-----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, IX8buvkEnV6L5ZHvrF1hO7GDPea/kLvP/k/FDnsc6abrOp3Rod18ELO+iADkD/X3 hr7bxUTT1HdX6RwFAKe/xQ== 0000950170-97-000344.txt : 19970401 0000950170-97-000344.hdr.sgml : 19970401 ACCESSION NUMBER: 0000950170-97-000344 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DEVCON INTERNATIONAL CORP CENTRAL INDEX KEY: 0000028452 STANDARD INDUSTRIAL CLASSIFICATION: CONCRETE GYPSUM PLASTER PRODUCTS [3270] IRS NUMBER: 590671992 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-07152 FILM NUMBER: 97569304 BUSINESS ADDRESS: STREET 1: 1350 E NEWPORT CENTER DR STREET 2: STE 201 CITY: DEERFIELD BEACH STATE: FL ZIP: 33443 BUSINESS PHONE: 3054291500 MAIL ADDRESS: STREET 1: 1350 E NEWPORT CENTER DR STREET 2: SUITE 201 CITY: DEERFIELD BEACH STATE: FL ZIP: 33442 10-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from ______ to ________ Commission file number 0-7152 DEVCON INTERNATIONAL CORP. (Exact Name of Registrant as Specified in its Charter) Florida 59-0671992 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 1350 E. Newport Center Dr. Suite 201, Deerfield Beach, FL 33442 (Address of Principal Executive Offices) (Zip Code) (954) 429-1500 (Registrant's Telephone Number, Including Area Code) Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, $.10 par value (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] As of March 26, 1997, the number of shares of the registrant's Common Stock outstanding was 4,498,935. The aggregate market value of the Common Stock held by non-affiliates of the registrant as of March 26, 1997 was approximately $10,328,730 , based on a closing price of $5.06 for the Common Stock as reported on the NASDAQ National Market System on such date. For purposes of the foregoing computation, all executive officers, directors and 5 percent beneficial owners of the registrant are deemed to be affiliates. Such determination should not be deemed to be an admission that such executive officers, directors or 5 percent beneficial owners are, in fact, affiliates of the registrant. DOCUMENTS INCORPORATED BY REFERENCE The information required by Part III (Items 10, 11, 12 and 13) is incorporated by reference from the registrant's definitive proxy statement (to be filed pursuant to Regulation 14A). PART I ITEM 1. BUSINESS. GENERAL Devcon International Corp. (the "Company") is the largest producer and distributor of ready-mix concrete and quarry products in the United States Virgin Islands, Antigua and Barbuda, West Indies ("Antigua"), St. Maarten, Netherlands Antilles ("St. Maarten"), St. Martin, French West Indies ("St. Martin"), Saba, Netherlands Antilles ("Saba"), Dominica, West Indies ("Dominica") and Tortola, British Virgin Islands ("Tortola") and is a land development contractor in the Caribbean. The Company also owns and operates a marina in the United States Virgin Islands. In the Caribbean, the Company produces and distributes ready-mix concrete, crushed stone, concrete block, asphalt and distributes bulk and bagged cement. The Company's facilities have enabled the Company to establish a significant market share in most of the locations in which it operates and afford the Company resources, production capacity, a local presence and a cost structure that the Company believes would be difficult for competitors to duplicate. As a result, the Company has less competition and, therefore, produces a substantial percentage of the concrete and related products used in these islands. The Company performs earthmoving, excavating and filling operations and builds golf courses, roads, utility infrastructures, dredges waterways and constructs deep water piers and marinas in the Caribbean. The Company has historically provided land development contracting services to both private enterprises and governments in Florida and the Caribbean. Since early 1993, the Company has not been seeking new contracts in the United States. The Company's project managers have substantial experience working in the land development contracting business, and the Company has equipment that is well-suited for the Caribbean markets. The Company has equipment and personnel in the Caribbean that the Company believes, in some instances, allow the Company to start work more quickly and less expensively than other contractors and, therefore, to bid competitively for and complete cost-effectively land development contracts. The Company believes that its relationships with customers in the Caribbean give it a competitive advan tage. 2 The following table sets forth certain financial information concerning the Company's concrete and related products, land development contracting and other business:
1996 1995 1994 ---- ---- ---- (in thousands) Revenues*: Concrete and related products................................$52,987 $37,716 $39,342 Contracting.................................................. 13,982 16,068 22,942 Other........................................................ 2,509 2,367 2,965 ------- ------- ------- Total..................................................$69,478 $56,151 $65,249 ======= ======= ======= Operating income (loss)*: Concrete and related products................................ 4,864 1,252 2,841 Contracting.................................................. (1,093) (569) 1,747 Other........................................................ 416 409 321 Unallocated corporate overhead............................... (716) (818) (424) ------- ------- ------- Total..................................................$ 3,471 $ 274 $ 4,485 ======= ======= =======
- ------------------------- * Information is presented net of intersegment sales. See Note 12 of Notes to Consolidated Financial Statements for additional financial information with respect to the Company's business segments. See Summary of Significant Accounting Policies in Notes to Consolidated Financial Statements. The Company's principal executive offices are located at 1350 East Newport Center Drive, Suite 201, Deerfield Beach, Florida 33442 and its telephone number is (954)429-1500. Unless the context otherwise requires, the terms the "Company" and "Devcon" as used herein refer to Devcon International Corp. and its subsidiaries. BUSINESS DEVELOPMENT The Company expanded its operations in the Caribbean by opening a quarry in Puerto Rico in May 1996 and acquiring a company in St. Martin in August 1995, which sells and distributes ready mix concrete and operates a quarry. The Company opened ready-mix concrete plants on the islands of Saba and St. Kitts during the second quarter of 1993 and in 1992 completed the installation of a bulk cement facility and cement bagging plant in Dominica. From time to time, the Company investigates the possibility of expanding its operations to other areas of the Caribbean where the Company does not presently do business. Such expansion can take place in the form of joint ventures, acquisitions or other business arrange ments. The Company does not have any current plans or definitive agreements regarding any particular joint venture, acquisition or business arrangement at this time and there can be no assurance that the Company will be able to consummate any such transactions on satisfactory terms. RISKS OF FOREIGN OPERATIONS Various portions of the Company's operations are conducted in foreign areas, primarily Antigua, St. Maarten, St. Martin, Dominica, Saba, St. Kitts and Tortola, all of which are in the Caribbean. In 1996, 52.5 percent of the Com pany's revenues were derived from foreign operations. Overseas contract work performed by the parent company (a United States corporation) is not considered foreign source revenue for purposes of the foregoing calculation. The majority of contract work is performed by the parent company. For a summary of the Com pany's revenues and earnings from foreign operations, see Note 10 of Notes to Consolidated Financial Statements. The potential risks of doing business in foreign areas include potential adverse changes in the diplomatic relations of foreign countries with the United States, changes in the relative purchasing 3 power of the United States dollar, hostility from local populations, adverse effects of exchange controls, restrictions on the withdrawal of foreign investment and earnings, government policies against businesses owned by non- nationals, expropriations of property, the instability of foreign governments and the risk of insurrection that could result in losses against which the Company is not insured. The Company was not subject to these risks in Florida and is not subject to them in Puerto Rico or the United States Virgin Islands (United States territories that use the United States dollar as their currency). The Company also is subject under certain circumstances to United States Federal income tax upon the distribution of certain offshore earnings. See Note 8 of Notes to Consolidated Financial Statements. Although the Company has not encountered significant difficulties in its foreign operations in the past, there can be no assurance that the Company will not encounter difficulties in the future. CONCRETE AND RELATED PRODUCTS GENERAL The Company manufactures and distributes ready-mix concrete and crushed aggregate (both coarse and fine) in Guaynabo, Puerto Rico, on St. Thomas and St. Croix, United States Virgin Islands, Antigua, St. Maarten, St. Martin, Dominica, Saba, St. Kitts and Tortola (although crushed aggregate is not manufactured on Dominica, St. Kitts or St. Maarten and the Company does not distribute ready-mix concrete in Puerto Rico). The Company's customers on St. Kitts are limited, at this time, to those organizations or individuals engaged in duty free contracting or development activities. With the exception of Puerto Rico, the Company also distributes bulk and bagged cement to customers on each of the foregoing islands. In addition, the Company manufactures concrete block on St. Thomas, Antigua and St. Maarten. The Company's concrete and related products business employs assets such as quarries, rock crushing plants, bulk cement terminals, concrete block plants, concrete batch plants, a fleet of concrete mixer trucks, cement bagging facilities and asphalt plants, in various locations in the United States Virgin Islands, Antigua, St. Maarten, St. Martin, Dominica, St. Kitts, Saba and Tortola and Puerto Rico. The Company also leases an oceangoing bulk cement ship that affords the Company ready access to reliable and more economical sources of cement. As a result, the Company has become the largest supplier of concrete and related products in the United States Virgin Islands, Antigua, St. Maarten, St. Martin, Dominica, Saba and Tortola. The Company is presently investigating the possibility of expanding its cement distribution and concrete and aggregate busi ness to other areas in the Caribbean. See "Business - Business Development." READY-MIX CONCRETE AND CONCRETE BLOCK The Company's concrete batch plants mix cement, sand, crushed stone, water and certain chemical additives to produce ready-mix concrete for use in local construction. The Company's fleet of concrete mixer trucks deliver the concrete to the customer's job site. At the Company's concrete block plants, a low moisture concrete mixture is machine formed, then dried and stored for later sale. The Company's ready-mix concrete operations are significantly larger than those of any other competitor on Antigua, St. Maarten, St. Martin, Dominica, Tortola, Saba and St. Thomas. The Company has the only concrete block plant on St. Thomas, and in Antigua and St. Maarten, the Company's block plant is the area's largest. QUARRY OPERATIONS AND CRUSHED STONE The Company owns or leases quarry sites on which it blasts rock from exposed mineral formations. At the quarries, this rock is crushed and screened to varying sizes of aggregate from 3 1/2-inch stones down to manufactured sand, the aggregate is then sorted, cleaned and stored. The resulting aggregate is sold to customers and used in the Company's operations to make concrete products. The Company's quarries are the largest on St. Thomas, St. Croix, Antigua, St. Martin, Saba and Tortola. It is significantly less expensive to manufacture crushed rock at the Company's quarries than to import aggregate from off-island sources. BULK AND BAGGED CEMENT The Company leases an oceangoing bulk cement ship with a 6,000 metric ton capacity. The ship delivers cement in bulk to the Company's cement terminals on St. Thomas, St. Croix, Antigua, Dominica and St. Maarten. From silos at these terminals, the cement is transferred for use in the Company's 4 concrete batch plants, sold in bulk or bagged and then sold. Bulk cement is readily available from a number of manufacturers located throughout the Caribbean basin. As a result of the Company's bulk cement ship, the Company is able to assure itself of reliable and relatively economical sources of cement. See "Business - Equipment." SUPPLIES The Company presently obtains all of the crushed rock and a majority of the sand necessary for the production of ready-mix concrete in the United States Virgin Islands, Antigua, St. Martin, St. Maarten, Saba and Tortola by quarrying its own rock and crushing it at its own locations. The Company's ability to produce its own sand gives it a competitive advantage because of the substantial investment required to produce sand, the difficulty in obtaining the necessary environmental permits to establish quarries and the moratorium on mining beach sand imposed by most Caribbean countries. The sand the Company pro duces is blended with sand obtained from various offshore sources unaffiliated with the Company and, occasionally, from Company construction or dredging sites. The Company's oceangoing bulk cement ship described above allows it to satisfy its bulk cement requirements. CUSTOMERS The Company's primary customers are building contractors, governments, asphalt pavers and individual homeowners. Customers generally pick up quarry products, concrete block and bagged cement at the Company's facilities, and the Company generally delivers ready-mix concrete and bulk cement to the customer's job sites. COMPETITION The Company has few competitors in the concrete and related products business in the locations where it conducts business. The Company encounters competition from the producers of asphalt, which is an alternative material to concrete for road construction. The Company's concrete and related products facilities and the Company's oceangoing bulk cement ship have enabled the Company to establish a significant market share in the United States Virgin Islands, Antigua, St. Maarten, St. Martin, Dominica, Saba and Tortola and afford the Company resources, a production capacity, a local presence and a cost structure that the Company believes would be difficult for competitors to duplicate. As a result, the Company believes that it presently has a competitive advantage in the United States Virgin Islands, Antigua, St. Maarten, St. Martin, Dominica, Saba and Tortola. LAND DEVELOPMENT CONTRACTING GENERAL The Company has completed a wide variety of land development construc tion projects since its inception, including interstate highways, airport sites and runways, deep-water piers and marinas, hydraulic dredging projects, golf courses, industrial site development and residential and commercial site devel opment. The Company generally attempts to pursue the most profitable types of land development contracting work available, rather than attempting to maintain a high level of volume. In prior years, the Company has been engaged in residen tial and commercial site development (including golf courses) for real estate developers and marine construction (dredging of deep-water harbors and construction of deep-water piers and marinas) in the Caribbean. The nature of the work performed by the Company's land development contracting division is such that the work is accomplished and revenue generated on a contract-by-contract basis. The majority of the Company's land development contracts are less than one year in duration, although it does obtain multi-year contracts from time to time. A majority of the Company's contracts are fixed-price contracts. These contracts are bid or negotiated at an established price that does not vary except for changes in the scope of the work requested by the owner during the term of the contract. The majority of the Company's work is performed using its own labor and equipment and is not subcontracted. The Company also enters into unit-price contracts pursuant to which the Company's fee is based upon the quantity of work performed. The Company historically has 5 contracted to provide land development contracting services to both private enterprises and governments. The Company believes that, on occasion, it is able to obtain more desirable margins on some private and public contracts in the United States Virgin Islands and Antigua because the Company has equipment and personnel in those markets that, in some instances, allow the Company to start work more quickly and less expensively than other contractors. As a result, the Company believes that it is able to bid competitively for and complete cost- effectively land development contracts in the Company's Caribbean markets. OPERATIONS The Company's first step in any project is deciding whether to submit a bid on, or to negotiate to undertake, a particular project. The Company obtains leads for new projects from a variety of sources, including past or existing customers of the Company and from engineering firms with which the Company has established business relationships. At the appropriate time, a proposal is submitted that the Company believes will best meet a customer's objectives. In some instances in the past, the Company has provided long-term or short-term financing to facilitate early commencement or efficient continuation of a project. The Company believes that providing such financing enhances its ability to obtain more profitable construction contracts. The continuation of such financing is contingent upon the financial position and operating results of the Company. All project proposals and bids are reviewed by the Company's Vice President of Construction Operations and/or the Company's President, depending upon the size of the contract. After a proposal has been accepted, a formal contract is negotiated with the customer. The Company is normally the prime contractor on any work it undertakes. The Company assigns a project manager and a field superintendent to maintain close contact with the customer and its engineers, to supervise personnel and the relocation, purchase, lease and maintenance of equipment and to schedule and monitor the Company's operations. The Company currently employs 5 job superintendents. BACKLOG The Company's backlog of unfilled portions of land development contracts at December 31, 1996 was $3.4 million involving 19 projects, as compared to $11.4 million involving 25 projects at December 31, 1995. Since December 31, 1996 the Company has entered into new land development contracts in the Caribbean amounting to $7.5 million. The Company reasonably expects that all of the backlog, including the 1997 contracts, will be completed during the year ending December 31, 1997. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Revenues." BONDING In order to bid on some private construction contracts and substantially all government contracts, the Company must obtain a bond for the performance of the contract. The Company's bonding capacity is sufficient to enable the Company to perform some government and major private contracts. COMPETITION The land development contracting business is extremely competitive, regardless of the general level of activity within the construction industry. The Company believes that the primary factors of competition are price, prior experience and relationships, the amount of machinery and heavy equipment available to complete a given job, the speed with which a company can complete a specific contract, the availability of an engineering staff to assist an owner in planning its projects so as to minimize costs, the ability to innovate and, where applicable, the ability to obtain bonding for large contracts in order to guarantee completion. Management believes that the Company competes effectively on the basis of the foregoing factors and that the Company's relative competitive position in its Caribbean markets is favorable. OTHER OPERATIONS MARINA Two subsidiaries of the Company own a Virgin Islands general partnership formed in 1988 to construct and operate a marina on a 4.92 acre parcel of land leased by the partnership from the United States Virgin Islands government. The lease is for a term of 20 years commencing in 1991 and contains a renewal option 6 for an additional 10 years. The Company originally owned fifty percent of the marina partnership. It acquired management control of the marina in 1991 and acquired its partner's fifty percent interest in 1992. The marina facility contains retail and office space, a fuel farm and 96 slips for boats ranging in size from 15 to 200 feet in length. In March 1997, the Company entered into a contract, subject to significant contingencies, including the prospective buyer's satisfaction with its due diligence, to sell the marina for $4.6 million. If the sale does close in accordance with the terms and conditions outlined in the contract, the Company would recognize a modest gain on the transaction. DISCONTINUED OPERATION In September 1989, a subsidiary of the Company obtained a minority interest in a partnership engaged in the manufacture, sale and distribution of acoustical ceiling tiles. The subsidiary invested approximately $1.2 million in the partnership for a 29 percent interest and two of the Company's directors obtained an 11 percent interest for which they paid $450,000. In January 1994, an Antiguan subsidiary of the Company became the new general partner and the Company's ownership interest in the partnership was increased to 64.47 percent. The directors' ownership interest was reduced to 6.47 percent. In November 1995, the Company elected to dispose of this operation because of its poor operating results and uncertain prospects for improvement. Accordingly, at December 31, 1995, the intended disposal has been accounted for as a discontinued operation. The financial statements for all prior periods presented have been restated to reflect the ceiling tile partnership as a discontinued operation. The Company's investment in the partnership was written down $800,000, to its estimated net realizable value of approximately $749,000, which consists primarily of property, equipment and inventory with a net book value of approximately $1.4 million, along with debt of approximately $621,000. The Company provided no reserve for anticipated losses during the phaseout period and expects to recognize no income tax benefit on the loss from discontinued operations. The Company sold its interest in the ceiling tile business in September 1996 in exchange for one secured promissory note in the amount of $600,000 and one unsecured promissory note in the amount of $385,000 and took an additional loss on disposal of approximately $488,000. TAX EXEMPTIONS AND BENEFITS The Company for a number of years has benefitted from having a substantial part of the earnings of its offshore operations taxed at rates lower than United States statutory Federal income tax rates due to tax exemptions and lower prevailing tax rates offshore. The United States Virgin Islands Industrial Development Commission ("IDC") and the Government of Antigua have granted the Company certain tax exemptions that exempt a larger portion of the earnings of the Company's offshore operations from tax in the United States Virgin Islands and Antigua through 2003 and 1996, as more fully described below. In April 1988, the IDC granted a subsidiary of the Company a 10-year tax exemption expiring in 1998, pursuant to which, and subject to certain conditions and exceptions, the Company's (i) production and sale of ready-mix concrete; (ii) production and sale of concrete block on St. Thomas and St. Johns and outside of the Virgin Islands; (iii) production and sale of sand and aggregate; and (iv) bagging of cement from imported bulk cement, are 100 percent exempt from all United States Virgin Islands real property, gross receipts (currently set at 4 percent) and excise taxes, 90 percent exempt from United States Virgin Islands income taxes, and approximately 83 percent exempt from United States Virgin Islands custom duties. The IDC granted the Company the tax exemption in return for the Company's commitment to (i) make capital expenditures of at least $4.6 million for new or replacement equipment over a 10-year period, which the Company has satisfied; (ii) employ a minimum of 142 United States Virgin Islands residents as full-time personnel; (iii) spend at least $75,000 annually for a youth training program; (iv) not increase the price of its concrete and related products except as the result of certain direct cost increases incurred by the Company over which it has no control; and (v) make an annual scholarship fund contribution of $150,000. 7 In January 1994, the Company received a five year extension, through April 2003, of its previously granted benefits. This extension was granted in return for the Company agreeing to (i) continue to employ a minimum of 160 United States Virgin Islands residents as full time personnel, (ii) make additional capital expenditures of $1.7 million and (iii) continue to make a combined youth training/scholarship contribution of $225,000 per annum during the extension period. In partial consideration for the Company's work on a major contract, the Government of Antigua granted two subsidiaries of the Company a 10-year tax holiday effective January 1, 1987 and expiring on December 31, 1996 from all taxes due (i) in connection with the Company's construction contract with Antigua to, among other things, dredge St. John's harbor, (ii) as a result of the Company's participation in a joint venture to develop 230 acres of vacant land as well as 20,000 square feet of commercial property in Antigua; and (iii) in connection with the Company's sale of concrete and related products in Antigua. The tax holiday also exempted the Company from certain accrued tax liabilities. In 1989, in connection with and in consideration for additional work done by the Company with respect to the foregoing contract, the Government of Antigua granted an additional tax exemption to the Company. The tax exemption exempts the Company from taxes that would otherwise result from the Company's income relating to a construction contract in Jolly Harbor, Antigua. The Company is currently negotiating with the government of Antigua regarding the tax holiday which expired at the end of 1996. The Company is seeking an extension of the current tax holiday, or as an alternative, the offset of any taxes due against sums due the Company from the Government of Antigua and Barbuda.Although there is no assurance, management believes that one of these two alternatives will ultimately be obtained. Furthermore, as a result of certain United States tax laws, earnings from the Company's offshore operations are not taxable for United States Federal income tax purposes and most post-April 1988 concrete and related product earnings in the United States Virgin Islands can be distributed to the Company in the United States free of statutory United States Federal income tax. However, the distribution to the Company's United States operations of (i) earnings from the Company's United States Virgin Islands operations accumulated prior to April 1, 1988 or (ii) earnings from the Company's Antigua, St. Martin, St. Maarten, Dominica, Saba, St. Kitts and Tortola operations, would in each case subject the Company to United States Federal income tax on any amounts so distributed, less applicable tax credits for taxes previously paid in such jurisdictions. At December 31, 1996, $42.5 million of such accumulated earnings from the Company's United States Virgin Islands, Antigua, St. Martin, St. Maarten, Dominica, Saba, St. Kitts and Tortola operations had not been distributed to the Company's United States operations. The Company has not provided for Federal income tax on the undistributed earnings of foreign subsidiaries because the Company intends to permanently reinvest those earnings in regions offshore of the United States. The aforementioned tax exemptions, along with the Company's ability to receive most of the current earnings from its United States Virgin Islands operations without being subjected to United States Federal income taxes thereon, result in a significant reduction in the tax expense (including Federal income taxes) incurred by the Company with respect to its earnings from Caribbean operations. For further information on both tax exemptions and income taxes in general, see Note 8 of Notes to Consolidated Financial Statements. EQUIPMENT The concrete and related products and the land development contracting businesses require the Company to lease or purchase and maintain many items of equipment. As of December 31, 1996, the Company's equipment included an ocean going bulk cement vessel, cranes, bulldozers, road graders, rollers, backhoes, earthmovers, hydraulic dredges, barges, rock crushers for use at the Company's rock crushing 8 plants, equipment at the Company's bulk cement terminals and concrete block and batch plants, concrete mixer trucks, asphalt processing and paving equipment and other miscellaneous items. A portion of this equipment is encumbered by chattel mortgages. See Notes 7 and 11 of Notes to Consolidated Financial Statements and "Management Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." MISCELLANEOUS INVESTMENTS AND JOINT VENTURES The Company has invested or participated in several joint ventures in connection with the activities of its land development contracting division and concrete and related products division, which are more particularly described below. In connection with a land development contract with the Government of Antigua and as partial consideration therefor, the Company obtained a 75 percent interest in a corporation formed to own and develop approximately 230 acres of real property in Antigua (the "Corbkinnon Property"), and a 1 percent interest in another corporation (the "Newport Project") formed to develop approximately 20,000 square feet of commercial property located in downtown St. Johns, Antigua. In 1990, the Company sold a portion of its 75 percent interest in the Corbkinnon Property for $500,000 and the buyer's commitment to provide 50 percent of the financing required to develop the project. The Company agreed to provide the first $500,000 of financing and provide a guarantee for 50 percent of all additional financing required. As a result of the transaction, the Company's remaining interest in the Corbkinnon Property is 34 percent. The Company did not record earnings or losses for the Corbkinnon Property or the Newport Project in 1996 because the amounts are not material. For additional information, see Notes 4 and 10 of Notes to Consolidated Financial Statements. The Company is a 43 percent shareholder in a corporation formed to construct condominium housing units in Antigua. The Company has advanced $200,000 in capital contributions to the corporation. In 1996, the Company recorded a loss of $50,000 related to its investment in this corporation, which investment is being accounted for under the equity method. For additional information, see Note 4 of Notes to Consolidated Financial Statements. EXECUTIVE OFFICERS The executive officers of the Company are as follows: Donald L. Smith, Jr., 75, a co-founder of the Company, has served as its Chairman of the Board, President and Chief Executive Officer since its formation in 1951. Richard L. Hornsby, 61, was appointed the Company's Executive Vice President in March 1989. Mr. Hornsby served as Vice President of the Company from August 1986 to February 1989. From September 1981 until July 1986 he was Financial Manager of R.O.L., Inc. and L.O.R., Inc., companies primarily engaged in various private investment activities. He has been a director of the Company since 1975 and served as Vice President-Finance from 1972 to 1977. Henry C. Obenauf, 67, was appointed Vice President-Engineering of the Company in March 1989, after having served as Vice President of the Company since 1977. Mr. Obenauf has been employed by the Company for over 21 years. Walter B. Barrett, 39, has served as Vice President-Finance, Chief Financial Officer and Treasurer since May 1991. Prior to that and from August 1985 he served as Treasurer and Chief Financial Officer of James A. Cummings, Inc., a large South Florida general contractor. 9 Donald L. Smith, III, 43, was appointed Vice President-Construction Operations for the Company in December 1992. Prior to that and from March 1992, he served as Assistant Vice President of Construction Operations-South Florida and Caribbean of the Company. Mr. Smith joined the Company in 1976 and has served in various supervisory and managerial positions with the Company since that time. EMPLOYEES At December 31, 1996, the Company employed 68 persons in the land development contracting business in the Caribbean, of whom 24 United States Virgin Islands and Antigua employees are members of a union. The Company employed 395 persons in its concrete and related products division, of whom 139 employees in the Caribbean are members of a union. The Company will also utilize personnel in one division or another as its needs warrant. In addition, the Company employs 38 managerial, supervisory and administrative personnel in the overall admin istration and management of all divisions of the Company. Employee relations in the Company are considered satisfactory and the Company has never been subjected to a work stoppage. ITEM 2. PROPERTY GENERAL Substantially all of the real property that the Company owns or leases is utilized by its concrete and related products division. The Company has one quarry in Puerto Rico, quarries, rock crushing plants and concrete batch plants on St. Thomas, St. Croix, Antigua, St. Martin, Saba and Tortola, concrete batch plants on Dominica, St. Maarten and St. Kitts, and bulk cement terminals and cement bagging facilities on St. Croix, St. Thomas, St. Maarten, Dominica and Antigua. In addition, the Company has asphalt plants on St. Croix and Antigua and concrete block plants on St. Thomas, Antigua and St. Maarten. OTHER PROPERTY The Company also has a 34 percent interest in 230 acres of real property and a 1 percent interest in a commercial property development, both in Antigua (see "Business - Miscellaneous Investments and Joint Ventures"), and the Company owns undeveloped parcels of land in Collier County, Florida, and St. Johns, United States Virgin Islands. The Company has no current plans to develop or sell the parcels located in the United States and United States Virgin Islands. The following table sets forth certain information concerning the property and facilities that are owned or leased by the Company for use in its operations.
LEASE EXPIRATION DESCRIPTION LOCATION WITH ALL OPTIONS AREA ----------- -------- ---------------- ---- Principal executive offices Deerfield Beach 5/07 8,410 sq. ft. (1) Maintenance shop for heavy equipment Deerfield Beach Month to Month 4.40 acres (1)(2) Concrete block plant and St. Thomas 6/04 11.00 acres (1) equipment maintenance facility Quarry and office building St. Thomas - 8.50 acres Quarry and concrete batch plant St. Thomas 2/98 44.00 acres (1) Barge terminal St. Thomas 7/97 1.50 acres (1) Bulk cement terminal and bagging facility St. Thomas 5/12 .50 acres (1) Marina and adjoining commercial property St. Thomas 6/21 4.92 acres (1) Quarry St. Thomas 8/96 7.49 acres (1) Bulk cement terminal, bagging facility St. Croix - 7.00 acres Concrete batch plant and office St. Croix - 3.20 acres Quarry, rock crushing plant and St. Croix - 61.34 acres maintenance shop St. Croix 7/10 6.00 acres (1) St. Croix 5/03 10.78 acres (1) Concrete batch plant, concrete Antigua 9/16 22.61 acres (1) block plant, rock crushing plant, asphalt plant, quarry and office Bulk cement terminal and bagging facility Antigua - 8.00 acres Concrete batch plant, cement bagging Dominica 6/12 1.14 acres (1) plant, undeveloped land, silo and office Dominica - .77 acres Concrete batch plant and block plant St. Maarten 5/12 7.77 acres (1) Equipment maintenance facility and office building St. Maarten 6/48 5.38 acres (1) 10 LEASE EXPIRATION DESCRIPTION LOCATION WITH ALL OPTIONS AREA ----------- -------- ---------------- ---- Cement terminal and barge unloading facility St. Maarten 6/05 .30 acres (1) Bagging facility St. Maarten 4/01 .30 acres (1) Undeveloped land - future site of concrete St. Maarten 3/51 3.00 acres (1) batch plant, concrete block plant, equipment maintenance facility and office building Quarry, rock crushing plant, concrete Tortola - 30.00 acres batch plant, equipment maintenance facility and office building Quarry, rock crushing plant and Saba 12/02 6.00 acres (1)(3) concrete batch plant Concrete batch plant St. Kitts Month to Month 1.00 acre (1)(3) Quarry, rock crushing plant, concrete St. Martin 7/10 123.5 acres (1) batch plant and office building Quarry, rock crushing plant and office building Guaynabo, Puerto Rico 2/28 40.00 acres (1)(3) - --------------------------------------------------------------------------------
(1) Underlying land is leased, however, any equipment or machinery on the land is owned by the Company. (2) Leased from Donald L. Smith, Jr., the Company's Chairman, President, and Chief Executive Officer. See "Certain Relationships and Related Transactions." (3) Acreage is estimated. ITEM 3. LEGAL PROCEEDINGS The Company is from time to time involved in routine litigation arising in the ordinary course of its business, primarily related to its contracting activities. No litigation in which the Company is presently involved is material to its financial position or results of operations. For further information, see Note 17 of Notes to Consolidated Financial Statements. The Company is subject to certain Federal, state and local environmental laws and regulations. Management believes that the Company is in compliance with all such laws and regulations. Compliance with environmental protection laws has not had a material adverse impact on the Company's financial condition or results of operations in the past and is not expected to have a material adverse impact in the foreseeable future. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's security holders during the fourth quarter of 1996. 11 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. MARKET INFORMATION The Company's Common Stock is traded in the over-the-counter market and quoted in the NASDAQ National Market System under the symbol DEVC. The following table sets forth the high and low sales prices for the Company's Common Stock for each quarter for the last two fiscal years as quoted in the NASDAQ National Market System. 1996 HIGH LOW ---- ---- --- First Quarter $10.63 $8.05 Second Quarter 10.38 8.50 Third Quarter 8.88 6.88 Fourth Quarter 7.00 6.13 1995 HIGH LOW ---- ---- --- First Quarter $8.75 $8.00 Second Quarter 8.38 6.75 Third Quarter 9.88 5.50 Fourth Quarter 8.88 6.87 As of March 26, 1997, there were 226 holders of record of the 4,498,935 outstanding shares of Common Stock. The closing sales price for the Common Stock on March 26, 1997 was $5.06 . The Company paid no dividends in 1996 or 1995. The payment of cash dividends will depend upon the earnings, financial position and cash requirements of the Company, its compliance with loan agreements and other relevant factors existing from time to time. The Company does not presently intend to pay dividends. ITEM 6 SELECTED FINANCIAL DATA The following selected financial data of the Company and its consolidated subsidiaries are qualified in their entirety by, and should be read in conjunction with, the Consolidated Financial Statements and the notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The data for each of the 5 years in the period ended December 31, 1996, are derived from the Consolidated Financial Statements of the Company audited by KPMG Peat Marwick LLP, independent certified public accountants. The Consolidated Financial Statements of the Company as of December 31, 1996 and 1995 and for each of the years in the three year period ended December 31, 1996 and the report thereon appear elsewhere herein. 12
YEAR ENDED DECEMBER 31, ----------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- EARNINGS STATEMENT DATA: (In thousands, except per share amounts) Concrete and related products revenues $ 52,987 $ 37,716 $ 39,342 $ 38,300 $ 43,042 Contracting revenues 13,982 16,068 22,942 16,926 32,248 Other revenues 2,509 2,367 2,965 638 - -------- -------- -------- -------- -------- Total revenues 69,478 56,151 65,249 55,864 75,290 -------- -------- -------- -------- -------- Cost of concrete and related products 39,277 29,069 29,200 31,820 31,972 Cost of contracting 12,458 14,103 19,250 19,700 31,245 Cost of other 1,913 1,721 2,388 529 - -------- -------- -------- -------- -------- Gross profit 15,830 11,258 14,411 3,815 12,073 Selling, general and administrative expenses 12,359 10,984 9,926 11,970 11,435 -------- -------- -------- -------- -------- Operating income (loss) 3,471 274 4,485 (8,155) 638 Other deductions (2,287) (1,961) (1,854) (3,338) (1,801) -------- -------- -------- -------- -------- Income (loss) from continuing operations before income taxes 1,184 (1,687) 2,631 (11,493) (1,163) Income taxes 383 145 50 108 195 -------- -------- -------- -------- -------- Income (loss) from continuing operations 801 (1,832) 2,581 (11,601) (1,358) Income (loss) from discontinued operations, net (488) (915) (470) 2,027 (87) Cumulative effect of change in accounting principle - - - 500 - -------- -------- -------- -------- -------- Net earnings (loss) $ 313 $ (2,747) $ 2,111 $ (9,074) $ (1,445) ======== ======== ======== ======== ======== Earnings(loss)per share: From continuing operations $ .17 $ (.40) $ .57 $(2.55) $ (.30) From discontinued operations (.10) (.20) (.11) .44 (.02) From change in accounting principle - - - .11 - -------- --------- -------- -------- -------- $ .07 $ (.60) $ .46 $ (2.00) $ (.32) ======== ========= ======== ======== ======== Weighted average number of shares outstanding 4,672 4,567 4,560 4,541 4,515 ======== ======== ======== ======== ======== BALANCE SHEET DATA: Working capital $13,579 $ 4,848 $ 10,845 $ 3,312 $ 8,524 Total assets 94,926 97,313 99,541 101,518 105,755 Long-term debt, excluding current installments 19,251 15,548 17,454 16,776 10,127 Total stockholders' 59,552 59,159 61,655 59,544 68,118 equity
13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS All dollar amounts of $1.0 million or more are rounded to the nearest one tenth of a million; all other dollar amounts are rounded to the nearest one thousand and all percentages are stated to the nearest one tenth of one percent. This Form 10-K contains certain "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which represent the Company's expectations and beliefs. These statements by their nature involve substantial risks and uncertainties, certain of which are beyond the Company's control, and actual results may differ materially depending on a variety of important factors, including the financial condition of the Company's customers, changes in domestic and foreign economic and political conditions, demand for the Company's services and changes in the Company's competitive environment. The Company cautions that the factors described above could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements of the Company made by or on behalf of the Company. Any forward- looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for management to predict all of such factors or the effect that any such factor may have on the Company's business. COMPARISON OF YEAR ENDED DECEMBER 31, 1996 WITH YEAR ENDED DECEMBER 31, 1995 REVENUES The Company's revenues in 1996 were $69.5 million as compared to $56.2 million in 1995. This 23.7 percent increase was primarily due to increases in the Company's concrete and related products division revenues, offset by decreases in the land development contracting division revenues. The Company's concrete and related products division revenues increased 40.5 percent to $53.0 million in 1996 from $37.7 million in 1995. This increase was primarily due to increased demand for this division's products on certain Caribbean islands, which was generated by an increase in the overall level of construction activity in certain locations in which the Company operates its business. The Company believes that this increase was primarily attributable to repair and rebuilding required as a result of Hurricanes Luis and Marilyn, which struck the Caribbean in September 1995. At the present time, the Company cannot predict whether concrete and related products revenue levels in 1997 will be less than or greater than revenue levels achieved in 1996. Revenues from the Company's land development contracting division decreased by 13.0 percent to $14.0 million in 1996 from $16.1 million in 1995. This decrease was primarily attributable to the completion in mid 1996 of several hurricane damage-related repair contracts which were not replaced by new contract backlog. The Company's backlog of unfilled portions of land development contracts at December 31, 1996 was $3.4 million involving 19 projects, as compared to $11.4 million involving 22 projects at December 31, 1995. Since December 31, 1996 the Company has entered into new land development contracts in the Caribbean amounting to $7.5 million. The Company reasonably expects that all of the backlog, including the 1997 contracts, will be completed during the year ending December 31, 1997. The Company needs to obtain additional new contracts as 1997 progresses or its contract revenue levels in 1997 will be lower than those obtained in 1996. The Company does not presently know whether it will be successful in obtaining such contracts. 14 COST OF CONCRETE AND RELATED PRODUCTS Cost of concrete and related products as a percentage of concrete and related products revenues decreased to 74.1 percent in 1996 from 77.1 percent in 1995. This decrease was primarily attributable to the mix of products sold, the locations in which sales were made during the year and the increase in revenues actually recognized in 1996. COST OF CONTRACTING Cost of contracting as a percentage of land development contracting revenues increased to 89.1 percent in 1996 from 87.8 percent in 1995. This increase is attributable to losses taken on certain contracts and by the significant levels of cost involved in owning and operating heavy construction equipment. In addition, the Company's gross margins are also affected by the varying profitability levels of individual contracts and the stage of completion of such contracts. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses ("SG&A expense") increased by 12.5 percent to $12.4 million in 1996 from $11.0 million in 1995. This increase was primarily attributable to increases in insurance and to legal fees, primarily related to construction litigation, and by additional SG&A expense of the Company's new operations in St. Martin and Puerto Rico. SG&A expense as a percentage of revenue decreased to 17.8 percent in 1996 from 19.6 percent in 1995. This percentage decrease was primarily attributable to the increase in revenues recognized, offset by the increase in expenses actually incurred. DIVISIONAL OPERATING INCOME Operating income increased to $3.5 million in 1996 from $274,000 in 1995. The Company's concrete and related products division operating income increased to $4.9 million in 1996 from $1.3 million in 1995. This increase is primarily attributable to decreases in cost of sales and an increase in revenues for this division, offset by increases in SG&A expense. The Company's land development contracting division operating loss increased to a loss of $1.1 million in 1996 from a loss of $570,000 in 1995. This increase in loss is primarily attributable to the decline in contract revenues and increases in SG&A expense, principally legal fees associated with litigation regarding two of the Company's completed construction projects. INCOME TAXES Income taxes increased to $383,000 in 1996 from $145,000 in 1995. The Company's tax rate varies depending on the level of the Company's earnings in the various tax jurisdictions in which it operates, the level of operating loss carryforwards and tax exemptions available to the Company. See "Business - Tax Exemptions and Benefits". NET EARNINGS (LOSS) The Company's net earnings increased to income of $313,000 in 1996 from a net loss of $2.7 million in 1995. This increase in net earnings was primarily attributable to improvements in concrete and related products division profits, offset by increases in selling, general and administrative expenses, even though SG&A expense as a percentage of revenue declined. 15 COMPARISON OF YEAR ENDED DECEMBER 31, 1995 WITH YEAR ENDED DECEMBER 31, 1994 REVENUES The Company's revenues in 1995 were $56.2 million as compared to $65.2 million in 1994. This 13.9 percent decrease was primarily due to decreases in the Company's land development contracting revenues, and to a lesser extent decreases in concrete and related products division revenues. The Company's concrete and related products division revenues decreased 4.1 percent to $37.7 million in 1995 from $39.3 million in 1994. This decrease was primarily due to decreased demand for this division's products on two Caribbean islands, offset by increased demand on certain other islands. Hurricanes Luis and Marilyn, which struck the Caribbean in September 1995, disrupted business operations significantly in the short term, however, sales volume in all locations except two have returned to or exceeded pre-storm levels. Revenues from the Company's land development contracting division decreased by 30.0 percent to $16.1 million in 1995 from $22.9 million in 1994. This decrease was primarily attributable to the recognition of revenues in 1994 on several construction contracts obtained during the latter part of 1993. The Company's contracting operations were not significantly affected by the hurricanes, although it did acquire a number of hurricane-related repair and rebuilding projects. COST OF CONCRETE AND RELATED PRODUCTS Cost of concrete and related products as a percentage of concrete and related products revenues increased to 77.1 percent in 1995 from 74.2 percent in 1994. This increase was primarily attributable to changes in the mix of products sold and the decline in revenues actually recognized. COST OF CONTRACTING Cost of contracting as a percentage of land development contracting revenues increased to 87.8 percent in 1995 from 83.9 percent in 1994. This increase is attributable to the decline in revenues actually recognized, contract losses recognized on several contracts and the significant levels of cost involved in owning and operating heavy construction equipment. In addition, the Company's gross margins are also affected by the varying profitability levels of individual contracts and the stage of completion of such contracts. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses ("SG&A expense") increased by 10.7 percent to $11.0 million in 1995 from $9.9 million in 1994. This increase was primarily attributable to the opening of a new operation on St. Martin in 1995, and increases in insurance and other operating costs, offset by decreases in cost resulting from various personnel reductions. SG&A expense as a percentage of revenue increased to 19.6 percent in 1995 from 15.2 percent in 1994. This percentage increase was primarily attributable to the decrease in revenues recognized and the increase in expenses actually incurred. DIVISIONAL OPERATING INCOME Operating income decreased to $274,000 in 1995 from $4.5 million in 1994. The Company's concrete and related products division operating income decreased to $1.3 million in 1995 from $2.8 million in 1994. This decrease is primarily attributable to decreases in sales revenues and increases in cost of sales. 16 The Company's land development contracting division operating income decreased to a loss of $570,000 in 1995 from income of $1.7 million in 1994. This decrease is primarily attributable to declines in contract revenues recognized and losses taken on certain contracts. INCOME TAXES Income taxes increased to $145,000 in 1995 from $50,000 in 1994. The Company's tax rate varies depending on the level of the Company's earnings in the various tax jurisdictions in which it operates and the level of operating loss carryforwards and tax exemptions available to the Company. NET EARNINGS (LOSS) The Company's net loss was $2.7 million in 1995 as compared to income of $2.1 million in 1994. This net loss was primarily attributable to losses recognized in the Company's land development contracting division, declines in the concrete and related products division profits and the write-down of the Company's investment in its ceiling tile business. LIQUIDITY AND CAPITAL RESOURCES The Company generally funds its working capital needs from operations and bank borrowings. In the land development contracting business, the Company must expend considerable amounts of funds for equipment, labor and supplies to meet the needs of particular projects. The Company's capital needs are greatest at the start of any new contract, since the Company generally must complete 45 to 60 days of work before receiving the first progress payment. In addition, as a project continues, a portion of the progress billing is usually withheld as retainage until all work is complete, further increasing the need for capital. On occasion the Company has provided long-term financing to certain customers who have utilized its land development contracting services. The Company has also provided financing for other business ventures from time to time. With respect to the Company's concrete and related products division, accounts receivable are typically outstanding for a minimum of 60 days and in some cases much longer. The nature of the Company's business requires a continuing investment in plant and equipment, along with the related maintenance and upkeep costs of such equipment. The Company has funded many of these expenditures out of its current working capital. However, notwithstanding the foregoing and after factoring in the Company's obligations as set forth below, management believes that the Company's cash flow from operations, existing working capital (approximately $13.6 million at December 31, 1996) and funds available from lines of credit will be adequate to meet the Company's anticipated needs for operations during the next twelve months. The Company turned its fiscal year-end accounts receivable approximately 5.2 times in 1996, 4.7 times in 1995 and 4.5 times in 1994. The improvement in the Company's accounts receivable turnover ratio from 1995 to 1996 is due primarily to (i) a reduction in contract retainage receivables as a result of a gradual decline in the number of pending construction contracts held by the Company and (ii) modest improvements in the Company's collection process. The increase in the Company's accounts receivable turnover ratio has had only a modest effect on the Company's liquidity as the additional cash generated has been used for debt repayment and capital expenditures. At December 31, 1996, the Company had revolving secured lines of credit in the amount of $1.0 million, $1.0 million and $400,000 from commercial banks in South Florida and the Caribbean. The Company had no borrowings outstanding under one of the $1.0 million lines of credit, $1,000 in borrowings under the other $1.0 million line of credit, and $400,000 of borrowings outstanding under the $400,000 line of credit. One $1.0 million line expires in November 1997, the other 17 expires in June 1997 and the $400,000 line is due on demand. The interest rates on all such indebtedness outstanding at December 31, 1996 was 8.75 percent. The Company has a $500,000 unsecured overdraft facility from a commercial bank in the Caribbean. The facility is due on demand and bears interest at 14.0 percent per annum. At December 31, 1996 the Company had borrowings of $258,000 outstanding under this line. The Company has entered into a $5.0 million term loan with a Caribbean bank, repayable in monthly installments through December 2001. The interest rate on indebtedness outstanding at December 31, 1996 was 9.75 percent and the Company had $3.5 million of borrowings outstanding. The loan is secured by a leasehold mortgage on a marina in the U.S. Virgin Islands. The Company has borrowed $5.4 million from a Company officer. The note is unsecured, bears interest at the prime interest rate and is due in full on January 1, 1998. In November 1996, the Company entered into a $6.0 million term loan with a Caribbean bank. The loan proceeds were used to repay and retire a $2.0 million revolving line of credit which expired in May 1996, two term loans totalling $642,000, an equipment loan with a balance of $186,000, a term loan due in November 1996 with a balance of $1.5 million, a line of credit due in November 1996 with a balance of $567,000, another line of credit with a balance of $400,000, which expired in May 1996 and various other notes amounting to approximately $403,000. The balance of $302,000 was used to provide additional working capital for the Company. The loan is collateralized by various parcels of real property and other assets located in the United States Virgin Islands and certain other areas. The Company purchases equipment from time to time as needed for its ongoing business operations. The Company is currently replacing or upgrading various equipment used by the concrete and related products division, principally concrete trucks and quarry equipment. This upgrading and replacement program will continue throughout 1997 and should result in a net cash expenditure of approximately $2.2 million. At present, management believes that the Company's inventory of construction equipment is adequate for its current contractual commitments and operating activities, however, the acquisition of significant new construction contracts, depending on the nature of the contract, the job location and job duration, may require the Company to make significant investments in heavy construction equipment. If the Company does not obtain additional contract backlog, then it plans to sell a portion of the equipment it currently owns. The Company will have to bear the carrying costs, principally depreciation and interest, on any idle equipment not sold. During 1996, the Company has sold equipment with an original cost basis of approximately $18.4 million and net book value of $5.9 million. In December 1996, the Company sold its cement hauling vessel to a third party for $3.9 million. The Company has leased the vessel back for a four year term, with options to renew the lease for four additional one year periods. After the related debt on the vessel was repaid the Company received cash of approximately $2.0 million as a result of this transaction. The Company expects to complete additional equipment sales during 1997. The Company believes it has available or can obtain sufficient financing for most of its contemplated equipment replacements and additions. Historically, the Company has used a number of lenders to finance a portion of its machinery and equipment purchases on an individual asset basis. At December 31, 1996 amounts outstanding to these lenders totalled $6.5 million. These loans are typically repaid over a three to five year term in monthly principal and interest installments. A significant portion of the Company's outstanding debt bears interest at variable rates. The Company could be negatively impacted by a substantial increase in interest rates. 18 The Company has contingent obligations and has made certain guarantees in connection with acquisitions, its participation in certain joint ventures, certain employee and construction bonding matters and its receipt of a tax exemption. As part of the 1995 acquisition of Societe des Carrieres de Grand Case (SCGC), a French company operating a ready-mix concrete plant and quarry in St. Martin, the Company agreed to pay the quarry owners (who were also the owners of SCGC), a royalty payment of $550,000 per year through August 2000, which at the Company's option, may be renewed for two successive five year periods and requires annual payments of $550,000 per year. At the end of the fifteen year royalty period, the Company has the option to purchase a fifty hectare parcel of property for $4.4 million. In connection with a 1990 St. Maarten acquisition, the Company agreed to pay the seller annually an amount per unit of certain concrete and stone products sold by the Company in St. Maarten from April 1, 1990 to March 31, 1998, but in no event less than $500,000 per year. The Company has certain offsets available against this payment which has reduced the minimum annual payment to $350,000 per year. Notes receivable and accrued interest at December 31, 1996 include $14.6 million, net due the Company pursuant to certain promissory notes delivered to the Company in connection with two construction contracts with the Government of Antigua, $2.0 million of which is classified as a current receivable. The notes call for both quarterly and monthly principal and interest payments until maturity in 1997. The notes will not be satisfied at maturity but the Antiguan government has advised the Company that payments will continue until the obligation is satisfied. The Government of Antigua has routinely made the required quarterly payments aggregating $2.0 million per year but has made only some of the required monthly payments. A portion of the payment received from Antigua was derived from the lease proceeds the Antiguan government received from the United States Department of Defense for the rental of two military bases. One of the bases was closed at the end of 1995, resulting in a shortfall of $700,000 per year in the required quarterly payments. To partially make up this shortfall, the Antiguan government has entered into a written agreement with the Company requiring Antigua to pay $600,000 per year from its fuel tax revenues. Payments under this agreement commenced in January 1997. The Company does not presently anticipate any other material increases in or accelerations of payments by the Government of Antigua. Management believes that the receivable from the Government of Antigua is fairly stated, based on the present stream of cash flow being received and, therefore, no reserve has been established against the receivable reflected in the Company's financial statements. 19 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial information and the supplementary data required in response to this Item are as follows: PAGE NUMBER(S) -------------- Independent Auditors' Report 21 Financial Statements: Consolidated Balance Sheets 22-23 December 31, 1996 and 1995 Consolidated Statements of Operations For Each of the Years in the Three Year Period Ended December 31, 1996 24-25 Consolidated Statements of Stockholders' Equity For Each of the Years in the Three Year Period Ended December 31, 1996 26 Consolidated Statements of Cash Flows For Each of the Years in the Three Year Period Ended December 31, 1996 27-28 Notes to Consolidated Financial Statements 29-47 Schedule II - Valuation and Qualifying Accounts 53 20 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Devcon International Corp.: We have audited the consolidated financial statements of Devcon International Corp. and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and this financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and this financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Devcon International Corp. and subsidiaries at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996 in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG PEAT MARWICK LLP Fort Lauderdale, Florida March 25, 1997 21
DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Consolidated Balance Sheets December 31, 1996 and 1995 ASSETS 1996 1995 ------ ---- ---- Current assets: Cash (note 8) $ 303,994 $ 438,682 Cash equivalents (notes 7 and 8) 1,600,000 977,456 Receivables, net (notes 2 and 7) 13,803,565 12,043,706 Costs in excess of billings and estimated earnings (notes 16 and 17) 3,124,860 3,461,984 Inventories (note 3) 6,998,678 6,392,278 Other 825,853 936,446 Net assets of discontinued operation (note 9) - 749,114 ----------- ------------ Total current assets 26,656,950 24,999,666 Property, plant and equipment (note 7) Land 5,695,867 5,667,867 Buildings 4,146,231 4,248,816 Leasehold interests 12,210,055 12,590,763 Equipment 61,864,583 72,319,224 Furniture and fixtures 581,050 1,057,850 Construction in process 585,480 1,396,187 ---------- ------------ 85,083,266 97,280,707 Less accumulated depreciation (37,587,567) (45,898,662) ----------- ----------- 47,495,699 51,382,045 Investments in unconsolidated joint ventures and affiliates (note 4) 158,780 208,780 Advances to unconsolidated joint ventures and affiliates (note 4) 1,021,453 1,047,663 Receivables, net (notes 2 and 7) 17,296,278 17,585,097 Intangible assets, net of accumulated amortization (note 5) 1,093,907 1,086,801 Other assets 1,203,073 1,002,588 ----------- ----------- $94,926,140 $97,312,640 =========== ===========
22
DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Consolidated Balance Sheets (continued) LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995 ---- ---- Current liabilities: Accounts payable, trade and other $ 5,950,704 $ 6,501,977 Accrued expenses and other liabilities 1,163,944 1,451,429 Notes payable to banks (note 7) 400,000 3,467,310 Current installments of long-term debt (note 7) 4,424,726 7,274,506 Billings in excess of costs and estimated earnings (note 16) 112,652 766,399 Income taxes (note 8) 1,026,010 689,650 ----------- ----------- Total current liabilities 13,078,036 20,151,271 Long-term debt, excluding current installments and notes payable to banks (note 7) 19,251,369 15,547,908 Minority interest in consolidated subsidiaries (note 5) 1,925,446 675,853 Deferred income taxes (note 8) 495,400 651,979 Other liabilities 624,204 1,127,043 ----------- ----------- Total liabilities 35,374,455 38,154,054 Stockholders' equity (note 14): Common stock, $0.10 par value. Authorized 15,000,000 shares, issued and outstanding, 4,498,935 shares in 1996 and 4,464,510 shares in 1995 449,894 446,451 Additional paid-in capital 12,064,133 11,987,365 Retained earnings (note 8) 47,037,658 46,724,770 ----------- ----------- Total stockholders' equity 59,551,685 59,158,586 ----------- ----------- $94,926,140 $97,312,640 =========== ===========
Commitments and contingencies (notes 8, 11 and 17) See accompanying notes to consolidated financial statements. 23
DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Consolidated Statements of Operations For Each of the Years in the Three Year Period Ended December 31, 1996 1996 1995 1994 ---- ---- ---- Concrete and related products revenues $52,987,242 $37,716,253 $39,342,107 Contracting revenues 13,981,732 16,068,283 22,941,915 Other revenues 2,509,395 2,366,926 2,965,081 ----------- ----------- ----------- Total revenues 69,478,369 56,151,462 65,249,103 Cost of concrete and related products 39,276,983 29,069,207 29,200,324 Cost of contracting 12,457,949 14,102,977 19,249,741 Cost of other 1,913,286 1,720,911 2,387,592 ----------- ----------- ----------- Gross profit 15,830,151 11,258,367 14,411,446 Operating expenses: Selling, general and administrative 12,056,001 10,682,423 9,626,374 Provision for doubtful accounts and notes 302,863 301,510 300,000 ----------- ----------- ----------- Operating income 3,471,287 274,434 4,485,072 ----------- ----------- ----------- Other income (deductions): Joint venture equity loss (note 4) (50,000) - - Gain (loss) on sale of equipment (2,147) 164,116 34,895 Interest expense (2,609,580) (2,555,848) (2,704,105) Interest and other income 392,355 462,840 854,024 Minority interest (17,819) (31,693) (38,344) ----------- ----------- ----------- (2,287,191) (1,960,585) (1,853,530) ----------- ----------- ----------- Income (loss) from continuing operations before income taxes 1,184,096 (1,686,151) 2,631,542 Income taxes (note 8) 383,089 145,352 50,000 ----------- ----------- ----------- Income (loss) from continuing operations 801,007 (1,831,503) 2,581,542 Discontinued operation (note 9) Impairment loss - (800,000) - Loss from discontinued operation - (115,000) (470,076) Loss on sale of discontinued operation (488,119) - - ----------- ----------- ----------- Loss from discontinued operation (488,119) (915,000) (470,076) ----------- ----------- ----------- Net earnings (loss) $ 312,888 $(2,746,503) $ 2,111,466 =========== =========== ===========
See accompanying notes to consolidated financial statements. 24 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Consolidated Statements of Operations (Continued) 1996 1995 1994 ---- ---- ---- Earnings (loss) per share: From continuing operations $ .17 $ (.40) $ .57 From discontinued operation (.10) (.20) (.11) ----------- ---------- --------- Net earnings (loss) $ .07 $ (.60) $ .46 =========== ========== ========= Weighted average number of shares 4,672,179 4,566,671 4,560,397 =========== ========== ========= See accompanying notes to consolidated financial statements. 25
DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity For Each of the Years in the Three Year Period Ended December 31, 1996 ADDITIONAL COMMON PAID-IN RETAINED STOCK CAPITAL EARNINGS TOTAL ------ ---------- -------- ----- Balances at December 31, 1993 $443,118 $11,740,700 $47,359,807 $59,543,625 Net earnings - - 2,111,466 2,111,466 -------- ----------- ----------- ----------- Balances at December 31, 1994 443,118 11,740,700 49,471,273 61,655,091 Stock issued in connection with acquisition of additional partnership interest 3,333 246,665 - 249,998 Net loss - - 2,746,503) (2,746,503) -------- ----------- ----------- ----------- Balances at December 31, 1995 446,451 11,987,365 46,724,770 59,158,586 Stock issued in connection with exercise of stock options 3,443 76,768 - 80,211 Net earnings - - 312,888 312,888 -------- ----------- ----------- ----------- Balances at December 31, 1996 $449,894 $12,064,133 $47,037,658 $59,551,685 ======== =========== =========== ===========
See accompanying notes to consolidated financial statements. 26
DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Consolidated Statements of Cash Flows For Each of the Years in the Three Year Period Ended December 31, 1996 1996 1995 1994 ---- ---- ---- Cash flows from operating activities: Net earnings (loss) $ 312,888 $(2,746,503) $ 2,111,466 Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization 5,421,183 4,714,254 6,459,492 Deferred income tax benefit (156,579) (777,021) - Joint venture equity loss 50,000 - - Provision for doubtful accounts and notes 302,863 301,510 300,000 (Gain) loss on sale of equipment 2,147 (164,116) (34,896) Loss from discontinued operation 488,119 915,000 470,076 Increase in minority interest in consolidated subsidiaries 17,819 31,693 38,345 Changes in operating assets and liabilities: (Increase) decrease in receivables (2,314,992) 347,378 (523,019) Decrease (increase) in costs in excess of billings and estimated earnings 337,124 (850,490) (1,534,007) (Increase) decrease in inventories (606,400) 1,222,357 (78,381) Decrease (increase) in other current assets 136,804 17,399 (150,394) Increase in other assets - (65,249) (33,887) (Decrease) increase in accounts payable and accrued expenses (1,527,284) 858,170 (75,814) Increase (decrease) in billings in excess of costs and estimated earnings (653,747) 710,121 (375,372) Increase (decrease) in income taxes payable 336,360 641,375 (72,992) Increase (decrease) in other non current liabilities (502,838) 42,985 (288,224) ---------- ----------- ----------- Net cash provided by continuing operations 1,643,467 5,198,863 6,212,393 Net cash used by discontinued operation (102,005) (165,886) (1,010,422) ---------- ----------- ----------- Net cash provided by operating activities $ 1,541,462 $ 5,032,977 $ 5,201,971 =========== =========== ===========
See accompanying notes to consolidated financial statements. 27
DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Continued) 1996 1995 1994 ---- ---- ---- Cash flows from investing activities: Purchases of property, plant and equipment $(6,643,817) $(6,249,083) $(3,319,741) Proceeds from disposition of property, plant and equipment 5,876,197 697,887 665,945 Payment to acquire subsidiary company (171,711) (1,000,000) - Issuance of notes (245,477) (227,233) (2,697,116) Payments on notes 2,478,790 2,831,286 3,137,015 Advances to affiliates - (36,209) (59,130) Advances from affiliates - 340,000 100,000 ----------- ----------- -------- Net cash provided by (used in) investing activities 1,293,982 (3,643,352) (2,173,027) ----------- ----------- ----------- Cash flows from financing activities: Proceeds from debt 12,345,275 9,540,913 7,301,564 Principal payments on debt (14,973,904) (10,140,800) (11,350,542) Payments for debt issuance costs (200,485) - - Net borrowings (repayments) from bank overdrafts 481,526 (315,650) 698,257 ----------- ----------- ----------- Net cash used in financing activities (2,347,588) (915,537) (3,350,721) ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents 487,856 474,088 (321,777) Cash and cash equivalents at beginning of year 1,416,138 942,050 1,263,827 ----------- ----------- ----------- Cash and cash equivalents at end of year $ 1,903,994 $ 1,416,138 $ 942,050 =========== =========== =========== Supplemental disclosures of cash flow information: Cash paid for: Interest $ 2,648,250 $ 2,579,748 $ 3,017,610 =========== =========== =========== Income taxes $ 203,308 $ 87,888 $ 147,938 =========== =========== ===========
Supplemental non-cash items: During 1995, the Company issued 33,333 shares of common stock to acquire an additional interest in a Mexican manufacturing partnership. During 1996, the minority interest shareholders in the new subsidiary operating in Puerto Rico exchanged equipment, leaseholds and notes receivable totalling $1,231,774 for their 49.98% ownership. During 1996, Common Stock under the 1986 Stock Option Plan was issued in exchange for officer and employee receivables totaling $130,436. See accompanying notes to consolidated financial statements. 28 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years ended December 31, 1996, 1995 and 1994 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Devcon International Corp. and its majority owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The Company's investments in unconsolidated joint ventures and affiliates are accounted for by the equity method. Under the equity method, original investments are recorded at cost and adjusted by the Company's share of undistributed earnings or losses of these companies. (b) REVENUE RECOGNITION CONCRETE AND RELATED PRODUCTS Revenue is recognized when the products are delivered. CONTRACTING The Company uses the percentage of completion method of accounting for financial statement preparation and tax reporting purposes. Revenues earned and related costs are recorded based on the Company's estimates of the percentage of completion of each project using the cost to cost method. Anticipated losses on contracts are charged to earnings when probable and estimable. Changes in estimated profits on contracts are recorded in the period of change. Selling, general and administrative expenses are not allocated to contract costs. Monthly billings are based on the percentage of work completed in accordance with a specific contract. Contracts are generally completed within one year of the commencement date, although the Company has had contracts that extended past one year. OTHER Other revenue consists of revenue from a marina owned by the Company. Revenue is recognized when products or services are delivered. (c) CASH AND CASH EQUIVALENTS The Company considers certificates of deposits, commercial paper and repurchase agreements with an original maturity or restriction of three months or less at time of purchase to be cash equivalents. (d) INVENTORIES The cost of sand, stone, cement and concrete block inventories is determined using average costs approximating the first-in, first-out (FIFO) method and is not in excess of market. All other inventories are stated at the lower of average cost or market. 29 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements (e) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost. Depreciation on property, plant and equipment is calculated on the straight-line method over the estimated useful lives of the assets. Property, plant and equipment and leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the estimated useful life of the asset. Useful lives and/or lease terms for each asset type are summarized below: Buildings 15 - 40 years Leasehold interests 3 - 55 years Equipment 3 - 20 years Furniture and fixtures 3 - 10 years During 1995, the Company changed the estimated useful lives of certain equipment used by the concrete and related products and land development contracting divisions in order to more closely match the useful lives to the actual service life of the assets. This change in useful lives was made prospectively and reduced annual depreciation expense for 1995 by approximately $900,000 as compared to 1994. (f) FOREIGN CURRENCY TRANSLATION The Company owns subsidiaries whose functional currencies are the Eastern Caribbean Dollar and the French Franc. The assets and liabilities of these subsidiaries have been translated into U.S. dollars at year end exchange rates. Income statement accounts are translated into U.S. dollars at average exchange rates during the period. Resulting translation adjustments were not significant. (g) INTANGIBLE ASSETS The excess of cost over the fair value of net assets of subsidiaries acquired is amortized over five to ten year periods on a straight-line basis. The Company periodically evaluates the recoverability of its intangible assets as well as their amortization periods to determine whether an adjustment to the carrying value or a revision to the estimated useful lives is appropriate. The primary indicators of recoverability are the current and forecasted operating cash flows which pertain to that particular asset. An entity that has a deficit in its cash flow from operations for a full fiscal year, in light of the surrounding economic environment, is viewed by the Company as a situation which could indicate an impairment of value. Taking into account the above factors, the Company determines that an impairment loss has been triggered when the future projected undiscounted cash flows associated with the intangible asset does not exceed its current carrying amount and the amount of the impairment loss to be recorded is the difference between the current carrying amount and the future projected discounted cash flows. Based on the Company's policy, management believes that there is no impairment of value related to the intangible assets as of December 31, 1996. Accumulated amortization on intangible assets amounted to $371,187 in 1996 and $206,582 in 1995. 30 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements (h) EARNINGS (LOSS) PER SHARE Primary earnings (loss) per share is computed by dividing the weighted average number of shares outstanding during each year, increased by common equivalent shares (stock options) using the treasury stock method. Fully diluted earnings per share did not differ significantly from primary earnings per share in any of the years presented. (i) FOREIGN OPERATIONS Various portions of the Company's operations are conducted in foreign areas, primarily Antigua, St. Maarten, St. Martin, Dominica, Saba, St. Kitts and Tortola, all of which are in the Caribbean. In 1996, 52.5 percent of the Company's revenues were derived from foreign operations. Overseas contract work performed by the parent company (a United States corporation) is not considered foreign source revenue for purposes of the foregoing calculation. The majority of contract work is performed by the parent company. The potential risks of doing business in foreign areas include potential adverse changes in the diplomatic relations of foreign countries with the United States, changes in the relative purchasing power of the United States dollar, hostility from local populations, adverse effects of exchange controls, restrictions on the withdrawal of foreign investment and earnings, government policies against busi nesses owned by non-nationals, expropriations of property, the instability of foreign governments and the risk of insurrection that could result in losses against which the Company is not insured. The Company was not subject to these risks in Florida and is not subject to them in Puerto Rico or the United States Virgin Islands (United States territories that use the United States dollar as their currency). Although the Company has not encountered significant difficulties in its foreign operations in the past, there can be no assurance that the Company will not encounter difficulties in the future. (j) INCOME TAXES The Company and certain of its domestic subsidiaries file consolidated Federal and state income tax returns. Subsidiaries located in U.S. possessions and foreign countries file individual income tax returns. Deferred income taxes are recognized for income and expense items that are reported in different years for financial reporting and income tax purposes. U.S. income taxes are not provided on undistributed earnings which are expected to be permanently reinvested by the foreign subsidiaries located in Antigua, the Netherlands Antilles, the French West Indies, the British Virgin Islands, Dominica, Grand Cayman, the Bahamas and certain subsidiaries located in U.S. possessions. The Company accounts for income taxes under the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under the asset and liability method of Statement 109, deferred tax assets and liabilities are recognized for the 31 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Under Statement 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income for the period that includes the enactment date. (k) USE OF ESTIMATES Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with generally accepted accounting principles. (l) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF The Company adopted the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on January 1, 1996. This Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Adoption of this Statement did not have a material impact on the Company's financial position, results of operations, or liquidity. (m) STOCK OPTION PLAN Prior to January 1, 1996, the Company accounted for its stock option plan in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. On January 1, 1996, the Company adopted SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123. 32
DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements (2) RECEIVABLES Receivables consist of the following: DECEMBER 31, ----------------------------------- 1996 1995 ---- ---- Concrete and related products division trade accounts receivable $10,005,085 $ 7,469,882 Land development contracting division trade accounts receivable, including retainages 2,992,384 3,307,229 Other division trade accounts receivable 167,093 73,180 Accrued interest and other receivables 71,715 303,722 Notes and other receivables due from the Government of Antigua and Barbuda 15,642,579 17,274,649 Trade notes receivable - other 4,181,837 2,853,673 Due from employees and officers 1,010,741 802,869 ----------- ----------- 34,071,434 32,085,204 Allowance for doubtful accounts and notes (2,971,591) (2,456,401) ----------- ----------- $31,099,843 $29,628,803 =========== ===========
Receivables are classified in the consolidated balance sheets as follows:
DECEMBER 31, ---------------------------- 1996 1995 ------ ---- Current assets $13,803,565 $12,043,706 Noncurrent assets 17,296,278 17,585,097 ----------- ----------- $31,099,843 $29,628,803 =========== ===========
Retainage will be due upon completion of construction contracts and acceptance by the customer. The Company expects retainage will be collected during 1997. Included in notes and other receivables are unsecured notes due from the Government of Antigua and Barbuda amounting to $14,598,656 and $16,218,549 in 1996 and 1995, respectively, which were delivered to the Company in connection with two construction contracts performed by the Company for the Government of Antigua and Barbuda, $2.0 million of which is classified as a current receivable. The notes are accounted for using the cost recovery method and all payments received are applied against the outstanding principal balance of the notes. The notes call for both quarterly and monthly principal and interest payments until maturity in 1997. The notes will not be satisfied at maturity but the Antiguan government has advised the Company that payments will continue until the obligation is satisfied. The Government of Antigua has routinely made the required quarterly payments aggregating $2.0 million per year but has made only some of the required monthly payments. A portion of the payment received from Antigua is derived from the lease proceeds the Antiguan government receives from the United States Department of Defense for the rental of two military bases. One of the bases was closed at the end of 1995, resulting in a shortfall of $700,000 per year in the required quarterly payments. To partially make up this shortfall, the Antiguan government has entered into a written agreement with the Company requiring Antigua to pay $600,000 per year from its fuel tax revenues. Payments under this agreement commenced in January 1997. The Company does not 33 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements presently anticipate any other material increases in or accelerations of payments by the Government of Antigua. Notes receivable from an Antiguan government agency, amounting to $855,803 in 1996 and 1995, are included in the total due from the government of Antigua, along with Antigua-Barbuda Government Development Bonds 1994-1997 series amounting to $188,120 and $200,297 in 1996 and 1995, respectively. The Company also has trade receivables from various Antiguan government agencies of $476,652 and $717,554 in 1996 and 1995, respectively. Several of the Company's customers perform services for the Antiguan government and depend on payments from the government to satisfy their obligations to the Company. Employee receivables consist primarily of amounts due from certain officers and employees as a result of payments made by the Company pursuant to a split dollar life insurance plan. The Company's advances to pay premiums are secured by a pledge of the cash value of the issued policies. Amounts due the Company under the split dollar plans amounted to $493,167 and $403,028 in 1996 and 1995, respectively. Trade notes receivable - other consist of the following:
DECEMBER 31, ---------------------------- 1996 1995 ---- ---- Unsecured promissory notes receivable with varying terms and maturity dates $ 326,988 $ 262,711 Secured promissory notes receivable with varying terms and maturity dates 513,880 692,367 8 percent note receivable due in weekly installments from April 1994 through April 1997, with a balloon payment due in April 1997, secured by first and second mortgages on two parcels of land 467,816 536,431 8 percent note receivable, due on demand, secured by first mortgage on real property 805,341 812,763 Notes receivable bearing interest at 2% over prime interest rate, secured by real estate 549,402 549,401 8 percent note receivable, due in installments through July 2005, secured by land and building 600,000 - 12.5 percent note receivable, due in installments through June 30, 2001 and secured by pledge of stock of subsidiary company (see note 5) 604,760 - 6 percent note receivable, due in monthly installments from August 1997 through July 2000 313,650 - ---------- ---------- $4,181,837 $2,853,673 ========== ==========
34
DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements (3) INVENTORIES DECEMBER 31, ----------------------------- 1996 1995 ----- ---- Inventories consist of the following: Sand, stone, cement and concrete block $5,262,116 $4,744,067 Maintenance parts 1,232,562 1,318,037 Other 504,000 330,174 ---------- ---------- $6,998,678 $6,392,278 ========== ==========
(4) INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED JOINT VENTURES AND AFFILIATES At December 31, 1996, the Company has equity interests in two real estate ventures, a 43 percent equity interest in a foreign construction company and a 1 percent equity interest in a commercial property development in Antigua. One real estate joint venture was formed primarily to acquire and develop land for sale in Antigua, West Indies. The other real estate venture was formed to develop property in Florida and has insignificant assets and operations. A loss of $50,000 was recognized in 1996 related to the Company's investment in the foreign construction company. The Company recognized no gain or loss on this venture in 1995. No income or loss was recognized in 1996 and 1995 on any of the other ventures because the amounts were not material.
DECEMBER 31, 1996 DECEMBER 31, 1995 ----------------- ----------------- UNCONSOLIDATED JOINT UNCONSOLIDATED JOINT VENTURES AND AFFILIATES VENTURES AND AFFILIATES ----------------------- ----------------------- ADVANCES INVESTMENTS ADVANCES INVESTMENTS TO IN TO IN -------- ----------- -------- ----------- Commercial property $ 11,323 $ - $ 11,323 $ - Real estate 960,130 8,780 960,130 8,780 Construction 50,000 150,000 76,210 200,000 ---------- ---------- ---------- ---------- $1,021,453 $ 158,780 $1,047,663 $ 208,780 ========== ========== ========== ==========
(5) ACQUISITIONS In May 1996, the Company contributed approximately $1.2 million in capital to a new subsidiary company in return for a 50.02 percent ownership interest. The new subsidiary leases and operates a quarry in Puerto Rico. Capital contributions of the Company's minority ownership partners, amounting to approximately $1.2 million, are classified as part of minority interest in consolidated subsidiaries. On August 16, 1995, the Company acquired, for $1,000,000 cash, the stock of Societe des Carrieres de Grand Case (SCGC), a French company engaged in the ready mix concrete and quarry business on the French island of St. Martin. The transaction was accounted for as a purchase. As a result of the transaction the Company recorded costs in excess of the fair value of the net assets purchased in the amount of $615,000. 35 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements (6) FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of financial instruments including cash, cash equivalents, receivables, net, other current assets, accounts payable trade and other, accrued expenses and other liabilities, notes payable to banks, and current installments of long-term debt approximated fair value at December 31, 1996 because of the short maturity of these instruments. The carrying value of debt and notes receivable approximated fair value at December 31, 1996 based upon the present value of estimated future cash flows. (7) LONG-TERM DEBT Long-term debt consists of the following:
DECEMBER 31, ---------------------------- 1996 1995 ---- ---- Installment notes payable in monthly installments through 2001, bearing interest at a weighted average rate of 9.06 percent and secured by equipment with a carrying value of approximately $9,246,000 $6,943,967 $5,630,811 Notes and mortgages payable in installments through 2003, bearing interest at 8.0 to 10.75 percent and secured by equipment and real property with a carrying value of approximately $4,574,000 4,027,166 5,799,189 Obligation arising from an acquisition, payable in monthly installments through 1998, discounted at 10 percent 375,895 621,520 Unsecured notes payable due through 1998, bearing interest at a weighted average rate of 7.4 percent 1,013,838 2,269,445 Unsecured note payable to a Company officer, due January 1, 1998 and bearing interest at the prime interest rate 5,397,561 4,712,561 Note payable to bank under a $400,000 revolving line of credit, due on demand, secured by a certificate of deposit and bearing interest at the prime interest rate 400,000 400,000 Note payable to a bank under a $1,000,000 revolving line of credit, maturing in June 1997, bearing interest at 1/2 percent over the prime interest rate and secured by real property with a net carrying value of approximately $1,880,000 1,000 517,000
36
DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements DECEMBER 31, ------------------------------ 1996 1995 ---- ---- Note payable to a bank under a $1,000,000 revolving line of credit, maturing in November 1997, secured by notes receivable from the Government of Antigua, real property and equipment and bearing interest at 1 percent over the prime interest rate - - Bank term loan of $6,000,000 due in monthly installments from December 1996 through November 2002 and bearing interest at 1 percent over the prime interest rate. Secured by notes receivable from the Government of Antigua and real property and equipment with a net carrying value of approximately $7,622,000 5,916,668 - Installment and bank notes payable repaid or refinanced during 1996 - 6,339,198 ----------- ----------- Total debt outstanding $24,076,095 $26,289,724 =========== ===========
The effective interest on all debt outstanding was 10.4% at December 31, 1996 and 9.6% at December 31, 1995. Shown in the consolidated balance sheet under the following captions:
DECEMBER 31, ------------------------------ 1996 1995 ---- ---- Current installments of long term debt $ 4,424,726 $ 7,274,506 Notes payable to banks 400,000 3,467,310 Long-term debt 19,251,369 15,547,908 ----------- ----------- $24,076,095 $26,289,724 =========== ===========
The total maturities of long-term debt subsequent to December 31, 1996 are as follows:
1997 $ 4,824,726 1998 9,100,766 1999 3,320,869 2000 4,229,399 2001 1,190,207 Thereafter 1,410,128 ----------- $24,076,095 ===========
37
DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements (8) INCOME TAXES Income tax expense (benefit) consists of: CURRENT DEFERRED TOTAL ------- -------- ----- 1996: Federal $ - $ - $ - State - - - Foreign 539,668 (156,579) 383,089 -------- --------- -------- $539,668 $(156,579) $383,089 ======== ========= ======== 1995: Federal $ 5,000 $ - $ 5,000 State - - - Foreign 917,373 (777,021) 140,352 -------- --------- --------- $922,373 $(777,021) $ 145,352 ======== ========= ========= 1994: Federal $ - $ - $ - State - - - Foreign 50,000 $ - 50,000 -------- --------- -------- $ 50,000 $ - $ 50,000 ======== ========= ======== The significant components of deferred income tax benefit attributable to income or loss from continuing operations for the years ended December 31, 1996, 1995 and 1994 are as follows: 1996 1995 1994 ---- ---- ---- Deferred income tax expense (exclusive of component below) $ 364,000 $2,342,000 $ - Decrease in valuation allowance for deferred tax assets (530,579) (3,119,021) - --------- ---------- -------- $(156,579) $ (777,021) - ========= ========== ========
The actual expense differs from the "expected" tax expense computed by applying the U.S. Federal corporate income tax rate to earnings before income taxes as follows:
1996 1995 1994 ---- ---- ---- Computed "expected" tax expense (benefit) $ 402,000 $ (934,000) $ 718,000 Increase (reduction) in income taxes resulting from: Tax incentives granted to a subsidiary in U.S. possession (94,000) - - Tax incentives granted to foreign subsidiaries (1,097,000) (1,208,000) (1,307,000) Change in deferred tax valuation allowance (520,579) - - Net operating losses not utilized 1,648,979 2,294,000 598,000 Other 43,089 (6,648) 41,000 ---------- ---------- ---------- $ 383,089 $ 145,352 $ 50,000 ========== ========== ==========
38
DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) net operating loss carryforwards. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1996 are presented below: DECEMBER 31, ----------------------------------------- Deferred tax assets: 1996 1995 ---- ---- Net operating loss carryforwards $ 6,024,000 $ 5,841,000 Other - 182,000 ----------- ----------- Total gross deferred tax assets 6,024,000 6,023,000 Less valuation allowances (3,614,400) (4,134,979) Net deferred tax assets 2,409,600 1,888,021 ----------- ----------- Deferred tax liabilities: Plant and equipment, principally due to differences in depreciation and capitalized interest (2,458,000) (1,693,000) Investments in joint ventures, principally due to differences in recording the investment between book and tax (447,000) (847,000) ----------- ----------- Total gross deferred tax liabilities (2,905,000) (2,540,000) ----------- ----------- Net deferred tax liability $ (495,400) $ (651,979) =========== ===========
The valuation allowance for deferred tax assets as of December 31, 1996 was $3,614,400. The valuation allowance was established at approximately 60 percent of the potential deferred tax benefit as the Company believes it can utilize net operating losses via partial repatriation of foreign subsidiary earnings. In April 1988, the Virgin Islands Industrial Development Commission (IDC) granted a subsidiary of the Company a 10-year tax exemption expiring in April 1998, pursuant to which, and subject to certain conditions and exceptions, the Company's (i) production and sale of ready-mix concrete; (ii) production and sale of concrete block on St. Thomas and St. Johns and outside of the Virgin Islands; (iii) production and sale of sand and aggregate; and (iv) bagging of cement from imported bulk cement, are 100 percent exempt from all United States Virgin Islands real property, gross receipts (currently set at 4 percent) and excise taxes, 90 percent exempt from United States Virgin Islands income taxes, and approximately 83 percent exempt from United States Virgin Islands custom duties. The IDC granted the Company the tax exemption in return for the Company's commitment to (i) make capital expenditures of at least $4.6 million for new or replacement equipment over a 10-year period, which the Company has satisfied; (ii) employ a minimum of 142 United States Virgin Islands residents as full-time personnel; (iii) spend at least $75,000 annually for a youth training program; (iv) not increase the price of its concrete and related products except as the result of certain direct cost increases 39 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements incurred by the Company over which it has no control; and (v) make an annual scholarship fund contribution of $150,000. In January 1994, the Company received a five year extension, through April 2003, of its previously granted benefits. This extension was granted in return for the Company agreeing to (i) continue to employ a minimum of 160 United States Virgin Islands residents as full time personnel; (ii) make additional capital expenditures of $1.7 million; and (iii) continue to make a combined job training/scholarship contribution of $225,000 per annum during the extension period. The Company believes it is in compliance with all the requirements of this program. In partial consideration for the Company's work on a major contract, the Government of Antigua granted two subsidiaries of the Company a 10-year tax holiday effective January 1, 1987 and expiring on December 31, 1996 from all taxes due (i) in connection with the Company's construction contract with Antigua to, among other things, dredge St. John's harbor, (ii) as a result of the Company's participation in a joint venture to develop 230 acres of vacant land as well as 20,000 square feet of commercial property in Antigua; and (iii) in connection with the Company's sale of concrete and related products in Antigua. The tax holiday also exempted the Company from certain accrued tax liabilities. In 1989, in connection with and in consideration for additional work done by the Company with respect to the foregoing contract, the Government of Antigua granted an additional tax exemption to the Company. The tax exemption exempts the Company from taxes that would otherwise result from the Company's income relating to a construction contract in Jolly Harbor, Antigua. The Company is currently negotiating with the government of Antigua regarding the tax holiday which expired at the end of 1996. The Company is seeking an extension of the current tax holiday, or as an alternative, the offset of any taxes due against sums due the Company from the Government of Antigua and Barbuda. Although there is no assurance, management believes that one of these two alternatives will ultimately be obtained. At December 31, 1996, approximately $42.5 million of foreign subsidiaries earnings have not been distributed and no U.S. income taxes have been provided thereon as these earnings are considered permanently reinvested in the subsidiaries operations, and in the year earned, were not of the nature which would require current income tax recognition under United States income tax laws. Current assets include approximately $1.9 million of cash and cash equivalents that the Company currently intends to use to fund foreign operations and U.S. possession operations, respectively, due to U.S. income tax restrictions. Should the foreign subsidiaries distribute these earnings to the parent company or provide the parent company access to these earnings through other means, taxes at the U.S. Federal tax rate, net of foreign tax credits, may be incurred. At December 31, 1996, the Company had accumulated net operating loss carryforwards available to offset future taxable income in their Caribbean and United States operations of approximately $17.7 million, which expire in varying periods through the year ended December 31, 2004. (9) DISCONTINUED OPERATIONS In September 1989, a subsidiary of the Company obtained a minority interest in a partnership engaged in the manufacture, sale and distribution of acoustical ceiling tiles. The subsidiary invested 40 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements approximately $1.2 million in the partnership for a 29 percent interest and two of the Company's directors obtained an 11 percent interest for which they paid $450,000. In January 1994, an Antiguan subsidiary of the Company became the new general partner and the Company's ownership interest in the partnership was increased to 64.47 percent. The directors' ownership interest was reduced to 6.47 percent. In November 1995 the Company decided to sell this operation because of its poor operating results and uncertain prospects for improvement. Accordingly, at December 31, 1995, the intended disposal has been accounted for as a discontinued operation. The financial statements for all prior periods presented have been restated to reflect the ceiling tile partnership as a discontinued operation. The Company's investment in the partnership was written down $800,000, to its estimated net realizable value of approximately $749,000, which consists principally of property, equipment and inventory with a net book value of approximately $1.4 million, along with debt of approximately $621,000. The Company provided no reserve for anticipated losses during the phaseout period and expects to recognize no income tax benefit on the loss from discontinued operations. The Company sold its interest in the ceiling tile business in September 1996 in exchange for one secured promissory note in the amount of $600,000 and one unsecured promissory note in the amount of $385,000 and took an additional loss on disposal of approximately $488,000. (10) FOREIGN SUBSIDIARIES Summary combined financial information for the Company's foreign subsidiaries, located in the Caribbean, except for those located in the U.S. Virgin Islands and Puerto Rico follows: DECEMBER 31, -------------------------- 1996 1995 ---- ---- Current assets $14,707,914 $11,903,636 Advances to the Company (3,821,952) 1,533,672 Property, plant and equipment, net 22,144,913 25,103,665 Investment in joint ventures and affiliates 1,158,233 1,180,234 Notes receivable 15,923,419 17,004,414 Other assets 1,432,475 803,252 ----------- ----------- Total assets $51,545,002 $57,528,873 =========== =========== Current liabilities $ 4,453,492 $ 6,037,488 Long-term debt 1,916,966 5,937,412 Equity 45,174,544 45,553,973 ----------- ----------- Total liabilities and equity $51,545,002 $57,528,873 =========== =========== 1996 1995 1994 ---- ---- ---- Revenue $36,474,931 $29,858,843 $30,186,482 Expenses 34,283,074 27,955,868 26,284,718 ----------- ----------- ----------- Net earnings $ 2,191,857 $ 1,902,975 $ 3,901,764 =========== =========== =========== 41 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements (11) LEASE COMMITMENTS The Company leases real property, buildings and equipment under operating leases that expire over one to fifty-five years. Future minimum lease payments under noncancellable operating leases as of December 31, 1996 are as follows: OPERATING LEASES --------- Years ending December 31, 1997 $ 3,820,219 1998 3,726,174 1999 3,737,237 2000 3,596,555 2001 1,395,511 Thereafter 14,708,301 ----------- Total minimum lease payments $30,983,997 =========== Total rent expense for operating leases was $1,843,719 in 1996, $1,147,041 1995 and $950,908 in 1994. Some operating leases have provisions for contingent rentals or royalties based on related sales and production; such contingent expense amounted to $160,433 in 1996, $63,575 in 1995 and $131,041 in 1994. Included in the above minimum lease commitments are royalty payments due to the owners of the SCGC quarry. See note 17. During October 1996, the Company entered into an agreement for the sale and leaseback of the Company's bulk cement vessel. The vessel was sold for $3,850,000, which approximated net book value and related costs of disposition. The proceeds from the sale were utilized to repay debt on the vessel of approximately $1.8 million. The four year lease is classified as an operating lease. The Company has the option to renew the lease at the end of the original lease term for four additional one year terms. (12) LINES OF BUSINESS The Company operates primarily in two principal lines of business. Information about the Company's operations in these different industries are as follows:
Revenues: 1996 1995 1994 ---- ---- ---- Concrete and related products $52,987,242 $ 37,716,253 $ 39,342,107 Contracting 13,981,732 16,068,283 22,941,915 Other 2,509,395 2,366,926 2,965,081 ----------- ------------ ------------ Total $69,478,369 $ 56,151,462 $ 65,249,103 =========== ============ ============ Operating income (loss): Concrete and related products $ 4,864,592 $ 1,252,108 $ 2,841,153 Contracting (1,093,272) (569,224) 1,746,494 Other 415,967 409,550 321,425 Unallocated corporate overhead (716,000) (818,000) (424,000) ----------- ------------ ------------ Total $ 3,471,287 $ 274,434 $ 4,485,072 =========== ============ ============ Identifiable assets: Concrete and related products $59,977,842 $ 54,885,292 $ 53,009,725 Contracting 30,912,211 37,346,656 40,691,336 Other 4,036,087 5,080,692 5,839,934 ----------- ------------ ------------ Total $94,926,140 $ 97,312,640 $ 99,540,995 =========== ============ ============
42 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements 1996 1995 1994 ---- ---- ---- Depreciation and amortization: Concrete and related products $ 3,889,666 $ 3,187,278 $ 4,256,729 Contracting 1,261,863 1,257,950 1,939,495 Other 269,654 269,026 263,268 ----------- ------------ ------------ Total $ 5,421,183 $ 4,714,254 $ 6,459,492 =========== ============ ============ Capital expenditures: Concrete and related products $ 5,539,134 $ 3,484,749 2,063,196 Contracting 1,072,683 2,764,334 1,232,690 Other 32,000 - 23,855 ----------- ------------ ------------ Total $ 6,643,817 $ 6,249,083 $ 3,319,741 =========== ============ ============ Revenues by line of business include only sales to unaffiliated customers, as reported in the Company's consolidated statement of operations. Operating income (loss) is revenues less operating expenses. In computing operating income (loss), the following items have not been added or deducted: interest expense, income tax expense, equity in earnings from unconsolidated joint ventures and affiliates, interest and other income, minority interest and gain or loss on sales of equipment. (13) RELATED PARTY TRANSACTIONS The Company leases a 4.4 acre parcel of real property from the Company's President, pursuant to which he received $48,605 in annual rent in 1996. The Company has borrowed approximately $5.4 million from a Company officer. The note is unsecured, bears interest at the prime interest rate and is due in full on January 1, 1998. See note 7. (14) STOCK OPTION PLANS The Company adopted stock option plans for officers and employees in 1986 (the "1986 Plan") and 1992 (the "1992 Plan"). Each plan terminates 10 years after the adoption date. Until 1996 and 2002, respectively, options to acquire up to 300,000 and 350,000 shares, respectively, of common stock may be granted to officers and employees of the Company at no less than the fair market value on the date of grant. All stock options granted pursuant to the 1986 Plan vest and become fully exercisable (i) on the date the Optionee reaches the age of 65 years old and for the six month period thereafter or as otherwise modified by the Company's Board of Directors, (ii) on the date of permanent disability of the Optionee and for the six month period thereafter, (iii) on the date of a change of control and for the six month period thereafter and (iv) on the date of termination of the Optionee by the Company from employment with the Company without cause and for the six month period after termination. 43 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements All stock options granted pursuant to the 1992 Plan vest and become exercisable in varying terms and periods which are established by the Compensation Committee of the Board of Directors. All options issued pursuant to the 1992 Plan expire ten years after the date of issue. The Company adopted a stock option plan for nonemployee directors in 1992 (the "1992 Directors Plan"). This plan terminates in 2002. Options to acquire up to 50,000 shares of common stock may be granted to nonemployee directors at no less than the fair market value on the date of grant. The 1992 Directors Plan provides that each director shall receive an initial grant of 8,000 shares and be granted an additional 1,000 shares annually immediately subsequent to their reelection as a director of the Company. All stock options have ten year terms and vest and become fully exercisable six months after the date of issue. Stock option activity for all plans during the periods indicated is as follows:
(All exercise prices rounded to the nearest dollar) 1986 PLAN 1992 PLAN DIRECTORS PLAN ------------------------- -------------------- --------------------- EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE ------ -------- ------ -------- ------ -------- Balance at 12/31/93 186,330 $2 to $7 40,000 $10 27,000 $6 to $14 Granted - - - - 3,000 $9 Exercised - - - - - - Expired - - - - - - ------- ------ ------- ------- Balance at 12/31/94 186,330 $2 to $7 40,000 $10 30,000 $6 to $14 Granted - - 210,000 $7 3,000 $8 Exercised - - - - - - Expired - - - - - - ------- ------- ------- ------- Balance at 12/31/95 186,330 $2 to $7 250,000 $7 to $10 33,000 $6 to $14 Granted - - 30,000 $8 10,000 $9 Exercised (34,425) $2 - - - - Expired - - - - (11,000) $6 to $14 ------- ------- ------- ------- Balance at 12/31/96 151,905 $2 to $7 280,000 $7 to $10 32,000 $6 to $14 ======= ======= ======= Exercisable 121,990 72,000 32,000 ------- ------- ------- Available for Future Grant -0- 70,000 18,000 ======= ======= =======
