.18 EARNINGS. "Earnings" means (a) interest, dividends, rents, royalties, net realized and unrealized gains and losses, and other income, less (b) fees, commissions, insurance premiums and other expenses. 2.19 EFFECTIVE DATE -5- 11 "Effective Date" means April 2, 2000, except as otherwise provided herein; provided, however, that any provision of the Plan required as a result of the Small Business Job Protection Act of 1996, the Taxpayer Relief Act of 1997, the Uruguay Round Agreements Act of 1994, the Uniformed Services Employment and Reemployment Rights Act of 1994, the Restructuring and Reform Act of 1998, or any other applicable legislation, shall be effective as of the date specified in such legislation. 2.20 ELIGIBLE EMPLOYEES. "Eligible Employees" means all Employees of each Participating Employer, except: (a) Employees who are covered by a collective bargaining agreement between a union and the Employer or any employers' association under which retirement benefits were the subject of good faith bargaining, unless the agreement specifically provides for coverage of such Employees under the Plan; (b) Employees who are non-resident aliens (within the meaning of Code Section 7701(b)(1)(B)) and who receive no earned income (within the meaning of Code Section 911(d)(2)) from the Employer which constitutes income from sources within the United States (within the meaning of Code Section 861(a)(3)); (c) individuals employed by a corporation or other business entity which is not a Participating Employer, but which is merged or liquidated into, or whose assets are acquired by, a Participating Employer, unless the board of directors of the Participating Employer designates the Employees of such corporation or other business entity, as the case may be, as Eligible Employees under the Plan pursuant to written resolutions adopted by such board of directors at any time prior to or after such liquidation, merger or asset acquisition; (d) individuals who are classified as Part-Time Employees by the Employer. "Part-Time Employees" means individuals who are regularly-scheduled to work less than twenty (20) hours per week, other than those Employees who are credited with one thousand (1,000) Hours of Service in the twelve (12)-consecutive month period measured from the date the Employee completes his or her first Hour of Service or any Plan Year which begins after the date the Employee completes his or her first Hour of Service; (e) individuals who are classified as Temporary Employees by the Employer. "Temporary Employees" means individuals who are employed for short-term assignments, generally three (3) months or less), other than Employees who are credited with one thousand (1,000) Hours of Service in the twelve (12)-consecutive month period measured from the date the Employee completes his or her first Hour of Service or any Plan Year which begins after the date the Employee completes his or her first Hour of Service; (f) Leased Employees; (g) individuals who are classified as Consultants by the Employer, whether or not such classification is upheld upon governmental or judicial review. "Consultants" means individuals (who may also be referred to as independent contractors) who have specialized knowledge or special -6- 12 skills and are retained to provide advice or assistance to the Employer and who are not Employees of the Employer; (h) individuals who are classified as Agency Workers by the Employer, whether or not such classification is upheld upon governmental or judicial review. "Agency Workers" means individuals who are employed pursuant to a written agreement with an agency or other third party for a specific job assignment or project; (i) individuals who are classified as Interns by the Employer. "Interns" means individuals enrolled in a college and/or university employed by the Employer and designated as Interns by the Employer. An Employee who meets the foregoing criteria shall be classified as an Intern even if he or she does not receive academic course credit from his or her college or university based upon the Intern's term of employment; (j) individuals who are Reclassified Employees. "Reclassified Employees" means Employees who were not initially classified by the Employer as Employees, but who were subsequently reclassified as Employees by a federal, state or local group, organization or agency, or a court; (k) individuals who are parties to an agreement that provides that they shall not be eligible to participate in the Plan, whether or not such agreement is upheld upon governmental or judicial review; or (l) individuals who are not on the United States payroll of the Employer. 2.21 ELIGIBLE PARTICIPANT. "Eligible Participant" means an Eligible Employee who meets the requirements for eligibility set forth in Sections 3.1 through 3.3 regardless of whether or not he or she has an Account under the Plan established on his or her behalf. 2.22 EMPLOYEE. "Employee" means any person who is employed by, and designated as an employee, by the Employer, or who is a Leased Employee. If, however, Leased Employees constitute less than twenty percent (20%) of the non-highly compensated workforce (within the meaning of Code Section 414(n)(5)(C)(ii)), then the term "Employee" shall not include those Leased Employees who are covered by a money purchase pension plan providing: (a) a non-integrated employer contribution rate of at least ten percent (10%) of compensation, as defined in Code Section 415(c)(3), but including amounts contributed pursuant to a salary reduction agreement which are excludable from the individual's gross income under Code Section 125, 402(e)(3), 402(h), 403(b), or 408(p); (b) immediate participation; and (c) full and immediate vesting. -7- 13 2.23 EMPLOYER. "Employer" means: (a) the Company; (b) any other corporation which is a member of a controlled group of corporations (as defined under Code Section 414(b)) which includes the Company; (c) any trade or business (whether or not incorporated) which is under common control (as defined under Code Section 414(c)) with the Company; (d) any organization (whether or not incorporated) which is a member of an affiliated service group (as defined under Code Section 414(m)) which includes the Company; and (e) any other organization or entity which is required to be aggregated with the Company pursuant to Code Section 414(o). For purposes of the calculation of Annual Additions as set forth in Section 5.4, the determination of whether any entity is an Employer shall be made in accordance with Code Section 415(h). 2.24 EMPLOYER DISCRETIONARY CONTRIBUTIONS. "Employer Discretionary Contributions" means Employer Contributions made by a Participating Employer under this Plan in accordance with Section 4.6. 2.25 EMPLOYER MATCHING CONTRIBUTIONS. "Employer Matching Contributions" means Employer Contribution made under this Plan in accordance with Section 4.5. 2.26 EMPLOYMENT COMMENCEMENT DATE. "Employment Commencement Date" means the date on which an Employee first performs an Hour of Service for the Employer, within the meaning of Department of Labor Regulation Section 2530.200b-2(a). 2.27 ENTRY DATES. "Entry Dates" means the first day of each fiscal quarter of the Company during the Plan Year. 2.28 ERISA. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and applicable valid Department of Labor Regulations issued thereunder. 2.29 HIGHLY COMPENSATED EMPLOYEE. (a) "Highly Compensated Employee" means, for any Plan Year, an Employee in active service who meets any of the following criteria: -8- 14 (i) is, at any time during the current Plan Year or the immediately preceding Plan Year, a five percent (5%) owner (as determined under Code Section 416(i)(1)) of an Employer; or (ii) received aggregate Section 415 Compensation for the immediately preceding Plan Year in excess of the limit prescribed under Code Section 414(q), as adjusted by the Adjustment Factor (Eighty-Five Thousand Dollars ($85,000) for the Plan Year beginning on April 2, 2000). (b) A former Employee shall be treated as a Highly Compensated Employee if: (i)such Employee was a Highly Compensated Employee when such Employee separated from service; or (ii) such Employee was a Highly Compensated Employee at any time after attaining age fifty-five (55). (c) For purposes of this Section, the Section 415 Compensation of each Employee shall be determined on an aggregate basis as if all Employers were a single employer entity paying such Section 415 Compensation. All other determinations under this Section shall be made in accordance with Code Section 414(q). 2.30 HOUR OF SERVICE. "Hour of Service" means: (a) Each hour for which an Employee is directly or indirectly paid or entitled to payment by an Employer for the performance of duties and for reasons other than the performance of duties; provided, however, that: (i)no more than five hundred and one (501) Hours of Service shall be credited on account of any single continuous period during which no duties are performed; and (ii) no Hours of Service shall be credited if payment was made or due: (A) under a plan maintained solely for the purpose of complying with applicable workers' compensation, unemployment compensation or disability insurance laws; or (B) solely as reimbursement for medical or medically-related expenses incurred by the Employee. (b) An Employee on a leave of absence (pursuant to Section 8.1 or 8.2) shall be credited with Hours of Service equal to the number of regularly-scheduled working hours included in the period of such leave (subject to paragraph (a)(i) above). (c) "Hours of Service" shall, for an Employee, include each hour for which back pay, irrespective of mitigation of damages, has been either awarded or agreed to by the Employer -9- 15 (such Hours of Service shall be credited for the periods to which the award or agreement pertains rather than the periods in which the award, agreement, or payment is made); provided, however, Hours of Service shall not be credited under this paragraph to the extent such credit would duplicate any hours credited above. (d) Hours of Service shall be credited for employment with any Employer, and shall be calculated in accordance with Department of Labor Regulation Sections 2530.200b-2(b) and (c). 2.31 INCOME TAX REGULATIONS. "Income Tax Regulations" means the regulations prescribed by the Secretary of Treasury from time to time under the Code. 2.32 LEASED EMPLOYEE. "Leased Employee" means any individual who, pursuant to an agreement between the Employer and any other individual, has performed services for the Employer (or for the Employer and related individuals determined in accordance with Code Section 414(n)(6)) ("Recipient Employer") on a substantially full-time basis for a period of at least one (1) year, and such services are performed under the primary direction of or control by the Recipient Employer. 2.33 NON-HIGHLY COMPENSATED EMPLOYEE. "Non-Highly Compensated Employee" means an Employee who is not a Highly Compensated Employee. 2.34 NORMAL RETIREMENT OR NORMAL RETIREMENT DATE. "Normal Retirement" or "Normal Retirement Date" means the date on which a Participant attains age sixty-five (65). 2.35 PARTICIPANT. "Participant" means a current or former Eligible Employee or other individual for whom an Account is maintained under the Plan. 2.36 PARTICIPATING EMPLOYER. "Participating Employer" means the Company and any other Employer that adopts the Plan for the benefit of its Eligible Employees pursuant to Section 12.1. 2.37 PERIOD OF SERVICE. "Period of Service" means an Employee's period of employment with the Employer, beginning with the Employee's Employment Commencement Date or Reemployment Commencement Date, whichever is applicable, and ending with his or her Severance Date. An -10- 16 Employee's Period of Service shall be determined without regard to whether he or she is a Participant or an Eligible Employee during his or her Period of Service with the Employer and shall also include those periods which do not exceed twelve (12) months during which the Employee is on a leave of absence, disabled, laid off, on sick leave, on vacation or on holiday. In addition, if an Employee ceases to be an Employee and then resumes Employee status within twelve (12) consecutive months immediately following the date of such cessation, then his or her Period of Service shall also include each day during the period following the time he or she ceases to be an Employee and ending with the day he or she again becomes an Employee. If an Employee is absent from service for any reason other than quit, discharge, retirement, or death, and during the absence ceases to be an Employee, his or her Period of Service shall also include the period between the Employee's Severance Date and the first anniversary of the date on which the Employee was first absent, if he or she again becomes an Employee before such first anniversary date. An Employee's Period of Service shall be expressed in years and portions of years and shall be measured in cumulative daily increments (including holidays, weekends, and other non-working days) with three hundred sixty-five (365) Days of Service equaling a Year of Service irrespective of whether such Year of Service was completed within a twelve (12) consecutive month period. Service shall be credited for any period of service with any Employer regardless of whether such employer was an Employer at the time the service occurred. Service shall also be credited for any individual required under Code Section 414(n) or 414(o) to be considered an employee of any employer aggregated under Code Section 414(b), (c) or (m). 2.38 PLAN. "Plan" means the Plantronics, Inc. 401(k) Plan as set forth herein and in amendments from time to time made hereto. 2.39 PLAN YEAR. "Plan Year" means the fifty-two/fifty-three (52/53) week period ending on the Saturday closest to (or falling on) each March 31st, which is currently the Company's fiscal year. 2.40 QUALIFIED MATCHING CONTRIBUTIONS. "Qualified Matching Contributions" means discretionary Participating Employer Contributions under this Plan or any other tax-qualified plan of the Employer made in accordance with Section 4.5, which may be treated as Salary Deferral Contributions for purposes of the ADP test. 2.41 QUALIFIED NONELECTIVE CONTRIBUTIONS. "Qualified Nonelective Contributions" means discretionary Participating Employer Contributions under this Plan or any other tax-qualified plan of the Employer made in accordance with Section 4.6, which may be treated as Salary Deferral Contributions for purposes of the ADP test or as Employer Matching Contributions for purposes of the ACP test. 2.42 REEMPLOYMENT COMMENCEMENT DATE -11- 17 "Reemployment Commencement Date" means the first date, following a Severance Date, on which an Employee again performs one (1) Hour of Service for the Employer. 2.43 ROLLOVER CONTRIBUTIONS. "Rollover Contributions" means contributions under this Plan in accordance with Section 4.9. 2.44 SAFE HARBOR CONTRIBUTIONS. "Safe Harbor Contributions" means Safe Harbor Nonelective Contributions and Safe Harbor Matching Contributions. 2.45 SAFE HARBOR MATCHING CONTRIBUTIONS. "Safe Harbor Matching Contributions" means Participating Employer Contributions under this Plan, made in accordance with Section 4.3. 2.46 SAFE HARBOR NONELECTIVE CONTRIBUTIONS. "Safe Harbor Nonelective Contributions" means Participating Employer Contributions under this Plan, made in accordance with Section 4.2. 2.47 SALARY DEFERRAL CONTRIBUTIONS. "Salary Deferral Contributions" means Participating Employer Contributions under this Plan, made in accordance with Section 4.1. 2.48 SECTION 415 COMPENSATION. (a) "Section 415 Compensation" means, except as set forth below, wages, salaries, and fees for professional services and other amounts received (without regard to whether or not an amount is paid in cash) for personal services actually rendered in the course of employment with the Employer maintaining the Plan to the extent that the amounts are includable in gross income (including, but not limited to, commissions paid to salespersons, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, reimbursements, bonuses, fringe benefits, and reimbursements or other expense allowances under a nonaccountable plan (as described in Income Tax Regulation Section 1.62-2(c)). Section 415 Compensation includes any elective deferrals (as defined in Code Section 402(g)(3)), and any amount contributed or deferred by the Employer at the election of the Employee and not includable in the gross income of the Employee by reason of Code Section 125 or 457. (b) The annual Section 415 Compensation of each Employee that is taken into account under the Plan shall not exceed the limit prescribed under Code Section 401(a)(17), as adjusted by the Adjustment Factor for a twelve (12) month Plan Year (One Hundred Seventy -12- 18 Thousand Dollars ($170,000) for the Plan Year beginning April 2, 2000). The Adjustment Factor in effect for a calendar year applies to the Plan Year that begins in such calendar year. If a Plan Year consists of less than twelve (12) months, then the annual Section 415 Compensation limit shall be adjusted to an amount equal to the otherwise applicable limit for such Plan Year multiplied by a fraction, the numerator of which is the number of months in the short Plan Year and the denominator of which is twelve (12). (c) Section 415 Compensation shall not include the following: (i)Employer contributions to a plan of deferred compensation that are not includable in the Employee's gross income for the taxable year in which contributed, or Employer contributions under a simplified employee pension plan to the extent such contributions are deductible by the Employee, or any distributions from a plan of deferred compensation; (ii) amounts realized from the exercise of a non-qualified stock option, or when restricted stock (or property) held by the Employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture; (iii) amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; or (iv) other amounts which received special tax benefits, or contributions made by the Employer (whether or not under a salary reduction agreement) towards the purchase of an annuity contract described in Code Section 403(b) (whether or not the contributions are actually excludable from the gross income of the Employee). 2.49 SEVERANCE DATE. "Severance Date" means the first to occur of (a) the date on which an Employee terminates employment with a Participating Employer because he or she quits, is discharged, dies or retires; or (b) the first anniversary of the date on which the Employee is absent (with or without pay) from employment for any other reason (such as vacation, holiday, sickness, maternity or paternity leave, or layoff). 2.50 SPOUSE OR SURVIVING SPOUSE. "Spouse" or "Surviving Spouse" means, except as may be specified in one or more of the Appendices, the spouse or surviving spouse of a Participant; provided, however, that a former spouse shall be treated as the spouse or surviving spouse to the extent provided under a Qualified Domestic Relations Order as described in Section 7.4. 2.51 TRUST. "Trust" means the assets held in the trust maintained under Article IX. 2.52 TRUST AGREEMENT -13- 19 "Trust Agreement" means the separate agreement entered into by and between the Company and the Trustee pursuant to which the Trust is held, administered and distributed. 2.53 TRUSTEE. "Trustee" means the person(s) or entity named in the Trust Agreement or any successor or successors thereto, and designated by the Company to act as trustee of the Trust, in accordance with Article IX. 2.54 VALUATION DATE. "Valuation Date" means the last day of each Plan Year and such other date(s) as the Administrator may designate from time to time. 2.55 YEAR OF SERVICE. "Year of Service" means a Period of Service equal to three hundred sixty-five (365) Days of Service, whether or not consecutive. 2.56 OTHER DEFINITIONS. In addition to the definitions contained in this Section, the following terms are defined in the specified Section below:
SECTION TERM ------- ---- 5.8(c)(i) ACP Allocations 5.5(a)(i) Actual Deferral Percentage ("ADP") 5.7(a)(i) Actual Contribution Percentage ("ACP") 5.7(a)(ii) Aggregate Limit 7.4(a)(i) Alternate Payee 5.4(a)(i) Annual Additions 6.12(a)(i) Applicable Life Expectancy 5.7(a)(iii) Average ACP 5.5(a)(ii) Average ADP 5.7(a)(iv) Contribution Percentage Amount 5.4(a)(ii) Defined Contribution Dollar Limitation 6.12(a)(ii) Designated Beneficiary 14.2(a) Determination Date 14.2(b) Determination Period 6.9(a)(i) Direct Rollover 6.9(a)(ii) Distributee 6.12(a)(iii) Distribution Calendar Year 7.4(a)(ii) Domestic Relations Order or Order
-14- 20
SECTION TERM ------- ---- 5.6(a)(i) Elective Deferrals 6.9(a)(iii) Eligible Retirement Plan 6.9(a)(iv) Eligible Rollover Distribution 5.5(a)(iii) Excess 401(k) Contributions 5.4(a)(iii) Excess Amount 5.6(a)(ii) Excess Elective Deferrals 5.7(a)(v) Excess Matching Contributions 6.12(a)(iv) Five Percent Owner 5.5(c)(vii),5.6(d), Gap Period 5.8(f) 7.1(j) Investment Managers 14.2(c) Key Employee 6.12(a)(v) Life Expectancy 5.4(a)(iv) Limitation Year 2.7(b) Maternity or Paternity Leave 5.4(a)(v) Maximum Permissible Amount 14.2(d) Non-Key Employee 4.4(a) Notice Requirements 5.4(a)(vi) Other Plan 6.12(a)(vi) Participant's Benefit 14.2(e) Permissive Aggregation Group 11.3 Protected Benefits 7.4(a)(iii) Qualified Domestic Relations Order 2.32 Recipient Employer 14.2(f) Required Aggregation Group 6.12(a)(vii) Required Beginning Date 7.4(d)(i)) Segregated Amounts 6.14 Spousal Consent 14.2(g) Top-Heavy Plan 14.2(h) Top-Heavy Ratio
-15- 21 ARTICLE III ELIGIBILITY 3.1 PARTICIPATION. Each Participant in the Plan on the day before the Effective Date who is an Eligible Employee on the Effective Date, shall automatically continue as an Eligible Participant on the Effective Date. Each other Eligible Employee shall become an Eligible Participant in the Plan for purposes of sharing in the allocation of Safe Harbor Nonelective Contributions and/or Employer Nonelective Contributions on the first day of the payroll period coinciding with or next following his or her Employment Commencement Date and, for purposes of all other Contributions, on the Entry Date coinciding with or next following his or her Employment Commencement Date. 3.2 REEMPLOYMENT. If (a) a Participant, or (b) an Eligible Employee who has satisfied the requirements of Section 3.1, terminates employment with a Participating Employer and is thereafter reemployed by the Employer as an Eligible Employee, then such Eligible Employee shall become an Eligible Participant in the Plan as of the later of his or her Reemployment Commencement Date or the Entry Date on which he or she could have first become an Eligible Participant in the Plan. 3.3 CHANGE IN EMPLOYMENT STATUS. If a Participant ceases to be an Eligible Employee, then such Employee shall be reinstated as an Eligible Participant upon again becoming an Eligible Employee. If, however, an Employee who is not, and has never been, an Eligible Employee becomes an Eligible Employee, then such Employee shall become an Eligible Participant in the Plan for purposes of sharing in the allocation of Safe Harbor Nonelective Contributions and/or Employer Nonelective Contributions on the first day of the payroll period coinciding with or next following the date he or she becomes an Eligible Employee, and for purposes of all other Contributions, on the Entry Date coinciding with or next following the date on which he or she becomes an Eligible Employee. 3.4 ENROLLMENT OF PARTICIPANTS. Each Eligible Participant shall comply with such enrollment procedures as the Administrator may prescribe from time to time and shall make available to the Administrator and the Trustee any information they may reasonably require for such purpose. By virtue of his or her participation in the Plan, an Eligible Employee agrees, on his or her behalf and on behalf of all individuals who may make any claim arising out of, relating to, or resulting from that Eligible Employee's participation in the Plan, to be bound by all provisions of the Plan, the Trust Agreement and other related agreements. 3.5 ERRONEOUS PARTICIPATION -16- 22 (a) Erroneous Salary Deferral Contributions. If Salary Deferral Contributions are erroneously made on behalf of an individual who is not eligible to participate in the Plan, then such Salary Deferral Contributions plus Earnings thereon shall be distributed to that individual as soon as administratively feasible after discovery of such error. (b) Erroneous Rollover Contributions. If a Rollover Contribution is erroneously made to the Plan by an individual who is not eligible to make a Rollover Contribution, then such Rollover Contribution plus Earnings thereon shall be distributed to that individual as soon as administratively feasible after discovery of such error. (c) Other Erroneous Contributions. If any Contributions (other than Salary Deferral Contributions, as set forth in paragraph (a)) are erroneously made on behalf of an individual who is not entitled to such Contributions, then such erroneously made Contributions shall be forfeited and: first, used to offset the Participating Employer's obligation to make Safe Harbor Nonelective Contributions and Safe Harbor Matching Contributions, if applicable, for the Plan Year in which the error is discovered; second, returned to the Participating Employer in accordance with Section 15.8, to the extent such Contribution is made as a result of a mistake of fact; third, used to pay administrative expenses of the Plan for the Plan Year in which the error is discovered; and fourth, used to allocate as Employer Discretionary Contributions for the Plan Year in which the error is discovered. -17- 23 ARTICLE IV CONTRIBUTIONS 4.1 SALARY DEFERRAL CONTRIBUTIONS. (a) Subject to the limitations of Sections 5.4 and 5.5, if applicable, an Eligible Participant may elect, in accordance with the procedures established from time to time by the Administrator, to have a portion of his or her Compensation contributed to his or her Salary Deferral Contributions Account. The Participant's election shall specify the amount of his or her Compensation to be contributed, which amount shall not be less than two percent (2%) for the Plan Year beginning on April 2, 2000, and one percent (1%) for Plan Years beginning on and after April 1, 2001, and not more than fifteen percent (15%), of the Participant's Compensation for the payroll period; provided, however, in no event shall the dollar amount contributed on behalf of such Participant for any calendar year exceed the limit prescribed under Code Section 402(g)(5) (Ten Thousand Five Hundred Dollars ($10,500) in 2000). A Participant may elect to increase, decrease or discontinue Salary Deferral Contributions in such manner and at such time as the Administrator shall specify from time to time. (b) For purposes of the Plan, and with respect to Salary Deferral Contributions made on behalf of any Participant, such Salary Deferral Contributions shall be allocated to the Participant's Salary Deferral Contributions Account as of a given date within the Plan Year and shall relate to Compensation that would have been received by the Participant in the Plan Year but for the Participant's election to defer such Compensation. (c) Salary Deferral Contributions shall be at all times one hundred percent (100%) vested. 4.2 SAFE HARBOR NONELECTIVE CONTRIBUTIONS. (a) For Plan Years beginning on and after the Effective Date, the Company has elected that Participating Employers shall make Safe Harbor Nonelective Contributions on behalf of each Eligible Participant for each Plan Year in an amount equal to three percent (3%) of that Eligible Participant's Base Compensation for each payroll period. (b) The Company may further elect that Participating Employers shall make additional Safe Harbor Nonelective Contributions pursuant to this Section for a Plan Year; provided, however, that such additional Contributions shall be allocated to the Safe Harbor Nonelective Contributions Account of each Eligible Participant in proportion to his or her Base Compensation as it relates to the aggregate Base Compensation of all Eligible Participants for such Plan Year. -18- 24 (c) Safe Harbor Nonelective Contributions shall be at all times one hundred percent (100%) vested. (d) If the provisions of Section 4.4 are met for a Plan Year, the Plan will be deemed to satisfy the ADP test in Section 5.5 for the Plan Year. Notwithstanding the foregoing, this Plan will not be deemed to satisfy the ADP test in Section 5.5 for any Plan Year in which an Eligible Participant is covered under another defined contribution plan maintained by the Employer that uses the provisions of this Section to comply with the ADP test. 4.3 SAFE HARBOR MATCHING CONTRIBUTIONS. (a) For Plan Years beginning on and after the Effective Date, the Company has elected that Participating Employers shall make Safe Harbor Matching Contributions on behalf of each Eligible Participant for each payroll period in an amount equal to fifty percent (50%) of that Eligible Participant's Salary Deferral Contributions that do not exceed six percent (6%) of the Participant's Compensation for such payroll period. (b) Safe Harbor Matching Contributions shall be at all times one hundred percent (100%) vested. (c) If the Plan satisfies the conditions under Sections 4.2 and 4.4 for a Plan Year, then the Plan will be deemed to satisfy the ACP test for that Plan Year (including, with respect to Employer Matching Contributions); provided, however, that the following conditions are satisfied: (i)Safe Harbor Matching Contributions and Employer Matching Contributions, in the aggregate, must not be made on more than six percent (6%) of an Eligible Participant's Compensation; (ii) Safe Harbor Matching Contributions and Employer Matching Contributions, in the aggregate, may not exceed four percent (4%) of an Eligible Participant's Compensation; (iii) the Employer Matching Contribution formula may not provide a higher rate of match at higher levels of Salary Deferral Contributions; and (iv) Employer Matching Contributions and Safe Harbor Matching Contributions made for any Highly Compensated Employee at any rate of Salary Deferral Contributions cannot be greater than Employer Matching Contributions and Safe Harbor Matching Contributions provided for any Nonhighly Compensated Employee at the same rate of Salary Deferral Contributions. (d) If the ACP test must be performed because the Employer Matching Contributions and Safe Harbor Matching Contributions do not satisfy the conditions described in paragraph (c), the ACP test in Section 5.7 must be performed using current year data for the ACP of Nonhighly Compensated Employees, even if Section 5.7 specifies that prior year data is to be used. -19- 25 In addition, the testing rules provided in Internal Revenue Service Notice 98-52 and any subsequent binding guidance or legislation are applicable for the ACP test in Section 5.7. 