-----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, PpaCvF4fXljlYX3S5LO6V6Sr7EVqTiYacj15hECQh55TqzFNLvrSekmkX+TyXgvX IIA+zScpsyMXVtUS97cZTw== 0000034629-96-000003.txt : 19960329 0000034629-96-000003.hdr.sgml : 19960329 ACCESSION NUMBER: 0000034629-96-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 19951230 FILED AS OF DATE: 19960328 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FARR CO CENTRAL INDEX KEY: 0000034629 STANDARD INDUSTRIAL CLASSIFICATION: GENERAL INDUSTRIAL MACHINERY & EQUIPMENT, NEC [3569] IRS NUMBER: 951288401 STATE OF INCORPORATION: DE FISCAL YEAR END: 1229 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-04723 FILM NUMBER: 96539799 BUSINESS ADDRESS: STREET 1: 2221 PARK PL CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: 3105366300 MAIL ADDRESS: STREET 1: P.O. BOX 92187 AIRPORT STATION CITY: LOS ANGELES STATE: CA ZIP: 90009 10-K 1 ANNUAL REPORT ON FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10K (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES - ----- X EXCHANGE ACT OF 1934 (FEE REQUIRED) - ----- For the fiscal year ended December 30, 1995 ---------------------------------------- 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 0-4723 FARR COMPANY - ------------------------------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 95-1288401 - ------------------------------------ --------------------------------------- (State or other jurisdiction of (I.R.S.Employer Identification Number) incorporation or organization) 2221 Park Place, El Segundo, CA 90245 - ------------------------------------ --------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (310) 536-6300. Securities registered pursuant to Section 12 (g) of the Act: Title of Class Name of Exchange on Which Registered -------------- ------------------------------------ Common Stock, $.10 Par Value NASDAQ - ------------------------------------------------------------------------------ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __x__ No _____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. __x__ The aggregate market value of voting common stock held by non-affiliates of Registrant on March 8, 1996, based on the closing sale price on such date, was $33,082,907. The number of shares of common stock outstanding on March 8, 1996 was 3,794,211. DOCUMENTS INCORPORATED BY REFERENCE PART I AND II: The Annual Report to Stockholders for the fiscal year ended December 30, 1995. PART I AND III: The Proxy Statement for the Annual Meeting of Stockholders to be held April 30, 1996. PART I Item 1. Business - ---------------- Farr Company and its subsidiaries (hereinafter collectively referred to as the "Company" or "Registrant") are engaged in the design, development, manufacture, sale and service of filters and filtration systems. These products are used for a wide variety of applications, including heating, ventilation and air conditioning systems, manufacturing and process cleanrooms, special application filters for original equipment manufacturers, diesel-powered truck engines, railroad locomotives, dust collection systems and gas turbines. Air filter efficiencies range from 20 percent in disposable products to 99.9999+ percent in cleanroom products. Products are available as standard items or may be custom engineered. They range in size and complexity from a small throwaway air filter to large gas turbine systems with a single filter component module weighing in excess of twenty tons. All of the Company's filter products incorporate at least one of five basic methods of filtration. These include strainer type filters which block the passage of particles through the use of various types of materials such as paper, non-woven cotton fabric, fiberglass and metal screening; impingement and diffusion type filters which consist of layers of various types of screening materials sometimes with an oil coating that traps dust particles; inertial separators which filter high velocity air by changing its direction; and activated carbon filters which absorb odors and gases. Paper, fabric, fiberglass and carbon filters are disposable and the Company sells replacements. Many products manufactured by the Company are enclosed in hardware ranging from simple frames to large component modules weighing in excess of twenty tons. The percentage of the Company's total sales involving the fabrication of large enclosures used in special filtration and noise abatement systems was approximately 4 percent in 1995, 6 percent in 1994 and 13 percent in 1993. These products are sold primarily for use with gas turbine installations in applications in the electrical generating, oil and gas industries. The Company also maintains and services air filtration systems and accessory equipment in buildings and industrial plants in Southern California and Phoenix, Arizona. This service includes replacing disposable filters. The Company was organized in California in 1938, and in 1987 the Company reincorporated in Delaware. 2 Materials - --------- The principal materials used in manufacturing the Company's products are ferrous and non-ferrous materials, plastisols, urethanes, adhesives and certain finished and semi-finished filter materials, including screen, activated carbon, cotton fibers, paper and fiberglass. The Company does not depend on any single source for a significant portion of its raw materials. Product Engineering and Development - ----------------------------------- At December 30, 1995, the Company employed approximately 43 engineers, draftsmen and technicians in the United States, Canada and England to improve and develop existing products, to design, develop and test new products and to improve production equipment and techniques. The Company spent approximately $2,251,000, $2,221,000 and $2,048,000 for product engineering and development in 1995, 1994, and 1993, respectively. The Company owns a number of United States and foreign patents. Although the Company considers these patents to be of value in its operations, its business is not dependent on any single patent or group of patents. Sales and Distribution - ---------------------- The Company's products are sold throughout the United States and in over 40 foreign countries through salesmen working out of field sales offices and through various distributors and manufacturers' representatives. Certain of the Company's products are manufactured and sold under licensing agreements with manufacturers located in Argentina, Australia, France, Hong Kong, India, Indonesia, Italy, Japan, Malaysia, Mexico, New Zealand, Singapore, Taiwan and Venezuela. During 1995, no customer accounted for more than 10% of net sales. Backlog - ------- The Company's backlog at December 30, 1995 was $16,017,000 up from $13,455,000 at December 31, 1994. Historically, backlog has not been a significant measure of the Company's future business activities since the majority of orders are shipped within forty-five to sixty days of receipt. During 1995, approximately 5.1% of the Company's business was derived from products with lead times longer than sixty days. These products are primarily heavy fabrication products such as gas turbine equipment. The backlog of orders relating to heavy fabrication products was approximately $4,611,000 and $1,903,000 at December 30, 1995 and December 31, 1994, respectively. All of the December 30, 1995 backlog is scheduled for delivery during 1996. 3 International Operations - ------------------------ The Company engages in operations in foreign countries as described above. For information regarding the geographic distribution, revenue, operating profit (loss) and identifiable assets of the Company's domestic and international operations, see Note 12 of Notes to Consolidated Financial Statements, included in the Company's Annual Report to Stockholders, which is incorporated herein by reference. The Company's international operations are subject to the additional risks inherent in doing business in countries whose governments have policies different than those of the United States. To date the Company has experienced no material problems in foreign countries arising from political instability or currency restrictions or fluctuations. Competition - ----------- The fields in which the Company operates are highly competitive with numerous other companies manufacturing and selling competing products. While information with respect to the industry ranking of the Company among manufacturers of similar products is not available, the Company believes that its principal competitors in most of its major product areas are American Air Filter Company, Inc., a wholly owned subsidiary of Snyder General Corporation, Donaldson Company, Inc. and Clarcor, Inc. A number of the Company's competitors have larger sales and greater financial resources than the Company. The Company believes the principal competitive factors in the sale of its products are technical competence, quality and the ability to respond to the unique individual requirements of its customers. Employees - --------- At March 8, 1996, the Company had approximately 1,299 employees as compared to approximately 1,244 on February 28, 1995. The Company's 5 drivers and warehousemen at its El Segundo service office are covered by a collective bargaining agreement with the Teamsters Union which expires on February 6, 1997; 32 employees at the Company's Delano plant are covered by a collective bargaining agreement with the Sheet Metal Workers International Association which expires June 30, 1998. At March 8, 1996, approximately 114 employees at the Company's Montreal, Canada plant were covered by a three year collective bargaining agreement expiring August 31, 1997 and approximately 28 employees at the Company's Birmingham, England plant were covered by a collective bargaining agreement that expires on December 31, 1996. 4 Executive Officers of the Registrant - ------------------------------------ ================================================================================ Position Held and Business Experience During Name Age Past Five Years - ---- --- --------------- Richard L. Farr 52 Director of the Company (since November 1988), Senior Vice President of the Company (since January 1995), Vice President of the Company (from November 1987 to January 1995), first cousin of David J. Farr; a Director. Kenneth W. Gerstner 52 Senior Vice President, Secretary and Chief Financial Officer of the Company (Since January 1995), Vice President, Secretary and Chief Financial Officer of the Company (from June 1993 to January 1995), Controller, Archive Technology, Inc. (from June 1990 to May 1993), Assistant Corporate Controller, Archive Corporation (from March 1989 to June 1990). John C. Johnston 52 President and Chief Operating Officer (since February 1996); Senior Vice President of the Company (from January 1995 to February 1996); President of Easton Aluminum, Inc. (January 1986 to December 1994). H. Jack Meany 73 Chairman and Chief Executive Officer of the Company (since February 1996); Chairman, President, and Chief Executive Officer (from April 1994 to February, 1996); Director of the Company (from June 1976 to March 1994); Retired; Chairman of the Board and Chief Executive Officer (from October 1975 to March 1988) of NI Industries, Inc., manufacturer of building, industrial, and defense products; Director, APS Corp., Borg Warner Industrial Products Corp. Myron G. Rasmussen 58 Vice President of the Company (since March 1990), Director of Engineering of the Company (from August 1977 to May 1990). ================================================================================ 5 Item 2. Properties - ------------------- The location and general description of the Company's principal properties at March 8, 1996 are set forth in the following tables. All such properties are owned by the Company except as noted: Floor Area Location (Square Feet) Principal Uses -------- ------------- -------------- Jonesboro, AR 220,000 Manufacturing El Segundo, CA 50,000 Corporate Offices El Segundo, CA 40,000 Warehouse Delano, CA 39,000 Manufacturing Corcoran, CA 80,000 Manufacturing Eatonton, GA (leased) 76,000 Closed Crystal Lake, IL 120,000 Manufacturing Holly Springs, MS 208,000 Manufacturing Conover, NC 107,000 Manufacturing Pryor, OK (leased) 80,000 Closed Montreal, Canada 153,000 Manufacturing Birmingham, England 82,000 Manufacturing The Company leases sales office and warehouse space in or near San Diego, California; Phoenix, Arizona; Toronto, Canada; Tremelo, Belgium; Detroit, Michigan and Singapore. The Company believes that its facilities and manufacturing equipment are well maintained and adequate for current operations. During 1995, the Company believes that utilization of its various production facilities ranged from 40 to 80 percent, depending upon product mix. Item 3. Legal Proceedings - -------------------------- The Company is involved in several claims and suits that arise out of the ordinary course of business, and has tax returns under review. Management believes that these matters are either adequately reserved, covered by its insurance, or would not have a material adverse effect on the financial position or operations of the Company if disposed of unfavorably. Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------ Not applicable. Incorporation by Reference - -------------------------- The following portion of the Company's Annual Report to Stockholders for the year ended December 30, 1995 ("Annual Report") is hereby incorporated by reference. Portion of Form 10-K Item No. Document Portion of Document ------------------ -------- ------------------- Part I - Item 1 and 2 Annual Report Pages 6 through 17 6 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters - ----------------------------------------------------------------------------- The Company's Common Stock trades on the NASDAQ Stock Market under the symbol FARC. At March 8, 1996, there were approximately 700 stockholders of record of the Company's Common Stock. Dividends - --------- The Company did not pay any dividends on its Common Stock over the last two years. The above Item 5, information should be read in conjunction with information appearing under the captions "Consolidated Statements of Shareholders' Investment", "Selected Financial Data" and "Summary of Stock Quotations" on pages 7, 18 and 21 of the Company's 1995 Annual Report to Stockholders. Item 6. Selected Financial Data - ------------------------------- The five year summary under "Selected Financial Data" included on page 18 of the Company's 1995 Annual Report to Stockholders is incorporated herein by this reference. The five-year summary should be read in conjunction with the Company's consolidated financial statements and accompanying notes included under Item 8, Consolidated Financial Statements and Supplementary Data. Item 7. Management's Discussion and Analysis of Financial Condition and Results - ------ of Operations ------------- "Management's Discussion and Analysis " on pages 19 through 21 of the Company's 1995 Annual Report to Stockholders is incorporated herein by this reference. Item 8. Consolidated Financial Statements and Supplementary Data - ---------------------------------------------------------------- Pages 6 through 17 of the Company's 1995 Annual Report to Stockholders, which include the consolidated financial statements, and the Independent Auditors' Report as listed in Item 14(a)I, are incorporated herein by this reference. Item 9. Changes in and Disagreements with Accountants on Accounting and - ------- Financial Disclosure -------------------- Not applicable. 7 PART III Compliance with Section 16(a) of the Exchange Act - ------------------------------------------------- Information appearing under the caption "Compliance With Section 16(a) of the Exchange Act" in the Company's 1996 Proxy Statement is incorporated herein by this reference. Item 10. Directors and Executive Officers of the Registrant. - ------------------------------------------------------------ Information appearing under the caption "Election of Directors" in the Company's 1995 Proxy Statement is incorporated herein by this reference. Item 11. Executive Compensation - ------------------------------- Information appearing under the captions "Executive Compensation" and "Pension Plans" in the Company's 1995 Proxy Statement is incorporated herein by this reference. Information appearing under the captions "Report of the Compensation and Stock Option Committee" and "Stock Performance Graph" in the Company's 1995 Proxy Statement is not incorporated herein by this reference. Item 12. Security Ownership of Certain Beneficial Owners and Management - ----------------------------------------------------------------------- Information appearing under the caption "Beneficial Ownership of Securities" in the Company's 1995 Proxy Statement is incorporated herein by this reference. Item 13. Certain Relationships and Related Transactions - ------------------------------------------------------- Note 1 to the consolidated financial statements, included on page 9 of the Company's 1995 Annual Report to Stockholders, and the caption "Relationship with Independent Public Accountants" in the Company's 1995 Proxy Statement contain information about certain relationships and are incorporated herein by this reference. 8 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K - ------------------------------------------------------------------------ (a) Financial Statements, Schedules and Exhibits: (1) Index to Financial Statements and Supplementary Data. The financial statements listed below are set forth in the Company's Annual Report to Shareholders for the fiscal year ended December 30, 1995 and are incorporated herein by this reference. Annual Report Page No. -------- Consolidated Balance Sheets, December 30, 1995 and December 31, 1994. 6 Consolidated Operations Statements and Consolidated Statements of Stockholders' Investment, for the three years ended December 30, 1995, December 31, 1994 and January 1, 1994. 7 Consolidated Statements of Cash Flows, for the three years ended December 30, 1995, December 31, 1994 and January 1, 1994. 8 Notes to the Consolidated Financial Statements. 9-16 Report of Independent Public Accountants. 17 (2) The exhibits filed as part of this report are listed in the Exhibit Index which follows the Supplemental Schedules referred to above. Management contracts and compensatory plans and arrangements listed in the Exhibit Index are denoted with an asterisk (*). (b) 8-K Reports: None 9 SIGNATURES Pursuant to the requirements of Section 13 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. FARR COMPANY Dated: March 28, 1996 By: /s/ H. Jack Meany --------------------------- -------------------------------- H. Jack Meany 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. Dated: March 28, 1996 By: /s/ H. Jack Meany --------------------------- -------------------------------- H. Jack Meany Chairman and Chief Executive Officer Dated: March 28, 1996 By: /s/ Robert G. Batinovich --------------------------- -------------------------------- Robert G. Batinovich Director Dated: March 28, 1996 By: /s/ Richard P. Bermingham --------------------------- -------------------------------- Richard P. Bermingham Director Dated: March 28, 1996 By: /s/ Richard L. Farr --------------------------- -------------------------------- Richard L. Farr Director Dated: March 28, 1996 By: /s/ David J. Farr --------------------------- -------------------------------- David J. Farr Director Dated: March 28, 1996 By: /s/ John J. Kimes --------------------------- -------------------------------- John J. Kimes Director Dated: March 28, 1996 By: /s/ Kenneth W. Gerstner --------------------------- --------------------------------- Kenneth W. Gerstner Sr. Vice President, Secretary and Chief Financial Officer 10 FARR COMPANY AND SUBSIDIARIES List of Exhibits Item Description ---- ----------- 3.1 Certificate of Incorporation of Registrant as currently in effect. 3.2 Amended By-Laws of Registrant as currently in effect. 4.31 Rights Agreement, dated as of April 3, 1989, between Farr Company and Bank of America NT & SA (formerly Security Pacific National Bank). Filed as Exhibit 1 on Form 8K dated April 18, 1989 and incorporated herein by this reference. 4.37 Loan Agreement by and between the Mississippi Business Finance Corporation and Farr Company dated July 1, 1991, in connection with Holly Springs, Mississippi Industrial Development Revenue Bond Financing. Filed as Exhibit 4.37 on Form 10-K dated December 28, 1991 and incorporated herein by this reference. 4.39 Letter of Credit No. 910809-IS-284-LA dated August 15, 1991, in favor of First Tennessee Bank National Association in connection with Holly Springs, Mississippi Industrial Development Revenue Bond Financing. Filed as Exhibit 4.39 on Form 10-K dated December 28, 1991 and incorporated herein by this reference. 4.40 Reimbursement Agreement between Farr Company and Bank of America NT & SA dated as of August 15, 1991, in connection with Holly Springs, Mississippi Industrial Development Revenue Bond Financing. Filed as Exhibit 4.40 on Form 10-K dated December 28, 1991 and incorporated herein by this reference. 4.44 First Amendment and Waiver to the Holly Springs Reimbursement Agreement, dated October 15, 1991, between Bank of America NT & SA and Farr Company. Filed as Exhibit 4.44 on Form 10-K dated December 28, 1991 and incorporated herein by this reference. 