The per share weighted-average fair value of stock options granted during 1996 and 1995 was $4.30 and $3.39 on the date of grant using the Black Scholes option-pricing model with the following weighted-average assumptions: 1996 - expected dividend yield of 0%, risk free interest rate of 7.0% and an expected life of 10 years; 1995 - expected dividend yield of 0%, risk-free interest rate of 7.0% and an expected life of 10 years. 44 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements The Company applies APB Opinion No. 25 in accounting for its Plan and, accordingly, no compensation cost has been recognized for its stock options in the financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's net income or loss would have been the pro forma amounts indicated below: NET INCOME 1996 1995 1994 ---------- ---- ---- ---- Net income (loss), as reported $312,888 $(2,746,503) $2,111,466 Net income (loss), pro forma $125,428 $(2,758,143) $2,097,306 Earnings (loss) per share from continuing operations, as reported $ .17 $ (.40) $ .57 Earnings (loss) per share from continuing operations, pro forma $ .13 $ (.40) $ .56 Pro forma net income (loss) reflects only options granted in 1996, 1995 and 1994. The full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma net income (loss) amounts presented above because compensation cost is reflected over the options' vesting period of five years and compensation cost for options granted prior to January 1, 1994 is not considered. (15) EMPLOYEE BENEFIT PLANS The Company sponsors a 401(k) plan for all employees over the age of 21 with 1,000 hours of service in the previous 12 months of employment. Employee contributions are matched by the Company up to 3 percent of an employee's salary. The Company's contributions totaled $148,758 in 1996, $129,518 in 1995 and $134,146 in 1994. (16) COSTS AND ESTIMATED EARNINGS ON CONTRACTS 1996 1995 ---- ---- Costs incurred on uncompleted contracts $ 65,279,390 $ 39,745,046 Costs incurred on completed contracts 22,764,409 43,155,784 Estimated earnings 16,851,270 18,181,493 ------------ ------------ 104,895,069 101,082,323 Less: Billings to date (101,882,861) (98,386,738) ------------ ------------ $ 3,012,208 $ 2,695,585 ============ ============ Included in the accompanying balance sheet under the following captions: 1996 1995 ---- ---- Costs in excess of billings and estimated earnings $ 3,124,860 $ 3,461,984 Billings in excess of costs and estimated earnings (112,652) (766,399) ------------ ------------ $ 3,012,208 $ 2,695,585 ============ ============ 45 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements (17) COMMITMENTS AND CONTINGENCIES The Company believes it is entitled to additional compensation on a Florida construction project and is pursuing a claim of approximately $4.0 million against the owner of the property. In addition to its claim, the Company has an account receivable of approximately $500,000 from the owner of the project. Costs in excess of billings and estimated earnings on this project amount to approximately $750,000. This amount is included in the Company's claim. Management does not believe any reserves are required for these amounts. While the Company believes it has a meritorious claim, there is no assurance the claim will be settled on a basis favorable to the Company. No income or loss on this contract was recorded in 1996, 1995 or 1994. The Company has contingent obligations and has made certain guarantees in connection with acquisitions, its participation in certain joint ventures, certain employee and construction bonding matters and its receipt of a tax exemption. As part of the 1995 acquisition of Societe des Carrieres de Grand Case (SCGC), a French company operating a ready-mix concrete plant and quarry in St. Martin, the Company agreed to pay the quarry owners (who were also the owners of SCGC), a royalty payment of $550,000 per year through August 2000, which at the Company's option, may be renewed for two successive five year periods and requires annual payments of $550,000 per year. At the end of the fifteen year royalty period, the Company has the option to purchase a fifty hectare parcel of property for $4.4 million. In connection with a 1990 St. Maarten acquisition, the Company agreed to pay the seller annually an amount per unit of certain concrete and stone products sold by the Company in St. Maarten from April 1, 1990 to March 31, 1998, but in no event less than $500,000 per year. The Company has certain offsets available against this payment which has reduced the minimum annual payment to $350,000 per year. In 1989, the Company entered into a new Life Insurance and Salary Continuation Agreement with the President of the Company. The agreement provides that should the President cease to be employed by the Company as a result of disablement or death, the Company shall pay an amount equal to his salary and bonus for a period of five years to the President or his designated beneficiary. The Company has not accrued for the salary continuation over the expected remaining period of the President's active employment as the agreement does not provide for payment upon retirement; therefore, based on present facts and circumstances, future payments, if any, are not determinable at this date. The Company is involved in other litigation and claims arising in the normal course of business. The Company believes that such litigation and claims will be resolved without a material effect on its financial condition or results of operations. The Company is subject to certain Federal, state and local environmental laws and regulations. Management believes that the Company is in compliance with all such laws and regulations. Compliance with environmental protection laws has not had a material adverse impact on the Company's financial condition or results of operations in the past and is not expected to have a material adverse impact in the foreseeable future. In connection with a land development contract with the Government of Antigua and as partial consideration therefore, the Company obtained a 75 percent interest in a corporation formed to own and develop approximately 230 acres of real property in Antigua (the "Corbkinnon Property"). In 1990, the Company sold a portion of its 75 percent interest in the 46 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements Corbkinnon Property for $500,000 and the buyer's commitment to provide 50 percent of the financing required to develop the project. The Company agreed to provide the first $500,000 of financing and provide a guarantee for 50 percent of all additional financing required. The Company sold substantially all of its interest in a real estate joint venture with the Government of Antigua and Barbuda to a third party in 1990. In connection with this sale, the third party purchaser assumed the Company's guarantee of payment to the Government of Antigua and Barbuda made upon the formation of the joint venture. This guarantee, which would become an obligation of the Company in the event of a default by the purchaser, provides a guarantee that net profits from the joint venture's operations will equal or exceed $20,000 per month. No liability has been incurred by the Company nor have payments been made by the Company or the purchaser in connection with this guarantee. The guarantee expires upon the sale or disposal by the venture of its real estate. There are no current plans to sell or dispose of any of the venture's property. (18) BUSINESS AND CREDIT CONCENTRATIONS The Company's customers are concentrated in the Caribbean and are primarily involved in the contracting industry. Credit risk may be affected by the economic and political conditions in the various countries in which the Company operates. Financial instruments which potentially expose the Company to concentrations of credit risk consist primarily of receivables and costs in excess of billings and estimated earnings. No single customer accounted for a significant amount of the Company's sales in 1996, 1995 or 1994 and there are no significant receivables from a single customer as of December 31, 1996 or 1995, other than the notes receivable due from the Government of Antigua and Barbuda. Although receivables are generally not collateralized, the Company may place liens or their equivalent in certain jurisdictions in the event of non-payment. The Company estimates an allowance for doubtful accounts based on the creditworthiness of customers as well as the general economic conditions of the countries in which it operates. Consequently, an adverse change in these factors would affect the Company's estimate of its bad debts. 47 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. The Company has had no changes in or disagreements with its independent certified public accountants on accounting and financial disclosure. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information with respect to the directors and executive officers of the Company is incorporated by reference to the Company's Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report. Information as to executive officers is included in Part I of this report. ITEM 11. EXECUTIVE COMPENSATION. The information required in response to this item is incorporated by reference to the Company's Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report. The information included in the proxy statement pursuant to Rule 402(i), (k) and (l) is not incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required in response to this item is incorporated by reference to the Company's Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required in response to this item is incorporated by reference to the Company's Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K. (a) The following documents are filed as part of this report: (1) Financial Statements. An index to financial statements for the year ended December 31, 1996 appears on pages 20 and 48. (2) Financial Statement Schedule. The following financial statement schedule for each of the years in the three year period ended December 31, 1996 is submitted herewith: FORM 10-K (PAGE NUMBER(S) --------------- ITEM ---- Financial Statement Schedule Schedule II - Valuation and Qualifying Accounts.............. 53 All other financial schedules are omitted because they are not required, inapplicable, or the information is otherwise shown in the financial statements or notes thereto. 48 (3) Exhibits. EXHIBIT DESCRIPTION - ------- ----------- 3.1 Registrant's Restated Articles of Incorporation (1)(3.1) 3.2 Registrant's Bylaws(2)(3.2) 10.1 Registrant's 1986 Non-Qualified Stock Option Plan (3)(10.1) 10.2 Registrant's 1992 Stock Option Plan (10)(A) 10.3 Registrant's 1992 Directors' Stock Option Plan (10)(B) 10.4 V. I. Cement and Building Products Inc. 401(k) Retirement and Savings Plan (14) 10.5 Life Insurance and Salary Continuation Agreement dated as of March 29, 1989, between the Registrant and Donald L. Smith, Jr.(5)(10.13) 10.6 Form of Indemnification Agreement between the Registrant, and its directors and certain of its officers(6)(A) 10.7 St. John's Dredging and Deep Water Pier Construction Agreement dated as of April 3, 1987, by and between Antigua and Barbuda and Antigua Masonry Products, Limited (the "St. Johns Agreement") (6)(10.1) 10.8 Amendment No. 1 to the St. John's Agreement dated June 15, 1988(7) (10.2) 10.9 Amendment No. 2 to the St. John's Agreement dated December 7, 1988 (9) (10.34) 10.10 Amendment No. 3 to the St. John's Agreement dated January 23, 1989 (9) (10.35) 10.11 Amendment No. 4 to the St. John's Agreement dated April 5, 1989 (9) (10.36) 10.12 Amendment No. 5 to the St. John's Agreement dated January 29, 1991 (9) (10.37) 10.13 Amendment No. 6 to the St. Johns Agreement dated November 30, 1993 (12) (10.39) 10.14 Amendment No. 7 to the St. John's Agreement, dated December 21, 1994 (14) 10.15 Amendment No. 8 to the St. John's Agreement, dated October 23, 1996 (14) 10.16 Dredging, Filling and Other Land Improvements Agreement by and between Jolly Harbour Ltd. (Vaduz, Liechtenstein), Antigua Development and Construction, Limited, and the Registrant(4)(10.1) 10.17 Mortgage Note dated June 12, 1989 of Crown Bay Marina Joint Venture-I to Banco Popular de Puerto Rico for $5,000,000 (7)(10.5) 10.18 Guarantee dated June 12, 1989, from the Registrant to Banco Popular de Puerto Rico(7)(10.6)10.17 10.19 Lease dated October 31, 1989, between William G. Clarenbach and Pricilla E. Clarenbach, as lessors, and Controlled Concrete Products, Inc., as lessee (1)(10.26) 10.20 Lease dated April 13, 1981, between Mariano Lima and Genevieve Lima, as lessors, and the Registrant, as lessee(1)(10.28) 10.21 Lease dated May 23, 1983, between the Government of the Virgin Islands, as lessor, and Controlled Concrete Products, Inc. as lessee(1)(10.29) 10.22 Lease dated February 24, 1989, between Felix Pitterson, as lessor, and V.I. Cement and Building Products, Inc., as lessee(1)(10.30) 10.23 Lease dated September 1, 1989, between Donald L. Smith, Jr., as lessor, and the Registrant, as lessee(1)(10.31) 10.24 Lease dated September 12, 1966, between His Honour Hugh Burrowes, a Commander of the British Empire of Government House in the Island of Antigua, as lessor, and The Antigua Sand and Aggregate Limited, as lessee(1)(10.32) 49 10.25 Stock Purchase Agreement, dated April 18, 1990, by and between B.B.W. Holding Corporation Limited ("BBW Holding") and Proar Construction Materials Company N.V. ("Proar Construction") (8)(2.1) 10.26 Incentive Agreement, dated April 18, 1990, by and among BBW Holding, Proar Construction, Bouwbedrijf Boven Winden N.V., Cramer Construction N.V. and Caribbean Heavy Construction Company Limited (8)(28.1) 10.27 Agreement, dated April 18, 1990, by and between Mr. Richard Lawrence, Sr. and the Registrant (8)(28.2) 10.28 Notes receivable from Red Pond Estates, N.V. in the principal sums of $242,516, $139,478 and $167,740, respectively (11) (10.41) 10.29 Material Purchase Agreement, dated August 17, 1995, between Bouwbedrijf Boven Winden, N.V. and Hubert Petit, Francois Petit and Michel Petit (13) (10.41) 10.30 Stock Purchase Agreement, dated August 17, 1995, between the Registrant and Hubert Petit, Francois Petit and Michel Petit (13)(10.42) 10.31 Loan Agreement dated November 12, 1996 between V. I. Cement and Building Products, Inc. and Banco Popular de Puerto Rico (14) 10.32 $6,000,000 Installment Note dated November 12, 1996 between V. I. Cement and Building Products, Inc. and Banco Popular de Puerto Rico (14) 10.33 $1,000,000 Promissory Note dated November 12, 1996 between V. I. Cement and Building Products, Inc. and Banco Popular de Puerto Rico (14) 10.34 Time Charter Agreement, dated October 28, 1996, between Caribbean Cement Carriers, Ltd. and Kristian Gerhard Jebsen Skibsrederi A/S (14) 10.35 Loan Agreement, dated June 30, 1993, between the Registrant and Barnett Bank of South Florida (12) (10.44) 10.36 Standstill Agreement, dated February 26, 1997, between the Registrant and Barnett Bank, N.A. (14) 21.1 Registrant's Subsidiaries (14) 23.1 Consent of KPMG Peat Marwick, LLP (14) 27.1 Financial Data Schedule 50 (1) Incorporated by reference to the exhibit shown in parenthesis and filed with the Registrant's Registration statement on Form S-2 (No. 33-31107). (2) Incorporated by reference to the exhibit shown in the parenthesis and filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1989. (3) Incorporated by reference to the exhibit shown in the parenthesis and filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1987 (the "1987 10-K"). (4) Incorporated by reference to the exhibit shown in the parenthesis and filed with the Registrant's Form 8 dated July 14, 1988 to the 1987 10-K. (5) Incorporated by reference to the exhibit shown in the parenthesis and filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1988 (the "1988 10-K"). (6) Incorporated by reference to the exhibit shown in parenthesis and filed with the Registrant's Proxy Statement dated May 30, 1989. (7) Incorporated by reference to the exhibit shown in parenthesis and filed with the Registrant's Form 8 dated August 17, 1989 to the 1988 10-K. (8) Incorporated by reference to the exhibit shown in parenthesis and filed with Registrant's Current Report on Form 8-K dated May 2, 1990. (9) Incorporated by reference to the exhibit showing in parenthesis and filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1991. (10) Incorporated by reference to the exhibit showing in parenthesis and filed with the Registrant's Proxy Statement dated May 6, 1992. (11) Incorporated by reference to the exhibit showing in parenthesis and filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992. (12) Incorporated by reference to the exhibit showing in parenthesis and filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993. (13) Incorporated by reference to the exhibit showing in parenthesis and filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995. (14) Filed herewith. Management employee contracts, compensatory plans and other arrangements included as part of the exhibits referred to above are as follows: 10.1 Registrant's 1986 Non Qualified Stock Option Plan (3) (10.1) 10.2 Registrant's 1992 Stock Option Plan (10)(A) 10.3 Registrant's 1992 Directors' Stock Option Plan (10) (B) 10.4 V. I. Cement and Building Products, Inc. 401(k) Retirement and Savings Plan (14) 10.5 Life Insurance and Salary Continuation Agreement dated as of March 29, 1989, between the Registrant and Donald L. Smith, Jr.(5)(10.13) (b) Reports on Form 8-K. No Reports on Form 8-K were filed by the Registrant during the last quarter of the period covered by this report. 51 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. March 28, 1997 DEVCON INTERNATIONAL CORP. By:/S/ DONALD L. SMITH, JR. ------------------------ Donald L. Smith, Jr. Chairman, President and 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 dates indicated. DEVCON INTERNATIONAL CORP. March 28, 1997 By:/S/ DONALD L. SMITH, JR. ------------------------ Donald L. Smith, Jr. Chairman, President and Chief Executive Officer March 28, 1997 By:/S/ RICHARD L. HORNSBY ---------------------- Richard L. Hornsby Executive Vice President and Director March 28, 1997 By:/S/ WALTER B. BARRETT --------------------- Walter B. Barrett Vice President of Finance, Chief Financial Officer and Treasurer March 28, 1997 By:/S/ ROBERT A. STEELE -------------------- Robert A. Steele Director March 28, 1997 By:/S/ ROBERT L. KESTER -------------------- Robert L. Kester Director March 28, 1997 By:/S/ W. DOUGLAS PITTS -------------------- W. Douglas Pitts Director 52 Schedule II Valuation and Qualifying Accounts ALLOWANCE FOR DOUBTFUL BALANCE AT ADDITIONS BALANCE ACCOUNTS FOR THE YEAR BEGINNING CHARGED TO AT END ENDED DECEMBER 31, OF YEAR EXPENSE DEDUCTIONS OF YEAR - ---------------------- ---------- ---------- ---------- ------- 1994 $4,126,402 $ 300,000 $(1,757,316) $2,669,086 ========== ========== =========== ========== 1995 $2,669,086 $ 301,510 $ (514,195) $2,456,401 ========== ========== =========== ========== 1996 $2,456,401 $ 302,863 $ 212,327 $2,971,591 ========== ========== =========== ========== 53 INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.4 V. I. Cement and Building Products Inc. 401(k) Retirement and Savings Plan 10.14 Amendment No. 7 to the St. John's Agreement, dated December 21, 1994 10.15 Amendment No. 8 to the St. John's Agreement, dated October 23, 1996 10.31 Loan Agreement dated November 12, 1996 between V. I. Cement and Building Products, Inc. and Banco Popular de Puerto Rico 10.32 $6,000,000 Installment Note dated November 12, 1996 between V. I. Cement and Building Products, Inc. and Banco Popular de Puerto Rico 10.33 $1,000,000 Promissory Note dated November 12, 1996 between V. I. Cement and Building Products, Inc. and Banco Popular de Puerto Rico 10.34 Time Charter Agreement, dated October 28, 1996, between Caribbean Cement Carriers, Ltd. and Kristian Gerhard Jebsen Skibsrederi A/S 10.35 Loan Agreement, dated June 30, 1993, between the Registrant and Barnett Bank of South Florida 10.36 Standstill Agreement, dated February 26, 1997, between the Registrant and Barnett Bank, N.A. 21.1 Registrant's Subsidiaries 23.1 Consent of KPMG Peat Marwick, LLP 27.1 Financial Data Schedule EX-10.4 2 EXHIBIT 10.4 V.I. CEMENT AND BUILDING PRODUCTS, INC. 401(K) RETIREMENT & SAVINGS PLAN TABLE OF CONTENTS ARTICLE I DEFINITIONS ARTICLE II TOP HEAVY AND ADMINISTRATION 2.1 TOP HEAVY PLAN REQUIREMENTS .......................................24 2.2 DETERMINATION OF TOP HEAVY STATUS .................................24 2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER .......................28 2.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY ...........................28 2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES .....................29 2.6 POWERS AND DUTIES OF THE ADMINISTRATOR ............................29 2.7 RECORDS AND REPORTS ...............................................30 2.8 APPOINTMENT OF ADVISERS ...........................................30 2.9 INFORMATION FROM EMPLOYER .........................................31 2.10 PAYMENT OF EXPENSES ...............................................31 2.11 MAJORITY ACTIONS ..................................................31 2.12 CLAIMS PROCEDURE ..................................................31 2.13 CLAIMS REVIEW PROCEDURE ...........................................31 ARTICLE III ELIGIBILITY 3.1 CONDITIONS OF ELIGIBILITY .........................................32 3.2 APPLICATION FOR PARTICIPATION .....................................32 3.3 EFFECTIVE DATE OF PARTICIPATION ...................................32 3.4 DETERMINATION OF ELIGIBILITY ......................................33 3.5 TERMINATION OF ELIGIBILITY ........................................33 3.6 OMISSION OF ELIGIBLE EMPLOYEE .....................................33 3.7 INCLUSION OF INELIGIBLE EMPLOYEE ..................................34 3.8 ELECTION NOT TO PARTICIPATE .......................................34 ARTICLE IV CONTRIBUTION AND ALLOCATION 4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION....................34 4.2 PARTICIPANT'S SALARY REDUCTION ELECTION ...........................35 4.3 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION ........................38 4.4 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS...............39 4.5 ACTUAL DEFERRAL PERCENTAGE TESTS ..................................45 4.6 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS . . ................47 4.7 ACTUAL CONTRIBUTION PERCENTAGE TESTS ..............................49 4.8 ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE....................... TESTS .............................................................52 4.9 MAXIMUM ANNUAL ADDITIONS ..........................................54 4.10 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS..........................58 4.11 TRANSFERS FROM QUALIFIED PLANS ....................................59 4.12 DIRECTED INVESTMENT ACCOUNT .......................................60 ARTICLE V VALUATIONS 5.1 VALUATION OF THE TRUST FUND .......................................61 5.2 METHOD OF VALUATION ...............................................61 ARTICLE VI DETERMINATION AND DISTRIBUTION OF BENEFITS 6.1 DETERMINATION OF BENEFITS UPON RETIREMENT .........................62 6.2 DETERMINATION OF BENEFITS UPON DEATH ..............................62 6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY ..................63 6.4 DETERMINATION OF BENEFITS UPON TERMINATION ........................64 6.5 DISTRIBUTION OF BENEFITS ..........................................67 6.6 DISTRIBUTION OF BENEFITS UPON DEATH ...............................72 6.7 TIME OF SEGREGATION OR DISTRIBUTION ...............................75 6.8 DISTRIBUTION FOR MINOR BENEFICIARY ................................75 6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN . . ................76 6.10 ADVANCE DISTRIBUTION FOR HARDSHIP .................................76 6.11 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION ...................77 ARTICLE VII TRUSTEE 7.1 BASIC RESPONSIBILITIES OF THE TRUSTEE .............................78 7.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE .......................78 7.3 OTHER POWERS OF THE TRUSTEE .......................................79 7.4 DUTIES OF THE TRUSTEE REGARDING PAYMENTS ..........................81 7.5 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES .....................81 7.6 ANNUAL REPORT OF THE TRUSTEE ......................................82 7.7 AUDIT..............................................................82 7.8 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE ....................83 7.9 TRANSFER OF INTEREST ..............................................84 7.10 DIRECT ROLLOVER ...................................................84 ARTICLE VIII AMENDMENT, TERMINATION AND MERGERS 8.1 AMENDMENT .........................................................85 8.2 TERMINATION .......................................................86 8.3 MERGER OR CONSOLIDATION ...........................................86 ARTICLE IX MISCELLANEOUS 9.1 PARTICIPANT'S RIGHTS ..............................................87 9.2 ALIENATION.........................................................87 9.3 CONSTRUCTION OF PLAN ..............................................87 9.4 GENDER AND NUMBER..................................................87 9.5 LEGAL ACTION ......................................................88 9.6 PROHIBITION AGAINST DIVERSION OF FUNDS ............................88 9.7 BONDING ...........................................................88 9.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE ........................89 9.9 INSURER'S PROTECTIVE CLAUSE .......................................89 9.10 RECEIPT AND RELEASE FOR PAYMENTS ..................................89 9.11 ACTION BY THE EMPLOYER ............................................89 9.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY.................89 9.13 HEADINGS ..........................................................90 9.14 APPROVAL BY INTERNAL REVENUE SERVICE ..............................90 9.15 UNIFORMITY ........................................................91 ARTICLE X PARTICIPATING EMPLOYERS 10.1 ADOPTION BY OTHER EMPLOYERS .......................................91 10.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS ...........................91 10.3 DESIGNATION OF AGENT ..............................................92 10.4 EMPLOYEE TRANSFERS ................................................92 10.5 PARTICIPATING EMPLOYER'S CONTRIBUTION .............................92 10.6 AMENDMENT .........................................................93 10.7 DISCONTINUANCE OF PARTICIPATION ...................................93 10.8 ADMINISTRATOR'S AUTHORITY .........................................93 V.I. CEMENT AND BUILDING PRODUCTS, INC. 401(K) RETIREMENT & SAVINGS PLAN THIS AGREEMENT, hereby made and entered into this 1st day of January, 1996, by and between VI Cement and Building Products, Inc. (herein referred to as the "Employer") and Donald L. Smith, Geoffrey L. Smith and Richard L. Hornsby (herein referred to as the "Trustee"). W I T N E S S E T H: WHEREAS, the Employer heretofore established a Profit Sharing Plan and Trust effective 01/01/88, (hereinafter called the "Effective Date") known as V.I. Cement and Building Products, Inc. 401(k) Retirement & Savings Plan (herein referred to as the "Plan") in recognition of the contribution made to its successful operation by its employees and for the exclusive benefit of its eligible employees; and WHEREAS, under the terms of the Plan, the Employer has the ability to amend the Plan, provided the Trustee joins in such amendment if the provisions of the Plan affecting the Trustee are amended; NOW, THEREFORE, effective 01/01/96, except as otherwise provided, the Employer and the Trustee in accordance with the provisions of the Plan pertaining to amendments thereof, hereby amend the Plan in its entirety and restate the Plan to provide as follows: ARTICLE I DEFINITIONS 1.1 "Act" means the Employee Retirement Income Security Act of 1974, as it may be amended from time to time. 1.2 "Administrator" means the person or entity designated by the Employer pursuant to Section 2.4 to administer the Plan on behalf of the Employer. 1.3 "Affiliated Employer" means any corporation which is a member of a controlled group of corporations (as defined in Code Section 414(b)) which includes the Employer; any trade or business (whether or not incorporated) which is under common control (as defined in Code Section 414(c)) with the Employer; any organization (whether or not incorporated) which is a member of an affiliated service group (as defined in Code Section 414(m)) which includes the Employer; and any other entity required to be aggregated with the Employer pursuant to Regulations under Code Section 414(o). 1.4 "Aggregate Account" means, with respect to each Participant, the value of all accounts maintained on behalf of a Participant, whether attributable to Employer or Employee contributions, subject to the 7 provisions of Section 2.2. 1.5 "Anniversary Date" means 1996. 1.6 "Beneficiary" means the person to whom the share of a deceased Participant's total account is payable, subject to the restrictions of Sections 6.2 and 6.6. 1.7 "Code" means the Internal Revenue Code of 1986, as amended or replaced from time to time. 1.8 "Compensation" with respect to any Participant means such Participant's wages as defined in Code Section 3401(a) and all other payments of compensation by the Employer (in the course of the Employer's trade or business) for a Plan Year for which the Employer is required to furnish the Participant a written statement under Code Sections 6041(d), 6051(a)(3) and 6052. Compensation must be determined without regard to any rules under Code Section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code Section 3401(a)(2)). For purposes of this Section, the determination of Compensation shall be made BY: (a) including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 402(e)(3), 402(h)(1)(B), 403(b) or 457, and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions. For a Participant's initial year of participation, Compensation shall be recognized as of such Employee's effective date of participation pursuant to Section 3.3. Compensation in excess of $200,000 shall be disregarded. Such amount shall be; adjusted at the same time and in such manner as permitted under Code Section 415(d), except that the dollar increase in effect on January 1 of any calendar year shall be effective for the Plan Year beginning with or within such calendar year and the first adjustment to the $200,000 limitation shall be effective on January 1, 1990. For any short Plan Year the Compensation limit shall be an amount equal to the Compensation limit for the calendar year in which the Plan Year begins multiplied by the ratio obtained by dividing the number of full months in the short Plan Year by twelve (12). In applying this limitation, the family group of a Highly Compensated Participant who is subject to the Family Member aggregation rules of Code Section 414(q)(6) because such Participant is either a "five percent owner" of the Employer or one of the ten (10) Highly Compensated Employees paid the greatest "415 Compensation" during the year, shall be treated 8 as a single Participant, except that for this purpose Family Members shall include only the affected Participant's spouse and any lineal descendants who have not attained age nineteen (19) before the close of the year. If, as a result of the application of such rules the adjusted $200,000 limitation is exceeded, then the limitation shall be prorated among the affected Family Members in proportion to each such Family Member's Compensation prior to the application of this limitation, or the limitation shall be adjusted in accordance with any other method permitted by Regulation. In addition to other applicable limitations set forth in the Plan, and notwithstanding any other provision of the Plan to the contrary, for Plan Years beginning on or after January 1, 1994, the annual Compensation of each Employee taken into account under the Plan shall not exceed the OBRA '93 annual compensation limit. The OBRA '93 annual compensation limit is $150,000, as adjusted by the Commissioner for increases in the cost of living in accordance with Code Section 401(a)(17)(B). The cost of living adjustment in effect for a calendar year applies to any period, not exceeding 12 months, over which Compensation is determined (determination period) beginning in such calendar year. If a determination period consists of fewer than 12 months, the OBRA '93 annual compensation limit will be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is 12. For Plan Years beginning on or after January 1, 1994, any reference in this Plan to the limitation under Code Section 401(a)(17) shall mean the OBRA '93 annual compensation limit set forth in this provision. If Compensation for any prior determination period is taken into account in determining an Employee's benefits accruing in the current Plan Year, the Compensation for that prior determination period is subject to the OBRA '93 annual compensation limit in effect for that prior determination period. For this purpose, for determination periods beginning before the first day of the first Plan Year beginning on or after January 1, 1994, the OBRA '93 annual compensation limit is $150,000. If, as a result of such rules, the maximum "annual addition" limit of Section 4.9(a) would be exceeded for one or more of the affected Family Members, the prorated Compensation of all affected Family Members shall be adjusted to avoid or reduce any excess. The prorated Compensation of any affected Family Member whose allocation would exceed the limit shall be adjusted downward to the level needed to provide an allocation equal to such limit. The prorated Compensation of affected Family Members not affected by such limit shall then be adjusted upward on a pro rata basis not to exceed each such affected Family Member's Compensation as determined prior to application of the Family Member rule. The resulting allocation shall not exceed such individual's maximum "annual addition" limit. If, after these adjustments, an "excess amount" still results, such "excess amount" 9 shall be disposed of in the manner described in Section 4.10(a) pro rata among all affected Family Members. For purposes of this Section, if the Plan is a plan described in Code Section 413(c) or 414(f) (a plan maintained by more than one Employer), the $200,000 limitation applies separately with respect to the Compensation of any Participant from each Employer maintaining the Plan. If, in connection with the adoption of this amendment and restatement, the definition of Compensation has been modified, then, for Plan Years prior to the Plan Year which includes the adoption date of this amendment and restatement, Compensation means compensation determined pursuant to the Plan then in effect. For Plan Years beginning prior to January 1, 1989, the $200,000 limit (without regard to Family Member aggregation) shall apply only for Top Heavy Plan Years and shall not be adjusted. 1.9 "Contract" or "Policy" means any life insurance policy, retirement income or annuity policy, or annuity contract (group or individual) issued pursuant to the terms of the Plan. 1.10 "Deferred Compensation" with respect to any Participant means the amount of the Participant's total Compensation which has been contributed to the Plan in accordance with the Participant's deferral election pursuant to Section 4.2 excluding any such amounts distributed as excess "annual additions" pursuant to Section 4.10(a). 1.11 "Early Retirement Date." This Plan does not provide for a retirement date prior to Normal Retirement Date. 1.12 "Elective Contribution" means the Employer's contributions to the Plan of Deferred Compensation excluding any such amounts distributed as excess "annual additions" pursuant to Section 4.10(a). In addition, any Employer Qualified Non-Elective Contribution made pursuant to Section 4.1(c) and Section 4.6 shall be considered an Elective Contribution for purposes of the Plan. Any such contributions deemed to be Elective Contributions shall be subject to the requirements of Sections 4.2(b) and 4.2(c) and shall further be required to satisfy the discrimination requirements of Regulation 1.401(k)-l(b)(5), the provisions of which are specifically incorporated herein by reference. 1.13 "Eligible Employee" means any Employee. Employees whose employment is governed by the terms of a collective bargaining agreement between Employee representatives (within the meaning of Code Section 7701(a)(46)) and the Employer under which retirement benefits were the subject of good faith bargaining between the parties will not be eligible to participate in this Plan unless such agreement expressly provides for coverage in this Plan or two 10 percent or more of the Employees of the Employer who are covered pursuant to that agreement are professionals as defined in Regulation 1.410(b)-9. Employees of Affiliated Employers shall not be eligible to participate in this Plan unless such Affiliated Employers have specifically adopted this Plan in writing. 1.14 "Employee" means any person who is employed by the Employer or Affiliated Employer, but excludes any person who is an independent contractor. Employee shall include Leased Employees within the meaning of Code Sections 414(n)(2) and 414(o)(2) unless such Leased Employees are covered by a plan described in Code Section 414(n)(5) and such Leased Employees do not constitute more than 20% of the recipient's non-highly compensated work force. 1.15 "Employer" means VI Cement and Building Products, Inc. and any Participating Employer (as defined in Section 10.1) which shall adopt this Plan; any successor which shall maintain this Plan; and any predecessor which has maintained this Plan. The Employer is a corporation, with principal offices in the State of Florida. 1.16 "Excess Aggregate Contributions" means, with respect to any Plan Year, the excess of the aggregate amount of the Employer matching contributions made pursuant to Section 4.1(b) and any qualified non-elective contributions or elective deferrals taken into account pursuant to Section 4.7(c) on behalf of Highly Compensated Participants for such Plan Year, over the maximum amount of such contributions permitted under the limitations of Section 4.7(a). 1.17 "Excess Contributions" means, with respect to a Plan Year, the excess of Elective Contributions made on behalf of Highly Compensated Participants for the Plan Year over the maximum amount of such contributions permitted under Section 4.5(a). Excess Contributions shall be treated as an "annual addition" pursuant to Section 4.9(b). 1.18 "Excess Deferred Compensation" means, with respect to any taxable year of a Participant, the excess of the aggregate amount of such Participant's Deferred Compensation and the elective deferrals pursuant to Section 4.2(f) actually made on behalf of such Participant for such taxable year, over the dollar limitation provided for in Code Section 402(g), which is incorporated herein by reference. Excess Deferred Compensation shall be treated as an "annual addition" pursuant to Section 4.9(b) when contributed to the Plan unless distributed to the affected Participant not later than the first April 15th following the close of the Participant's taxable year. Additionally, for purposes of Sections 2.2 and 4.4(g), Excess Deferred Compensation shall continue to be treated as Employer contributions even if distributed pursuant to Section 4.2(f). However, Excess Deferred Compensation of Non-Highly Compensated Participants is not taken into account for purposes of Section 4.5(a) to the extent such 11 Excess Deferred Compensation occurs pursuant to Section 4.2(d). 1.19 "Family Member" means, with respect to an affected Participant, such Participant's spouse and such Participant's lineal descendants and ascendants and their spouses, all as described in Code Section 414(q)(6)(B). 1.20 "Fiduciary" means any person who (a) exercises any discretionary authority or discretionary control respecting management of the Plan or exercises any authority or control respecting management or disposition of its assets, (b) renders investment advice for a fee or other compensation, direct or indirect, with respect to any monies or other property of the Plan or has any authority or responsibility to do so, or (c) has any discretionary authority or discretionary responsibility in the administration of the Plan, including, but not limited to, the Trustee, the Employer and its representative body, and the Administrator. 1.21 "Fiscal Year" means the Employer's accounting year of 12 months commencing on January 1st of each year and ending the following December 31st. 1.22 "Forfeiture" means that portion of a Participant's Account that is not Vested, and occurs on the earlier of: (a) the distribution of the entire Vested portion of a Terminated Participant's Account, or (b) the last day of the Plan Year in which the Participant incurs five (5) consecutive l-Year Breaks in Service. Furthermore, for purposes of paragraph (a) above, in the case of a Terminated Participant whose Vested benefit is zero, such Terminated Participant shall be deemed to have received a distribution of his Vested benefit upon his termination of employment. Restoration of such amounts shall occur pursuant to Section 6.4(g)(2). In addition, the term Forfeiture shall also include amounts deemed to be Forfeitures pursuant to any other provision of this Plan. 1.23 "Former Participant" means a person who has been a Participant, but who has ceased to be a Participant for any reason. 1.24 "415 Compensation" with respect to any Participant means such Participant's wages as defined in Code Section 3401(a) and all other payments of compensation by the Employer (in the course of the Employer's trade or business) for a Plan Year for which the Employer is required to furnish the Participant a written statement under Code Sections 6041(d), 6051(a)(3) and 6052. "415 Compensation" must be determined without regard to any rules under Code Section 3401(a) that limit the remuneration included in wages based on the nature or 12 location of the employment or the services performed (such as the exception for agricultural labor in Code Section 3401(a)(2)). If, in connection with the adoption of this amendment and restatement, the definition of "415 Compensation" has been modified, then, for Plan Years prior to the Plan Year which includes the adoption date of this amendment and restatement, "415 Compensation" means compensation determined pursuant to the Plan then in effect. 1.25 "414(s) Compensation" with respect to any Participant means such Participant's "415 Compensation" paid during a Plan Year. The amount of "414(s) Compensation" with respect to any Participant shall include "414(s) Compensation" for the entire twelve (12) month period ending on the last day of such Plan Year, except that "414(s) Compensation" shall only be recognized for that portion of the Plan Year during which an Employee was a Participant in the Plan. For purposes of this Section, the determination of "414(s) Compensation" shall be made by including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 402(e)(3), 402(h)(1)(B), 403(b) or 457, and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions. "414(s) Compensation" in excess of $200,000 shall be disregarded. Such amount shall be adjusted at the same time and in such manner as permitted under Code Section 415(d), except that the dollar increase in effect on January 1 of any calendar year shall be effective for the Plan Year beginning with or within such calendar year and the first adjustment to the $200,000 limitation shall be effective on January 1, 1990. For any short Plan Year the "414(s) Compensation" limit shall be an amount equal to the "414(s) Compensation" limit for the calendar year in which the Plan Year begins multiplied by the ratio obtained by dividing the number of full months in the short Plan Year by twelve (12). In applying this limitation, the family group of a Highly Compensated Participant who is subject to the Family Member aggregation rules of Code Section 414(q)(6) because such Participant is either a "five percent owner" of the Employer or one of the ten (10) Highly Compensated Employees paid the greatest "415 Compensation" during the year, shall be treated as a single Participant, except that for this purpose Family Members shall include only the affected Participant's spouse and any lineal descendants who have not attained age nineteen (19) before the close of the year. In addition to other applicable limitations set forth in the Plan, and notwithstanding any other provision of the Plan to the contrary, for Plan Years beginning on or after January 1, 1994, the annual Compensation of each Employee taken into account under the Plan shall not exceed the OBRA '93 annual compensation limit. The OBRA '93 annual compensation limit is $150,000, as adjusted by the Commissioner for 13 increases in the cost of living in accordance with Code Section 401(a)(17)(B). The cost of living adjustment in effect for a calendar year applies to any period, not exceeding 12 months, over which Compensation is determined (determination period) beginning in such calendar year. If a determination period consists of fewer than 12 months, the OBRA '93 annual compensation limit will be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is 12. For Plan Years beginning on or after January 1, 1994, any reference in this Plan to the limitation under Code Section 401(a)(17) shall mean the OBRA '93 annual compensation limit set forth in this provision. If Compensation for any prior determination period is taken into account in determining an Employee's benefits accruing in the current Plan Year, the Compensation for that prior determination period is subject to the OBRA '93 annual compensation limit in effect for that prior determination period. For this purpose, for determination periods beginning before the first day of the first Plan Year beginning on or after January 1, 1994, the OBRA '93 annual compensation limit is $150,000. If, in connection with the adoption of this amendment and restatement, the definition of "414(s) Compensation" has been modified, then, for Plan Years prior to the Plan Year which includes the adoption date of this amendment and restatement, "414(s) Compensation" means compensation determined pursuant to the Plan then in effect. 1.26 "Highly Compensated Employee" means an Employee described in Code Section 414(q) and the Regulations thereunder, and generally means an Employee who performed services for the Employer during the "determination year" and is in one or more of the following groups: (a) Employees who at any time during the "determination year" or "lookback year" were "five percent owners" as defined in Section 1.32(c). (b) Employees who received "415 Compensation" during the "look back year" from the Employer in excess of $75,000. (c) Employees who received "415 Compensation" during the "look-back year" from the Employer in excess of $50,000 and were in the Top Paid Group of Employees for the Plan Year. (d) Employees who during the "look-back year" were officers of the Employer (as that term is defined within the meaning of the Regulations under Code Section 416) and received "415 Compensation" during the "look-back year" from the Employer greater than 50 percent of the limit in effect under Code Section 415(b)(1)(A) for any such Plan Year. The number of officers shall 14 be limited to the lesser of (i) 50 employees; or (ii) the greater of 3 employees or 10 percent of all employees. For the purpose of determining the number of officers, Employees described in Section 1.56(a), (b), (c) and (d) shall be excluded, but such Employees shall still be considered for the purpose of identifying the particular Employees who are officers. If the Employer does not have at least one officer whose annual "415 Compensation" is in excess of 50 percent of the Code Section 415(b)(1)(A) limit, then the highest paid officer of the Employer will be treated as a Highly Compensated Employee. (e) Employees who are in the group consisting of the 100 Employees paid the greatest "415 Compensation" during the "determination year" and are also described in (b), (c) or (d) above when these paragraphs are modified to substitute "determination year" for "look-back year." The "determination year" shall be the Plan Year for which testing is being performed, and the "look-back year" shall be the immediately preceding twelve-month period. For purposes of this Section, the determination of "415 Compensation" shall be made by including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 402(e)(3), 402(h)(1)(B), 403(b) or 457, and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions. Additionally, the dollar threshold amounts specified in (b) and (c) above shall be adjusted at such time and in such manner as is provided in Regulations. In the case of such an adjustment, the dollar limits which shall be applied are those for the calendar year in which the "determination year" or "look-back year" begins. In determining who is a Highly Compensated Employee, Employees who are nonresident aliens and who received no earned income (within the meaning of Code Section 911(d)(2)) from the Employer constituting United States source income within the meaning of Code Section 861(a)(3) shall not be treated as Employees. Additionally, all Affiliated Employers shall be taken into account as a single employer and Leased Employees within the meaning of Code Sections 414(n)(2) and 414(o)(2) shall be considered Employees unless such Leased Employees are covered by a plan described in Code Section 414(n)(5) and are not covered in any qualified plan maintained by the Employer. The exclusion of Leased Employees for this purpose shall be applied on a uniform and consistent basis for all of the Employer's retirement plans. Highly Compensated Former Employees shall be treated as Highly Compensated Employees without regard to whether they performed services during the "determination year." 15 1.27 "Highly Compensated Former Employee" means a former Employee who had a separation year prior to the "determination year" and was a Highly Compensated Employee in the year of separation from service or in any "determination year" after attaining age 55. Notwithstanding the foregoing, an Employee who separated from service prior to 1987 will be treated as a Highly Compensated Former Employee only if during the separation year (or year preceding the separation year) or any year after the Employee attains age 55 (or the last year ending before the Employee's 55th birthday), the Employee either received "415 Compensation" in excess of $50,000 or was a "five percent owner." For purposes of this Section, "determination year," "415 Compensation" and "five percent owner" shall be determined in accordance with Section 1.26. Highly Compensated Former Employees shall be treated as Highly Compensated Employees. The method set forth in this Section for determining who is a "Highly Compensated Former Employee" shall be applied on a uniform and consistent basis for all purposes for which the Code Section 414(q) definition is applicable. 1.28 "Highly Compensated Participant" means any Highly Compensated Employee who is eligible to participate in the Plan. 1.29 "Hour of Service" means (1) each hour for which an Employee is directly or indirectly compensated or entitled to compensation by the Employer for the performance of duties during the applicable computation period; (2) each hour for which an Employee is directly or indirectly compensated or entitled to compensation by the Employer (irrespective of whether the employment relationship has terminated) for reasons other than performance of duties (such as vacation, holidays, sickness, jury duty, disability, lay-off, military duty or leave of absence) during the applicable computation period; (3) each hour for which back pay is awarded or agreed to by the Employer without regard to mitigation of damages. These hours will be credited to the Employee for the computation period or periods to which the award or agreement pertains rather than the computation period in which the award, agreement or payment is made. The same Hours of Service shall not be credited both under (1) or (2), as the case may be, and under (3). Notwithstanding the above, (i) no more than 501 Hours of Service are required to be credited to an Employee on account of any single continuous period during which the Employee performs no duties (whether or not such period occurs in a single computation period); (ii) an hour for which an Employee is directly or indirectly paid, or entitled to payment, on account of a period during which no duties are performed is not required to be credited to the Employee if such payment is made or due under a plan maintained solely for the purpose of complying with applicable worker's compensation, or unemployment compensation or disability insurance laws; and (iii) Hours of Service are not required to be credited for a payment which solely reimburses an Employee for medical 16 or medically related expenses incurred by the Employee. For purposes of this Section, a payment shall be deemed to be made by or due from the Employer regardless of whether such payment is made by or due from the Employer directly, or indirectly through, among others, a trust fund, or insurer, to which the Employer contributes or pays premiums and regardless of whether contributions made or due to the trust fund, insurer, or other entity are for the benefit of particular Employees or are on behalf of a group of Employees in the aggregate. An Hour of Service must be counted for the purpose of determining a Year of Service, a year of participation for purposes of accrued benefits, a l-Year Break in Service, and employment commencement date (or reemployment commencement date). In addition, Hours of Service will be credited for employment with other Affiliated Employers. The provisions of Department of Labor regulations 2530.200b-2(b) and (c) are incorporated herein by reference. 1.30 "Income" means the income or losses allocable to "excess amounts" which shall equal the allocable gain or loss for the "applicable computation period". The income allocable to "excess amounts" for the "applicable computation period" is determined by multiplying the income for the "applicable computation period" by a fraction. The numerator of the fraction is the "excess amount" for the "applicable computation period." The denominator of the fraction is the total "account balance" attributable to "Employer contributions" as of the end of the "applicable computation period", reduced by the gain allocable to such total amount for the "applicable computation period" and increased by the loss allocable to such total amount for the "applicable computation period". The provisions of this Section shall be applied: (a) For purposes of Section 4.2(f), by substituting: (1) "Excess Deferred Compensation" for "excess amounts"; (2) "taxable year of the Participant" for "applicable computation period"; (3) "Deferred Compensation" for "Employer contributions"; and (4) "Participant's Elective Account" for "account balance." (b) For purposes of Section 4.6(a), by substituting: (1) "Excess Contributions" for "excess amounts"; (2) "Plan Year" for "applicable computation period"; (3) "Elective Contributions" for "Employer contributions"; and (4) "Participant's Elective Account" for "account balance." (c) For purposes of Section 4.8(a), by substituting: 17 (1) "Excess Aggregate Contributions" for "excess amounts;" (2) "Plan Year" for "applicable computation period;" (3) "Employer matching contributions made pursuant to Section 4.1(b) and any qualified non-elective contributions or elective deferrals taken into account pursuant to Section 4.7(c)" for "Employer contributions;" and (4) "Participant's Account" for "account balance." Income allocable to any distribution of Excess Deferred Compensation on or before the last day of the taxable year of the Participant shall be calculated from the first day of the taxable year of the Participant to the date on which the distribution is made pursuant to either the "fractional method" or the "safe harbor method." Under such "safe harbor method," allocable Income for such period shall be deemed to equal ten percent (10%) of the Income allocable to such Excess Deferred Compensation multiplied by the number of calendar months in such period. For purposes of determining the number of calendar months in such period, a distribution occurring on or before the fifteenth day of the month shall be treated as having been made on the last day of the preceding month and a distribution occurring after such fifteenth day shall be treated as having been made on the first day of the next subsequent month. 1.31 "Investment Manager" means an entity that (a) has the power to manage, acquire, or dispose of Plan assets and (b) acknowledges fiduciary responsibility to the Plan in writing. Such entity must be a person, firm, or corporation registered as an investment adviser under the Investment Advisers Act of 1940, a bank, or an insurance company. 1.32 "Key Employee" means an Employee as defined in Code Section 416(i) and the Regulations thereunder. Generally, any Employee or former Employee (as well as each of his Beneficiaries) is considered a Key Employee if he, at any time during the Plan Year that contains the "Determination Date" or any of the preceding four (4) Plan Years, has been included in one of the following categories: (a) an officer of the Employer (as that term is defined within the meaning of the Regulations under Code Section 416) having annual "415 l Compensation" greater than 50 percent of the amount in effect under Code Section 415(b)(1)(A) for any such Plan Year. (b) one of the ten employees having annual "415 Compensation" from the Employer for a Plan Year greater than the dollar limitation in effect under Code Section 415(c)(1)(A) for the calendar year in which such Plan Year ends and owning (or considered as owning within the meaning of Code Section 318) both more than one-half percent interest and the largest interests in 18 the Employer. (c) a "five percent owner" of the Employer. "Five percent owner" means any person who owns (or is considered as owning within the meaning of Code Section 318) more than five percent (5%) of the outstanding stock of the Employer or stock possessing more than five percent (5%) of the total combined voting power of all stock of the Employer or, in the case of an unincorporated business, any person who owns more than five percent (5%) of the capital or profits interest in the Employer. In determining percentage ownership hereunder, employers that would otherwise be aggregated under Code Sections 414(b), (c), (m) and (o) shall be treated as separate employers. (d) a "one percent owner" of the Employer having an annual "415 Compensation" from the Employer of more than $150,000. "One percent owner" means any person who owns (or is considered as owning within the meaning of Code Section 318) more than one percent (1%) of the outstanding stock of the Employer or stock possessing more than one percent (1%) of the total combined voting power of all stock of the Employer or, in the case of an unincorporated business, any person who owns more than one percent (1%) of the capital or profits interest in the Employer. In determining percentage ownership hereunder, employers that would otherwise be aggregated under Code Sections 414(b), (c), (m) and (o) shall be treated as separate employers. However, in determining whether an individual has "415 Compensation" of more than $150,000, "415 Compensation" from each employer required to be aggregated under Code Sections 414(b), (c), (m) and (o) shall be taken into account. For purposes of this Section, the determination of "415 Compensation" shall be made by including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 402(e)(3), 402(h)(1)(B), 403(b) or 457, and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions. 1.33 "Late Retirement Date" means the first day of the month coinciding with or next following a Participant's actual Retirement Date after having reached his Normal Retirement Date. 1.34 "Leased Employee" means any person (other than an Employee of the recipient) who pursuant to an agreement between the recipient and any other person ("leasing organization") has performed services for the recipient (or for the recipient and related persons determined in accordance with Code Section 414(n)(6)) on a substantially full time basis for a period of at least one year, and such services are of a type historically performed by employees in the business field of the recipient employer. Contributions or benefits provided a Leased Employee by the leasing organization which are attributable to services performed for the recipient employer shall be treated as 19 provided by the recipient employer. A Leased Employee shall not be considered an Employee of the recipient: (a) if such employee is covered by a money purchase pension plan providing: (1) a non-integrated employer contribution rate of at least 10% of compensation, as defined in Code Section 415(c)(3), but including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 402(e)(3), 402(h)(1)(B), 403(b) or 457, and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions. (2) immediate participation; and (3) full and immediate vesting, and (b) if Leased Employees do not constitute more than 20% of the recipient's non-highly compensated work force. 1.35 "Non-Elective Contribution" means the Employer's contributions to the Plan excluding, however, contributions made pursuant to the Participant's deferral election provided for in Section 4.2 and any Qualified Non-Elective Contribution. 1.36 "Non-Highly Compensated Participant" means any Participant who is neither a Highly Compensated Employee nor a Family Member. 1.37 "Non-Key Employee" means any Employee or former Employee (and his Beneficiaries) who is not a Key Employee. 1.38 "Normal Retirement Age" means the Participant's 65 birthday. A Participant shall become fully Vested in his Participant's Account upon attaining his Normal Retirement Age. 1.39 "Normal Retirement Date" means the first day of the month coinciding with or next following the Participant's Normal Retirement Age. 1.40 "1-Year Break in Service" means the applicable computation period during which an Employee has not completed more than 500 Hours of Service with the Employer. Further, solely for the purpose of determining whether a Participant has incurred a 1-Year Break in Service, Hours of Service shall be recognized for "authorized leaves of absence" and "maternity and paternity leaves of absence." Years of Service and 1-Year Breaks in Service shall be measured on the same computation period. 20 "Authorized leave of absence" means an unpaid, temporary cessation from active employment with the Employer pursuant to an established nondiscriminatory policy, whether occasioned by illness, military service, or any other reason. A "maternity or paternity leave of absence" means, for Plan Years beginning after December 31, 1984, an absence from work for any period by reason of the Employee's pregnancy, birth of the Employee's child, placement of a child with the Employee in connection with the adoption of such child, or any absence for the purpose of caring for such child for a period immediately following such birth or placement. For this purpose, Hours of Service shall be credited for the computation period in which the absence from work begins, only if credit therefore is necessary to prevent the Employee from incurring a 1-Year Break in Service, or, in any other case, in the immediately following computation period. The Hours of Service credited for a "maternity or paternity leave of absence" shall be those which would normally have been credited but for such absence, or, in any case in which the Administrator is unable to determine such hours normally credited, eight (8) Hours of Service per day. The total Hours of Service required to be credited for a "maternity or paternity leave of absence" shall not exceed 501. 1.41 "Participant" means any Eligible Employee who participates in the Plan as provided in Sections 3.2 and 3.3, and has not for any reason become ineligible to participate further in the Plan. 1.42 "Participant's Account" means the account established and maintained by the Administrator for each Participant with respect to his total interest in the Plan and Trust resulting from the Employer's Non-Elective Contributions. A separate accounting shall be maintained with respect to that portion of the Participant's Account attributable to Employer matching contributions made pursuant to Section 4.1(b) and Employer discretionary contributions made pursuant to Section 4.1(d). 1.43 "Participant's Combined Account" means the total aggregate amount of each Participant's Elective Account and Participant's Account. 