4.4 SAFE HARBOR CONTRIBUTIONS REQUIREMENTS. (a) Notice Requirements. The requirements as to content and timing of the notice to be given to Eligible Participants with respect to Safe Harbor Nonelective Contributions and Safe Harbor Matching Contributions (the "Notice Requirements") are as follows: (i)the notice shall be sufficiently accurate and comprehensive to inform the Eligible Participant of his or her rights and obligations under the Plan and be written in a manner calculated to be understood by the average Eligible Employee; (ii) the notice shall describe (A) the Safe Harbor Nonelective Contributions contribution formula and/or the Safe Harbor Matching Contributions contribution formula used under the Plan (including a description of the levels of Safe Harbor Matching Contributions, if any, available under the Plan); (B) any other Contributions under the Plan (including the potential for Employer Matching Contributions) and the conditions under which such Contributions are made; (C) the plan to which Safe Harbor Nonelective Contributions will be made if not this Plan; (D) the type and amount of Compensation that may be deferred under the Plan; (E) how to make Salary Deferral Contributions, including any administrative requirements that apply to such elections; (F) the periods available under the Plan for making Salary Deferral Contribution elections; and (G) withdrawal and vesting provisions applicable to Contributions under the Plan. (iii) The timing of the notice shall meet the following requirements: (A) The notice must be provided within a reasonable period before the beginning of the Plan Year. If an Employee becomes eligible to participate during the Plan Year, the notice must be provided within a reasonable time before he or she becomes eligible. (B) The timing of the notice will automatically be deemed to be reasonable (1) if it is given to Eligible Participants at least thirty (30) days and no more than ninety (90) days before the beginning of the Plan Year, or (2) if a Participant who becomes eligible after the notice in (1) receives a copy of the notice no more than ninety (90) days before he or she is eligible to participate in the Plan. (b) Time Period for Contributions. Safe Harbor Nonelective Contributions and Safe Harbor Matching Contributions for a Plan Year shall be made no later than twelve (12) months after the last day of the Plan Year, and shall be made in accordance with the allocation and timing rules of Income Tax Regulations Sections 1.401(k)-1(b)(4) and 1.401(m)-1(b)(4)(ii)(A), respectively. (c) Distribution and Withdrawal Restrictions. For all purposes under the Plan, Safe Harbor Nonelective Contributions and Safe Harbor Matching Contributions shall be subject to the distribution limitations of Article VI. Amounts allocated to a Participant's Safe Harbor -20- 26 Nonelective Contributions Account and Safe Harbor Matching Contributions Account shall not be eligible for hardship distribution under Section 6.16. 4.5 EMPLOYER MATCHING CONTRIBUTIONS AND QUALIFIED MATCHING CONTRIBUTIONS. (a) The Company may elect, subject to the provisions of paragraph (b) below, that Participating Employers shall make Employer Matching Contributions to the Trust. Employer Matching Contributions shall be made in such amount as prescribed by the Company from time to time. (b) Employer Matching Contributions which would otherwise be made on behalf of a Participant may be reduced to the extent necessary to comply with the limitations of Sections 5.4, 5.7 and 5.8, and the Employer shall have no obligation to contribute such amounts to the Trust. (c) The Administrator may elect to treat all or a portion of Employer Matching Contributions for a Plan Year as Qualified Matching Contributions for purposes of the ADP test. (d) For all purposes under the Plan, Employer Matching Contributions or Qualified Matching Contributions shall be subject to the distribution limitations of Article VI. Amounts allocated to a Participant's Qualified Matching Contributions Account shall not be eligible for hardship distribution under Section 6.16. 4.6 EMPLOYER DISCRETIONARY AND QUALIFIED NONELECTIVE CONTRIBUTIONS. (a) The Company may require Participating Employers to make Employer Discretionary Contributions, if any, in such amount as it shall determine in its sole and absolute discretion. (b) The Employer Discretionary Contributions and forfeitures, if applicable, for each Plan Year, if any, shall be allocated to the Employer Discretionary Contributions Accounts of all Participants who were employed by a Participating Employer on the last day of the Plan Year and who were credited with one (1) Year of Service during that Plan Year. Notwithstanding the foregoing, an Eligible Employee who incurs a Disability during the Plan Year or whose employment with the Employer terminates as a result of death or Normal Retirement or Early Retirement shall, for purposes of this Section, be deemed to have been employed by the Employer on the last day of the Plan Year. Employer Discretionary Contributions and forfeitures, if applicable, shall be allocated to each Participant entitled to share in the allocation of Employer Discretionary Contributions for a Plan Year in proportion to his or her Compensation as it relates to the aggregate Compensation of all such Participants for such Plan Year, subject to the limitations of Section 5.4. (c) The Company may elect to treat all or a portion of Employer Discretionary Contributions for a Plan Year as Qualified Nonelective Contributions for purposes of the ADP test and/or the ACP test. -21- 27 (d) The Company may, with respect to a Plan Year, allocate Qualified Nonelective Contributions to such Participants and in such a manner as it deems necessary or appropriate to satisfy the requirements of the Plan. (e) For all purposes of the Plan, Employer Discretionary Contributions and Qualified Nonelective Contributions shall be subject to the distribution limitations of Article VI. Amounts allocated to a Participant's Qualified Nonelective Contributions Account shall not be eligible for hardship distribution under Section 6.16. 4.7 LIMITATIONS ON CONTRIBUTIONS. Contributions for any Plan Year shall not exceed the maximum amount allowable as a deduction to the Employer under the provisions of Code Section 404. Notwithstanding the preceding sentence, to the extent necessary to provide Top Heavy minimum allocations, the Employer shall make Contributions, even if such Contributions exceed the amount deductible to the Employer under the provisions of Code Section 404. 4.8 TIME AND MANNER OF PAYMENT OF CONTRIBUTIONS. Except as otherwise expressly provided in this Plan, Contributions shall be paid to the Trustee in such form (i.e., cash or Company Stock, or any combination thereof) and at such time as determined by the Administrator, subject to the timing requirements of applicable law. 4.9 RECEIPT OF ASSETS FROM ANOTHER PLAN. (a) If directed by the Administrator, the Trustee shall accept a transfer of assets for the benefit of an Eligible Employee or group of Eligible Employees. Such assets shall be (i) received directly from the trustee of a tax-qualified plan under Code Section 401(a) and related tax-exempt trust under Code Section 501(a); (ii) an Eligible Rollover Distribution received from the Eligible Employee in accordance with Code Section 402(c); (iii) a distribution from a conduit individual retirement account received from the Eligible Employee in accordance with Code Section 402(c); or (iv) transferred in the form of a Direct Rollover from another tax-qualified plan. (b) Amounts attributable to elective contributions (as defined in Income Tax Regulation Section 1.401(k)-1(g)(3)), including amounts treated as elective contributions which are transferred in a plan-to-plan transfer, shall be subject to the distribution limitations provided in Income Tax Regulation Section 1.401(k)-1(d). (c) Notwithstanding any provision in this Plan to the contrary, any amounts transferred to this Plan directly from the trustee of another tax-qualified plan under Code Section 401(a) and related tax-exempt trust under Code Section 501(a) shall, to the extent the benefits accrued under the transferor plan are protected benefits under Code Section 411(d)(6), be preserved under this Plan, and shall not in any way be affected, reduced or eliminated. -22- 28 ARTICLE V ACCOUNTS 5.1 PARTICIPANT'S ACCOUNTS. The following separate Accounts, if applicable, shall be maintained for each Participant: (a) Salary Deferral Contributions Account. A Participant's Salary Deferral Contributions Account shall be credited with all amounts attributable to Salary Deferral Contributions pursuant to Section 4.1. (b) Safe Harbor Nonelective Contributions Account. A Participant's Safe Harbor Nonelective Contributions Account shall be credited with all amounts attributable to Safe Harbor Nonelective Contributions pursuant to Section 4.2. (c) Safe Harbor Matching Contributions. A Participant's Safe Harbor Matching Contributions Account shall be credited with all amounts attributable to Safe Harbor Matching Contributions pursuant to Section 4.3. (d) Employer Matching Contributions Account. A Participant's Employer Matching Contributions Account shall be credited with all amounts attributable to Employer Matching Contributions pursuant to Section 4.5. (e) Qualified Matching Contributions Account. A Participant's Qualified Matching Contributions Account shall be credited with all amounts attributable to Qualified Matching Contributions pursuant to Section 4.5. (f) Employer Discretionary Contributions Account. A Participant's Employer Discretionary Contributions Account shall be credited with all amounts attributable to Employer Discretionary Contributions pursuant to Section 4.6. (g) Qualified Nonelective Contributions Account. A Participant's Qualified Nonelective Contributions Account shall be credited with all amounts attributable to Qualified Nonelective Contributions pursuant to Section 4.6. (h) Rollover Contributions Account. A Participant's Rollover Contributions Account shall be credited with amounts transferred to the Plan pursuant to Section 4.9. (i) Quarterly Plan Account. A Participant's Quarterly Plan Account is an account maintained pursuant for funds transferred from the former Plantronics, Inc. Quarterly Profit Sharing Plan. -23- 29 (j) Pre-97 Employee 401(k) Contributions Account. A Participant's Pre-97 Employee 401(k) Contributions Account is an account maintained for Salary Deferral Contributions made by Participants prior to January 1, 1997. (k) Pre-97 Employer 401(k) Matching Contributions Account. A Participant's Pre-97 Employer 401(k) Matching Contributions Account is an account maintained for Employer Matching Contributions made prior to January 1, 1997. (l) Other Accounts. Such other Account(s) as the Administrator shall deem necessary or appropriate. 5.2 ALLOCATION OF CONTRIBUTIONS. As of each Valuation Date, the Administrator shall allocate to the Accounts of each Participant the Contributions made on his or her behalf and, if applicable, the Rollover Contributions, since the preceding Valuation Date. 5.3 ALLOCATION OF EARNINGS. (a) Participant Accounts shall be valued at their fair market value at least annually, as of a date and in a manner specified by the Administrator. The Administrator shall adjust each Account: first, to reflect any allocations made to, or any distributions or withdrawals made from, such Account since the immediately preceding Valuation Date, to the extent not previously credited or charged thereto, and second, to reflect the Earnings allocable to each Account in accordance with paragraph (b) below. (b) The Administrator shall maintain a separate record of all Earnings of the Trust attributable to each Participant's Account. 5.4 SECTION 415 LIMITATIONS. (a) Definitions. (i) Annual Additions. "Annual Additions" means, with respect to each Participant, the sum of the following amounts for the Limitation Year under this Plan, any Other Plan(s), or as otherwise specified: (A) Employer Contributions; (B) Employee contributions; (C) forfeitures; -24- 30 (D) amounts allocated, after March 31, 1984, to the Participant's individual medical account (as defined in Code Section 415(l)(2)), which is part of a pension or annuity plan maintained by the Employer; (E) amounts derived from contributions paid or accrued after December 31, 1985, in taxable years ending after such date, which are attributable to post-retirement medical benefits, allocated to the separate account of a Key Employee (as defined in Code Section 19A(d)(3)) and under a welfare benefit fund (as defined in Code Section 419(e)) maintained by the Employer; and (F) any Excess Amount applied under Paragraph (e) in the Limitation Year to reduce Employer Contributions. Contributions do not fail to be Annual Additions merely because they are Excess Elective Deferrals, Excess 401(k) Contributions, or Excess Matching Contributions or merely because Excess 401(k) Contributions or Excess Matching Contributions are corrected through distribution or recharacterization. Excess Elective Deferrals that are distributed in accordance with paragraph (e) below are not Annual Additions. (ii) Defined Contribution Dollar Limitation. "Defined Contribution Dollar Limitation" means the dollar amount specified in Code Section 415(c)(1)(A), (Thirty-Five Thousand Dollars ($35,000) for the Plan Year beginning on April 2, 2000). (iii) Excess Amount. "Excess Amount" means the amount of Annual Additions which, if credited to a Participant's Account under this Plan and any Other Plan(s) for a Limitation Year, would exceed the Maximum Permissible Amount. (iv) Limitation Year. "Limitation Year" means the twelve (12)-consecutive month period ending on the last day of the Plan Year. If the Limitation Year is amended to a different twelve (12)-consecutive month period, then the new Limitation Year must begin on a date within the Limitation Year in which the amendment is made effective. (v)Maximum Permissible Amount. "Maximum Permissible Amount" means the maximum Annual Addition contributed or allocated to a Participant's Account under this Plan and any Other Plan(s) for any Limitation Year which shall not exceed the lesser of: (A) the Defined Contribution Dollar Limitation, or (B) twenty-five percent (25%) of the Participant's Section 415 Compensation for the Limitation Year. The Section 415 Compensation limitation shall not apply to any contribution for medical benefits (within the meaning of Code Section 401(h) or 419A(f)(2)) which is otherwise treated as an Annual Addition under Code Section 415(1)(1) or 419A(d)(2). If a short Limitation Year is created because of an amendment changing the Limitation Year to a different twelve (12)-consecutive month period, then the Maximum Permissible Amount will not exceed the Defined Contribution Dollar Limitation multiplied by the following fraction: -25- 31 Number of months in the short Limitation Year 12 (vi) Other Plan. "Other Plan" means any other defined contribution plan to which contributions are or have been made on behalf of Participants in this Plan by one or more members of the controlled group of corporations (as determined in accordance with the ownership rules of Code Section 1563, without regard however, to Code Section 1563(a)(4) or 1563(e)(3)(C)) and any other employer entity which constitutes an affiliated service group or is required to be aggregated with the Employer pursuant to Code Section 414(c), 414(m) or 414(o). (b) Maximum Annual Additions. The amount of Annual Additions which may be credited to the Participant's Account under this Plan and any Other Plan(s) for any Limitation Year shall not exceed the lesser of the Maximum Permissible Amount or any other limitation contained in this Plan or any Other Plan(s). If the Contributions that would otherwise be contributed or allocated on behalf of the Participant would cause the Annual Additions for the Limitation Year to exceed the Maximum Permissible Amount, then the amount contributed or allocated shall be reduced so that the Annual Additions for the Limitation Year equal the Maximum Permissible Amount. (c) Timing. Prior to determining the Participant's actual Section 415 Compensation for the Limitation Year, the Employer may determine the Maximum Permissible Amount for a Participant on the basis of a reasonable estimation of the Participant's Section 415 Compensation for the Limitation Year. (d) Actual Section 415 Compensation. As soon as is administratively feasible after the end of the Limitation Year (or within such other period as applicable for a Participant who terminates employment and requests a distribution from the Plan), the Maximum Permissible Amount for the Limitation Year shall be determined on the basis of the Participant's actual Section 415 Compensation for the Limitation Year. (e) Disposition of Excess Amount. If an Excess Amount exists for one or more Participants for a Limitation Year, as a result of (i) 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 this Section, (ii) an allocation of forfeitures, (iii) a reasonable error in estimating a Participant's annual Section 415 Compensation, or (iv) other facts and circumstances with respect to which the provisions of Income Tax Regulation Section 1.415-6(b)(6) are available, then, to the extent necessary, such Excess Amount shall be disposed of in the manner and in the order specified below. Except to the extent inconsistent with the provisions of any Other Plan(s): (i) whenever this Plan provides for the disposition of an Excess Amount, the disposition of an Excess Amount consisting of a particular type of contribution shall be of that type of contribution in this Plan and any Other Plan(s), and (ii) to the extent disposition of an Excess Amount is made, the Administrator shall have discretion as to whether disposition of such Excess Amount shall be made from this Plan or any Other Plan(s), or partly from each. (i) First, all or the necessary portion of Salary Deferral Contributions (including, if applicable, the gains thereon) made on the Participant's behalf which were not the subject of any Safe Harbor Matching Contributions or Employer Matching Contributions shall be -26- 32 distributed to the Participant as a current cash payment, subject to applicable Federal and state withholding taxes; (ii) Then, all or the necessary portion of Salary Deferral Contributions (including, if applicable, the gains thereon) made on the Participant's behalf for such Limitation Year which were entitled to Employer Matching Contributions shall be distributed to the Participant as a current cash payment, subject to applicable Federal and state withholding taxes, and no Employer Matching Contributions shall be made with respect to the distributed Salary Deferral Contributions. Accordingly, the Participant's Employer Matching Contributions for such Limitation Year are to be reduced as follows: (A) to the extent the Employer Matching Contributions have not already been made on the Participant's behalf, the reduction shall be effected by making an appropriate reduction in the aggregate amount of Employer Matching Contributions to take into account the distributed Salary Deferral Contributions no longer eligible for Employer Matching Contributions; or (B) to the extent the Employer Matching Contributions have already been allocated to the Participant's Employer Matching Contributions Account, then such Employer Matching Contributions (to the extent attributable to the distributed Salary Deferral Contributions) shall, together with the Earnings thereon (if applicable), be withdrawn from the Participant's Employer Matching Contributions Account and used for any Employer Matching Contributions still to be made on behalf of other Participants eligible for Employer Matching Contributions. Any Employer Matching Contributions withdrawn from the Participant's Employer Matching Contributions Account and not utilized shall be held in a suspense account and disposed of pursuant to paragraph (f) below; (iii) Then, all or the necessary portion of the Participant's share of Employer Discretionary Contributions for the Limitation Year shall be reduced, and if such amounts have been allocated to the Participant's Employer Discretionary Contributions Account, withdrawn from such Account, held in a suspense account and disposed of pursuant to paragraph (f) below; (iv) Then, all or the necessary portion of Salary Deferral Contributions (including, if applicable, the gains thereon) made on the Participant's behalf for such Limitation Year which were entitled to Safe Harbor Matching Contributions shall be distributed to the Participant as a current cash payment, subject to applicable Federal and state withholding taxes, and no Safe Harbor Matching Contributions shall be made with respect to the distributed Salary Deferral Contributions. Accordingly, the Participant's Safe Harbor Matching Contributions for such Limitation Year are to be reduced as follows: (A) to the extent the Safe Harbor Matching Contributions have not already been made on the Participant's behalf, the reduction shall be effected by making an appropriate reduction in the aggregate amount of Safe Harbor Matching Contributions to take into account the distributed Salary Deferral Contributions no longer eligible for Safe Harbor Matching Contributions; or -27- 33 (B) to the extent the Safe Harbor Matching Contributions have already been allocated to the Participant's Safe Harbor Matching Contributions Account, then such Safe Harbor Matching Contributions (to the extent attributable to the distributed Salary Deferral Contributions) shall, together with the Earnings thereon (if applicable), be withdrawn from the Participant's Safe Harbor Matching Contributions Account and used for any Safe Harbor Matching Contributions still to be made on behalf of other Participants eligible for Safe Harbor Matching Contributions. Any Safe Harbor Matching Contributions withdrawn from the Participant's Safe Harbor Matching Contributions Account and not utilized shall be held in a suspense account and disposed of pursuant to paragraph (f) below; (v) Then, all or the necessary portion of the Participant's share of Safe Harbor Nonelective Contributions for the Limitation Year shall be reduced, and if such amounts have been allocated to the Participant's Safe Harbor Nonelective Contributions Account, withdrawn from such Account, held in a suspense account and disposed of pursuant to paragraph (f) below; and (vi) Finally, all or the necessary portion of the Participant's allocable share of contributions and forfeitures under any Other Plan(s) (other than as set forth in paragraphs (i) through (v) above) shall be reduced in accordance with the applicable provisions of such Other Plan(s). (f) Suspense Account. Amounts held in the suspense account pursuant to paragraphs (e)(ii) through (e)(v) above shall be held unallocated and shall be used to reduce future Employer Contributions for each succeeding Plan Year until the suspense account is reduced to zero (0). Earnings attributable to the assets of the Trust shall be allocated to the suspense account. No contributions shall be made to this Plan or, if applicable, Other Plan(s), by the Employer while there is an outstanding balance in such suspense account. Upon the termination of the Plan, any outstanding balance in the suspense account shall revert to the Employer, or if applicable, the Participating Employer who made such Contributions to the Plan. 5.5 DISCRIMINATION TESTING OF SALARY DEFERRAL CONTRIBUTIONS. (a) Definitions. (i) Actual Deferral Percentage ("ADP"). "Actual Deferral Percentage" or "ADP" means: (A) with respect to each Eligible Participant, a percentage, calculated as the sum of the amount of (1) Salary Deferral Contributions, (2) Qualified Matching Contributions, and (3) Qualified Nonelective Contributions, made on behalf of such Eligible Participant for the Plan Year (and allocated for purposes of the ADP test), divided by such Eligible Participant's Section 415 Compensation for that Plan Year. If an Eligible Participant makes no Salary Deferral Contributions, and no Qualified Matching Contributions or Qualified Nonelective Contributions are taken into account with respect to the Eligible Participant, then the ADP of the Eligible Participant shall be zero (0); and -28- 34 (B) the ADP for any Eligible Participant who is a Highly Compensated Employee for the Plan Year and who is eligible to have Salary Deferral Contributions (and Qualified Nonelective or Qualified Matching Contributions, or both, if treated as Salary Deferral Contributions for purposes of the ADP test) allocated to his or her account under two (2) or more arrangements described in Code Section 401(k) that are maintained by the Employer, shall be determined as if such Salary Deferral Contributions (and, if applicable, such Qualified Nonelective Contributions or Qualified Matching Contributions, or both) were made under a single arrangement. If a Highly Compensated Employee participates in two (2) or more cash or deferred arrangements that have different plan years, then all cash or deferred arrangements ending with or within the same calendar year shall be treated as a single arrangement. Notwithstanding the foregoing, certain plans shall be treated as separate if mandatorily disaggregated pursuant to Code Section 401(k). (ii) Average ADP. "Average ADP" means the average (expressed as a percentage) of the ADPs for all Eligible Participants in the relevant group. (iii) Excess 401(k) Contributions. "Excess 401(k) Contributions" means, with respect to any Plan Year, the excess of (A) the aggregate amount of Employer Contributions actually taken into account in computing the ADPs of Highly Compensated Employees for such Plan Year, over (B) the maximum amount of such Contributions permitted by the ADP test. Excess 401(k) Contributions shall be treated as Annual Additions under the Plan for the Plan Year that such Contributions were allocated to the affected Eligible Participant's Account. (b) ADP. The anti-discrimination requirements of Code Section 401(k)(3) provide that in each Plan Year one of the following ADP tests must be met: (i) the Average ADP for Eligible Participants who are Highly Compensated Employees for the Plan Year shall not exceed the current Plan Year's Average ADP for Eligible Participants who are Non-Highly Compensated Employees for the current Plan Year multiplied by one and twenty-five one-hundredths (1.25); or (ii) the Average ADP for Eligible Participants who are Highly Compensated Employees for the Plan Year shall not exceed the current Plan Year's Average ADP for Eligible Participants who are Non-Highly Compensated Employees for the prior Plan Year multiplied by two (2), provided that the ADP for Eligible Participants who are Highly Compensated Employees does not exceed the Average ADP for Eligible Participants who are Non-Highly Compensated Employees for the current Plan Year by more than two (2) percentage points or such lesser amount as the Secretary of the Treasury shall prescribe to prevent the multiple use of this alternative limitation with respect to any Highly Compensated Employee. (c) Corrective Procedure. (i) Correction of Excess 401(k) Contributions. The Administrator may take any and all steps it deems necessary or appropriate to ensure compliance with the limitations of paragraph (b) above. Such steps shall include, without limitation, one or any combination of the following: -29- 35 (A) restrict the amount of Salary Deferral Contributions on behalf of Highly Compensated