4.48 Waiver and Agreement dated March 25, 1992 to the Reimbursement Agreement dated August 15, 1991, between Farr Company and Bank of America NT & SA in connection with Holly Springs, Mississippi Industrial Revenue Bond Financing. Filed as Exhibit 4.48 on Form 10-K dated January 1, 1994 and incorporated herein by this reference. 11 4.58 Credit Agreement dated as of February 3, 1994 between Farr Company, as borrower, and 4.58 General Electric Capital Corporation, as Lender. Filed as Exhibit 1 on Form 8-K dated February 7, 1994 and incorporated herein by this reference. 4.61 Second Amendment to Reimbursement Agreement, dated as of February 3, 1994, to Reimbursement Agreement dated as of August 15, 1991, as previously amended, between Farr Company and Bank of America NT & SA in connection with Holly Springs, Mississippi Industrial Revenue Bond Financing. Filed as Exhibit 4 on Form 8-K dated February 7, 1994 and incorporated herein by this reference. 4.63 Amendment, dated July 11, 1995 to Credit Agreement dated February 3, 1994 between Farr 4.63 Company, as borrower, and General Electric Capital Corporation, as Lender. Filed as Exhibit 4.64 on Form 10-Q for the quarter ended July 1, 1995 and incorporated herein by this reference. 4.64 Credit Agreement dated February 15, 1996 between Farr Company, as borrower, and Bank of America National Trust and Savings Association, as lender. Registrant agrees that it will furnish to the Commission upon request copies of any other instruments with respect to the long-term debt of Registrant and its subsidiaries; under none of such other instruments does the total amount of securities authorized exceed 10 percent of the total assets of Registrant and its subsidiaries on a consolidated basis. *10.1 Non-Qualified Deferred Compensation Plan, dated July 31, 1987. Filed as Exhibit 10.1 to Annual Report on Form 10-K for the year ended January 2, 1988 and incorporated herein by this reference. *10.3 Deferred Compensation Plan for Directors dated November 5, 1980. Filed as Exhibit 10.5 to Annual Report on Form 10-K for the year ended January 3, 1981 and incorporated herein by this reference. *10.4 Farr Company Management Incentive Bonus Plan. Filed as Exhibit 10.6 to Annual Report on Form 10-K for the year ended January 3, 1981 and incorporated herein by this reference. *10.5 Deferred Compensation Plan for Officers dated April 30, 1981. Filed as Exhibit 10.7 to Annual Report on Form 10-K for the year ended January 2, 1982 and incorporated herein by this reference. *10.6 Amendments to Stock Option Plan for Key Employees. Filed as Exhibit 10.8 to Annual Report on Form 10-K for the year ended January 2, 1982 and incorporated herein by this reference. 12 *10.7 1983 Stock Option Plan for Key Employees as amended. Filed as Exhibit A to registrant's definitive proxy statement for the annual meeting of stockholders held on May 4, 1988 and incorporated herein by this reference. *10.9 Trust Agreement pursuant to the Employee Stock Ownership Plan for Office Employees of Farr Company and Employee Stock Ownership Plan for Shop Employees of Farr Company, dated December 1, 1989, between Farr Company and Bank of America NT & SA (formerly Security Pacific National Bank) . Filed as Exhibit 10.9 to Annual Report on Form 10-K for the year ended December 30, 1989 and incorporated herein by this reference. *10.10 Employee Stock Ownership Plan for office employees of Farr Company, dated December 1, 1989. Filed as Exhibit 10.10 to Annual Report on Form 10-K for the year ended December 30, 1989 and incorporated herein by this reference. *10.12 Farr Company Supplemental Executive Benefits Plan dated July 24, 1990. Filed as Exhibit 10.12 on Form 10-K for the year ended December 29, 1990 and incorporated herein by this reference. *10.14 Non-Employee Directors Stock Option Plan, filed as Exhibit 10.14 on Form 10-K for the year ended December 29, 1990 and incorporated herein by this reference. *10.16 The Office Employees' 401(k) Plan of Farr Company, dated September 10, 1991. Filed as Exhibit 10.16 on Form 10-K for the year ended December 28, 1991 and incorporated herein by this reference. *10.17 Twelfth Amendment to the Employees' Profit Sharing Retirement Plan of Farr Company, dated September 10, 1991. Filed as Exhibit 10.17 on Form 10-K for the year ended December 28, 1991 and incorporated herein by this reference. *10.21 The 1993 Stock Option Plan for Key Employees of Farr Company. Filed as Exhibit 10.21 on Form 10-K for the year ended December 31, 1994 and incorporated herein by this reference. *10.22 First Amendment to the 1993 Stock Option Plan by key employees of Farr Company dated September 20, 1994. Filed as Exhibit 10.22 on Form 10-Q for the quarter ended October 1, 1994 and incorporated herein by this reference. 13 *10.23 Amendment to the Company's 1991 Stock Option Plan for Non-Employee Directors dated September 20, 1994, filed as Exhibit 10.23 on Form 10-Q for the quarter ended October 1, 1994 and incorporated herein by this reference. *10.24 The Corporate Plan for Retirement Select Plan, the Profit Sharing/401(k) Plan, Basic Plan Document dated April 11, 1994. Filed as Exhibit 10.24 on Form 10-K for the year ended December 31, 1994 and incorporated herein by reference. *10.25 The Profit Sharing/401(k) Plan for Office Employees of Farr Company Non-Standardized Adoption Agreement 002, Basic Plan No. 07. dated September 27, 1994. Filed as Exhibit 10.25 on Form 10-K for the year ended December 31, 1994 and incorporated herein by reference. *10.26 The Profit Sharing/401(k) Plan for Shop Employees of Farr Company Non-Standardized Adoption Agreement 002, Basic Plan dated September 27, 1994. Filed as Exhibit 10.26 on Form 10-K for the year ended December 31, 1994 and incorporated herein by reference. *10.27 First amendment to The Office Employees' 401(k) Plan of Farr Company, dated December 16, 1994. Filed as Exhibit 10.27 on Form 10-K for the year ended December 31, 1994 and incorporated herein by reference. *10.28 First amendment to The Shop Employees' 401(k) Plan of Farr Company, dated December 16, 1994. Filed as Exhibit 10.28 on Form 10-K for the year ended December 31, 1994 and incorporated herein by reference. *10.29 Thirteenth Amendment to The Employees' Profit Sharing Retirement Plan of Farr Company, dated December 16, 1994. Filed as Exhibit 10.29 on Form 10-K for the year ended December 31, 1994 and incorporated herein by reference. *10.30 Thirteenth Amendment to The Retirement Plan for Production and Maintenance Employees of Farr Company, dated December 16, 1994. Filed as Exhibit 10.30 on Form 10-K for the year ended December 31, 1994 and incorporated herein by reference. *10.31 Second Amendment to The Employee Stock Ownership Plan for Shop Employees of Farr Company dated December 16, 1994. Filed as Exhibit 10.31 on Form 10-K for the year ended December 31, 1994 and incorporated herein by reference. *10.32 First Amendment to The Employee Stock Ownership Plan for Office Employees of Farr Company dated December 16, 1994. Filed as Exhibit 10.32 on Form 10-K for the year ended December 31, 1994 and incorporated herein by reference. 14 *10.33 Second Amendment to the 1991 Stock Option Plan for Non-Employee Directors dated September 12, 1995. *10.34 Employee contract agreement between John Johnston and Farr Company dated Novembers 28, 1994. *10.35 The Farr Company 401(k)/Retirement Plan dated December 15, 1995. *10.36 The Farr Company Supplemental Executive Savings Plan Adoption Agreement, dated November 21, 1995. *10.37 The Corporate Plan for Retirement Select Plan, Fidelity Basic Plan Document dated April 11, 1994 (SESP). *10.38 Trust Agreement for Farr Company 401K/Retirement Plan, dated December 15, 1995. *10.39 Trust Agreement for Farr Company Supplemental Executive Savings Plan between Farr Company as sponsor and Fidelity Management Trust Company (trustee) dated November 21, 1995. 11 Computation of earnings per common share and common share equivalents. 13 Annual Report to Stockholders. With the exception of the information incorporated by reference into Items 1, 2, 5, 6, 7 and 8 of this Form 10-K, the 1995 Annual Report to Stockholders is not deemed to be filed as a part of this report. 22 A list of all subsidiaries of registrant. 24 Consent of Independent Public Accountants. 27 Financial Data Schedule * Management contract or compensatory arrangements. Copies of Exhibits are available, on prepayment of 15 cents per page, by writing to the Secretary of the Company at the address set forth on the cover page of this Annual Report and Form 10-K. 15 EX-3.(I) 2 EX 3.1 ARTICLES OF INCORPORATION Exhibit 3.1 RESTATED CERTIFICATE OF INCORPORATION OF FARR INTERNATIONAL, INC. The undersigned, Allan B. Foy and M. S. Farr, certify that they are the President and Secretary, respectively, of Farr International, Inc., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), and do hereby further certify as follows: 1. The name of the Corporation is Farr International, Inc. 2. The original Certificate of Incorporation of the Corporation was filed in the Office of the Secretary of State of the State of Delaware on April 7, 1987. 3. This Restated Certificate of Incorporation was duly adopted by stockholder written consent in accordance with Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware. 4. The text of the Certificate of Incorporation of the Corporation as amended hereby is restated to read in its entirety, as follows: ARTICLE I The name of the Corporation is Farr Company. ARTICLE II The address of the registered office of the Corporation in the State of Delaware is 229 South State Street in the City of Dover, County of Kent. The name of its registered agent at that address is United States Corporation Company. ARTICLE III The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may now or hereafter be organized under the General Corporation Law of the State of Delaware as set forth in Title 8 of the Delaware Code (the "GCL"). ARTICLE IV The total number of shares of stock which the Corporation shall have authority to issue is 5,000,000 shares of common stock, par value $.10 per share (the "Common Stock"). ARTICLE V The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors consisting of not less than six directors nor more than nine directors, the exact number of directors to be determined from time to time by resolution adopted by the Board of Directors. The directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire Board of Directors. The term of the initial Class I directors shall terminate on the date of the 1988 annual meeting of stockholders; the term of the initial Class II directors shall terminate on the date of the 1989 annual meeting of stockholders; and the term of the initial Class III directors shall terminate on the date of the 1990 annual meeting of stockholders. At each annual meeting of stockholders beginning in 1988, successors to the class of directors whose term expires at that annual meeting shall be elected for a three-year term. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional directors of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the annual meeting for the year in which his term expires and until his 1 death, resignation, retirement, disqualification or removal from office. Any vacancy on the Board of Directors, howsoever resulting, may be filled by a majority of the directors then in office, even if less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy shall hold office for a term that shall coincide with the term of the class to which such director shall have been elected. ARTICLE VI Any or all of the directors of the Corporation may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of a majority of the outstanding shares of the Corporation then entitled to vote generally in the election of directors, considered for purposes of this Article VI as one class. ARTICLE VII Elections of directors at an annual or special meeting of stockholders shall be by written ballot unless the Bylaws of the Corporation shall otherwise provide. ARTICLE VIII Any action required or permitted to be taken at any annual or special meeting of stockholders may be taken only upon the vote of the stockholders at an annual or special meeting duly noticed and called, as provided in the Bylaws of the Corporation, and may not be taken by a written consent of the stockholders pursuant to the GCL. ARTICLE IX Special meetings of the stockholders of the Corporation for any purpose or purposes may be called at any time by the Board of Directors, the Chairman of the Board of Directors or the President. Special meetings of the stockholders of the Corporation may not be called by any other person or persons. ARTICLE X The affirmative vote of the holders of not less than 80 percent of the outstanding shares of "Voting Stock" (as hereinafter defined) of the Corporation shall be required for the approval or authorization of any "Business Combination" (as hereinafter defined) of the Corporation with any "Related Person" (as hereinafter defined); provided, however, that the 80 percent voting requirement shall not be applicable if: (1) The Board of Directors of the Corporation by a vote of not less than 80 percent of the directors then holding office (a) has expressly approved in advance the acquisition of the outstanding shares of Voting Stock of the Corporation that caused the Related Person to become a Related Person or (b) has approved the Business Combination prior to the Related Person involved in the Business Combination having become a Related Person; (2) The Business Combination is solely between the Corporation and another corporation, one hundred percent of the Voting Stock of which is owned directly or indirectly by the Corporation; or (3) The Business Combination is a merger or consolidation and the cash or fair market value of the property, securities or other consideration to be received per share by holders of Common Stock of the Corporation in the Business Combination is not less than the highest per share price (with appropriate adjustments for recapitalizations and for stock splits, stock dividends and like distributions) paid by the Related Person in acquiring any of its holdings of the Corporation's Common Stock. 2 For the purposes of this Article: (i) The term "Business Combination" shall mean (a) any merger or consolidation of the Corporation or a subsidiary with or into a Related Person, (b) any sale, lease, exchange, transfer or other disposition, including without limitation a mortgage or any other security device, of all or any "Substantial Part" (as hereinafter defined) of the assets either of the Corporation (including without limitation any voting securities of a subsidiary) or of a subsidiary to a Related Person, (c) any merger or consolidation of a Related Person with or into the Corporation or a subsidiary of the Corporation, (d) any sale, lease, exchange, transfer or other disposition of all or any Substantial Part of all or any Substantial Part of the assets of a Related Person to the Corporation or a subsidiary of the Corporation, (e) the issuance of any securities (other than by way of pro rata distribution to all shareholders) of the Corporation or a subsidiary of the Corporation to a Related Person, (f) the acquisition by the Corporation or a subsidiary of the Corporation of any securities of a Related Person, (g) any recapitalization that would have the effect of increasing the voting power of a Related Person and (h) any agreement, contract or other arrangement providing for any of the transactions described in this definition of Business Combination. (ii) The term "Related Person" shall mean and include any individual, corporation, partnership or other person or entity which, together with its "Affiliates" and "Associates" (as defined on April 1, 1985 in Rule 12b-2 under the Securities Exchange Act of 1934), "Beneficially Owns" (as defined on April 1, 1985 in Rule 13d-3 under the Securities Exchange Act of 1934) in the aggregate 10 percent or more of the outstanding Voting Stock of the Corporation, and any Affiliate or Associate of any individual, corporation, partnership or other person or entity. (iii) The term "Substantial Part" shall mean more than 10 percent of the book value of the total assets of the company in question as of the end of its most recent fiscal year ending prior to the time the determination is being made. (iv) Without limitation, any shares of Common Stock of the Corporation that any Related Person has the right to acquire pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise, shall be deemed beneficially owned by the Related Person. (v) For the purposes of subparagraph (3) of this Article, the term "other consideration to be received" shall include, without limitation, Common Stock of the Corporation retained by its existing public shareholders in the event of a Business Combination in which the Corporation is the surviving corporation. (vi) The term "Voting Stock" shall mean all outstanding shares of capital stock of the Corporation or another corporation entitled to vote generally in the election of directors and each reference to a proportion of shares of Voting Stock shall refer to such proportion of the votes entitled to be cast by such shares. ARTICLE XI The provisions set forth in this Article XI and in Articles VI, VIII, IX, X and XIV herein may not be repealed or amended in any respect, unless such action is approved by the affirmative vote of the holders of not less than 80 percent of the outstanding shares of Voting Stock (as defined in Article X) of the Corporation. 3 ARTICLE XII The officers of the Corporation shall be chosen in such a manner, shall hold their offices for such terms and shall carry out such duties as are determined by the Board of Directors, subject to the right of the Board of Directors to remove any officer or officers at any time with or without cause. ARTICLE XIII A. The Corporation shall indemnify to the full extent authorized or permitted by law (as now or hereafter in effect) any person made, or threatened to be made, a defendant or witness to any action, suit or proceeding (whether civil or criminal or otherwise) by reason of the fact that he, his testator or intestate, is or was a director or officer of the Corporation or by reason of the fact that such director or officer, at the request of the Corporation, is or was serving any other corporation, partnership, joint venture, employee benefit plan or other enterprise, in any capacity. Nothing contained herein shall affect any rights to indemnification to which employees other than directors or officers may be entitled by law. No amendment or repeal of this Section A of Article XIII shall apply to or have any effect on any right to indemnification provided hereunder with respect to any acts or omissions occurring prior to such amendment or repeal. B. No director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty by such a director as a director. Notwithstanding the foregoing sentence, a director shall be liable to the extent provided by applicable law (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the GCL, or (iv) for any transaction from which such director derived an improper personal benefit. No amendment to or repeal of this Section B of this Article XIII shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. C. In furtherance and not in limitation of the powers conferred by statute: (i) the Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of law; and (ii) the Corporation may create a trust fund, grant a security interest and/or use other means (including, without limitation, letters of credit, surety bonds and/or other similar arrangements), as well as enter into contracts providing indemnification to the full extent authorized or permitted by law and including as part thereof provisions with respect to any or all of the foregoing to ensure the payment of such amounts as may become necessary to effect indemnification as provided therein, or elsewhere. 4 ARTICLE XIV In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to adopt, repeal, alter, amend or rescind the Bylaws of the Corporation. In addition, the Bylaws of the Corporation may be adopted, repealed, altered, amended, or rescinded by the affirmative vote of sixty-six and two-thirds percent (66 2/3 %) of the outstanding stock of the Corporation entitled to vote thereon. ARTICLE XV The Corporation reserves the right to repeal, alter, amend, or rescind any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred on stockholders herein are granted subject to this reservation. IN WITNESS WHEREOF, Farr International, Inc. has caused its corporate seal to be hereunto affixed and this Restated Certificate of Incorporation to be signed by Allan B. Foy, its President, and attested by M. Spencer Farr, its Secretary, this 29th day of May, 1987. FARR INTERNATIONAL, INC. By /s/ Allan B. Foy ----------------- Allan B. Foy President ATTEST: By /s/ M. S. Farr --------------- M. S. Farr Secretary 5 EX-3.(II) 3 EX 3.2 BY-LAWS Exibit 3.2 AS AMENDED BYLAWS OF FARR INTERNATIONAL, INC. (hereinafter called the "Corporation") ARTICLE I OFFICES SECTION 1. REGISTERED OFFICE. The Registered office of the Corporation shall be in the City of Dover, County of Kent, Delaware. SECTION 2. PRINCIPAL PLACE OF BUSINESS. The principal place of business of the Corporation is hereby fixed and located at 2221 Park Place, El Segundo, California 90245. SECTION 3. OTHER OFFICES. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine. ARTICLE II MEETINGS OF STOCKHOLDERS SECTION 1. PLACE OF MEETINGS. Meetings of the stockholders for the election of directors or for any other purpose shall be held at such time and place, either within or without the State of Delaware, as shall be designated from time to time by the Board of Directors (and in the case of a special meeting, by the Board of Directors or the person calling the special meeting as authorized by Section 3 of this Article II) and stated in the notice of the meeting or in a duly executed waiver of notice thereof. SECTION 2. ANNUAL MEETINGS. The Annual Meetings of Stockholders shall be held on such date and at such time and place as may be fixed by the Board of Directors and stated in the notice of the meeting, for the purpose of electing directors and for the transaction of such other business as is properly brought before the meeting in accordance with these Bylaws. To be properly brought before the Annual Meeting, business must be either (i) specified in the notice of Annual Meeting (or any supplement or amendment thereto) given by or at the direction of the Board of Directors, (ii) otherwise brought before the Annual Meeting by or at the direction of the Board of Directors, or (iii) otherwise properly brought before the Annual Meeting by a stockholder. In addition to any other applicable requirements, for business to be properly brought before an Annual Meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation, not less than fifty (50) days nor more than seventy-five (75) days prior to the meeting; provided, however, that in the event that less than sixty-five (65) days' notice or prior public disclosure of the date of the Annual Meeting is given or made to stockholders, notice by a stockholder to be timely must be so received not later than the close of business on the fifteenth (15th) day following the day on which such notice of the date of the Annual Meeting was mailed or such public disclosure was made, whichever first occurs. A stockholder's notice to the Secretary shall set forth (a) as to each matter the stockholder proposes to bring before the Annual Meeting (i) a brief description of the business desired to be brought before the Annual Meeting and the reasons for conducting such business at the Annual Meeting, (ii) the name and record address of the stockholder proposing such business, (iii) the class, series and number of shares of the Corporation which are beneficially owned by the stockholder, and (iv) any material interest of the stockholder in such business and (b) as to the stockholder giving the notice (i) the name and record address of the stockholder and (ii) the class and number of shares of capital stock of the Corporation which are beneficially owned by the stockholder. Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at the Annual Meeting except in accordance with the procedures set forth in this Article II, Section 2. The officer of the Corporation presiding at an Annual Meeting shall, if the facts warrant, determine and declare to the Annual Meeting that business was not properly brought before the Annual Meeting in accordance with the provisions of this Article II, Section 2, and if he should so determine, he shall so declare to the Annual Meeting and 2 any such business not properly brought before the meeting shall not be transacted. Written notice of the Annual Meeting stating the place, date and hour of the Annual Meeting shall be given to each stockholder entitled to vote atsuch meeting not less than ten (10) nor more than sixty (60) days before the date of the meeting. SECTION 3. SPECIAL MEETINGS. Special meetings of stockholders, for any purpose or purposes, may be called by the Board of Directors, the Chairman of the Board of Directors, or the President. Special meetings of stockholders may not be called by any other person or persons. Written notice of a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting, and only such business as is stated in such notice shall be acted upon thereat. SECTION 4. QUORUM. Except as may be otherwise provided by law or by Certificate of Incorporation, the holders of a majority of the capital stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business. The stockholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. If, however, a quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented. any business may be transacted which might have been transacted at the meeting as originally noticed. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder entitled to vote at the meeting. 3 Shares of its own stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes; provided, however, that the foregoing shall not limit the right of the Corporation to vote stock, including but not limited to its own stock, held by it in a fiduciary capacity. SECTION 5. VOTING. At all meetings of stockholders for the action of directors a plurality of the votes cast shall be sufficient to elect. Unless otherwise required by law, the Certificate of Incorporation or these Bylaws, all other questions brought before any meeting of stockholders shall be decided by the vote of the holders of a majority of the stock represented and entitled to vote thereat. Unless otherwise provided in the Certificate of Incorporation, each stockholder represented at a meeting of stockholders shall be entitled to cast one (1) vote for each share of the capital stock entitled to vote thereat held by such stockholder. The Board of Directors, in its discretion, or the officer of the Corporation presiding at a meeting of stockholders, in his discretion, may require that any votes cast at such meeting shall be cast by written ballot. SECTION 6. PROXIES. Every person entitled to vote shares has the right to do so either in person or by one or more persons authorized by a written proxy executed by such stockholder. Any proxy duly executed is not revoked and continues in full force and effect until revoked by the person executing it prior to the vote pursuant thereto by a writing delivered to the Corporation stating that the proxy is revoked or by a subsequent proxy executed by, or by attendance at the meeting and voting in person by the person executing the proxy; provided, however, that no proxy shall be valid after the expiration of three (3) years from the date of its execution unless otherwise provided in the proxy. A proxy is not revoked by the death or incapacity of the maker unless before the vote is counted, written notice of such death or incapacity is received by the Corporation. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. 4 SECTION 7. ORGANIZATION. All meetings of the stockholders shall be presided over by the Chairman of the Board of Directors or, if he is not present, by the President of the Corporation, and if he is not present, by such officer as is designated by the Board of Directors. The Secretary of the Corporation or, if he is not present, any Assistant Secretary or other person designated by the presiding officer shall act as secretary of the meeting. SECTION 8. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer of the Corporation who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder of the Corporation who is present. SECTION 9. STOCK LEDGER. The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by Section 8 of this Article II or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders. SECTION 10. INSPECTORS OF ELECTION. Before any meeting of stockholders, the Board of Directors may appoint any person or persons other than nominees for office to act as inspectors of election at the meeting or its adjournment. If no inspectors of election are so appointed, the officer of the Corporation presiding at a meeting of stockholders may, and on the request of the holders of a majority of the outstanding shares of all classes of stock entitled to vote shall, appoint inspectors of election at the meeting. The number of inspectors shall be either one (1) or three (3). If inspectors are appointed at a meeting on the request of the holders of a majority of the outstanding shares of all classes entitled to vote, such holders shall determine whether one (1) or three (3) inspectors are to be appointed. If there are three (3) inspectors of election, the decision, 5 act or certificate of a majority is effective in all respects as the decision, act or certificate of all. If any person appointed as inspector fails to appear or fails or refuses to act, the officer of the Corporation presiding at a meeting may, and upon the request of the holders of a majority of the outstanding shares of all classes of stock entitled to vote shall, appoint a person to fill that vacancy. The inspectors shall: (a) determine the number of shares of capital stock outstanding and the voting power of each, the stock represented at the meeting, the existence of a quorum, the authenticity, validity, and effect of proxies, and when the polls shall close; (b) receive votes and/or ballots; (c) hear and determine all challenges and questions in any way arising in connection with the right to vote; (d) count and tabulate all votes; (e) determine and report to the Corporation the results of the voting; and (f) do any other acts that may be proper to conduct the election or vote with fairness to all stockholders. ARTICLE III DIRECTORS SECTION 1. NUMBER AND ELECTION OF DIRECTORS. Subject to the rights, if any, of holders or preferred stock of the Corporation to elect directors of the Corporation, the Board of Directors shall consist of not less than six (6) nor more than nine (9) members with the exact number of directors to be determined from time to time by resolution duly adopted by the Board of Directors. Directors shall be elected a plurality of the votes cast at Annual Meetings of stockholders, and each director so elected shall hold office as provided by Article V of the Certificate of Incorporation. Any director may resign at any time effective upon giving written notice to the Corporation, unless the notice specifies a later time for the effectiveness of such resignation. Directors need not be stockholders. 6 SECTION 2. NOMINATION OF DIRECTORS. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors. Nominations of persons or election to the Board of Directors of the Corporation at the Annual Meeting may be made at such meeting by or at the direction of the Board of Directors, by any committee or persons appointed by the Board of Directors or by any stockholder of the Corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Article III, Section 2. Such nominations by any stockholder shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than 50 days nor more than 75 days prior to the meeting; provided, however, that in the event that less than 65 days notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the fifteenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever first occurs. Such stockholder's notice to the Secretary shall set forth (i) as to each person whom the stockholder proposes to nominate for election or reelection as a director, (a) the name, age, business address and residence address of the person, (b) the principal occupation or employment of the person, (c) the class and number of shares of capital stock of the Corporation which are beneficially owned by the person, and (d) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to the Rules and Regulations of the Securities and Exchange Commission under Section 14 of the Securities Exchange Act of 1934, as amended; and (it) as to the stockholder giving the notice (a) the name and record address of the stockholder and (b) the class and number of shares of capital stock of the Corporation which are beneficially owned by the stockholder. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as a director of the Corporation. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth herein. The officer of the Corporation presiding at an Annual fleeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in 7 accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. SECTION 3. VACANCIES. Any vacancy on the Board of Directors, however resulting, may be filled by a majority of the directors then in office, even if less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy shall hold office for a term that shall coincide with the term of the class to which such director shall have been elected. SECTION 4. DUTIES AND POWERS. The business of the Corporation shall be managed by or under the direction of the Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholders. SECTION 5. MEETINGS. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Delaware. Regular meetings of the Board of Directors may be held without notice at such time and at such place as may from time to time be determined by the Board of Directors. Special meetings of the Board of Directors may be called by the Chairman of the Board of Directors, the President, or by a majority of the Board of Directors. Notice thereof, stating the place, date and hour of the meeting, shall be given to each director either by mail not less than four (4) days before the date of the meeting, or personally or by telephone, telegram, telex or similar means of communication on twelve (12) hours' notice, or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances. SECTION 6. QUORUM; ACTION OF THE BOARD OF DIRECTORS. Except as may be otherwise specifically provided by law, the Certificate of Incorporation or these Bylaws, at all meetings of the Board of Directors, a majority of the entire Board of Directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. 8 SECTION 7. ACTION BY WRITTEN CONSENT. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting. if all the members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. SECTION 8. MEETINGS BY MEANS OF CONFERENCE TELEPHONE. Members of the Board of Directors of the Corporation, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 8 shall constitute presence in person at such meeting. SECTION 9. COMMITTEES. The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of any such committee. In the absence or disqualification of a member of a committee, and in the absence of a designation by the Board of Directors of an alternate member to replace the absent or disqualified member, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any absent or disqualified member. Any committee, to the extent allowed by law and provided in the resolution establishing such committee, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation. The Board of Directors may appoint a committee designated the Executive Committee and the Board of Directors shall have the power to appoint the Chairman of the Executive Committee. The Board of Directors shall have the power to prescribe the manner in which proceedings of any subcommittee shall be conducted. In the absence of any such prescription, such committee shall have the power to prescribe the manner in which its proceedings shall be conducted. Unless the Board of Directors or such committee shall otherwise provide, regular 9 and special meetings and other actions of any such committee shall be governed the provisions of this Article III applicable to meetings and actions of the Board of Directors. Each committee shall keep regular minutes and report to the Board of Directors when required. SECTION 10. FEES AND COMPENSATION. Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement for expenses, as may be fixed or determined by the Board of Directors. ARTICLE IV OFFICERS SECTION 1. GENERAL. The officers of the Corporation shall be chosen by the Board of Directors and shall be a President and Chief Executive Officer, a Vice President, a Secretary and a Chief Financial Officer. The Board of Directors, in its sole discretion, may also choose a Chairman of the Board of Directors (who must be a director), a Vice Chairman of the Board of Directors (who must be a director), one or more additional Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers and such other officers as may be appointed in accordance with the provisions of Section 8 of this Article IV. Any number of offices may be held by the same person, unless otherwise prohibited by law, the Certificate of Incorporation or these Bylaws. SECTION 2. ELECTION. The Board of Directors at its first meeting held after each Annual Meeting of stockholders shall elect the officers of the Corporation who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time solely by the Board of Directors, which determination may be by resolution of the Board of Directors or in any bylaw provision duly adopted or approved by the Board of Directors; and all officers of the Corporation shall hold office until their successors are chosen and qualified, or until their earlier resignation or removal. Any officer elected by the Board of Directors may be removed at any time by the Board of Directors with or without cause. Any vacancy occurring in any office of the Corporation may be filled only by the Board of Directors. 10 SECTION 3. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board of Directors, if such an officer be elected, shall, if present, preside at all meetings of the Board of Directors and exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors or prescribed by the Bylaws. If there is no President, the Chairman of the Board of Directors shall in addition be the Chief Executive Officer of the Corporation and shall have the powers and duties prescribed in Section 4 of this Article IV. SECTION 4. PRESIDENT. Subject to such supervisory powers, if any, as may be given by the Board of Directors to the Chairman of the Board of Directors, if there be such an officer, the President shall be the Chief Executive Officer of the Corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and the officers of the Corporation. He shall preside at all meetings of the stockholders and, in the absence of the Chairman of the Board of Directors, or if there be none, at all meetings of the Board of Directors. He shall have the general powers and duties of management usually vested in the office of president of a corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or the Bylaws. SECTION 5. VICE PRESIDENTS. In the absence or disability of the president, the Vice Presidents, if any, in order of their rank as fixed by the Board of Directors or, if not ranked, a Vice President designated by the Board of Directors, shall perform all the duties of the President, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors or the Bylaws, the President or the Chairman of the Board of Directors, if there is no President. SECTION 6. SECRETARY. The Secretary shall keep or cause to be kept, at the principal executive office or such other place as the Board of Directors may order, a book of minutes of all meetings and actions of directors, committees of directors and stockholders, with the time and place of holding, whether regular or special, and, if special, how authorized, the notice thereof given, the names of those present at directors' and committee meetings, the number of shares present or represented at stockholders' meetings, and the proceedings thereof. 11 The Secretary shall keep, or cause to be kept, at the principal executive office or at the office of the Corporation's transfer agent or registrar, as determined by resolution of the Board of Directors, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for the same, and the number and date of cancellation of every certificate surrendered for cancellation. The Secretary shall give, or cause to be given. notice of all meetings of the stockholders and of the Board of Directors required by the Bylaws or by law to be given, and he shall keep the seal of the Corporation, if one be adopted, in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by the Bylaws. SECTION 7. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the Corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares. The books of account shall be open at all reasonable times to inspection by any director. The Chief Financial Officer shall deposit all moneys and other valuables in the name and to the credit of the Corporation with such depositaries as may be designated by the Board of Directors. He shall disburse the funds of the Corporation as may be ordered by the Board of Directors, shall render to the President and directors, whenever they request it, an account of all of his transactions as Chief Financial Officer and of the financial condition of the Corporation, and shall have other powers and perform such other duties as may be prescribed by the Board of Directors or the Bylaws. SECTION 8. OTHER OFFICERS. Such other officers or assistant officers as the Board of Directors may choose shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors. The Board of Directors may delegate to any other officer of the Corporation the power to choose such other officers and to prescribe their respective duties and powers. 