1.44 "Participant's Elective Account" means the account established and maintained by the Administrator for each Participant with respect to his total interest in the Plan and Trust resulting from the Employer's Elective Contributions. A separate accounting shall be maintained with respect to that portion of the Participant's Elective Account attributable to Elective Contributions pursuant to Section 4.2 and any Employer Qualified Non-Elective Contributions. 1.45 "Plan" means this instrument, including all amendments thereto. 1.46 "Plan Year" means the Plan's accounting year of twelve (12) 21 months commencing on January 1st of each year and ending the following December 31st. 1.47 "Pre-Retirement Survivor Annuity" is an immediate annuity for the life of the Participant's spouse the payments under which must be equal to the amount of benefit which can be purchased with the accounts of a Participant used to provide the death benefit under the Plan. 1.48 "Qualified Non-Elective Contribution" means the Employer's contributions to the Plan that are made pursuant to Section 4.1(c) and Section 4.6. Such contributions shall be considered an Elective Contribution for the purposes of the Plan and used to satisfy the "Actual Deferral Percentage" tests. In addition, the Employer's contributions to the Plan that are made pursuant to Section 4.8(h) which are used to satisfy the "Actual Contribution Percentage" tests shall be considered Qualified Non-Elective Contributions and be subject to the provisions of Sections 4.2(b) and 4.2(c). 1.49 "Regulation" means the Income Tax Regulations as promulgated by the Secretary of the Treasury or his delegate, and as amended from time to time. 1.50 "Retired Participant" means a person who has been a Participant, but who has become entitled to retirement benefits under the Plan. 1.51 "Retirement Date" means the date as of which a Participant retires for reasons other than Total and Permanent Disability, whether such retirement occurs on a Participant's Normal Retirement Date or Late Retirement Date (see Section 6.1). 1.52 "Super Top Heavy Plan" means a plan described in Section 2.2(b). 1.53 "Terminated Participant" means a person who has been a Participant, but whose employment has been terminated other than by death, Total and Permanent Disability or retirement. 1.54 "Top Heavy Plan" means a plan described in Section 2.2(a). 1.55 "Top Heavy Plan Year" means a Plan Year during which the Plan is a Top Heavy Plan. 1.56 "Top Paid Group" means the top 20 percent of Employees who performed services for the Employer during the applicable year, ranked according to the amount of "415 Compensation" (determined for this purpose in accordance with Section 1.26) received from the Employer during such year. All Affiliated Employers shall be taken into account as a single employer, and Leased Employees within the meaning of Code Sections 414(n)(2) and 414(o)(2) shall be considered Employees unless 22 such Leased Employees are covered by a plan described in Code Section 414(n)(5) and are not covered in any qualified plan maintained by the Employer. Employees who are non-resident aliens and who received no earned income (within the meaning of Code Section 911(d)(2)) from the Employer constituting United States source income within the meaning of Code Section 861(a)(3) shall not be treated as Employees. Additionally, for the purpose of determining the number of active Employees in any year, the following additional Employees shall also be excluded; however, such Employees shall still be considered for the purpose of identifying the particular Employees in the Top Paid Group: (a) Employees with less than six (6) months of service; (b) Employees who normally work less than 17 1/2 hours per week; (c) Employees who normally work less than six (6) months during a year; and (d) Employees who have not yet attained age 21. In addition, if 90 percent or more of the Employees of the Employer are covered under agreements the Secretary of Labor finds to be collective bargaining agreements between Employee representatives and the Employer, and the Plan covers only Employees who are not covered under such agreements, then Employees covered by such agreements shall be excluded from both the total number of active Employees as well as from the identification of particular Employees in the Top Paid Group. The foregoing exclusions set forth in this Section shall be applied on a uniform and consistent basis for all purposes for which the Code Section 414(q) definition is applicable. 1.57 "Total and Permanent Disability" means a physical or mental condition of a Participant resulting from bodily injury, disease, or mental disorder which renders him incapable of continuing his usual and customary employment with the Employer. The disability of a Participant shall be determined by a licensed physician chosen by the Administrator. The determination shall be applied uniformly to all Participants. 1.58 "Trustee" means the person or entity named as trustee herein or in any separate trust forming a part of this Plan, and any successors. 1.59 "Trust Fund" means the assets of the Plan and Trust as the same shall exist from time to time. 1.60 "Vested" means the nonforfeitable portion of any account maintained on behalf of a Participant. 1.61 "Year of Service" means the computation period of twelve (12) consecutive months, herein set forth, during which an Employee has at least 1000 Hours of Service. For purposes of eligibility for participation, the initial computation 23 period shall begin with the date on which the Employee first performs an Hour of Service. The participation computation period beginning after a 1-Year Break in Service shall be measured from the date on which an Employee again performs an Hour of Service. The participation computation period shall shift to the Plan Year which includes the anniversary of the date on which the Employee first performed an Hour of Service. An Employee who is credited with the required Hours of Service in both the initial computation period (or the computation period beginning after a l-Year Break in Service) and the Plan Year which includes the anniversary of the date on which the Employee first performed an Hour of Service, shall be credited with two (2) Years of Service for purposes of eligibility to participate. For vesting purposes, the computation period shall be the Plan Year, including periods prior to the Effective Date of the Plan. For all other purposes, the computation period shall be the Plan Year. Notwithstanding the foregoing, for any short Plan Year, the determination of whether an Employee has completed a Year of Service shall be made in accordance with Department of Labor regulation 2530.203-2(c). However, in determining whether an Employee has completed a Year of Service for benefit accrual purposes in the short Plan Year, the number of the Hours of Service required shall be proportionately reduced based on the number of full months in the short Plan Year. Years of Service with Devoon International Corporation shall be recognized. Years of Service with any Affiliated Employer shall be recognized. ARTICLE II TOP HEAVY AND ADMINISTRATION 2.1 TOP HEAVY PLAN REQUIREMENTS For any Top Heavy Plan Year, the Plan shall provide the special vesting requirements of Code Section 416(b) pursuant to Section 6.4 of the Plan and the special minimum allocation requirements of Code Section 416(c) pursuant to Section 4.4 of the Plan. 2.2 DETERMINATION OF TOP HEAVY STATUS (a) This Plan shall be a Top Heavy Plan for any Plan Year in which, as of the Determination Date, (1) the Present Value of Accrued Benefits of Key Employees and (2) the sum of the Aggregate Accounts of Key Employees under this Plan and all plans of an Aggregation Group, exceeds sixty percent (60%) of the Present Value of Accrued Benefits and the Aggregate Accounts of all Key and Non-Key Employees under this Plan and all plans of an Aggregation Group. 24 If any Participant is a Non-Key Employee for any Plan Year, but such Participant was a Key Employee for any prior Plan Year, such Participant's Present Value of Accrued Benefit and/or Aggregate Account balance shall not be taken into account for purposes of determining whether this Plan is a Top Heavy or Super Top Heavy Plan (or whether any Aggregation Group which includes this Plan is a Top Heavy Group). In addition, if a Participant or Former Participant has not performed any services for any Employer maintaining the Plan at any time during the five year period ending on the Determination Date, any accrued benefit for such Participant or Former Participant shall not be taken into account for the purposes of determining whether this Plan is a Top Heavy or Super Top Heavy Plan. (b) This Plan shall be a Super Top Heavy Plan for any Plan Year in which, as of the Determination Date, (1) the Present Value of Accrued Benefits of Key Employees and (2) the sum of the Aggregate Accounts of Key Employees under this Plan and all plans of an Aggregation Group, exceeds ninety percent (90%) of the Present Value of Accrued Benefits and the Aggregate Accounts of all Key and Non-Key Employees under this Plan and all plans of an Aggregation Group. (c) Aggregate Account: A Participant's Aggregate Account as of the Determination Date is the sum of: (1) his Participant's Combined Account balance as of the most recent valuation occurring within a twelve (12) month period ending on the Determination Date; (2) an adjustment for any contributions due as of the Determination Date. Such adjustment shall be the amount of any contributions actually made after the valuation date but due on or before the Determination Date, except for the first Plan Year when such adjustment shall also reflect the amount of any contributions made after the Determination Date that are allocated as of a date in that first Plan Year. (3) any Plan distributions made within the Plan Year that includes the Determination Date or within the four (4) preceding Plan Years. However, in the case of distributions made after the valuation date and prior to the Determination Date, such distributions are not included as distributions for top heavy purposes to the extent that such distributions are already included in the Participant's Aggregate Account balance as of the valuation date. Notwithstanding anything herein to the contrary, all distributions, including distributions made prior to January 1, 1984, and distributions under a terminated plan which if it had not been terminated would have been required to be included in an Aggregation Group, will be counted. Further, distributions from the Plan 25 (including the cash value of life insurance policies) of a Participant's account balance because of death shall be treated as a distribution for the purposes of this paragraph. (4) any Employee contributions, whether voluntary or mandatory. However, amounts attributable to tax deductible qualified voluntary employee contributions shall not be considered to be a part of the Participant's Aggregate Account balance. (5) with respect to unrelated rollovers and plan-to-plan transfers (ones which are both initiated by the Employee and made from a plan maintained by one employer to a plan maintained by another employer), if this Plan provides the rollovers or plan-to-plan transfers, it shall always consider such rollovers or plan-to-plan transfers as a distribution for the purposes of this Section. If this Plan is the plan accepting such rollovers or plan-to-plan transfers, it shall not consider such rollovers or plan-to-plan transfers as part of the Participant's Aggregate Account balance. (6) with respect to related rollovers and plan-to-plan transfers (ones either not initiated by the Employee or made to a plan maintained by the same employer), if this Plan provides the rollover or plan-to-plan transfer, it shall not be counted as a distribution for purposes of this Section. If this Plan is the plan accepting such rollover or plan-to-plan transfer, it shall consider such rollover or plan-to-plan transfer as part of the Participant's Aggregate Account balance, irrespective of the date on which such rollover or plan-to-plan transfer is accepted. (7) For the purposes of determining whether two employers are to be treated as the same employer in (5) and (6) above, all employers aggregated under Code Section 414(b), (c), (m) and (o) are treated as the same employer. (d) "Aggregation Group" means either a Required Aggregation Group or a Permissive Aggregation Group as hereinafter determined. (1) Required Aggregation Group: In determining a Required Aggregation Group hereunder, each plan of the Employer in which a Key Employee is a participant in the Plan Year containing the Determination Date or any of the four preceding Plan Years, and each other plan of the Employer which enables any plan in which a Key Employee participates to meet the requirements of Code Sections 401(a)(4) or 410, will be required to be aggregated. Such group shall be known as a Required Aggregation Group. In the case of a Required Aggregation Group, each plan in the 26 group will be considered a Top Heavy Plan if the Required Aggregation Group is a Top Heavy Group. No plan in the Required Aggregation Group will be considered a Top Heavy Plan if the Required Aggregation Group is not a Top Heavy Group. (2) Permissive Aggregation Group: The Employer may also include any other plan not required to be included in the Required Aggregation Group, provided the resulting group, taken as a whole, would continue to satisfy the provisions of Code Sections 401(a)(4) and 410. Such group shall be known as a Permissive Aggregation Group. In the case of a Permissive Aggregation Group, only a plan that is part of the Required Aggregation Group will be considered a Top Heavy Plan if the Permissive Aggregation Group is a Top Heavy Group. No plan in the Permissive Aggregation Group will be considered a Top Heavy Plan if the Permissive Aggregation Group is not a Top Heavy Group. (3) Only those plans of the Employer in which the Determination Dates fall within the same calendar year shall be aggregated in order to determine whether such plans are Top Heavy Plans. (4) An Aggregation Group shall include any terminated plan of the Employer if it was maintained within the last five (5) years ending on the Determination Date. (e) "Determination Date" means (a) the last day of the preceding Plan Year, or (b) in the case of the first Plan Year, the last day of such Plan Year. (f) Present Value of Accrued Benefit: In the case of a defined benefit plan, the Present Value of Accrued Benefit for a Participant other than a Key Employee, shall be as determined using the single accrual method used for all plans of the Employer and Affiliated Employers, or if no such single method exists, using a method which results in benefits accruing not more rapidly than the slowest accrual rate permitted under Code Section 411(b)(1)(C). The determination of the Present Value of Accrued Benefit shall be determined as of the most recent valuation date that falls within or ends with the 12month period ending on the Determination Date except as provided in Code Section 416 and the Regulations thereunder for the first and second plan years of a defined benefit plan. (g) "Top Heavy Group" means an Aggregation Group in which, as of the Determination Date, the sum of: (1) the Present Value of Accrued Benefits of Key Employees under all defined benefit plans included in the group, and 27 (2) the Aggregate Accounts of Key Employees under all defined contribution plans included in the group,exceeds sixty percent (60%) of a similar sum determined for all Participants. 2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER (a) The Employer shall be empowered to appoint and remove the Trustee and the Administrator from time to time as it deems necessary for the proper administration of the Plan to assure that the Plan is being operated for the exclusive benefit of the Participants and their Beneficiaries in accordance with the terms of the Plan, the Code, and the Act. (b) The Employer shall establish a "funding policy and method," i.e., it shall determine whether the Plan has a short run need for liquidity (e.g., to pay benefits) or whether liquidity is a long run goal and investment growth (and stability of same) is a more current need, or shall appoint a qualified person to do so. The Employer or its delegate shall communicate such needs and goals to the Trustee, who shall coordinate such Plan needs with its investment policy. The communication of such a "funding policy and method" shall not, however, constitute a directive to the Trustee as to investment of the Trust Funds. Such "funding policy and method" shall be consistent with the objectives of this Plan and with the requirements of Title I of the Act. (c) The Employer shall periodically review the performance of any Fiduciary or other person to whom duties have been delegated or allocated by it under the provisions of this Plan or pursuant to procedures established hereunder. This requirement may be satisfied by formal periodic review by the Employer or by a qualified person specifically designated by the Employer, through day-to-day conduct and evaluation, or through other appropriate ways. 2.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY The Employer shall appoint one or more Administrators. Any person, including, but not limited to, the Employees of the Employer, shall be eligible to serve as an Administrator. Any person so appointed shall signify his acceptance by filing written acceptance with the Employer. An Administrator may resign by delivering his written resignation to the Employer or be removed by the Employer by delivery of written notice of removal, to take effect at a date specified therein, or upon delivery to the Administrator if no date is specified. The Employer, upon the resignation or removal of an Administrator, shall promptly designate in writing a successor to this position. If the Employer does not appoint an Administrator, the Employer will function as the Administrator. 28 2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES If more than one person is appointed as Administrator, the responsibilities of each Administrator may be specified by the Employer and accepted in writing by each Administrator. In the event that no such delegation is made by the Employer, the Administrators may allocate the responsibilities among themselves, in which event the Administrators shall notify the Employer and the Trustee in writing of such action and specify the responsibilities of each Administrator. The Trustee thereafter shall accept and rely upon any documents executed by the appropriate Administrator until such time as the Employer or the Administrators file with the Trustee a written revocation of such designation. 2.6 POWERS AND DUTIES OF THE ADMINISTRATOR The primary responsibility of the Administrator is to administer the Plan for the exclusive benefit of the Participants and their Beneficiaries, subject to the specific terms of the Plan. The Administrator shall administer the Plan in accordance with its terms and shall have the power and discretion to construe the terms of the Plan and to determine all questions arising in connection with the administration, interpretation, and application of the Plan. Any such determination by the Administrator shall be conclusive and binding upon all persons. The Administrator may establish procedures, correct any defect, supply any information, or reconcile any inconsistency in such manner and to such extent as shall be deemed necessary or advisable to carry out the purpose of the Plan; provided, however, that any procedure, discretionary act, interpretation or construction shall be done in a nondiscriminatory manner based upon uniform principles consistently applied and shall be consistent with the intent that the Plan shall continue to be deemed a qualified plan under the terms of Code Section 401(a), and shall comply with the terms of the Act and all regulations issued pursuant thereto. The Administrator shall have all powers necessary or appropriate to accomplish his duties under this Plan. The Administrator shall be charged with the duties of the general administration of the Plan, including, but not limited to, the following: (a) the discretion to determine all questions relating to the eligibility of Employees to participate or remain a Participant hereunder and to receive benefits under the Plan; (b) to compute, certify, and direct the Trustee with respect to the amount and the kind of benefits to which any Participant shall be entitled hereunder; (c) to authorize and direct the Trustee with respect to all nondiscretionary or otherwise directed disbursements from the 29 Trust; (d) to maintain all necessary records for the administration of the Plan; (e) to interpret the provisions of the Plan and to make and publish such rules for regulation of the Plan as are consistent with the terms hereof; (f) to determine the size and type of any Contract to be purchased from any insurer, and to designate the insurer from which such Contract shall be purchased; (g) to compute and certify to the Employer and to the Trustee from time to time the sums of money necessary or desirable to be contributed to the Plan; (h) to consult with the Employer and the Trustee regarding the short and long-term liquidity needs of the Plan in order that the Trustee can exercise any investment discretion in a manner designed to accomplish specific objectives; (i) to prepare and distribute to Employees a procedure for notifying Participants and Beneficiaries of their rights to elect joint and survivor annuities and Pre-Retirement Survivor Annuities as required by the Act and Regulations thereunder; (j) to prepare and implement a procedure to notify Eligible Employees that they may elect to have a portion of their Compensation deferred or paid to them in cash; (k) to assist any Participant regarding his rights, benefits, or elections available under the Plan. 2.7 RECORDS AND REPORTS The Administrator shall keep a record of all actions taken and shall keep all other books of account, records, and other data that may be necessary for proper administration of the Plan and shall be responsible for supplying all information and reports to the Internal Revenue Service, Department of Labor, Participants, Beneficiaries and others as required by law. 2.8 APPOINTMENT OF ADVISERS The Administrator, or the Trustee with the consent of the Administrator, may appoint counsel, specialists, advisers, and other persons as the Administrator or the Trustee deems necessary or desirable in connection with the administration of this Plan. 30 2.9 INFORMATION FROM EMPLOYER To enable the Administrator to perform his functions, the Employer shall supply full and timely information to the Administrator on all matters relating to the Compensation of all Participants, their Hours of Service, their Years of Service, their retirement, death, disability, or termination of employment, and such other pertinent facts as the Administrator may require; and the Administrator shall advise the Trustee of such of the foregoing facts as may be pertinent to the Trustee's duties under the Plan. The Administrator may rely upon such information as is supplied by the Employer and shall have no duty or responsibility to verify such information. 2.10 PAYMENT OF EXPENSES All expenses of administration may be paid out of the Trust Fund unless paid by the Employer. Such expenses shall include any expenses incident to the functioning of the Administrator, including, but not limited to, fees of accountants, counsel, and other specialists and their agents, and other costs of administering the Plan. Until paid, the expenses shall constitute a liability of the Trust Fund. However, the Employer may reimburse the Trust Fund for any administration expense incurred. 2.11 MAJORITY ACTIONS Except where there has been an allocation and delegation of administrative authority pursuant to Section 2.5, if there shall be more than one Administrator, they shall act by a majority of their number, but may authorize one or more of them to sign all papers on their behalf. 2.12 CLAIMS PROCEDURE Claims for benefits under the Plan may be filed in writing with the Administrator. Written notice of the disposition of a claim shall be furnished to the claimant within 90 days after the application is filed. In the event the claim is denied, the reasons for the denial shall be specifically set forth in the notice in language calculated to be understood by the claimant, pertinent provisions of the Plan shall be cited, and, where appropriate, an explanation as to how the claimant can perfect the claim will be provided. In addition, the claimant shall be furnished with an explanation of the Plan's claims review procedure. 2.13 CLAIMS REVIEW PROCEDURE Any Employee, former Employee, or Beneficiary of either, who has been denied a benefit by a decision of the Administrator pursuant to Section 2.12 shall be entitled to request the Administrator to give further consideration to his claim by filing with the Administrator (on a form which may be obtained from the Administrator) a request for a hearing. Such request, together with a written statement of the reasons why the 31 claimant believes his claim should be allowed, shall be filed with the Administrator no later than 60 days after receipt of the written notification provided for in Section 2.12. The Administrator shall then conduct a hearing within the next 60 days, at which the claimant may be represented by an attorney or any other representative of his choosing and at which the claimant shall have an opportunity to submit written and oral evidence and arguments in support of his claim. At the hearing (or prior thereto upon 5 business days written notice to the Administrator) the claimant or his representative shall have an opportunity to review all documents in the possession of the Administrator which are pertinent to the claim at issue and its disallowance. Either the claimant or the Administrator may cause a court reporter to attend the hearing and record the proceedings. In such event, a complete written transcript of the proceedings shall be furnished to both parties by the court reporter. The full expense of any such court reporter and such transcripts shall be borne by the party causing the court reporter to attend the hearing. A final decision as to the allowance of the claim shall be made by the Administrator within 60 days of receipt of the appeal (unless there has been an extension of 60 days due to special circumstances, provided the delay and the special circumstances occasioning it are communicated to the claimant within the 60 day period). Such communication shall be written in a manner calculated to be understood by the claimant and shall include specific reasons for the decision and specific references to the pertinent Plan provisions on which the decision is based. ARTICLE III ELIGIBILITY 3.1 CONDITIONS OF ELIGIBILITY Any Eligible Employee who has completed one (1) Year of Service and has attained age 21 shall be eligible to participate hereunder as of the date he has satisfied such requirements. However, any Employee who was a Participant in the Plan prior to the effective date of this amendment and restatement shall continue to participate in the Plan. The Employer shall give each prospective Eligible Employee written notice of his eligibility to participate in the Plan prior to the close of the Plan Year in which he first becomes an Eligible Employee. 3.2 APPLICATION FOR PARTICIPATION In order to become a Participant hereunder, each Eligible Employee shall make application to the Employer for participation in the Plan and agree to the terms hereof. Upon the acceptance of any benefits under this Plan, such Employee shall automatically be deemed to have made application and shall be bound by the terms and conditions of the Plan and all amendments hereto. 3.3 EFFECTIVE DATE OF PARTICIPATION 32 An Eligible Employee shall become a Participant effective as of the earlier of the first day of the Plan Year or the first day of the seventh month of such Plan Year coinciding with or next following the date such Employee met the eligibility requirements of Section 3.1, provided said Employee was still employed as of such date (or if not employed on such date, as of the date of rehire if a l-Year Break in Service has not occurred). In the event an Employee who is not a member of an eligible class of Employees becomes a member of an eligible class, such Employee will participate immediately if such Employee has satisfied the minimum age and service requirements and would have otherwise previously become a Participant. 3.4 DETERMINATION OF ELIGIBILITY The Administrator shall determine the eligibility of each Employee for participation in the Plan based upon information furnished by the Employer. Such determination shall be conclusive and binding upon all persons, as long as the same is made pursuant to the Plan and the Act. Such determination shall be subject to review per Section 2.13. 3.5 TERMINATION OF ELIGIBILITY (a) In the event a Participant shall go from a classification of an Eligible Employee to an ineligible Employee, such Former Participant shall continue to vest in his interest in the Plan for each Year of Service completed while a noneligible Employee, until such time as his Participant's Account shall be forfeited or distributed pursuant to the terms of the Plan. Additionally, his interest in the Plan shall continue to share in the earnings of the Trust Fund. (b) In the event a Participant is no longer a member of an eligible class of Employees and becomes ineligible to participate but has not incurred a l-Year Break in Service, such Employee will participate immediately upon returning to an eligible class of Employees. If such Participant incurs a l-Year Break in Service, eligibility will be determined under the break in service rules of the Plan. 3.6 OMISSION OF ELIGIBLE EMPLOYEE If, in any Plan Year, any Employee who should be included as a Participant in the Plan is erroneously omitted and discovery of such omission is not made until after a contribution by his Employer for the year has been made, the Employer shall make a subsequent contribution with respect to the omitted Employee in the amount which the said Employer would have contributed with respect to him had he not been omitted. Such contribution shall be made regardless of whether or not it is deductible in whole or in part in any taxable year under applicable 33 provisions of the Code. 3.7 INCLUSION OF INELIGIBLE EMPLOYEE If, in any Plan Year, any person who should not have been included as a Participant in the Plan is erroneously included and discovery of such incorrect inclusion is not made until after a contribution for the year has been made, the Employer shall not be entitled to recover the contribution made with respect to the ineligible person regardless of whether or not a deduction is allowable with respect to such contribution. In such event, the amount contributed with respect to the ineligible person shall constitute a Forfeiture (except for Deferred Compensation which shall be distributed to the ineligible person) for the Plan Year in which the discovery is made. 3.8 ELECTION NOT TO PARTICIPATE An Employee may, subject to the approval of the Employer, elect voluntarily not to participate in the Plan. The election not to participate must be communicated to the Employer, in writing, at least thirty (30) days before the beginning of a Plan Year. ARTICLE IV CONTRIBUTION AND ALLOCATION 4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION For each Plan Year, the Employer shall contribute to the Plan: (a) The amount of the total salary reduction elections of all Participants made pursuant to Section 4.2(a), which amount shall be deemed an Employer's Elective Contribution. (b) On behalf of each Participant who is eligible to share in matching contributions for the Plan Year, a matching contribution equal to 100% of each such Participant's Deferred Compensation, which amount shall be deemed an Employer's Non-Elective Contribution. Except, however, in applying the matching percentage specified above, only salary reductions up to 3% of Compensation shall be considered. (c) On behalf of each Participant who is eligible to share in the Qualified Non-Elective Contribution for the Plan Year, a discretionary Qualified NonElective Contribution equal to a percentage of each eligible individual's Compensation, the exact percentage to be determined each year by the Employer. The Employer's Qualified Non-Elective Contribution shall be deemed an Employer's Elective Contribution. 34 (d) A discretionary amount, which amount shall be deemed an Employer's Non-Elective Contribution. (e) Notwithstanding the foregoing, however, the Employer's 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. All contributions by the Employer shall be made in cash or in such property as is acceptable to the Trustee. (f) Except, however, to the extent necessary to provide the top heavy minimum allocations, the Employer shall make a contribution even if it exceeds the amount which is deductible under Code Section 404. 4.2 PARTICIPANT'S SALARY REDUCTION ELECTION (a) Each Participant may elect to defer from 1% to 20% of his Compensation which would have been received in the Plan Year, but for the deferral election. A deferral election (or modification of an earlier election) may not be made with respect to Compensation which is currently available on or before the date the Participant executed such election. The amount by which Compensation is reduced shall be that Participant's Deferred Compensation and be treated as an Employer Elective Contribution and allocated to that Participant's Elective Account. (b) The balance in each Participant's Elective Account shall be fully Vested at all times and shall not be subject to Forfeiture for any reason. (c) Amounts held in the Participant's Elective Account may not be distributable earlier than: (1) a Participant's termination of employment, Total and Permanent Disability, or death; (2) a Participant's attainment of age 59 1/2; (3) the termination of the Plan without the establishment or existence of a "successor plan," as that term is described in Regulation 1.401(k)-l(d)(3); (4) the date of disposition by the Employer to an entity that is not an Affiliated Employer of substantially all of the assets (within the meaning of Code Section 409(d)(2)) used in a trade or business of such corporation if such corporation continues to maintain this Plan after the disposition with respect to a Participant who continues employment with the corporation acquiring such assets; 35 (5) the date of disposition by the Employer or an Affiliated Employer who maintains the Plan of its interest in a subsidiary (within the meaning of Code Section 409(d)(3)) to an entity which is not an Affiliated Employer but only with respect to a Participant who continues employment with such subsidiary; or (6) the proven financial hardship of a Participant, subject to the limitations of Section 6.10. (d) For each Plan Year beginning after December 31, 1987, a Participant's Deferred Compensation made under this Plan and all other plans, contracts or arrangements of the Employer maintaining this Plan shall not exceed, during any taxable year of the Participant, the limitation imposed by Code Section 402(g), as in effect at the beginning of such taxable year. If such dollar limitation is exceeded, a Participant will be deemed to have notified the Administrator of such excess amount which shall be distributed in a manner consistent with Section 4.2(f). The dollar limitation shall be adjusted annually pursuant to the method provided in Code Section 415(d) in accordance with Regulations. (e) In the event a Participant has received a hardship distribution from his Participant's Elective Account pursuant to Section 6.10 or pursuant to Regulation 1.401(k)-l(d)(2)(iv)(B) from any other plan maintained by the Employer, then such Participant shall not be permitted to elect to have Deferred Compensation contributed to the Plan on his behalf for a period of twelve (12) months following the receipt of the distribution. Furthermore, the dollar limitation under Code Section 402(g) shall be reduced, with respect to the Participant's taxable year following the taxable year in which the hardship distribution was made, by the amount of such Participant's Deferred Compensation, if any, pursuant to this Plan (and any other plan maintained by the Employer) for the taxable year of the hardship distribution. (f) If a Participant's Deferred Compensation under this Plan together with any elective deferrals (as defined in Regulation 1.402(g)-l(b)) under another qualified cash or deferred arrangement (as defined in Code Section 401(k)), a simplified employee pension (as defined in Code Section 408(k)), a salary reduction arrangement (within the meaning of Code Section 3121(a)(5)(D)), a deferred compensation plan under Code Section 457, or a trust described in Code Section 501(c)(18) cumulatively exceed the limitation imposed by Code Section 402(g) (as adjusted annually in accordance with the method provided in Code Section 415(d) pursuant to Regulations) for such Participant's taxable year, the Participant may, not later than March 1 following the close of the Participant's taxable year, notify the Administrator in writing of such excess and request that his Deferred Compensation under this Plan be reduced by an amount specified by the Participant. In such event, the Administrator may 36 direct the Trustee to distribute such excess amount (and any Income allocable to such excess amount) to the Participant not later than the first April 15th following the close of the Participant's taxable year. Distributions in accordance with this paragraph may be made for any taxable year of the Participant which begins after December 31, 1986. Any distribution of less than the entire amount of Excess Deferred Compensation and Income shall be treated as a pro rata distribution of Excess Deferred Compensation and Income. The amount distributed shall not exceed the Participant's Deferred Compensation under the Plan for the taxable year. Any distribution on or before the last day of the Participant's taxable year must satisfy each of the following conditions: (1) the distribution must be made after the date on which the Plan received the Excess Deferred Compensation; (2) the Participant shall designate the distribution as Excess Deferred Compensation; and (3) the Plan must designate the distribution as a distribution of Excess Deferred Compensation. Any distribution made pursuant to this Section 4.2(f) shall be made first from unmatched Deferred Compensation and, thereafter, simultaneously from Deferred Compensation which is matched and matching contributions which relate to such Deferred Compensation. However, any such matching contributions which are not Vested shall be forfeited in lieu of being distributed. (g) Notwithstanding Section 4.2(f) above, a Participant's Excess Deferred Compensation shall be reduced, but not below zero, by any distribution of Excess Contributions pursuant to Section 4.6(a) for the Plan Year beginning with or within the taxable year of the Participant. (h) At Normal Retirement Date, or such other date when the Participant shall be entitled to receive benefits, the fair market value of the Participant's Elective Account shall be used to provide additional benefits to the Participant or his Beneficiary. (i) All amounts allocated to a Participant's Elective Account may be treated as a Directed Investment Account pursuant to Section 4.12. (j) Employer Elective Contributions made pursuant to this Section may be segregated into a separate account for each Participant in a federally insured savings account, certificate of deposit in a bank or savings and loan association, money market certificate, or other short-term debt security acceptable to the Trustee until such time as the allocations pursuant to Section 4.4 have been made. 37 (k) The Employer and the Administrator shall implement the salary reduction elections provided for herein in accordance with the following: (1) A Participant may commence making elective deferrals to the Plan only after first satisfying the eligibility and participation requirements specified in Article III. However, the Participant must make his initial salary deferral election within a reasonable time, not to exceed thirty (30) days, after entering the Plan pursuant to Section 3.3. If the Participant fails to make an initial salary deferral election within such time, then such Participant may thereafter make an election in accordance with the rules governing modifications. The Participant shall make such an election by entering into a written salary reduction agreement with the Employer and filing such agreement with the Administrator. Such election shall initially be effective beginning with the pay period following the acceptance of the salary reduction agreement by the Administrator, shall not have retroactive effect and shall remain in force until revoked. (2) A Participant may modify a prior election at any time during the Plan Year and concurrently make a new election by filing a written notice with the Administrator within a reasonable time before the pay period for which such modification is to be effective. Any modification shall not have retroactive effect and shall remain in force until revoked. (3) A Participant may elect to prospectively revoke his salary reduction agreement in its entirety at any time during the Plan Year by providing the Administrator with thirty (30) days written notice of such revocation (or upon such shorter notice period as may be acceptable to the Administrator). Such revocation shall become effective as of the beginning of the first pay period coincident with or next following the expiration of the notice period. Furthermore, the termination of the Participant's employment, or the cessation of participation for any reason, shall be deemed to revoke any salary reduction agreement then in effect, effective immediately following the close of the pay period within which such termination or cessation occurs. 4.3 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION The Employer shall generally pay to the Trustee its contribution to the Plan for each Plan Year within the time prescribed by law, including extensions of time, for the filing of the Employer's federal income tax return for the Fiscal Year. However, Employer Elective Contributions accumulated through payroll 38 deductions shall be paid to the Trustee as of the earliest date on which such contributions can reasonably be segregated from the Employer's general assets, but in any event within ninety (90) days from the date on which such amounts would otherwise have been payable to the Participant in cash. The provisions of Department of Labor regulations 2510.3-102 are incorporated herein by reference. Furthermore, any additional Employer contributions which are allocable to the Participant's Elective Account for a Plan Year shall be paid to the Plan no later than the twelvemonth period immediately following the close of such Plan Year. 4.4 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS (a) The Administrator shall establish and maintain an account in the name of each Participant to which the Administrator shall credit as of each Anniversary Date all amounts allocated to each such Participant as set forth herein. (b) The Employer shall provide the Administrator with all information required by the Administrator to make a proper allocation of the Employer's contributions for each Plan Year. Within a reasonable period of time after the date of receipt by the Administrator of such information, the Administrator shall allocate such contribution as follows: (1) With respect to the Employer's Elective Contribution made pursuant to Section 4.1(a), to each Participant's Elective Account in an amount equal to each such Participant's Deferred Compensation for the year. (2) With respect to the Employer's Non-Elective Contribution made pursuant to Section 4.1(b), to each Participant's Account in accordance with Section 4.1(b). Any Participant actively employed during the Plan Year shall be eligible to share in the matching contribution for the Plan Year. (3) With respect to the Employer's Qualified Non-Elective Contribution made pursuant to Section 4.1(c), to each Participant's Elective Account in accordance with Section 4.1(c). Any Participant actively employed during the Plan Year shall be eligible to share in the Qualified Non-Elective Contribution for the Plan Year. (4) With respect to the Employer's Non-Elective Contribution made pursuant to Section 4.1(d), to each Participant's Account in the same proportion that each such Participant's Compensation for the year bears to the total Compensation of 39 all Participants for such year. Only Participants who have completed a Year of Service during the Plan Year and are actively employed on the last day of the Plan Year shall be eligible to share in the discretionary contribution for the year. However, with respect to Plan Years beginning after December 31, 1989, in lieu of the foregoing, only Participants who are actively employed on the last day of the Plan Year shall be eligible to share in the discretionary contribution for the year. (c) As of each Anniversary Date any amounts which became Forfeitures since the last Anniversary Date shall first be made available to reinstate previously forfeited account balances of Former Participants, if any, in accordance with Section 6.4(g)(2). The remaining Forfeitures, if any, shall be allocated to Participants' Accounts in the following manner: (1) Forfeitures attributable to Employer matching contributions made pursuant to Section 4.1(b) shall be allocated among the Participants' Accounts in the same proportion that each such Participant's Compensation for the year bears to the total Compensation of all Participants for the year. Except, however, Participants who are not eligible to share in matching contributions (whether or not a deferral election was made or suspended pursuant to Section 4.2(e)) for a Plan Year shall not share in Plan Forfeitures attributable to Employer matching contributions for that year. (2) Forfeitures attributable to Employer discretionary contributions made pursuant to Section 4.1(d) shall be allocated among the Participants' Accounts of Participants otherwise eligible to share in the allocation of discretionary contributions for the year in the same proportion that each such Participant's Compensation for the year bears to the total Compensation of all such Participants for the year. Provided, however, that in the event the allocation of Forfeitures provided herein shall cause the "annual addition" (as defined in Section 4.9) to any Participant's Account to exceed the amount allowable by the Code, the excess shall be reallocated in accordance with Section 4.10. (d) For any Top Heavy Plan Year, Non-Key Employees not otherwise eligible to share in the allocation of contributions and Forfeitures as provided above, shall receive the minimum allocation provided for in Section 4.4(g) if eligible pursuant to the provisions of Section 4.4(j). 40 (e) Notwithstanding the foregoing, Participants who are not actively employed on the last day of the Plan Year due to Retirement (Normal or Late), Total and Permanent Disability or death shall share in the allocation of contributions and Forfeitures for that Plan Year. (f) As of each Anniversary Date or other valuation date, any earnings or losses (net appreciation or net depreciation) of the Trust Fund shall be allocated in the same proportion that each Participant's and Former Participant's time weighted average nonsegregated accounts bear to the total of all Participants' and Former Participants' time weighted average nonsegregated accounts as of such date. Participants' transfers from other qualified plans deposited in the general Trust Fund shall share in any earnings and losses (net appreciation or net depreciation) of the Trust Fund in the same manner provided above. Each segregated account maintained on behalf of a Participant shall be credited or charged with its separate earnings and losses. (g) Minimum Allocations Required for Top Heavy Plan Years: Notwithstanding the foregoing, for any Top Heavy Plan Year, the sum of the Employer's contributions and Forfeitures allocated to the Participant's Combined Account of each Non-Key Employee shall be equal to at least three percent (3%) of such Non-Key Employee's "415 Compensation" (reduced by contributions and forfeitures, if any, allocated to each Non-Key Employee in any defined contribution plan included with this plan in a Required Aggregation Group). However, if (1) the sum of the Employer's contributions and Forfeitures allocated to the Participant's Combined Account of each Key Employee for such Top Heavy Plan Year is less than three percent (3%) of each Key Employee's "415 Compensation" and (2) this Plan is not required to be included in an Aggregation Group to enable a defined benefit plan to meet the requirements of Code Section 401(a)(4) or 410, the sum of the Employer's contributions and Forfeitures allocated to the Participant's Combined Account of each Non-Key Employee shall be equal to the largest percentage allocated to the Participant's Combined Account of any Key Employee. However, in determining whether a Non-Key Employee has received the required minimum allocation, such Non-Key Employee's Deferred Compensation and matching contributions needed to satisfy the "Actual Contribution Percentage" tests pursuant to Section 4.7(a) shall not be taken into account. However, no such minimum allocation shall be required in this Plan for any Non-Key Employee who participates in another defined contribution plan subject to Code Section 412 providing such benefits included with this Plan in a Required Aggregation Group. (h) For any Plan Year when (1) the Plan is a Top Heavy Plan but not 41 a Super Top Heavy Plan and (2) a Key Employee is a Participant in both this Plan and a defined benefit plan included in a Required Aggregation Group which is top heavy, the extra minimum allocation (required by Section 4.9(m) to provide higher limitations) shall be provided for each Non-Key Employee who is a Participant only in this Plan by substituting four percent (4%) for three percent (3%) in the paragraph above. (i) For purposes of the minimum allocations set forth above, the percentage allocated to the Participant's Combined Account of any Key Employee shall be equal to the ratio of the sum of the Employer's contributions and Forfeitures allocated on behalf of such Key Employee divided by the "415 Compensation" for such Key Employee. (j) For any Top Heavy Plan Year, the minimum allocations set forth above shall be allocated to the Participant's Combined Account of all Non-Key Employees who are Participants and who are employed by the Employer on the last day of the Plan Year, including Non-Key Employees who have (1) failed to complete a Year of Service; and (2) declined to make mandatory contributions (if required) or, in the case of a cash or deferred arrangement, elective contributions to the Plan. (k) In lieu of the above, in any Plan Year in which a Non-Key Employee is a Participant in both this Plan and a defined benefit pension plan included in a Required Aggregation Group which is top heavy, the Employer shall not be required to provide such Non-Key Employee with both the full separate defined benefit plan minimum benefit and the full separate defined contribution plan minimum allocation. Therefore, for any Plan Year when (1) the Plan is a Top Heavy Plan but not a Super Top Heavy Plan, and (2) a Key Employee is a Participant in both this Plan and a defined benefit plan included in a Required Aggregation Group which is top heavy, a Non-Key Employee who is participating in this Plan and a defined benefit plan maintained by the Employer shall receive a minimum monthly accrued benefit in the defined benefit plan equal to the product of (1) one-twelfth (1/ 12th) of "415 Compensation" averaged over the five (5) consecutive "limitation years" (or actual "limitation years," if less) which produce the highest average and (2) the lesser of (i) three percent (3%) multiplied by years of service when the plan is top heavy or (ii) thirty percent (30%). Further, the extra minimum allocation (required by Section 4.9(m) to provide higher limitations) shall be provided. Except, however, in the event this Plan is a Super Top Heavy Plan, the three percent (3%) minimum accrual shall be reduced to two percent (2%) and 20% shall be substituted for 30% in the paragraph above. 42 (l) For the purposes of this Section, "415 Compensation" shall be limited to $200,000. Such amount shall be adjusted at the same time and in the same manner as permitted under Code Section 415(d), except that the dollar increase in effect on January 1 of any calendar year shall be effective for the Plan Year beginning with or within such calendar year and the first adjustment to the $200,000 limitation shall be effective on January 1, 1990. For any short Plan Year the "415 Compensation" limit shall be an amount equal to the "415 Compensation" limit for the calendar year in which the Plan Year begins multiplied by the ratio obtained by dividing the number of full months in the short Plan Year by twelve (12). However, for Plan Years beginning prior to January 1, 1989, the $200,000 limit shall apply only for Top Heavy Plan Years and shall not be adjusted. In addition to other applicable limitations set forth in the Plan, and notwithstanding any other provision of the Plan to the contrary, for Plan Years beginning on or after January 1, 1994, the annual Compensation of each Employee taken into account under the Plan shall not exceed the OBRA '93 annual compensation limit. The OBRA '93 annual compensation limit is $150,000, as adjusted by the Commissioner for increases in the cost of living in accordance with Code Section 401(a)(17)(B). The cost of living adjustment in effect for a calendar year applies to any period, not exceeding 12 months, over which Compensation is determined (determination period) beginning in such calendar year. If a determination period consists of fewer than 12 months, the OBRA '93 annual compensation limit will be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is 12. For Plan Years beginning on or after January 1, 1994, any reference in this Plan to the limitation under Code Section 401(a)(17) shall mean the OBRA '93 annual compensation limit set forth in this provision. If Compensation for any prior determination period is taken into account in determining an Employee's benefits accruing in the current Plan Year, the Compensation for that prior determination period is subject to the OBRA '93 annual compensation limit in effect for that prior determination period. For this purpose, for determination periods beginning before the first day of the first Plan Year beginning on or after January 1, 1994, the OBRA '93 annual compensation limit is $150,000. (m) Notwithstanding anything herein to the contrary, Participants who terminated employment for any reason during the Plan Year shall share in the salary reduction contributions made by the Employer for the year of termination without regard to the Hours of Service credited. 43 (n) If a Former Participant is reemployed after five (5) consecutive 1-Year Breaks in Service, then separate accounts shall be maintained as follows: (1) one account for nonforfeitable benefits attributable to pre-break service; and (2) one account representing his status in the Plan attributable to postbreak service. (o) Notwithstanding anything to the contrary, for Plan Years beginning after December 31, 1989, if this is a Plan that would otherwise fail to meet the requirements of Code Sections 401(a)(26), 410(b)(1) or 410(b)(2)(A)(i) and the Regulations thereunder because Employer contributions would not be allocated to a sufficient number or percentage of Participants for a Plan Year, then the following rules shall apply: (1) The group of Participants eligible to share in the Employer's contribution and Forfeitures for the Plan Year shall be expanded to include the minimum number of Participants who would not otherwise be eligible as are necessary to satisfy the applicable test specified above. The specific Participants who shall become eligible under the terms of this paragraph shall be those who are actively employed on the last day of the Plan Year and, when compared to similarly situated Participants, have completed the greatest number of Hours of Service in the Plan Year. (2) If after application of paragraph (1) above, the applicable test is still not satisfied, then the group of Participants eligible to share in the Employer's contribution and Forfeitures for the Plan Year shall be further expanded to include the minimum number of Participants who are not actively employed on the last day of the Plan Year as are necessary to satisfy the applicable test. The specific Participants who shall become eligible to share shall be those Participants, when compared to similarly situated Participants, who have completed the greatest number of Hours of Service in the Plan Year before terminating employment. (3) Nothing in this Section shall permit the reduction of a Participant's accrued benefit. Therefore any amounts that have previously been allocated to Participants may not be reallocated to satisfy these requirements. In such event, the Employer shall make an additional contribution equal to the amount such affected Participants would have received had they been included in the allocations, even if it exceeds the amount which would be deductible under Code Section 404. Any adjustment to the allocations pursuant to this paragraph shall be considered a retroactive amendment adopted by the last day 44 of the Plan Year. (4) Notwithstanding the foregoing, for any Top Heavy Plan Year beginning after December 31, 1992, if the portion of the Plan which is not a Code Section 401(k) or 401(m) plan would fail to satisfy Code Section 410(b) if the coverage tests were applied by treating those Participants whose only allocation (under such portion of the Plan) would otherwise be provided under the top heavy formula as if they were not currently benefiting under the Plan, then, for purposes of this Section 4.4(o), such Participants shall be treated as not benefiting and shall therefore be eligible to be included in the expanded class of Participants who will share in the allocation provided under the Plan's non top heavy formula. 