Employees; (B) distribute Excess 401(k) Contributions to the Highly Compensated Employees who made such Excess 401(k) Contributions, pursuant to paragraph (c)(v) below; and/or (C) treat Employer Matching Contributions or Employer Discretionary Contributions, as applicable, as Qualified Matching Contributions or Qualified Nonelective Contributions, respectively. The amount of Qualified Matching Contributions and/or Qualified Nonelective Contributions made under this Plan and taken into account as Salary Deferral Contributions for purposes of calculating the ADP test, subject to such other requirements as may be prescribed by the Secretary of the Treasury, shall be such Qualified Matching Contributions and/or Qualified Nonelective Contributions as are needed to meet the ADP test. (ii) Calculation of Excess 401(k) Contributions. The amount of Excess 401(k) Contributions for Highly Compensated Employees for a Plan Year shall be calculated by the following method, under which the ADP of the Highly Compensated Employee with the highest ADP is reduced to the extent required to enable the Plan to satisfy the ADP test or to cause such Highly Compensated Employee's ADP to equal the ADP of the Highly Compensated Employee with the next highest ADP: (A) the Salary Deferral Contributions of the Highly Compensated Employee with the highest ADP shall be reduced; such reduction shall continue, as necessary, until such Highly Compensated Employee's ADP equals that (those) of the Highly Compensated Employee(s) with the second highest ADP; (B) following the application of paragraph (A), if it is still necessary to reduce Highly Compensated Employees' Salary Deferral Contributions, then the Contributions of (or allocations on behalf of, if applicable) Highly Compensated Employees with the highest and second highest ADPs shall be reduced, as necessary, until such Employees' ADP equals that of the Highly Compensated Employee(s) with the third highest ADP; (C) following the application of paragraph (B), if it is still necessary to reduce Highly Compensated Employees' Salary Deferral Contributions, then the procedure, the beginning of which is described in paragraphs (A) and (B) above, shall continue until no further reductions are necessary; and (D) amounts determined pursuant to paragraphs (A) through (C) above shall be combined. The resulting sum shall be the Excess 401(k) Contributions, and the portion of the total to be allocated to each affected Highly Compensated Employee shall be determined pursuant to paragraph (iii) below. (iii) Allocation of Excess 401(k) Contributions. The amount of Excess 401(k) Contributions to be allocated to a Highly Compensated Employee for a Plan Year shall be determined by the following method: -30- 36 (A) the Salary Deferral Contributions of the Highly Compensated Employee(s) with the highest dollar amount of Salary Deferral Contributions shall be reduced, as necessary, until either such Highly Compensated Employee's dollar amount of Salary Deferral Contributions equals that of the Highly Compensated Employee(s) with the next highest dollar amounts of Salary Deferral Contributions, or until no unallocated Excess 401(k) Contributions remain; (B) following the application of the preceding paragraph (A), if unallocated Excess 401(k) Contributions remain, then Salary Deferral Contributions of the Highly Compensated Employees with the highest and second highest dollar amount(s) of Salary Deferral Contributions shall be reduced, as necessary, until either such Highly Compensated Employees' dollar amount of Salary Deferral Contributions equal those of the Highly Compensated Employee(s) with the third highest dollar amount(s) of Salary Deferral Contributions, or until no unallocated Excess 401(k) Contributions remain; (C) following the application of the preceding paragraph (B), if unallocated Excess 401(k) Contributions remain, then the procedure, the beginning of which is described in paragraphs (A) and (B), shall continue until no further reductions are necessary; and (D) Excess 401(k) Contributions in an amount equal to the reduction of Salary Deferral Contributions determined in paragraphs (A) through (C) above with respect to a Highly Compensated Employee shall be allocated to that Highly Compensated Employee and, as determined by the Administrator, distributed pursuant to paragraph (v) below. (iv) Character of Excess 401(k) Contributions. The Excess 401(k) Contributions of a Highly Compensated Employee shall be deemed to consist of Contributions and allocations as determined according to the following order: (A) first, the Highly Compensated Employee's Excess 401(k) Contributions shall be deemed to consist of Salary Deferral Contributions, if any, which exceed the highest rate or amount at which Salary Deferral Contributions are matched; provided, however, such Contributions shall be offset by any Excess Elective Deferrals distributable to the Employee pursuant to Section 5.6; and (B) second, the Highly Compensated Employee's Excess 401(k) Contributions shall be deemed to consist of (1) any Salary Deferral Contributions and (2) any Employer Matching Contributions and Qualified Matching Contributions, each in proportion to the Highly Compensated Employee's total Salary Deferral Contributions, Employer Matching Contributions, and Qualified Matching Contributions for the Plan Year; provided, however, any Salary Deferral Contributions characterized as Excess 401(k) Contributions under this paragraph shall be offset by any Excess Elective Deferrals distributable to the Employee pursuant to Section 5.6 and not taken into account under paragraph (a)(i) above. (v) Distribution of Excess 401(k) Contributions. If, pursuant to paragraph (c)(i)(B) above, the Administrator elects to distribute Excess 401(k) Contributions, which shall then be treated as Annual Additions (adjusted for Earnings) to Highly Compensated -31- 37 Employees, then the Administrator shall make such distributions in accordance with the following timing restrictions: (A) on or before the date which falls two and one-half (2_) months after the last day of the Plan Year for which such Excess 401(k) Contributions were made, to avoid liability for the Federal excise tax (currently, equal to ten percent (10%) of the undistributed Excess 401(k) Contributions) and state excise tax, if applicable, which will be imposed on Excess 401(k) Contributions distributed after such date; (B) in the event of a complete termination of the Plan during the Plan Year in which there are Excess 401(k) Contributions, such distributions shall be made and as soon as administratively feasible after the date of termination of the Plan, but in no event later than the close of the twelve (12)-month period immediately following such termination; and (C) in any event, such Excess 401(k) Contributions shall be distributed before the last day of the Plan Year next following the Plan Year for which such Excess 401(k) Contributions were made. (vi) Compliance. Any adjustments to the Non-Highly Compensated Employee Average ADP for the current Plan Year shall be made in accordance with Internal Revenue Service Notice 98-1 and any subsequent binding guidance or legislation. (vii) Adjustment for Earnings. After the Administrator has determined the aggregate amount and character of Excess 401(k) Contributions to be distributed to a given Highly Compensated Employee, then that amount shall be adjusted for Earnings. Earnings shall be calculated through the end of the Plan Year, as well as for the Gap Period. For this purpose, the "Gap Period" means the period beginning on the first day of the subsequent Plan Year and ending on either the day before the date of distribution or on a date selected in accordance with the safe harbor method set forth in Income Tax Regulation Section 1.401(k)-1(f)(4)(ii)(D). The Earnings allocable to Excess 401(k) Contributions shall be calculated by the Administrator using any reasonable method for computing the Earnings allocable to Excess 401(k) Contributions; provided, however, that the method shall not violate Code Section 401(a)(4), and that the method shall be used consistently for all Eligible Participants, for all corrective distributions under the Plan for the Plan Year, and for allocating Earnings to Eligible Participants' Accounts. (d) Special Rules. (i) Computation of Section 415 Compensation. For purposes of this Section, an Eligible Participant's Section 415 Compensation for the entire Plan Year shall be included, whether or not he or she made Salary Deferral Contributions for the entire Plan Year. (ii) Coordination with Distribution of Excess Elective Deferrals. After calculation of an amount to be distributed to an Eligible Participant pursuant to the procedures discussed in paragraphs (c)(ii) and (iii) above, if the Eligible Participant in question has also made Excess Elective Deferrals during the calendar year ended within or coincident with the Plan Year, -32- 38 the amount actually distributed to that Eligible Participant shall be adjusted to take into account such Excess Elective Deferrals pursuant to Section 5.6. (iii) Aggregation of Plans. For purposes of determining whether a plan satisfies the ADP test in paragraph (a), all elective contributions that are made under two or more plans that are aggregated for purposes of Code Section 401(a)(4) or 410(b) (other than Code Section 410(b)(2)(A)(ii)) shall be treated as made under a single plan. If two (2) or more plans are permissively aggregated for purposes of Code Section 401(k), then the aggregated plans shall also satisfy Code Sections 401(a)(4) and 410(b) as though they were a single plan. For Plan Years beginning after December 31, 1989, two (2) or more plans may be aggregated in order to satisfy Code Section 401(k) only if they have the same plan year and use the same ADP testing method. Any adjustments to the ADP of Non-Highly Compensated Employees for the prior Plan Year shall be made in accordance with Internal Revenue Service Notice 98-1 and any superseding binding guidance or legislation. 5.6 DISTRIBUTION OF EXCESS ELECTIVE DEFERRALS. (a) Definitions. (i) Elective Deferrals. "Elective Deferrals" means, with respect to any calendar year, any amount allocated to a Participant's Salary Deferral Contributions Account pursuant to Section 4.1, and any contributions made on behalf of such Participant pursuant to an election to defer under any qualified cash or deferred compensation arrangement described in Code Section 401(k), any simplified employee pension cash or deferred arrangement as described in Code Section 402(h)(1)(B), any eligible deferred compensation plan under Code Section 457, any plan as described in Code Section 501(c)(18), and any contributions made on the behalf of a Participant for the purchase of an annuity contract under Code Section 403(b) pursuant to a salary reduction agreement. Elective Deferrals shall not include any deferrals properly distributed as excess Annual Additions. (ii) Excess Elective Deferrals. "Excess Elective Deferrals" means those Elective Deferrals that exceed the dollar limitation under Code Section 402(g) and any Earnings allocable thereto. Excess Elective Deferrals not distributed pursuant to Section 5.4 shall be treated as Annual Additions under the Plan. (b) Notification by Participant of Excess Elective Deferrals. A Participant may assign to the Plan any Excess Elective Deferrals made during a taxable year of the Participant by notifying the Administrator in writing of the amount of such Excess Elective Deferral to be assigned to the Plan on or before March 1st of the year following the close of the Participant's taxable year in which the Excess Elective Deferrals were made. A Participant is automatically deemed to have notified the Administrator to the extent he or she has Excess Elective Deferrals arising from Salary Deferral Contributions made to the Plan and any Other Plan of the Employer. -33- 39 (c) Distribution of Excess Elective Deferrals and Forfeiture of Related Safe Harbor Matching Contributions and/or Employer Matching Contributions. Excess Elective Deferrals shall be distributed to the Participant no later than April 15th of the calendar year following the year in which the Excess Elective Deferrals were made. Safe Harbor Matching Contributions and Employer Matching Contributions made on account of such Excess Elective Deferrals shall be forfeited as soon as administratively feasible thereafter and applied to reduce future Employer Contributions. (d) Adjustment for Earnings. Excess Elective Deferrals, and Safe Harbor Matching Contributions and/or Employer Matching Contributions attributable thereto shall be adjusted for any Earnings. Earnings shall be calculated through the end of the taxable year of the Participant for which the Excess Elective Deferrals, and Safe Harbor Matching Contributions and/or Employer Matching Contributions attributable thereto were made. Earnings shall also be calculated for the Gap Period. For this Purpose, the "Gap Period" means the period beginning on the first day of the subsequent taxable year of the Participant and ending on either the day before the date of distribution or on a date selected in accordance with the safe-harbor method set forth in Income Tax Regulation Section 1.402(g)-1(e)(5)(iv). The Earnings allocable to such Excess Elective Deferrals, and Safe Harbor Matching Contributions and/or Employer Matching Contributions attributable thereto shall be calculated by the Administrator using any reasonable method for computing the Earnings allocable to Excess Elective Deferrals, and Safe Harbor Matching Contributions and/or Employer Matching Contributions attributable thereto; provided, however, that the method shall not violate Code Section 401(a)(4), and that method shall be used consistently for all Participants and for all corrective distributions under the Plan for the Plan Year, and for allocating Earnings to Participants' Accounts. 5.7 DISCRIMINATION TESTING OF EMPLOYER MATCHING CONTRIBUTIONS. (a) Definitions. (i) Actual Contribution Percentage ("ACP"). "Actual Contribution Percentage" or "ACP" means: (A) with respect to each Participant, the Participant's Contribution Percentage Amount, divided by his or her Section 415 Compensation for that Plan Year. (B) if, however, (1) a Participant makes no Salary Deferral Contributions, and as a result, no Employer Matching Contributions are made on behalf of such Participant for the Plan Year; and (2) no Qualified Nonelective Contributions are taken into account with respect to the Participant, then the ACP of the Participant shall be zero (0). (ii) Aggregate Limit. "Aggregate Limit" means the sum of (A) one hundred twenty-five percent (125%) of the greater of the Average ADP of the Non-Highly Compensated Employees for the current Plan Year or the Average ACP of Non-Highly Compensated Employees under the Plan subject to Code Section 401(m) for the Plan Year beginning -34- 40 with or within the prior Plan Year of the cash or deferred arrangement, and (B) the lesser of two hundred percent (200%) or two (2) plus the lesser of such Average ADP or Average ACP. "Lesser" is substituted for "greater" in (A) above, and "greater" is substituted for "lesser" after "two (2) plus the" in (B) above, if it would result in a larger Aggregate Limit. (iii) Average ACP. "Average ACP" means the average of the ACPs of the Eligible Participants in a group. (iv) Contribution Percentage Amount. "Contribution Percentage Amount" means the sum of the Employer Matching Contributions and Qualified Matching Contributions made under the Plan on behalf of an Eligible Participant for the Plan Year. In addition, to the extent elected by the Administrator for purposes of calculating the ACP tests, "Contribution Percentage Amount" may also include Qualified Nonelective Contributions, Salary Deferral Contributions, and/or pre-tax and/or qualified nonelective contributions under Other Plans of the Employer (subject to such requirements as may be prescribed by the Secretary of the Treasury); provided, however, the amount of Qualified Nonelective Contributions, Salary Deferral Contributions and/or pre-tax contributions under Other Plans of the Employer used in calculating the ADP test may not be used in calculating the ACP test. Such Contribution Percentage Amount shall not include Employer Matching Contributions that are forfeited either to correct Excess Matching Contributions or because the Contributions to which they relate are Excess Elective Deferrals and the Employer Matching Contributions attributable thereto, or Excess 401(k) Contributions. (v) Excess Matching Contributions. "Excess Matching Contributions" means with respect to any Plan Year, the excess of (A) the aggregate amount of Contributions actually taken into account in computing the Average ACP of Highly Compensated Employees for such Plan Year, over (B) the maximum amount of such Contributions permitted by the ACP test. (b) ACP Test. One of the following tests shall be satisfied for each Plan Year (except as provided in paragraphs (c) and (d) below): (i) the Average ACP for Eligible Participants who are Highly Compensated Employees for such Plan Year shall not exceed the current Plan Year's Average ACP for Eligible Participants who are Non-Highly Compensated Employees for the current Plan Year multiplied by one and twenty-five one-hundredths (1.25); or (ii) the Average ACP for Eligible Participants who are Highly Compensated Employees for such Plan Year shall not exceed the current Plan Year's Average ACP for Eligible Participants who are Non-Highly Compensated Employees for the current Plan Year multiplied by two (2); provided, however, that the Average ACP for Eligible Participants who are Highly Compensated Employees does not exceed the Average ACP for Eligible Participants who are Non-Highly Compensated Employees for the current Plan Year by more than two (2) percentage points or such lesser amount as the Secretary of the Treasury shall prescribe to prevent the multiple use of this alternative limitation with respect to any Highly Compensated Employee. (c) Multiple Use. If one or more Highly Compensated Employee(s) participate(s) in both a cash or deferred arrangement and a plan subject to the ACP test maintained by the -35- 41 Employer and the sum of the Average ADP and Average ACP of such Highly Compensated Employee(s) subject to either or both tests exceed(s) the Aggregate Limit, then the Average ACP of such Highly Compensated Employee(s) who also participate(s) in a cash or deferred arrangement shall be reduced in the manner described in Section 5.5(c) so that the limit is not exceeded. The amount by which each Highly Compensated Employee's Contribution Percentage Amount is reduced shall be treated as an Excess Matching Contribution. The ADP and ACP of the Highly Compensated Employees are determined after any corrections required to meet ADP and ACP tests and are deemed to be the maximum permitted under such tests for the Plan Year. Multiple use does not occur if either the Average ADP or Average ACP of the Highly Compensated Employees does not exceed one and twenty-five hundredths (1.25) multiplied by the Average ADP and Average ACP of the Non-Highly Compensated Employees. (d) Special Rules. (i) For purposes of this Section, the ACP for any Eligible Participant who is eligible to have a Contribution Percentage Amount allocated to his or her account under two (2) or more plans described in Code Section 401(a), or arrangements described in Code Section 401(k) that are maintained by the Employer, shall be determined as if the total of such Contribution Percentage Amount was made under each plan. If a Highly Compensated Employee participates in two or more cash or deferred arrangements that have different plan years, all cash or deferred arrangements ending with or within the same calendar year shall be treated as a single arrangement. Notwithstanding the foregoing, certain plans shall be treated as separate if mandatorily disaggregated pursuant to Code Section 401(m). (ii) In the event that this Plan satisfies the requirements of Code Section 401(m), 401(a)(4) or 410(b) only if aggregated with one or more other plans, or if one or more other plans satisfy the requirements of any such Code Section only if aggregated with this Plan, then this Section shall be applied by determining the Contribution Percentage of Participants as if all such plans were a single plan. Any adjustments to the Non-Highly Compensated Employee Average ACP for the current Plan Year shall be made in accordance with Internal Revenue Service Notice 98-1 and any subsequent binding guidance or legislation. Plans may be aggregated in order to satisfy Code Section 401(m) only if they have the same Plan Year. (iii) For purposes of determining the ACP test, Employer Matching Contributions and Qualified Nonelective Contributions are considered made for a Plan Year if made no later than the end of the twelve (12)-month period beginning on the day after the close of the Plan Year. 5.8 CORRECTIVE PROCEDURE FOR DISCRIMINATORY MATCHING CONTRIBUTIONS. (a) The Administrator shall have the power to take any and all steps it deems necessary or appropriate to ensure compliance with the limitations described in Section 5.7, including, without limitation, the following: -36- 42 (i) to distribute vested Excess Matching Contributions to Highly Compensated Employees who received such allocations, pursuant to paragraph (e) below; (ii) to treat that portion of Excess Matching Contributions which consist of unvested allocations of Employer Matching Contributions to the Employer Matching Contributions Accounts of Highly Compensated Employees as amounts to be reallocated, pursuant to paragraph (d) below; and (iii) to limit the amount of Employer Matching Contributions allocated to the Employer Matching Contributions Accounts of Highly Compensated Employees. (b) Notwithstanding any contrary provisions in this Plan, if, pursuant to paragraph (a)(i) or (ii) above, the Administrator elects to distribute or reallocate Excess Matching Contributions (adjusted for Earnings), then the Administrator shall take such action on or before the date which falls two and one-half (2_) months after the last day of the Plan Year for which such Excess Matching Contributions were made, if the Employer wishes to avoid liability for the Federal excise tax (currently, equal to ten percent (10%) of undistributed and unreallocated Excess Matching Contributions) and state excise tax, if applicable, which will be imposed on Excess Matching Contributions distributed or reallocated after such date, but in any event, before the last day of the Plan Year next following the Plan Year for which such Contributions were made. (c) Determination of Amount of Excess Matching Contributions. The amount of Excess Matching Contributions for Highly Compensated Employees for a Plan Year shall be determined by the following method, to enable the Plan to satisfy the ACP test: (i) first, the allocations of Contributions taken into account in determining the ACP ("ACP Allocations") of the Highly Compensated Employee with the highest ACP shall be reduced, as necessary, until such Employee's ACP equals those of the Highly Compensated Employee(s) with the second highest ACP; (ii) second, following the application of paragraph (i), if it is still necessary to reduce Highly Compensated Employees' ACP Allocations, then the Contributions of Highly Compensated Employees with the highest and second highest ACPs shall be reduced, as necessary, until each affected Employee's ACP equals that (those) of the Highly Compensated Employee(s) with the third highest ACP; (iii) third, following the application of paragraph (ii), if it is still necessary to reduce Highly Compensated Employees' ACP Allocations, then the procedure, the beginning of which is described in paragraphs (i) and (ii), shall continue until no further reductions are necessary; and (iv) fourth, amounts determined pursuant to paragraphs (i) through (iii) shall be combined. The resulting sum shall be the Excess Matching Contributions, and the portion of the total to be allocated to each affected Highly Compensated Employee shall be determined pursuant to paragraph (d) below. -37- 43 (d) Allocation of Excess Matching Contributions. The amount of Excess Matching Contributions to be allocated to a Highly Compensated Employee for a Plan Year shall be determined by the following method to enable the Plan to satisfy the ACP test: (i) first, the ACP Allocations of the Highly Compensated Employee(s) with the highest dollar amount of ACP Allocations shall be reduced, as necessary, until either such Employee's dollar amount of ACP Allocations equals those of the Highly Compensated Employee(s) with the second highest dollar amount of ACP Allocations or until no ACP Allocations remain; (ii) second, following the application of paragraph (i), if unallocated ACP Allocations remain, then ACP Allocations of Highly Compensated Employees with the highest and second highest dollar amount of ACP Allocations shall be reduced, as necessary, until either each affected Employee's dollar amount of ACP Allocations equals that (those) of the Highly Compensated Employee(s) with the third highest dollar amount of ACP Allocations, or until no ACP Allocations remain; (iii) third, following the application of paragraph (ii), if unallocated ACP Allocations remain, the procedure, the beginning of which is outlined in paragraphs (i) and (ii), shall continue until no further reductions are necessary or until no further unallocated ACP Allocations remain; and (iv) fourth, Excess Matching Contributions in an amount equal to the reductions of ACP Allocations determined in paragraphs (i) through (iii) above with respect to a Highly Compensated Employee shall be allocated to that Highly Compensated Employee and, as determined by the Administrator, distributed pursuant to paragraph (e) below. (e) Distribution of Excess Matching Contributions. After the procedure outlined in paragraph (d) above is completed, all amounts of Excess Matching Contributions shall be forfeited (if forfeitable) or distributed (if distributable) to the respective Highly Compensated Employees to whose Accounts the Excess Matching Contributions were made. Excess Matching Contributions for each affected Highly Compensated Employee shall be forfeited (if forfeitable) or distributed (if distributable) from the following Accounts in the following order: (i) the Highly Compensated Employee's Matching Contributions Account; (ii) the Highly Compensated Employee's Qualified Nonelective Contributions Account; (iii) the Highly Compensated Employee's Qualified Matching Contributions Account; and (iv) the Highly Compensated Employee's Salary Deferral Contributions Account. (f) Adjustment for Earnings. After the Administrator has determined the aggregate amount and character, of Excess Matching Contributions to be forfeited or distributed to a -38- 44 given Highly Compensated Employee, then that amount shall be adjusted for Earnings. Earnings shall be calculated through the end of the Plan Year, as well as for the Gap Period. For this purpose, the "Gap Period" means the period beginning on the first day of the subsequent Plan Year and ending on either the day before the date of distribution or on a date selected in accordance with the safe harbor method set forth in Income Tax Regulation Section 1.401(m)-1(e)(3)(ii)(D). The Earnings allocable to Excess Matching Contributions shall be calculated by the Administrator using any reasonable method for computing the Earnings allocable to Excess Matching Contributions; provided, however, that the method shall not violate Code Section 401(a)(4), and that the method shall be used consistently for all Participants and for all corrective distributions under the Plan for the Plan Year, and for allocating Earnings to Participants' Accounts. (g) Special Rule. Any amount distributed to a Highly Compensated Employee pursuant to this Section shall not be subject to any of the consent rules for Participants and Spouses contained in Article VI. Similarly, any such distribution shall not make that Employee liable for the Federal taxes applicable to early withdrawals under Code Section 72(t) or excess distributions under Code Section 4981A. -39- 45 ARTICLE VI VESTING AND DISTRIBUTION OF ACCOUNTS 6.1 VESTED INTEREST. (a) A Participant's interest in his or her Salary Deferral Contributions Account, Safe Harbor Nonelective Contributions Account, Safe Harbor Matching Contributions Account, Employer Matching Contributions Account, Quarterly Plan Account, Qualified Matching Contributions Account, Qualified Nonelective Contributions Account, Pre-97 Employee 401(k) Contributions Account, Pre-97 Employer 401(k) Matching Contributions Account and Rollover Contributions Account under this Plan shall be at all times fully vested and nonforfeitable. A Participant's interest in his or her Employer Discretionary Contributions Account shall be fully vested and nonforfeitable at the Participant's Normal Retirement Date or Early Retirement Date, on the Participant's death or Disability, provided that the Participant is employed by the Employer at such time, or upon termination of the Plan. In all other cases, a Participant's interest in his or her Employer Discretionary Contributions Account shall be subject to the following vesting schedule:
Years of Service Vested Percentage ---------------- ----------------- Less than 1 year 0% 1 year but less than 2 years 50% 2 years or more 100%
(b) The crediting of service shall be subject to the following rules: (i) If a Participant who has voluntarily terminated or has been discharged returns to employment and is credited with an Hour of Service on or before incurring a Break in Service, that Participant shall receive credit for the time elapsed during that absence. (ii) If a Participant is absent for a reason other than termination or discharge and then voluntarily terminates or is discharged, the date on which that Participant must first be credited with an Hour of Service to receive credit for the time elapsed during that absence is the first anniversary of the first day of the absence. (iii) If a Participant has a Break in Service of five (5) years or more, then service after such Break in Service shall not be taken into account for purposes of determining the nonforfeitable percentage of the Participant's Vested Account balance which accrued prior to such Break in Service. (iv) If a Participant has less than one (1) Year of Service, then service prior to a Break in Service shall not be taken into account for purposes of determining the nonforfeitable -40- 46 percentage of the Participant's Vested Account balance if the period of severance equals or exceeds the Participant's service before such period of severance. (c) If the vesting schedule specified in paragraph (a) constitutes an amendment to the prior vesting schedule or is subsequently amended, then in the case of an Employee who is a Participant as of the later of the date such amendment is adopted or the date it becomes effective, the nonforfeitable percentage (determined as of such date) of such Employee's Employer derived accrued benefit will not be less than the percentage computed under the Plan without regard to such amendment. In addition, if the amended vesting schedule provides less rapid vesting, if the Plan is amended in any way that directly or indirectly affects the computation of the Participant's nonforfeitable percentage, or if the Plan is deemed amended by an automatic change to a Top-Heavy vesting schedule, then each Participant who is credited with three (3) Years of Service and whose Account would have vested more rapidly prior to the amendment, may irrevocably elect during the election period to have the nonforfeitable percentage of his or her Account calculated without regard to such amendment. For purposes of this Section, the election period shall begin the date the amendment is adopted, and shall end on the date sixty (60) days after the latest of (i) the date the amendment is adopted, (ii) the date the amendment becomes effective, or (iii) the date the Participant is issued written notice of the amendment by the Participating Employer or the Administrator. 6.2 FORFEITURES. (a) If a Participant is required to take a distribution pursuant to Section 6.7 (the "cash-out rule"), then, following the Participant's Severance Date, the Participant shall receive a distribution of the value of the entire vested portion of his or her Account balance in accordance with Sections 6.7 through 6.11. The nonvested portion of the Participant's Account balance shall be treated as a forfeiture as of the earlier of (i) the date on which the distribution occurs, or (ii) the last day of the Plan Year in which the Participant incurs five (5) consecutive one (1)-year Breaks in Service. For purposes of this Section, if the value of a Participant's vested Account balance is zero (0), then the Participant shall be deemed to have received a distribution of such vested Account balance. (b) If a Participant has the option to elect and does elect to receive the value of his or her vested Account balance following his or her Severance Date, in accordance with the requirements of Section 6.7, then the nonvested portion of the Participant's Account balance shall be treated as a forfeiture as of the earlier of (i) the date on which the distribution occurs, or (ii) the last day of the Plan Year in which the Participant incurs five (5) consecutive one (1)-year Breaks in Service. (c) If a Participant has the option to elect and does not elect to receive the value of his or her vested Account balance following his or her Severance Date in accordance with the requirements of Section 6.7, then the nonvested portion of the Participant's Account balance shall be treated as a forfeiture as of the last day of the Plan Year in which the Participant incurs five (5) consecutive one (1)-year Breaks in Service. -41- 47 (d) If a Participant is not fully vested in his or her Account, and that Participant receives a distribution in accordance with the requirements of Section 6.7 and subsequently resumes employment with a Participating Employer, then that Participant's Employer Discretionary Contributions Account balance shall be restored to the amount on the Valuation Date preceding the date of distribution; provided, however, the Participant repays to the Plan the full amount of the distribution attributable to Employer Discretionary Contributions before the earlier of five (5) years after the Participant's Reemployment Commencement Date, or the date the Participant incurs five (5) consecutive one (1)-year Breaks in Service following the date of the distribution. If a Participant is deemed to receive a distribution pursuant to paragraph (a) above, and the Participant resumes employment covered under the Plan before the date the Participant incurs five (5) consecutive one (1)-year Breaks in Service, then, upon the Participant's Reemployment Commencement Date, the Employer Discretionary Contributions Account balance of the Participant shall be restored to the amount on the Valuation Date preceding date of such deemed distribution. The funds for effecting the restoration of the Account shall be drawn first from forfeitures, and second, from a special Contribution to the Plan made by the Participating Employer that last employed such Participant. The amount contributed to the Account for the purpose of effecting such restoration shall not be considered to be part of the Annual Addition to the Account of such Participant for the Plan Year of restoration or any subsequent Plan Year. (e) Any amounts forfeited pursuant to this Section, Section 5.4 or Section 5.8 shall be applied, first, to restore Accounts pursuant to paragraph (d) above, second, to reduce the Participating Employers' obligation to make Safe Harbor Nonelective Contributions, third, to reduce the Participating Employers' obligation to make Safe Harbor Matching Contributions, fourth, to reduce the Participating Employers' obligation to make Employer Matching Contributions, fifth, to reduce the Participating Employers' obligation to make Employer Discretionary Contributions and sixth, to pay administrative expenses under the Plan. 6.3 EARLY RETIREMENT. A Participant who terminates employment with the Employer on or after his or her Early Retirement Date may elect to have his or her Account distributed in accordance with Sections 6.7 through 6.11. 6.4 NORMAL RETIREMENT DATE. A Participant who terminates employment with the Employer on or after his or her Normal Retirement Date, may elect to have his or her Account distributed in accordance with Sections 6.7 through 6.11. 6.5 DEATH BENEFITS. If a Participant or former Participant dies before the entire vested balance of his or her Account has been distributed, then the vested balance in his or her Account shall be paid to the Participant's Beneficiary in accordance with Sections 6.7 through 6.11. 6.6 TERMINATION OF EMPLOYMENT. -42- 48 Following a Participant's Severance Date, the Participant's vested Account balance shall be distributed in accordance with Sections 6.7 through 6.11. 6.7 COMMENCEMENT OF DISTRIBUTION. (a) Subject to Sections 6.8 through 6.12 below, following a Participant's Severance Date, the Participant's Account shall be distributed at a date designated by the Administrator, which designation (except as provided below) shall be determined in accordance with the Administrator's procedures, and shall be subject to the following: (b) Effective for distributions made during the period beginning on March 29, 1998 and ending on March 22, 1999: (i) if the Participant's vested Account balance does not exceed Five Thousand Dollars ($5,000) at the time of distribution (or at the time of any prior distribution), then the Participant shall receive a lump sum distribution of the entire vested portion of such Account balance and the nonvested portion shall be treated as a forfeiture; or (ii) if the Participant's vested Account balance exceeds Five Thousand Dollars ($5,000) at the time of distribution (or at the time of any prior distribution), then the Participant must consent, in writing, prior to the distribution. (c) Effective for distributions made on or after March 22, 1999: (i) if the Participant's vested Account balance does not exceed Five Thousand Dollars ($5,000) at the time of the distribution, then the Participant shall receive a lump sum distribution of the entire vested portion of such Account balance and the nonvested portion shall be treated as a forfeiture; or (ii) if the Participant's vested Account balance exceeds Five Thousand Dollars ($5,000) at the time of distribution, then the Participant must consent, in writing, prior to the distribution. (iii) Notwithstanding the foregoing, if a Participant has begun to receive a distribution pursuant to an optional form of benefit under which at least one (1) scheduled periodic distribution is still payable, and if the value of the Participant's vested Account balance exceeded Five Thousand Dollars ($5,000) at the time of the first distribution under that optional form of benefit, then the remaining value of the Participant's vested Account balance may not be distributed without the written consent of the Participant. (d) If consent is required for a distribution, then the Participant must consent in writing to the distribution before it may be made and within the ninety (90)-day period ending on the first day on which all of the events have occurred that entitle the Participant to such benefit (the "Annuity Starting Date"). If the Participant consents to the distribution, then such distribution shall include all of the Participant's vested Account balance. If the Participant does not consent in writing -43- 49 to the distribution, then the Participant's vested Account balance shall be held in the Trust until the maximum period permitted under paragraph (e) below. If consent to a distribution is required hereunder, then at least thirty (30) days and not more than ninety (90) days prior to the Annuity Starting Date the Administrator shall provide the Participant with a notice of the right to elect immediate distribution or the right to defer distribution until the Participant's Normal Retirement. (e) Unless the Participant elects otherwise by providing the Administrator with an executed written notice specifying the Participant's benefit under the Plan and the commencement date for distribution of the Participant's Account, then distribution to a Participant shall commence no later than sixty (60) days following the close of the Plan Year in which occurs the latest of: (i) the date the Participant attains Normal Retirement; (ii) the tenth (10th) anniversary of the date on which the Participant first commences participation in the Plan; or (iii) the Participant's Severance Date. With the exception of distributions made pursuant to Sections (b)(i) and (c)(i) above, the failure of a Participant to consent to the distribution of a benefit that is immediately available under this Section, shall be deemed to be an election to defer commencement of a payment of any benefit to the latest possible date pursuant to this paragraph or paragraph (f) below, as applicable. (f) Neither the consent of the Participant nor the Participant's Spouse shall be required to the extent that a distribution is required to satisfy Code Section 401(a)(9) or 415. In addition, upon termination of this Plan, to the extent the Plan does not offer an annuity option (to be purchased from a commercial provider) and if the Employer does not maintain another defined contribution plan (other than an employee stock ownership plan as defined in Code Section 4975(e)(7)), then the Participant's Account balance shall, without the Participant's consent, be distributed in a single lump sum to the Participant. However, if the Employer maintains another defined contribution plan (other than an employee stock ownership plan as defined in Code Section 4975(e)(7)), then the Participant's Account balance shall be transferred, without the Participant's consent, to the other plan if the Participant does not consent to an immediate distribution. (g) Notwithstanding anything to the contrary in the Plan, distribution of each Participant's Account shall begin no later than the Participant's Required Beginning Date, regardless of whether the Participant has consented to such a distribution. (h) If a distribution is one for which Code Sections 401(a)(11) and 417 do not apply, then such distribution may commence less than thirty (30) days after the notice required under Income Tax Regulation Section 1.411(a)-11(c) is given; provided, however, that: (i) the Administrator informs the Participant that the Participant has a right to a period of at least thirty (30) days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option); and (ii) the Participant, after receiving the notice, affirmatively elects a distribution and waives the thirty (30)-day period by written notice. -44- 50 6.8 SPECIAL RULE FOR SALARY DEFERRAL CONTRIBUTIONS, SAFE HARBOR NONELECTIVE CONTRIBUTIONS, SAFE HARBOR MATCHING CONTRIBUTIONS AND QUALIFIED NONELECTIVE CONTRIBUTIONS. Salary Deferral Contributions, Safe Harbor Nonelective Contributions, Safe Harbor Matching Contributions and Qualified Nonelective Contributions, including Earnings thereon, shall also, as determined by the Company, be eligible for distribution upon: (a) the transfer by the Employer to any other employer of substantially all of the assets (within the meaning of Code Section 409(d)(2), as modified by Revenue Ruling 2000-27 and any subsequent binding guidance or legislation) used by the Employer in a trade or business, but only with respect to Participants who continue employment with the other employer who acquired such assets; or (b) the transfer by the Employer of such Employer's interest in a subsidiary (within the meaning of Code Section 409(d)(2), as modified by Revenue Ruling 2000-27 and any subsequent binding guidance or legislation) to any other employer, but only with respect to Participants who continue employment with such transferred subsidiary, and so long as the Company maintains this Plan. 6.9 DIRECT ROLLOVERS AND WITHHOLDING. (a) Definitions. (i) Direct Rollover. "Direct Rollover" means an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan for the benefit of a Distributee. (ii) Distributee. "Distributee" means a Participant, a Surviving Spouse of a deceased Participant, or a Spouse entitled to payment under a Qualified Domestic Relations Order. (iii) Eligible Retirement Plan. "Eligible Retirement Plan" means: (A) with respect to any Distributee, an individual retirement account described in Code Section 408(a) or an individual retirement annuity (other than an endowment contract) described in Code Section 408(b); and (B) in addition to paragraph (A) above and solely with respect to a Distributee who is a Participant, or a Spouse entitled to payment under a Qualified Domestic Relations Order, a qualified trust described in Code Section 401(a), or an annuity plan described in Code Section 403(a). (iv) Eligible Rollover Distribution. "Eligible Rollover Distribution" means any distribution of all or any portion of the balance credited to the Account of a Distributee, except that an Eligible Rollover Distribution shall not include: (A) any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee's designated Beneficiary, or for a specified period of ten (10) years or more; (B) any -45- 51 distribution to the extent such distribution is required under Code Section 401(a)(9); (C) the portion of any distribution that is not includable in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to Employer securities); and (D) effective as of January 1, 2000, any Salary Deferral Contributions distributed as a result of a hardship distribution in accordance with Section 6.16. (b) General Rule. If the Distributee of any Eligible Rollover Distribution from the Plan elects to have all or a specified portion of the Eligible Rollover Distribution paid directly to an Eligible Retirement Plan, and specifies the Eligible Retirement Plan to which the Eligible Rollover Distribution is to be paid, then the Eligible Rollover Distribution shall be paid to that Eligible Retirement Plan in a Direct Rollover. 6.10 FORM OF DISTRIBUTION. Distributions shall be in the form of cash. Any Company Stock held in a Participant's Account shall be liquidated and the cash equivalent distributed. 6.11 FORM OF BENEFIT. (a) Normal Form of Benefit. Benefits shall be paid to the Participant or the Participant's Beneficiary in the form of a single lump sum, unless the Participant (or, if the Participant is deceased, his or her Beneficiary) elects otherwise. (b) Optional Forms of Benefit. The Participant may elect substantially-equal annual installments over a specified period of years which shall not exceed the Life Expectancy of the Participant or the Joint and Last Survivor Life Expectancies of the Participant and his or her Beneficiary; provided, however, that Life Expectancy(ies) shall not be recalculated. 6.12 MINIMUM DISTRIBUTION REQUIREMENTS. (a) Definitions. (i) Applicable Life Expectancy. "Applicable Life Expectancy" means the Life Expectancy (or joint and last survivor expectancy) calculated using the attained age of the Participant (or designated Beneficiary) as of the Participant's (or designated Beneficiary's) birthday in the applicable calendar year reduced by one (1) for each calendar year which has elapsed since the date Life Expectancy was first calculated. If Life Expectancy is being recalculated, then the Applicable Life Expectancy shall be the Life Expectancy as so recalculated. The applicable calendar year shall mean the first Distribution Calendar Year, or if Life Expectancy is being recalculated, the calendar year for which the distribution amount is being calculated. -46- 52 (ii) Designated Beneficiary. "Designated Beneficiary" means the individual who is designated as the Beneficiary under the Plan in accordance with Code Section 401(a)(9). (iii) Distribution Calendar Year. "Distribution Calendar Year" means a calendar year for which a minimum distribution is required. For distributions beginning before the Participant's death, the first distribution calendar year shall mean the calendar year immediately preceding the calendar year which contains the Participant's Required Beginning Date. For distributions beginning after the Participant's death, the first distribution calendar year shall mean the calendar year in which distributions are required to begin pursuant to Code Section 401(a)(9). (iv) Five Percent Owner. "Five Percent Owner" means a Participant who, for purposes of this Section, is a five percent owner as defined in Code Section 416(i) (determined in accordance with Code Section 416 but without regard to whether the Plan is Top-Heavy) at any time during the Plan Year ending with or within the calendar year in which such Participant attains age sixty-six and one-half (66-1/2) or any subsequent Plan Year. (v) Life Expectancy. "Life Expectancy" means that for purposes of this Section, life expectancy and joint and last survivor expectancy shall be computed by use of the expected return multiples in Tables V and VI of Income Tax Regulation Section 1.72-9. Unless otherwise elected by the Participant (or the Participant's Spouse in the case of distributions which begin following the Participant's death and in which the Spouse is named as the designated Beneficiary) by the time distributions are required to begin, life expectancies shall be recalculated annually. Such election shall be irrevocable as to the Participant (or Spouse) and shall apply to all subsequent years. The life expectancy of a nonspouse Beneficiary shall not be recalculated. (vi) Participant's Benefit. "Participant's Benefit" means: (A) the Participant's Account balance as of the last Valuation Date in the calendar year immediately preceding the distribution calendar year increased by the amount of any Contributions, Rollover Contributions or forfeitures allocated to the Participant's Account balance as of dates in the valuation calendar year after the Valuation Date and decreased by distributions made in the valuation calendar year after the Valuation Date. (B) for purposes of paragraph (A) above, if any portion of the minimum distribution for the first distribution calendar year is made in the second distribution calendar year on or before the Required Beginning Date, then the amount of the minimum distribution made in the second distribution calendar year shall be treated as if it had been made in the immediately preceding distribution calendar year. (vii) Required Beginning Date. "Required Beginning Date" means: (A) for Five Percent Owners, the first day of April following the later of: a) the calendar year in which the Participant attains age seventy and one-half (70-1/2), or -47- 53 b) the earlier of the calendar year with or within which ends the Plan Year in which the Participant becomes a Five Percent Owner, or the calendar year in which the Participant's Severance Date occurs. Once begun, distributions to a Five Percent Owner under this Section must continue to be distributed, even if the Participant ceases to be a Five Percent Owner in a subsequent year. (B) for Non-Five Percent Owners, the first day of April of the calendar year following the calendar year in which the Participant attains age seventy and one-half (70-1/2). (b) General Rules. (i) Subject to Section 6.7, the requirements of this Section shall apply to any distribution of a Participant's interest and will take precedence over any inconsistent provision of this Plan. (ii) All distributions required under this Section shall be determined and made in accordance with the proposed Income Tax Regulations under Code Section 401(a)(9), including the minimum distribution incidental benefit requirement of proposed Income Tax Regulation Section 1.401(a)(9)-2. (iii) If a Participant dies after payments have begun, then his or her remaining vested Account balance, if any, must be distributed to his or her Beneficiary at least as rapidly as under the method of distribution elected by the Participant. (iv) If the Participant dies before distribution of his or her interest begins, distribution of the Participant's entire interest shall be completed by December 31st of the calendar year containing the fifth (5th) anniversary of the Participant's death except to the extent that an election is made to receive distributions in accordance with paragraphs (A) or (B) below: (A) if any portion of the Participant's interest is payable to a Beneficiary, then distributions may be made over the life or over a period certain not greater than the Life Expectancy of the Beneficiary commencing on or before December 31st of the calendar year immediately following the calendar year in which the Participant died; (B) if the Beneficiary is the Participant's Surviving Spouse, then the date distributions are required to begin in accordance with paragraph (A) above shall not be earlier than the later of (1) December 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 seventy and one-half (70-1/2). If the Participant has not made an election pursuant to paragraph (B) by the time of his or her death, then the Participant's Beneficiary must elect the method of distribution no later than the earlier of (1) December 31st of the calendar year in which distributions would be required to begin under this Section, or (2) December 31st of the calendar year which contains the fifth (5th) anniversary of the date of death of the Participant. If the Participant has no -48- 54 Beneficiary, or if the Beneficiary does not elect a method of distribution, then distribution of the Participant's entire interest must be completed by December 31st of the calendar year containing the fifth (5th) anniversary of the Participant's death. For purposes of this paragraph (iv), if the Surviving Spouse dies after the Participant, but before payments to such Surviving Spouse begin, the provisions of this paragraph (iv), with the exception of paragraph (B) herein, shall be applied as if the Surviving Spouse were the Participant. (v) For the purposes of this Section, distribution of a Participant's interest is considered to begin on the Participant's Required Beginning Date (or, if paragraph (iv)(B) above is applicable, the date distribution is required to begin to the Surviving Spouse pursuant to paragraph (iv)(A) above). If distribution in the form of an annuity (pursuant to an Appendix attached hereto) irrevocably commences to the Participant before the Required Beginning Date, the date distribution is considered to begin is the date distribution actually commences. (vi) As of any subsequent Valuation Date, the Administrator, with the consent of the Participant (or, if applicable, his or her Beneficiary), may cause the Amount then credited to the Account of the Participant to be paid in a lump sum. (c) Required Distribution Date. The entire interest of a Participant shall be distributed or begin to be distributed no later than the Participant's Required Beginning Date regardless of whether the Participant specified a contrary commencement date in his or her written election. (d) Limits on Distribution Periods. As of the first distribution calendar year, distributions, if not made in a single-sum, shall only be made over one of the following periods (or a combination thereof): (i) the life of the Participant; (ii) the life of the Participant and a Designated Beneficiary; (iii) a period certain not extending beyond the Life Expectancy of the Participant; or (iv) a period certain not extending beyond the joint and last survivor expectancy of the Participant and a Designated Beneficiary. (e) Determination of Amount to be Distributed Each Year. If the Participant's interest is to be distributed in a form other than a single sum, then the following minimum distribution rules shall apply on or after the Required Beginning Date: (i) Individual Account. (A) If a Participant's Benefit is to be distributed over (1) a period not extending beyond the Life Expectancy of the Participant or the joint life and last survivor -49- 55 expectancy of the Participant and the Participant's Designated Beneficiary, or (2) a period not extending beyond the Life Expectancy of the Designated Beneficiary, then the amount required to be distributed for each calendar year, beginning with distributions for the first Distribution Calendar Year, shall be at least equal to the quotient obtained by dividing the Participant's Benefit by the Applicable Life Expectancy. (B) The amount to be distributed each year, beginning with distributions for the first Distribution Calendar Year shall not be less than the quotient obtained by dividing the Participant's Benefit by the lesser of (1) the Applicable Life Expectancy, or (2) if the Participant's Spouse is not the Designated Beneficiary, the applicable divisor determined from the table set forth in Q&A-4 of proposed Income Tax Regulation Section 1.401(a)(9)-2. Distributions after the death of the Participant shall be distributed using the Applicable Life Expectancy in paragraph (A) above as the relevant divisor without regard to proposed Income Tax Regulation Section 1.401(a)(9)-2. (C) The minimum distribution required for the Participant's first Distribution Calendar Year shall be made on or before the Participant's Required Beginning Date. The minimum distribution for other Distribution Calendar Years, including the minimum distribution for the Distribution Calendar Year in which the Employee's Required Beginning Date occurs, shall be made on or before December 31st of that Distribution Calendar Year. 6.13 DISTRIBUTION TO MINOR OR INCOMPETENT. If any individual to whom a benefit is payable under the Plan is a minor, or if the Administrator determines that any individual to whom a benefit is payable under the Plan is incompetent to receive such payment or to give a valid release thereof, then the Administrator may direct that such distribution be paid to the legal guardian, or if none, to a parent of such minor or incompetent, or a responsible adult with whom the minor or incompetent resides, or to a custodian for a minor under the Uniform Transfers to Minors Act (or other statutes of similar import), if permitted by the laws of the state in which the minor or incompetent resides. Payment to the legal guardian, parent or custodian of a minor Beneficiary shall fully discharge the Trustee, Administrator and Plan from liability on account thereof. 