12 SECTION 9. EXECUTION OF CONTRACTS AND OTHER DOCUMENTS. Each officer of the Corporation may execute, affix the corporate seal and/or deliver, in the name and on behalf of the Corporation, deeds, mortgages, notes, bonds, contracts, agreements, powers of attorney, evidences of indebtedness, conveyances, or any other document or instrument which is authorized by the Board of Directors or is required to be executed in the ordinary course of business, except in cases where the execution, affixation of the corporate seal and/or delivery thereof shall be expressly and exclusively delegated by the Board of Directors to some other officer or agent of the Corporation. ARTICLE V STOCK SECTION 1. FORM OF CERTIFICATES. Every holder of stock in the Corporation shall be entitled to have a certificate signed, in the name of the Corporation (i) by the Chairman or Vice Chairman of the Board of Directors, the President or any Vice President and (ii) by the Chief Financial Officer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by him in the Corporation. SECTION 2. SIGNATURES. Where a certificate is countersigned by (i) a transfer agent or (ii) a registrar, any other signature on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. SECTION 3. LOST CERTIFICATES. The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or his legal 13 representative, to advertise the same in such manner as the Board of Directors shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. SECTION 4. TRANSFERS. Transfers of shares of capital stock of the Corporation shall be made only on the stock record of the Corporation by the holder of record thereof or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the Corporation or the transfer agent thereof, and only on surrender of the certificate or certificates representing such shares, properly endorsed or accompanied by a duly executed stock transfer power. The Board of Directors may make such additional rules and regulations as it may deem expedient concerning the issue and transfer of certificates representing shares of the capital stock of the Corporation. SECTION 5. RECORD DATE. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (6O) days nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. If no record date is fixed: (l) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; and (2) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. SECTION 6. BENEFICIAL OWNERS. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to 14 receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law. ARTICLE VI NOTICES SECTION 1. NOTICES. Whenever written notice is required by law, tile Certificate of Incorporation or these Bylaws, to be given to any director or stockholder, such notice shall be given, whether personally or by first-class mail or telegraphic or other written communication, charges prepaid, addressed to the stockholder or director at the address of such stockholder or director appearing on the books of the Corporation or given by the stockholder or director to the Corporation for the purpose of notice. If no such address appears on the Corporation's books or has been so given, notice shall be deemed to have been given if sent by first-class mail or telegraphic or other written communication to the Corporation's principal executive office or if published at least once in a newspaper of general circulation in the county where such office is located. Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by telegram or other means of written communication. If any notice addressed to a stockholder or director at the address of such stockholder or director appearing on the books of the Corporation is returned to the Corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice to the stockholder or director at such address, all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available to the stockholder or director upon written demand of the stockholder or director at the principal executive office of the Corporation for a period of one (1) year from the date of the giving of such notice. SECTION 2. AFFIDAVIT OF NOTICE. An affidavit of the mailing or other means of giving any notice of any stockholders' meeting shall be executed by the Secretary, Assistant Secretary or any transfer agent of the Corporation giving such notice, and shall be filed and maintained in the Minute Book of the Corporation. 15 SECTION 3. WAIVERS OF NOTICE. Whenever any notice is required by law, the Certificate of Incorporation or these Bylaws, to be given to any director or stockholder, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE VII GENERAL PROVISIONS SECTION 1. DISBURSEMENTS. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. SECTION 2. FISCAL YEAR. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors. SECTION 3. VOTING SECURITIES OWNED BY THE CORPORATION. Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may be executed in the name of and on behalf of the Corporation by the Chairman of the Board of Directors or the President or any other officer or officers authorized by the Board of Directors. the Chairman of the Board of Directors or the President, and any such officer may, in the name of and on behalf of the Corporation, vote, represent and exercise on behalf of the Corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of the Corporation and take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security holders of any corporation in which the Corporation may own securities and at any such meeting shall possess and may exercise any and all rights and power incident to the ownership of such securities and which, as the owner thereof, the Corporation might have exercised and possessed if present. The Board of Directors may, by resolution, from tine to time confer like powers upon any other person or persons. 16 ARTICLE VIII INDEMNIFICATION SECTION 1. GENERAL (a) Each director and each officer of the Corporation who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding"), by reason of the fact that he is or was a director, officer or employee of the Corporation or is or was serving at the request of the Corporation as a director, officer or employee of another corporation, or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer or employee or in any other capacity while serving as a director, officer or employee, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by Delaware law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment) against all expenses, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties, amounts paid or to be paid in settlement and amounts expended in seeking indemnification granted to such person under applicable law, this Bylaw or any agreement with the Corporation) reasonably incurred or suffered by such director or officer in connection therewith and such indemnification shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of his heirs, executors and administrators; provided, however, that, except as provided in paragraph (b), the Corporation shall indemnify any person seeking indemnity in connection with an action, suit or proceeding (or part thereof) initiated by such person only if such action, suit or proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. Such right shall be a contract right and shall include the right to be paid by the Corporation expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the Delaware General Corporation Law then so requires, the payment of such expenses incurred by a director or officer of the Corporation in his capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a 17 director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of such proceeding, shall be made only upon delivery to the Corporation of an undertaking (which undertaking may be as set forth in an existing indemnification agreement), by or on behalf of such director or officer, to repay all amounts so advanced if it should be determined ultimately that such director or officer is not entitled to be indemnified under this Section or otherwise. (b) If a claim under paragraph (a) is not paid in full by the Corporation within twenty (20) days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if such suit is not frivolous or brought in bad faith, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any, has been tendered to this Corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because the claimant has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. (c) The rights conferred on any director or officer in paragraphs (a) and (b) shall not be exclusive of any right which such persons may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaw, agreement, vote of stockholders or disinterested Directors or otherwise. (d) The Board of Directors is authorized to enter into a contract with any director or officer of the Corporation, or any director or officer serving at the 18 request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including employee benefit plans, providing for indemnification rights equivalent to or, if the Board of Directors so determines, greater than, those provided for in this Article VIII. (e) The Board of Directors may authorize, by a vote of a majority of a quorum of the Board of Directors, the Corporation to purchase and maintain insurance to the extent reasonably available, at its expense, to protect itself and any such director or officer of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. (f) Any amendment, repeal or modification of any provision of this Article VIII by the stockholders or the directors of the Corporation shall not adversely affect any right or protection of a director or officer of the Corporation existing at the time of such amendment, repeal or modification. ARTICLE IX AMENDMENTS SECTION 1. GENERAL. These Bylaws may be altered, amended or repealed, in whole or in part, or new Bylaws may be adopted by either the holders of sixty-six and two-thirds percent (66-2/3%) of the outstanding capital stock entitled to vote thereon or by the Board of Directors. 19 EX-4 4 EX 4.64 Exhibit 4.64 Bank of America Business Loan Agreement National Trust and Savings Association This Agreement dated as of February 15, 1996, is between Bank of America National Trust and Savings Association (the "Bank") and Farr Company (the "Borrower"). 1. FACILITY NO. 1: LINE OF CREDIT AMOUNT AND TERMS - -- ----------------------------------------------- 1.1 LINE OF CREDIT AMOUNT. (a) During the availability period described below, The Bank will provide a line of credit ( the "Facility No. 1") to the Borrower. The amount of the line of credit (the "Facility No. 1 Commitment") is Fifteen Million Dollars ($15,000,000). (b) This is a revolving line of credit with a within line facility for letters of credit. During the availability period, the Borrower may repay principal amounts and reborrow them. (c) The Borrower agrees not to permit the outstanding principal balance of the line of credit plus the outstanding amounts of any letters of credit, including amounts drawn on letters of credit and not yet reimbursed to exceed the Facility No. 1 Commitment. 1.2 AVAILABILITY PERIOD. The line of credit is available between the date of this Agreement and June 1, 1998 (the "Facility No. 1 Expiration Date") unless the Borrower is in default. 1.3 INTEREST RATE. (a) Unless the Borrower elects an optional interest rate as described below, the interest rate is the Bank's Reference Rate. (b) The Reference Rate is the rate of interest publicly announced from time to time by the Bank in San Francisco, California, as its Reference Rate The Reference Rate is set by The Bank based on various factors, including the Bank's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans. The Bank may price loans to its customers at, above, or below the Reference Rate. Any change in the Reference Rate shall take effect at the opening of business on the day specified in the public announcement of a change in the Bank's Reference Rate. 1.4 REPAYMENT TERMS. (a) The Borrower will pay interest on the Facility No. 1 on March 1,1996, and then monthly thereafter until payment in full of any principal outstanding under this line of credit. (b) The Borrower will repay in full all principal and any unpaid interest or other charges outstanding under this line of credit no later than the Expiration Date. (c) Any amount bearing interest at an optional interest rate (as described below) may be repaid at the end of the applicable interest period, which shall be no later than the Expiration Date. 1.5 OPTIONAL INTEREST RATES. Instead of the interest rate based on the Bank's Reference Rate, the Borrower may elect to have all or portions of the line of credit (during the availability period) bear interest at the rate(s) described below during an interest period agreed to by the Bank and the Borrower. Each interest rate is a rate per year. Interest will be paid on the last day of each interest period, end, if the interest period is longer than thirty days (30), then on the first day each month during the interest period. At the end of any interest 1 period, the interest rate will revert to the rate based on the Reference Rate, unless the Borrower has designated another optional interest rate for the portion. 1.6 OFFSHORE RATE. The Borrower may elect to have all or portions of the principal balance of the line of credit bear interest at the Offshore Rate plus one and seven-eighths (1.875) percentage points. Designation of an Offshore Rate portion is subject to the following requirements: (a) The interest period during which the Offshore Rate will be in effect will be no shorter than 30 days and no longer than one year. The last day of the interest period will be determined by the Bank using the practices of the offshore dollar inter-bank market; (b) Each Offshore Rate portion will be for an amount not less than Five Hundred Thousand Dollars ($500,OOO). (c) The "Offshore Rate" means the interest rate determined by the following formula, rounded upward to the nearest 1/100 of one percent. (All amounts in the calculation will be determined by the Bank as of the first day of the interest period.) Offshore Rate = GRAND CAYMAN RATE ------------------------ (1.00- Reserve Percentage) Where, (i) "Grand Cayman Rate" means the interest rate (rounded upward to the nearest 1/16th of one percent) at which the Bank's Grand Cayman Branch, Grand Cayman, British West Indies, would offer U.S. dollar deposits for the applicable interest period to other major banks in the offshore dollar inter-bank markets. (ii) "Reserve Percentage" means the total of the maximum reserve percentages for determining the reserves to be maintained by member banks of the Federal Reserve System for Eurocurrency Liabilities, as defined in the Federal Reserve Board Regulation D, rounded upward to the nearest 1/100 of one percent. The percentage will be expressed as a decimal, and will include, but not be limited to, marginal, emergency, supplemental, special, and other reserve percentages. (d) The Borrower may not elect an Offshore Rate with respect to any portion of the principal balance of the line of credit which is scheduled to be repaid before the last day of the applicable interest period. (e) Any portion of the principal balance of the line of credit already bearing interest at the Offshore Rate will not be converted to a different rate during its interest period. (f) Each prepayment of an Offshore Rate portion, whether voluntary, by reason of acceleration or otherwise, will be accompanied by the amount of accrued interest on the amount prepaid, and a prepayment fee equal to the amount (if any) by which (i) the additional interest which would have been payable on the amount prepaid had it not been paid until the last day of the interest period, exceeds (ii) the interest which would have been recoverable by the Bank by placing the amount prepaid on deposit in the offshore dollar market for a period starting on the date on which it was prepaid and ending on the last day or the interest period of such portion. (g) The Bank will have no obligation to accept an election for an Offshore Rate portion if any of the following described events has occurred and is continuing: (i) Dollar deposits in the principal amount, and for periods equal to the interest period, of an Offshore Rate portion are not available in the offshore dollar inter-bank markets; or (ii) the Offshore Rate does not accurately reflect the cost of an Offshore Rate portion. 2 1.7 LETTERS OF CREDIT. This line of credit may be used for financing: (i) standby letters of credit with a maximum maturity not to extend beyond the Expiration Date. (ii) The amount of the letters of credit outstanding at any one time, (including amounts drawn on letters of credit and not yet reimbursed), and standby letters of credit may not exceed One Million Dollars ($1,000,000). The Borrower agrees: (a) any sum drawn under a letter of credit may, at the option of the Bank, be added to the principal amount outstanding under this Agreement. The amount will bear interest and be due as described elsewhere in this Agreement, (b) if there is a default under this Agreement, to immediately prepay and make the Bank whole for any outstanding letters of credit. (c) the issuance of any letter of credit and any amendment to a letter of credit is subject to the Bank's written approval and must be in form and content satisfactory to the Bank and in favor of a beneficiary acceptable to the Bank. Without limiting the foregoing, no letter of credit may be issued to support any obligation of the Borrower in connection with worker's compensation laws or that contains a provision providing that the maturity date will be automatically extended each year for an additional year unless the Bank gives written notice to the contrary. (d) to sign the Bank's form Application and Agreement for Standby Letter of Credit. (e) to pay any issuance and/or other fees that the Bank notifies the Borrower will be charged for issuing and processing letters of credit for the Borrower. (f) to allow the Bank to automatically charge its checking account for applicable fees, discounts, and other charges. 2. FACILITY NO. 2: TERM LOAN AMOUNT AND TERMS - -- ------------------------------------------ 2.1 LOAN AMOUNT. The Bank agrees to provide a term loan to the Borrower (the "Facility No. 2") in an amount of up to Two Million Three Hundred Thousand Dollars ($2,300,000) (the "Facility No. 2 Commitment"). 2.2 AVAILABILITY PERIOD. The loan is available in one disbursement from the Bank between the date of this Agreement and September 1, 1996, unless the Borrower is in default. 2.3 INTEREST RATE. (a) Unless the Borrower elects an optional interest rate as described below, the Facility No. 2 interest rate is the Bank's Reference Rate plus one quarter (.25%) of a percentage point. 2.4 REPAYMENT TERMS. (a) The Borrower will pay all accrued but unpaid interest on the earlier of (i) the first day of the first month following the advance of proceeds under Facility No. 2, or (ii) October 1,1996, and then monthly thereafter and upon payment in full of the principal of the loan. (b) The Borrower will repay principal of the term loan in fifty-nine (59) successive monthly installments, each equal to 1/120th of the original amount of the term loan, starting October 1, 1996. On September 1, 2001, the Borrower will repay the remaining principal balance plus any interest then due. (c) Any amount bearing interest at an optional interest rate (as described below) may be repaid at the end of the applicable interest period, which shall be no later than the Expiration Date. 3 (d) The Borrower may prepay the loan in full or in part at any time. The prepayment will be applied to the most remote installment of principal due under this Agreement. 2.5 OPTIONAL INTEREST RATES. Instead of the interest rate based on the Bank's Reference Rate, the Borrower may elect to have all or portions of the loan bear interest at the rate(s) described below during an interest period agreed to by the Bank and the Borrower. Each interest rate is a rate per year. Interest will be paid on the last day of each interest period, and, if the interest period is longer than 30 days then on the last day each month during the interest period. At the end of any interest period, the interest rate will revert to the rate based on the Reference Rate, unless the Borrower has designated another optional interest rate for the portion. 2.6 OFFSHORE RATE. The Borrower may elect to have all or portions of the principal balance of the loan bear interest at the Offshore Rate plus two and one-quarter (2.25%) percentage points. Designation of an Offshore Rate portion is subject to the following requirements: (a) The interest period during which the Offshore Rate will be in effect will be no shorter than 90 days end no longer than one year. The last day of the interest period will be determined by the Bank using the practices of the offshore dollar inter-bank market. (b) Each Offshore Rate portion will be for an amount not less than Five Hundred Thousand Dollars ($500,000). (c) The "Offshore Rate" means the interest rate determined by the following formula, rounded upward to the nearest 1/100 of one percent. (All amounts in the calculation will be determined by the Bank as of the first day of the interest period.) Offshore Rate = GRAND CAYMAN RATE ------------------------- (1.00 - Reserve Percentage) Where, (i) "Grand Cayman Rate" means the interest rate (rounded upward to the nearest 1/16th of one percent) at which the Bank's Grand Cayman Branch, Grand Cayman, British West Indies, would offer U.S. dollar deposits for the applicable interest period to other major banks in the offshore dollar inter-bank market. (ii) "Reserve Percentage" means the total of the maximum reserve percentages for determining the reserves to be maintained by member banks of the Federal Reserve System for Eurocurrency Liabilities, as defined in the Federal Reserve Board Regulation D, rounded upward to the nearest 1/100 of one percent. The percentage will be expressed as a decimal, and will include, but not be limited to, marginal, emergency, supplemental, special, and other reserve percentages. (d) The Borrower may not elect an Offshore Rate with respect to any portion of the principal balance of the loan which is scheduled to be repaid before the last day of the applicable interest period. (e) Any portion of the principal balance of the loan already bearing interest at the Offshore Rate will not be converted to a different rate during its interest period. (f) Each prepayment of an Offshore Rate portion, whether voluntary, by reason of acceleration or otherwise, will be accompanied by the amount of accrued interest on the amount prepaid; and a prepayment fee equal to the amount (if any) by which (i) the additional interest which would have been payable on the amount prepaid had ft not been paid until the last day of the interest period, exceeds 4 (ii) the interest which would have been recoverable by the Bank by placing the amount prepaid on deposit in the offshore dollar market for a period starting on the date on which it was prepaid and ending on the last day of the interest period for such portion. (g) The Bank will have no obligation to accept an election for an Offshore Rate portion if any of the following described events has occurred and is continuing: (i) Dollar deposits in the principal amount, and for periods equal to the interest period, or an Offshore Rate portion are not available in the offshore dollar inter-bank markets; or (ii) the Offshore Rate does not accurately reflect the cost of an Offshore Rate portion. 