4.5 ACTUAL DEFERRAL PERCENTAGE TESTS (a) Maximum Annual Allocation: For each Plan Year beginning after December 31, 1986, the annual allocation derived from Employer Elective Contributions to a Participant's Elective Account shall satisfy one of the following tests: (1) The "Actual Deferral Percentage" for the Highly Compensated Participant group shall not be more than the "Actual Deferral Percentage" of the Non-Highly Compensated Participant group multiplied by 1.25, or (2) The excess of the "Actual Deferral Percentage" for the Highly Compensated Participant group over the "Actual Deferral Percentage" for the Non-Highly Compensated Participant group shall not be more than two percentage points. Additionally, the "Actual Deferral Percentage" for the Highly Compensated Participant group shall not exceed the "Actual Deferral Percentage" for the Non-Highly Compensated Participant group multiplied by 2. The provisions of Code Section 401(k)(3) and Regulation 1.401(k)-l(b) are incorporated herein by reference. However, for Plan Years beginning after December 31, 1988, in order to prevent the multiple use of the alternative method described in (2) above and in Code Section 401(m)(9)(A), any Highly Compensated Participant eligible to make elective deferrals pursuant to Section 4.2 and to make Employee contributions or to receive matching contributions under this Plan or under any other plan maintained by the Employer or an Affiliated Employer shall have his actual contribution ratio reduced pursuant to Regulation 1.401(m)-2, the provisions of which are incorporated herein by reference. (b) For the purposes of this Section "Actual Deferral Percentage" means, with respect to the Highly Compensated Participant group and Non-Highly Compensated Participant group for a Plan Year, the 45 average of the ratios, calculated separately for each Participant in such group, of the amount of Employer Elective Contributions allocated to each Participant's Elective Account for such Plan Year, to such Participant's "414(s) Compensation" for such Plan Year. The actual deferral ratio for each Participant and the "Actual Deferral Percentage" for each group shall be calculated to the nearest one-hundredth of one percent for Plan Years beginning after December 31, 1988. Employer Elective Contributions allocated to each Non-Highly Compensated Participant's Elective Account shall be reduced by Excess Deferred Compensation to the extent such excess amounts are made under this Plan or any other plan maintained by the Employer. (c) For the purpose of determining the actual deferral ratio of a Highly Compensated Employee who is subject to the Family Member aggregation rules of Code Section 414(q)(6) because such Participant is either a "five percent owner" of the Employer or one of the ten (10) Highly Compensated Employees paid the greatest "415 Compensation" during the year, the following shall apply: (1) The combined actual deferral ratio for the family group (which shall be treated as one Highly Compensated Participant) shall be determined by aggregating Employer Elective Contributions and "414(s) Compensation" of all eligible Family Members (including Highly Compensated Participants). However, in applying the $200,000 limit to "414(s) Compensation," for Plan Years beginning after December 31, 1988, Family Members shall include only the affected Employee's spouse and any lineal descendants who have not attained age 19 before the close of the Plan Year. Notwithstanding the foregoing, with respect to Plan Years beginning prior to January 1, 1990, compliance with the Regulations then in effect shall be deemed to be compliance with this paragraph. (2) The Employer Elective Contributions and "414(s) Compensation" of all Family Members shall be disregarded for purposes of determining the "Actual Deferral Percentage" of the Non-Highly Compensated Participant group except to the extent taken into account in paragraph (1) above. (3) If a Participant is required to be aggregated as a member of more than one family group in a plan, all Participants who are members of those family groups that include the Participant are aggregated as one family group in accordance with paragraphs (1) and (2) above. (d) For the purposes of Sections 4.5(a) and 4.6, a Highly Compensated Participant and a Non-Highly Compensated Participant shall include any Employee eligible to make a deferral election pursuant to Section 4.2, whether or not such deferral election was made or suspended pursuant to Section 4.2. 46 (e) For the purposes of this Section and Code Sections 401(a)(4), 410(b) and 401(k), if two or more plans which include cash or deferred arrangements are considered one plan for the purposes of Code Section 401(a)(4) or 410(b) (other than Code Section 410(b)(2)(A)(ii) as in effect for Plan Years beginning after December 31, 1988), the cash or deferred arrangements included in such plans shall be treated as one arrangement. In addition, two or more cash or deferred arrangements may be considered as a single arrangement for purposes of determining whether or not such arrangements satisfy Code Sections 401(a)(4), 410(b) and 401(k). In such a case, the cash or deferred arrangements included in such plans and the plans including such arrangements shall be treated as one arrangement and as one plan for purposes of this Section and Code Sections 401(a)(4), 410(b) and 401(k). Plans may be aggregated under this paragraph (e) for Plan Years beginning after December 31, 1989 only if they have the same plan year. Notwithstanding the above, for Plan Years beginning after December 31, 1988, an employee stock ownership plan described in Code Section 4975(e)(7) or 409 may not be combined with this Plan for purposes of determining whether the employee stock ownership plan or this Plan satisfies this Section and Code Sections 401(a)(4), 410(b) and 401(k). (f) For the purposes of this Section, if a Highly Compensated Participant is a Participant under two or more cash or deferred arrangements (other than a cash or deferred arrangement which is part of an employee stock ownership plan as defined in Code Section 4975(e)(7) or 409 for Plan Years beginning after December 31, 1988) of the Employer or an Affiliated Employer, all such cash or deferred arrangements shall be treated as one cash or deferred arrangement for the purpose of determining the actual deferral ratio with respect to such Highly Compensated Participant. However, for Plan Years beginning after December 31, 1988, if the cash or deferred arrangements have different plan years, this paragraph shall be applied by treating all cash or deferred arrangements ending with or within the same calendar year as a single arrangement. 4.6 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS In the event that the initial allocations of the Employer's Elective Contributions made pursuant to Section 4.4 do not satisfy one of the tests set forth in Section 4.5(a) for Plan Years beginning after December 31, 1986, the Administrator shall adjust Excess Contributions pursuant to the options set forth below: (a) On or before the fifteenth day of the third month following the end of each Plan Year, the Highly Compensated Participant having the highest actual deferral ratio shall have his portion of Excess Contributions distributed to him until one of the tests set forth 47 in Section 4.5(a) is satisfied, or until his actual deferral ratio equals the actual deferral ratio of the Highly Compensated Participant having the second highest actual deferral ratio. This process shall continue until one of the tests set forth in Section 4.5(a) is satisfied. For each Highly Compensated Participant, the amount of Excess Contributions is equal to the Elective Contributions on behalf of such Highly Compensated Participant (determined prior to the application of this paragraph) minus the amount determined by multiplying the Highly Compensated Participant's actual deferral ratio (determined after application of this paragraph) by his "414(s) Compensation." However, in determining the amount of Excess Contributions to be distributed with respect to an affected Highly Compensated Participant as determined herein, such amount shall be reduced by any Excess Deferred Compensation previously distributed to such affected Highly Compensated Participant for his taxable year ending with or within such Plan Year. (1) With respect to the distribution of Excess Contributions pursuant to (a) above, such distribution: (i) may be postponed but not later than the close of the Plan Year following the Plan Year to which they are allocable; (ii) shall be made first from unmatched Deferred Compensation and, thereafter, simultaneously from Deferred Compensation which is matched and matching contributions which relate to such Deferred Compensation. However, any such matching contributions which are not Vested shall be forfeited in lieu of being distributed; (iii) shall be made from Qualified Non-Elective Contributions only to the extent that Excess Contributions exceed the balance in the Participant's Elective Account attributable to Deferred Compensation; (iv) shall be adjusted for Income; and (v) shall be designated by the Employer as a distribution of Excess Contributions (and Income). (2) Any distribution of less than the entire amount of Excess Contributions shall be treated as a pro rata distribution of Excess Contributions and Income. (3) The determination and correction of Excess Contributions of a Highly Compensated Participant whose actual deferral ratio is determined under the family aggregation rules shall be accomplished by reducing the actual deferral ratio as required herein, and the Excess Contributions for the family 48 unit shall then be allocated among the Family Members in proportion to the Elective Contributions of each Family Member that were combined to determine the group actual deferral ratio. Notwithstanding the foregoing, with respect to Plan Years beginning prior to January 1, 1990, compliance with the Regulations then in effect shall be deemed to be compliance with this paragraph. (b) Within twelve (12) months after the end of the Plan Year, the Employer may make a special Qualified Non-Elective Contribution on behalf of Non-Highly Compensated Participants in an amount sufficient to satisfy one of the tests set forth in Section 4.5(a). Such contribution shall be allocated to the Participant's Elective Account of each Non-Highly Compensated Participant in the same proportion that each Non-Highly Compensated Participant's Compensation for the year bears to the total Compensation of all Non-Highly Compensated Participants. (c) If during a Plan Year the projected aggregate amount of Elective Contributions to be allocated to all Highly Compensated Participants under this Plan would, by virtue of the tests set forth in Section 4.5(a), cause the Plan to fail such tests, then the Administrator may automatically reduce proportionately or in the order provided in Section 4.6(a) each affected Highly Compensated Participant's deferral election made pursuant to Section 4.2 by an amount necessary to satisfy one of the tests set forth in Section 4.5(a). 4.7 ACTUAL CONTRIBUTION PERCENTAGE TESTS (a) The "Actual Contribution Percentage" for Plan Years beginning after December 31, 1986 for the Highly Compensated Participant group shall not exceed the greater of: (1) 125 percent of such percentage for the Non-Highly Compensated Participant group; or (2) the lesser of 200 percent of such percentage for the Non-Highly Compensated Participant group, or such percentage for the Non-Highly Compensated Participant group plus 2 percentage points. However, for Plan Years beginning after December 31, 1988, to prevent the multiple use of the alternative method described in this paragraph and Code Section 401(m)(9)(A), any Highly Compensated Participant eligible to make elective deferrals pursuant to Section 4.2 or any other cash or deferred arrangement maintained by the Employer or an Affiliated Employer and to make Employee contributions or to receive matching contributions under this Plan or under any other plan maintained by the Employer or an Affiliated Employer shall have his actual contribution ratio reduced pursuant to Regulation 1.401(m)-2. The provisions of 49 Code Section 401(m) and Regulations 1.401(m)-l(b) and 1.401(m)-2 are incorporated herein by reference. (b) For the purposes of this Section and Section 4.8, "Actual Contribution Percentage" for a Plan Year means, with respect to the Highly Compensated Participant group and Non-Highly Compensated Participant group, the average of the ratios (calculated separately for each Participant in each group) of: (1) the sum of Employer matching contributions made pursuant to Section 4.1(b) on behalf of each such Participant for such Plan Year; to (2) the Participant's "414(s) Compensation" for such Plan Year. (c) For purposes of determining the "Actual Contribution Percentage" and the amount of Excess Aggregate Contributions pursuant to Section 4.8(d), only Employer matching contributions (excluding Employer matching contributions forfeited or distributed pursuant to Sections 4.2(f) and 4.6(a)(1) or forfeited pursuant to Section 4.8(a)) contributed to the Plan prior to the end of the succeeding Plan Year shall be considered. In addition, the Administrator may elect to take into account, with respect to Employees eligible to have Employer matching contributions pursuant to Section 4.1(b) allocated to their accounts, elective deferrals (as defined in Regulation 1.402(g)-l(b)) and qualified non-elective contributions (as defined in Code Section 401(m)(4)(C)) contributed to any plan maintained by the Employer. Such elective deferrals and qualified non-elective contributions shall be treated as Employer matching contributions subject to Regulation 1.401(m)-l(b)(5) which is incorporated herein by reference. However, for Plan Years beginning after December 31, 1988, the Plan Year must be the same as the plan year of the plan to which the elective deferrals and the qualified non-elective contributions are made. (d) For the purpose of determining the actual contribution ratio of a Highly Compensated Employee who is subject to the Family Member aggregation rules of Code Section 414(q)(6) because such Employee is either a "five percent owner" of the Employer or one of the ten (10) Highly Compensated Employees paid the greatest "415 Compensation" during the year, the following shall apply: (1) The combined actual contribution ratio for the family group (which shall be treated as one Highly Compensated Participant) shall be determined by aggregating Employer matching contributions made pursuant to Section 4.1(b) and "414(s) Compensation" of all eligible Family Members (including Highly Compensated Participants). However, in applying the $200,000 limit to "414(s) Compensation" for Plan Years beginning after December 31, 1988, Family Members shall 50 include only the affected Employee's spouse and any lineal descendants who have not attained age 19 before the close of the Plan Year. Notwithstanding the foregoing, with respect to Plan Years beginning prior to January 1, 1990, compliance with the Regulations then in effect shall be deemed to be compliance with this paragraph. (2) The Employer matching contributions made pursuant to Section 4.1(b) and "414(s) Compensation" of all Family Members shall be disregarded for purposes of determining the "Actual Contribution Percentage" of the NonHighly Compensated Participant group except to the extent taken into account in paragraph (1) above. (3) If a Participant is required to be aggregated as a member of more than one family group in a plan, all Participants who are members of those family groups that include the Participant are aggregated as one family group in accordance with paragraphs (1) and (2) above. (e) For purposes of this Section and Code Sections 401(a)(4), 410(b) and 401(m), if two or more plans of the Employer to which matching contributions, Employee contributions, or both, are made are treated as one plan for purposes of Code Sections 401(a)(4) or 410(b) (other than the average benefits test under Code Section 410(b)(2)(A)(ii) as in effect for Plan Years beginning after December 31, 1988), such plans shall be treated as one plan. In addition, two or more plans of the Employer to which matching contributions, Employee contributions, or both, are made may be considered as a single plan for purposes of determining whether or not such plans satisfy Code Sections 401(a)(4), 410(b) and 401(m). In such a case, the aggregated plans must satisfy this Section and Code Sections 401(a)(4), 410(b) and 401(m) as though such aggregated plans were a single plan. Plans may be aggregated under this paragraph (e) for Plan Years beginning after December 31, 1988, only if they have the same plan year. Notwithstanding the above, for Plan Years beginning after December 31, 1988, an employee stock ownership plan described in Code Section 4975(e)(7) or 409 may not be aggregated with this Plan for purposes of determining whether the employee stock ownership plan or this Plan satisfies this Section and Code Sections 401(a)(4), 410(b) and 401(m). (f) If a Highly Compensated Participant is a Participant under two or more plans (other than an employee stock ownership plan as defined in Code Section 4975(e)(7) or 409 for Plan Years beginning after December 31, 1988) which are maintained by the Employer or an Affiliated Employer to which matching contributions, Employee contributions, or both, are made, all such contributions on behalf of such Highly Compensated Participant shall be aggregated for 51 purposes of determining such Highly Compensated Participant's actual contribution ratio. However, for Plan Years beginning after December 31, 1988, if the plans have different plan years, this paragraph shall be applied by treating all plans ending with or within the same calendar year as a single plan. (g) For purposes of Sections 4.7(a) and 4.8, a Highly Compensated Participant and Non-Highly Compensated Participant shall include any Employee eligible to have Employer matching contributions pursuant to Section 4.1(b) (whether or not a deferral election was made or suspended pursuant to Section 4.2(e)) allocated to his account for the Plan Year. 4.8 ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS (a) In the event that, for Plan Years beginning after December 31, 1986, the "Actual Contribution Percentage" for the Highly Compensated Participant group exceeds the "Actual Contribution Percentage" for the Non-Highly Compensated Participant group pursuant to Section 4.7(a), the Administrator (on or before the fifteenth day of the third month following the end of the Plan Year, but in no event later than the close of the following Plan Year) shall direct the Trustee to distribute to the Highly Compensated Participant having the highest actual contribution ratio, his Vested portion of Excess Aggregate Contributions (and Income allocable to such contributions) and, if forfeitable, forfeit such non-Vested Excess Aggregate Contributions attributable to Employer matching contributions (and Income allocable to such forfeitures) until either one of the tests set forth in Section 4.7(a) is satisfied, or until his actual contribution ratio equals the actual contribution ratio of the Highly Compensated Participant having the second highest actual contribution ratio. This process shall continue until one of the tests set forth in Section 4.7(a) is satisfied. If the correction of Excess Aggregate Contributions attributable to Employer matching contributions is not in proportion to the Vested and nonVested portion of such contributions, then the Vested portion of the Participant's Account attributable to Employer matching contributions after the correction shall be subject to Section 6.5(h). (b) Any distribution and/or forfeiture of less than the entire amount of Excess Aggregate Contributions (and Income) shall be treated as a pro rata distribution and/or forfeiture of Excess Aggregate Contributions and Income. Distribution of Excess Aggregate Contributions shall be designated by the Employer as a distribution of Excess Aggregate Contributions (and Income). Forfeitures of Excess Aggregate Contributions shall be treated in accordance with Section 4.4. However, no such forfeiture may be allocated to a Highly Compensated Participant whose contributions 52 are reduced pursuant to this Section. (c) Excess Aggregate Contributions, including forfeited matching contributions, shall be treated as Employer contributions for purposes of Code Sections 404 and 415 even if distributed from the Plan. Forfeited matching contributions that are reallocated to Participants' Accounts for the Plan Year in which the forfeiture occurs shall be treated as an "annual addition" pursuant to Section 4.9(b) for the Participants to whose Accounts they are reallocated and for the Participants from whose Accounts they are forfeited. (d) For each Highly Compensated Participant, the amount of Excess Aggregate Contributions is equal to the Employer matching contributions made pursuant to Section 4.1(b) and any qualified non-elective contributions or elective deferrals taken into account pursuant to Section 4.7(c) on behalf of the Highly Compensated Participant (determined prior to the application of this paragraph) minus the amount determined by multiplying the Highly Compensated Participant's actual contribution ratio (determined after application of this paragraph) by his "414(s) Compensation." The actual contribution ratio must be rounded to the nearest one-hundredth of one percent for Plan Years beginning after December 31, 1988. In no case shall the amount of Excess Aggregate Contribution with respect to any Highly Compensated Participant exceed the amount of Employer matching contributions made pursuant to Section 4.1(b) and any qualified non-elective contributions or elective deferrals taken into account pursuant to Section 4.7(c) on behalf of such Highly Compensated Participant for such Plan Year. (e) The determination of the amount of Excess Aggregate Contributions with respect to any Plan Year shall be made after first determining the Excess Contributions, if any, to be treated as voluntary Employee contributions due to recharacterization for the plan year of any other qualified cash or deferred arrangement (as defined in Code Section 401(k)) maintained by the Employer that ends with or within the Plan Year. (f) If the determination and correction of Excess Aggregate Contributions of a Highly Compensated Participant whose actual contribution ratio is determined under the family aggregation rules, then the actual contribution ratio shall be reduced and the Excess Aggregate Contributions for the family unit shall be allocated among the Family Members in proportion to the sum of Employer matching contributions made pursuant to Section 4.1(b) and any qualified nonelective contributions or elective deferrals taken into account pursuant to Section 4.7(c) of each Family Member that were combined to determine the group actual contribution ratio. Notwithstanding the foregoing, with respect to Plan Years beginning prior to January 1, 1990, compliance with the Regulations then in 53 effect shall be deemed to be compliance with this paragraph. (g) If during a Plan Year the projected aggregate amount of Employer matching contributions to be allocated to all Highly Compensated Participants under this Plan would, by virtue of the tests set forth in Section 4.7(a), cause the Plan to fail such tests, then the Administrator may automatically reduce proportionately or in the order provided in Section 4.8(a) each affected Highly Compensated Participant's projected share of such contributions by an amount necessary to satisfy one of the tests set forth in Section 4.7(a). (h) Notwithstanding the above, within twelve (12) months after the end of the Plan Year, the Employer may make a special Qualified Non-Elective Contribution on behalf of Non-Highly Compensated Participants in an amount sufficient to satisfy one of the tests set forth in Section 4.7(a). Such contribution shall be allocated to the Participant's Elective Account of each Non-Highly Compensated Participant in the same proportion that each Non-Highly Compensated Participant's Compensation for the year bears to the total Compensation of all Non-Highly Compensated Participants. A separate accounting shall be maintained for the purpose of excluding such contributions from the "Actual Deferral Percentage" tests pursuant to Section 4.5(a). 4.9 MAXIMUM ANNUAL ADDITIONS (a) Notwithstanding the foregoing, the maximum "annual additions" credited to a Participant's accounts for any "limitation year" shall equal the lesser of: (1) $30,000 (or, if greater, one-fourth of the dollar limitation in effect under Code Section 415(b)(1)(A)) or (2) twenty-five percent (25%) of the Participant's "415 Compensation" for such "limitation year." For any short "limitation year," the dollar limitation in (1) above shall be reduced by a fraction, the numerator of which is the number of full months in the short "limitation year" and the denominator of which is twelve (12). (b) For purposes of applying the limitations of Code Section 415, "annual additions" means the sum credited to a Participant's accounts for any "limitation year" of (1) Employer contributions, (2) Employee contributions, (3) forfeitures, (4) amounts allocated, after March 31, 1984, to an individual medical account, as defined in Code Section 415(1)(2) which is part of a pension or annuity plan maintained by the Employer and (5) amounts derived from contributions paid or accrued after December 31, 1985, in taxable years ending after such date, which are attributable to post-retirement medical benefits allocated to the separate account of a key employee (as defined in Code Section 419A(d)(3)) under a welfare benefit plan (as defined in Code Section 419(e)) maintained by the Employer. Except, however, the "415 Compensation" percentage 54 limitation referred to in paragraph (a)(2) above shall not apply to: (1) any contribution for medical benefits (within the meaning of Code Section 419A(f)(2)) after separation from service which is otherwise treated as an "annual addition," or (2) any amount otherwise treated as an "annual addition" under Code Section 415(1)(1). (c) For purposes of applying the limitations of Code Section 415, the transfer of funds from one qualified plan to another is not an "annual addition." In addition, the following are not Employee contributions for the purposes of Section 4.9(b)(2): (1) rollover contributions (as defined in Code Sections 402(a)(5), 403(a)(4), 403(b)(8) and 408(d)(3)); (2) repayments of loans made to a Participant from the Plan; (3) repayments of distributions received by an Employee pursuant to Code Section 411(a)(7)(B) (cash-outs); (4) repayments of distributions received by an Employee pursuant to Code Section 411(a)(3)(D) (mandatory contributions); and (5) Employee contributions to a simplified employee pension excludable from gross income under Code Section 408(k)(6). (d) For purposes of applying the limitations of Code Section 415, the "limitation year" shall be the Plan Year. (e) The dollar limitation under Code Section 415(b)(1)(A) stated in paragraph (a)(1) above shall be adjusted annually as provided in Code Section 415(d) pursuant to the Regulations. The adjusted limitation is effective as of January 1st of each calendar year and is applicable to "limitation years" ending with or within that calendar year. (f) For the purpose of this Section, all qualified defined benefit plans (whether terminated or not) ever maintained by the Employer shall be treated as one defined benefit plan, and all qualified defined contribution plans (whether terminated or not) ever maintained by the Employer shall be treated as one defined contribution plan. (g) For the purpose of this Section, if the Employer is a member of a controlled group of corporations, trades or businesses under common control (as defined by Code Section 1563(a) or Code Section 414(b) and (c) as modified by Code Section 415(h)), is a member of an affiliated service group (as defined by Code Section 414(m)), or is a member of a group of entities required to be aggregated pursuant to Regulations under Code Section 414(o), all Employees of such Employers shall be considered to be employed by a single Employer. (h) For the purpose of this Section, if this Plan is a Code Section 413(c) plan, all Employers of a Participant who maintain this Plan will be considered to be a single Employer. 55 (i) (1) If a Participant participates in more than one defined contribution plan maintained by the Employer which have different Anniversary Dates, the maximum "annual additions" under this Plan shall equal the maximum "annual additions" for the "limitation year" minus any "annual additions" previously credited to such Participant's accounts during the "limitation year." (2) If a Participant participates in both a defined contribution plan subject to Code Section 412 and a defined contribution plan not subject to Code Section 412 maintained by the Employer which have the same Anniversary Date, "annual additions" will be credited to the Participant's accounts under the defined contribution plan subject to Code Section 412 prior to crediting "annual additions" to the Participant's accounts under the defined contribution plan not subject to Code Section 412. (3) If a Participant participates in more than one defined contribution plan not subject to Code Section 412 maintained by the Employer which have the same Anniversary Date, the maximum "annual additions" under this Plan shall equal the product of (A) the maximum "annual additions" for the "limitation year" minus any "annual additions" previously credited under subparagraphs (1) or (2) above, multiplied by (B) a fraction (i) the numerator of which is the "annual additions" which would be credited to such Participant's accounts under this Plan without regard to the limitations of Code Section 415 and (ii) the denominator of which is such "annual additions" for all plans described in this subparagraph. (j) If an Employee is (or has been) a Participant in one or more defined benefit plans and one or more defined contribution plans maintained by the Employer, the sum of the defined benefit plan fraction and the defined contribution plan fraction for any "limitation year" may not exceed 1.0. (k) The defined benefit plan fraction for any "limitation year" is a fraction, the numerator of which is the sum of the Participant's projected annual benefits under all the defined benefit plans (whether or not terminated) maintained by the Employer, and the denominator of which is the lesser of 125 percent of the dollar limitation determined for the "limitation year" under Code Sections 415(b) and (d) or 140 percent of the highest average compensation, including any adjustments under Code Section 415(b). Notwithstanding the above, if the Participant was a Participant as of the first day of the first "limitation year" beginning after December 31, 1986, in one or more defined benefit plans maintained by the Employer which were in existence on May 6, 1986, the 56 denominator of this fraction will not be less than 125 percent of the sum of the annual benefits under such plans which the Participant had accrued as of the close of the last "limitation year" beginning before January 1, 1987, disregarding any changes in the terms and conditions of the plan after May 5, 1986. The preceding sentence applies only if the defined benefit plans individually and in the aggregate satisfied the requirements of Code Section 415 for all "limitation years" beginning before January 1, 1987. (l) The defined contribution plan fraction for any "limitation year" is a fraction, the numerator of which is the sum of the annual additions to the Participant's Account under all the defined contribution plans (whether or not terminated) maintained by the Employer for the current and all prior "limitation years" (including the annual additions attributable to the Participant's nondeductible Employee contributions to all defined benefit plans, whether or not terminated, maintained by the Employer, and the annual additions attributable to all welfare benefit funds, as defined in Code Section 419(e), and individual medical accounts, as defined in Code Section 415(1)(2), maintained by the Employer), and the denominator of which is the sum of the maximum aggregate amounts for the current and all prior "limitation years" of service with the Employer (regardless of whether a defined contribution plan was maintained by the Employer). The maximum aggregate amount in any "limitation year" is the lesser of 125 percent of the dollar limitation determined under Code Sections 415(b) and (d) in effect under Code Section 415(c)(1)(A) or 35 percent of the Participant's Compensation for such year. If the Employee was a Participant as of the end of the first day of the first "limitation year" beginning after December 31, 1986, in one or more defined contribution plans maintained by the Employer which were in existence on May 6, 1986, the numerator of this fraction will be adjusted if the sum of this fraction and the defined benefit fraction would otherwise exceed 1.0 under the terms of this Plan. Under the adjustment, an amount equal to the product of (1) the excess of the sum of the fractions over 1.0 times (2) the denominator of this fraction, will be permanently subtracted from the numerator of this fraction. The adjustment is calculated using the fractions as they would be computed as of the end of the last "limitation year" beginning before January 1, 1987, and disregarding any changes in the terms and conditions of the Plan made after May 5, 1986, but using the Code Section 415 limitation applicable to the first "limitation year" beginning on or after January 1, 1987. The annual addition for any "limitation year" beginning before January 1, 1987 shall not be recomputed to treat all Employee contributions as annual additions. (m) Notwithstanding the foregoing, for any "limitation year" in which the Plan is a Top Heavy Plan, 100 percent shall be 57 substituted for 125 percent in Sections 4.9(k) and 4.9(1) unless the extra minimum allocation is being provided pursuant to Section 4.4. However, for any "limitation year" in which the Plan is a Super Top Heavy Plan, 100 percent shall be substituted for 125 percent in any event. (n) If the sum of the defined benefit plan fraction and the defined contribution plan fraction shall exceed 1.0 in any "limitation year" for any Participant in this Plan, the Administrator shall adjust the numerator of the defined benefit plan fraction so that the sum of both fractions shall not exceed 1.0 in any "limitation year" for such Participant. (o) Notwithstanding anything contained in this Section to the contrary, the limitations, adjustments and other requirements prescribed in this Section shall at all times comply with the provisions of Code Section 415 and the Regulations thereunder, the terms of which are specifically incorporated herein by reference. 4.10 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS (a) If, as a result of the allocation of Forfeitures, a reasonable error in estimating a Participant's Compensation, a reasonable error in determining the amount of elective deferrals (within the meaning of Code Section 402(g)(3)) that may be made with respect to any Participant under the limits of Section 4.9 or other facts and circumstances to which Regulation 1.415-6(b)(6) shall be applicable, the "annual additions" under this Plan would cause the maximum "annual additions" to be exceeded for any Participant, the Administrator shall (1) distribute any elective deferrals (within the meaning of Code Section 402(g)(3)) or return any voluntary Employee contributions credited for the "limitation year" to the extent that the return would reduce the "excess amount" in the Participant's accounts (2) hold any "excess amount" remaining after the return of any elective deferrals or voluntary Employee contributions in a "Section 415 suspense account" (3) use the "Section 415 suspense account" in the next "limitation year" (and succeeding "limitation years" if necessary) to reduce Employer contributions for that Participant if that Participant is covered by the Plan as of the end of the "limitation year," or if the Participant is not so covered, allocate and reallocate the "Section 415 suspense account" in the next "limitation year" (and succeeding "limitation years" if necessary) to all Participants in the Plan before any Employer or Employee contributions which would constitute "annual additions" are made to the Plan for such "limitation year" (4) reduce Employer contributions to the Plan for such "limitation year" by the amount of the "Section 415 suspense account" allocated and reallocated during such "limitation year." (b) For purposes of this Article, "excess amount" for any Participant for a "limitation year" shall mean the excess, if any, 58 of (1) the "annual additions" which would be credited to his account under the terms of the Plan without regard to the limitations of Code Section 415 over (2) the maximum "annual additions" determined pursuant to Section 4.9. (c) For purposes of this Section, "Section 415 suspense account" shall mean an unallocated account equal to the sum of "excess amounts" for all Participants in the Plan during the "limitation year." The "Section 415 suspense account" shall not share in any earnings or losses of the Trust Fund. 4.11 TRANSFERS FROM QUALIFIED PLANS (a) With the consent of the Administrator, amounts may be transferred from other qualified plans by Participants, provided that the trust from which such funds are transferred permits the transfer to be made and the transfer will not jeopardize the tax exempt status of the Plan or Trust or create adverse tax consequences for the Employer. The amounts transferred shall be set up in a separate account herein referred to as a "Participant's Rollover Account." Such account shall be fully Vested at all times and shall not be subject to Forfeiture for any reason. (b) Amounts in a Participant's Rollover Account shall be held by the Trustee pursuant to the provisions of this Plan and may not be withdrawn by, or distributed to the Participant, in whole or in part, except as provided in paragraphs (c) and (d) of this Section. (c) Except as permitted by Regulations (including Regulation 1.411(d)4), amounts attributable to elective contributions (as defined in Regulation 1.401(k)-l(g)(3)), including amounts treated as elective contributions, which are transferred from another qualified plan in a plan-to-plan transfer shall be subject to the distribution limitations provided for in Regulation 1.401(k)-l(d). (d) At Normal Retirement Date, or such other date when the Participant or his Beneficiary shall be entitled to receive benefits, the fair market value of the Participant's Rollover Account shall be used to provide additional benefits to the Participant or his Beneficiary. Any distributions of amounts held in a Participant's Rollover Account shall be made in a manner which is consistent with and satisfies the provisions of Section 6.5, including, but not limited to, all notice and consent requirements of Code Sections 417 and 41 l(a)(^) and the Regulations thereunder. Furthermore, such amounts shall be considered as part of a Participant's benefit in determining whether an involuntary cash-out of benefits without Participant consent may be made. (e) The Administrator may direct that employee transfers made after a valuation date be segregated into a separate account for each Participant in a federally insured savings account, certificate of 59 deposit in a bank or savings and loan association, money market certificate, or other short term debt security acceptable to the Trustee until such time as the allocations pursuant to this Plan have been made, at which time they may remain segregated or be invested as part of the general Trust Fund, to be determined by the Administrator. (f) All amounts allocated to a Participant's Rollover Account may be treated as a Directed Investment Account pursuant to Section 4.12. (g) For purposes of this Section, the term "qualified plan" shall mean any tax qualified plan under Code Section 401(a). The term "amounts transferred from other qualified plans" shall mean: (i) amounts transferred to this Plan directly from another qualified plan; (ii) distributions from another qualified plan which are eligible rollover distributions and which are either transferred by the Employee to this Plan within sixty (60) days following his receipt thereof or are transferred pursuant to a direct rollover; (iii) amounts transferred to this Plan from a conduit individual retirement account provided that the conduit individual retirement account has no assets other than assets which (A) were previously distributed to the Employee by another qualified plan as a lump-sum distribution (B) were eligible for tax-free rollover to a qualified plan and (C) were deposited in such conduit individual retirement account within sixty (60) days of receipt thereof and other than earnings on said assets; and (iv) amounts distributed to the Employee from a conduit individual retirement account meeting the requirements of clause (iii) above, and transferred by the Employee to this Plan within sixty (60) days of his receipt thereof from such conduit individual retirement account. (h) Prior to accepting any transfers to which this Section applies, the Administrator may require the Employee to establish that the amounts to be transferred to this Plan meet the requirements of this Section and may also require the Employee to provide an opinion of counsel satisfactory to the Employer that the amounts to be transferred meet the requirements of this Section. (i) Notwithstanding anything herein to the contrary, a transfer directly to this Plan from another qualified plan (or a transaction having the effect of such a transfer) shall only be permitted if it will not result in the elimination or reduction of any "Section 41 l(d)(6) protected benefit" as described in Section 8.1. 4.12 DIRECTED INVESTMENT ACCOUNT (a) The Administrator, in his sole discretion, may determine that all Participants be permitted to direct the Trustee as to the investment of all or a portion of the interest in any one or more of their individual account balances. If such authorization is 60 given, Participants may, subject to a procedure established by the Administrator and applied in a uniform nondiscriminatory manner, direct the Trustee in writing to invest any portion of their account in specific assets, specific funds or other investments permitted under the Plan and the directed investment procedure. That portion of the account of any Participant so directing will thereupon be considered a Directed Investment Account, which shall not share in Trust Fund earnings. (b) A separate Directed Investment Account shall be established for each Participant who has directed an investment. Transfers between the Participant's regular account and his Directed Investment Account shall be charged and credited as the case may be to each account. The Directed Investment Account shall not share in Trust Fund earnings, but it shall be charged or credited as appropriate with the net earnings, gains, losses and expenses as well as any appreciation or depreciation in market value during each Plan Year attributable to such account. ARTICLE V VALUATIONS 5.1 VALUATION OF THE TRUST FUND The Administrator shall direct the Trustee, as of each Anniversary Date, and at such other date or dates deemed necessary by the Administrator, herein called "valuation date," to determine the net worth of the assets comprising the Trust Fund as it exists on the "valuation date." In determining such net worth, the Trustee shall value the assets comprising the Trust Fund at their fair market value as of the "valuation date" and shall deduct all expenses for which the Trustee has not yet obtained reimbursement from the Employer or the Trust Fund. 5.2 METHOD OF VALUATION In determining the fair market value of securities held in the Trust Fund which are listed on a registered stock exchange, the Administrator shall direct the Trustee to value the same at the prices they were last traded on such exchange preceding the close of business on the "valuation date." If such securities were not traded on the "valuation date," or if the exchange on which they are traded was not open for business on the "valuation date," then the securities shall be valued at the prices at which they were last traded prior to the "valuation date." Any unlisted security held in the Trust Fund shall be valued at its bid price next preceding the close of business on the "valuation date," which bid price shall be obtained from a registered broker or an investment banker. In determining the fair market value of assets other than securities for which trading or bid prices can be obtained, the Trustee may appraise such assets itself, or in its discretion, employ one or more appraisers for that purpose and rely on the values established by such appraiser or appraisers. 61 ARTICLE VI DETERMINATION AND DISTRIBUTION OF BENEFITS 6.1 DETERMINATION OF BENEFITS UPON RETIREMENT Every Participant may terminate his employment with the Employer and retire for the purposes hereof on his Normal Retirement Date. However, a Participant may postpone the termination of his employment with the Employer to a later date, in which event the participation of such Participant in the Plan, including the right to receive allocations pursuant to Section 4.4, shall continue until his Late Retirement Date. Upon a Participant's Retirement Date or attainment of his Normal Retirement Date without termination of employment with the Employer, or as soon thereafter as is practicable, the Trustee shall distribute all amounts credited to such Participant's Combined Account in accordance with Section 6.5. 6.2 DETERMINATION OF BENEFITS UPON DEATH (a) Upon the death of a Participant before his Retirement Date or other termination of his employment, all amounts credited to such Participant's Combined Account shall become fully Vested. The Administrator shall direct the Trustee, in accordance with the provisions of Sections 6.6 and 6.7, to distribute the value of the deceased Participant's accounts to the Participant's Beneficiary. (b) Upon the death of a Former Participant, the Administrator shall direct the Trustee, in accordance with the provisions of Sections 6.6 and 6.7, to distribute any remaining Vested amounts credited to the accounts of a deceased Former Participant to such Former Participant's Beneficiary. (c) The Administrator may require such proper proof of death and such evidence of the right of any person to receive payment of the value of the account of a deceased Participant or Former Participant as the Administrator may deem desirable. The Administrator's determination of death and of the right of any person to receive payment shall be conclusive. (d) Unless otherwise elected in the manner prescribed in Section 6.6, the Beneficiary of the death benefit shall be the Participant's spouse, who shall receive such benefit in the form of a Pre-Retirement Survivor Annuity pursuant to Section 6.6. Except, however, the Participant may designate a Beneficiary other than his spouse if: 62 (l) the Participant and his spouse have validly waived the Pre-Retirement Survivor Annuity in the manner prescribed in Section 6.6, and the spouse has waived his or her right to be the Participant's Beneficiary, or (2) the Participant is legally separated or has been abandoned (within the meaning of local law) and the Participant has a court order to such effect (and there is no "qualified domestic relations order" as defined in Code Section 414(p) which provides otherwise), or (3) the Participant has no spouse, or (4) the spouse cannot be located. In such event, the designation of a Beneficiary shall be made on a form satisfactory to the Administrator. A Participant may at any time revoke his designation of a Beneficiary or change his Beneficiary by filing written notice of such revocation or change with the Administrator. However, the Participant's spouse must again consent in writing to any change in Beneficiary unless the original consent acknowledged that the spouse had the right to limit consent only to a specific Beneficiary and that the spouse voluntarily elected to relinquish such right. In the event no valid designation of Beneficiary exists at the time of the Participant's death, the death benefit shall be payable to his estate. 6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY In the event of a Participant's Total and Permanent Disability prior to his Retirement Date or other termination of his employment, all amounts credited to such Participant's Combined Account shall become fully Vested. In the event of a Participant's Total and Permanent Disability, the Trustee, in accordance with the provisions of Sections 6.5 and 6.7, shall distribute to such Participant all amounts credited to such Participant's Combined Account as though he had retired. 6.4 DETERMINATION OF BENEFITS UPON TERMINATION (a) On or before the Anniversary Date coinciding with or subsequent to the termination of a Participant's employment for any reason other than death, Total and Permanent Disability or retirement, the Administrator may direct the Trustee to segregate the amount of the Vested portion of such Terminated Participant's Combined Account and invest the aggregate amount thereof in a separate, federally insured savings account, certificate of deposit, common or collective trust fund of a bank or a deferred annuity. In the event the Vested portion of a Participant's Combined Account is not segregated, the amount shall remain in a separate account for the Terminated Participant and share in allocations pursuant to Section 4.4 until such time as a 63 distribution is made to the Terminated Participant. Distribution of the funds due to a Terminated Participant shall be made on the occurrence of an event which would result in the distribution had the Terminated Participant remained in the employ of the Employer (upon the Participant's death, Total and Permanent Disability or Normal Retirement). However, at the election of the Participant, the Administrator shall direct the Trustee to cause the entire Vested portion of the Terminated Participant's Combined Account to be payable to such Terminated Participant. Any distribution under this paragraph shall be made in a manner which is consistent with and satisfies the provisions of Section 6.5, including, but not limited to, all notice and consent requirements of Code Sections 417 and 41 l(a)(l 1) and the Regulations thereunder. If the value of a Terminated Participant's Vested benefit derived from Employer and Employee contributions does not exceed $3,500 and has never exceeded $3,500 at the time of any prior distribution, the Administrator shall direct the Trustee to cause the entire Vested benefit to be paid to such Participant in a single lump sum. For purposes of this Section 6.4, if the value of a Terminated Participant's Vested benefit is zero, the Terminated Participant shall be deemed to have received a distribution of such Vested benefit. (b) The Vested portion of any Participant's Account shall be a percentage of the total amount credited to his Participant's Account determined on the basis of the Participant's number of Years of Service according to the following schedule: Vesting Schedule Years of Service Percentage Less than 3 0% 3 20% 4 40% 5 60% 6 80% 7 100% (c) Notwithstanding the vesting provided for in paragraph (b) above, for any Top Heavy Plan Year, the Vested portion of the Participant's Account of any Participant who has an Hour of Service after the Plan becomes top heavy shall be a percentage of the total amount credited to his Participant's Account determined on the basis of the Participant's number of Years of Service according to the following schedule: 64 Vesting Schedule Years of Service Percentage Less than 2 0% 2 20% 3 40% 4 60% 5 80% 6 100% If in any subsequent Plan Year, the Plan ceases to be a Top Heavy Plan, the Administrator shall revert to the vesting schedule in effect before this Plan became a Top Heavy Plan. Any such reversion shall be treated as a Plan amendment pursuant to the terms of the Plan. (d) Notwithstanding the vesting schedule above, the Vested percentage of a Participant's Account shall not be less than the Vested percentage attained as of the later of the effective date or adoption date of this amendment and restatement. (e) Notwithstanding the vesting schedule above, upon the complete discontinuance of the Employer's contributions to the Plan or upon any full or partial termination of the Plan, all amounts credited to the account of any affected Participant shall become 100% Vested and shall not thereafter be subject to Forfeiture. (f) The computation of a Participant's nonforfeitable percentage of his interest in the Plan shall not be reduced as the result of any direct or indirect amendment to this Plan. For this purpose, the Plan shall be treated as having been amended if the Plan provides for an automatic change in vesting due to a change in top heavy status. In the event that the Plan is amended to change or modify any vesting schedule, a Participant with at least three (3) Years of Service as of the expiration date of the election period may elect to have his nonforfeitable percentage computed under the Plan without regard to such amendment. If a Participant fails to make such election, then such Participant shall be subject to the new vesting schedule. The Participant's election period shall commence on the adoption date of the amendment and shall end 60 days after the latest of: (1) the adoption date of the amendment, (2) the effective date of the amendment, or (3) the date the Participant receives written notice of the amendment from the Employer or Administrator. (g) (l) If any Former Participant shall be reemployed by the 65 Employer before a l-Year Break in Service occurs, he shall continue to participate in the Plan in the same manner as if such termination had not occurred. (2) If any Former Participant shall be reemployed by the Employer before five (5) consecutive l-Year Breaks in Service, and such Former Participant had received, or was deemed to have received, a distribution of his entire Vested interest prior to his reemployment, his forfeited account shall be reinstated only if he repays the full amount distributed to him before the earlier of five (5) years after the first date on which the Participant is subsequently reemployed by the Employer or the close of the first period of five (5) consecutive l-Year Breaks in Service commencing after the distribution, or in the event of a deemed distribution, upon the reemployment of such Former Participant. In the event the Former Participant does repay the full amount distributed to him, or in the event of a deemed distribution, the undistributed portion of the Participant's Account must be restored in full, unadjusted by any gains or losses occurring subsequent to the Anniversary Date or other valuation date coinciding with or preceding his termination. The source for such reinstatement shall first be any Forfeitures occurring during the year. If such source is insufficient, then the Employer shall contribute an amount which is sufficient to restore any such forfeited Accounts provided, however, that if a discretionary contribution is made for such year pursuant to Section 4.1(d), such contribution shall first be applied to restore any such Accounts and the remainder shall be allocated in accordance with Section 4.4. (3) If any Former Participant is reemployed after a l-Year Break in Service has occurred, Years of Service shall include Years of Service prior to his lYear Break in Service subject to the following rules: (i) If a Former Participant has a l-Year Break in Service, his prebreak and post-break service shall be used for computing Years of Service for eligibility and for vesting purposes only after he has been employed for one (1) Year of Service following the date of his reemployment with the Employer; (ii) Any Former Participant who under the Plan does not have a nonforfeitable right to any interest in the Plan resulting from Employer contributions shall lose credits otherwise allowable under (i) above if his consecutive l-Year Breaks in Service equal or exceed the greater of (A) five (5) or (B) the aggregate number of his pre-break Years of SeNice, 66 (iii) After five (5) consecutive l-Year Breaks in Service, a Former Participant's Vested Account balance attributable to pre-break service shall not be increased as a result of post-break service; (iv) If a Former Participant who has not had his Years of Service before a l-Year Break in Service disregarded pursuant to (ii) above completes one (1) Year of Service for eligibility purposes following his reemployment with the Employer, he shall participate in the Plan retroactively from his date of reemployment; (v) If a Former Participant who has not had his Years of Service before a l-Year Break in Service disregarded pursuant to (ii) above completes a Year of Service (a l-Year Break in Service previously occurred, but employment had not terminated), he shall participate in the Plan retroactively from the first day of the Plan Year during which he completes one (1) Year of Service. 