6.14 BENEFICIARY DESIGNATION. If the Participant is married, then the Beneficiary shall be the Participant's Surviving Spouse and no written designation is required. However, a Participant may designate a Beneficiary other than the Participant's Spouse; provided, however: (a) the Participant's Spouse consents in writing to such designation and to the form thereof (on a form acceptable to the Administrator); (b) such Beneficiary designation may not be changed without the consent of his or her Spouse ("Spousal Consent") (or the consent of the Spouse expressly permits changes in the beneficiary designation by the Participant without any requirement of further consent by the Spouse); and (c) the Spouse's consent acknowledges the effect of such Beneficiary designation and is witnessed by a Plan representative or a notary public. Such Spousal Consent shall not be required if it is established to the satisfaction of the Administrator that the consent required under the preceding sentence cannot be obtained because there is no Spouse, the Spouse cannot be located, or such other circumstances as -50- 56 the Secretary of the Treasury may by Income Tax Regulations prescribe. If, at the time of the Participant's death, the Participant has no Surviving Spouse or designated Beneficiary, then the Beneficiary shall be the individual representative of the Participant's estate. If a Beneficiary who is entitled to payment under this Section dies before receiving distribution of the entire amount to which he or she is entitled, then any amount remaining shall be payable to the contingent Beneficiary named by the Participant pursuant to the requirements of this Section. If there is no such contingent Beneficiary, the remaining portion of the Participant's Account shall be payable to the beneficiary designated by the Participant's Beneficiary, or if none, to the individual representative of the Beneficiary's estate. A Participant's Beneficiary, contingent Beneficiary and any Beneficiary's beneficiary shall be bound by the terms and conditions of the Plan. 6.15 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN. If a Participant or Beneficiary who is entitled to a distribution cannot be located and the Administrator has made reasonable efforts to locate the Participant or Beneficiary, then the Participant's or Beneficiary's interest shall be forfeited and used: first, to restore any amounts previously forfeited under this Section; second, to offset the Employer's obligation to make Safe Harbor Nonelective Contributions, third, to offset the Employer's obligation to make Safe Harbor Matching Contributions, fourth, to pay administrative expenses of the Plan for the Plan Year in which the forfeiture occurs; fifth, to offset the Employer's obligation to make Employer Matching Contributions for the Plan Year in which the forfeiture occurs; and sixth, to allocate as Employer Discretionary Contributions for the Plan Year in which the forfeiture occurs. If the Participant or Beneficiary makes a written claim for the Account subsequent to the forfeiture, then the Employer shall cause the Account to be reinstated. 6.16 HARDSHIP DISTRIBUTIONS. (a) Upon hardship of a Participant, the Trustee shall, upon the direction of the Administrator, make a distribution from the Participant's Salary Deferral Contributions Account (not including Earnings) and/or Rollover Contributions Account, in that order. A Participant shall be entitled to a hardship distribution only if the distribution is both (i) made on account of an immediate and heavy financial need of the Participant (as defined in paragraph (b)), and (ii) necessary to satisfy such financial need (as defined in paragraph (c)). The Participant shall furnish the Administrator with satisfactory proof that the hardship distribution meets the requirements of paragraphs (b) and (c). (b) An immediate and heavy financial need shall be deemed to include any one or more of the following: (i) expenses incurred or necessary for medical care (described in Code Section 213(d)) for the Participant, his or her Spouse, or any dependents of the Participant (as defined in Code Section 152); -51- 57 (ii) costs (excluding mortgage payments) relating to the purchase of a principal residence for the Participant; (iii) payment of tuition, related educational fees and room and board expenses, for up to the next twelve (12) months of post-secondary education for the Participant, his or her Spouse, children, or dependents (as defined in Code Section 152); or (iv) payments necessary to prevent the eviction of the Participant from his or her principal residence or foreclosure on the mortgage or deed of trust on that principal residence. (c) A distribution shall be considered as necessary to satisfy an immediate and heavy financial need of the Participant only if: (i) the Participant has obtained all distributions, other than hardship distributions, and all nontaxable loans under all plans maintained by the Employer; (ii) the Participant is prohibited from making Salary Deferral Contributions to this Plan for twelve (12) months after the receipt of the hardship distribution. In addition, the Participant must agree to stop making elective contributions and employee contributions to all other plans of the Employer (to the extent permissible under the terms of each such plan) for at least twelve (12) months after receipt of the hardship distribution; (iii) the distribution is not in excess of the amount of an immediate and heavy financial need (including amounts necessary to pay any federal, state or local income taxes or penalties reasonably anticipated to result from the distribution); and (iv) all plans maintained by the Employer limit the Participant's elective contributions for the taxable year immediately following the taxable year of the hardship distribution to the applicable limit under Code Section 402(g) for such taxable year, less the amount of such Participant's elective contributions for the taxable year of the hardship distribution. 6.17 LOANS. (a) The Administrator may direct the Trustee to make loans to Participants who are Employees and/or Beneficiaries who are parties in interest (as defined in ERISA Section 3(14)), provided that: (i) such loans are available to all such Participants and Beneficiaries on a reasonably equivalent basis; (ii) such loans are not made available to Highly Compensated Employees, officers or shareholders in an amount greater than the amount made available to other Employees; (iii) such loans bear a reasonable rate of interest; -52- 58 (iv) such loans are adequately secured; and (v) a Participant's or Beneficiary's aggregate outstanding loans shall not exceed the lesser of (A) fifty percent (50%) of the present value of the Participant's or Beneficiary's vested Account, or (B) Fifty Thousand Dollars ($50,000) reduced by the excess, if any, of (1) the highest principal amount of the Participant's or Beneficiary's aggregate outstanding loans (including defaulted loans) at any time during the immediately preceding twelve (12) months, over the aggregate principal amount outstanding under such loans on the date the new loan is made, plus (2) the amount of unpaid accrued interest on a defaulted loan. (b) In the event of default, foreclosure on the note and attachment of security shall not occur until a distributable event occurs under the Plan. (c) Notwithstanding any contrary provision of this Plan, the portion of the Participant's vested Account balance used as a security interest held by the Plan by reason of a loan outstanding to the Participant shall be taken into account for purposes of determining the amount of the Account balance payable at the time of distribution, but only if the reduction is used as repayment of the loan. (d) All such loans shall be subject to ERISA, the Code, and such terms and conditions not inconsistent therewith (and subject to this Section) as determined by the Administrator. (e) The Administrator shall adopt written policies and guidelines which establish and detail the terms of Plan loans hereunder, and which shall be deemed a part of this Plan. Such policies and guidelines may be amended by the Administrator from time to time. 6.18 IN-SERVICE WITHDRAWALS AT AGE FIFTY-NINE AND ONE-HALF (59-1/2). (a) A Participant may withdraw all or a portion of the vested portion of his or her Accounts at any time subsequent to attainment of age fifty-nine and one-half (59-1/2). Any such withdrawal shall be in the amount specified by the Participant up to the value of his or her vested Account balance. (b) If a Participant receives a distribution under this Section from his or her partially vested Employer Discretionary Contributions Account, at any relevant time following the distribution, the Participant's vested interest in his or her Employer Discretionary Contributions Account shall be calculated in accordance with the following formula: X = P (AB + D) - D. For purposes of this formula, "P" is the Participant's current vesting percentage at the relevant time, "AB" is the value of the Participant's Employer Discretionary Contributions Account at the relevant time, and "D" is the amount of the distribution. -53- 59 ARTICLE VII ADMINISTRATION 7.1 POWERS OF THE ADMINISTRATOR. In addition to the powers of the Administrator specified elsewhere in the Plan, the Administrator shall be responsible for the general administration and interpretation of the Plan and for carrying out its provisions, and shall have such powers as may be necessary to discharge its duties hereunder, including, without limitation, the following: (a) to file, or cause to be filed, all reports and distribute to Participants and Beneficiaries information required under ERISA; (b) to monitor the Plan's compliance with the limitations of Sections 5.4, 5.5 and 5.7 (to the extent applicable), and to maintain such records as it deems necessary to demonstrate compliance with these Sections; (c) to prescribe such procedures as the Administrator deems necessary and appropriate to be followed by Participants and Beneficiaries, including without limitation, designation of beneficiary, loans, hardships, Qualified Domestic Relations Orders, Rollovers, determinations of eligibility and investment elections; (d) to make a determination as to the right of any individual to a benefit in accordance with Article VI; (e) to request and receive from Employees such information as necessary for the proper administration of the Plan, including, without limitation, such information as the Administrator may reasonably require to determine each Participant's eligibility to participate in the Plan and the benefits payable to each Participant or his or her Beneficiary; (f) to direct the Trustee as to the method in which, and individuals to whom, Plan assets shall be distributed; (g) to establish a funding and, if deemed appropriate, an investment policy; (h) to select investment funds or vehicles; (i) to receive and review reports on the financial condition of the Trust and statements of the receipts and disbursements of the Trust from the Trustee; and (j) to appoint or employ one or more "Investment Managers" (as defined in ERISA Section 3(38), without regard to subparagraph (A)), to render investment advice with respect to all or any part of the assets of the Plan for which the Administrator has investment discretion. -54- 60 7.2 ABSOLUTE DISCRETION OF THE ADMINISTRATOR. The Administrator (or any individual acting on its behalf) shall, in its sole and absolute discretion, construe and interpret the terms and provisions of the Plan, and any issue arising out of, relating to, or resulting from the administration and operation of the Plan, which interpretation or construction shall be final and binding on all parties, including, without limitation, any Participating Employer, Eligible Participant, Employee, Eligible Employee, Participant, Beneficiary or successors or assigns. When making a determination or calculation, the Administrator shall, in its sole and absolute discretion, be entitled to rely upon information furnished by Participating Employers, third party administrators, Participants, Beneficiaries, or other individuals acting on their behalf. 7.3 COMMITTEE. (a) The Administrator has established the Committee to discharge the duties of the Administrator under the Plan. The members of the Committee shall be appointed by the Administrator, or its authorized delegate, and shall serve at the discretion of the Administrator, or its authorized delegate. An individual may be a member of the Committee regardless of whether such individual is or may be a Participant in the Plan. The Company, or its authorized delegate, may change the composition of the Committee (including, without limitation, the number of members of the Committee) from time to time. (b) The Committee and each of its members shall be indemnified to the extent permitted by law, from and against any and all direct and indirect liabilities, demands, claims, losses, taxes, costs and expenses, including (without limitation) reasonable attorney's fees, arising out of, relating to, or resulting from any action, inaction or conduct as a Committee member or in his or her defense, if the Company fails to provide such defense; provided, however, that (i) such Committee member shall not be indemnified and held harmless if his or her actions, inactions or conduct arise out of, relate to, or result from his or her gross negligence, bad faith, willful misconduct, or other willful violation of the law, including, without limitation, a breach of fiduciary duty under ERISA; and (ii) such member shall promptly notify the Company of any litigation involving the Plan, shall cooperate in the defense of any such lawsuit, and shall give the Company sole and exclusive authority to act on his or her behalf in the event of any such litigation or other claim or demand arising out of, relating to, or resulting from his or her action, inaction or conduct as a member of the Committee. (c) No fee or compensation shall be paid to any member of the Committee who is an Employee for his or her services as a member of the Committee. Any member of the Committee may be removed by the Administrator at any time for any reason. In addition, any member of the Committee may resign at any time for any reason by delivering his or her written notice of resignation to the Administrator, which shall be effective prospectively (unless otherwise agreed to by the Administrator) upon the date specified therein. If a member of the Committee, who is an Employee of the Employer, ceases his or her employment with the Employer, then he or she shall be deemed to have resigned from the Committee as of the same date as his or her cessation of employment, unless otherwise mutually agreed to by the Administrator and that Committee member. -55- 61 7.4 DOMESTIC RELATIONS ORDERS. (a) Definitions. (i) Alternate Payee. "Alternate Payee" means any Spouse, former Spouse, child or other dependent (within the meaning of Code Section 152) of a Participant who is recognized by a Domestic Relations Order as having a right to receive any immediate or deferred payment of all or a portion of the balance credited to a Participant's Account under the Plan. (ii) Domestic Relations Order or Order. "Domestic Relations Order" or "Order" means any judgment, decree or order (including approval of a property settlement agreement) which provides or otherwise conveys, pursuant to applicable state domestic relations laws (including community property laws), child support, alimony payments or marital property rights to an Alternate Payee. (iii) Qualified Domestic Relations Order. "Qualified Domestic Relations Order" means any Domestic Relations Order that meets the following requirements: (A) such Order establishes (or otherwise recognizes the existence of) the right of an Alternate Payee to receive all or a portion of the vested balance credited to a Participant's Account under the Plan; (B) such Order specifies (1) the name and last known mailing address of the Participant, (2) the name and last known mailing address of each Alternate Payee covered by such Order, (3) the amount or percentage of the Participant's vested account balance under the Plan payable to each such Alternate Payee or the manner in which such amount or percentage is to be calculated, and (4) any other requirement set forth in ERISA Section 206(d)(3) or Code Section 414(p); and (C) such Order does not require the Plan to (1) provide any type or form of benefit or option not otherwise available to the Participant under the Plan, (2) provide increased benefits not otherwise payable to the Participant under the Plan, or (3) pay benefits to an Alternate Payee which are required to be paid to another Alternate Payee pursuant to any Qualified Domestic Relations Orders previously issued with respect to the Participant's Account under the Plan. (b) Notification. Upon receipt of a Domestic Relations Order, the Administrator shall promptly notify the affected Participant and each Alternate Payee of the receipt of such Order and the procedures established by the Administrator for determining whether such Order satisfies the requirements for recognition as a Qualified Domestic Relations Order. Such notice shall also advise such Participant and Alternate Payee of each of their rights to designate a representative to receive communications from the Administrator concerning the disposition of the Domestic Relations Order. Within a reasonable time after providing such notification, the Administrator shall, pursuant to such procedures, determine whether or not the Order is a Qualified Domestic Relations Order and shall notify the Participant and each Alternate Payee (or his or her representative) of such determination. -56- 62 (c) Procedures. The Administrator shall establish reasonable procedures for determining the qualified status of Domestic Relations Orders and for effecting distributions pursuant to all such Orders which are determined to be Qualified Domestic Relations Orders. (d) Payment. (i) During the period in which the qualified status of a Domestic Relations Order is pending, the Administrator shall defer the payment of all Plan benefits affecting the Participant which are in dispute and shall separately account for all amounts which would otherwise be payable to the Alternate Payee (the "Segregated Amounts") during such period were the Order determined to be a Qualified Domestic Relations Order. (ii) If the Administrator determines, within eighteen (18) months after the date the first payment to the Alternate Payee would otherwise be required to be made pursuant to the terms of the Order, that such Order is a Qualified Domestic Relations Order, then the Administrator shall establish a separate Account to hold the Segregated Amounts (including any Earnings thereon) on behalf of such Alternate Payee and such Alternate Payee shall then be treated as a Participant for purposes of such Account. To the extent such Qualified Domestic Relations Order provides for the payment of the entire balance of the Segregated Amounts (including any Earnings thereon) to the Alternate Payee prior to the Participant's Severance Date, then the Administrator shall make such payment in accordance with such Order, even though the affected Participant's Severance Date has not occurred. Such payment shall be made as if the Participant's Severance Date occurred on the date on which benefits are to enter pay status under the Order. Notwithstanding the foregoing, payment to the Alternate Payee shall not be deferred beyond the date distribution to the Participant or (in the event of death) his or her Beneficiary is made or commenced. (iii) If the Administrator determines, within such eighteen (18) month period under paragraph (ii) above, that such Order is not a Qualified Domestic Relations Order, or if the qualified status of such Order cannot be determined prior to the expiration of such eighteen (18) month period, then the Administrator shall authorize the payment of the Segregated Amounts (including any Earnings thereon) to the individual or individuals who would have been entitled to receive such Segregated Amounts under the Plan had the Order not been issued. If such individual is the Participant, then the previously Segregated Amounts shall remain part of the Trust and shall not be distributed until the Participant becomes entitled to benefits under the Plan in accordance with the provisions of Article VI. Should there be a subsequent determination that the Order is in fact a Qualified Domestic Relations Order, then such determination shall be applied on a prospective basis only. (e) Hold Procedures. Notwithstanding any contrary Plan provision, prior to the receipt of a Domestic Relations Order, the Administrator may place a hold (as defined below) upon such portion of a Participant's Account, at such time and for such reasonable period of time as the Administrator may determine, if the Administrator receives notice that (1) a Domestic Relations Order is being sought by the Participant, his or her Spouse, former Spouse, child or other dependent (within the meaning of Code Section 152), and (2) the Participant's Account is likely to be a source of payment under such Order. For purposes of this paragraph, a "hold" means that no withdrawals, -57- 63 loans or other distributions may be made with respect to a Participant's Account. The Administrator shall notify a Participant if a hold is placed upon his or her Account pursuant to this paragraph. -58- 64 ARTICLE VIII LEAVES OF ABSENCE AND TRANSFERS 8.1 MILITARY LEAVE OF ABSENCE. An Employee who leaves the employment of the Employer for military service in the Armed Forces of the United States, as defined in the Uniformed Services Employment and Reemployment Rights Act of 1994 ("USERRA"), shall, for all purposes of the Plan, be considered as having been in the employment of the Employer, with the time of the Participant's service in the military credited to his or her service under the Plan; provided, however, that upon such Employee being discharged from the military service of the United States, the Employee must apply for reemployment with the Employer and take all other necessary action to be entitled to, and to be otherwise eligible for, re-employment rights, as provided by USERRA or any similar law from time to time in force. Notwithstanding any provision of this Plan to the contrary, contributions, benefits and service credit with respect to qualified military service shall be provided in accordance with Code Section 414(u). 8.2 OTHER LEAVES OF ABSENCE. For all purposes of this Plan, an Employee on an Employer-approved leave of absence not described in Section 8.1 shall be considered as having continued in the employment of the Employer for the period of such leave, provided that the Employee returns to the active employment of the Employer before or at the expiration of such leave. 8.3 TRANSFERS. (a) In the event that: (i) a Participant is transferred to employment with an Employer that is not a Participating Employer, or to employment with an Employer in a status other than as an Eligible Employee; (ii) an individual is transferred from employment with an Employer that is not a Participating Employer or from other employment; (iii) an individual is transferred from service with the Employer in a status other than as an Eligible Employee to employment with the Employer as an Eligible Employee; or (iv) an individual was employed by an Employer that is not a Participating Employer, terminated his or her employment and was subsequently employed by the Employer as an Eligible Employee; -59- 65 (b) then the following provisions shall apply: (i) transfer to employment with (A) an Employer that is not a Participating Employer, or (B) the Employer not as an Eligible Employee, shall not be considered termination of employment with the Employer, and such transferred individual shall continue to be entitled to the benefits provided in the Plan, as modified by this Section; (ii) any employment with an Employer which is not a Participating Employer or with the Employer not as an Eligible Employee will be deemed to be employment by the Employer; (iii) no amounts earned from an Employer at a time when it is not a Participating Employer or from the Employer not as an Employee shall constitute Compensation hereunder; (iv) no service for an Employer at a time when such individual was not an Employee shall be counted for purposes of eligibility and vesting hereunder, unless agreed to by the Company or required pursuant to a closing agreement entered into by the Employer and the Internal Revenue Service; (v) termination of employment with an Employer which is not a Participating Employer by an individual entitled to benefits under this Plan (other than to transfer to employment with another Employer) shall be considered as termination of employment with the Employer; and (vi) all other terms and provisions of this Plan shall fully apply to such individual and to any benefits to which he or she may be entitled hereunder. -60- 66 ARTICLE IX TRUST PROVISIONS 9.1 TRUST AGREEMENT. The Administrator may at any time select and appoint a Trustee to hold all or a portion of the assets of the Trust, and the Company shall, on its behalf and on behalf of all Participating Employers enter into a Trust Agreement. The Trust Agreement shall be a part of the Plan. 9.2 VOTING. The Trustee shall deliver to the Administrator, or the person or persons identified by the Administrator, proxies and powers of attorney and related informational material, for any shares or other property held in the Trust. The Administrator shall have responsibility for instructing the Trustee as to voting such shares and the tendering of such shares, by proxy or in person, except to the extent such responsibility is delegated to another person, under the terms of the Plan or Trust Agreement or under an agreement between the named fiduciary of the Plan and an Investment Manager, in which case such persons shall have such responsibility. The Trustee may use agreements to effect such delivery to the Administrator or the person or persons identified by the Administrator. In no event shall the Trustee be responsible for the voting or tendering of shares of securities held in the Trust or for ascertaining or monitoring whether, or how, proxies are voted or whether the proper number of proxies is received. -61- 67 ARTICLE X FEES AND EXPENSES All reasonable fees and expenses of the Administrator, the Committee and/or the Trustee incurred in the performance of their duties hereunder or under the Trust shall be charged against Participants' Accounts, unless the Employer elects to pay such fees and expenses. -62- 68 ARTICLE XI AMENDMENT, TERMINATION OR MERGER 11.1 AMENDMENT. (a) The Company shall have full power and authority to amend the provisions of the Plan for any reason at any time, either prospectively or retroactively, to such extent and in such manner as the Company shall deem advisable, in accordance with its normally established procedures. The Company may delegate such power, in whole or in part, to one or more committees (comprised of officers or other managerial personnel of the Employer) to whom administrative responsibilities may be delegated under the Plan. (b) The Board delegates to the Committee or any individual or committee appointed by the Administrator the full power and authority to adopt and to provide a certificate evidencing the execution of any amendment to the Plan which satisfies one of the following requirements: (i) the amendment is designed to clarify any provision of the Plan; (ii) the amendment is designed to bring the Plan into compliance with applicable law; (iii) the amendment is designed to ensure the continued tax-qualified status of the Plan; or (iv) the amendment does not have a significant financial impact on the Employer. (c) An amendment shall become effective, in accordance with its terms as to all Participants and all other persons having or claiming an interest under the Plan, upon the effective date specified in the instrument evidencing such amendment. However, no such amendment shall operate to: (i) cause any part of the Trust to revert to or be recoverable by the Employer or to be used for, or diverted to, purposes other than the exclusive benefit of Participants and their Beneficiaries (or for defraying the reasonable administrative expenses of the Plan); (ii) reduce the then outstanding balances in the Accounts of Participants; (iii) cause or effect any discrimination in favor of Highly Compensated Employees; (iv) change the duties, responsibilities or liabilities of the Trustee hereunder without the written consent of such Trustee; or (v) affect, reduce or eliminate any benefits which are protected benefits pursuant to Code Section 411(d)(6). 11.2 TERMINATION OF PLAN -63- 69 The Company may terminate this Plan at any time for any reason by resolution adopted by the Board, but the Trust may not thereby be diverted from the exclusive benefit of the Participants, their Beneficiaries, survivors or estates (other than for defraying the reasonable administrative expenses of the Plan), nor revert to the Employer, nor may any change be made to a previously allocated contribution. Upon termination or partial termination of the Plan or complete discontinuance of Employer Contributions under the Plan, the Accounts of each affected Participant shall be nonforfeitable. The Administrator shall distribute each Participant's Accounts to the Participant pursuant to Sections 6.7 through 6.11 as soon as administratively feasible after the termination. 