3. EXPENSES - -- -------- 3.1 EXPENSES. (a) The Borrower agrees to reimburse the Bank for any expenses it incurs in the preparation of this Agreement and any agreement or instrument required by this Agreement. Expenses include, but are not limited to, reasonable attorneys' fees, including any allocated costs of the Bank's in-house counsel. (b) The Borrower agrees to reimburse the Bank for the cost of periodic audits and appraisals of the personal property collateral securing this Agreement, at such intervals as the Bank may reasonably require. The audits and appraisals may be per formed by employees of the Bank or by independent appraisers. 4. COLLATERAL - -- ---------- 4.1 PERSONAL PROPERTY. The Borrower's obligations to the Bank under this Agreement will be scoured by personal property the Borrower now owns or will own in the future as listed below. The collateral is further defined in security agreement(s) executed by the Borrower. In addition, all personal property collateral securing this Agreement shall also secure all other present and future obligations of The Borrower to the Bank (excluding any consumer credit covered by the Federal Truth in Lending law, unless the Borrower has otherwise agreed in writing). All personal property collateral securing any other present or future obligations of the Borrower to The Bank shall also secure this Agreement. (a) Inventory. (b) Receivables. 5. DISBURSEMENTS, PAYMENTS AND COSTS - -- --------------------------------- 5.1 REQUESTS FOR CREDIT. Each request for an extension of credit will be made in writing in a manner acceptable to the Bank, or by another means acceptable to the Bank. 5.2 DISBURSEMENTS AND PAYMENTS. Each disbursement by the Bank and each payment by the Borrower will be: (a) made at the Bank's branch (or other location) selected by the Bank from time to time; (b) made for the account of the Bank's branch selected by the Bank from time to time; (c) made in immediately available funds, or such other type of funds selected by the Bank; (d) evidenced by records kept by the Bank. In addition, the Bank may, at its discretion, require the Borrower to sign one or more promissory notes. 5 5.3 TELEPHONE AUTHORIZATION. (a) The Bank may honor telephone instructions for advances or repayments or for the designation of optional interest rates given by any one of the individuals authorized to sign loan agreements on behalf of the Borrower, or any other individual designated by any one of such authorized signers. (b) Advances will be deposited in and repayments will be withdrawn from the Borrower's account number 14576-50027, or such other of the Borrower's accounts with the Bank as designated in writing by the Borrower. (c) The Borrower indemnifies and excuses the Bank (including its officers, employees, and agents) from all liability, loss, and costs in connection with any act resulting from telephone instructions it reasonably believes are made by any individual authorized by the Borrower to give such instructions. This indemnity and excuse will survive this Agreement. 5.4 DIRECT DEBIT. (a) The Borrower agrees that interest and principal payments and any fees will be deducted automatically on the due date from checking account number 14576-50027. (b) The Bank will debit the account on the dates the payments become due. If a due date does not fall on a banking day, the Bank will debit the account on the first banking day following the due date. (c) The Borrower will maintain sufficient funds in the account on the dates the Bank enters debits authorized by this Agreement. If there are insufficient funds in the account on the date the Bank enters any debit authorized by this Agreement, the debt will be reversed. 5.5 BANKING DAYS. Unless otherwise provided in this Agreement, a banking day is a day other than a Saturday or a Sunday on which the Bank is open for business in California. For amounts bearing interest at an offshore rate (if any), a banking day is a day other than a Saturday or a Sunday on which the Bank is open for business in California and dealing in offshore dollars. All payments and disbursements which would be due on a day which is not a banking day will be due on the next banking day. All payments received on a day which is not a banking day will be applied to the credit on the next banking day. 5.6 TAXES. The Borrower will not deduct any taxes from any payments it makes to the Bank. If any government authority imposes any taxes on any payments made by the Borrower, the Borrower will pay the taxes and will also pay to the Bank, at the time interest is paid, any additional amount which the Bank specifies as necessary to preserve the after-tax yield the Bank would have received if such taxes had not bean imposed. Upon request by the Bank, the Borrower will confirm that it has paid the taxes by giving the Bank official tax receipts (or notarized copies) within 30 days after the due date. However, the Borrower will not pay the Bank's net income taxes. 5.7 INTEREST CALCULATION. Except as otherwise stated in this Agreement, all interest and fees, if any, will be computed on the basis of a 360-day year and the actual number of days elapsed. This results in more interest or a higher fee than if a 365-day year is used. 5.8 INTEREST ON LATE PAYMENTS. At the Bank's sole option in each instance, any amount not paid when due under this Agreement (including interest) shall bear interest from the due date at the Bank's Reference Rate plus one (1.0%) percentage point. This may result in compounding of interest. 5.9 DEFAULT RATE. Upon the occurrence and during the continuation of any default under this Agreement, advances under this Agreement will at the option of the Bank bear interest at a rate per annum which is two (2.0%) percentage points higher than the rate of interest otherwise provided under this Agreement. This will not constitute a waiver of any default. 6. CONDITIONS - -- ---------- 6 The Bank must receive the following items, in form and content acceptable to the Bank, before it is required to extend any credit to the Borrower under this Agreement: 6.1 AUTHORIZATIONS. Evidence that the execution, delivery and performance by the Borrower (and any guarantor) of this Agreement and any instrument or agreement required under this Agreement have been duly authorized. 6.2 SECURITY AGREEMENTS. Signed original security agreements, assignments, financing statements and fixture filings, together with collateral in which the Bank requires a possessory security interest which the Bank requires. 6.3 EVIDENCE OF PRIORITY. Evidence that security interests and liens in favor of the Bank are valid, enforceable, and prior to all others' rights and interests, except those the Bank consents to in writing. 6.4 INSURANCE. Evidence of insurance coverage, as required in the "Covenants" section of this Agreement. 6.5 ABL AUDIT. Satisfactory report on the results of an audit or review scheduled and performed by the Bank's Asset Based Lending Department. 6.6 OTHER ITEMS. Any other items that the Bank reasonably requires. 7. REPRESENTATIONS AND WARRANTIES - -- ------------------------------ When the Borrower signs this Agreement, and until the Bank is repaid in full, the Borrower makes the following9 representations and warranties, Each request for an extension of credit constitutes a renewed representation, 7.1 ORGANIZATION OF BORROWER. The Borrower is a corporation duly formed and existing under the laws of the state where organized. 7.2 AUTHORIZATION. This Agreement, and any instrument or agreement required hereunder, are within the Borrower's powers, have been duly authorized, and do not conflict with any of its organizational papers. 7.3 ENFORCEABLE AGREEMENT. This Agreement is a legal, valid and binding agreement of the Borrower, enforceable against the Borrower in accordance with its terms, and any instrument or agreement required hereunder, when executed and delivered, will be similarly legal, valid, binding and enforceable. 7.4 GOOD STANDING. In each state in which the Borrower does business, it is properly licensed, in good standing, and, where required, in compliance with fictitious name statutes. 7.5 NO CONFLICTS. This Agreement does not conflict with any law, agreement, or obligation by which the Borrower is bound. 7.6 FINANCIAL INFORMATION. All financial and other information that has been or will be supplied to the Bank, including the Borrower's financial statement dated as of November 30, 1995, is: (a) sufficiently complete to give the Bank accurate knowledge of the Borrower's (and any guarantor's) financial condition. (b) in form and content required by the Bank, (a) in compliance with all government regulations that apply. 7.7 LAWSUITS. There is no lawsuit, tax claim or other dispute pending or threatened against the Borrower, which, if lost, would impair the Borrower's financial condition or ability to repay the loan, except as have been disclosed in writing to the Bank. 7 7.8 COLLATERAL. All collateral required in this Agreement is owned by the grantor of the security interest free of any title defects or any liens or interests of others. 7.9 PERMITS, FRANCHISES. The Borrower possesses all permits, memberships, franchises, contracts and licenses required and all trademark rights, trade name rights, patent rights and fictitious name rights necessary to enable it to conduct the business in which it is now engaged. 7.10 OTHER OBLIGATIONS. The Borrower is not in default on any obligation for borrowed money, any purchase money obligation or any other material lease, commitment, contract, instrument or obligation. 7.11 INCOME TAX RETURNS. The Borrower has no knowledge of any pending assessments or adjustments of its income tax for any year. 7.12 NO EVENT OF DEFAULT. There is no event which is, or with notice or lapse of time or both would be, a default under this Agreement. 7.13 ERAS Plans. (a) The Borrower has fulfilled its obligations, if any, under the minimum funding standards of ERISA and the Code with respect to each Plan and is in compliance in all material respects with the presently applicable provisions of ERISA and the Code, and has not incurred any liability with respect to any Plan under Title IV of ERISA. (b) No reportable event has occurred under Section 4043(b) of ERISA for which the PBGC requires 30 day notice. (c) No action by the Borrower to terminate or withdraw from any Plan has been taken and no notice of intent to terminate a Plan has been filed under Section 4041 of ERISA. (d) No proceeding has been commenced with respect to a Plan under Section 4042 of ERISA, and no event has occurred or condition exists which might constitute grounds for the commencement of such a proceeding. (e) The following terms have the meanings indicated for purposes of this Agreement: (i) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (ii) "ERISA" means the Employee Retirement Income Act of 1974, as amended from time to time. (iii) "PBGC" means the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA. (iv) "Plan" means any employee pension benefit plan maintained or contributed to by the Borrower and insured by the Pension Benefit Guaranty Corporation under Title IV of ERISA. 7.14 LOCATION OF BORROWER. The Borrower's place of business (or, if the Borrower has more than one place of business, its chief executive office) is located at the address listed under the Borrower's signature on this Agreement. 8. COVENANTS - -- --------- The Borrower agrees, so long as credit is available under this Agreement and until the Bank is repaid in full: 8.1 USE OF PROCEEDS. To use the proceeds of the Facility No. 1 for working capital purposes including the issuance of stand-by letters of credit; and the proceeds of Facility No. 2 for the refinancing of industrial revenue bonds in Holly Springs, Mississippi. 8 8.2 FINANCIAL INFORMATION. To provide the following financial information and statements and such additional information as requested by the Bank from time to time: (a) Within 120 days of the Borrower's fiscal year end, the Borrower's annual financial statements. These financial statements must be audited (with an unqualified opinion) by a Certified Public Accountant ("CPA") acceptable to the Bank. The statements shall be prepared on a consolidated and consolidating basis. (b) Within 30 days of the period's end, the borrowers quarterly financial statements. Those financial statements may be Borrower prepared. The statements shall be prepared on a consolidated and consolidating basis. (c) Copies of the Borrower's Form 10-K Annual Report, Form 10-Q Quarterly Report and Form 8-K Current Report within 15 days after the date of filing with the Securities and Exchange Commission. (d) Within 120 days of the Borrower's fiscal year end, the Borrower's annual revised three year strategic plan. 8.3 QUICK RATIO. To maintain on a consolidated basis a ratio of quick assets to current liabilities of at least .70:1.0, to be measured quarterly. "Quick assets" means cash, short-term cash investments, net trade receivables, marketable securities not classified as long-term investments. 8.4 TOTAL LIABILITIES TO TANGIBLE NET WORTH RATIO. To maintain on a consolidated basis a ratio of total liabilities to tangible net worth not exceeding the amounts indicated for each period specified below, to be measured quarterly: Period RATIO --------------- -------- From the date hereof through December 30, 1996 1.50:1.0 From December 31, 1996 and thereafter 1,25:1.0 "Total liabilities" means the sum of current liabilities plus long term liabilities. "Tangible net worth" means the gross book value of the Borrower's assets (excluding goodwill, patents, trademarks, trade names, organization expense, treasury stock, unamortized debt discount and expense, deferred research and development costs, deferred marketing expenses, and other like intangibles less total liabilities, including but not limited to accrued and deferred income taxes, and any reserves against assets. 8.5 FIXED CHARGE COVERAGE RATIO. To maintain on a consolidated basis a Fixed Charge Coverage Ratio of at least 1,35:1.0, to be measured quarterly. "Fixed Charge Coverage Ratio" means the ratio of the sum of net income before taxes, plus interest expense, depreciation and amortization to the sum of interest expense, taxes paid, the current portion of long-term debt, capital expenditures and dividends. This ratio will be calculated at the end of each fiscal quarter, using the results of that quarter and each of the 3 immediately preceding quarters. The current portion of long term debt will be measured as of the last day of the preceding fiscal year. 8.6 NET DOMESTIC SHAREHOLDER EQUITY. To maintain on a consolidated basis a net domestic shareholder equity of at least Ten Million Five Hundred Thousand Dollars ($10,500,000), to be measured quarterly. "Net Domestic Shareholder Equity " means the domestic shareholder equity less investments in subsidiaries and less accounts receivable from subsidiaries. 8.7 LIMITATION ON LOSSES. Not incur any net loss before taxes and extraordinary items in any two consecutive fiscal quarters. 9 8.8 OTHER DEBTS. Not to have outstanding or incur any direct or contingent debts or lease obligations (other than those to the Bank), or become liable for the debts of others without the Bank's written consent. This does not prohibit (a) Acquiring goods, supplies, or merchandise on normal trade credit. (b) Endorsing negotiable instruments received in the usual course of business. (c) Obtaining surety bonds in the usual course of business. (d) Debts and lines of credit in existence on the date of this Agreement disclosed in writing to the Bank including. (e) Debts for insurance premiums in an aggregate principal amount at any one time outstanding not to exceed Eight Hundred Thousand Dollars ($800,000). (f) Debts to acquire fixed or capital assets in an amount not to exceed Seven Hundred Fifty Thousand Dollars ($750,000) in any single fiscal year. (g) Debts (other than those permitted under subsections (a) through (f) above) in an aggregate principal amount at any one time outstanding not to exceed One Hundred Thousand Dollars ($100,000). 8.9 OTHER LIENS. Not to create, assume, or allow any security interest or lien (including judicial liens) on property the Borrower now or later owns, except: (a) Deeds of trust and security agreements in favor of the Bank. (b) Liens for taxes not yet due. (c) Liens outstanding on the date of this Agreement disclosed in writing to the Bank. 8.10 NEGATIVE PLEDGE OTHER REAL PROPERTY. Not to create, assume, or allow any security interest or lien (including judicial liens) on real property the Borrower now or later owns, including but not limited to the real properly located at the following addresses: REAL PROPERTY ADDRESSES 2221 Park Place, El Segundo, California 1815 - 1835 Glenwood. Delano, California 500 Industrial Avenue, Corcoran, California 805 No. West Street, Holly Springs, Mississippi Old Highway 70, 1-40, Conover, North Carolina 3501 Airport Road, Jonesboro, Arkansas 500 So. Main Street, Crystal Lake, Illinois 8.11 NOTICES TO BANK. To promptly notify the Bank in writing of: (a) any lawsuit over One Million Dollars ($1,000,000) against the Borrower (or any guarantor). (b) any substantial dispute between the Borrower (or any guarantor) and any government authority. (c) any failure to comply with this Agreement. (d) any material adverse change in the Borrower's (or any guarantor's) financial condition or operations. (e) any change in the Borrower's name, legal structure, place of business, or chief executive office if the Borrower has more than one place of business. 10 8.12 BOOKS AND RECORDS. To maintain adequate books and records. 8.13 AUDITS. To allow the Bank and its agents to inspect the Borrower's properties and examine, audit and make copies of books and records at any reasonable time. If any of the Borrower's properties, books or records are in the possession of a third party, the Borrower authorizes that third party to permit the Bank or its agents to have access to perform inspections or audits and to respond to the Bank's requests for information concerning such properties, books and records. 8.14 COMPLIANCE WITH LAWS. To comply with the laws (including any fictitious name statute), regulations, and orders of any government body with authority over the Borrower's business. 8.15 PRESERVATION OF RIGHTS. To maintain and preserve all rights, privileges, and franchises the Borrower now has. 8.16 MAINTENANCE OF PROPERTIES. To make any repairs, renewals, or replacements to keep the Borrower's properties in good working condition. 8.17 PERFECTION OF LIENS. To help the Bank perfect and protect its security interests and liens, and reimburse it for related costs it incurs to protect its security interests and liens. 8.18 COOPERATION. To take any action requested by the Bank to carry out the intent of this Agreement. 8.19 INSURANCE. (a) Insurance Covering Collateral. To maintain all risk property damage insurance policies covering the tangible property comprising the collateral. Each insurance policy must be for the full replacement cost of the collateral and include a replacement cost endorsement. The insurance must be issued by an insurance company acceptable to the Bank end must include a lender's loss payable endorsement in favor of the Bank in a form acceptable to the Bank. (b) General Business Insurance. To maintain insurance satisfactory to the Bank as to amount, nature and carrier covering property damage (including loss of use and occupancy) to any of the Borrower's properties, public liability insurance including coverage for contractual liability, product liability and workers' compensation, and any other insurance which is usual for the Borrower's business. (c) Evidence of Insurance. Upon the request of the Bank, to deliver to the Bank a copy of each insurance policy, or, if permitted by the Bank, a certificate of insurance listing all insurance in force. 