6.5 DISTRIBUTION OF BENEFITS (a) (l) Unless otherwise elected as provided below, a Participant who is married on the "annuity starting date" and who does not die before the "annuity starting date" shall receive the value of all of his benefits in the form of a joint and survivor annuity. The joint and survivor annuity is an annuity that commences immediately and shall be equal in value to a single life armuity. Such joint and survivor benefits following the Participant's death shall continue to the spouse during the spouse's lifetime at a rate equal to 50% of the rate at which such benefits were payable to the Participant. This joint and 50% survivor annuity shall be considered the designated qualified joint and survivor annuity and automatic form of payment for the purposes of this Plan. However, the Participant may elect to receive a smaller annuity benefit with continuation of payments to the spouse at a rate of seventy-five percent (75%) or one hundred percent (100%) of the rate payable to a Participant during his lifetime, which alternative joint and survivor annuity shall be equal in value to the automatic joint and 50% survivor annuity. An unmarried Participant shall receive the value of his benefit in the form of a life annuity. Such unmarried Participant, however, may elect in writing to waive the life annuity. The election must comply with the provisions of this Section as if it were an election to waive the joint and survivor annuity by a married Participant, but without the spousal consent requirement. The Participant may elect to have any annuity provided for in this Section distributed upon the attainment of the "earliest retirement age" under the Plan. The "earliest retirement age" is the earliest date on which, 67 under the Plan, the Participant could elect to receive retirement benefits. (2) Any election to waive the joint and survivor annuity must be made by the Participant in writing during the election period and be consented to by the Participant's spouse. If the spouse is legally incompetent to give consent, the spouse's legal guardian, even if such guardian is the Participant, may give consent. Such election shall designate a Beneficiary (or a form of benefits) that may not be changed without spousal consent (unless the consent of the spouse expressly permits designations by the Participant without the requirement of further consent by the spouse). Such spouse's consent shall be irrevocable and must acknowledge the effect of such election and be witnessed by a Plan representative or a notary public. Such consent shall not be required if it is established to the satisfaction of the Administrator that the required consent cannot be obtained because there is no spouse, the spouse cannot be located, or other circumstances that may be prescribed by Regulations. The election made by the Participant and consented to by his spouse may be revoked by the Participant in writing without the consent of the spouse at any time during the election period. The number of revocations shall not be limited. Any new election must comply with the requirements of this paragraph. A former spouse's waiver shall not be binding on a new spouse. (3) The election period to waive the joint and survivor annuity shall be the 90 day period ending on the "annuity starting date." (4) For purposes of this Section, the "annuity starting date" means the first day of the first period for which an amount is paid as an annuity, or, in the case of a benefit not payable in the form of an annuity, the first day on which all events have occurred which entitle the Participant to such benefit. (5) With regard to the election, the Administrator shall provide to the Participant no less than 30 days and no more than 90 days before the "annuity starting date" a written explanation of: (i) the terms and conditions of the joint and survivor annuity, and (ii) the Participant's right to make, and the effect of, an election to waive the joint and survivor annuity, and (iii) the right of the Participant's spouse to consent 68 to any election to waive the joint and survivor annuity, and (iv) the right of the Participant to revoke such election, and the effect of such revocation. (b) In the event a married Participant duly elects pursuant to paragraph (a)(2) above not to receive his benefit in the form of a joint and survivor annuity, or if such Participant is not married, in the form of a life annuity, the Administrator, pursuant to the election of the Participant, shall direct the Trustee to distribute to a Participant or his Beneficiary any amount to which he is entitled under the Plan in one or more of the following methods: (1) One lump-sum payment in cash; (2) Payments over a period certain in monthly, quarterly, semiannual, or annual cash installments. In order to provide such installment payments, the Administrator may (A) segregate the aggregate amount thereof in a separate, federally insured savings account, certificate of deposit in a bank or savings and loan association, money market certificate or other liquid shortterm security or (B) purchase a nontransferable annuity contract for a term certain (with no life contingencies) providing for such payment. The period over which such payment is to be made shall not extend beyond the Participant's life expectancy (or the life expectancy of the Participant and his designated Beneficiary). (3) Purchase of or providing an annuity. However, such annuity may not be in any form that will provide for payments over a period extending beyond either the life of the Participant (or the lives of the Participant and his designated Beneficiary) or the life expectancy of the Participant (or the life expectancy of the Participant and his designated Beneficiary). (c) The present value of a Participant's joint and survivor annuity derived from Employer and Employee contributions may not be paid without his written consent if the value exceeds, or has ever exceeded, $3,500 at the time of any prior distribution. Further, the spouse of a Participant must consent in writing to any immediate distribution. If the value of the Participant's benefit derived from Employer and Employee contributions does not exceed $3,500 and has never exceeded $3,500 at the time of any prior distribution, the Administrator may immediately distribute such benefit without such Participant's consent. No distribution may be made under the preceding sentence after the "annuity starting date" unless the Participant and his spouse consent in writing to such distribution. Any written consent required under 69 this paragraph must be obtained not more than 90 days before commencement of the distribution and shall be made in a manner consistent with Section 6.5(a)(2). (d) Any distribution to a Participant who has a benefit which exceeds, or has ever exceeded, $3,500 at the time of any prior distribution shall require such Participant's consent if such distribution commences prior to the later of his Normal Retirement Age or age 62. With regard to this required consent: (1) No consent shall be valid unless the Participant has received a general description of the material features and an explanation of the relative values of the optional forms of benefit available under the Plan that would satisfy the notice requirements of Code Section 417. (2) The Participant must be informed of his right to defer receipt of the distribution. If a Participant fails to consent, it shall be deemed an election to defer the commencement of payment of any benefit. However, any election to defer the receipt of benefits shall not apply with respect to distributions which are required under Section 6.5(e). (3) Notice of the rights specified under this paragraph shall be provided no less than 30 days and no more than 90 days before the "annuity starting date". (4) Written consent of the Participant to the distribution must not be made before the Participant receives the notice and must not be made more than 90 days before the "annuity starting date". (5) No consent shall be valid if a significant detriment is imposed under the Plan on any Participant who does not consent to the distribution. (e) Notwithstanding any provision in the Plan to the contrary, the distribution of a Participant's benefits, whether under the Plan or through the purchase of an annuity contract, shall be made in accordance with the following requirements and shall otherwise comply with Code Section 401(a)(9) and the Regulations thereunder (including Regulation 1.401(a)(9)-2), the provisions of which are incorporated herein by reference: (1) A Participant's benefits shall be distributed to him not later than April 1st of the calendar year following the later of (i) the calendar year in which the Participant attains age 70 1/2 or (ii) the calendar year in which the Participant retires, provided, however, that this clause (ii) shall not apply in the case of a Participant who is a "five (5) percent owner" at any time during the five (5) 70 Plan Year period ending in the calendar year in which he attains age 70 1/2 or, in the case of a Participant who becomes a "five (5) percent owner" during any subsequent Plan Year, clause (ii) shall no longer apply and the required beginning date shall be the April 1st of the calendar year following the calendar year in which such subsequent Plan Year ends. Alternatively, distributions to a Participant must begin no later than the applicable April 1st as determined under the preceding sentence and must be made over the life of the Participant (or the lives of the Participant and the Participant's designated Beneficiary) or the life expectancy of the Participant (or the life expectancies of the Participant and his designated Beneficiary) in accordance with Regulations. Notwithstanding the foregoing, clause (ii) above shall not apply to any Participant unless the Participant had attained age 70 1/2 before January 1, 1988 and was not a "five (5) percent owner" at any time during the Plan Year ending with or within the calendar year in which the Participant attained age 66 1/2 or any subsequent Plan Year. (2) Distributions to a Participant and his Beneficiaries shall only be made in accordance with the incidental death benefit requirements of Code Section 401(a)(9)(G) and the Regulations thereunder. Additionally, for calendar years beginning before 1989, distributions may also be made under an alternative method which provides that the then present value of the payments to be made over the period of the Participant's life expectancy exceeds fifty percent (50%) of the then present value of the total payments to be made to the Participant and his Beneficiaries. (f) For purposes of this Section, the life expectancy of a Participant and a Participant's spouse (other than in the case of a life annuity) may, at the election of the Participant or the Participant's spouse, be redetermined in accordance with Regulations. The election, once made, shall be irrevocable. If no election is made by the time distributions must commence, then the life expectancy of the Participant and the Participant's spouse shall not be subject to recalculation. Life expectancy and joint and last survivor expectancy shall be computed using the return multiples in Tables V and VI of Regulation 1.72-9. (g) All annuity Contracts under this Plan shall be non-transferable when distributed. Furthermore, the terms of any annuity Contract purchased and distributed to a Participant or spouse shall comply with all of the requirements of the Plan. (h) If a distribution is made at a time when a Participant is not fully Vested in his Participant's Account (employment has not terminated) and the Participant may increase the Vested 71 percentage in such account: (1) a separate account shall be established for the Participant's interest in the Plan as of the time of the distribution; and (2) at any relevant time, the Participant's Vested portion of the separate account shall be equal to an amount ("X") determined by the formula: X equals P(AB plus (R x D)) - (R x D) For purposes of applying the formula: P is the Vested percentage at the relevant time, AB is the account balance at the relevant time, D is the amount of distribution, and R is the ratio of the account balance at the relevant time to the account balance after distribution. 6.6 DISTRIBUTION OF BENEFITS UPON DEATH (a) Unless otherwise elected as provided below, a Vested Participant who dies before the annuity starting date and who has a surviving spouse shall have his death benefit paid to his surviving spouse in the form of a Pre-Retirement Survivor Annuity. The Participant's spouse may direct that payment of the Pre-Retirement Survivor Annuity commence within a reasonable period after the Participant's death. If the spouse does not so direct, payment of such benefit will commence at the time the Participant would have attained the later of his Normal Retirement Age or age 62. However, the spouse may elect a later commencement date. Any distribution to the Participant's spouse shall be subject to the rules specified in Section 6.6(g). (b) Any election to waive the Pre-Retirement Survivor Annuity before the Participant's death must be made by the Participant in writing during the election period and shall require the spouse's irrevocable consent in the same manner provided for in Section 6.5(a)(2). Further, the spouse's consent must acknowledge the specific nonspouse Beneficiary. Notwithstanding the foregoing, the nonspouse Beneficiary need not be acknowledged, provided the consent of the spouse acknowledges that the spouse has the right to limit consent only to a specific Beneficiary and that the spouse voluntarily elects to relinquish such right. (c) The election period to waive the Pre-Retirement Survivor Annuity shall begin on the first day of the Plan Year in which the Participant attains age 35 and end on the date of the Participant's death. An earlier waiver (with spousal consent) may be made provided a written explanation of the Pre-Retirement Survivor Annuity is given to the Participant and such waiver becomes invalid at the beginning of the Plan Year in which the Participant turns age 35. In the event a Vested Participant 72 separates from service prior to the beginning of the election period, the election period shall begin on the date of such separation from service. (d) With regard to the election, the Administrator shall provide each Participant within the applicable period, with respect to such Participant (and consistent with Regulations), a written explanation of the Pre-Retirement Survivor Annuity containing comparable information to that required pursuant to Section 6.5(a)(5). For the purposes of this paragraph, the term "applicable period" means, with respect to a Participant, whichever of the following periods ends last: (1) The period beginning with the first day of the Plan Year in which the Participant attains age 32 and ending with the close of the Plan Year preceding the Plan Year in which the Participant attains age 35; (2) A reasonable period after the individual becomes a Participant; (3) A reasonable period ending after the Plan no longer fully subsidizes the cost of the Pre-Retirement Survivor Annuity with respect to the Participant; (4) A reasonable period ending after Code Section 401(a)(11) applies to the Participant; or (5) A reasonable period after separation from service in the case of a Participant who separates before attaining age 35. For this purpose, the Administrator must provide the explanation beginning one year before the separation from service and ending one year after such separation. If such a Participant thereafter returns to employment with the Employer, the applicable period for such Participant shall be redetermined. For purposes of applying this Section 6.6(d), a reasonable period ending after the enumerated events described in paragraphs (2), (3) and (4) is the end of the two year period beginning one year prior to the date the applicable event occurs, and ending one year after that date. (e) If the present value of the Pre-Retirement Survivor Annuity derived from Employer and Employee contributions does not exceed $3,500 and has never exceeded $3,500 at the time of any prior distribution, the Administrator shall direct the immediate distribution of such amount to the Participant's spouse. No distribution may be made under the preceding sentence after the annuity starting date unless the spouse consents in writing. If the value exceeds, or has ever exceeded, $3,500 at the time of any prior distribution, an immediate distribution of the entire 73 amount may be made to the surviving spouse, provided such surviving spouse consents in writing to such distribution. Any written consent required under this paragraph must be obtained not more than 90 days before commencement of the distribution and shall be made in a manner consistent with Section 6.5(a)(2). (f) (l) In the event the death benefit is not paid in the form of a PreRetirement Survivor Annuity, it shall be paid to the Participant's Beneficiary by either of the following methods, as elected by the Participant (or if no election has been made prior to the Participant's death, by his Beneficiary), subject to the rules specified in Section 6.6(g): (i) One lump-sum payment in cash; (ii) Payment in monthly, quarterly, semi-annual, or annual cash installments over a period to be determined by the Participant or his Beneficiary. After periodic installments commence, the Beneficiary shall have the right to direct the Trustee to reduce the period over which such periodic installments shall be made, and the Trustee shall adjust the cash amount of such periodic installments accordingly. (2) In the event the death benefit payable pursuant to Section 6.2 is payable in installments, then, upon the death of the Participant, the Administrator may direct the Trustee to segregate the death benefit into a separate account, and the Trustee shall invest such segregated account separately, and the funds accumulated in such account shall be used for the payment of the installments. (g) Notwithstanding any provision in the Plan to the contrary, distributions upon the death of a Participant shall be made in accordance with the following requirements and shall otherwise comply with Code Section 401(a)(9) and the Regulations thereunder. If it is determined pursuant to Regulations that the distribution of a Participant's interest has begun and the Participant dies before his entire interest has been distributed to him, the remaining portion of such interest shall be distributed at least as rapidly as under the method of distribution selected pursuant to Section 6.5 as of his date of death. If a Participant dies before he has begun to receive any distributions of his interest under the Plan or before distributions are deemed to have begun pursuant to Regulations, then his death benefit shall be distributed to his Beneficiaries by December 31st of the calendar year in which the fifth anniversary of his date of death occurs. However, in the event that the Participant's spouse (determined as of the date of the Participant's death) is his Beneficiary, 74 then in lieu of the preceding rules, distributions must be made over the life of the spouse (or over a period not extending beyond the life expectancy of the spouse) and must commence on or before the later of: (1) December 31st of the calendar year immediately following the calendar year in which the Participant died; or (2) December 31 st of the calendar year in which the Participant would have attained age 70 1/2. If the surviving spouse dies before distributions to such 4 spouse begin, then the 5-year distribution requirement of this Section shall apply as if the spouse was the Participant. (h) For purposes of this Section, the life expectancy of a Participant and a Participant's spouse (other than in the case of a life annuity) may, at the election of the Participant or the Participant's spouse, be redetermined in accordance with regulations. The election, once made, shall be irrevocable. If no election is made by the time distributions must commence, then the life expectancy of the Participant and the Participant's spouse shall not be subject to recalculation. Life expectancy and joint and last survivor expectancy shall be computed using the return multiples in Tables V and VI of Regulation 1.72-9. 6.7 TIME OF SEGREGATION OR DISTRIBUTION Except as limited by Sections 6.5 and 6.6, whenever the Trustee is to make a distribution or to commence a series of payments on or as of an Anniversary Date, the distribution may be made or begun on such date or as soon thereafter as is practicable. However, unless a Former Participant elects in writing to defer the receipt of benefits (such election may not result in a death benefit that is more than incidental), the payment of benefits shall begin not later than the 60th day after the close of the Plan Year in which the latest of the following events occurs: (a)the date on which the Participant attains the earlier of age 65 or the Normal Retirement Age specified herein; (b) the 10th anniversary of the year in which the Participant commenced participation in the Plan; or (c) the date the Participant terminates his service with the Employer. 6.8 DISTRIBUTION FOR MINOR BENEFICIARY In the event a distribution is to be made to a minor, then the Administrator may direct that such distribution be paid to the legal guardian, or if none, to a parent of such Beneficiary or a responsible adult with whom the Beneficiary maintains his residence, or to the custodian for such Beneficiary under the Uniform Gift to Minors Act or Gift to Minors Act, if such is permitted by the laws of the state in 75 which said Beneficiary resides. Such a payment to the legal guardian, custodian or parent of a minor Beneficiary shall fully discharge the Trustee, Employer, and Plan from further liability on account thereof. 6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN In the event that all, or any portion, of the distribution payable to a Participant or his Beneficiary hereunder shall, at the later of the Participant's attainment of age 62 or his Normal Retirement Age, remain unpaid solely by reason of the inability of the Administrator, after sending a registered letter, return receipt requested, to the last known address, and after further diligent effort, to ascertain the whereabouts of such Participant or his Beneficiary, the amount so distributable shall be treated as a Forfeiture pursuant to the Plan. In the event a Participant or Beneficiary is located subsequent to his benefit being reallocated, such benefit shall be restored. 6.10 ADVANCE DISTRIBUTION FOR HARDSHIP (a) The Administrator, at the election of the Participant, shall direct the Trustee to distribute to any Participant in any one Plan Year up to the lesser of 100% of his Participant's Elective Account valued as of the last Anniversary Date or other valuation date or the amount necessary to satisfy the immediate and heavy financial need of the Participant. Any distribution made pursuant to this Section shall be deemed to be made as of the first day of the Plan Year or, if later, the valuation date immediately preceding the date of distribution, and the Participant's Elective Account shall be reduced accordingly. Withdrawal under this Section shall be authorized only if the distribution is on account of: (1) Expenses for medical care described in Code Section 213(d) previously incurred by the Participant, his spouse, or any of his dependents (as defined in Code Section 152) or necessary for these persons to obtain medical care; (2) The costs directly related to the purchase of a principal residence for the Participant (excluding mortgage payments); (3) Payment of tuition and related educational fees for the next twelve (12) months of post-secondary education for the Participant, his spouse, children, or dependents; or (4) Payments necessary to prevent the eviction of the Participant from his principal residence or foreclosure on the mortgage of the Participant's principal residence. (b) No distribution shall be made pursuant to this Section unless the Administrator, based upon the Participant's representation and such other facts as are known to the Administrator, determines that all of the following conditions are satisfied: 76 (1) The distribution is not in excess of the amount of the immediate and heavy financial need of the Participant. The amount of the immediate and heavy financial need may include any amounts necessary to pay any federal, state, or local income taxes or penalties reasonably anticipated to result from the distribution; (2) The Participant has obtained all distributions, other than hardship distributions, and all nontaxable (at the time of the loan) loans currently available under all plans maintained by the Employer; (3) The Plan, and all other plans maintained by the Employer, provide that the Participant's elective deferrals and voluntary Employee contributions will be suspended for at least twelve (12) months after receipt of the hardship distribution or, the Participant, pursuant to a legally enforceable agreement, will suspend his elective deferrals and voluntary Employee contributions to the Plan and all other plans maintained by the Employer for at least twelve (12) months after receipt of the hardship distribution; and (4) The Plan, and all other plans maintained by the Employer, provide that the Participant may not make elective deferrals for the Participant's taxable year immediately following the taxable year of the hardship distribution in excess of the applicable limit under Code Section 402(g) for such next taxable year less the amount of such Participant's elective deferrals for the taxable year of the hardship distribution. (c) Notwithstanding the above, for Plan Years beginning after December 31, 1988, distributions from the Participant's Elective Account pursuant to this Section shall be limited, as of the date of distribution, to the Participant's Elective Account as of the end of the last Plan Year ending before July 1, 1989, plus the total Participant's Deferred Compensation after such date, reduced by the amount of any previous distributions pursuant to this Section. (d) Any distribution made pursuant to this Section shall be made in a manner which is consistent with and satisfies the provisions of Section 6.5, including, but not limited to, all notice and consent requirements of Code Sections 417 and 41 l(a)(l 1) and the Regulations thereunder. 6.11 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION All rights and benefits, including elections, provided to a Participant in this Plan shall be subject to the rights afforded to any "alternate payee" under a "qualified domestic relations order." 77 Furthermore, a distribution TO AN "ALTERNATE PAYEE" shall be permitted if such distribution is authorized by a "qualified domestic relations order," even if the affected Participant has not separated from service and has not reached the "earliest retirement age" under the Plan. For the purposes of this Section, "alternate payee," "qualified domestic relations order" and "earliest retirement age" shall have the meaning set forth under Code Section 414(p). ARTICLE VII TRUSTEE 7.1 BASIC RESPONSIBILITIES OF THE TRUSTEE The Trustee shall have the following categories of responsibilities: (a) Consistent with the "funding policy and method" determined by the Employer, to invest, manage, and control the Plan assets subject, however, to the direction of an Investment Manager if the Trustee should appoint such manager as to all or a portion of the assets of the Plan; (b) At the direction of the Administrator, to pay benefits required under the Plan to be paid to Participants, or, in the event of their death, to their Beneficiaries; (c) To maintain records of receipts and disbursements and furnish to the Employer and/or Administrator for each Plan Year a written annual report per Section 7.6; and (d) If there shall be more than one Trustee, they shall act by a majority of their number, but may authorize one or more of them to sign papers on their behalf. 7.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE (a) The Trustee shall invest and reinvest the Trust Fund to keep the Trust Fund invested without distinction between principal and income and in such securities or property, real or personal, wherever situated, as the Trustee shall deem advisable, including, but not limited to, stocks, common or preferred, bonds and other evidences of indebtedness or ownership, and real estate or any interest therein. The Trustee shall at all times in making investments of the Trust Fund consider, among other factors, the short and long-term financial needs of the Plan on the basis of information furnished by the Employer. In making such investments, the Trustee shall not be restricted to securities or other property of the character expressly authorized by the applicable law for trust investments; however, the Trustee shall give due regard to any limitations imposed by the Code or the Act so that at all times the Plan may qualify as a qualified Profit Sharing Plan and Trust. 78 (b) The Trustee may employ a bank or trust company pursuant to the terms of its usual and customary bank agency agreement, under which the duties of such bank or trust company shall be of a custodial, clerical and record-keeping nature. 7.3 OTHER POWERS OF THE TRUSTEE The Trustee, in addition to all powers and authorities under common law, statutory authority, including the Act, and other provisions of the Plan, shall have the following powers and authorities, to be exercised in the Trustee's sole discretion: (a) To purchase, or subscribe for, any securities or other property and to retain the same. In conjunction with the purchase of securities, margin accounts may be opened and maintained; (b) To sell, exchange, convey, transfer, grant options to purchase, or otherwise dispose of any securities or other property held by the Trustee, by private contract or at public auction. No person dealing with the Trustee shall be bound to see to the application of the purchase money or to inquire into the validity, expediency, or propriety of any such sale or other disposition, with or without advertisement; (c) To vote upon any stocks, bonds, or other securities; to give general or special proxies or powers of attorney with or without power of substitution; to exercise any conversion privileges, subscription rights or other options, and to make any payments incidental thereto; to oppose, or to consent to, or otherwise participate in, corporate reorganizations or other changes affecting corporate securities, and to delegate discretionary powers, and to pay any assessments or charges in connection therewith; and generally to exercise any of the powers of an owner with respect to stocks, bonds, securities, or other property; (d) To cause any securities or other property to be registered in the Trustee's own name or in the name of one or more of the Trustee's nominees, and to hold any investments in bearer form, but the books and records of the Trustee shall at all times show that all such investments are part of the Trust Fund; (e) To borrow or raise money for the purposes of the Plan in such amount, and upon such terms and conditions, as the Trustee shall deem advisable; and for any sum so borrowed, to issue a promissory note as Trustee, and to secure the repayment thereof by pledging all, or any part, of the Trust Fund; and no person lending money to the Trustee shall be bound to see to the application of the money lent or to inquire into the validity, expediency, or propriety of any borrowing; (f) To keep such portion of the Trust Fund in cash or cash 79 balances as the Trustee may, from time to time, deem to be in the best interests of the Plan, without liability for interest thereon; (g) To accept and retain for such time as the Trustee may deem advisable any securities or other property received or acquired as Trustee hereunder, whether or not such securities or other property would normally be purchased as investments hereunder; (h) To make, execute, acknowledge, and deliver any and all documents of transfer and conveyance and any and all other instruments that may be necessary or appropriate to carry out the powers herein granted; (i) To settle, compromise, or submit to arbitration any claims, debts, or damages due or owing to or from the Plan, to commence or defend suits or legal or administrative proceedings, and to represent the Plan in all suits and legal and administrative proceedings; (j) To employ suitable agents and counsel and to pay their reasonable expenses and compensation, and such agent or counsel may or may not be agent or counsel for the Employer; (k) To apply for and procure from responsible insurance companies, to be selected by the Administrator, as an investment of the Trust Fund such annuity, or other Contracts (on the life of any Participant) as the Administrator shall deem proper; to exercise, at any time or from time to time, whatever rights and privileges may be granted under such annuity, or other Contracts; to collect, receive, and settle for the proceeds of all such annuity or other Contracts as and when entitled to do so under the provisions thereof; (l) To invest funds of the Trust in time deposits or savings accounts bearing a reasonable rate of interest in the Trustee's bank; (m) To invest in Treasury Bills and other forms of United States government obligations; (n) To invest in shares of investment companies registered under the Investment Company Act of 1940; (o) To sell, purchase and acquire put or call options if the options are traded on and purchased through a national securities exchange registered under the Securities Exchange Act of 1934, as amended, or, if the options are not traded on a national securities exchange, are guaranteed by a member firm of the New York Stock Exchange; (p) To deposit monies in federally insured savings accounts or 80 certificates of deposit in banks or savings and loan associations; (q) To pool all or any of the Trust Fund, from time to time, with assets belonging to any other qualified employee pension benefit trust created by the Employer or an affiliated company of the Employer, and to commingle such assets and make joint or common investments and carry joint accounts on behalf of this Plan and such other trust or trusts, allocating undivided shares or interests in such investments or accounts or any pooled assets of the two or more trusts in accordance with their respective interests; (r) To do all such acts and exercise all such rights and privileges, although not specifically mentioned herein, as the Trustee may deem necessary to carry out the purposes of the Plan. (s) Directed Investment Account. The powers granted to the Trustee shall be exercised in the sole fiduciary discretion of the Trustee. However, if Participants are so empowered by the Administrator, each Participant may direct the Trustee to separate and keep separate all or a portion of his account; and further each Participant is authorized and empowered, in his sole and absolute discretion, to give directions to the Trustee pursuant to the procedure established by the Administrator and in such form as the Trustee may require concerning the investment of the Participant's Directed Investment Account. The Trustee shall comply as promptly as practicable with directions given by the Participant hereunder. The Trustee may refuse to comply with any direction from the Participant in the event the Trustee, in its sole and absolute discretion, deems such directions improper by virtue of applicable law. The Trustee shall not be responsible or liable for any loss or expense which may result from the Trustee's refusal or failure to comply with any directions from the Participant. Any costs and expenses related to compliance with the Participant's directions shall be borne by the Participant's Directed Investment Account. 7.4 DUTIES OF THE TRUSTEE REGARDING PAYMENTS At the direction of the Administrator, the Trustee shall, from time to time, in accordance with the terms of the Plan, make payments out of the Trust Fund. The Trustee shall not be responsible in any way for the application of such payments. 7.5 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES The Trustee shall be paid such reasonable compensation as shall from time to time be agreed upon in writing by the Employer and the Trustee. An individual serving as Trustee who already receives full-time pay from the Employer shall not receive compensation from the Plan. In addition, the Trustee shall be reimbursed for any 81 reasonable expenses, including reasonable counsel fees incurred by it as Trustee. Such compensation and expenses shall be paid from the Trust Fund unless paid or advanced by the Employer. All taxes of any kind and all kinds whatsoever that may be levied or assessed under existing or future laws upon, or in respect of, the Trust Fund or the income thereof, shall be paid from the Trust Fund. 7.6 ANNUAL REPORT OF THE TRUSTEE Within a reasonable period of time after the later of the Anniversary Date or receipt of the Employer's contribution for each Plan Year, the Trustee shall furnish to the Employer and Administrator a written statement of account with respect to the Plan Year for which such contribution was made setting forth: (a) the net income, or loss, of the Trust Fund; (b) the gains, or losses, realized by the Trust Fund upon sales or other disposition of the assets; (c) the increase, or decrease, in the value of the Trust Fund; (d) all payments and distributions made from the Trust Fund; and (e) such further information as the Trustee and/or Administrator deems appropriate. The Employer, forthwith upon its receipt of each such statement of account, shall acknowledge receipt thereof in writing and advise the Trustee and/or Administrator of its approval or disapproval thereof Failure by the Employer to disapprove any such statement of account within thirty (30) days after its receipt thereof shall be deemed an approval thereof. The approval by the Employer of any statement of account shall be binding as to all matters embraced therein as between the Employer and the Trustee to the same extent as if the account of the Trustee had been settled by judgment or decree in an action for a judicial settlement of its account in a court of competent jurisdiction in which the Trustee, the Employer and all persons having or claiming an interest in the Plan were parties; provided, however, that nothing herein contained shall deprive the Trustee of its right to have its accounts judicially settled if the Trustee so desires. 7.7 AUDIT (a) If an audit of the Plan's records shall be required by the Act and the regulations thereunder for any Plan Year, the Administrator shall direct the Trustee to engage on behalf of all Participants an independent qualified public accountant for that purpose. Such accountant shall, after an audit of the books and records of the Plan in accordance with generally accepted auditing standards, within a reasonable period after the close of the Plan Year, furnish to the Administrator and the Trustee a 82 report of his audit setting forth his opinion as to whether any statements, schedules or lists that are required by Act Section 103 or the Secretary of Labor to be filed with the Plan's annual report, are presented fairly in conformity with generally accepted accounting principles applied consistently. All auditing and accounting fees shall be an expense of and may, at the election of the Administrator, be paid from the Trust Fund. (b) If some or all of the information necessary to enable the Administrator to comply with Act Section 103 is maintained by a bank, insurance company, or similar institution, regulated and supervised and subject to periodic examination by a state or federal agency, it shall transmit and certify the accuracy of that information to the Administrator as provided in Act Section 103(b) within one hundred twenty (120) days after the end of the Plan Year or by such other date as may be prescribed under regulations of the Secretary of Labor. 7.8 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE (a) The Trustee may resign at any time by delivering to the Employer, at least thirty (30) days before its effective date, a written notice of his resignation. (b) The Employer may remove the Trustee by mailing by registered or certified mail, addressed to such Trustee at his last known address, at least thirty (30) days before its effective date, a written notice of his removal. (c) Upon the death, resignation, incapacity, or removal of any Trustee, a successor may be appointed by the Employer; and such successor, upon accepting such appointment in writing and delivering same to the Employer, shall, without further act, become vested with all the estate, rights, powers, discretions, and duties of his predecessor with like respect as if he were originally named as a Trustee herein. Until such a successor is appointed, the remaining Trustee or Trustees shall have full authority to act under the terms of the Plan. (d) The Employer may designate one or more successors prior to the death, resignation, incapacity, or removal of a Trustee. In the event a successor is so designated by the Employer and accepts such designation, the successor shall, without further act, become vested with all the estate, rights, powers, discretions, and duties of his predecessor with the like effect as if he were originally named as Trustee herein immediately upon the death, resignation, incapacity, or removal of his predecessor. (e) Whenever any Trustee hereunder ceases to serve as such, he shall furnish to the Employer and Administrator a written statement of account with respect to the portion of the Plan Year 83 during which he served as Trustee. This statement shall be either (i) included as part of the annual statement of account for the Plan Year required under Section 7.6 or (ii) set forth in a special statement. Any such special statement of account should be rendered to the Employer no later than the due date of the annual statement of account for the Plan Year. The procedures set forth in Section 7.6 for the approval by the Employer of annual statements of account shall apply to any special statement of account rendered hereunder and approval by the Employer of any such special statement in the manner provided in Section 7.6 shall have the same effect upon the statement as the Employer's approval of an annual statement of account. No successor to the Trustee shall have any duty or responsibility to investigate the acts or transactions of any predecessor who has rendered all statements of account required by Section 7.6 and this subparagraph. 7.9 TRANSFER OF INTEREST Notwithstanding any other provision contained in this Plan, the Trustee at the direction of the Administrator shall transfer the Vested interest, if any, of such Participant in his account to another tNSt forming part of a pension, profit sharing or stock bonus plan maintained by such Participant's new employer and represented by said employer in writing as meeting the requirements of Code Section 401(a), provided that the trust to which such transfers are made permits the transfer to be made. 7.10 DIRECT ROLLOVER (a) This Section applies to distributions made on or after January 1, 1993. Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee's election under this Section, a distributed may elect, at the time and in the manner prescribed by the Plan Administrator, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributed in a direct rollover. (b) For purposes of this Section the following definitions shall apply: (1) An eligible rollover distribution is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee's 84 designated beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Code Section 401(a)(9); and the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). (2) An eligible retirement plan is an individual retirement account described in Code Section 408(a), an individual retirement annuity described in Code Section 408(b), an annuity plan described in Code Section 403(a), or a qualified tNSt described in Code Section 401(a), that accepts the distributee's eligible rollover distribution. However, in the case of an eligible rollover distribution to the surviving spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity. (3) A distributes includes an Employee or former Employee. In addition, the Employee's or former Employee's surviving spouse and the Employee's or former Employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Code Section 414(p), are distributees with regard to the interest of the spouse or former spouse. (4) A direct rollover is a payment by the plan to the eligible retirement plan specified by the distributed ARTICLE VIII AMENDMENT, TERMINATION AND MERGERS 8.1 AMENDMENT (a) The Employer shall have the right at any time to amend the Plan, subject to the limitations of this Section. Any such amendment shall be adopted by formal action of the Employer's board of directors and executed by an officer authorized to act on behalf of the Employer. However, any amendment which affects the rights, duties or responsibilities of the Trustee and Administrator may only be made with the Trustee's and Administrator's written consent. Any such amendment shall become effective as provided therein upon its execution. The Trustee shall not be required to execute any such amendment unless the Tmst provisions contained herein are a part of the Plan and the amendment affects the duties of the Trustee hereunder. (b) No amendment to the Plan shall be effective if it authorizes or permits any part of the Tmst Fund (other than such part as is required to pay taxes and administration expenses) to be used for or diverted to any purpose other than for the exclusive benefit 85 of the Participants or their Beneficiaries or estates; or causes any reduction in the amount credited to the account of any Participant; or causes or permits any portion of the Tmst Fund to revert to or become property of the Employer. (c) Except as permitted by Regulations, no Plan amendment or transaction having the effect of a Plan amendment (such as a merger, plan transfer or similar transaction) shall be effective to the extent it eliminates or reduces any "Section 41 l(d)(6) protected benefit" or adds or modifies conditions relating to "Section 41 l(d)(6) protected benefits" the result of which is a further restriction on such benefit unless such protected benefits are preserved with respect to benefits accrued as of the later of the adoption date or effective date of the amendment. "Section 41 l(d)(6) protected benefits" are benefits described in Code Section 41 l(d)(6)(A), early retirement benefits and retirement-type subsidies, and optional forms of benefit. 8.2 TERMINATION (a) The Employer shall have the right at any time to terminate the Plan by delivering to the Trustee and Administrator written notice of such termination. Upon any full or partial termination, all amounts credited to the affected Participants' Combined Accounts shall become 100% Vested as provided in Section 6.4 and shall not thereafter be subject to forfeiture, and all unallocated amounts shall be allocated to the accounts of all Participants in accordance with the provisions hereof. (b) Upon the full termination of the Plan, the Employer shall direct the distribution of the assets of the Tmst Fund to Participants in a manner which is consistent with and satisfies the provisions of Section 6.5. Distributions to a Participant shall be made in cash or through the purchase of irrevocable nontransferable deferred commitments from an insurer. Except as permitted by Regulations, the termination of the Plan shall not result in the reduction of "Section 41 l(d)(6) protected benefits" in accordance with Section 8.1(c). 8.3 MERGER OR CONSOLIDATION This Plan and Trust may be merged or consolidated with, or its assets and/or liabilities may be transferred to any other plan and tNSt only if the benefits which would be received by a Participant of this Plan, in the event of a termination of the plan immediately after such transfer, merger or consolidation, are at least equal to the benefits the Participant would have received if the Plan had terminated immediately before the transfer, merger or consolidation, and such transfer, merger or consolidation does not otherwise result in the elimination or reduction of any "Section 41 l(d)(6) protected benefits" in accordance with Section 8.1(c). 86 ARTICLE IX MISCELLANEOUS 9.1 PARTICIPANT'S RIGHTS This Plan shall not be deemed to constitute a contract between the Employer and any Participant or to be a consideration or an inducement for the employment of any Participant or Employee. Nothing contained in this Plan shall be deemed to give any Participant or Employee the right to be retained in the service of the Employer or to interfere with the right of the Employer to discharge any Participant or Employee at any time regardless of the effect which such discharge shall have upon him as a Participant of this Plan. 9.2 ALIENATION (a) Subject to the exceptions provided below, no benefit which shall be payable out of the Tmst Fund to any person (including a Participant or his Beneficiary) shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge the same shall be void; and no such benefit shall in any manner be liable for, or subject to, the debts, contracts, liabilities, engagements, or torts of any such person, nor shall it be subject to attachment or legal process for or against such person, and the same shall not be recognized by the Trustee, except to such extent as may be required by law. (b) This provision shall not apply to a "qualified domestic relations order" defined in Code Section 414(p), and those other domestic relations orders permitted to be so treated by the Administrator under the provisions of the Retirement Equity Act of 1984. The Administrator shall establish a written procedure to determine the qualified status of domestic relations orders and to administer distributions under such qualified orders. Further, to the extent provided under a "qualified domestic relations order," a former spouse of a Participant shall be treated as the spouse or surviving spouse for all purposes under the Plan. 9.3 CONSTRUCTION OF PLAN This Plan and Tmst shall be constmed and enforced according to the Act and the laws of the State of Florida, other than its laws respecting choice of law, to the extent not preempted by the Act. 9.4 GENDER AND NUMBER Wherever any words are used herein in the masculine, feminine or neuter gender, they shall be constmed as though they were also used in another gender in all cases where they would so apply, and whenever any words are used herein in the singular or plural form, they shall 87 be constmed as though they were also used in the other form in all cases where they would so apply. 9.5 LEGAL ACTION In the event any claim, suit, or proceeding is brought regarding the Tmst and/or Plan established hereunder to which the Trustee or the Administrator may be a party, and such claim, suit, or proceeding is resolved in favor of the Trustee or Administrator, they shall be entitled to be reimbursed from the Tmst Fund for any and all costs, attorney's fees, and other expenses pertaining thereto incurred by them for which they shall have become liable. 9.6 PROHIBITION AGAINST DIVERSION OF FUNDS (a) Except as provided below and otherwise specifically permitted by law, it shall be impossible by operation of the Plan or of the Tmst, by termination of either, by power of revocation or amendment, by the happening of any contingency, by collateral arrangement or by any other means, for any part of the corpus or income of any tNSt fund maintained pursuant to the Plan or any funds contributed thereto to be used for, or diverted to, purposes other than the exclusive benefit of Participants, Retired Participants, or their Beneficiaries. (b) In the event the Employer shall make an excessive contribution under a mistake of fact pursuant to Act Section 403(c)(2)(A), the Employer may demand repayment of such excessive contribution at any time within one (1) year following the time of payment and the Trustees shall return such amount to the Employer within the one (1) year period. Earnings of the Plan attributable to the excess contributions may not be returned to the Employer but any losses attributable thereto must reduce the amount so returned. 9.7 BONDING Every Fiduciary, except a bank or an insurance company, unless exempted by the Act and regulations thereunder, shall be bonded in an amount not less than 10% of the amount of the funds such Fiduciary handles; provided, however, that the minimum bond shall be $1,000 and the maximum bond, $500,000. The amount of funds handled shall be determined at the beginning of each Plan Year by the amount of funds handled by such person, group, or class to be covered and their predecessors, if any, during the preceding Plan Year, or if there is no preceding Plan Year, then by the amount of the funds to be handled during the then current year. The bond shall provide protection to the Plan against any loss by reason of acts of fraud or dishonesty by the Fiduciary alone or in connivance with others. The surety shall be a corporate surety company (as such term is used in Act Section 412(a)(2)), and the bond shall be in a form approved by the Secretary of Labor. Notwithstanding anything in the Plan to the contrary, the 88 cost of such bonds shall be an expense of and may, at the election of the Administrator, be paid from the Tmst Fund or by the Employer. 9.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE Neither the Employer nor the Trustee, nor their successors, shall be responsible for the validity of any Contract issued hereunder or for the failure on the part of the insurer to make payments provided by any such Contract, or for the action of any person which may delay payment or render a Contract null and void or unenforceable in whole or in part. 9.9 INSURER'S PROTECTIVE CLAUSE Any insurer who shall issue Contracts hereunder shall not have any responsibility for the validity of this Plan or for the tax or legal aspects of this Plan. The insurer shall be protected and held harmless in acting in accordance with any written direction of the Trustee, and shall have no duty to see to the application of any funds paid to the Trustee, nor be required to question any actions directed by the Trustee. Regardless of any provision of this Plan, the insurer shall not be required to take or permit any action or allow any benefit or privilege contrary to the terms of any Contract which it issues hereunder, or the rules of the insurer. 9.10 RECEIPT AND RELEASE FOR PAYMENTS Any payment to any Participant, his legal representative, Beneficiary, or to any guardian or committee appointed for such Participant or Beneficiary in accordance with the provisions of the Plan, shall, to the extent thereof, be in full satisfaction of all claims hereunder against the Trustee and the Employer, either of whom may require such Participant, legal representative, Beneficiary, guardian or committee, as a condition precedent to such payment, to execute a receipt and release thereof in such form as shall be determined by the Trustee or Employer. 9.11 ACTION BY THE EMPLOYER Whenever the Employer under the terms of the Plan is permitted or required to do or perform any act or matter or thing, it shall be done and performed by a person duly authorized by its legally constituted authority. 9.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY The "named Fiduciaries" of this Plan are (1) the Employer, (2) the Administrator and (3) the Trustee. The named Fiduciaries shall have only those specific powers, duties, responsibilities, and obligations as are specifically given them under the Plan. In general, the Employer shall have the sole responsibility for making the contributions provided for under Section 4. 1; and shall have the sole 89 authority to appoint and remove the Trustee and the Administrator; to formulate the Plan's "funding policy and method"; and to amend or terminate, in whole or in part, the Plan. The Administrator shall have the sole responsibility for the administration of the Plan, which responsibility is specifically described in the Plan. The Trustee shall have the sole responsibility of management of the assets held under the Tmst, except those assets, the management of which has been assigned to an Investment Manager, who shall be solely responsible for the management of the assets assigned to it, all as specifically provided in the Plan. Each named Fiduciary warrants that any directions given, information furnished, or action taken by it shall be in accordance with the provisions of the Plan, authorizing or providing for such direction, information or action. Furthermore, each named Fiduciary may rely upon any such direction, information or action of another named Fiduciary as being proper under the Plan, and is not required under the Plan to inquire into the propriety of any such direction, information or action. It is intended under the Plan that each named Fiduciary shall be responsible for the proper exercise of its own powers, duties, responsibilities and obligations under the Plan. No named Fiduciary shall guarantee the Tmst Fund in any manner against investment loss or depreciation in asset value. Any person or group may serve in more than one Fiduciary capacity. In the furtherance of their responsibilities hereunder, the "named Fiduciaries" shall be empowered to interpret the Plan and Trust and to resolve ambiguities, inconsistencies and omissions, which findings shall be binding, final and conclusive. 9.13 HEADINGS The headings and subheadings of this Plan have been inserted for convenience of reference and are to be ignored in any construction of the provisions hereof. 9.14 APPROVAL BY INTERNAL REVENUE SERVICE (a) Notwithstanding anything herein to the contrary, contributions to this Plan are conditioned upon the initial qualification of the Plan under Code Section 401. If the Plan receives an adverse determination with respect to its initial qualification, then the Plan may return such contributions to the Employer within one year after such determination, provided the application for the determination is made by the time prescribed by law for filing the Employer's return for the taxable year in which the Plan was adopted, or such later date as the Secretary of the Treasury may prescribe. (b) Notwithstanding any provisions to the contrary, except Sections 3.6, 3.7, and 4.1(f), any contribution by the Employer to the Tmst Fund is conditioned upon the deductibility of the contribution by the Employer under the Code and, to the extent any such deduction is disallowed, the Employer may, within one (1) year following the disallowance of the deduction, demand 90 repayment of such disallowed contribution and the Trustee shall return such contribution within one (1) year following the disallowance. Earnings of the Plan attributable to the excess contribution may not be returned to the Employer, but any losses attributable thereto must reduce the amount so returned. 9.15 UNIFORMITY All provisions of this Plan shall be interpreted and applied in a uniform, nondiscriminatory manner. In the event of any conflict between the terms of this Plan and any Contract purchased hereunder, the Plan provisions shall control. ARTICLE X PARTICIPATING EMPLOYERS 10.1 ADOPTION BY OTHER EMPLOYERS Notwithstanding anything herein to the contrary, with the consent of the Employer and Trustee, any other corporation or entity, whether an affiliate or subsidiary or not, may adopt this Plan and all of the provisions hereof, and participate herein and be known as a Participating Employer, by a properly executed document evidencing said intent and will of such Participating Employer. 10.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS (a) Each such Participating Employer shall be required to use the same Trustee as provided in this Plan. (b) The Trustee may, but shall not be required to, commingle, hold and invest as one Tmst Fund all contributions made by Participating Employers, as well as all increments thereof However, the assets of the Plan shall, on an ongoing basis, be available to pay benefits to all Participants and Beneficiaries under the Plan without regard to the Employer or Participating Employer who contributed such assets. (c) The transfer of any Participant from or to an Employer participating in this Plan, whether he be an Employee of the Employer or a Participating Employer, shall not affect such Participant's rights under the Plan, and all amounts credited to such Participant's Combined Account as well as his accumulated service time with the transferor or predecessor, and his length of participation in the Plan, shall continue to his credit. (d) All rights and values forfeited by termination of employment shall inure only to the benefit of the Participants of the Employer or Participating Employer by which the forfeiting Participant was employed, except if the Forfeiture is for an Employee whose Employer is an Affiliated Employer, then said 91 Forfeiture shall inure to the benefit of the Participants of those Employers who are Affiliated Employers. Should an Employee of one ("First") Employer be transferred to an associated ("Second") Employer which is an Affiliated Employer, such transfer shall not cause his account balance (generated while an Employee of "First" Employer) in any manner, or by any amount to be forfeited. Such Employee's Participant Combined Account balance for all purposes of the Plan, including length of service, shall be considered as though he had always been employed by the "Second" Employer and as such had received contributions, forfeitures, earnings or losses, and appreciation or depreciation in value of assets totaling the amount so transferred. (e) Any expenses of the Tmst which are to be paid by the Employer or borne by the Tmst Fund shall be paid by each Participating Employer in the same proportion that the total amount standing to the credit of all Participants employed by such Employer bears to the total standing to the credit of all Participants. 