11.3 MERGER. (a) The Administrator shall have the full power and authority to effect from time to time, upon such terms and conditions deemed appropriate, the merger of any and all tax-qualified defined contribution plans and related tax-exempt trusts maintained by entities acquired by the Company into the Plan and Trust and to take any and all such actions, and prepare, execute, and deliver all such documents as may be necessary or advisable to effect any and all such plan and trust mergers. (b) Nothing contained herein shall prevent the merger or consolidation of the Plan with, or transfer of assets or liabilities of the Plan to, another plan meeting the requirements of Code Section 401(a) or the transfer to the Plan of assets or liabilities of another such plan so qualified under the Code. Any such merger, consolidation or transfer shall be accompanied by the transfer of such existing records and information as may be necessary to properly allocate such assets among Participants, including without limitation any tax or other information necessary for the Participants or persons administering the plan which is receiving such assets. The terms of such merger, consolidation or transfer must be such that (if the Plan had then terminated), the requirements of this Article would be satisfied and each Participant (or, if applicable, his or her Beneficiary) would receive a benefit immediately after the merger, consolidation or transfer equal to or greater than the benefit he or she would have received if the Plan had terminated immediately before the merger, consolidation or transfer. Notwithstanding any provision in this Plan to the contrary, any amounts transferred to the Plan as a result of such merger, consolidation or transfer shall, to the extent the benefits accrued under the transferor plan are protected benefits under Code Section 411(d)(6) ("Protected Benefits"), be preserved under this Plan, and shall not in any way be affected, reduced or eliminated. -64- 70 ARTICLE XII ADOPTION OF PLAN BY RELATED ENTITIES 12.1 ADOPTION OF THE PLAN. An Employer may become a Participating Employer with the approval of the Committee. 12.2 WITHDRAWAL. A Participating Employer may withdraw from the Plan at any time for any reason by giving advance written notice of its intention to withdraw to the Company and to the Administrator. Upon receipt of such withdrawal notice, the Trustee shall set aside from the Trust such cash, securities and other property as it shall deem to be equal in value to the Participating Employer's equitable share. If the Plan is to be terminated with respect to the Participating Employer, the amount set aside shall be administered according to Article X and the Trust Agreement. If the Plan is not to be terminated with respect to the Participating Employer, then the Trustee shall turn over the Participating Employer's equitable share to a trustee designated by the Participating Employer, and the cash, securities and other property shall thereafter be held and invested as a separate trust of the Participating Employer and shall be used and applied according to the terms of a new trust agreement between the Participating Employer and the trustee so designated. Neither the segregation of the Trust assets upon the withdrawal of a Participating Employer, nor the execution of a new trust agreement shall operate to permit any part of the assets of the Trust to be used for or diverted to purposes other than for the exclusive benefit of Participants, and Beneficiaries (or for defraying the reasonable administrative expenses of the Plan). -65- 71 ARTICLE XIII CLAIMS PROCEDURE 13.1 RIGHT TO FILE CLAIM. Every Participant or Beneficiary shall be entitled to file with the Administrator a written claim for benefits under the Plan. 13.2 DENIAL OF CLAIM. (a) If the claim is denied by the Administrator, in whole or in part, the claimant shall be furnished within ninety (90) days after the Administrator's receipt of the claim (or within one hundred eighty (180) days after such receipt if special circumstances require an extension of time) a written notice of denial of such claim containing the following: (i) specific reason or reasons for denial; (ii) specific reference to pertinent Plan provisions on which the denial is based; (iii) a description of any additional material or information necessary for the claimant to perfect the claim, and an explanation of why the material or information is necessary; and (iv) an explanation of the claims review procedure. (b) If written notice of the denial of such claim is not furnished within the time period prescribed under paragraph (a), then the claim shall be deemed denied. 13.3 CLAIM REVIEW PROCEDURE. (a) Review may be requested at any time within sixty (60) days following the date the claimant received written notice of the denial of his or her claim. For purposes of this Section, any action required or authorized to be taken by the claimant may be taken by a representative authorized in writing by the claimant to act on his or her behalf. The Administrator shall afford the claimant a full and fair review of the decision denying the claim and, if so requested, shall: (i) permit the claimant to review any documents that are pertinent to the claim; and -66- 72 (ii) permit the claimant to submit to the Administrator issues and comments in writing. (b) The decision on review by the Administrator shall be in writing and shall be issued within sixty (60) days following receipt of the request for review. The period for decision may, however, be extended up to one hundred twenty (120) days after such receipt if the Administrator determines that special circumstances require extension. The decision on review shall include specific reasons for the decision and specific references to the pertinent Plan provisions on which the decision of the Administrator is based. (c) If the decision on review by the Administrator is not furnished within the time period prescribed under paragraph (b), then the claim shall be deemed denied on review. -67- 73 ARTICLE XIV TOP-HEAVY PROVISIONS 14.1 PURPOSE. This Article is intended to insure that the Plan complies with Code Section 416. If the Plan is or becomes Top-Heavy in any Plan Year, the provisions of this Section shall supersede any conflicting provision in the Plan. 14.2 DEFINITIONS. (a) Determination Date. "Determination Date" means for any Plan Year, the last day of the preceding Plan Year. (b) Determination Period. "Determination Period" means the Plan Year containing the Determination Date and the four (4) preceding Plan Years. (c) Key Employee. "Key Employee" means any Employee or former Employee (and the Beneficiaries of such Employee) who at any time during the determination period was (i) an officer of the Employer if such individual's annual Section 415 Compensation exceeds fifty percent (50%) of the dollar limitation in effect under Code Section 415(b)(1)(A); (ii) an owner (or considered an owner under Code Section 318) of one of the ten (10) largest interests in the Employer if such individual's Section 415 Compensation exceeds one hundred percent (100%) of the dollar limitation in effect under Code Section 415(c)(1)(A); (iii) a five percent (5%) owner of the Employer; or (iv) a one percent (1%) owner of the Employer who has an annual Section 415 Compensation of more than One Hundred Fifty Thousand Dollars ($150,000). For purposes of this Section, the determination of Section 415 Compensation shall be based only on Section 415 Compensation which is actually paid. A determination of who constitutes a Key Employee shall be made in accordance with Code Section 416(i)(1). (d) Non-Key Employee. "Non-Key Employee" means any Employee who is not a Key Employee, including Employees who are former Key Employees. (e) Permissive Aggregation Group. "Permissive Aggregation Group" means the Required Aggregation Group of plans plus any other plan or plans of the Employer which, when considered as a group with the Required Aggregation Group, would continue to satisfy the requirements of Code Sections 401(a)(4) and 410. -68- 74 (f) Required Aggregation Group. "Required Aggregation Group" means: (i) each tax-qualified plan of the Employer in which at least one (1) Key Employee participates or participated at any time during the Determination Period (regardless of whether the plan has terminated); and (ii) any other tax-qualified plan of the Employer which enables a plan described in paragraph (i) above to meet the requirements of Code Section 401(a)(4) or 410. (g) Top-Heavy Plan. "Top-Heavy Plan" means this Plan, if for any Plan Year any of the following conditions exists: (i) if the Top-Heavy Ratio for this Plan exceeds sixty percent (60%) and this Plan is not part of any Required Aggregation Group or Permissive Aggregation Group of plans; (ii) if this Plan is a part of a Required Aggregation Group of plans but not part of a Permissive Aggregation Group and the Top-Heavy Ratio for the Permissive Aggregation Group exceeds sixty percent (60%); or (iii) if this Plan is a part of a Required Aggregation Group and part of a Permissive Aggregation Group of plans and the Top-Heavy Ratio for the Permissive Aggregation Group exceeds sixty percent (60%). (h) Top-Heavy Ratio. "Top-Heavy Ratio" means: (i) if the Employer maintains one or more defined contribution plans (including any simplified employee pension plan) and the Employer has not maintained any defined benefit plan which during the five (5) year period ending on the Determination Date(s) has or has had accrued benefits, the Top-Heavy Ratio for this Plan alone or for the Required or Permissive Aggregation Group as appropriate is a fraction, the numerator of which is the sum of the Account balances of all Key Employees as of the Determination Date(s) (including any part of any Account balance distributed in the five (5) year period ending on the Determination Date(s)), and the denominator of which is the sum of Account balances (including any part of any Account balance distributed in the five (5) year period ending on the Determination Date(s)), both computed in accordance with Code Section 416. Both the numerator and denominator of the Top-Heavy Ratio are increased to reflect any contribution not actually made as of the Determination Date, but which is required to be taken into account on that date under Code Section 416. (ii) if the Employer maintains one or more defined contribution plans (including any simplified employee pension plan) and the Employer maintains or has maintained one or more defined benefit plans which during the five (5) year period ending on the Determination Date(s) has or has had any accrued benefits, the Top-Heavy Ratio for any Required or Permissive Aggregation Group as appropriate is a fraction, the numerator of which is the sum of Account balances under the aggregated defined contribution plan or plans for all Key Employees, determined in accordance with paragraph (i) above, and the present value of accrued benefits under the aggregated defined benefit plan or plans for all Key Employees as of the Determination Date(s), and the denominator of which is the sum of Account balances under the aggregated defined contribution -69- 75 plan or plans for all participants, determined in accordance with paragraph (i) above, and the present value of accrued benefits under the defined benefit plan or plans for all participants as of the Determination Date(s), all determined in accordance with Code Section 416. The accrued benefits under a defined benefit plan in both the numerator and denominator of the Top-Heavy Ratio are increased for any distribution of an accrued benefit made in the five (5) year period ending on the Determination Date. (iii) for purposes of paragraphs (i) and (ii) above, the value of Account balances and the present value of accrued benefits shall be determined as of the last day of the most recent Plan Year that falls within or ends with the twelve (12) month period ending on the Determination Date, except as provided in Code Section 416 for the first and second plan years of a defined benefit plan. The Account balances and accrued benefits of a participant (1) who is not a Key Employee but who was a Key Employee in a prior year, or (2) who has not been credited with at least one (1) Hour of Service with any Employer maintaining the Plan at any time during the five (5) year period ending on the Determination Date shall be disregarded. The calculation of the Top-Heavy Ratio, and the extent to which distributions, rollovers, and transfers are taken into account shall be made in accordance with Code Section 416. When aggregating plans the value of Account balances and accrued benefits shall be calculated with reference to the Determination Dates that fall within the same calendar year. The accrued benefit of a Participant other than a Key Employee shall be determined under (1) the method, if any, that uniformly applies for accrual purposes under all defined benefit plans maintained by the Employer, or (2) if there is no such method, as if such benefit accrued not more rapidly than the slowest accrual rate permitted under the fractional rule of Code Section 411(b)(1)(C). 14.3 MINIMUM ALLOCATION. (a) Except as otherwise provided in paragraphs (b) and (c) below, in any Plan Year that the Plan is Top-Heavy, Employer Contributions (other than Salary Deferral Contributions and Employer Matching Contributions included in the ADP, ACP and multiple use tests described in Sections 5.5 and 5.7) allocated to the Accounts of each Participant who is a Non-Key Employee, shall be not less than the lesser of (i) three percent (3%) of the Non-Key Employee's Section 415 Compensation, or (ii) in the case where the Employer has no defined benefit plan which designates this Plan to satisfy Code Section 401, the largest percentage of Contributions and forfeitures (if applicable), as a percentage of the first One Hundred Sixty Thousand Dollars ($160,000) (as adjusted by the Adjustment Factor) of Section 415 Compensation, allocated on behalf of any Key Employee for that Plan Year. The minimum allocation shall be determined without regard to any Social Security contribution. This minimum allocation shall be made even though, under other provisions of the Plan, the Participant would not otherwise be entitled to receive an allocation or would have received a lesser allocation for the Plan Year because of (i) the Participant's failure to complete one thousand (1,000) Hours of Service (or any equivalent provided in the Plan) or (ii) Section 415 Compensation less than a stated amount. -70- 76 (b) The provisions in paragraph (a) above shall not apply to any Participant who was not employed by the Employer on the last day of the Plan Year. (c) The provisions in paragraph (a) above shall not apply to any Participant to the extent the Participant is covered under any other plan or plans of the Employer. (d) The minimum allocation required (to the extent required to be nonforfeitable under Code Section 416(b)) may not be forfeited under Code Section 411(a)(3)(B) or (D). -71- 77 ARTICLE XV MISCELLANEOUS 15.1 LEGAL OR EQUITABLE ACTION. If any legal or equitable action with respect to the Plan is brought by or maintained against any individual, and the results of such action are adverse to that individual, attorney's fees and all other direct and indirect expenses and costs incurred by the Participating Employer, the Administrator, the Committee, the Trustee or the Trust of defending or bringing such action shall be charged against the interest, if any, of such individual under the Plan. 15.2 INDEMNIFICATION. Each Participating Employer indemnifies and holds harmless any of its Employees, officers and directors who may be fiduciaries of the Plan, the Administrator and each member of the Committee, from and against any and all direct and indirect liabilities, demands, claims, losses, taxes, costs and expenses, including reasonable attorney's fees, arising out of, relating to, or resulting from any action, inaction or conduct in their official capacity in the administration of this Plan or Trust or in their defense, if a Participating Employer fails to provide such defense; provided, however, that any such person shall not be indemnified and held harmless if his or her action, inaction or conduct arises out of, related to, or results from his or her gross negligence or willful misconduct, or otherwise in willful violation of the law. The indemnification provisions of this Section shall not relieve any fiduciary from any liability such individual may have under ERISA for breach of a fiduciary duty. Each Participating Employer may purchase insurance to satisfy its obligations under this Section. 15.3 NO ENLARGEMENT OF PLAN RIGHTS. Each individual agrees, as a condition of participation in this Plan, that he or she shall look solely to the assets of the Trust for the payment of any benefit under the Plan. 15.4 NO ENLARGEMENT OF EMPLOYMENT RIGHTS. Nothing appearing in or done pursuant to the Plan shall be construed to give any individual a legal or equitable right or interest in the assets of the Trust or distribution therefrom (except as expressly provided in the Plan), nor against any Participating Employer (except as expressly provided herein), or to create or modify any contract of employment between a Participating Employer and any Employee or to obligate a Participating Employer to continue the services of any Employee. 15.5 INTERPRETATION. The headings contained in this Plan and in the table of contents to the Plan are for reference purposes only, and shall not affect in any way the meaning or interpretation of the Plan. The -72- 78 masculine pronoun shall include the feminine pronoun and the singular the plural, where the context so indicates. 15.6 GOVERNING LAW. This Plan shall be construed, administered and governed in all respects in accordance with ERISA, the Code and other pertinent Federal laws and, to the extent not preempted by ERISA, in accordance with the laws of the State of California (irrespective of the choice of law principles of the State of California as to all matters); provided, however, that if any provision is susceptible to more than one interpretation, such interpretation shall be given thereto as is consistent with the Plan being a tax-qualified plan and related tax-exempt trust under Code Sections 401(a) and 501(a), respectively. 15.7 NON-ALIENATION OF BENEFITS. None of the benefits, payments, proceeds or claims of any Participant under the Plan shall be subject to any claim or any creditor of any Participant, and, in particular, the same shall not be subject to attachment or garnishment or other legal process by any creditor of any Participant, nor shall any Participant have any right to alienate, anticipate, commute, pledge, encumber or assign any of the benefits, payments or proceeds which he or she is or may be entitled to receive from the Plan, other than: (a) federal tax levies and executions on federal tax judgments; (b) payments made from the Accounts of a Participant in satisfaction of the rights of Alternate Payees pursuant to a Qualified Domestic Relations Order under Section 7.4; (c) enforcement of any security interests or offset rights applicable to the Account of a Participant pursuant to the loan provisions of Section 6.17; or (d) any offset of a Participant's Account under the Plan against an amount the Participant is ordered to pay due to a judgement or settlement described in Code Section 401(a)(13)(C). 15.8 NO REVERSION. Notwithstanding any contrary provision of the Plan (except as provided in Section 5.4), no part of the assets in the Trust shall revert to the Employer, and no part of such assets, other than that amount required to pay taxes or reasonable administrative expenses of the Plan, shall be used for any purpose other than the exclusive benefit of Employees or their Beneficiaries. However, upon the Company's request, the Trustee shall return the appropriate amount to a Participating Employer under any of the following circumstances provided, however, any such excess amounts shall be reduced to the extent there are negative Earnings attributable thereto: (a) the amount was all or part of an Employer Contribution which was made as a result of a mistake of fact and the amount contributed is returned to the Participating Employer within one (1) year after the date of the mistaken payment; or -73- 79 (b) the amount was all or part of an Employer Contribution which was conditioned on its deductibility under Code Section 404 and this condition is not satisfied, and the amount is returned to the Participating Employer within one (1) year after the date on which the deduction was disallowed. 15.9 CONFLICT. In the event of any conflict between the respective provisions of the Plan and the Trust Agreement relating to the rights, obligations and duties of the Trustee, the applicable provisions of the Trust Agreement shall control. In all other cases, in the event of any conflict between the Plan and the terms of any contract or agreement issued hereunder or with respect hereto, the Plan shall control. 15.10 SEVERABILITY. If any provision of the Plan, or the application thereof to any individual or circumstance, is deemed invalid or unenforceable by a court of competent jurisdiction, then the remainder of the Plan, or the application of such term or provision to individuals or circumstances other than those as to whom it is held invalid or unenforceable, shall not be affected thereby, and each provision of the Plan shall be valid and enforceable to the fullest extent permitted by law. 15.11 CONDITIONAL RESTATEMENT. This Plan is restated on the express condition that it shall be considered by the Internal Revenue Service as continuing to qualify under Code Sections 401(a), 401(k), 401(m) and 501(a). In the event that the Internal Revenue Service determines that the Plan does not continue to qualify under the Code, then the restatement of the Plan shall be of no force or effect. * * * * * * * * * * * * * * * -74- EX-10.15 10 f72069ex10-15.txt EXHIBIT 10.15 1 EXHIBIT 10.15 FIRST AMENDMENT TO CREDIT AGREEMENT THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered into as of November 27, 2000, by and between PLANTRONICS, INC., a Delaware corporation (the "Company"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank"). RECITALS WHEREAS, the Company and the Bank have previously entered into that certain Credit Agreement, dated as of November 29, 1999 (the "Credit Agreement"), pursuant to the terms of which the Bank has made various financial accommodations available to the Company; and WHEREAS, the Company has requested that the Bank agree to extend the Revolving Termination Date to November 26, 2001, and the Bank has agreed to so extend the Revolving Termination Date, all on the terms and conditions contained herein; NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Defined Terms. Each capitalized term used but not otherwise defined herein has the meaning ascribed thereto in the Credit Agreement. 2. Amendment to Credit Agreement. (a) Section 1.01 of the Credit Agreement is hereby amended by deleting the reference to "November 27, 2000" contained in the definition of "Revolving Termination Date" contained therein and by substituting therefor a reference to "November 26, 2001." (b) The text of Section 8.07 of the Credit Agreement is hereby amended to read in full as follows: The Company shall not, and shall not suffer or permit any of its Subsidiaries to, use: (a) any portion of the proceeds of any Loan or Letter of Credit, directly or indirectly, (i) to purchase or carry Margin Stock, (ii) to repay or otherwise refinance indebtedness of the Company or others incurred to purchase or carry Margin Stock, (iii) to extend credit for the purpose of purchasing or carrying any Margin Stock or (iv) to acquire any security in any transaction that is subject to Section 13 or 14 of the Exchange Act; or (b) more than $35,000,000 of proceeds of Loans or Letters of Credit to pay cash dividends to its common stock shareholders or to repurchase or redeem its common stock, in each case to the extent permitted under Section 8.09(c). (c) The text of Section 8.09(c) of the Credit Agreement is hereby amended to read in full as follows: (c) declare or pay cash dividends to its common stock shareholders or repurchase or redeem its common stock in an -1- 2 aggregate amount not to exceed, in any four consecutive fiscal quarter periods, 50% of the amount of the cumulative consolidated net income of the Company and its Subsidiaries (net of cumulative losses) reported in the 8 consecutive fiscal quarter periods ending with the fiscal quarter immediately preceding the date of the declaration or making of any such declaration, payment or repurchase or redemption; 3. Representations, Warranties and Covenants. As of the date hereof, the Company hereby remakes all of the representations and warranties made by it in the Credit Agreement (except to the extent such representations and warranties expressly relate solely to an earlier date) and reaffirms all of its covenants and other obligations contained in the Credit Agreement. The Company further certifies that: (a) as of the date hereof, there exists no Default or Event of Default; and (b) no Default or Event of Default will result from the effectiveness of this Amendment. 