8.20 ADDITIONAL NEGATIVE COVENANTS. Not to, without the Bank's written consent: (a) engage in any business activities substantially different from the Borrower's present business. (b) liquidate or dissolve the Borrower's business. (c) enter into any consolidation, merger, pool, joint venture, syndicate, or other combination. (d) lease, or dispose of all or a substantial part of the Borrower's business or the Borrower's assets. (e) acquire or purchase a business or its assets for a consideration, including assumption of debt, if the business or the assets to be acquired are for a business which is not in the same line of business as the Borrower. (f)) sell or otherwise dispose of any assets for less than fair market value, or enter into any sale and leaseback agreement covering any of its fixed or capital assets. 8.21 ERISA PLANS. To give prompt written notice to the Bank of: 11 (a) The occurrence of any reportable event under Section 4043(b) of ERISA for which the PBGC requires 30 day notice. (b) Any action by the Borrower to terminate or withdraw from a Plan or the filing of any notice of intent to terminate under Section 4041 of ERISA. (c) Any notice of noncompliance made with respect to a Plan under Section 4041(b) of ERISA. (d) The commencement of any proceeding with respect to a Plan under Section 4042 of ERISA. 9. HAZARDOUS WASTE INDEMNIFICATION - -- ------------------------------- The Borrower will indemnify and hold harmless the Bank from any loss or liability directly or indirectly arising out of the use, generation, manufacture, production, storage, release, threatened release, discharge, disposal or presence of a hazardous substance. This indemnity will apply whether the hazardous substance is on, under or about the Borrower's property or operations or property leased to the Borrower. The indemnity includes but is not limited to attorneys' fees (including the reasonable estimate of the allocated coat of in-house counsel and staff). The indemnity extends to the Bank, its parent, subsidiaries and all of their directors, officers, employees, agents, successors, attorneys and assigns. For these purposes, the term "hazardous substances" means any substance which is or becomes designated as "hazardous" or 'toxic" under any federal, state or local law, This indemnity will survive repayment of the Borrower's obligations to the Bank. 10. DEFAULT - --- ------- If any of the following events occur, the Bank may do one or more of the following: declare the Borrower in default, stop making any additional credit available to the Borrower, and require the Borrower to repay its entire debt immediately and without prior notice. If an event of default occurs under the paragraph entitled "Bankruptcy," below, with respect to the Borrower, then the entire debt outstanding under this Agreement will automatically be due immediately. 10.1 FAILURE TO PAY. The Borrower fails to make a payment under this Agreement when due. 10.2 LIEN PRIORITY. The Bank fails to have an enforceable first lien (except for any prior liens to which the Bank has consented in writing) on or security interest in any property given as security for this loan. 10.3 FALSE INFORMATION. The Borrower has given the Bank false or misleading information or representations. 10.4 BANKRUPTCY. The Borrower (or any guarantor) files a bankruptcy petition, a bankruptcy petition is filed against the Borrower (or any guarantor), or the Borrower (or any guarantor) makes a general assignment for the benefit of creditors. 10.5 RECEIVERS. A receiver or similar official is appointed for the Borrower's (or any guarantor's) business, or the business is terminated. 10.6 GOVERNMENT ACTION. Any government authority takes action that the Bank believes materially adversely affects the Borrower's (or any guarantor's) financial condition or ability to repay. 10.7 MATERIAL ADVERSE CHANGE. A material adverse change occurs in the Borrower's (or any guarantor's) financial condition, properties or prospects, or ability to repay the loan. 10.8 CROSS-DEFAULT. Any default occurs under any agreement in connection with any credit the Borrower (or any guarantor) has obtained from anyone else or which the Borrower (or any guarantor) has guaranteed. 10.9 DEFAULT UNDER RELATED DOCUMENTS. Any guaranty, subordination agreement, security agreement, or other document required by this Agreement is violated of no longer in effect. 12 10.10 OTHER BANK AGREEMENTS. The Borrower (or any guarantor) fails to meet the conditions of, or fails to perform any obligation under any other agreement the Borrower (or any guarantor) has with the Bank or any affiliate of the Bank. 10.11 ERISA PLANS. To give prompt written notice to the Bank of: (a) The occurrence of any reportable event under Section 4043(b) of ERISA for which the PBGC requires 30 day notice. (h) Any action by the Borrower to terminate or withdraw from a Plan or the filing of any notice of intent to terminate under Section 4041 of ERISA. (c) Any notice of noncompliance made with respect to a Plan under Section 4041(b) of ERISA. (d) The commencement of any proceeding with respect to a Plan under Section 4042 of ERISA. 10.12 OTHER BREACH UNDER AGREEMENT. The Borrower fails to meet the conditions of, or fails to perform any obligation under, any term of this Agreement not specifically referred to in this Article. 11. ENFORCING THIS AGREEMENT; MISCELLANEOUS - --- --------------------------------------- 11.1 GAAP. Except as otherwise stated in this Agreement, all financial information provided to the Bank and all financial covenants will be made under generally accepted accounting principles, consistently applied. 11.2 CALIFORNIA LAW. This Agreement is governed by California law. 11.3 SUCCESSORS AND ASSIGNS. This Agreement is binding on the Borrower's and the Bank's successors and assignees. The Borrower agrees that it may not assign this Agreement without the Bank's prior consent. The Bank may sell participations in or assign this loan, and may exchange financial information about the Borrower with actual or potential participants or assignees; provided that such actual or potential participants or assignees shall agree to treat all financial information exchanged as confidential. If a participation is sold or the loan is assigned, the purchaser will have the right of set-off against tire Borrower. 11.4 ARBITRATION. (a) This paragraph concerns the resolution of any controversies or claims between the Borrower and the Bank, including but not limited to those that arise from: (i) This Agreement (including any renewals extensions or modifications of this Agreement); (ii) Any document, agreement or procedure related to or delivered in connection with this Agreement; (iii) Any violation of this Agreement; or (iv) Any claims for damages resulting from any business conducted between the Borrower and the Bank, including claims for injury to parsons, property or business interests (torts). (b) At the request of the Borrower or the Bank, any such controversies or claims will be settled by arbitration in accordance with the United States Arbitration Act. The United States Arbitration Act will apply even though this Agreement provides that it is governed by California law. (c) Arbitration proceedings will be administered by the American Arbitration Association and will be subject to its commercial rules of arbitration. (d) For purposes of the application of the statute of limitations, the filing of an arbitration pursuant to this paragraph is the equivalent of the filing of a lawsuit, and any claim or controversy which may be arbitrated under this paragraph is subject to any applicable statute of limitations. The arbitrators will 13 have the authority to decide whether any such claim or controversy is barred by the statute of limitations and, if so, to dismiss the arbitration on that basis. (e) If there is a dispute as to whether an issue is arbitrable, the arbitrators will have the authority to resolve any such dispute. (f) The decision that results from an arbitration proceeding may be submitted to any authorized court of law to be confirmed and enforced. (g) The procedure described above will not apply if the controversy or claim, at the time of the proposed submission to arbitration, arises from or relates to an obligation to the Bank secured by real property located in California. In this case, both the Borrower and the Bank must consent to submission of the claim or controversy to arbitration. If both parties do not consent to arbitration, the controversy or claim will be settled as follows: (i) The Borrower and the Bank will designate a referee (or a panel of referees) selected under the auspices of the American Arbitration Association in the same manner as arbitrators are selected in Association-sponsored proceedings; (ii) The designated referee (or the panel of referees) will be appointed by a court as provided in California Code of Civil Procedure Section 638 and the following related sections; (iii) The referee (or the presiding referee of the panel) will be an active attorney or a retired judge; and (iv) The award that results from the decision of the referee (or the panel) will be entered as a judgment in the court that appointed the referee, in accordance with the provisions of California Code of Civil Procedure Sections 644 and 645. (h) This provision does not limit the right of the Borrower or the Bank to: (i) exercise self-help remedies such as setoff; (ii) foreclose against or sell any real or personal property collateral; or (iii) act in a court of law, before, during or after the arbitration proceeding to obtain: (A) an interim remedy; and/or (B) additional or supplementary remedies. (i) The pursuit of or a successful action for interim, additional or supplementary remedies, or the filing of a court action, does not constitute a waiver of the right of the Borrower or the Bank, including the suing party, to submit the controversy or claim to arbitration if the other party contests the lawsuit. However, if the controversy or claim arises from or relates to an obligation to the Bank which is secured by real property located in California at the time of the proposed submission to arbitration, this right is limited according to the provision above requiring the consent of both the Borrower and the Bank to seek resolution through arbitration. (j) If the Bank forecloses against any real property securing this Agreement, the Bank has the option to exercise the power of sale under the deed of trust or mortgage, or to proceed by judicial foreclosure. 11.5 SEVERABILITY; WAIVERS. If any part of this Agreement is not enforceable, the rest of the Agreement may be enforced. The Bank retains all rights, even if it makes a loan after default. If the Bank waives a default, it may enforce a later default. Any consent or waiver under this Agreement must be in writing. 11.6 ADMINISTRATION COSTS. The Borrower shall pay the Bank for all reasonable costs incurred by the Bank in connection with administering this Agreement. 14 11.7 ATTORNEYS' FEES. The Borrower shall reimburse the Bank for any reasonable costs and attorneys' fees incurred by the Bank in connection with the enforcement or preservation of any rights or remedies under this Agreement and any other documents executed in connection with this Agreement, and including any amendment, waiver, "workout" or restructuring under this Agreement. In the event of a lawsuit or arbitration proceeding, the prevailing party is entitled to recover costs and reasonable attorneys' fees incurred in connection with the lawsuit or arbitration proceeding, as determined by the court or arbitrator. As used in this paragraph, attorneys' fees" includes the allocated costs of in-house counsel. 11.8 ONE AGREEMENT. This Agreement and any related security or other agreements required by this Agreement, collectively: (a) represent the sum of the understandings and agreements between the Bank and the Borrower concerning this credit; and (b) replace any prior oral or written agreements between the Bank and the Borrower concerning this credit; and (c) are intended by the Bank and the Borrower as the final, complete and exclusive statement of the terms agreed to by them. In the event of any conflict between this Agreement and any other agreements required by this Agreement, this Agreement will prevail. 11.9 NOTICES. All notices required under this Agreement shall be personally delivered or sent by first class mail, postage prepaid, to the addresses on the signature page of this Agreement, or to such other addresses as the Bank and the Borrower may specify from time to time in writing. 11.10 HEADINGS. Article and paragraph headings are for reference only and shall not effect the interpretation or meaning of any provisions of this Agreement. 11.11 COUNTERPARTS. This Agreement may be executed in as many counterparts as necessary or convenient, and by the different parties on separate counterparts each of which, when so executed, shall be deemed an original but all such counterparts shall constitute but one and the same agreement. 15 Bank Of America National Trust and Savings Association Farr Company /s/ William R. Cave /s/ Kenneth W. Gerstner - ------------------- ----------------------- BY: WILLIAM R. CAVE BY: KENNETH W. GERSTNER TITLE: VICE PRESIDENT TITLE: SENIOR VICE PRESIDENT and CHIEF FINANCIAL OFFICER ADDRESS WHERE NOTICES TO THE BANK ADDRESS WHERE NOTICES TO THE ARE TO BE SENT: BORROWER ARE TO BE SENT: LONG BEACH REGIONAL COMMERCIAL 2221 PARK PLACE BANKING OFFICE #1457 EL SEGUNDO CA 90245 150 LONG BEACH BLVD. 3RD FLOOR LONG BEACH CA 90802 16 EX-10 5 EX-10.33 SECOND AMENDMENT Exhibit 10.33 SECOND AMENDMENT TO THE 1991 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS OF FARR COMPANY This Second Amendment (the "Amendment") to The 1991 Stock Option Plan for Non-Employee Directors of Farr Company (the "Plan") is hereby adopted as of the 12th day of September, 1995. Section 2.1 of the Plan is hereby amended and restated in its entirety as follows: "The shares subject to Options shall be shares of the Company's $.10 par value Common Stock. The aggregate number of such shares which may be issued upon exercise of Options shall not exceed 100,000." The last sentance of Section 3.1 of the Plan is hereby amended and restated in its entirety as follows: "No Director shall, however, be granted Options with respect to more than 2,000 shares of the Company's Common Stock per calendar year during the term of this Plan subject to adjustment provided in Section 2.3." Sections 7.2(a) and 7.2(b) are hereby amended and restated in their entirety as follows: "(a) The expiration of ten years from the date the Plan is adopted by the Board; or (b) The expiration of ten years from the date the Plan is approved by the Company's stockholders under Section 7.3." This Amendment has been authorized and approved as of the date first above written by the Board of Directors. EX-10 6 EX 10.34 OFFER LETTER Exhibit 10.34 Farr Company 2221 Park Place El Segundo, California 90245 November 23, 1994 H. Jack Meany Chairman, President & Chief Executive Officer Mr. John C. Johnston 25677 Wildwood Drive Calabasas, California 91302 SUBJECT: Offer of Employment Dear John: We offer you the position of Vice President at a salary rate of $170,000 per year starting January 1, 1995. You will be eligible for company benefits which currently include: profit sharing, ESOP, 401K. management bonus plan and management stock option plan. You will receive a car allowance. A special grant of options for 44,000 shares of common stock will be made. These options will be at a price of $5.00 pr the price on the day of award, whichever is lower. Further, they must be confirmed by the shareholders at the 1995 annual meeting in order to remain operative. It is agreed that, as a condition of your accepting employment, if you are discharged while reporting to someone other than me, including any new owner, for reasons other than cause, during the first two years, then you will receive termination pay of twelve months or for the then remaining period up through two years, whichever is shorter. If this is acceptable to you please indicate your agreement by signing and returning one copy. I am very enthusiastic about the prospects of your joining Farr and I know the others here, including the Directors, will feel likewise. With kind regards, /s/ Jack Meany - -------------- Jack Meany Accepted: /s/ John C. Johnston 11/28/94 -------------------- -------- John C. Johnston Date EX-10 7 EX 10.35 401(K)/RETIREMENT Exhibit 10.35 FARR COMPANY 401(k)/RETIREMENT PLAN (January 1, 1996 Restatement) Fidelity Management Trust Company, its affiliates and employees may not provide you with legal or tax advice in connection with the execution of this document. It should be reviewed by your attorney and/or accountant prior to execution. CORPORATEplan for RETIREMENT VOLUME SUBMITTER PLAN DOCUMENT SYSTEMS TABLE OF CONTENTS PREAMBLE ARTICLE I DEFINTTTONS 1.1 Plan Definitions 2 1.2 Interpretation 7 ARTICLE II SERVICE 2.1 Definitions 8 2.2 Crediting of Hours of Service 9 2.3 Hours of Service Equivalencies 10 2.4 Limitations on Crediting of Hours of Service 11 2.5 Department of Labor Rules 11 2.6 Years of Eligibility Service 11 2.7 Crediting of Continuous Service 12 2.8 Vesting Service 12 2.9 Crediting of Service on Transfer or Amendment 12 ARTICLE III ELIGIBILITY 3.1 Eligibility 14 3.2 Transfers of Employment 14 3.3 Reemployment 14 3.4 Notification Concerning New Eligible Employees 14 3.5 Effect and Duration 14 ARTICLE IV TAX-DEFERRED CONTRIBUTIONS 4.1 Tax-Deferred Contributions 16 4.2 Amount of Tax-Deferred Contributions 16 4.3 Changes in Reduction Authorization 16 4.4 Suspension of Tax-Deferred Contributions 17 4.5 Resumption of Tax-Deferred Contributions 17 4.6 Delivery of Tax-Deferred Contributions 17 4.7 Vesting of Tax-Deferred Contributions 17 (i) ARTICLE V AFTER-TAX AND ROLLOVER CONTRIBUTIONS 5.1 After-Tax Contributions 18 5.2 Amount of After-Tax Contributions by Payroll Withholding 18 5.3 Changes in Payroll Withholding Authorization 18 5.4 Suspension of After-Tax Contributions byPayroll Withholding 19 5.5 Resumption of After-Tax Contributions by Payroll Withholding 19 5.6 Rollover Contributions 19 5.7 Delivery of After-Tax Contributions 20 5.8 Vesting of After-Tax Contributions and Rollover Contributions 20 5.9 Discontinuation of After-Tax Contributions 20 ARTICLE VI EMPLOYER CONTRIBUTIONS 6.1 Contribution Period 21 6.2 Profit-Sharing Contributions 21 6.3 Allocation of Profit-Sharing Contributions 21 6.4 Matching Contributions 21 6.5 Allocation of Matching Contributions 22 6.6 Verification of Amount of Employer Contributions by the Sponsor 22 6.7 Payment of Employer Contributions 22 6.8 Eligibility to Participate in Allocation 22 6.9 Vesting of Employer Contributions 22 6.10 Election of Former Vesting Schedule 23 6.11 Forfeitures to Reduce Employer Contributions 23 ARTICLE VII LIMITATIONS ON CONTRIBUTIONS 7.1 Definitions 24 7.2 Code Section 402(g) Limit 27 7.3 Limitation on Tax-Deferred Contributions of Highly Compensated Employees 28 7.4 Distribution of Excess Tax-Deferred Contributions 29 7.5 Limitation on Matching Contributions and After-Tax Contributions of Highly Compensated Employees 30 7.6 Forfeiture or Distribution of Excess Contributions 31 7.7 Multiple Use Limitation 32 7.8 Determination or Income or Loss 33 (ii) 7.9 Code Section 415 Limitations on Crediting of Contributions and Forfeitures 33 7.10 Coverage Under Other Qualified Defined Contribution Plan 34 7.11 Coverage Under Qualified Defined Benefit Plan 35 7.12 Scope of Limitations 35 ARTICLE VIII TRUST FUNDS AND SEPARATE ACCOUNTS 8.1 General Fund 36 8.2 Investment Funds 36 8.3 Loan Investment Fund 36 8.4 Income on Trust 36 8.5 Separate Accounts 36 8.6 Sub-Accounts 37 ARTICLE IX LIFE INSURANCE CONTRACTS 9.1 No Life Insurance Contracts 38 ARTICLE X DEPOSIT AND INVESTMENT OF CONTRIBUTIONS 10.1 Future Contribution Investment Elections 39 10.2 Deposit of Contributions 39 10.3 Election to Transfer Between Funds 39 ARTICLE XI CREDITING AND VALUING SEPARATE ACCOUNTS 11.1 Crediting Separate Accounts 40 11.2 Valuing Separate Accounts 40 11.3 Plan Valuation Procedures 40 11.4 Finality of Determinations 41 11.5 Notification 41 ARTICLE XII LOANS 12.1 Application for Loan 42 12.2 Reduction of Account Upon Distribution 42 12.3 Requirements to Prevent a Taxable Distribution 43 12.4 Administration of Loan Investment Fund 43 12.5 Default 44 12.6 Special Rules Applicable to Loans 44 12.7 Loans Granted Prior to Amendment 45 (iii) ARTICLE XIII WITHDRAWALS WHILE EMPLOYED 13.1 Withdrawals of After-Tax Contributions 46 13.2 Withdrawals of Rollover Contributions 46 13.3 Withdrawals of Tax-Deferred Contributions 46 13.4 Limitations on Withdrawals Other than Hardship Withdrawals 46 13.5 Conditions and Limitations on Hardship Withdrawals 47 13.6 Order of Withdrawal from a Participant's Sub-Accounts 48 ARTICLE XIV TERMINATION OF EMPLOYMENT AND SETTLEMENT DATE 14.1 Termination of Employment and Settlement Date 49 14.2 Separate Accounting for Non-Vested Amounts 49 14.3 Disposition of Non-Vested Amounts 49 ARTICLE XV DISTRIBUTIONS 15.1 Distributions to Participants 51 15.2 Distributions to Beneficiaries 51 15.3 Cash Outs and Participant Consent 52 15.4 Required Commencement of Distribution 52 15.5 Reemployment of a Participant 53 15.6 Restrictions on Alienation 53 15.7 Facility of Payment 53 15.8 Inability to Locate Payee 54 15.9 Distribution Pursuant to Qualified Domestic Relations Orders 54 ARTICLE XVI FORM OF PAYMENT 16.1 Normal Form of Payment 55 16.2 Optional Form of Payment 55 16.3 Change of Option Election 55 16.4 Direct Rollover 55 16.5 Notice Regarding Forms of Payment 56 16.6 Reemployment 57 16.7 Section 242(b) (2) Elections 57 ARTICLE XVII BENEFICIARIES 17.1 Designation of Beneficiary 59 17.2 Spousal Consent Requirements 59 (iv) ARTICLE XVIII ADMINISTRATION 18.1 Authority of the Sponsor 60 18.2 Action of the Sponsor 60 18.3 Claims Review Procedure 61 18.4 Qualified Domestic Relations Orders 62 18.5 Indemnification 62 18.6 Actions Binding 62 ARTICLE XIX AMENDMENT AND TERMINATION 19.1 Amendment 63 19.2 Limitation on Amendment 63 19.3 Termination 63 19.4 Reorganization 65 19.5 Withdrawal of an Employer 65 ARTICLE XX ADOPTION BY OTHER ENTITIES 20.1 Adoption by Related Companies 67 20.2 Effective Plan Provisions 67 ARTICLE XXI MISCELLANEOUS PROVISIONS 21.1 No Commitment as to Employment 68 21.2 Benefits 68 21.3 No Guarantees 68 21.4 Expenses 68 21.5 Precedent 68 21.6 Duty to Furnish Information 68 21.7 Withholding 69 21.8 Merger, Consolidation, or Transfer of Plan Assets 69 21.9 Back Pay Awards 69 21.10 Condition on Employer Contributions 70 21.11 Return of Contributions to an Employer 70 21.12 Validity of Plan 70 21.13 Trust Agreement 70 21.14 Parties Bound 71 21.15 Application of Certain Plan Provisions 71 21.16 Leased Employees 71 21.17 Transferred Funds 72 (v) ARTICLE XXII TOP-HEAVY PROVISIONS 22.1 Definitions 73 22.2 Applicability 76 22.3 Minimum Employer Contribution 76 22.4 Adjustments to Section 415 Limitations 76 22.5 Accelerated Vesting 77 ARTICLE XXIII EFFECTIVE DATE 23.1 Effective Date of Amendment and Restatement 78 (vi) PREAMBLE The Farr Company 401(k)/Retirement Plan, originally effective as of July 1, 1958, and previously known as the Profit Sharing/401(k) Plan for Office Employees of Farr Company, is hereby amended and restated in its entirety. Effective as of February 1, 1996, the Profit Sharing/401(k) Plan for Shop Employees of Farr Company is merged into the Plan. The Plan, as amended and restated hereby, is intended to qualify as a profit-sharing plan under Section 401(a) of the Code, and includes a cash or deferred arrangement that is intended to qualify under Section 401(k) of the Code. The Plan is maintained for the exclusive benefit of eligible employees and their beneficiaries. Notwithstanding any other provision of the Plan to the contrary, a Participant's vested interest in his Separate Account under the Plan on and after the effective date of this amendment and restatement shall be not less than his vested interest in his account on the day immediately preceding the effective date. In addition, notwithstanding any other provision of the Plan to the contrary, the forms of payment and other Plan provisions that were available under the Plan immediately prior to the later of the effective date of this amendment and restatement or the date this amendment and restatement is adopted and that may not be eliminated under Section 411(d) (6) of the Code shall continue to be available to Participants who had an account under the Plan on the day immediately preceding the later of the effective date or the date this amendment and restatement is adopted. 