10.3 DESIGNATION OF AGENT Each Participating Employer shall be deemed to be a party to this Plan; provided, however, that with respect to all of its relations with the Trustee and Administrator for the purpose of this Plan, each Participating Employer shall be deemed to have designated irrevocably the Employer as its agent. Unless the context of the Plan clearly indicates the contrary, the word "Employer" shall be deemed to include each Participating Employer as related to its adoption of the Plan. 10.4 EMPLOYEE TRANSFERS It is anticipated that an Employee may be transferred between Participating Employers, and in the event of any such transfer, the Employee involved shall carry with him his accumulated service and eligibility. No such transfer shall effect a termination of employment hereunder, and the Participating Employer to which the Employee is transferred shall thereupon become obligated hereunder with respect to such Employee in the same manner as was the Participating Employer from whom the Employee was transferred. 10.5 PARTICIPATING EMPLOYER'S CONTRIBUTION Any contribution subject to allocation during each Plan Year shall be allocated only among those Participants of the Employer or Participating Employer making the contribution, except if the contribution is made by an Affiliated Employer, in which event such contribution shall be allocated among all Participants of all Participating Employers who are Affiliated Employers in accordance with the provisions of this Plan. On the basis of the information furnished by the Administrator, the Trustee shall keep separate books and records concerning the affairs of each Participating Employer 92 hereunder and as to the accounts and credits of the Employees of each Participating Employer. The Trustee may, but need not, register Contracts so as to evidence that a particular Participating Employer is the interested Employer hereunder, but in the event of an Employee transfer from one Participating Employer to another, the employing Employer shall immediately notify the Trustee thereof. 10.6 AMENDMENT Amendment of this Plan by the Employer at any time when there shall be a Participating Employer hereunder shall only be by the written action of each and every Participating Employer and with the consent of the Trustee where such consent is necessary in accordance with the terms of this Plan. 10.7 DISCONTINUANCE OF PARTICIPATION Any Participating Employer shall be permitted to discontinue or revoke its participation in the Plan. At the time of any such discontinuance or revocation, satisfactory evidence thereof and of any applicable conditions imposed shall be delivered to the Trustee. The Trustee shall thereafter transfer, deliver and assign Contracts and other Tmst Fund assets allocable to the Participants of such Participating Employer to such new Trustee as shall have been designated by such Participating Employer, in the event that it has established a separate pension plan for its Employees, provided however, that no such transfer shall be made if the result is the elimination or reduction of any "Section 41 l(d)(6) protected benefits" in accordance with Section 8.1(c). If no successor is designated, the Trustee shall retain such assets for the Employees of said Participating Employer pursuant to the provisions of Article VII hereof. In no such event shall any part of the corpus or income of the Tmst as it relates to such Participating Employer be used for or diverted to purposes other than for the exclusive benefit of the Employees of such Participating Employer. 10.8 ADMINISTRATOR'S AUTHORITY The Administrator shall have authority to make any and all necessary Ales or regulations, binding upon all Participating Employers and all Participants, to effectuate the purpose of this Article. 93 IN WITNESS WHEREOF, this Plan has been executed the day and year first above written. VI Cement and Building Products, Inc. By /S/ DONALD L. SMITH, JR. ---------------------------- EMPLOYER ATTEST /S/ BEVERLY E. ZIROLLA ---------------------------- /S/ DONALD L. SMITH, JR. TRUSTEE /S/ RICHARD L. HORNSBY ---------------------------- TRUSTEE /S/ GEOFFREY L. SMITH ---------------------------- TRUSTEE 94 EX-10.14 3 EXHIBIT 10.14 AMENDMENT NO. 7 TO ST. JOHN'S DREDGING AND DEEP WATER PIER CONSTRUCTION AGREEMENT This Amendment No. 7 effective November 30, 1993 ("Amendment No. 7") to the St. John's Dredging and Deep Water Pier Construction Agreement (the Agreement") dated April 3, 1987 by and between ANTIGUA AND BARBUDA acting through its government (hereinafter referred to as "Antigua") and ANTIGUA MASONRY PRODUCTS, a corporation organized and existing under the laws of Antigua and Barbuda, which assigned its interest to ANTIGUA HEAVY CONSTRUCTORS, LTD., a corporation organized and existing under the laws of Antigua and Barbuda (hereinafter referred to as ("Contractor"), as amended on June 15, 1988 ("Amendment No. 3"), February 16, 1990 ("Amendment No. 4"), and on October 24, 1991 ("Amendment No. 5"). Amendments Nos. 1, 2, 3, 4, 5 and 6 are hereinafter collectively referred to as the "Amendments". This Amendment No. 7 is made by and between Antigua and Contractor. Except as otherwise set forth herein, terms defined in the Agreement and in Amendments Nos. 1, 2, 3, 4, 5 and 6 shall have the same meaning when used herein. In consideration of the mutual covenants and agreements hereinafter set forth, Antigua and Contractor agree as follows: 1. Article 17 is not amended or modified, except as provided in Section 10 of Amendment No. 1 and Section 4 of Amendment No. 2 and except for the following: a) As payment on principal and interest due on the Notes, Antigua agrees to exempt Antigua Development and Construction, Limited ("ADC") a wholly owned subsidiary of Antigua Masonry Products, Limited, from payment of all income taxes in Antigua arising from ADC's contract with Dr. Alfred Erhart for the development of the Jolly Harbor project. Contractor will credit $400,000 against the Antigua notes upon receipt of a certificate or letter within thirty (30) days of the date hereof, exempting ADC from the payment of all income taxes in Antigua arising from ADC's contract with Dr. Alfred Erhart for the development of the Jolly Harbor project. 2. Article 28 of the Agreement, is hereby amended to read in its entirety as follows: ARTICLE 28 PAYMENT GUARANTEE OF DEEP BAY DEVELOPMENT COMPANY LIMITED NOTES Antigua hereby unconditionally guarantees payment of certain promissory notes payable to Contractor and Antigua Masonry Products, Ltd. ("AMPL") by Deep Bay Development Company, Limited ("Deep Bay") as follows: a) Note dated April 29, 1989 payable to Contractor for road construction (Hattons Hill) US$128,000 b) Note dated April 29, 1989 payable to AMPL for construction materials (concrete, stone, paving stone, etc.) 200,000 c) Note dated August 1, 1989 payable to Contractor for paving (roads and parking lots at Royal Antiguan Hotel) 458,959 ----------- US$786,959 ----------- The above is hereinafter referred to as the "Antigua Guarantee." Antigua hereby agrees that the Antigua Guarantee is secured by the escrow accounts and other elements of security as set forth in Article 18 of the Agreement as amended by Amendments 1 through 6 ("The Agreement as Amended"). Antigua specifically agrees that after all principal and interest on notes issued by Antigua to Contractor under the terms of the Agreement As Amended have been paid, any outstanding principal and interest due Contractor on the US$786,959 Deep Bay notes listed above will be paid by Antigua from the sources set forth in Article 18.2 of the Agreement as Amended. 3. Antigua agrees to undertake any needed action and do whatever is constitutionally necessary to give full effect to this Amendment No. 7 including: a) Obtaining Cabinet approval by October 31, 1994, and b) Obtaining approval by Parliament as part of a supplementary appropriations bill or such other bill as Antigua may choose, no later than December 15, 1994. 4. All provisions not amended or modified remain a part of the Agreement, as amended by the Amendments, which Amendments are also governed by such provisions, including without limitation, those relating to governing law. The execution and delivery of the Amendments by either party shall not constitute a waiver by either party of any provision of the Agreement, which provisions remain in effect notwithstanding the Amendments unless expressly waived therein. 5. Any reference to the Agreement in any promissory note issued pursuant to the Agreement or the Amendments, whether prior to or subsequent to the date hereof, or references to the Agreement in the Corbison Point Sales Escrow Agreement or the Project Escrow Agreement, shall be construed to be a reference to the Agreement as modified by the Amendments. IN WITNESS WHEREOF, the parties hereto, by and through their respective undersigned signatories, have each executed and delivered Amendment No. 7 as of this 21 day of December 1994. ANTIGUA AND BARBUDA, acting through its government By: /S/ KESTER B. BIRD ------------------------------- Honorable Lester B. Bird Prime Minister ACKNOWLEDGED BY: By: /S/ MOLWYN JOSEPH ANTIGUA HEAVY CONSTRUCTORS, LIMITED ----------------------------- as assignee of ANTIGUA MASONRY PRODUCTS Honorable Molwyn Joseph LIMITED Minister of Finance By: /S/ RICHARD L. HORNSBY --------------------------------- Richard L. Hornsby Director EX-10.15 4 EXHIBIT 10.15 AMENDMENT NO. 8 TO ST. JOHN'S DREDGING AND DEEP WATER PIER CONSTRUCTION AGREEMENT This Amendment No. 8, effective October 1, 1996, ("Amendment No. 8") to the St. John's Dredging and Deep Water Pier Construction Agreement (the "Agreement") dated April 3, 1987 by and between ANTIGUA AND BARBUDA, acting through its government (hereinafter ("Antigua") and ANTIGUA MASONRY PRODUCTS, LTD., a corporation organized and existing under the laws of Antigua and Barbuda, which assigned its interest to ANTIGUA HEAVY CONSTRUCTORS, LTD., a corporation organized and existing under the laws of Antigua and Barbuda (hereinafter the "Contractor") as amended by Amendments 1, 2, 3, 4, 5, 6 and 7. This Amendment No. 8 is made by and between Antigua and Contractor. Except as otherwise set forth herein, terms defined in the Agreement and the Amendments shall have the same meaning when used herein. In consideration of the mutual covenants and agreements hereinafter set forth, Antigua and Contractor agree as follows: Article 18 which has been amended by Amendments Nos. 1, 2, 4 and 5 is hereby amended further to provide that: 1. Effective January 1, 1996 the quarterly payment from Antigua to Contractor to be made from the revenues to Antigua received from the United States Navy and Air Force for rental of property in Antigua is reduced from US$500,000 per quarter to US$312,500 per quarter, and 2. Beginning in November 1996, US$50,000 per month is to be transferred on the tenth (both) business day of each month from Antigua's fuel tax revenues on deposit in a local Antiguan Bank to Antigua Heavy Constructors, Ltd.'s account in the Antigua Commercial Bank (Account Number 100001557). Antigua warrants that it will issue an irrevocable letter to its bank instructing the bank to make the transfer set forth herein, such letter to be substantially in the form attached hereto as Exhibit "A". Antigua agrees to undertake any needed action and do whatever is constitutionally necessary to give full effect to this Amendment No. 8. IN WITNESS WHEREOF, the parties hereto, by and through their respective undersigned signatories, have each executed and delivered this Amendment No. 8 as of this 23 day of October 1996. ANTIGUA AND BARBUDA Acting Through its Government By: /S/ LESTER B. BIRD -------------------------- Prime Minister ANTIGUA HEAVY CONSTRUCTORS, LTD. as Assignee of Antigua Masonry Products, Ltd. By: /S/ RICHARD L. HORNSBY -------------------------- Director Acknowledged by Antigua and Barbuda Minister of Finance /S/ JOHN E. ST. LUCE - ------------------------------- EXHIBIT "A" IRREVOCABLE LETTER TO BANK ____________________ Manager ____________________ St. John's, Antigua Dear Sir: The Government of Antigua and Barbuda has signed Amendment No. 8 to the St. John's Dredging and Deep Water Pier Construction Agreement. This amendment provides that we issue you a standing order to transfer US$50,000 per month from the Government's fuel tax revenue deposit account in your bank to Antigua Heavy Constructors, Ltd.'s account in the Antigua Commercial Bank (Account number 100001557). This transfer is to be made on the tenth (both) business day of each month commencing in November 1996. This letter is your standing instruction and is irrevocable without the written consent of Antigua Heavy Constructors, Ltd. or until any promissory notes issued to Antigua Heavy Constructors, Ltd. under the terms of the St John's Dredging and Deep Water Pier Construction Agreement as amended are paid in full. Yours truly, - ------------------ D. Keith L. Hurst Financial Secretary - ------------------ Ludolph Brown Accountant General cc: Honourable Prime Minister Honourable Finance Minister Director of Audit EX-10.31 5 EXHIBIT 10.31 LOAN AGREEMENT THIS LOAN AGREEMENT dated the 12 day of November, 1996, is between V.I. CEMENT AND BUILDING PRODUCTS, INC., a Delaware corporation qualified to do business in the U.S. Virgin Islands, whose mailing address is 1350 E. Newport Center Drive, Suite 201, Deerfield Beach, Florida 33443 (hereinafter referred to as the "Borrower"), and BANCO POPULAR DE PUERTO RICO, a commercial banking institution having a mailing address of P.O. Box 8580, St. Thomas, U.S. Virgin Islands 00801 (hereinafter referred to as the "Bank"). WITNESSETH: 1. REPRESENTATIONS. As an inducement to the Bank to enter into this Agreement and to lend under the terms hereof, the Borrower represents, covenants and warrants to the Bank that: 1.1 CORPORATE EXISTENCE AND POWER. The Borrower is a corporation duly organized, validly existing and in good standing under the laws of Delaware and is qualified to do business and in good standing under the laws of the U.S. Virgin Islands and has the corporate power to make this Agreement and to borrow hereunder. 1.2 CORPORATE AUTHORITY. The making and performance by the Borrower of this Agreement has been duly authorized by all necessary corporate action and will not violate any provision of law or of its Articles of Incorporation or Bylaws or result in the breach of, or constitute a default under, or, except as hereinafter provided, result in the creation of any lien, charge or encumbrance upon any property or assets of the Borrower pursuant to any indenture or bank loan or credit agreement, or other agreement or instrument to which the Borrower is a party or by which the Borrower or its property may be bound or affected. 1.3 FINANCIAL CONDITION. The most recent balance sheet and income statement of the Borrower, and other related information, heretofore furnished to the Bank, are complete and correct and fairly present the financial condition of the Borrower and the results of operations for the period(s) specified therein. To the best of the Borrower's knowledge and belief, the Borrower has no contingent obligations, liabilities for taxes, or unusual forward or long term commitments, except as herein specifically mentioned, not disclosed by, or reserved against, in said balance SHEET, AND, AT THE PRESENT time, there are no material unrealized or anticipated losses from any unfavorable commitments of the Borrower. Said financial statements have been prepared in accordance with generally accepted accounting principles and practices consistently maintained by the Borrower throughout the period involved. Since the dates of such financial statements, and SINCE THE date of the other financial information provided to the Bank, there have been no material adverse changes in the financial condition of the Borrower from that set forth in said balance sheet or in said other financial information as of the date hereof, and no dividends or other distributions have been declared or paid or made to its stockholders. 1.4 LITIGATION. Except as Bank has been advised in writing, there are no suits or proceedings pending, or, to the knowledge of the Borrower, threatened, against or affecting the Borrower which, if adversely determined, would have a material adverse effect on the financial condition or business of the Borrower. Except as the Bank has been advised in writing, there are no proceedings by or before any governmental commission, bureau or other administrative agency pending, or to the knowledge of the Borrower threatened, against the Borrower. 1.5 TITLES: LIENS. The Borrower has exclusive good and marketable title to each of the fixed properties and assets reflected in its balance sheet free and clear of all mortgages, liens and encumbrances, except (a) liens, if any, for current taxes, assessments and governmental charges not delinquent or whose 1 validity is being contested at the time in good faith and by appropriate proceedings, and covenants, restrictions, rights, easements, liens, encumbrances and minor irregularities in title which, in its opinion, do not and will not interfere with the occupation, use and enjoyment of such properties and assets in the normal course of business as presently conducted or planned or materially impair the value of such properties and assets for the purpose of such business, (b) mortgages, liens and encumbrances in favor of the Bank, and (c) mortgages, liens and encumbrances in favor of third parties of which the Bank has been advised in writing and approved by the Bank. 1.6 GOVERNMENTAL LICENSES AND PERMITS. The Borrower possesses all licenses and permits necessary for the operation of its business without substantial known conflict with the rights of others. 1.7 ENVIRONMENTAL COMPLIANCE. The Borrower has duly complied with and Borrower's business operations, assets, equipment, property, leaseholds and other facilities are in compliance with the provisions of all federal, state and territorial environmental, health, and safety laws, codes and ordinances, and all rules and regulations promulgated thereunder. The Borrower has been issued and will maintain all required federal, state and territorial permits, licenses, certificates, and approvals relating to (1) air emissions, (2) discharges to surface WATER or groundwater, (3) noise emissions, (4) solid or liquid waste disposal, (5) the use, generation, storage, transportation or disposal of toxic or hazardous substances or wastes (intended hereby and hereafter to include any and all such materials listed in any federal, state or territorial law, code or ordinance, and all rules and regulations promulgated thereunder, as hazardous or potentially hazardous, or (6) other environmental, health, or safety matters. The Borrower has received no notice of, and neither knows of nor suspects, facts which might constitute any violation of any federal, state or territorial environmental, health, or safety laws, codes or ordinances, and any rules or regulations promulgated thereunder with respect to the Borrower's business, operations, assets, equipment, property, leaseholds, or other facilities. Except in accordance with a valid governmental permit, license, certificate or approval, there has been no emission, spill, release, or discharge into or upon (1) the air, (2) soils or any improvements located thereon, (3) surface water or groundwater, or (4) the sewer, septic system or waste treatment, storage or disposal system servicing any of the Borrower's properties, of any toxic or hazardous substances or wastes at or from any of the Borrower's properties; and accordingly, except for inventory of raw materials, supplies, work in progress and finished, that are to be used or sold in the ordinary course of business, the Borrower's properties are free of all such toxic or hazardous substances or wastes. There has been no complaint, order, directive, claim, citation, or notice by any governmental authority or any person or entity with respect to (1) air emissions, (2) spills, releases, or discharges to soils or improvements located thereon, surface water, groundwater or the sewer, septic system or waste treatment, storage or disposal systems servicing any of the Borrower's properties, (3) noise emissions, (4) solid or liquid waste disposal, (5) the use, generation, storage, transportation, or disposal of toxic or hazardous substances or waste, or (6) other environmental, health, or safety matters affecting the Borrower or Borrower's business, operations, assets, equipment, property, leaseholds, or other facilities. The Borrower has no indebtedness, obligation or liability, absolute or contingent, matured or not matured, with respect to the storage, treatment, cleanup, or disposal of any solid wastes, hazardous wastes, or other toxic or hazardous substances (including without limitation any such indebtedness, obligation or liability with respect to any current regulation, law or statute regarding such storage, treatment, cleanup, or disposal), which has not been previously disclosed to the Bank in writing. 1.8 ENFORCEABILITY. This Agreement, the Notes (as defined in Section 2.4), security instruments (as defined in Section 3) and other documents provided to the Bank in connection with the Loan and executed or to be executed simultaneously herewith (collectively referred to herein as the "Loan Documents") 2 are the legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with their respective terms. 2. THE AGREEMENT TO LEND. 2.1 THE LOAN. 2.1.1 AMOUNTS. The Bank agrees, on the terms and conditions of this Agreement, to extend to the Borrower the following credit facilities in the aggregate maximum principal amount of SEVEN MILLION DOLLARS ($7,000,000.00), (the "Loan"), which the Borrower hereby accepts. 2.1.1.1 a term loan (the term Loan") in the principal sum of SIX MILLION DOLLARS ($6,000,000.00); 2.1.1.2 a revolving line of credit (the "Line of Credit") in an aggregate principal amount at any one time outstanding of up to but not exceeding ONE MILLION DOLLARS ($1,000,000.00). 2 1.2 TYPES. 2.1.2.1 THE TERM LOAN. The Term Loan shall be a six (6) year installment loan payable in seventy-two (72) monthly payments of principal and interest as hereinafter provided. 2.1.2.2. THE LINE OF CREDIT. The Line of Credit is a revolving credit (i.e., a credit which may be used repeatedly up to the limit, and for the time specified, after partial or total repayments have been made) in the aggregate maximum principal amount thereof (i.e., ONE MILLION DOLLARS ($1,OOO,OOO.OO), subject to annual review and annual re-approval by the Bank. Accordingly, the Borrower may, at any time, and periodically from time to time, from the date hereof and until revoked by the Bank, draw against this credit, on a revolving basis, in accordance with the terms and provisions of this Agreement, and may, at any time, and periodically from time to time, during said period, reborrow, likewise on a revolving basis, the whole or any part or parts of the principal sum or sums so drawn, to the end that the said REVOLVING CREDIT SHALL CONTINUE to be available to, and may be used repeatedly by, the Borrower, during said period, on a revolving basis, up to the said principal sum of ONE MILLION DOLLARS ($l,000,000.00) at any one time outstanding, notwithstanding the fact that such partial or total repayments, if any, have been, or will be, from time to time made. 2.1.2.2.1 ANNUAL REVIEW AND REAPPROVAL. On July 1, 1997, and on each subsequent anniversary of said date, the Line of Credit is subject to annual review and approval by the Bank. The Bank shall review the history of the Borrower's use of the Line of Credit and the terms, provisions and outstanding balance of the Line of Credit, together with the financial statements of the Borrower and Guarantor (as defined in Section 5.2), and such other documents and information as the Bank deems necessary or desirable for the purpose of determining whether the Line of Credit should be renewed, extended, modified or terminated. A condition of such approval shall be the absence of any material adverse change in prevailing economic conditions and/or in the Borrower's or Guarantor's financial condition. The Bank shall have the right, in ITS SOLE DISCRETION, to make such a determination and shall advise the Borrower in writing of any decision to renew, extend or modify the Line of Credit and of the conditions of such renewal, extension or modification, if any. 2.1.2.2.2 ANNUAL CLEAN UP. The Borrower agrees that for a period of thirty (30) consecutive days during each twelve (12) MONTH PERIOD hereafter the Borrower shall have repaid to the Bank all funds drawn under the Line of Credit and THERE SHALL BE NO REVOLVING CREDIT outstanding under this Agreement. 3 2.2 PRINCIPAL REPAYMENT OF TERM LOAN. The Borrower shall repay the principal amount of the Term Loan to the Bank in seventy-two consecutive monthly installments as follows: (i) seventy-one (71) consecutive monthly installments of EIGHTY THREE THOUSAND THREE HUNDRED THIRTY FOUR AND 00/100 DOLLARS ($83,334.00) each, plus interest accrued to time of payment; and (ii) a seventy second (72nd), final installment of the principal then outstanding plus accrued but unpaid interest on the unpaid principal balance, commencing on the first day of the first full month following the date hereof and continuing on the first day of each subsequent month. All payments shall be applied first to late charges, if any, second to accrued interest and the remainder to the outstanding principal balance. 2.3 INTEREST. The Term Loan and the Line of Credit shall both bear interest at a rate per annum equal to one percent (1%) above the prime rate as it varies (any change in interest resulting from the change in the prime rate to be effective at the beginning of the day on which such change in the prime rate is announced). The term "prime rate" as used herein means that rate of interest from time to time announced by The Chase Manhattan Bank, N.A. at its principal offices in New York, New York as its commercial loan prime rate. Interest shall be calculated daily on a three hundred sixty (360) day basis at the rate hereinabove set forth. Interest on the Line of Credit shall be calculated daily on the principal sums advanced and outstanding and shall be due and payable monthly by invoice to Borrower. Interest accrued on the Term Loan at the rate hereinabove specified shall be due and payable on the first day of each month together with each monthly principal installment payment as described in paragraph 2.2 above, provided however, that interest accrued from the date hereof to the first day of the first full month following the date hereof shall be due and payable on such first day of such first full month. 2.4 THE NOTES. 2.4.1 THE TERM LOAN NOTE AND REVOLVING CREDIT NOTE. The Term Loan shall be evidenced by an installment note in the amount of the Term Loan and dated the date hereof, due and payable to the order of the Bank as herein and therein provided (the "Installment Note"). The Line of Credit shall be evidenced by a Revolving Credit Note of the Borrower dated the date hereof and payable to the order of the Bank as herein and therein set forth in the principal sum of the Line of Credit to cover the Line of Credit or so much thereof as shall be outstanding from time to time (the Revolving Credit Note"). The said principal sum together with all accrued and unpaid interest shall be due and payable in full ON DEMAND at the office of the Bank in Charlotte Amalie, St. Thomas, U.S. Virgin Islands, or at such other place as the holder may, from time to time, designate in writing. (The "Installment Note" and the "Revolving Credit Note" are collectively referred to hereinafter as the Notes"). 2.5 PURPOSE. The Loan shall be made by the Bank to enable the Borrower to refinance the following existing debts, to provide the Borrower with working capital and to pay the costs associated with the Loan: $3,600,000.00 - To repay outstanding debt owned to Banco Popular de Puerto Rico. This includes two (2)Lines of Credits, numbers 1145029-9007 and 1145029-9006 with outstanding balances of $1,980,000.00 and $400,000.00 respectively. Also included are three (3) Term Loans in the name of the Borrower and one (1) Term Loan in the name of Devcon International Corporation, the Guarantor of the Loan. The outstanding balances of loan numbers 1145029-9005, 1145029-9002, 1145029-9001 and 11442869002 are $16,676.00, $333,300-00, $600,000.00 and $255,554.00 respectively; 4 $1,800,000.00 - To repay existing debt owed to Barnett Bank of Broward County, N.A.; $ 100,000.00 - To repay outstanding debt owed to Barclay's Bank; $1,000,000.00 - An advised Line of Credit to be used for working capital; and $ 500,000.00 - to be used for working capital and costs associated with this transaction; The proceeds of the Loan may not be used for any other purpose without the prior written consent of the Bank. 3. SECURITY. Repayment of the Loan and the Borrower's obligations hereunder shall be secured pursuant to the terms of the following agreements satisfactory in form and substance to the Bank and its counsel (hereinafter collectively referred to as the "Security Instruments"): 3.1 FIRST PRIORITY MORTGAGE. A first priority mortgage, in the amount of the Loan, granting to the Bank a first priority lien over the following properties located in St. Croix, U.S. Virgin Islands (the St. Croix Properties"), in which Borrower has a fee simple interest: Plot No. 5 and Plot No. 6 Estate Springfield Matr. No. 11 Prince Quarter St. Croix, Virgin Islands as more fully described on PWD Drawing No. 2279 dated 12/14/67 and Reminder of Parcel No. 2 of Estate Springfield Prince Quarter St. Croix, Virgin Islands as shown on PWD Drawing No. 1915 dated 5/28/66 and Parcel No. 3 of Estate Springfield St. Croix, Virgin Islands as shown on PWD Drawing No. 968 dated 9/8/60 and Plot No. 303 Estate Grove Place St. Croix, Virgin Islands as shown on PWD Drawing No. 304-0, dated 5/4/60 and Plot No. 13 of Parcel No. 2 Estate Plessens Register No. 12a Prince Quarter St. Croix, Virgin Islands as shown on PWD No. 1390 revised 11/27/72 as revised November 27, 1972 5 and ] Plot No. 6 and Plot No. 6A of Estate Montpellier (subdivided from Parcel No. 3 Estate Montpellier) Matr. No. 12-B Prince Quarter St. Croix, Virgin Islands as shown on PWD Drawing No. 1390, revised 11/ 27/72 and A Charge, in the amount of the Loan, granted by Tortola Concrete Products Limited (the "Charger") to the Bank as Chargee granting the Bank a lien over the following property located in Tortola, British Virgin Islands, in which Charger has a fee simple interest: Mount Sage, Block 2434B, Parcel 2 3.2 FIRST PRIORITY LEASEHOLD MORTGAGES. A first priority leasehold mortgage, in the amount of the Loan (the "Mariendahl Leasehold Mortgage") granting to the Bank a first priority lien over the Borrower's leasehold interest in a Lease Agreement dated July 30, 1991 between Ross Properties, Inc., as lessor and the Borrower as lessee (the "Estate Mariendahl Lease") pursuant to which the Borrower possesses the property and improvements known as: Parcels No. 6 Estate Mariendahl Western Section No. 4 Red Hook Quarter St. Thomas, U.S. Virgin Islands and A first priority leasehold mortgage, in the amount of the Loan (the "Crown Bay Leasehold Mortgage") granting to the Bank a first priority lien over the Borrower's leasehold interest in a Lease Agreement dated December 29, 1992 between the Virgin Islands Port Authority, as lessor and the Borrower as lessee (the "Estate Crown Bay Lease") pursuant to which the Borrower possesses the property and improvements known as: Parcel No. 170-5 Crown Bay Landfill Subbase St. Thomas, U.S. Virgin Islands (the St. Croix properties described above along with the properties covered by the Mariendahl Leasehold Mortgage and the Crown Bay Leasehold Mortgage are collectively referred to hereinafter as the "Mortgaged Property"), together with valid consents from the respective lessors. 3.3 ASSIGNMENT OF LEASE AND ESTOPPEL CERTIFICATE. A valid assignment of each of the above referenced leases (the Assignment of Lease"), together with a valid consent thereto and estoppel certificate from the lessor of each such lease. 3.4 ASSIGNMENT OF CERTIFICATES OF DEPOSIT AND PLEDGE AGREEMENT. The Borrower shall have executed and delivered to the Bank (i) an Assignment of Certificate of Deposit No.00001626746-30131104514 and No. 00001626746-30131104515 both in the face amount of $226,929.53, and (ii) a Pledge Agreement, issued in the name of the Borrower and given to secure the Loan. 3.5 SECURITY AGREEMENT. The Borrower is to submit to the Bank a complete listing of the Borrower's assets and the lien position of each asset. The Borrower shall have executed and delivered to the Bank a Security Agreement and corresponding financing statement (Form UCC-1) satisfactory in form and substance 6 to the Bank and its counsel, granting to the Bank a perfected SECURITY INTEREST in all assets owned by the Borrower wherever located and however held including, but not limited to, all INVENTORY, MACHINERY, equipment, furniture, fixtures, accounts, accounts receivable, contracts, contract rights, intangibles, all other personal property and all accessions, products and proceeds of the foregoing. All personalty, acquired by the Borrower after the Closing of this Loan, and during the term of the Loan, for the operation of the Borrower's business, shall immediately thereupon be subject to the lien of the Security Agreement as additional collateral security for the Loan. The Borrower shall promptly notify the Bank of each such acquisition, including a description of the property acquired, the cost of such property and the quantity or amount acquired. The Borrower SHALL PROMPTLY thereafter, as the Bank requests, execute and deliver to the Bank any documents or instruments deemed necessary or convenient by the Bank or its counsel to perfect a valid lien on such property. 3.6 ASSIGNMENT OF NOTE RECEIVABLES. A valid Deed of Assignment respecting note receivables, contract rights and proceeds, including accrued interest thereon, due Guarantor Devcon International Corp. from the Government of Antigua and Barbuda. 3.7 FLOATING CHARGE AND DEBENTURE ON BRITISH VIRGIN ISLAND ASSETS. Tortola Concrete Products Limited, an affiliate of Borrower, shall execute appropriate and enforceable documents to confirm the Bank's floating charge and debenture on all of Borrower's assets and that of its affiliates in the British Virgin Islands. 3.8 UNCONDITIONAL AND UNLIMITED CORPORATE GUARANTY. The Bank shall have received the unconditional and unlimited guaranty of Devcon International Corp. (the "Guarantor") guaranteeing repayment of the Loan, the Borrower's obligations under this Agreement, the Notes and the Security Instruments securing the Notes. 4. CONDITIONS OF LENDING. The obligation of the Bank to make the Loan is subject to the following conditions precedent: 4.1 APPROVAL OF BANK COUNSEL. All legal matters incident to the transactions hereby contemplated shall be satisfactory to counsel for the Bank. 4.2 PROOF OF CORPORATE ACTION BY BORROWER AND GUARANTOR. The Bank shall have received certified copies of all corporate action taken by the Borrower and Guarantor to authorize the execution and delivery of this Agreement, the Notes the Security Instruments and the borrowing hereunder, and such other papers as the Bank shall reasonably request. 4.3 LOAN FEES. As its fees for both the Term Loan facility and the Line of Credit, the Bank shall receive from the Borrower a non-refundable origination fee in the amount of Seventy Thousand and 00/100 Dollars ($70,000.00) and an application fee of Three Hundred and 00/100 Dollars ($300.00). 4.4 GOVERNMENTAL LICENSES AND PERMITS. The Bank shall have been provided with copies of all licenses and permits necessary for the operation of the Borrower's business. 4.5 SUBORDINATION OF SHAREHOLDERS' LOANS. All shareholders shall have executed and delivered to the Bank a subordination agreement, satisfactory in form and substance to the Bank and its counsel, subordinating their shareholder loans in the amount of approximately $4.9 million outstanding to the Loan. 4.6 INSURANCE. The Bank shall have received evidence of insurance coverage for the full insurable value of all of the property to be pledged as security for the Loan naming Banco Popular de Puerto Rico as Mortgagee/Loss Payee. Said policy is to cover all risks of loss or damage to all properties, real and personal, by fire, earthquake, the hazards covered by extended coverage endorsements, and such 7 other insurable hazards as the Bank may require, including flood damage insurance if it is determined that the properties to be pledged as security for the Loan are in a federal flood hazard zone. Insurance coverage must be provided by a COMPANY WITH A current rating by A.M. Best & Co. of 3 or better. In the case the issuing company does not have a satisfactory rating, the policy must have a cut-through endorsement and the reinsuring company(s) must have a current rating by A.M. Best & Co. of B+ or better. 4.7 OPINION OF COUNSEL FOR THE BORROWER AND GUARANTOR. The Bank shall have received from counsel for the Borrower and the Guarantor a favorable opinion dated the same date hereof addressed to the Bank and satisfactory in scope and form to the Bank and its counsel, covering the following matters. (a) BORROWER. The Borrower is duly incorporated, validly existing and in good standing under the laws of Delaware and the U.S. Virgin Islands, has the legal capacity and authority to own real property and other property to the extent required to properly and adequately conduct its business and that no part of this transaction violates any restriction, term, condition or provision of the Borrower's Articles of Incorporation or Bylaws. (b) LOAN AGREEMENT. This loan agreement has been duly authorized, executed and delivered by the Borrower and constitutes A LEGAL, VALID and binding obligation as may be limited by bankruptcy, insolvency, moratorium, reorganization and similar laws generally affecting the rights of creditors and by principles of equity. (c) NOTES. The Notes have been duly authorized, executed and delivered by the Borrower and constitute legal, valid and binding instruments, enforceable in accordance with their TERMS, EXCEPT as may be limited by bankruptcy, insolvency, moratorium, reorganization and other laws generally affecting the rights of creditors and by principles of equity. (d) SECURITY INSTRUMENTS. The Security Instruments have been duly authorized, executed and delivered by the Borrower or the Guarantor, as the case may be, and constitute legal, valid and Guarantor. The Bank shall have received from counsel for the Borrower and the Guarantor a favorable opinion dated the same date hereof addressed to the Bank and satisfactory in scope and form to the Bank and its counsel, covering the following matters. (e) GUARANTY. The guaranty of the Guarantor has been duly executed and delivered by the Guarantor and constitutes a legal, valid and binding instrument, enforceable in accordance with its terms, except as may be limited by bankruptcy, insolvency, moratorium, reorganization and other laws generally affecting the rights of creditors and by principles of equity. (f) REMEDIES. The remedies contained within all the loan documents are effective under the laws of the U.S. Virgin Islands in order to expedite the collection of the Loan and/or foreclosure upon default under the terms of the Loan Documents. 4.8 TITLE INSURANCE. The Bank shall have received A COMMITMEnt for TITLE insurance issued by a title company satisfactory to the Bank, dated the date of this Agreement and satisfactory in substance and form to the Bank and its counsel, stating that the title to the Mortgaged Property or possession of the leasehold premises as the case may be, is vested in the Borrower, and insuring the interest of the Bank as holder of a first priority mortgage(s) and leasehold mortgage(s) on the Mortgaged property with no exceptions other than (i) a lien for real estate taxes not yet due and payable, and (ii) such other exceptions acceptable to the Bank and its counsel. 8 4.9 AS-BUILT SURVEY. The Bank shall have received two (2) copies of a current as-built survey of the Mortgaged Property together with an A.L.T.A. certification and Surveyor's Report, satisfactory in substance and form to the Bank and the title insurer, showing all easements, encroachments, rights-of-way, roads, alleyways, paths, and set-backs and such other matters as REVEALED by inspection and survey of the Mortgaged Property, and shall clearly indicate all monuments and other controls relied upon by the surveyors. All of the foregoing shall be sufficient to delete the standard survey exception in the commitment for title insurance provided for in Section 4.8. 4.10 APPRAISAL. The Bank shall have received an updated appraisal report indicating that the Mortgaged Property with improvements has a current fair market value satisfactory to the Bank. 4.11 REAL ESTATE TAXES. The Bank shall have received a Certificate of Real Property Tax Status from the Treasury Division, Department of Finance, showing that there are no taxes owed on the Mortgaged Property, together with copies of the paid receipts for the 1992, 1993, 1994 and 1995 real property taxes. 4.12 TAX CLAUSE. The Borrower shall have furnished or cause to be furnished, evidence to the effect that all taxes, assessments, and governmental charges lawfully levied and assessed against it and the Guarantor have been fully satisfied. 4.13 LANDLORD'S CONSENT TO FIRST PRIORITY LEASEHOLD MORTGAGE AND ESTOPPEL CERTIFICATE. The Bank shall have received a validly executed Consent to First Priority Leasehold Mortgage and Estoppel Certificate from the Borrower's landlords respecting each of the leasehold parcels described above and included within the Mortgaged Property, satisfactory in form and substance to the Bank and its counsel, consenting to the Borrower's execution and the recording of the First Priority Leasehold Mortgage and stating that the Borrower is not in default under the terms of its leasehold interests. 4.14 CONSENT TO ASSIGNMENT OF LEASE AND ESTOPPEL CERTIFICATE. The Bank shall have received a validly executed Consent to Assignment of Lease and Estoppel Certificate from the Borrower's landlord respecting each of the LEASEHOLD PARCELS described hereinabove in paragraph 3.2, in form and substance satisfactory to the Bank and its counsel, consenting to the Borrower's execution and the recording of the Assignment of Lease and stating that the Borrower is not in default under the to terms of its lease. 4.15 LEASE OF BUSINESS PREMISES. The Bank shall have been provided with a certified copy of each of the leases described above and any extensions or renewals thereof, which shall provide for a term with options to extend, for a period of not less than the life of this Loan. 4.16 ZONING. The Bank shall have received written evidence to the effect that the Mortgaged Property has been zoned for the purposes consistent with the uses contemplated beyond any possibility of appeal and to the effect that there is no pending proceeding either administrative, legislative or judicial, which would in any manner adversely affect the status of the zoning with respect to the Mortgaged Property or any part thereof. 4.17 OTHER DOCUMENTATION. The Bank shall have received from the Borrower such other items required to be provided by the Borrower or on its behalf as may be set forth on the Closing Agenda utilized by the Bank and the Borrower to close the Loan, but not otherwise specifically referred to herein. 5. AFFIRMATIVE COVENANTS. The Borrower agrees that so long as credit shall remain available hereunder and until payment in full of the Notes, unless the Bank shall otherwise consent in writing it will: 9 5.1 APPLICATION OF LOAN PROCEEDS. Apply the proceeds of the Loan solely for the specific purposes agreed to herein. 5.2 FURNISH FINANCIAL STATEMENTS. Furnish the Bank, or caused to be furnished annually to the Bank, (a) within ninety (90) days after the end of each fiscal year of the Borrower, in such form as is acceptable to the Bank, (i) the audited annual financial statements of the Borrower, prepared by independent certified public accountants acceptable to the Bank, (ii) the income tax returns of the Borrower and the Guarantor, (iii) the financial statements of the Guarantor, and (iv) the 10-K and quarterly 10-Q reports submitted by Borrower to the SEC, and (b) such further information regarding the business affairs and financial condition of the Borrowers at such times, in such form and in such manner, prepared by such persons as are acceptable to the Bank. The financial statements must reflect a financial net worth satisfactory to the Bank. 5.3 PAYMENT OF TAXES. Pay and discharge or cause to be paid and discharged (a) all taxes, assessments and governmental charges or liens imposed upon Borrower or upon any property belonging to Borrower, prior to the date on which penalties attach thereto, and (b) all lawful claims which, if unpaid, might become a lien or charge upon the property of the Borrower; provided, that the Borrower shall not be required to pay any such tax, assessment, charge, levy or claim the payment of which is being contested in good faith and by proper judicial or administrative proceedings. 5.4 REAL PROPERTY TAXES. Pay or caused to be paid all real property taxes on the Mortgaged Property and submit to the Bank evidence of such payments. 5.5 WORKERS' COMPENSATION. Pay or cause to be paid to the Commissioner of Finance workers' compensation premiums for all employees of the Borrower, and submit to the Bank upon payment evidence of said payments and insurance coverage; 5.6 INSPECTION AND MAINTENANCE. Allow the Bank or its duly authorized representatives to inspect the books, records, assets, property, and operations of the Borrower at any reasonable time on reasonable notice and maintain said books, records, assets, property and operations of the Borrower to the satisfaction of the Bank. "Reasonable notice" shall mean five (5) days for purposes of this paragraph. 5.7 NOTICE OF LITIGATION. Promptly give notice in writing to the Bank of all litigation and of all proceedings by or before any governmental regulatory agency, against or affecting the Borrower or the Guarantor, where the amount involved is in excess of $100,000.00 or which, if adversely determined, would otherwise have a material adverse effect on the financial condition or business of the Borrower or the Guarantors. 5.8 INSURANCE. (a) Maintain, or cause to be maintained, with a financially sound and reputable insurance company doing business in the U.S. Virgin Islands and acceptable to the Bank, public liability and indemnity insurance, satisfactory in form and substance to the Bank and its counsel, and in limits approved by the Bank, covering the Borrower against the risks of third party property damage and personal injury liability. (b) Maintain, or cause to be maintained, with a financially sound and reputable insurance company acceptable to the Bank, special multi-peril insurance coverage including fire and extended coverage, casualty, vandalism and malicious mischief insurance on all of the Borrower's property, real and personal, in such amounts as are acceptable to the Bank, but in no event less than the full replacement cost of all improvements, inventory, furniture, fixtures, machinery and equipment located in or on any of the Borrower's business premises. The foregoing insurance policies shall contain an endorsement, satisfactory to the 10 Bank and its counsel, providing for payment to the Bank as mortgagee/loss payee (as its interests may appear). (c) Maintain, or cause to be maintained, with a financially sound and reputable insurance company acceptable to the Bank, comprehensive property insurance over the Mortgaged Property with the Bank named as mortgagee/loss payee. (d) Insurance coverage must be provided by an insurance company with a current rating by A.M. Best & Co. of 3 or better and the foregoing policies shall also provide that they may not be canceled, or the amount(s) of coverage provided reduced, for any reasons until not less than the thirty (30) days written notice shall have been given to the Bank of the insurance company intention to cancel or reduce the amount(s) of coverage provided under such policies during which time the Borrower shall REPLACE said policies with new, substitute or successor policies to comply with the requirements of this Section. (e) If it is determined from the National Flood Insurance Report that the Borrower's business premises or the Mortgaged Property are located in designated flood prone areas, the Borrower shall maintain or cause to be maintained Federal Flood Insurance up to the maximum amount available covering such premises, and furnish the Bank with evidence of such insurance naming the Bank as mortgagee/loss payee. 5.9 ENVIRONMENTAL COMPLIANCE. Be and remain in compliance with the provisions of all federal, state, and local environmental, health, and safety laws, codes and ordinances, and all rules and regulations issued thereunder; notify the Bank immediately of any notice of a hazardous discharge or environmental complaint received from any governmental agency or any other party; notify the Bank immediately of any hazardous discharge from or affecting its premises; immediately contain and remove the same, in compliance with all applicable laws; promptly pay any fine or penalty assessed in connection therewith; and at the Bank's request, and at the Borrower's expense, provide a report of a qualified environmental engineer, satisfactory in scope, form, and content to the Bank, and such other and further assurances reasonably satisfactory to the Bank that the condition has been corrected. 5.10 DEPOSIT ACCOUNTS. Maintain or cause to be maintained all deposit accounts of the Borrower and the Guarantors with the Bank. 5.11 SHAREHOLDER LOANS. Subordinate shareholder debt of approximately $4.9 million outstanding, with a limit of $4.0 million with the provision that for every $200 increase in retained earnings the subordinated debt will reduce by $1.00 subject to the receipt of annual financial statements and 10-K report. 5.12 ACCOUNTS RECEIVABLE/INTERCOMPANY ADVANCES. Provide to the Bank quarterly aging of accounts receivable and intercompany advances. 5.13 CREDIT CARD TRANSACTIONS. Process all merchant VISA, Mastercard and Discover credit card business of the Borrower through the Bank. 5.14 MANAGEMENT COMPENSATION. Obtain the Bank's approval of the levels of compensation that the Borrower proposes to pay its directors, officers, managing partners, consultants and agents. 5.15 GUARANTOR'S COVENANTS. Devcon International Corp., the Guarantor of this Loan, agrees to the following special conditions on a consolidated basis, that it will not: (a) Permit its debt (which shall include the total of its liabilities, including short-term liabilities, deferred tax liabilities and all other non-current liabilities to exceed sixty percent (60.0%) of its adjusted net 11 worth (net worth reduced by intangible assets such as GOOD will, that have limited value in liquidation); or (b) incur or report a net loss during any fiscal year; or (c) permit current assets, at any one time to be less than one and one-half (1.50) times current liabilities; or (d) make any additional acquisition in excess of $500,000.00. 6. NEGATIVE COVENANTS. The Borrower agrees that so long as credit shall remain available hereunder and until payment in full of the Notes, and all other credit advanced by the Bank to the Borrower, without the prior written consent of the Bank, it will not: 6.1 LIMITATION OF LIENS. Mortgage, pledge, hypothecate, assign, transfer, suffer to exist, or voluntarily or involuntarily subject to any lien or encumbrance to secure any indebtedness, any of the property or assets of the Borrower, now owned or hereafter acquired: excluding, however, from the operation of this covenant, liens, mortgages or encumbrances in favor of the Bank. 6.2 LIMITATION ON INDEBTEDNESS. Create or incur any indebtedness or obligation for borrowed money or issue or sell any obligations of the Borrower, excluding, however, from the OPERATION of this covenant, the Loan hereunder or other loans made by the Bank and trade payables and other indebtedness incurred in the ordinary course of business. 6.3 CONTINGENT LIABILITIES. Assume, guarantee, endorse or otherwise become liable upon the obligations of any person, firm or corporation except by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business. 6.4 CONSOLIDATION OR MERGER. Merge into or consolidate with or into any corporation, partnership or other business entity. For the purposes of this Section 6.4, the acquisition by the Borrower of all or substantially all of the assets, together with the assumption of all or substantially all of the obligations and liabilities, of any corporation or other entity shall be deemed to be a consolidation of such corporation or other entity with the Borrower. 6.5 DISPOSITION OF ASSETS. Lend, sell, lease, transfer or otherwise dispose of any of its assets Other than obsolete or worn-out property not used or useful in its business), whether now owned or hereafter acquired, except in the ordinary and regular course of the Borrower's business. 6.6 DIVIDENDS. Declare or pay any dividend or authorize or make any other distribution on any shares of capital stock of the Borrower, whether now or hereafter outstanding. 6.7 COMPENSATION AGREEMENTS. Permit the individual or aggregate compensation (including salaries, BONUSES, COMMISSIONS and other forms of remuneration) paid to officers, directors, managing partners, agents, employees or consultants of the Borrower to exceed an amount satisfactory to the Bank and which is reasonable and appropriate in relation to work performed or services provided, and comparable to compensation paid by other companies of comparable size engaged in a similar business as the Borrower in St. Thomas, U.S. Virgin Islands. 6.8 MODIFICATIONS TO LEASE. Amend, assign or terminate its leases or sublet the leased property described in Section 3.2 hereof or enter into any new agreement for the occupancy of such property on terms not acceptable to the Bank. 12 6.9 LOANS, ADVANCES INVESTMENTS. Purchase or otherwise acquire any shares of stock or obligations of, or make or repay loans or advances to, or make investments in, any individual, firm or corporation, including, without limitation, any shareholder, director, officer, managing partner, agents or employee of the Borrower, or any other person or persons related to the Borrower in any way whatsoever. 6.10 BORROWER'S SHARES. Purchase, acquire, redeem, retire or issue, or make any commitment to purchase, acquire, redeem, retire or issue, any of the Borrower shares whether now or hereafter outstanding or consent to the transfer of any such shares. 6.11 CHANGE OF BUSINESS. Effect, cause, or permit any change from the business now conducted by the Borrower. 6.12 CAPITAL EXPENDITURES. Make any capital acquisitions in excess of $500,000.00 or other investments or expenditures or commitments for fixed or capital assets in any fiscal year in excess of the sum of amounts (i) reserved for depreciation for such year plus (ii) contributed by the shareholders for such purpose. 6.13 ISSUANCE OF STOCK OF BORROWER. Permit or consent to the issuance of any further capital stock of the Borrower or the sale of any treasury stock. 7. EXPENSES. The Borrower agrees to pay all reasonable expenses (including legal expenses and attorneys' fees and special counsel fees and disbursements associated with collateralizing this Loan in the jurisdiction where the collateral is located) payable in connection with the execution and delivery of this Agreement and of the Notes, and the Security Instruments herein referred to, as well as all expenses (including legal expenses and attorneys' fees) of every kind incidental to the collection or enforcement of this Agreement, the Notes and the other said Security Instruments. 8. EVENTS OF DEFAULT. If any one of the following "events of default" shall occur: 8.1 any representation or warranty made by the Borrower or the Guarantor to the Bank in the Notes, this Agreement or the Security Instruments referred to herein, including the Charge and Debenture or any other instruments executed in connection with the Loan proves to have been incorrect in any material respect as of the date of this Agreement or as of the date on which it is made, or any statement, certificate or data heretofore or hereafter furnished by the Borrower or Guarantor to the Bank in connection with the application for this Loan or in the administration of this Agreement proves to have been incorrect in any material respect as of the date when the facts therein set forth were stated or certified; or 8.2 default by the Borrower in the performance of any covenant or agreement herein, or in the Security Instruments referred to herein, which shall remain unremedied for fifteen (15) days after written notice thereof shall have been given by the Bank: or 8.3 default by the Guarantor in the performance of any covenant or agreement in the Guaranty which shall remain unremedied for fifteen (15) days after written notice thereof shall have been given by the Bank; or 8.4 default in the due payment of the principal of the Notes, or default in the payment of interest on the Notes, or of any other indebtedness, which term shall be construed to mean any obligation or liability for borrowed money, owing by the Borrower to the Bank now existing or hereafter incurred, when the same shall be due; or 13 8.5 a judgment for the payment of money shall be rendered against the Borrower or the Guarantor and any such judgment shall remain unsatisfied and in effect for any period of 60 consecutive days without a stay of execution; or 8.6 the Borrower or Guarantor shall (i) apply for or consent to the appointment of a receiver, trustee or liquidator of the Borrower or Guarantor, or of all or a substantial part of the assets of the Borrower or of the Guarantor, (ii) be unable, or admit in writing, the inability to pay debts as they mature, (iii) make a general assignment for the benefit of creditors; (iv) be adjudicated a bankrupt or insolvent, or (v) file a voluntary petition in bankruptcy or a petition or an answer seeking reorganization or an arrangement with creditors or to take advantage of any insolvency law or an answer admitting the material allegations of a petition filed against the Borrower or the Guarantor in any bankruptcy, reorganization or insolvency law or an answer admitting the material allegations of a petition filed against the Borrower or the Guarantor in any bankruptcy proceeding, reorganization or insolvency proceeding, or corporate action shall be taken by the Borrower or the Guarantor for the purpose of effecting any of the foregoing; or 8.7 an order, judgment or decree shall be entered, without the application, approval or consent of the Borrower, by any court of competent jurisdiction, approving a petition seeking reorganization of the Borrower or appointing a receiver, trustee or liquidator of the Borrower or of all or a substantial part of the assets of the Borrower, and such order, judgment or decree shall continue unstayed and in effect for any period of sixty (60) consecutive days; or 8.8 the financial condition of the Borrower or the Guarantor, or the physical condition of the Mortgaged Property, shall adversely change in any material respect from the condition of any of the foregoing represented in the information and documentation submitted by the Borrower in support of its application for the Loan; 8.9 the Borrower shall default under either the Estate Mariendahl Lease or the Estate Crown Bay Lease as described hereinabove and any cure period under any such lease with respect to such default shall have expired; THEN the Bank may by written notice to the Borrower (i) immediately terminate the commitments of the Bank hereunder, and (ii) declare the principal of and interest accrued on the Notes, and all other liabilities of the Borrower to the Bank to be forthwith due and payable, whereupon the same shall become forthwith due and payable. 