4. General Provisions. (a) Except as otherwise expressly provided herein, all of the terms and conditions of the Credit Agreement shall remain unchanged and in full force and effect. (b) This Amendment shall be deemed incorporated into, and a part of, the Credit Agreement. This Amendment is a Credit Document. (c) This Amendment is made pursuant to Section 10.01 of the Credit Agreement and shall be binding upon and inure to the benefit of the parties hereto and thereto and their respective successors and assigns. No third party beneficiaries are intended in connection with this Amendment. (d) This Amendment shall become effective upon the execution and delivery of this Amendment by each of the parties hereto. This Amendment may be executed in any number of separate counterparts, each of which, when so executed, shall be deemed an original, and all of such counterparts taken together shall be deemed to constitute but one and the same instrument. Each of the parties hereto understands and agrees that this Amendment may be delivered by any party thereto either in the form of an executed hard copy original or an executed original sent by facsimile transmission to be followed promptly by delivery of a hard copy original, and that any failure by any party to receive the hard copy executed original of this Amendment shall not diminish the binding effect of receipt of an executed original sent by facsimile transmission. (e) The illegality or unenforceability of any provision of this Amendment shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Amendment, the Credit Agreement or any other Credit Document. (f) The Company hereby confirms that the provisions set forth in Article 10 of the Credit Agreement (including, without limitation, Section 10.04(a) as to governing law and Section 10.04(b) as to jurisdiction) are applicable to this Amendment, and the Company hereby reaffirms all of its obligations under Article 10 of the Credit Agreement in respect of this Amendment, including, without limitation, under Section 10.04 thereof. -2- 3 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the day and year first written above. PLANTRONICS, INC. WELLS FARGO BANK, NATIONAL ASSOCIATION By: /s/ Barbara V. Scherer By: /s/ R. Steve Seldomridge ---------------------------- ----------------------------- Barbara V. Scherer R. Steve Seldomridge Title: Chief Financial Officer Title: Vice President -3- EX-13 11 f72069ex13.txt EXHIBIT 13 1 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CERTAIN FORWARD-LOOKING INFORMATION This Annual Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements include, without limitation, the statements that (i) we do not believe a rebound in the economy will occur soon and we believe that our revenues and earnings in the first fiscal quarter of 2002 could be weaker than our fourth fiscal quarter, as well as we believe it is unlikely that secular factors will outweigh cyclical factors in our upcoming fiscal year and we thus believe it is likely that revenue for fiscal 2002 may be lower than that achieved in fiscal 2001, discussed in the final paragraph of the Net Sales section under Annual Results of Operations; and (ii) we expect interest expense in fiscal 2002 to be minimal discussed in the third sentence of the section titled "Interest Expense" under Annual Results of Operations; and (iii) our current cash balance and cash from operations and available borrowings will be sufficient to fund operations for the next twelve months discussed in the final paragraph of the section titled "Liquidity" under Financial Condition. In addition, we may from time to time make oral forward-looking statements. These forward-looking statements are based on current expectations and entail various risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those under "Risk Factors Affecting Future Operating Results" set forth in our most recent Annual Report on Form 10-K as filed with the Securities Exchange Commission. The following discussions titled "Annual Results of Operations" and "Financial Condition" should be read in conjunction with those risk factors, the consolidated financial statements and related notes included elsewhere herein, and the discussion and additional disclosures in our Annual Report on Form 10-K. ANNUAL RESULTS OF OPERATIONS NET SALES. Net sales in fiscal 2001 increased 27.3% to $401.0 million compared to $315.0 million in fiscal 2000, which in turn increased 10.0% compared to fiscal 1999 net sales of $286.3 million. Our fiscal year ended March 31, 2001 contained 52 weeks vs. 53 weeks for fiscal year 2000, and 52 weeks for fiscal 1999. International sales accounted for approximately 31.2% of total net sales in fiscal 2001, from 33.5% of total net sales in fiscal 2000 and 30.5% in fiscal 1999. Domestic sales increased 31.7% to $276.0 million in fiscal 2001, compared to an increase of 5.4% to $209.6 million in fiscal 2000 compared to the prior fiscal year. U.S. retail sales grew strongly, reflecting both a broadening retail distribution with several major new consumer electronics accounts added during the year and an increase in demand for headsets for office applications. Retail revenue also grew due to an increase in demand for headsets used in 1 2 conjunction with mobile, cellular and cordless phones and for computer applications. Our U.S. distribution channel which most closely ties to our call center and office market also experienced strong growth. International sales in fiscal 2001 increased 18.6% to $125.0 million compared to $105.5 million in fiscal 2000, which in turn increased 20.7% compared to the prior fiscal year. The growth in fiscal 2001 was experienced in each of the European, Asia Pacific/Latin American and Canadian regions and reflects our investment in the international sales force as well as marketing programs. Revenues grew strongly in the first three quarters of the year, but declined sharply and unexpectedly from our third fiscal quarter to our fourth fiscal quarter as a result of the current slowdown in economic conditions. Our business continues to be impacted by a slowdown in global telecom and IT spending, resulting from the lagging economy. We do not believe that a rebound will occur soon and we believe that our revenues and earnings in the first fiscal quarter of 2002 could be weaker than our fourth fiscal quarter. We are hopeful this may represent a bottoming with some rebound in the second half of our fiscal year. However, we believe it is unlikely that secular factors will outweigh cyclical factors in our upcoming fiscal year and we thus believe it is likely that revenue for fiscal 2002 may be lower than that achieved in fiscal 2001. GROSS PROFIT. Gross profit in fiscal 2001 increased 18.6% to $220.1 million (54.9% of net sales), compared to $185.5 million (58.9% of net sales) in fiscal 2000. Gross profit in fiscal 2000 increased 15.5% compared to gross profit of $160.6 million (56.1% of net sales) in fiscal 1999. The decrease in gross profit as a percent of net sales in fiscal 2001 mainly reflects our change in product mix with higher growth in lower margin products as well as detrimental effects from foreign currency fluctuations. RESEARCH, DEVELOPMENT AND ENGINEERING. Research, development and engineering expenses in fiscal 2001 increased 23.5% to $27.0 million (6.7% of net sales), compared to $21.9 million (6.9% of net sales) in fiscal 2000. Research, development and engineering expenses in fiscal 2000 increased 12.0% compared to $19.5 million (6.8% of net sales) in fiscal 1999. The increase in these expenses reflects continued investment in new product development and technologies including Bluetooth. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses in fiscal 2001 increased 29.5% to $91.1 million (22.7% of net sales), compared to $70.3 million (22.3% of net sales) in fiscal 2000. Selling, general and administrative expenses in fiscal 2000 increased 22.2% compared to $57.5 million (20.1% of net sales) in fiscal 1999. Retail variable selling expenses increased due to incremental retail revenue. Marketing expenses increased substantially due to increased activities including advertising campaigns, new product launches, international marketing, and programs for our mobile and computer divisions. 2 3 OPERATING INCOME. Operating income in fiscal 2001 increased 9.3% to $102.0 million (25.4% of net sales), compared to $93.3 million (29.6% of net sales) in fiscal 2000. Operating income in fiscal 2000 increased 11.7% compared to $83.5 million (29.2% of net sales) in fiscal 1999. The increase in operating income over the past two fiscal years was primarily due to higher net sales and the increase in gross profit. INTEREST EXPENSE. Interest expense in fiscal 2001 increased 24.4% to $107 thousand, compared to $86 thousand in fiscal 2000, which in turn decreased 98.5% from $5.8 million in fiscal 1999. Interest expense for 1999 principally represented interest payable on our 10% Senior Notes Due 2001 (Senior Notes), which were redeemed on January 15, 1999. The early redemption of these Senior Notes was the reason for the decrease in interest expense in fiscal 2000 and 2001, and management expects interest expense to be minimal in fiscal 2002. In November 1999, we entered into a credit agreement to borrow up to $100 million with a major bank. This agreement has been renewed annually and expires in November 2001. We currently have no borrowings under this agreement. INTEREST AND OTHER INCOME. Interest and other income in fiscal 2001 decreased 85.2% to $0.2 million compared to $1.7 million in fiscal 2000, which in turn decreased 52.9% compared to $3.5 million in fiscal 1999. The decrease in interest and other income in fiscal 2001 was primarily attributable to foreign exchange losses of $2.2 million from declining Great British Pound and Euro values. INCOME TAX EXPENSE. In fiscal 2001, fiscal 2000 and fiscal 1999, income tax expense was $28.6 million, $30.4 million and $26.0 million, respectively, representing effective tax rates of 28% in fiscal 2001 and 32% in fiscal 2000 and 1999. Due to the economic slowdown, the distribution of our income fell into lower rate regions and we had a retroactive adjustment in the fourth quarter to bring the tax rate down for fiscal 2001. FINANCIAL CONDITION LIQUIDITY. As of March 31, 2001, we had working capital of $136.8 million, including $73.9 million of cash and cash equivalents and marketable securities, compared with working capital of $78.3 million, including $45.3 million of cash and cash equivalents and marketable securities, as of March 31, 2000. During the fiscal year ended March 31, 2001, we generated $65.8 million of cash from operating activities, due primarily to $73.6 million in net income, and an income tax benefit of $16.6 million associated with the exercise of employee and former employee options, offset by increases of $11.7 and $14.5 million in accounts receivable and inventory, respectively. In comparison, we generated $81.1 million in cash from operating activities for the fiscal year ended March 31, 2000, due mainly to $64.5 million in net income, an increase of $11.3 million in income taxes payable, and an income tax benefit of $15.1 million associated with the exercise of options, offset by a $14.9 million increase in inventory. 3 4 We have a $100 million revolving credit facility, including a $10 million letter-of-credit subfacility, with a major bank, both of which expire in November 2001. As of March 31, 2001, we had no cash borrowings under the revolving credit facility or under the letter-of-credit subfacility. The terms of the credit facility contain covenants that materially limit our ability to incur debt, make capital expenditures and pay dividends, among other matters. These covenants may adversely affect our financial position to the extent we cannot comply with them. We are currently in compliance with the covenants under this agreement. We believe that our current cash balance and cash to be provided by operations, together with available borrowing capacity under our revolving credit facility and letter of credit subfacility, will be sufficient to fund operations for at least the next twelve months. INVESTING ACTIVITIES. During fiscal 2001, we purchased marketable securities of $25.9 million and received proceeds from maturities of marketable securities of $17.8 million. Expenditures for capital and other assets of $14.9 million in the fiscal year ended March 31, 2001 were incurred principally in tooling for new products, expansion of manufacturing capacity, facilities expansions both in the U.S. and Europe, and investments in computer and telephone equipment. FINANCING ACTIVITIES. In the fiscal year ended March 31, 2001, we sold 99,925 shares of our treasury stock for approximately $2.8 million and repurchased 1,333,100 shares of our Common Stock for approximately $40.1 million. As of March 31, 2001, we remained authorized to repurchase approximately 721,621 shares under all repurchase plans. We received $15.1 million in proceeds from the exercise of stock options during the fiscal year ended March 31, 2001. Effective January 15, 1999, we repurchased all of our Senior Notes. The transaction resulted in a net extraordinary charge of approximately $1.0 million, or approximately $0.02 per diluted share, in fiscal 1999. 4 5 CONSOLIDATED BALANCE SHEETS
March 31, ------------------------------- (in thousands) 2000 2001 --------- --------- ASSETS Current assets: Cash and cash equivalents $ 40,271 $ 60,544 Marketable securities 5,038 13,385 Accounts receivable, net 48,481 60,203 Inventory, net 33,752 48,235 Deferred income taxes 6,721 7,110 Other current assets 1,603 1,449 --------- --------- Total current assets 135,866 190,926 Property, plant and equipment, net 23,577 32,683 Other assets 10,587 9,663 --------- --------- Total assets $ 170,030 $ 233,272 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 11,447 $ 10,836 Accrued liabilities 34,330 30,793 Income taxes payable 11,783 12,519 --------- --------- Total current liabilities 57,560 54,148 Deferred tax liability 7,094 6,077 --------- --------- Total liabilities 64,654 60,225 --------- --------- Commitments and contingencies (note 8) Stockholders' equity: Common stock, $0.01 par value per share; 100,000 shares authorized, 57,582 shares and 59,098 shares issued and outstanding 576 591 Additional paid-in capital 114,355 148,188 Accumulated other comprehensive loss (891) (1,172) Retained Earnings 134,076 207,626 --------- --------- 248,116 355,233 Less: Treasury stock (common: 8,686 and 9,919) at cost (142,740) (182,186) --------- --------- Total stockholders' equity 105,376 173,047 --------- --------- Total liabilities and stockholders' equity $ 170,030 $ 233,272 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 5 6 CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal Year Ended March 31, ----------------------------------------------------- (in thousands, except earnings per share) 1999 2000 2001 --------- --------- --------- Net sales $ 286,261 $ 315,012 $ 401,038 Cost of sales 125,698 129,513 180,946 --------- --------- --------- Gross profit 160,563 185,499 220,092 --------- --------- --------- Operating expenses: Research, development and engineering 19,521 21,868 26,999 Selling, general and administrative 57,528 70,326 91,079 --------- --------- --------- Total operating expenses 77,049 92,194 118,078 --------- --------- --------- Operating income 83,514 93,305 102,014 Interest expense, including amortization of debt issuance costs 5,785 86 107 Interest and other income, net (3,525) (1,659) (245) --------- --------- --------- Income before income taxes 81,254 94,878 102,152 Income tax expense 26,001 30,361 28,602 --------- --------- --------- Income before extraordinary item 55,253 64,517 73,550 Extraordinary item-retirement of debt, net of taxes 1,049 -- -- --------- --------- --------- Net income $ 54,204 $ 64,517 $ 73,550 ========= ========= ========= Net income per share: basic Income before extraordinary item $ 1.11 $ 1.30 $ 1.49 Extraordinary item 0.02 -- -- --------- --------- --------- Basic earnings per common share $ 1.09 $ 1.30 $ 1.49 ========= ========= ========= Shares used in basic per share calculations 49,722 49,515 49,213 ========= ========= ========= Net income per share: diluted Income before extraordinary item $ 1.01 $ 1.22 $ 1.38 Extraordinary item 0.02 -- -- --------- --------- --------- Diluted earnings per common share $ 0.99 $ 1.22 $ 1.38 ========= ========= ========= Shares used in diluted per share calculations 54,846 53,019 53,263 ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 6 7 CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Year Ended March 31, --------------------------------------------------- (in thousands) 1999 2000 2001 --------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 54,204 $ 64,517 $ 73,550 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,738 4,272 7,034 Deferred income taxes 3,344 (6,493) (1,406) Income tax benefit associated with stock options 21,734 15,098 16,574 Changes in assets and liabilities: Accounts receivable, net (5,257) (1,674) (11,722) Inventory, net 10,852 (14,863) (14,483) Other current assets (6,106) 6,277 (58) Other assets 1,313 (119) (270) Accounts payable 1,126 1,994 (611) Accrued liabilities 6,846 855 (3,537) Income taxes payable (5,871) 11,273 736 --------- -------- -------- Cash provided by operating activities 86,923 81,137 65,807 --------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from maturities of marketable securities -- 3,800 17,750 Purchase of marketable securities -- (8,800) (25,885) Capital expenditures and other assets (3,806) (15,221) (14,946) --------- -------- -------- Cash used for investing activities (3,806) (20,221) (23,081) --------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Retirement of long-term debt (65,050) -- -- Purchase of treasury stock (46,384) (72,613) (40,050) Proceeds from sale of treasury stock 1,275 2,094 2,781 Proceeds from exercise of stock options 5,140 6,875 15,097 Other -- -- (281) --------- -------- -------- Cash used for financing activities (105,019) (63,644) (22,453) --------- -------- -------- Net increase (decrease) in cash and cash equivalents (21,902) (2,728) 20,273 Cash and cash equivalents at beginning of year 64,901 42,999 40,271 --------- -------- -------- Cash and cash equivalents at end of year $ 42,999 $ 40,271 $ 60,544 ========= ======== ======== SUPPLEMENTAL DISCLOSURES Cash paid for: Interest $ 6,525 $ 62 $ 93 Income taxes $ 7,913 $ 13,150 $ 14,257 Extraordinary charge on retirement of debt $ 1,301 -- -- Noncash financing activities: Write off of unamortized debt issuance costs $ 390 -- --
The accompanying notes are an integral part of these consolidated financial statements. 7 8 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock ----------------------------- (in thousands, except share amounts) Shares Amount ----------- ------ Balance at March 31, 1998 49,345,926 $522 ----------- ---- Exercise of stock options 3,168,279 33 Income tax benefit associated with stock options -- -- Purchase of treasury stock (2,206,779) -- Sale of treasury stock 87,903 -- Net income -- -- ----------- ---- Balance at March 31, 1999 50,395,329 555 ----------- ---- Exercise of stock options 2,180,493 21 Income tax benefit associated with stock options -- -- Purchase of treasury stock (3,802,500) -- Sale of treasury stock 123,291 -- Net income -- -- ----------- ---- Balance at March 31, 2000 48,896,613 576 ----------- ---- Exercise of stock options 1,516,000 15 Income tax benefit associated with stock options -- -- Purchase of treasury stock (1,333,100) -- Sale of treasury stock 99,925 -- Net income -- -- Foreign currency translation adjustments -- -- ----------- ---- Comprehensive income BALANCE AT MARCH 31, 2001 49,179,438 $591 =========== ====
The accompanying notes are an integral part of these consolidated financial statements. 8 9
Accumulated Additional Other Total Paid-In Comprehensive Retained Treasury Stockholders' (in thousands, except share amounts) Capital Loss Earnings Stock Equity ---------- ------------ -------- --------- ------------- Balance at March 31, 1998 $ 63,468 $ (891) $ 15,355 $ (25,018) $ 53,436 -------- ------- -------- --------- --------- Exercise of stock options 5,107 -- -- -- 5,140 Income tax benefit associated with stock options 21,734 -- -- -- 21,734 Purchase of treasury stock -- -- -- (46,384) (46,384) Sale of treasury stock 744 -- -- 531 1,275 Net income -- -- 54,204 -- 54,204 -------- ------- -------- --------- --------- Balance at March 31, 1999 91,053 (891) 69,559 (70,871) 89,405 -------- ------- -------- --------- --------- Exercise of stock options 6,854 -- -- -- 6,875 Income tax benefit associated with stock options 15,098 -- -- -- 15,098 Purchase of treasury stock -- -- -- (72,613) (72,613) Sale of treasury stock 1,350 -- -- 744 2,094 Net income -- -- 64,517 -- 64,517 -------- ------- -------- --------- --------- Balance at March 31, 2000 114,355 (891) 134,076 (142,740) 105,376 -------- ------- -------- --------- --------- Exercise of stock options 15,082 -- -- -- 15,097 Income tax benefit associated with stock options 16,574 -- -- -- 16,574 Purchase of treasury stock -- -- -- (40,050) (40,050) Sale of treasury stock 2,177 -- -- 604 2,781 Net income -- -- 73,550 -- 73,550 Foreign currency translation adjustments -- (281) -- -- (281) -------- ------- -------- --------- --------- Comprehensive income 73,269 --------- BALANCE AT MARCH 31, 2001 $148,188 $(1,172) $207,626 $(182,186) $ 173,047 ======== ======= ======== ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 9 10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. THE COMPANY Plantronics, Inc. ("Plantronics," "we" or "our"), introduced the first lightweight communications headset in 1962. Since that time, we have become the world's leading designer, manufacturer and marketer of lightweight communications headset products. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES MANAGEMENT'S USE OF ESTIMATES AND ASSUMPTIONS. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of financial statements and the reported amounts of sales and expenses during the reporting period. Actual results could differ from those estimates. PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the accounts of Plantronics and its subsidiary companies. Intercompany transactions and balances have been eliminated upon consolidation. FISCAL YEAR. Our fiscal year end is the Saturday closest to March 31. For purposes of presentation, we have indicated our accounting year ending on March 31. Results of operations for the fiscal year 1999 included 52 weeks, while fiscal year 2000 included 53 weeks. Results of operations for the fiscal year 2001 included 52 weeks. CASH AND CASH EQUIVALENTS AND MARKETABLE SECURITIES. We consider all highly liquid investments with an original maturity of ninety days or less at the date of purchase to be cash equivalents. Investments maturing between three and twelve months from the date of purchase are classified as marketable securities. Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates that designation as of each balance sheet date. As of March 31, 2001, debt securities were classified as held-to-maturity, as we both intended to, and had the ability to, hold these securities to maturity. Held-to-maturity securities are stated at amortized cost, which approximates fair market value. The estimated fair values of cash equivalents 10 11 and marketable securities are based on quoted market prices. As of March 31, 2001, we had $13.4 million in marketable securities. Our cash and cash equivalents consist of the following:
March 31, -------------------------- (in thousands) 2000 2001 ------- ------- Cash $ 5,705 $ 6,884 Cash equivalents 34,566 53,660 ------- ------- Cash and cash equivalents $40,271 $60,544 ======= =======
INVENTORY. Inventory is stated at the lower of cost or market. Cost is computed using standard cost, which approximates actual cost on a first-in, first-out basis. DEPRECIATION AND AMORTIZATION. Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are principally calculated using the straight-line method over the estimated useful lives of the respective assets. Goodwill relating to the fiscal 2000 acquisition of ClearVox Communications, is amortized over ten years and intangible assets are amortized over three to five years. DEFERRED DEBT ISSUANCE COSTS. Debt issuance costs are assigned to the various debt instruments and amortized over the shorter of the terms of the respective debt agreements or the estimated period the debt will be outstanding. We retired our outstanding debt in fiscal 1999. REVENUE RECOGNITION. Revenue is recognized net of estimated product returns, exchanges, and credits for price protection and volume rebates when products are shipped or upon delivery to customers, depending on the terms of the sale, and when collectibility is reasonably assured. We also provide for the estimated cost of repair or replacement products under warranty at the time of sale. ADVERTISING COSTS. We expense all advertising costs as incurred. Advertising expense, which includes corporate and cooperative advertising, for the years ended March 31, 1999, 2000 and 2001 was $3.7 million, $7.6 million, and $12.6 million, respectively. CONCENTRATION OF CREDIT RISK. Financial instruments that potentially subject Plantronics to concentrations of credit risk consist principally of cash equivalents, marketable securities and trade receivables. Our cash investment policies limit investments to those that are short-term and low risk. Cash equivalents have an original maturity of ninety days or less; marketable securities have an original maturity of greater than ninety days, but less than one year. Concentrations of credit risk with respect to trade receivables are generally limited due to the large number of customers that comprise our customer base, and their dispersion across different geographic areas. We perform ongoing credit evaluations of our customers' financial condition and generally require no collateral from our customers. We maintain an allowance for uncollectible accounts receivable based upon expected collectibility of all accounts receivable. 11 12 FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying value of our financial instruments, including cash, cash equivalents, marketable securities, accounts receivable, accrued expenses and liabilities, approximate fair value due to their short maturities. INCOME TAXES. We account for income taxes under the liability method, which recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the tax basis of assets and liabilities and their financial statement reported amounts. We account for tax credits as a reduction of tax expense in the year in which the credits reduce taxes payable. FOREIGN OPERATIONS AND CURRENCY TRANSLATION. We have foreign assembly and manufacturing operations in Mexico, light assembly, research and development, sales and marketing operations in the United Kingdom, an international finance, customer service and logistics headquarters in the Netherlands, an international procurement office in Taiwan, and sales offices in Canada, Asia, Europe, Australia and South America. For fiscal 1999, 2000 and the first three quarters of 2001, the functional currency of all foreign operations was the U.S. dollar. Accordingly, gains or losses arising from the translation of foreign currency statements and transactions were included in determining consolidated results of operations. Effective January 1, 2001, the functional currency for foreign sales and research and development operations was changed from the U.S. dollar to the respective operations' local currency. The change was driven by increased investment in foreign operations through headcount, research and development and sales and marketing programs. As a result of this change, we recorded a $0.3 million net decrease in currency translation adjustments as a component of other comprehensive loss. The functional currencies of all revenue and related cost of goods sold derived from international operations are still denominated in U.S. dollars. Aggregate exchange losses for fiscal 1999, 2000 and 2001 were $0.2 million, $0.8 million and $2.2 million, respectively. EARNINGS PER SHARE. Basic Earnings Per Share ("EPS") is computed by dividing net income available to common stockholders (numerator computed as net income before and after extraordinary item) by the weighted average number of common shares outstanding (denominator) during the period. Basic EPS excludes the dilutive effect of stock options. Diluted EPS gives effect to all dilutive potential common shares outstanding during a period. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from exercise of stock options. 12 13 Following is a reconciliation of the numerators and denominators of the basic and diluted EPS:
Fiscal Year Ended March 31, --------------------------------------------- (in thousands) 1999 2000 2001 ------- ------- ------- Net income before extraordinary item $55,253 $64,517 $73,550 ======= ======= ======= Net income after extraordinary item $54,204 $64,517 $73,550 ======= ======= ======= Weighted average shares-basic 49,722 49,515 49,213 Effect of dilutive securities-employee stock options 5,124 3,504 4,050 ------- ------- ------- Weighted average shares-diluted 54,846 53,019 53,263 ======= ======= ======= Net earnings per common share-basic Before extraordinary item $ 1.11 $ 1.30 $ 1.49 ======= ======= ======= After extraordinary item $ 1.09 $ 1.30 $ 1.49 ======= ======= ======= Net earnings per common share-diluted Before extraordinary item $ 1.01 $ 1.22 $ 1.38 ======= ======= ======= After extraordinary item $ 0.99 $ 1.22 $ 1.38 ======= ======= =======
COMPREHENSIVE INCOME. Comprehensive income includes charges or credits to equity that are not the result of transactions with owners. Cumulative other comprehensive loss, as presented in the accompanying consolidated balance sheets, consists of foreign currency translation adjustments. SEGMENT REPORTING. We comply with the Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information" ("SFAS 131"), which requires that we report certain information about operating segments in our annual financial statements. It also establishes standards for related disclosures about products and services, geographic areas and major customers (see note 9). 13 14 STOCK-BASED COMPENSATION. Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans based on the fair value of options granted. We have elected to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations, and to provide additional disclosures with respect to the pro forma effects of adoption had we recorded compensation expense as provided in SFAS 123 (see note 10). RECENT ACCOUNTING PRONOUNCEMENTS. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 requires that all derivative instruments be recognized in the balance sheet at their fair market value and the corresponding derivative gains or losses be either reported in the statement of operations or deferred as a component of other comprehensive income in shareholders' equity, depending on the type of hedging relationship that exists with respect to such derivatives. In July 1999, the Financial Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement 133" (SFAS 137). SFAS No. 137 deferred the effective date until fiscal years commencing after June 15, 2000. In June 2000, the FASB issued SFAS 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities--An Amendment of FASB Statement No. 133," which deferred the effective date until the quarter ending March 31, 2001. Although we did not engage in hedging activities in fiscal 2001, in fiscal 2002 we have introduced programs to reduce our foreign currency exposure and mitigate exchange rate risks. Accordingly, we have adopted SFAS 133 in fiscal 2002. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101, as amended, summarizes certain of the SEC's views in applying generally accepted accounting principles to revenue recognition in financial statements. The adoption of SAB 101 did not have a material effect on our operations or financial position in fiscal 2001. RECLASSIFICATIONS. Certain reclassifications have been made to prior year balances in order to conform to the current year presentation. 14 15 3. DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS
March 31, ----------------------------- (in thousands) 2000 2001 -------- -------- Accounts receivable, net: Accounts receivable from customers $ 50,625 $ 62,876 Less: allowance for doubtful accounts (2,144) (2,673) -------- -------- $ 48,481 $ 60,203 -------- -------- Inventory, net: Finished goods 17,887 27,040 Work in process 1,540 1,280 Purchased parts 14,325 19,915 -------- -------- $ 33,752 $ 48,235 -------- -------- Property, plant and equipment: Land 4,693 4,693 Buildings and improvements (useful life 7-30 years) 11,296 14,692 Machinery and equipment (useful life 2-10 years) 38,341 49,891 -------- -------- 54,330 69,276 Less: accumulated depreciation (30,753) (36,593) -------- -------- $ 23,577 $ 32,683 -------- -------- Accruals: Employee benefits $ 15,934 $ 9,730 Accrued advertising and sales and marketing 2,042 5,836 Warranty accrual 7,494 6,619 Accrued other 8,860 8,608 -------- -------- $ 34,330 $ 30,793 -------- --------