1 ARTICLE I DEFINITIONS 1.1 PLAN DEFINITIONS As used herein, the following words and phrases have the meanings hereinafter set forth, unless a different meaning is plainly required by the context: The "Administrator" means the Sponsor unless the Sponsor designates another person or persons to act as such. An "After-Tax Contribution" means any after-tax employee contribution made by a Participant as may be permitted under Article V. The "Beneficiary" of a Participant means the person or persons entitled under the provisions of the Plan to receive distribution hereunder in the event the Participant dies before receiving distribution of his entire interest under the Plan. The "Code" means the Internal Revenue Code of 1986, as amended from time to time. Reference to a section of the Code includes such section and any comparable section or sections of any future legislation that amends, supplements, or supersedes such section. The "Compensation" of a Participant for any period means the wages as defined in Section 3401(a) of the Code, determined without regard to any rules that limit compensation included in wages based on the nature or location of the employment or services performed, and all other payments made to him for such period for services as an Employee for which his Employer is required to furnish the Participant a written statement under Sections 6041(d), 6051(a) (3), and 6052 of the Code, and excluding reimbursements or other expense allowances, fringe benefits, moving expenses, deferred compensation, and welfare benefits, but determined prior to any exclusions for amounts deferred under Section 125, 402(e) (3), 402(h), 403(b), or 457(b) of the Code or for certain contributions described in Section 414(h) (2) of the Code. Notwithstanding the foregoing, Compensation shall not include the value of any qualified or non-qualified stock option granted to the Participant by his Employer to the extent such value is includible in the Participant's taxable income. In no event, however, shall the Compensation of a Participant taken into account under the Plan for any Plan Year exceed (1) $200,000 for Plan Years beginning prior to January 1, 1994, or (2) $150,000 for Plan Years beginning on or after January 1, 1994 (subject to adjustment annually as provided in Section 2 401(a) (17) (B) and Section 415(d) of the Code; provided, however, that the dollar increase in effect on January 1 of any calendar year, if any, is effective for Plan Years beginning in such calendar year). If the Compensation of a Participant is determined over a period of time that contains fewer than 12 calendar months, then the annual compensation limitation described above shall be adjusted with respect to that Participant by multiplying the annual compensation limitation in effect for the Plan Year by a fraction the numerator of which is the number of full months in the period and the denominator of which is 12; provided, however, that no proration is required for a Participant who is covered under the Plan for less than one full Plan Year if the formula for allocations is based on Compensation for a period of at least 12 months. In determining the Compensation, for purposes of applying the annual compensation limitation described above, of a Participant who is a five percent owner or among the ten Highly Compensated Employees receiving the greatest Compensation for the Plan Year, the Compensation of the Participant's spouse and of his lineal descendants who have not attained age 19 as of the close of the Plan Year shall be included as Compensation of the Participant for the Plan Year. If as a result of applying the family aggregation rule described in the preceding sentence the annual compensation limitation would be exceeded, the limitation shall be prorated among the affected family members in proportion to each member's Compensation as determined prior to application of the family aggregation rules. A "Contribution Period" means the period specified in Article VI for which Employer Contributions shall be made. An "Eligible Employee" means any Employee who has met the eligibility requirements of Article III to have Tax-Deferred Contributions made to the Plan on his behalf. The "Eligibility Service" of an employee means the period or periods of service credited to him under the provisions of Article II for purposes of determining his eligibility to participate in the Plan as may be required under Article III or Article VI. An "Employee" means any employee of an Employer other than an employee who is covered by a collective bargaining agreement or who is a nonresident alien who does not receive United States source income. An "Employer" means the Sponsor and any entity which has adopted the Plan as may be provided under Article XX. An "Employer Contribution" means the amount, if any, that an Employer contributes to the Plan as may be provided under Article VI or Article XXII. 3 An "Enrollment Date" means the first day of each calendar month of the Plan Year. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. Reference to a section of ERISA includes such section and any comparable section or sections of any future legislation that amends, supplements, or supersedes such section. The "General Fund" means a Trust Fund maintained by the Trustee as required to hold and administer any assets of the Trust that are not allocated among any separate Investment Funds as may be provided in the Plan or the Trust Agreement. No General Fund shall be maintained if all assets of the Trust are allocated among separate Investment Funds. A "Highly Compensated Employee" means an Employee or former Employee who is a highly compensated active employee or highly compensated former employee as defined hereunder. A "highly compensated active employee" includes any Employee who performs services for an Employer during the determination year and who (i) was a five percent owner at any time during the determination year or the look back year, (ii) received compensation from an Employer during the look back year in excess of $75,000 (subject to adjustment annually at the same time and in the same manner as under Section 415(d) of the Code), (iii) was in the top paid group of employees for the look back year and received compensation from an Employer during the look back year in excess of $50,000 (subject to adjustment annually at the same time and in the same manner as under Section 415 (d) of the Code), (iv) was an officer of an Employer during the look back year and received compensation during that year in excess of 50 percent of the dollar limitation in effect for that year under Section 415(b) (1) (A) of the Code or, if no officer received compensation in excess of that amount for the look back year or the determination year, received the greatest compensation for the look back year of any officer, or (v) was one of the 100 employees paid the greatest compensation by an Employer for the determination year and would be described in (ii), (iii), or (iv) above if the term "determination year" were substituted for "look back year". A "highly compensated former employee" includes any Employee who separated from service from an Employer and all Related companies (or is deemed to have separated from service from an Employer and all Related Companies) prior to the determination year, performed no services for an Employer during the determination year, and was a highly compensated active employee for either the separation year or any determination year ending on or after the date the Employee attains age 55. 4 The determination of who is a Highly Compensated Employee hereunder, including determinations as to the number and identity of employees in the top paid group, the 100 employees receiving the greatest compensation from an Employer, the number of employees treated as officers, and the compensation considered shall be made in accordance with the provisions of Section 414(q) of the Code and regulations issued thereunder. For purposes of this definition, the following terms have the following meanings: (a) The "determination year" means the Plan Year or, if the Administrator makes the election provided in paragraph (b) below, the period of time, if any, which extends beyond the look back year and ends on the last day of the Plan year for which testing is being performed (the "lag period"). If the lag period is less than 12 months long, the dollar amounts specified in (ii), (iii), and (iv) above shall be prorated based upon the number of months in the lag period. (b) The "look back year" means the 12-month period immediately preceding the determination year; provided, however, that the Administrator may elect instead to treat the calendar year ending with or within the determination year as the "look back year". An "Hour of Service" with respect to a person means each hour, if any, that may be credited to him in accordance with the provisions of Article II. An "Investment Fund" means any separate investment Trust Fund maintained by the Trustee as may be provided in the Plan or the Trust Agreement or any separate investment fund maintained by the Trustee, to the extent that there are Participant Sub-Accounts under such funds, to which assets of the Trust may be allocated and separately invested. A "Matching Contribution" means any Employer Contribution made to the Plan on account of a Participant's Tax-Deferred Contributions as provided in Article VI. The "Normal Retirement Date" of an employee means the date he attains age 65. A "Participant" means any person who has a Separate Account in the Trust. The "Plan" means Farr Company 401(k)/Retirement Plan, as from time to time in effect. A "Plan Year" means the 12-consecutive-month period ending December 31. 5 A "Predecessor Employer" means Cambridge Filter Corporation. A "Profit-Sharing Contribution" means any Employer Contribution made to the Plan as provided in Article VI, other than Matching Contributions. A "Related Company" means any corporation or business, other than an Employer, which would be aggregated with an Employer for a relevant purpose under Section 414 of the Code. A "Rollover Contribution" means any rollover contribution to the Plan made by a participant as may be permitted under Article V. A "Separate Account" means the account maintained by the Trustee in the name of a Participant that reflects his interest in the Trust and any Sub-Accounts maintained thereunder, as provided in Article VIII. The "Settlement Date" of a Participant means the date on which a Participant's interest under the Plan becomes distributable in accordance with Article XV. The "Sponsor" means Farr Company, and any successor thereto. A "Sub-Account" means any of the individual sub-accounts of a Participant's Separate Account that is maintained as provided in Article VIII. A "Tax-Deferred Contribution" means the amount contributed to the Plan on a Participant's behalf by his Employer in accordance with his reduction authorization executed pursuant to Article IV. The "Trust" means the trust maintained by the Trustee under the Trust Agreement. The "Trust Agreement" means the agreement entered into between the Sponsor and the Trustee relating to the holding, investment, and reinvestment of the assets of the Plan, together with all amendments thereto. The "Trustee" means the trustee or any successor trustee which at the time shall be designated, qualified, and acting under the Trust Agreement. The Sponsor may designate a person or persons other than the Trustee to perform any responsibility of the Trustee under the Plan, other than trustee responsibilities as defined in Section 405(c) (3) of ERISA, and the Trustee shall not be liable for the performance of such person in carrying out such responsibility except as otherwise provided by ERISA. The term Trustee shall include any delegate of the Trustee as may be provided in the Trust Agreement. 6 A "Trust Fund" means any fund maintained under the Trust by the Trustee. A "Valuation Date" means the date or dates designated by the Sponsor and communicated in writing to the Trustee for the purpose of valuing the General Fund and each Investment Fund and adjusting Separate Accounts and Sub-Accounts hereunder, which dates need not be uniform with respect to the General Fund, each Investment Fund, Separate Account, or Sub-Account; provided, however, that the General Fund and each Investment Fund shall be valued and each Separate Account and Sub-Account shall be adjusted no less often than once annually. The "Vesting Service" of an employee means the period or periods of service credited to him under the provisions of Article II for purposes of determining his vested interest in his Employer contributions Sub-Account, if Employer contributions are provided for under either Article VI or Article XXII. 1.2 INTERPRETATION Where required by the context, the noun, verb, adjective, and adverb forms of each defined term shall include any of its other forms. Wherever used herein, the masculine pronoun shall include the feminine, the singular shall include the plural, and the plural shall include the singular. 7 ARTICLE II SERVICE 2.1 DEFINITIONS For purposes of this Article, the following terms shall have the following meanings: (a) A "break in service" means any computation period during which a person completes less than 501 Hours of Service except that no person shall incur a break in service solely by reason of temporary absence from work not exceeding 12 months resulting from illness, layoff, or other cause if authorized in advance by an Employer or a Related Company pursuant to its uniform leave policy, if his employment shall not otherwise be terminated during the period of such absence. (b) A "computation period" for purposes of determining an employee's years of Eligibility Service means (i) the 12-consecutive-month period beginning on the first date he completes an Hour of Service, and (ii) each 12-consecutive-month period beginning on an anniversary of such date. (c) The "continuous service" of an employee means the service credited to him in accordance with the provisions of Section 2.7 of the Plan. (d) The "employment commencement date" of an employee means the date he first completes an Hour of Service. (e) A "maternity/paternity absence" means a person's absence from employment with an Employer or a Related Company because of the person's pregnancy, the birth of the person's child, the placement of a child with the person in connection with the person's adoption of the child, or the caring for the person's child immediately following the child's birth or adoption. A person's absence from employment will not be considered a maternity/paternity absence unless the person furnishes the Administrator such timely information as may reasonably be required to establish that the absence was for one of the purposes enumerated in this paragraph and to establish the number of days of absence attributable to such purpose. (f) The "reemployment commencement date" of an employee means the first date following a severance date on which he again completes an Hour of Service. 8 (g) The "severance date" of an employee means the earlier of (i) the date on which he retires, dies, or his employment with an Employer and all Related Companies is otherwise terminated, or (ii) the first anniversary of the first date of a period during which he is absent from work with an Employer and all Related Companies for any other reason; provided, however, that if he terminates employment with or is absent from work with an Employer and all Related Companies on account of service with the armed forces of the United States, he shall not incur a severance date if he is eligible for reemployment rights under Federal law and he returns to work with an Employer or a Related Company within the period during which he retains such reemployment rights. 2.2 CREDITING OF HOURS OR SERVICE A person shall be credited with an Hour of Service for: (a) each hour for which he is paid, or entitled to payment, for the performance of duties for an Employer, a Predecessor Employer, or a Related Company during the applicable computation period; provided, however, that hours compensated at a premium rate shall be treated as straight-time hours; (b) subject to the provisions of Section 2.4, each hour for which he is paid, or entitled to payment, by an Employer, a Predecessor Employer, or a Related Company on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), lay-off, jury duty, military duty, or leave of absence; (c) each hour for which he would have been scheduled to work for an Employer, a Predecessor Employer, or a Related Company during the period that he is absent from work because of service with the armed forces of the United States provided he is eligible for reemployment rights under Federal law and returns to work with an Employer or a Related Company within the period during which he retains such reemployment rights; and (d) each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by an Employer, a Predecessor Employer, or a Related Company; provided, however, that the same Hour of Service shall not be credited both under paragraph (a) or (b) or (c) of this Section, as the case may be, and under this paragraph (d); and provided, further, that the crediting of Hours of Service for back pay awarded or agreed to with respect to 9 periods described in such paragraph (b) shall be subject to the limitations set forth therein and in Section 2.4. Notwithstanding the foregoing and solely for purposes of determining whether a person who is on a maternity/paternity absence beginning on or after the first day of the first Plan Year that commences on or after January 1, 1985, has incurred a break in service, Hours of Service shall include those hours with which such person would otherwise have been credited but for such maternity/paternity absence, or shall include eight Hours of Service for each day of maternity/paternity absence if the actual hours to be credited cannot be determined; except that not more than 501 hours are to be credited by reason of any maternity/paternity absence. Any hours included as Hours of Service pursuant to the immediately preceding sentence shall be credited to the computation period in which the absence from employment begins, if such person otherwise would incur a break in service in such computation period, or, in any other case, to the immediately following computation period. 