9 ENTIRE AGREEMENT: NO WAIVER EXCEPT AS INDICATED. The Borrower understands and agrees that this Loan Agreement, along with Notes and Security Instruments executed simultaneously herewith, constitute the entire agreement of the parties with respect to the subject matter hereof, and supersede any and all prior agreements, written or oral, among the parties concerning the subject matter hereof (except that the Commitment Letter dated June 20, 1996 and executed by the Borrower and Guarantor on June 28, 1996, the terms and provisions of which are incorporated herein by this reference, shall survive the closing of the Loan as set forth in Paragraph 17 of said Commitment Letter). 10. AMENDMENT TO LOAN AGREEMENT. This Loan Agreement may not be changed orally, but only by an agreement in writing signed by both parties to this Loan Agreement. 11. NO WAIVER: REMEDIES CUMULATIVE. No failure to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and are not exclusive of any remedies provided by law. 14 12. WAIVER OF RIGHT TO TRIAL BY JURY. THE BANK AND THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER OF TEEM MAY HAVE TO A TRIAL BY JURY WITH RESPECT OF ANY LITIGATION BASED ON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT AND THE LOAN DOCUMENTS, AND/OR ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION THEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS BY ANY PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE BANK'S PERFORMANCE UNDER SAID AGREEMENT. FURTHER, THE BORROWER HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF THE BANK, NOR THE BANK'S COUNSEL, HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE BANK COULD NOT, IN THE EVENT OF SUCH LITIGATION, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION. NO REPRESENTATIVE OR AGENT OF THE BANK, NOR THE BANK'S COUNSEL HAS THE AUTHORITY TO WAIVE, CONDITION, OR MODIFY THIS PROVISION. 13. DEFINITIONS. 13.1 Any accounting term used herein shall, unless the context otherwise specifies, be defined as most commonly defined in accordance with generally accepted accounting principles. 13.2 "Indebtedness" shall mean any obligation or liability for borrowed money, howsoever evidenced, or any obligation represented by a promissory note. 14. CHANGE OF PARTIES. The Borrower will not assign this Agreement or any of the monies due hereunder or convey or further encumber its assets or any part thereof without the prior written consent of the Bank. In the event of any such approved assignment, conveyance or encumbrance and if the Bank shall elect to continue to make the Loan hereunder or any part thereof to the Borrower or its successor or assignee, all sums so advanced shall be deemed advances under this Agreement and not in modification hereof. In the event the Borrower shall part with or in any manner be deprived of its title to its assets or any part thereof in violation of this section, the Bank may, at its option, continue to make advances under this Agreement and not in modification hereof. If the Borrower is in default under this Agreement, or as a part of the sale, consolidation, liquidation or merger of the Bank, the Bank may assign this Agreement and the Notes and cause the assignee to make any advances not made at the time of the assignment, in which event all of the terms hereof shall continue to apply to the Loan, the Notes, the Security Instruments and any other documents entered into pursuant to the Loan. All sums so advanced shall be deemed advances under this Agreement and not in modification hereof. 15. NOTE. Any notice required herein shall be deemed to have been properly served if sent by United States registered mail, postage prepaid, addressed to the parties hereto at the addresses set forth above, or at such other address as shall later be designated in writing. 15 16. CONSTRUCTION. This Agreement is being executed in and shall be construed in accordance with the laws of the United States Virgin Islands. IN WITNESS WHEREOF, the parties hereto have set their hands and seals the day and year first above written. V.I. CEMENT AND BUILDING PRODUCTS,INC. By: /S/ WALTER B. BARRETT ----------------------------------- Vice President (SEAL) Attest: /S/ RONALD L. MOOREHEAD ----------------------------------- Vice President BANCO POPULAR DE PUERTO RICO By:/S/ STANLEY OLIVE ----------------------------------- Vice President 16 EX-10.32 6 EXHIBIT 10.32 V.I. Cement and Building Products, Inc. Page 1 INSTALLMENT NOTE $6,000,000.00 St. Thomas, U.S.V.I. November 12,, 1996 FOR VALUE RECEIVED, V.I. CEMENT AND BUILDING PRODUCTS, INC., a Delaware corporation qualified to do business in the U.S. Virgin Islands (the "undersigned"), promises to pay to BANCO POPULAR de PUERTO RICO (the "Bank"), or ORDER, the principal sum of SIX MILLION DOLLARS ($6,000,000.00), lawful money of the United States of America, pursuant to the terms of the Loan Agreement of even date herewith between the undersigned and the Bank (the "Loan Agreement") with interest from the date hereof at a rate per annum equal to one percent (1%) above the prime rate as it varies (any change in interest resulting from a change in the prime rate is to be effective at the beginning of the day on which each such change in the prime rate is announced), calculated on a three hundred sixty (360) day basis. The term "prime rate" as used herein means that rate of interest from time to time announced by The Chase Manhattan Bank, N.A. at its principal offices in New York, New York as its commercial loan prime rate. The said principal shall be payable at the office of the Bank in St. Thomas, U.S. Virgin Islands, or at such other place as the holder may, from time to time, designate in writing, in seventy-two (72) consecutive monthly installments commencing on the first day of the first full month following the date hereof and continuing on the first day of each subsequent month, as follows: (i) seventy-one consecutive monthly principal installments of EIGHTY-THREE THOUSAND THREE HUNDRED THIRTY-FOUR AND 00/100 DOLLARS ($83,334.00); and (ii) a seventy-second (72nd), final installment of EIGHTY THREE THOUSAND TWO HUNDRED SIXTY-EIGHT AND 00/100 DOLLARS ($83,268.00) together with all interest accrued but unpaid to the date of said final payment. Interest accrued on the principal sum at the rate hereinabove specified shall be due and payable with each monthly installment of principal. All installment payments shall be applied first toward late charges, if any, second to interest accrued on this Note and then toward the outstanding principal balance. AND IT IS HEREBY EXPRESSLY AGREED that the entire principal sum from time to time outstanding hereunder and all accrued and unpaid interest thereon shall become due and payable, at the option of the Bank or the Note holder, in the event of a default in the payment of any sum for ten (10) days after it is due hereunder, and any monthly payment not received by the Bank or the Note holder within ten (10) days after the payment is due shall be assessed a late charge of five percent (5%) of the payment. This Note may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of any change, waiver, modification or discharge is sought. In case recourse to the courts by the holder of this Note becomes necessary in order to collect the whole or any unpaid part thereof together with all accrued interest thereon, the undersigned agrees to pay any and all court expenses, disbursements, and attorneys' fees that may be incurred. The undersigned expressly authorizes and empowers the Bank, at its option, at any time, to appropriate and to apply to the payment of this Note, and any other obligation or obligations now existing or hereafter arising of the undersigned to the Bank, any and all monies now or hereafter in the hands of the Bank on deposit or otherwise to the credit of or belonging to the undersigned. Presentment for acceptance or payment, notice of dishonor, protest and notice of protest are hereby waived. This Note is being issued pursuant to the Loan Agreement and is secured by the Security Instruments referred to therein, and any default by the undersigned under the Loan Agreement or any of the Security Instruments shall constitute a default under this Note. This Note may be prepaid at any time, and from time to time, in whole or in part, without any premium or penalty therefore provided, however, that all such prepayments shall be applied first toward late charges, if any, second to interest accrued on this Note, and then toward installments of principal due, in the inverse order of their maturity. Executed as a sealed instrument as of the date set forth above. V.I. CEMENT AND BUILDING PRODUCTS, INC., a Delaware corporation By: /S/ WALTER B. BARRETT, VICE PRESIDENT -------------------------------------- (SEAL) Attest: /S/ RONALD L. MOOREHEAD, VICE PRESIDENT --------------------------------------- EX-10.33 7 EXHIBIT 10.33 V.I. Cement and Building Products, Inc. Page 1 PROMISSORY NOTE $1,000,000.00 St. Thomas, U.S.V.I. November 12, 1996 FOR VALUE RECEIVED, V.I. CEMENT AND BUILDING PRODUCTS, INC., a Delaware corporation qualified to do business in the U. S. Virgin Islands (the "undersigned"), promises to pay to BANCO POPULAR DE PUERTO RICO (the "Bank"), or ORDER, the principal sum of ONE MILLION DOLLARS ($1,000,000.00), lawful money of the United States of America, or so much thereof as may be advanced or upon repayment readvanced by the Bank from time to time after the date hereof pursuant to the terms of the Loan Agreement of even date herewith between the undersigned and the Bank (the "Loan Agreement"), with interest from the date drawn at a rate per annum equal to one percent (1%) above the prime rate as it varies (any change in interest resulting from a change in the prime rate is to be effective at the beginning of the day on which each such change in the prime rate is announced, calculated on a three hundred sixty (360) day basis. The term "prime rate" as used herein means that rate of interest from time to time announced by The Chase Manhattan Bank, N.A. at its principal offices in New York, New York as its commercial loan prime rate. Interest accrued on the principal sum from time to time outstanding at the rate hereinabove set forth shall be payable monthly commencing on the first day of the month following the date of the first draw hereunder and continuing on the same day each month until the entire principal sum and all accrued interest is fully paid. The said principal sum together with all accrued and unpaid interest shall be payable in full ON DEMAND twelve (12) months from the date hereof at the office of the Bank in Charlotte Amalie, St. Thomas, U.S. Virgin Islands, or at such other place as the holder may, from time to time, designate in writing. The line of credit evidenced hereby is a revolving credit in the aggregate maximum principal sum of ONE MILLION DOLLARS ($1,000,000.00), and is subject to annual review and annual reapproval by the Bank. Accordingly, the undersigned may, at any time, and periodically from time to time, borrow, repay and reborrow hereunder, on a revolving basis, in accordance with the terms and provisions of the Loan Agreement; provided, however, that for a period of thirty (30) consecutive days during each calendar year hereafter there shall be no revolving credit outstanding under this Note. AND IT IS HEREBY EXPRESSLY AGREED that the entire principal sum from time to time outstanding hereunder and all accrued and unpaid interest thereon shall become due and payable, at the option of the Bank or the Note holder, in the event of a default in the payment of any sum for ten (10) days after it is due hereunder, and any monthly payment not received by the Bank or the Note holder within ten (10) days after the payment is due shall be assessed a late charge of five percent (5%) of the payment. This Note may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of any change, waiver, modification or discharge is sought. In case recourse to the courts by the holder of this Note becomes necessary in order to collect the whole or any unpaid part thereof together with all accrued interest thereon, the undersigned agrees to pay any and all court expenses, disbursements, and attorneys' fees that may be incurred. The undersigned expressly authorizes and empowers the Bank, at its option, at any time, to appropriate and to apply to the payment of this Note, and any other obligation or obligations now existing or hereafter arising of the undersigned to the Bank, any and all monies now or hereafter in the hands of the Bank on deposit or otherwise to the credit of or belonging to the undersigned. Presentment for acceptance or payment, notice of dishonor, protest and notice of protest are hereby waived. This Note is being issued pursuant to the Loan Agreement and is secured by the Security Instruments referred to therein, and any default by the undersigned under the Loan Agreement or any of the Security Instruments shall constitute a default under this Note. This Note may be prepaid at any time, and from time to time, in whole or in part, without any premium or penalty therefore provided, however, that all such prepayments shall be applied first toward interest accrued on this Note, and then toward the outstanding principal balance. Executed as a sealed instrument as of the date set forth above. V.I. CEMENT AND BUILDING PRODUCTS INC., a Delaware corporation /S/ WALTER B. BARRETT, VICE PRESIDENT -------------------------------------- (SEAL) ATTEST: /S/ RONALD L. MOOREHEAD, VICE PRESIDENT ----------------------------------------- EX-10.34 8 EXHIBIT 10.34 Faber Shipping Aps The Baltic and International Maritime Copenhagen Conference Uniform Time-Charter (Box Layout 1974) Code Name: "BALTIME 1939" - ------------------------------------------------------------------------------- 2. Place and date Copenhagen, 28th Oktober 1996 - ------------------------------------------------------------------------------- 3. OWNERS/PLACE OF BUSINESS 4. CHARTERS/PLACE OF BUSINESS Kristian Gerhard Jebsen Caribbean Cement Carriers Lts c/o Skibsrederi A/S Devcon International Corp. Folke Bernadottesvei 38 1350 E. Newport Center Drive S201 Fyllingsdalen 5033 Bergen Deerfield Beach, FL 33442 Norge USA - ------------------------------------------------------------------------------- 5. VESSEL'S NAME 6. GRT/NRT M/V "GALIZANO" TBR 387/1866 - ------------------------------------------------------------------------------- 7. Class 8. Indicated horse power 100A1 LMC (UMS) 4400 BHP - ------------------------------------------------------------------------------- 9. Total tons d.w. (abt)on Board 10. Cubic feet grain/bale capacity of Trade summer freeboard 6750 Cbm 6174 mts on 6,782 m draft - ------------------------------------------------------------------------------- 11.Permanent bunkers (abt.) 340 mts FO, 66 mts GO - ------------------------------------------------------------------------------- 12. Speed capability in knots (abt.) on a consumption in tons (abt.) of 11,5 knots on 8,5 mts FO (C1 29) - ------------------------------------------------------------------------------- 13.Present position Caribbean Sea - ------------------------------------------------------------------------------- 14.Period of hire (Cl.1) 4 Yrs T/C with 4x1 Yr Further 15. Port of delivery (Cl.1) T/C in Chopt decl. within 6 See C1 54 mos from expiration of prev. _________________________________ period and with 30 days mo1 16. Time of delivery (C1.1) on any final period See C1 55 - ------------------------------------------------------------------------------- 17.(a) Trade limits (C1.2) See C1 27 - ------------------------------------------------------------------------------- (b) Cargo exclusions specially agreed See C1 27 - ------------------------------------------------------------------------------- 18.Bunkers on re-delivery (state min. and max quantity) (C1.5) Same as on delivery, but always sufficient to reach main bunkering port (Prices both ends FO: USDls 100, GO: USDls 185) - ------------------------------------------------------------------------------- 19.Charter hire (C1.6) 20. Hire payment (state currenty, See C1 26 method and place of payment; also beneficiary and bank account (C1.6) See C1 26 - ------------------------------------------------------------------------------- 21. Place or range of re-delivery 22. War (only to be filled in in (C1.7) Section C agreed) (c1.21) 1 SO/SB in Charterer's option Within Caribbean, ATDNSHINC - ------------------------------------------------------------------------------- 23.Cancelling date (Cl.25) 24. Place of arbitration (only to December 1996 31st filled if place other than London agreed) (C1.23) - ------------------------------------------------------------------------------- 25.Brokerage commission and to 26. Numbers of additional clauses and to whom payable (C1.25) covering special provisions, 1,25% to Broker in Box 1 if agreed 26-68 It is mutually agreed that this Contract shall be performed subject to the conditions contained in this Charter which shall include Part I as well as Part II. In the event of a conflict of conditions, the provisions of Part I shall prevail over those of Part II to the extent of such conflict. Signature (Owners) Signature (Charterers) /S/ RICHARD L. HORNSBY ----------------------------- Second Original Rider to MV GALIZANO (tbr) charterparty dated 28th November,1996 Cl 26 Payment United States Dollars 5,700 for the first 12 months, United States Dollars 5,800 for the second 12 months, United States Dollars 5,900 for the third 12 months, United States Dollars 6,135 for the forth 12 months, United States Dollars 6,335 for the first optional 12 months, United States Dollars 6,535 for the second optional 12 months, United States Dollars 6,735 for the third optional 12 months, United States Dollars 6,935 for the forth optional 12 months, per day pro rata, including overtime of crew and officers, and luboil. Above daily hire rates to be increased by US $ 68 per day as to compensate for owners cost for extra maintenance due to purchase of low grade of fuel (RMF 25) presently available in the trading area. Payable monthly every 30 days in advance, in free transferable currency. Owners bankers: Den Norske Bank, Torgalm 2, 5014 Bergen Acct no 5201.04.92882 In favour of: KGJS Cement c/o Kristian Gerhard Jebsen Skibsrederi AS To offset errors Owners are to give Charterers two banking days notice the failure before having the power to exercise their right under clause 6, in this case a telex from Charterers's bank confirming irrevocable hire payment directly to the owners to be considered as proper hire payment. Cl 27 Trading limits: Trading bulk cement only. Via safe ports, berths, anchorages always afloat within IWL with harmless bulk cement cargoes. Should the vessel, upon direct request by Charterers enter any port, where tide may cause the vessel to touch bottom, and should the vessel nonetheless touch bottom due to this cause, while in such port or berth, then the Charterers shall indemnify Owners for direct related costs of such repairs which affects the vessel's class certificates and the vessel's painting system. Such repairs to be effected simultaneous with regular docking, unless if requested earlier by Class Society, in which latter case Vessel shall remain on hire. Since the vessel in performing her service hereunder incurs the risk of touching bottom at ports/places of loading and discharging, the Master is to report each such event forthwith to Owners and Charterers. A joint underwater/diver inspection to take place about every six months to ascertain the extent of any damages if grounding/touching bottom has been so reported - unless sooner mutually called for by circumstances and/or Class. Vessel may be used for transport of empty paperbags as deck cargo against Bill of Lading. Cl 28 Off hire: When the vessel is off hire nothing whatsoever to be paid by the charterers. Should the vessel go off hire during the currency of this charter, Charterers to have the option of adding any such time to the charter period. Such option to be declared no later than 14 days prior to expiry of CP, for offhire up to that date. Owners to be allowed 12 hours free time per 30 days, counting pro-rata. 1 Cl 29 Vessel's specifications. Name "mv"GALIZANO" Dwt /draft :6,174 dwt on 6,782 m summer draft fully loaded Built :Sept 1981 at Astilleros Construcciones S.A. Vigo Spain H.no 254 Dimensions :106,81/97,16x 15,83x8,72 m Class :Lloyds Register +100 A1 Cement-Carrier LMC - (UMS) Flag :Cayman Island Tonnage :3875/1866 Grt/Nrt Holds :4 x 2 Holds (1480+1755+1755+1759) ttl 6750 Cbm, abt 5700 Mts bulk cement in holds Main Engine :Deutz Diesel RBV 12M 350 - 4400 Bhp Generators :3 x 400 KW 440V 60Hz AC, Caterpillar Engines Speed/Cons :11,5 knots on 8,5 ts IFO 180 + 1,6 ts gasoil Tanks :340 mts FO and 66 mts Gasoil - 1790 mts Ballast water Misc. :275 KW bowthruster Loading/Discharging Gatz - Fuller type Loading :Pneumatic at 600 mts/hr via 2 connections at port and starboard 10-12" pipes, or Mechanical (gravity) at 750 Mts/hr via 2 inlets at midship and starboard side - Flange midship 534 mm and starboard 691 mm. Loading con. :0,75 Mts gasoil per day Discharging :Pneumatic at approx 220 mts/hr via 2 connections at port and starboard with 100 m horizontal and 30 m vertical distance in 2 x 10" pipes, with max 4 pieces of 90 degr bends, or Mechanical at approx 250 mts/hr at port and starboard via screw and airslide. Discharg. con. :4,5 mts gasoil per day All details about and without guarantee Cl 30 Stevedore damage clause Any damage caused by stevedore during the currency of this charter party shall be reported by the master to the Charterers and to their agents, in writing, within 48 hours of the occurance or as soon as possible thereafter, but latest when the damage should have been discovered by the exercise of due diligence. The master shall use his best efforts to obtain written acknowledgement by responsible parties causing damage unless damage should have been made good in the meantime. Stevedores damages in full affecting seaworthiness or the proper working of the vessel and/or her equipment, shall be repaired without delay to the vessel after each occurrence in the charterer's time and shall be paid for in full by Charterers, and vessel to remain on-hire for such period. Other repairs shall be done at the same time, but if this is not possible, same shall be repaired whilst vessel in drydock, in the Owners' time, provided this does not interfere with the Owners' repair work, or by vessel's crew at the Owners' conveniency. All cost of such repairs shall be for the Charterers' account. Any time spent in repairing stevedores damages shall be for Charterers account. The Charterer shall pay for stevedores damages whether or not payment has been made by stevedores to the Charterers. CL 31 The vessel to supply power for working winches/cranes as on board, day and night, and also to supply lights for night work as on board. 2 CL 32 The Owners to provide crew required for the discharge operations day/night free of expenses to the Charterers. It is agreed that the handling and connection of vessel's hoses shall be effected by the crew (if permitted by shore regulations) but the last connection between vessel's hoses and receivers' installation on quayside shall be effected by the receivers. If further men are required, or if the stevedores refuse, or are not permitted to work with the crew, the Charterers to provide and pay for other men. CL 33 P and I Bunkering clause, New Jason clause, Both to blame collision clause and General clause paramount to be considered incorporated in the charter party and to apply. CL 34 Deratisation valid certificates to be on board, otherwise detention to be for Owners' account. CL 35 If the vessel is delayed by strike of officers and/or crew, or due to delay or deficiency of officers and/or crew, no hire to be paid for the time hereby lost. CL 36 It is understood that Buyers will dock, repair and upgrade the vessel within aprox. 3 months after delivery. It is Buyers intention to undertake such work at a European yard and offhire estimated to be approx. 2 months. Buyers to cooperate with Charterers to schedule the offhire period best possible, to enable Charterers to minimize logistic problems, however view Special Survey 1/97, vessel to be in drydock within due date. L 37 If the vessel is arrested, boycotted or in any way detained because of matters of Owners' or crew's concern, including troubles with unions or similar institutions, no hire is due for the time lost thereby. CL 38 The Charterers are not responsible for smuggling by officers and crew. All detention and expenses incurring therefrom to be for the Owners' account, and time lost shall be deducted from the hire. CL 39 The vessel is steaming about 11,5 knots under good weather conditions up to beaufort 4 scale included, if the speed be reduced by defect in or breakdown of any part of her hull, machinery or equipment, the time so lost and the cost of any fuel oil consumed in consequence thereof, and all extra expenses shall be for Owners' account. In case vessel will not perform mentioned speed under mentioned conditions, the Charterers after agreement of the Owners to deduct proportional hire. The bunker consumption which is described to be about 8,5 ts IFO 180 and 1,6 Ts Gasoil based on 11,5 knots service speed, every 24 hours at sea. Port consumption about 1,6 ts gasoil, 0,75 ts gasoil for loading and 4,5 ts gasoil for discharging., all 24 hours. If vessel consumes bunkers in addition to the above, charterers after the agreement of the owners to deduct same amount. The figures in this clause as per received/quoted by Sellers during negotiations and will be reevaluated at a later stage latest after 2 months hire in Owners option It is understood that the interpretation of the word "about" is "5 pct more or less" CL 40 The vessel to be manned with qualified master, officers, engineers and crew in order to ensure the vessel operates satisfactory. If the Charterers shall have reason to be dissatisfied with the conduct of the Captain, Officers or Engineers, the Owners shall on receiving particulars of the complaint, investigate the same and, if necessary or if Masters or Crew's performance not improves, make a change in the appointments Master, chief officers must be able to speak and read english language. CL 41 At loading and discharging ports, any time lost by the vessel for the reasons of not all being on board when the vessel is ready to sail or for crews strike, to be for the Owners account. CL 42 The Charterers shall have the permission to appoint a supercargo who shall accompany the vessel at his own risk, and see that voyage is 3 persecuted with the utmost despatch. He is to be furnished with free accommodation and same fare as provided for at the Captain's table. The charterers paying at the rate of US dls 10,per day of his victualling. CL 43 The vessel to be equipped with a wireless installation. Vessel to carry a qualified operator, who may be one of the officers or the captain. Vessel to listen as a rule at least once every watch period to her radio station. This rule must be complied with, in particularly if the vessel is at sea and master has not received any instructions about forthcoming employment of the vessel, or port of loading or discharging as the case may be. Charterers to pay Owners US Dls 200,- per month in lieu of cost of advising vessel's ETA. Master to telex/telefax ETA to Charterers and Receivers on departure from loading port and Charterers and Agents on departure from discharging port and will only be required to update that information if vessel's ETA alters by more than two hours. CL 44 It is expressly understood that pilot, canal steersmen, boatage and tug assistance will only be used by Master when customary and advisable, but always for Masters final decision.(see part 11 Cl 4) It is also expressly understood that customary assistance of vessel's crew includes work at any time day, night, free of charge to the timecharterers as outlines here below: (it is understood as on board) -Raising/lowering of derricks/cranes in preparing for loading and discharging. -Opening/closing of holds (or other means) in preparing for loading/discharging. -Driving/maintenance care of winches/cranes and power when required for preparing loading/discharging. Supervision of loading and stowage of the cargo thoroughly to secure best utilization of the ship and protection of the cargo in accordance with good seamanship. -Connecting/disconnecting pipes for loading and/or discharging in order to commence cargo operations immediately on arrival at berth or place, provided permitted by local regulations. If Charterers require holds to be swept by crew, Charterers will pay US dls 500,per hold. CL 45 Owners guarantee that the vessel is entered and shall remain entered for the duration of this charter in a recognized Protection and Indemnity Association. The Charterers for all the period of timecharter must be covered by a first class charterers liability, which name to be given. CL 46 The fuel oil on board the vessel on delivery is the property of the Sellers, and will be taken over by the Charterers, without any cost to Buyers (new Owners) CL 47 Charters agree to have their agent attend, if required by owners, all owners' matter. Owners in such case to refund agent outlays and to pay them customary agency fee for the service rendered. CL 48 Lubricating oil, grease, drinking water to be for Owners' account. CL 49 Charterers to give owners notice of redelivery as per part 2 line 119. CL 50 While the surveyor is taking draft readings and/or tank soundings in principle, master is not to take on, or pump ballast at load and discharge ports, and vessel is not to take on, release or switch from one tank or other compartments to another any ballast, fresh water or fuel-/gasoil provided will not be necessary for technical reason and/or safety of the vessel. Vessel to furnish a certified calibration scale for all tanks including plimsoller marks amidship and draft marks on port and starboard sides bow and stem to be clearly cut and marked on shell plating. Vessel to furnish capacity plan, displacement scale and deadweight scale and same to be certified by the Master as to correctness at time of loading. However, the shipmaster, although appointed by the shipowners, shall be under the orders and directions 4 of the Charterers as regards employment and agency; and Charterers are to load, stow and trim the cargo at their expenses, under the supervision of the shipmaster, who is to sign the bill(s) of lading, as presented, in conformity with mate's or tally clerk's receipts. CL 51 This fixture is to be kept strictly private and very confidential and not to be disclosed to any third party. CL 52 Charterers to copy Owners with full set of instruction for each and every voyage performed under this charterparty. CL 53 It is understood and agreed that there shall be held a joint on-hire and off-hire survey, by an independent surveyor, cost of same to be shared 50/50 between the Owners and the Charterers. Time for on-hire and off-hire to count. On-hire survey to be held after completion of drydock at or as close as possible to the docking yard in Owners option, and off-hire survey to be held at last discharge port. CL 54 Port of delivery: One safe port and berth in Caribbean on back to back terms with MOA dated 28th Oktober 1996 CL 55 Time of delivery: 1st Nov -31st Dec 1996 on back to back terms to coincide with MOA dated 28th October 1996. Present Owners to notify Buyers of the intended delivery through 3025-20 days approx. delivery notices included named port plus 15-10-8-5-4-3-2-1 definite delivery notices. Sellers to have the vessel ready for sailing/take over about 5th-10th December 1996 Both parties to do their utmost to meet this required date from buyers enable coordinate with intended drydocking in Europe and avoid possible delays due to holidays coming up at the end of the year. CL 56 Owners have the option to change vessel's flag/name/ownership, however this charterparty to be maintained until end of same, and Owners to remain responsible towards Charterers for the fulfillment of this charterparty. CL 57 NIL CL 58 Any cargo claim to be settled in accordance to NYPE Interclub Agreement amended 1984 CL 59 Basis war risk insurance to be for Owners account, any extra war risk insurance and/or crew war bonus payable due to vessel' trading to be for Charterers account. CL 60 This charterparty is to be construed and governed by in accordance with English Law. CL 61 Delivery /redelivery times shall both be calculated on the basis of local time. CL 62 Vessel's holds on delivery to be suitable for carrying cement in bulk, vessel's holds on redelivery to be in same condition as on delivery, to masters satisfaction, charterers option to redeliver unclean paying US dls 4000,- in lieu of hold cleaning. CL 63 Any extra insurance both on cargoes/vessel owing vessel's age, flag, class or ownership or nationality to be for Charterers account, except for reason of change in flag/name/Ownership as per Cl 56. CL 64 Master to sign bills of lading stipulating, "freight payable as per contract", however Charterers to hold Owners harmless for any consequences therefrom. CL 65 Vessel not to trade in ice. CL 66 In the event of outbreak of war (whether there be a declaration of war or not) between any two or more of the following countries which directly effect the performance of this charterparty: United States of 5 America, UK, France, Norway, Greece, Italy, C.l.S., PRC, Canada, Japan, or in the event of the nation under whose flag the vessel sails becoming involved in war (whether there be a declaration of war or not, the owners may cancel this charter. CL 67 Owners have the right to transfer their interest in this CP as a result of any sale of the vessel, but owners to remain responsible for the fulfillment of this charterparty. CL 68 Bunker clause: Charterers have informed that due to continuous supply problems, the vessel presently is running on RMF 25 but Charterers to do their best efforts to secure the fuel type, for delivery within vessel's trading pattern, as per following specification: (RME 25) IFO 180 cst at 50 C with max density of 0.991 at 15 C. Flashpoint not below 60 C and vanadium max 200 ppm. Cleanliness and stability, dry sludge by Shell hot filtration test: before/after treatment max 0.05%. Once the Charterers have established the continuous supply of fuel (RME 25), the extra hirepayment of US $ 68 per day, as per clause 26 to be deleted. Should the above type of fuel (RME 25) not be available or not be receivable for any practical and economical reasons, taking Vessel's logistic etc into consideration, then Charterers have the right to use type RMF 25, and pay the extra payment of US $ 68 per day as per Cl 26. Charterers always to cooperate closely with Owners to enable vessel to be supplied with bunkers within charterparty specification or as close to as possible. Fuel supplied must be blended in shoretanks, no barge blending permitted. Gasoil supplied for aux engines to be ISO 8217 class DMA except density at 15C which not to exceed 0.890. Cl 69 During the currency of this Charter the Vessel, as today, to keep the name DEVCON as painted outside her hull. Owners to keep this painting in same good maintenance standard as for rest of the Vessel. DATED Dated 28.10.96 Charterers: Owners: Caribbean Cement Carriers, Ltd Kristian Gerhard Jebsen Skipsrederi A/S By: /S/ RICHARD L. HORNSBY By: /S/ JAN PEDERSEX -------------------------- ------------------------------- Richard L. Hornsby Jan Pedersex Vice President
6 SECOND ORIGINAL Sideletter to Charterparty MV "Galizano" dated 28th October 1996 To Kristian Gerhard Jebsen Skipsrederi A/S Folke Bemadottes vej 38 Fyllingsdalen 5033 Bergen Norway In consideration of Kristian Gerhard Jebsen of Folke Bemadottesvej 38, Fyllingsdalen 5033 Bergen, Norway (The "Beneficiary", which expression shall include its successors and assigns) agreeing to charter the vessel MV Galizano (The "Vessel") to Caribbean Cement Carriers Ltd. (The "Charterer") in accordance with the terms of charterparty dated 28th October 1996 as the charterparty may from time to time be amended and/or supplanted (The "Charterparty"), the undersigned (The "Guarantor") agrees with the Beneficiary and undertakes as follows: 1. The Guarantor hereby irrevocable and unconditionally guarantees to the Beneficiary full performance, observance and compliance by the Charterer of each and every obligation on the part of the Charterer under the Charterparty. If at any time any default is made by the Charterer, the Guarantor will on demand perform the obligation in respect of which default has occured and/or will pay any sum or sums that may be payable in consequence of such default. The Guarantor accepts liability hereunder as if it was a primary obligor and further accepts that liability will in no way be conditional upon the Guarantor first taking any steps or proceedings against the Charterer. 2. The construction, validity and performance of this guarantee is subject to English Law. The English courts shall have jurisdiction over any dispute arising out of or in connection with this guarantee. 7 November 1996 For Devcon International Corp. 1350 E. Newport Center Drive, Suite 201 Deerfield Beach, Florida 33442 U.S.A. /S/ RICHARD HORNSBY ----------------------------- Mr. Richard Hornsby Exec. Vice President 7 EX-10.36 9 EXHIBIT 10.36 STANDSTILL AGREEMENT This Agreement is made as of February 26, 1997, but to be effective as of November 30, 1996, by Devcon International Corp., a Florida Corporation, the "Borrower", Masonry Products - Virgin Island Corp. a Florida Corporation, as Guarantor" and Barnett Bank N.A., a national banking association, formerly known as Barnett Bank of Jacksonville, successor by merger to Barnett Bank of Broward County, N. A "the Bank". RECITALS This Agreement is made and entered into in reliance on the accuracy of the following recitals, which are acknowledged by Borrower, Guarantor and Bank to be true and accurate: WHEREAS, Borrower executed in favor of Bank and is liable to Bank for a promissory note, said Note being more particularly described as follows: Renewal Promissory Note dated June 30, 1993 in the original principal amount of $l,000,000 which matured on June 30, 1996, on which is owed as of the Agreement Date, the outstanding principal balance of $1,000 together with accrued and unpaid interest of $21.86 WHEREAS, on June 30, 1993, Guarantor executed and delivered to Bank an unconditional guaranty of the Note; "Guaranty"; and WHEREAS, the Note matured on June 30, 1996, and Borrower and Guarantor did not pay the Note in full on said date; and WHEREAS, the Borrower, Guarantors and Bank executed a Standstill Agreement dated July 17, 1996, which extended the maturity until September 30, 1996; and on October 31, 1996, further extended the standstill maturity date until November 30, 1996; and WHEREAS, by reason of said maturity, Bank is entitled to have full payment of the Note and to begin enforcement of Bank's rights under the Note, Mortgage, Loan Agreement and Security Agreement, which documents, together with the Guaranty are collectively referred to herein as "Loan Documents"; and WHEREAS, Borrower and Guarantor are going to or have commenced negotiations with Bank concerning the Note and plan to continue to evaluate and discuss, as each party deems necessary, various courses of action that might be in the mutual interests of all parties including, but not limited to attempting to reach agreement on payoff, alternative financing, or, modification of the Note; and WHEREAS, each party requests the other party "standstill" from taking certain actions for such time and under such conditions as are her hereinafter set forth; and WHEREAS, although Bank is under no obligation to do so, Bank is willing to standstill from enforcement of its rights arising from said maturity against Borrower and Guarantor and Borrower's and Guarantor's assets, provided that such standstill is on the terms and conditions as set out herein, and provided that, except as expressly provided for in this Agreement, such standstill does not waive or otherwise prejudice the rights of Bank; and WHEREAS, Borrower and Guarantor are willing to standstill from pursuing any right, claim, or defense they may have or allege to have against Bank provided that such standstill is on the terms and conditions as set out herein, and providing that, except as expressly provided for in this Agreement, such 1 standstill does not waive or otherwise prejudice the rights of Borrower and Guarantor; NOW, THEREFORE, in consideration of the foregoing and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower, Guarantor and Bank hereby acknowledge, agree and affirm as follows: 1. Each of the above RECITALS is incorporated herein and is relied upon by Borrower, Guarantor and Bank in agreeing to the terms of this Agreement. 2. Unless this Agreement is violated by Borrower or Guarantor, Bank will not initiate or pursue any claim, cause of action, remedy, set-off or other rights it may have or otherwise enforce against Borrower or Guarantor under the Loan Documents, or by lien, attachment, execution, encumbrance, right of set-off or foreclosure against any asset of Borrower or Guarantor, and shall not join in any petition for appointment of a receiver for under any section or chapter of the Bankruptcy Code, or any state or federal law or regulation affecting creditors' rights prior to the day after June 30, 1997 "Standstill Maturity Date". The Note is hereby extended, without additional modification or amendment to the Note, to mature on the Standstill Maturity Date. 3. Unless this Agreement is violated by Bank, Borrower and Guarantor will not initiate or pursue any claim, cause of action defense or other rights they may have or allege to have against Bank prior to the day after the Standstill Maturity Date. 4. The Loan Documents are authentic and valid, remain in full force and effect and are legally binding and enforceable against the signatories thereto. 5. Any and all prepayment penalties and late charges set forth in the Loan Documents applicable to the payment of the Note prior to the Agreement Date only are hereby waived by Bank provided that payment in full of the Note is made on or before the Standstill Maturity Date. 6. Borrower will continue to conduct its business in a prudent manner, make normal and necessary payments to entities/individuals as Borrower deems necessary for operation of its business. 7. If any additional event of default under the Loan Documents occurs after the Agreement Date but prior to the Standstill Maturity Date, or if any additional event of default previously unknown or undisclosed to Bank occurring prior to the Agreement Date is found, same will be a violation of this Agreement. Upon the occurrence of any such event of default, Bank may without demand, presentment or other notice of any kind, all of which are hereby expressly waived by Borrower and Guarantor, immediately exercise all rights and remedies available to Bank herein and in the Loan Documents without any notice, demand, or grace period or cure provision as may otherwise be allowed for or required in the Loan Documents. 8. In addition to any financial information that Borrower and Guarantor are required to provide to Bank under the Loan Documents, Borrower and Guarantor will provide to Bank such financial information as Bank may reasonably require. 9. Until the Standstill Maturity Date, interest shall continue to accrue on the Note from the Agreement Date at the rate of .5% per annum in excess of the rate of interest as is publicly announced by Barnett Banks, Inc. from time to time as its prime rate. Borrower has paid accrued and unpaid interest through February 28, 1997 upon execution of this Agreement. Bank will continue to fund advances under the provisions of the Loan Documents. 2 10. On the Standstill Maturity Date the Note is due and payable in full. Borrower's, Guarantor's and Bank's standstill of their rights and remedies will cease the day after the Standstill Maturity Date and Borrower, Guarantor and Bank are entitled to take whatever actions they may have without regard to any payments being tendered or accepted hereinafter or immediately prior hereto. 11. In the event that during the term of this Agreement any petition in bankruptcy shall be filed by Borrower or Guarantor, or against Borrower or Guarantor, by any third party, or if Borrower or Guarantor shall execute any assignments for the benefit of creditors or shall in any manner take or accept the benefit of any proceeding under the statue or otherwise for the relief of debtors, then and in that event, this Agreement, with the exception of the consent to lift stay in paragraph 17 hereof, shall become null and void and Bank shall have the right to demand, receive and collect the Note in full, less any payments made under this Agreement, with the same force and effect as if this Agreement had not been made. 12. Borrower and Guarantor may have liabilities to Bank under other loans or credit facilities other than those reflected in the Loan Documents. Borrower, Guarantor and Bank intend that such other loans ad facilities shall not be affected by this Agreement and shall remain in full force and effect in all respects. 13. The standstill of performance by Borrower and Guarantor under any of the terms of this Agreement shall not operate as a waiver or release of performance under other terms of this Agreement or the Loan Documents. Except as specifically provided in this Agreement, Borrower and Guarantor will comply with all requirements of the Loan Documents to the extent not inconsistent with this Agreement. This Agreement does not represent (i) a commitment by Bank to make any new loans or grant or extend any financial accommodations to Borrower or Guarantor, (ii) a commitment by Bank to restructure the Loan Documents or grant or extend any financial accommodations with respect to the Loan Documents, or (iii) except as expressly provided for herein, an intention by Bank to waive, modify or forbear from exercising any of its rights, powers and privileges under the Loan Documents. Borrower and Guarantor acknowledge, agree and affirm that no such commitment, waiver, modification or forbearance has been offered, granted, extended or agreed to by Bank. 14. Any waiver of jury trial or consent to jurisdiction previously executed by, or between Borrower, Guarantor and Bank shall unconditionally be fully effective and extend fully to this Agreement and any document executed in conjunction herewith. 15. Borrower and Guarantor agree that through Standstill Maturity Date, Bank will provide the following response to any inquiry concerning Borrower: "Since 1978, Barnett Bank has made various extensions of credit to Devcon International Corp. on both a secured and unsecured basis. High credit to mid-seven figure range. Payment history has been as agreed." Borrower, Guarantor and Bank each agree that if during the standstill period any party discovers information that might make the above statement misleading to a third party, such party will immediately communicate such information to all other parties, and each party agrees to make all reasonable efforts to cooperate in preparing a substitute statement, which statement shall not be provided to any third party until approved in writing by all parties to this Agreement. During the standstill period, when communicating with third parties, Borrower and Guarantor agree that Borrower and Guarantor will disclose 3 fully and accurately the terms of this Agreement. Bank agrees that Borrower and Guarantor may give copies of this Agreement to third parties; however, only with prior notice to and consent by Bank. 16. The parties may commence discussions or negotiations concerning the Loan Documents. Without liability for filing to do so, the parties plan, but are not obligated or committed to doing so, to discuss various courses of action that might be in the parties mutual interests. Any party, in its sole and absolute discretion, may terminate these discussions and negotiations at any time and for any reason. Upon such termination of discussions, any change in the parties' respective obligations to one another subsequent to the Agreement Date shall be only as set forth in a formal, executed written agreement. 17. The fact that the parties may commence or have commenced discussions or negotiations shal1 be without prejudice to any party and shall not be used against any party during the negotiations undertaken between the parties are intended as and shall be construed to constitute settlement negotiations designed to resolve a pending dispute between the parties. Accordingly, statements made and documents generated and exchanged by and between the parties from and after the Agreement Date through the Standstill Maturity Date are privileged and shall not be susceptible to production in discovery or introduction in evidence. This Agreement shall not be used during the course of litigation for any purpose, unless there is a dispute over the application of this Agreement. 18. Neither the execution of this Agreement nor any discussions shall operate to toll any time period which otherwise might be applicable, including without limitation, any time periods which may be provided for in the Loan Documents or by statute upon the commencement of judicial or non-judicial foreclosure preceedings. 19. As a material inducement to the agreements of Bank in this Agreement, Borrower and Guarantor agree that in the event that Borrower or Guarantor is the subject of any insolvency, bankruptcy, receivership, dissolution, reorganization or similar proceeding, federal or state, voluntary or involuntary, under any present or future law or act, Bank is entitled to the automatic and absolute lifting of any automatic stay as to the enforcement of its remedies under the Loan Documents against any collateral or security interest granted to Bank or against any account of Borrower or Guarantor, including specifically, but not limited to the stay imposed by Section 362 of the United States Bankruptcy Code, as amended, or any similar state law and, to accomplish such purposes, Borrower and Guarantor agree to the full extent permitted by law not to seek to take advantage of any appraisement, valuation, stay or extension law now or hereafter in force, in order to prevent or hinder the enforcement of the Loan Documents or the provisions of this Agreement. Borrower and Guarantor hereby consent to the immediate lifting of any such automatic stay, and will not contest any motion by Bank to lift such stay. Borrower and Guarantor agree to execute all documentation necessary to waive or provide for relief from any stay provisions under any federal or state law. 20. Separate counterparts of this Agreement may be signed by the parties hereto with the same effect as if all the parties had subscribed and signed their names to the original Agreement. Notwithstanding anything to the contrary herein, no party is bound hereby until this Agreement has been executed by all of the parties hereto. 4 21. This Agreement shall bind and inure to the benefit of the respective transferees, heirs, personal representative, successors and assigns of each of the parties; provided, however, that Borrower and Guarantor may not assign this Agreement or any rights hereunder without Bank's prior written consent and any prohibited assignment shall be absolutely void. 22. This Agreement has been negotiated, executed and delivered in St. Marys, Georgia and shall be deemed to have been made in the State of Florida, and the validity of this Agreement, its construction, interpretation and enforcement, and the rights of the parties hereunder and concerning the Loan Documents, shall be determined under, governed by and construed in accordance with the internal laws of the State of Florida. The Loan Documents are hereby supplemented and modified to the extent set forth herein, which modifications shall supersede and prevail over any conflicting provision of the Loan Documents. 23. Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision. 24. This Agreement embodies the entire terms and agreements of the parties. There are no representations, promises, terms, conditions or obligations other than those contained herein and this Agreement shall supersede and previous communications, understandings, discussions, representations or agreements, either oral or written, between the parties hereto relative to the terms of this Agreement. All representations and warranties set forth herein shall survive the execution of this Agreement. Without limiting the foregoing, no letter, telegram or other communications passing between the parties hereto concerning any matters during the negotiation of this Agreement shall be deemed a part of this Agreement, nor shall it have the effect of modifying or adding to this Agreement. The undersigned have executed this Agreement as of the Agreement Date. BARNETT BANK N.A., a national banking Devcon International Corp. association, formerly known as Barnett Bank of Jacksonville, successor by merger to Barnett Bank of Broward County, N.A. /S/ WALTER B. BARRETT By: Barnett Banks, Inc., a Florida ------------------------- corporation, as Attorney-In fact By: Walter B. Barrett for Barnett Bank, N.A. pursuant to Vice President a Power of Attorney dated as of March 1, 1992 By: /S/ L. R. ROSS ------------------------------- Print Name: L. R. Ross Title: Senior Workout Officer GUARANTOR: WITNESS Masonry Products-Virgin Island Corp. /S/ V. THOMAS FOUNTAIN - ---------------------------- /S/ V. THOMAS FOUNTAIN /S/ WALTER B. BARRETT - ---------------------------- ------------------------------------ Vice President
5 STATE OF GEORGIA)ss COUNTY OF CAMDEN) The foregoing Standstill Agreement was acknowledged before me this 26th day of February, 1997 by Water B. Barrett, as Vice President of Devcon International Corp., a Florida corporation, for and on behalf of the corporation, who is personally known to me or produced drivers license as identification and did not take an oath. My Commission Expires: NOTARY PUBLIC January 16,2000 /S/ V. Thomas Fountain Camden County, Georgia STATE OF GEORGIA)ss COUNTY OF CAMDEN) The foregoing Standstill Agreement was acknowledged before me this 26th day of February, 1997 by Water B. Barrett, as Vice President of Masonry Products Virgin Island Corp., a Florida corporation, for and on behalf of the corporation, who is personally known to me or produced DRIVERS LICENSE as identification and did not take an oath. My Commission Expires: NOTARY PUBLIC January 16, 2000 /S/ V. Thomas Fountain Camden County, Georgia STATE OF GEORGIA)ss COUNTY OF CAMDEN) The foregoing Standstill Agreement was acknowledged before me this 26th day of February, 1997 by L. R. Ross, as Senior Workout Officer of BARNETT BANK INC. a Florida Corporation, as attorney in fact for BARNETT BANK N.A, a Florida banking corporation, on behalf of the corporation, pursuant to that Power of Attorney dated as of March 1, 1992 and Third Amended and Restated Florida Certificate of Designation dated January 18, 1994. He is personally known to me or produced DRIVERS LICENSE as identification and did not take an oath. My Commission Expires: NOTARY PUBLIC January 16, 2000 /S/ V. Thomas Fountain Camden County, Georgia 6 EX-21.1 10 EXHIBIT 21.1 DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements Antigua Cement, Ltd. Antigua Development and Construction, Ltd. Antigua Heavy Constructors, Ltd. Antigua Masonry Products, Ltd. Bahamas Construction and Development, Ltd. Bouwbedrijf Boven Winden, N.V. Bouwbedrijf Boven Winden (Saba), N.V. Bouwbedrijf Boven Winden (St. Eustatius), N.V. Caribbean Cement Carriers, Ltd. Caribbean Construction and Development, Ltd. Caribbean Heavy Construction, Ltd. Caribbean Masonry Products, Ltd. Cramer Construction, N.V. Crown Bay Marina Joint Venture I Devcon Caribbean Purchasing Corp. Devcon Crown Bay II Corp. Devcon Crown Bay Corp. Devcon Masonry Products (BVI), Ltd. Island Drilling and Blasting, Inc. Marco, Inc. M21 Industries, Inc. Proar Construction Materials Company, N.V. Puerto Rico Crushing Company, Inc. Seaward Shipping & Dredging Co., Ltd. Societe des Carriers de Grand Case, S.A.R.L. St. Martin Block, S.A.R.L. V.I. Cement and Building Products, Inc. EX-23.1 11 ACCOUNTANTS' CONSENT The Board of Directors Devcon International Corp. and Subsidiaries We consent to incorporation by reference in the registration statements (No. 33-32968 and No. 33-59557) on Form S-8 and (No. 33-65235) on Form S-3 of Devcon International Corp. and subsidiaries of our report dated March 21, 1997, relating to the consolidated balance sheets of Devcon International Corp. and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three year period ended December 31, 1996, and the related schedule, which report appears in the December 31, 1996 annual report on Form 10-K of Devcon International Corp. and subsidiaries. KPMG PEAT MARWICK LLP Fort Lauderdale, Florida March 28, 1997 EX-27 12 FINANCIAL STATEMENTS - DEVCON INTERNATIONAL CORP.
5 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 303,994 0 16,775,156 2,971,591 6,998,678 26,656,950 85,083,267 37,587,567 94,926,140 13,078,036 0 0 0 449,894 12,064,133 94,926,140 69,478,369 69,478,369 53,648,218 53,648,218 11,733,612 302,863 2,609,580 1,184,096 383,089 801,007 488,119 0 0 312,888 .07 .07
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