4. DEBT We have an unsecured revolving credit facility with a major bank for $100 million that matures on November 27, 2001. Principal outstanding bears interest at our choice of prime rate minus 1% or LIBOR plus 0.625%, depending on the rate choice and performance level ratios. There were no borrowings outstanding under the facility at March 31, 2001. The revolving credit facility includes certain covenants that materially limit our ability to incur debt and pay dividends, among other matters. We were in compliance with the terms of the covenants as of March 31, 2001. 15 16 5. COMMON AND TREASURY STOCK On June 29, 2000, our Board of Directors approved a three-for-one split of our common stock, effected as a stock dividend. All stockholders of record on July 18, 2000 (the "Record Date") received two additional shares for each share owned on the Record Date. Shares resulting from the split were distributed by the transfer agent on August 8, 2000. All share and per-share numbers contained herein for all periods presented reflect this stock split, unless otherwise noted. During fiscal 2000, the Board of Directors authorized Plantronics to repurchase an additional 3,000,000 shares of Common Stock. During fiscal 2000, we repurchased 3,802,500 shares of our Common Stock in the open market at a total cost of $72.6 million, and through our employee benefit plans, we reissued 123,291 shares for proceeds of $2.1 million. As of March 31, 2000, there were 554,721 remaining shares authorized for repurchase under all repurchase plans. Shares repurchased in fiscal year 2000 that exceeded the additional 3,000,000 shares pertained to authorizations from prior years. During fiscal 2001, the Board of Directors authorized Plantronics to repurchase an additional 1,500,000 shares of Common Stock. During fiscal 2001, we repurchased 1,333,100 shares of our Common Stock in the open market at a total cost of $40.1 million, and through our employee benefit plans, we reissued 99,925 shares for proceeds of $2.8 million. As of March 31, 2001, there were 721,621 remaining shares authorized for repurchase under all repurchase plans. 6. INCOME TAXES Income tax expense for fiscal 1999, 2000 and 2001 consisted of the following:
Fiscal Year Ended March 31, ------------------------------------------------ (in thousands) 1999 2000 2001 ------- -------- -------- Federal Current $18,127 $ 29,130 $ 23,132 Deferred 3,344 (6,493) (1,406) State 1,943 2,419 1,900 Foreign 2,587 5,305 4,976 ------- -------- -------- $26,001 $ 30,361 $ 28,602 ------- -------- --------
16 17 Pre-tax earnings of the foreign subsidiaries were $24.5 million, $28.1 million and $34.5 million for fiscal years 1999, 2000 and 2001, respectively. Cumulative earnings of foreign subsidiaries that have been permanently reinvested as of March 31, 2001 totaled $75.7 million. The following is a reconciliation between statutory federal income taxes and the total provision for taxes on pre-tax income:
Fiscal Year Ended March 31, -------------------------------------------------- (in thousands) 1999 2000 2001 -------- -------- -------- Tax expense at statutory rate $ 27,847 $ 33,208 $ 35,753 Foreign operations taxed at different rates (3,609) (4,422) (7,451) Foreign tax credit -- -- (2,097) State taxes, net of federal benefit 1,263 1,572 1,900 Other, net 500 3 497 -------- -------- -------- $ 26,001 $ 30,361 $ 28,602 -------- -------- --------
Deferred tax liabilities (assets) represent the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. Significant components of our deferred tax liabilities and assets are as follows:
March 31, --------------------------- (in thousands) 2000 2001 ------- ------- Deferred gains on sales of properties $ 2,350 $ 2,413 Unremitted earnings of certain subsidiaries 3,357 3,357 Other deferred tax liabilities 1,773 874 ------- ------- Gross deferred tax liabilities 7,480 6,644 ------- ------- Accruals and other reserves (6,182) (6,878) Deferred state tax (386) (567) Other deferred tax assets (539) (232) ------- ------- Gross deferred tax assets (7,107) (7,677) ------- ------- Total net deferred tax liabilities (assets) $ 373 $(1,033) ------- -------
17 18 7. EMPLOYEE BENEFIT PLANS For fiscal 1999 and 2000, subject to eligibility requirements, substantially all domestic employees participated in our qualified profit sharing and 401(k) plan. Under the plan, participating employees received quarterly cash, annual cash and annual deferred profit sharing payments. All other employees, with the exception of direct labor in Mexico, participated in quarterly cash profit sharing plans. Domestic employees also had the option of participating in a salary deferral component of the plan, qualified under Section 401(k) of the Internal Revenue Code. The profit sharing benefits were based on Plantronics' results of operations before interest and taxes, adjusted for other items. The percentage of profit distributed to employees varied by location. The profit sharing was paid in four quarterly installments, and for qualified associates, one annual cash payment and an annual deferred payment. Profit sharing payments were allocated to employees based on each participating employee's base salary as a percent of all participants' base salaries. The annual profit sharing distributions were made up of a cash distribution and a tax deferred distribution made to individual accounts of participants held in trust. The deferred portion was subject to a two year vesting schedule based on an employee's date of hire. Total annual and quarterly profit sharing contributions were $9.4 million and $10.2 million for fiscal 1999 and 2000, respectively. For fiscal 2001, we amended our qualified profit sharing and 401(k) plan for U.S. employees. Our profit sharing programs for non-U.S. employees remained unchanged in fiscal 2001. In the past, this plan compensated associates through one annual cash payment, four quarterly cash payments and one deferred payment--in fiscal 2000, the total of these payments equaled approximately 47% of each participating employee's base salary. For fiscal 2001 and thereafter, Plantronics will now offer two separate compensation programs: quarterly cash profit sharing equal to 5% of quarterly profit for distribution to qualified associates, and deferred compensation using the 3% "safe harbor" contribution under the Internal Revenue Code Sections 401(k)(12) and 401(m)(11). We have also increased the employer matching contribution from 25% under the prior qualified 401(k) plan to 50% of the first 6% of pay contributed to the salary deferral plan. With this amendment, the annual cash profit sharing payment was eliminated and replaced by a 20% increase to our associates base pay. Total quarterly profit sharing contributions were $5.4 million for fiscal 2001. 18 19 8. COMMITMENTS AND CONTINGENCIES MINIMUM FUTURE RENTAL PAYMENTS. We lease certain equipment and facilities under operating leases expiring in various years through and after 2006. Minimum future rental payments under non-cancelable operating leases having remaining terms in excess of one year as of March 31, 2001: (in thousands)
Fiscal Year Ending March 31, Amount ------- 2002 $ 1,702 2003 1,607 2004 1,583 2005 1,248 2006 414 Thereafter 3,609 ------- Total minimum future rental payments $10,163 -------
Rent expense for operating leases was approximately $1.1 million in fiscal 1999, $1.1 million in fiscal 2000 and $1.8 million in fiscal 2001. EXISTENCE OF RENEWAL OPTIONS. Certain operating leases provide for renewal options for periods from one to three years. In the normal course of business, operating leases are generally renewed or replaced by other leases. CLAIMS AND LITIGATION. We are presently engaged in a lawsuit filed in the Superior Court in Santa Clara County, California by Hello Direct (now GN Hello Direct), a former Plantronics distributor which was acquired by Plantronics' competitor, GN Netcom. The lawsuit makes various claims associated with the termination of the distribution relationship between Plantronics, and Hello Direct, including that Hello Direct has suffered approximately $11 million in damages as a result of it. We have filed a counter-claim against Hello Direct. We are engaged in another lawsuit that was filed in the United States District Court, for the Central District of California by Cotron Corporation, a Taiwanese company, alleging patent infringement by a C1earVox product. We have filed a counter-claim alleging that the Cotron patent is invalid, unenforceable, and not infringed. As these claims are pending, the ultimate outcome of the litigation cannot be determined at this time. Based on information available to date, management believes that these claims are meritless and we intend to prosecute these claims vigorously. In addition, we are involved in a number of legal proceedings arising in the normal course of business. 19 20 Although we cannot presently determine the outcome of these claims, we believe the ultimate resolution of these claims is not likely to have a material adverse effect on our financial position, results of operations or cash flows. If not successful in defending our claims however, the resulting outcome could have a material adverse impact on our business, future operating results or cash flows. 9. SEGMENTS AND ENTERPRISE-WIDE DISCLOSURES SEGMENTS. We are engaged in the design, manufacture, marketing and sales of telecommunications equipment including headsets, telephone headset systems, and other specialty telecommunications products. Plantronics considers itself to operate in one business segment. We organized our operations to focus on three principal markets: call center and office products, mobile and computer products, and other specialty products (Walker Equipment Division). The following table presents net revenue by market (in thousands).
Fiscal Year Ended March 31, ------------------------------------------------ (in thousands) 1999 2000 2001 -------- -------- -------- Net revenues from unaffiliated customers: Call center and office $265,835 $279,690 $320,081 Mobile and computer 5,229 22,222 66,604 Other specialty products 15,197 13,100 14,353 -------- -------- -------- $286,261 $315,012 $401,038 -------- -------- --------
MAJOR CUSTOMERS. No one customer accounted for 10% or more of total revenue from consolidated sales for fiscal year 1999, 2000 or 2001. GEOGRAPHIC INFORMATION. In geographical reporting, revenues are attributed to the geographical location of the sales and service organizations. The following table presents net revenues and long lived assets by geographic area (in thousands).
Fiscal Year Ended March 31, ------------------------------------------------ (in thousands) 1999 2000 2001 -------- -------- -------- Net revenues from unaffiliated customers: United States $198,910 $209,557 $275,998 International 87,351 105,455 125,040 -------- -------- -------- $286,261 $315,012 $401,038 -------- -------- --------
20 21 Long lived assets: United States $17,791 $15,371 $19,980 International 2,532 8,206 12,703 ------- ------- ------- $20,323 $23,577 $32,683 ------- ------- -------
10. STOCK OPTION PLANS AND STOCK PURCHASE PLANS STOCK OPTION PLAN. In September 1993, the Board of Directors approved the PI Parent Corporation 1993 Stock Option Plan (the "1993 Stock Option Plan"). Under the 1993 Stock Option Plan, 18,927,726 shares of Common Stock (which number is subject to adjustment in the event of stock splits, reverse stock splits, recapitalization or certain corporate reorganizations) are reserved cumulatively since inception for issuance to employees and consultants of Plantronics, as approved by the Compensation Committee of the Board of Directors and the Stock Option Plan Committee (comprised of the CEO and a representative of the Finance, Human Resources, and Legal departments). The reserved shares include 2,550,000 shares, which were authorized by the Board of Directors and approved by the stockholders for issuance in fiscal year 2001. The 1993 Stock Plan, which has a term of ten years, provides for incentive stock options as well as nonqualified stock options to purchase shares of Common Stock. The Board of Directors may terminate the 1993 Stock Option Plan at any time at its discretion. Incentive stock options may not be granted at less than 100% of the estimated fair market value of our Common Stock at the date of grant, as determined by the Board of Directors, and the option term may not exceed 10 years. For holders of 10% or more of the total combined voting power of all classes of our stock, incentive stock options may not be granted at less than 110% of the estimated fair market value of the Common Stock at the date of grant and the option term may not exceed five years. Nonqualified stock options may be granted at less than fair market value, provided however, that all stock options granted on or after May 16, 2001 may not be granted at less than 100% of the estimated fair market value of our common stock at the date of grant. Options granted prior to June 1999 generally vest over a four year period and those options granted subsequent to June 1999 generally vest over a five year period. In July 1999, the Stock Option Plan Committee was authorized to make option grants to employees who are not senior executives pursuant to guidelines approved by the Compensation Committee and subject to quarterly reporting to the Compensation Committee. 21 22 DIRECTORS' STOCK OPTION PLAN. In September 1993, the Board of Directors adopted a Directors' Stock Option Plan (the "Directors' Option Plan") and reserved 300,000 shares of Common Stock (which number is subject to adjustment in the event of stock splits, reverse stock splits, recapitalization or certain corporate reorganizations) for issuance to non-employee directors of Plantronics. The reserved shares include 120,000 shares, which were authorized by the Board of Directors and approved by the stockholders for issuance in fiscal year 2001. The Directors' Option Plan provides that each non-employee director shall be granted an option to purchase 12,000 shares of Common Stock on the later of the effective date of Plantronics' initial public offering or the date on which the person becomes a new director. Annually thereafter, each continuing non-employee director shall be automatically granted an option to purchase 3,000 shares of Common Stock. At the end of fiscal year 2001, options for 183,000 shares of Common Stock were outstanding under the Directors' Option Plan. All options were granted at fair market value and generally vest over a four year period. Stock option activity under the 1993 Stock Plan and the Directors' Stock Option Plan are as follows:
Options Outstanding ----------------------------- Shares Weighted Available Average for Grant Shares Price ---------- ---------- -------- Balance at March 31, 1998 345,001 9,275,736 $ 3.76 Options Authorized 3,900,000 Options Granted (1,998,000) 1,998,000 $18.58 Options Exercised (3,168,279) $ 1.64 Options Cancelled 553,335 (553,335) $ 6.18 ---------- ---------- ------ Balance at March 31, 1999 2,800,336 7,552,122 $ 8.40 Options Granted (2,634,375) 2,634,375 $21.55 Options Exercised (2,180,493) $ 3.15 Options Cancelled 107,025 (107,025) $15.40 ---------- ---------- ------ Balance at March 31, 2000 272,986 7,898,979 $13.88 Options Authorized 2,670,000 Options Granted (1,720,027) 1,720,027 $35.02 Options Exercised (1,516,000) $ 9.67 Options Cancelled 390,984 (390,984) $20.14 ---------- ---------- ------ BALANCE AT MARCH 31, 2001 1,613,943 7,712,022 $19.12 ---------- ---------- ------ EXERCISABLE AT MARCH 31, 2001 3,703,702 ----------
22 23 Significant option groups outstanding at March 31, 2001 and related weighted average prices and lives are as follows:
Options Outstanding Options Exercisable ----------------------------------------------- ----------------------------- Number Weighted Number Outstanding Average Weighted Exercisable Weighted as of Remaining Average as of Average Range of March 31, Contractual Exercise March 31, Exercise Exercise Price 2001 Life Price 2001 Price - -------------- ----------- ----------- -------- ----------- -------- $ 0.30-$ 7.00 1,673,206 4.22 $ 3.91 1,666,956 $ 3.90 7.02- 19.92 1,777,645 7.14 13.79 1,144,306 12.72 20.00- 21.88 1,639,834 7.96 21.13 677,635 21.09 22.54- 35.46 2,144,510 9.07 29.02 214,805 24.09 36.00- 55.13 476,827 9.49 40.90 -- -- --------- --------- $ 0.30-$55.13 7,712,022 7.36 $19.12 3,703,702 $10.94 --------- ---------
FAIR VALUE DISCLOSURES. All options in fiscal 1999, 2000 and 2001 were granted at an exercise price equal to the fair market value of Plantronics' Common Stock at the date of grant. The fair value of options at date of grant was estimated using the Black-Scholes model. The following assumptions were used for 1999: dividend yield of 0%, an expected life of 5.6 years, expected volatility of 39% and risk free interest rate of 5.3%. For 2000 the assumptions were: dividend yield of 0%, an expected life of 6 years, expected volatility of 42% and risk free interest rate of 5.9%. For 2001 the assumptions were: dividend yield of 0%, an expected life of 6 years, expected volatility of 86% and a weighted average risk free interest rate of 5.5%. Based upon those assumptions, the weighted average fair value at date of grant for options granted during 1999, 2000 and 2001 were $8.42, $10.89 and $26.55 per share, respectively. Volatility is a measure of the amount by which a price has fluctuated over an historical period. The higher the volatility, the more the returns on the stock can be expected to vary. The risk free interest rate is the rate on a U.S. Treasury bill or bond that approximates the expected life of the option. 23 24 Had compensation expense for our stock-based compensation plans been determined based on the methods prescribed by SFAS 123, our net income and net income per share would have been as follows:
Fiscal Year Ended March 31, ------------------------------------------------------ (in thousands, except per share amounts) 1999 2000 2001 ---------- ---------- ---------- Net income: As reported $ 54,204 $ 64,517 $ 73,550 Pro forma $ 51,771 $ 56,879 $ 61,427 Net income per share: As reported $ 0.99 $ 1.22 $ 1.38 Pro forma $ 0.94 $ 1.07 $ 1.15
EMPLOYEE STOCK PURCHASE PLAN. On April 23, 1996, the Board of Directors of Plantronics approved the 1996 Employee Stock Purchase Plan (the "ESPP"), which was approved by the stockholders on August 6, 1996, to provide certain employees with an opportunity to purchase Common Stock through payroll deductions. The plan is a qualified plan under applicable IRS guidelines and certain highly compensated employees are excluded from participation. Under the ESPP plan effective through August 1999, the purchase price of the Common Stock was equal to 95% of the market price of the Common Stock immediately before the beginning of the applicable participation period and there was a six month holding period requirement for stock purchased. Under the ESPP plan effective beginning September 1999, the purchase price of the Common Stock is equal to 85% of the market price of the Common Stock immediately before the beginning of the applicable participation period and there is no required holding period. Each participation period is six months long. During fiscal 1999, 7,593 shares were issued under the plan. The fair value of the employee's purchase rights was estimated using the Black-Scholes model with the following assumptions: dividend yield of 0%, an expected life of six months, expected volatility of 39%, and risk free interest rates of 4.6%. The weighted-average fair value of these purchase rights granted in fiscal 1999 was $1.97. 24 25 During fiscal 2000, 38,193 shares were issued under the plan. The fair value of the employee's purchase rights was estimated using the Black-Scholes model with the following assumptions: dividend yield of 0%, an expected life of six months, expected volatility of 42%, and risk free interest rate of 6.1%. The weighted-average fair value of these purchase rights granted in fiscal 2000 was $3.80. During fiscal 2001, 25,443 shares were issued under the plan. The fair value of the employee's purchase rights was estimated using the Black-Scholes model with the following assumptions: dividend yield of 0%, an expected life of six months, expected volatility of 86%, and risk free interest rate of 6.1%. The weighted-average fair value of these purchase rights granted in fiscal 2001 was $8.39. SENIOR EXECUTIVE STOCK OWNERSHIP PLAN. In November 1996, the Board of Directors approved a Senior Executive Stock Purchase Plan, effective January 1, 1997, to encourage ownership of our Common Stock by senior executives. This is a voluntary plan in which executives are encouraged to participate and achieve a target ownership over a five year period in annual increments of 20% of target or more. The target ownership is equal to two times the Chief Executive Officer's base salary and one times the individual Vice Presidents' base salary. To encourage participation, we will sell our Treasury Stock to executives under this voluntary purchase program. The price will be equal to the greater of: 95% of the price set by the Board of Directors on an annual basis or 85% of the fair market value of the stock on the date of transaction. The various vehicles that are available to executives to obtain ownership of Plantronics' stock are as follows: 401(k) Plan contributions, personal IRA account purchases, Deferred Compensation Plan contributions, outright purchase of stock or exercising and holding vested stock options. The discounted price is not applicable to exercising and holding of vested stock options. 25 26 MANAGEMENT'S REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING TO OUR STOCKHOLDERS: The management of Plantronics, Inc. has the responsibility for preparing the accompanying consolidated financial statements and for their integrity and objectivity. The statements were prepared in accordance with accounting principles generally accepted in the United States of America. The consolidated financial statements include amounts that are based on management's best estimates and judgments. Management also prepared the other information in this annual report and is responsible for its accuracy and consistency with the consolidated financial statements. We maintain an effective internal control structure. It consists, in part, of organizational arrangements with clearly defined lines of responsibility and delegation of authority, and comprehensive systems and control procedures. We believe this structure provides reasonable assurance that transactions are executed in accordance with management authorization, and that they are appropriately recorded in order to permit preparation of financial statements in conformity with generally accepted accounting principles and to adequately safeguard, verify and maintain accountability of assets. Although no cost-effective internal control system will preclude all errors and irregularities, we believe our controls as of March 31, 2001 provide reasonable assurance that the financial statements are reliable and that our assets are reasonably safeguarded. To assure the effective administration of internal control, we carefully select and train our employees, develop and disseminate written policies and procedures, provide appropriate communication channels, and foster an environment conducive to the effective functioning of controls. We maintain an active Standards of Conduct program intended to ensure employees adhere to the highest standards of personal and professional integrity. The Audit Committee of the Board of Directors consists of three directors who are not employees and who are, in the opinion of the Board of Directors, free from any relationship that would interfere with the exercise of independent judgment as an Audit Committee member. The Audit Committee annually recommends to the Board independent auditors for appointment, subject to stockholder ratification. Pursuant to stockholder approval at last year's annual meeting, PricewaterhouseCoopers LLP was selected as our independent accountants. The Audit Committee met during the year with representatives of management and our independent accountants to review our financial reporting process and our controls to safeguard assets. Our independent accountants at all times have full and free access to the Audit Committee. The accounting firm of PricewaterhouseCoopers LLP has performed an independent audit of our financial statements. Management has made available to PricewaterhouseCoopers LLP all of the financial records of Plantronics and related data, as well as the minutes 26 27 of stockholders' and directors' meetings. Furthermore, management believes that all representations made to PricewaterhouseCoopers LLP during its audit were valid and appropriate. The accounting firm's report appears below. /S/ Ken Kannappan /S/ Barbara Scherer Ken Kannappan Barbara Scherer President and Chief Executive Officer Senior Vice President--Finance & Administration and Chief Financial Officer
REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF PLANTRONICS, INC. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of stockholders' equity and of cash flows present fairly in all material respects, the financial position of Plantronics, Inc. and its subsidiaries at March 31, 2000 and 2001 and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2001, 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 the opinion expressed above. /S/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP San Jose, California April 23, 2001 27 28 SELECTED FINANCIAL DATA
Fiscal Year Ended March 31, (in thousands, except ---------------------------------------------------------------------------------------- earnings per share) 1997 1998 1999 2000 2001 -------- -------- -------- -------- -------- STATEMENT OF OPERATIONS DATA Net sales $195,307 $236,112 $286,261 $315,012 $401,038 Income before extraordinary item 29,671 39,189 55,253 64,517 73,550 Extraordinary item, net of taxes -- -- 1,049 -- -- Net income $ 29,671 $ 39,189 $ 54,204 $ 64,517 $ 73,550 -------- -------- -------- -------- -------- Diluted net income per common share: Income before extraordinary item $ 0.56 $ 0.72 $ 1.01 $ 1.22 $ 1.38 Extraordinary item, net of taxes -- -- 0.02 -- -- Net income $ 0.56 $ 0.72 $ 0.99 $ 1.22 $ 1.38 Shares used in diluted per share calculations 53,376 54,669 54,846 53,019 53,263
Fiscal Year Ended March 31, ---------------------------------------------------------------------------------------- (in thousands) 1997 1998 1999 2000 2001 -------- -------- -------- -------- -------- BALANCE SHEET DATA Total assets $127,241 $165,475 $142,868 $170,030 $233,272 Long-term debt 65,050 65,050 -- -- --
28 29 SELECTED FINANCIAL DATA, CONTINUED
Quarter Ended ---------------------------------------------------------------- Jun. 30 Sep. 30 Dec. 31 Mar. 31 (in thousands, except earnings per share) 1999 1999 1999 2000 ------- ------- ------- ------- QUARTERLY DATA (UNAUDITED) Net sales $74,715 $72,038 $76,059 $92,200 Gross profit 43,923 42,506 45,113 53,957 Net income $15,404 $14,916 $15,409 $18,788 Diluted net income per common share $ 0.28 $ 0.28 $ 0.30 $ 0.36
Quarter Ended ------------------------------------------------------------------- Jun. 30 Sep. 30 Dec. 31 Mar. 31 (in thousands, except earnings per share) 2000 2000 2000 2001 -------- -------- -------- ------- QUARTERLY DATA (UNAUDITED) Net sales $100,352 $103,940 $106,718 $90,028 Gross profit 57,257 58,061 59,441 45,333 Net income $ 20,104 $ 20,740 $ 21,308 $11,398 Diluted net income per common share $ 0.38 $ 0.39 $ 0.40 $ 0.22
29 EX-21 12 f72069ex21.txt EXHIBIT 21 1 EXHIBIT 21 SUBSIDIARIES OF PLANTRONICS, INC. Emtel, S.A. Mexico Frederick Electronics Corporation Maryland Pacific Plantronics, Inc. California Plamex, S.A. de C.V. Mexico Plantronics, A.G. Switzerland Plantronics Acoustics Italia, S.r.l. Italy Plantronics B.V. Netherlands Plantronics Canada Limited Canada Plantronics e-Commerce, Inc. Minnesota Plantronics France S.A.R.L. France Plantronics Futurecomms, Inc. California Plantronics GmbH Germany Plantronics Holdings Limited Canada Plantronics International do Brasil, Ltda. Brazil Plantronics Japan Ltd. Japan Plantronics Limited United Kingdom Plantronics Pty. Ltd. Australia Plantronics Singapore Pte. Ltd. Singapore
EX-23 13 f72069ex23.txt EXHIBIT 23 1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 033-81980, 333-14833, 333-42664, 333-19351 and 333-61003) and Form S-3 (Nos. 333-67781 and 333-77631) of Plantronics, Inc. of our report dated April 23, 2001 relating to the financial statements, which appears in the Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K. /s/ PricewaterhouseCoopers LLP - - ---------------------------------- /s/ PricewaterhouseCoopers LLP San Jose, California June 1, 2001 -----END PRIVACY-ENHANCED MESSAGE-----