2.3 HOURS OF SERVICE EQUIVALENCIES Notwithstanding any other provision of the Plan to the contrary, an Employer may elect to credit Hours of Service to its employees in accordance with one of the following equivalencies, and if an Employer does net maintain records that accurately reflect actual hours of service, such Employer shall credit Hours of Service to its employees in accordance with one of the following equivalencies: (a) If the Employer maintains its records on the basis of days worked, an employee shall be credited with 10 Hours of Service for each day on which he performs an Hour of Service. (b) If the Employer maintains its records on the basis of weeks worked, an employee shall be credited with 45 Hours of Service for each week in which he performs an Hour of Service. (c) If the Employer maintains its records on the basis of semi-monthly payroll periods, an employee shall be credited with 95 Hours of Service for each semi-monthly payroll period in which he performs an Hour of Service. (d) If the Employer maintains its records on the basis of months worked, an employee shall be credited with 190 Hours of Service for each month in which he performs an Hour of Service. 10 2.4 LIMITATIONS ON CREDITING OF HOURS OF SERVICE In the application of the provisions of paragraph (b) of Section 2.2, the following shall apply; (a) An hour for which a person is directly or indirectly paid, or entitled to payment, on account of a period during which no duties are performed shall not be credited to him if such payment is made or due under a plan maintained solely for the purpose of complying with applicable workers' compensation, unemployment compensation, or disability insurance laws. (b) Hours of Service shall not be credited with respect to a payment which solely reimburses a person for medical or medically-related expenses incurred by him. (c) For purposes of such paragraph (b), a payment shall be deemed to be made by or due from an Employer, a predecessor Employer, or a Related Company (i) regardless of whether such payment is made by or due from such employer directly or indirectly, through (among others) a trust fund or insurer to which any such employer contributes or pays premiums, and (ii) regardless of whether contributions made or due to such trust fund, insurer, or other entity are for the benefit of particular persons or are on behalf of a group of persons in the aggregate. (d) No more than 501 Hours of Service shall be credited under such paragraph (b) to a person on account of any single continuous period during which he performs no duties (whether or not such period occurs in a single computation period), unless no duties are performed due to service with the armed forces of the United States for which the person retains reemployment rights as provided in paragraph (c) of Section 2.2. 2.5 DEPARTMENT OF LABOR RULES The rules set forth in paragraphs (b) and (c) of Department of Labor Regulations ss.253O.2OOb-2, which relate to determining Hours of Service attributable to reasons other than the performance of duties and crediting Hours of Service to computation periods, are hereby incorporated into the Plan by reference. 2.6 YEARS OF ELIGIBILITY SERVICE An employee shall be credited with a year of Eligibility Service for each computation period in which he completes at least 1,000 Hours of Service. 11 2.7 CREDITING OF CONTINUOUS SERVICE A person shall be credited with continuous service for the aggregate of the periods of time between his employment commencement date or any reemployment commencement date and the severance date that next follows such employment commencement date or reemployment commencement date; provided, however, that an employee who has a reemployment commencement date within the 12-consecutive-month period following the earlier of the first date of his absence or his severance date shall be credited with continuous service for the period between such severance date and reemployment commencement date. 2.8 VESTING SERVICE Years of Vesting Service shall be determined in accordance with the following provisions: (a) An employee shall be credited with years of Vesting Service equal to his period of continuous service. (b) Notwithstanding the provisions of paragraph (a), continuous service completed by an employee prior to a severance date shall not be included in determining the employee's years of Vesting Service unless the employee had a nonforfeitable right to any portion of his Separate Account, excluding that portion of his Separate Account that is attributable to After-Tax or Rollover contributions, as of the severance date, or the period of time between the severance date and his reemployment commencement date is less than the greater of five years or his period of continuous service determined as of the severance date; provided, however, that solely for purposes of applying this paragraph, if a person is on a maternity/paternity absence beyond the first anniversary of the first day of such absence, his severance date shall be the second anniversary of the first day of such maternity/paternity absence. 2.9 CREDITING OF SERVICE ON TRANSFER OR AMENDMENT Notwithstanding any other provision of the Plan to the contrary, if an Employee is transferred from employment covered under a qualified plan maintained by an Employer or a Related Company for which eligibility service is credited based on elapsed time in accordance with Treasury Regulations ss.410(a)-7 to employment covered under the Plan or, prior to amendment, the Plan provided for crediting of Eligibility Service on the basis of elapsed time, an affected Employee shall be credited with Eligibility Service hereunder equal to: 12 (a) the number of one year periods of service credited to the Employee under the elapsed time method before the transfer date or the effective date of the amendment, plus (b) his service under the Hours of Service method provided hereunder for the computation period in which the transfer or the effective date of the amendment occurs applying one of the equivalencies set forth in Section 2.3 to any fractional part of a year credited to the Employee under the elapsed time method as of the transfer date or the effective date of the amendment; provided, however that the same equivalency shall be used for all similarly situated Employees, plus (c) the service credited to such Employee under the Hours of Service method provided hereunder for computation periods beginning after the computation period in which the transfer or the effective date of the amendment occurs. In addition, notwithstanding any other provision of the Plan to the contrary, if an Employee is transferred from employment covered under a qualified plan maintained by an Employer or a Related Company for which vesting service is credited based on Hours of Service and computation periods in accordance with Department of Labor Regulations S2530.20O through 2530.203 to employment covered under the Plan or, prior to amendment, the Plan provided for crediting of service on the basis of Hours of Service and computation periods, an affected Employee shall be credited with Vesting Service hereunder equal to; (a) the Employee's years of service credited to him under the Hours of Service method before the computation period in which the transfer or the effective date of the amendment occurs, plus (b) the greater of (i) the period of service that would be credited to the Employee under the elapsed time method provided hereunder for his employment during the entire computation period in which the transfer or the effective date of the amendment occurs or (ii) the service taken into account under the Hours of Service method for such computation period as of the transfer date or the effective date of the amendment, plus (c) the service credited to such Employee under the elapsed time method provided hereunder for the period of time beginning on the day after the last day of the computation period in which the transfer or the effective date of the amendment occurs. 13 ARTICLE III ELIGIBILITY 3.1 ELIGIBILITY Each Employee who was an Eligible Employee immediately prior to the effective date of this amendment and restatement shall continue to be an Eligible Employee. Each other Employee shall become an Eligible Employee as of the Enrollment Date coinciding with or next following the date on which he has both attained age 18 and completed one year of Eligibility Service. 3.2 TRANSFERS OF EMPLOYMENT If a person is transferred directly from employment with an Employer or with a Related Company in a capacity other than as an Employee to employment as an Employee, he shall become an Eligible Employee as of the date he is so transferred if prior to an Enrollment Date coinciding with or preceding such transfer date he has met the eligibility requirements of Section 3.1. Otherwise, the eligibility of a person who is so transferred to elect to have Tax-Deterred Contributions made to the Plan on his behalf or to make After-Tax Contributions to the Plan shall be determined in accordance with Section 3.1. 3.3 REEMPLOYMENT If a person who terminated employment with an Employer and all Related Companies is reemployed as an Employee and it he had been an Eligible Employee prior to his termination of employment, he shall again become an Eligible Employee on the date he is reemployed. Otherwise, the eligibility of a person who terminated employment with an Employer and all Related Companies and who is reemployed by an Employer or a Related Company to elect to have Tax-Deferred Contributions made to the Plan on his behalf or to make After-Tax Contributions to the Plan shall be determined in accordance with Section 3.1 or 3.2. 3.4 NOTIFICATION CONCERNING NEW ELIGIBLE EMPLOYEES Each Employer shall notify the Administrator as soon as practicable of Employees becoming Eligible Employees as of any date. 3.5 EFFECT AND DURATION Upon becoming an Eligible Employee, an Employee shall be entitled to elect to have Tax-Deferred Contributions made to the Plan on his behalf and to make After-Tax Contributions to the Plan and shall be bound by all the terms and conditions of the Plan and the Trust Agreement. A person shall continue as an Eligible 14 Employee eligible to have Tax-Deferred Contributions made to the Plan on his behalf and to make After-Tax Contributions to the Plan only so long as he continues in employment as an Employee. 15 ARTICLE IV TAX-DEFERRED CONTRIBUTIONS 4.1 TAX-DEFERRED CONTRIBUTIONS Effective as of the date he becomes an Eligible Employee, or any subsequent Enrollment Date, each Eligible Employee may elect in writing in accordance with rules prescribed by the Administrator to have Tax-Deferred Contributions made to the Plan on his behalf by his Employer as hereinafter provided. An Eligible Employee's written election shall include his authorization for his Employer to reduce his Compensation and to make Tax-Deterred Contributions on his behalf and his election as to the investment of his contributions in accordance with Article X. Tax-Deferred Contributions on behalf of an Eligible Employee shall commence with the first payment of Compensation made on or after the date on which his election is effective. 4.2 AMOUNT OF TAX-DEFERRED CONTRIBUTIONS The amount of Tax-Deferred Contributions to be made to the Plan on behalf of an Eligible Employee by his Employer shall be an integral percentage of his Compensation of not less than one percent nor more than 16 percent. In the event an Eligible Employee elects to have his Employer make Tax-Deterred Contributions on his behalf, his Compensation shall be reduced for each payroll period by the percentage he elects to have contributed on his behalf to the Plan in accordance with the terms of his currently effective reduction authorization. 4.3 CHANGES IN REDUCTION AUTHORIZATION An Eligible Employee may change the percentage of his future Compensation that his Employer contributes on his behalf as Tax-Deferred Contributions at such time or times during the Plan Year as the Administrator may prescribe by filing an amended reduction authorization with his Employer such number of days prior to the date such change is to become effective as the Administrator shall prescribe. An Eligible Employee who changes his reduction authorization shall be limited to selecting a percentage of his Compensation that is otherwise permitted hereunder. Tax-Deterred Contributions shall be made on behalf of such Eligible Employee by his Employer pursuant to his amended reduction authorization tiled in accordance with this Section commencing with Compensation paid to the Eligible Employee on or after the date such filing is effective, until otherwise altered or terminated in accordance with the Plan. 16 4.4 SUSPENSION OF TAX-DEFERRED CONTRIBUTIONS An Eligible Employee on whose behalf Tax-Deferred Contributions are being made may have such contributions suspended at any time by giving such number of days advance written notice to his Employer as the Administrator shall prescribe. Any such voluntary suspension shall take effect commencing with Compensation paid to such Eligible Employee on or after the expiration of the required notice period and shall remain in effect until Tax-Deferred Contributions are resumed as hereinafter set forth. 4.5 RESUMPTION OF TAX-DEFERRED CONTRIBUTIONS An Eligible Employee who has voluntarily suspended his Tax-Deferred Contributions may nave such contributions resumed at such time or times during the Plan Year as the Administrator may prescribe, by filing a new reduction authorization with his Employer such number of days prior to the date as of which such contributions are to be resumed as the Administrator shall prescribe. 4.6 DELIVERY OF TAX-DEFERRED CONTRIBUTIONS As soon after the date an amount would otherwise be paid to an Employee as it can reasonably be separated from Employer assets, each Employer shall cause to be delivered to the Trustee in cash all Tax-Deferred Contributions attributable to such amounts. 4.7 VESTING OF TAX-DEFERRED CONTRIBUTIONS A Participant's vested interest in his Tax-Deferred Contributions Sub-Account shall be at all times 100 percent. 17 ARTICLE V AFTER-TAX AND ROLLOVER CONTRIBUTIONS 5.1 AFTER-TAX CONTRIBUTIONS An Eligible Employee may elect in writing in accordance with rules prescribed by the Administrator to make After-Tax Contributions to the Plan. After-Tax Contributions may be made either by payroll withholding and/or by delivery of a cash amount to an Eligible Employee's Employer, as determined by the Administrator. If the Eligible Employee does not already have an investment election on file with the Administrator, his election to make After-Tax Contributions to the Plan shall include his election as to the investment of his contributions in accordance with Article X. An Eligible Employee's election to make After-Tax Contributions by payroll withholding may be made effective as of any Enrollment Date occurring on or after the date on which he becomes an Eligible Employee. After-Tax Contributions by payroll withholding shall commence with the first payment of Compensation made on or after the Enrollment Date on which the Eligible Employee's election is effective. 5.2 AMOUNT OF AFTER-TAX CONTRIBUTIONS BY PAYROLL WITHHOLDING The amount of After-Tax Contributions made by an Eligible Employee by payroll withholding shall be an integral percentage of his Compensation of not less than one percent nor more than 10 percent. 5.3 CHANGES IN PAYROLL WITHHOLDING AUTHORIZATION An Eligible Employee may change the percentage of his future Compensation that he contributes to the Plan as After-Tax Contributions by payroll withholding at such time or times during the Plan Year as the Administrator may prescribe by filing an amended payroll withholding authorization with his Employer such number of days prior to the date such change is to become effective as the Administrator shall prescribe. An Eligible Employee who changes his payroll withholding authorization shall be limited to selecting a percentage of his Compensation that is otherwise permitted under Section 5.2. After-Tax Contributions shall be made pursuant to an Eligible Employee's amended payroll withholding authorization filed in accordance with this Section commencing with Compensation paid to the Eligible Employee on or after the date such filing is effective, until otherwise altered or terminated in accordance with the Plan. 18 5.4 SUSPENSION OF AFTER-TAX CONTRIBUTIONS BY PAYROLL WITHHOLDING An Eligible Employee who is making After-Tax Contributions by payroll withholding may have such contributions suspended at any time by giving such number of days advance written notice to his Employer as the Administrator shall prescribe. Any such voluntary suspension shall take effect commencing with Compensation paid to such Eligible Employee on or after the expiration of the required notice period and shall remain in effect until After-Tax Contributions are resumed as hereinafter set forth. 5.5 RESUMPTION OF AFTER-TAX CONTRIBUTIONS BY PAYROLL WITHHOLDING An Eligible Employee who has voluntarily suspended his After-Tax Contributions made by payroll withholding in accordance with Section 5.4 may have such contributions resumed at such time or times during the Plan Year as the Administrator may prescribe by filing a new payroll withholding authorization with his Employer such number of days prior to the date as of which such contributions are to be resumed as the Administrator shall prescribe. 5.6 ROLLOVER CONTRIBUTIONS An Employee who was a participant in a plan qualified under Section 401 or 403 of the Code and who receives a cash distribution from such plan that he elects either (i) to roll over immediately to a qualified retirement plan or (ii) to roll over into a conduit IRA from which he receives a later cash distribution, may elect to make a Rollover Contribution to the Plan if he is entitled under Section 402(c) (1), Section 403(a) (4)' or Section 408(d) (3) (A) of the Code to roll over such distribution to another qualified retirement plan. The Administrator may require an Employee to provide it with such information as it deems necessary or desirable to show that he is entitled to roll over such distribution to another qualified retirement plan. An Employee shall make a Rollover Contribution to the Plan by delivering, or causing to be delivered, to the Trustee the cash that constitutes the Rollover Contribution amount within 60 days of receipt of the distribution from the plan or from the conduit IRA in the manner prescribed by the Administrator. If the Employee does not already have an investment election on file with the Administrator, the Employee shall also deliver to the Administrator his election as to the investment of his contributions in accordance with Article X. 19 5.7 DELIVERY OF AFTER-TAX CONTRIBUTIONS As soon after the date an amount would otherwise be paid to an Employee as it can reasonably be separated from Employer assets or as soon as reasonably practicable after an amount has been delivered to an Employer by an Employee, the Employer shall cause to be delivered to the Trustee in cash the After-Tax Contributions attributable to such amount. 5.8 VESTING OF AFTER-TAX CONTRIBUTIONS AND ROLLOVER CONTRIBUTIONS A Participant's vested interest in his After-Tax Contributions Sub-Account and his Rollover Contributions Sub-Account shall be at all times 100 percent. 5.9 DISCONTINUATION OF AFTER-TAX CONTRIBUTIONS Notwithstanding any other provision of the Plan to the contrary, no further After-Tax Contributions may be made to the Plan on or after February 1, 1995. 20 ARTICLE VI EMPLOYER CONTRIBUTIONS 6.1 CONTRIBUTION PERIOD The Contribution Period for Matching Contributions under the Plan shall be each month. The Contribution Period for Profit-Sharing Contributions under the Plan shall be each Plan Year. 6.2 PROFIT-SHARING CONTRIBUTIONS Each Employer shall make a Profit-Sharing Contribution to the Plan for the Contribution Period in an amount equal to 3 percent of the Compensation paid to the Employer's Employees during the Contribution Period who are eligible to participate in the allocation of Profit-Sharing Contributions for the Contribution Period, as determined under this Article. 6.3 ALLOCATION OF PROFIT-SHARING CONTRIBUTIONS Any Profit-Sharing Contribution made by an Employer for a Contribution Period shall be allocated among its Employees during the Contribution Period who are eligible to Participate in the allocation of Profit-Sharing Contributions for the Contribution Period, as determined under this Article. The allocable share of each such Employee shall be in the ratio which his Compensation from the Employer for the Contribution Period bears to the aggregate of such Compensation for all such Employees. Notwithstanding any other provision of the Plan to the contrary, Compensation with respect to any period ending prior to the date on which an Employee first became eligible to participate in the allocation of Profit-Sharing Contributions shall be disregarded in determining the amount of the Employee's allocable share. 6.4 MATCHING CONTRIBUTIONS Each Employer shall make a Matching Contribution to the Plan for each Contribution Period in an amount equal to 25 percent of the aggregate "eligible Tax-Deferred Contributions" for the Contribution Period made on behalf of its Employees during the Contribution Period who are eligible to participate in the allocation of Matching Contributions for the Contribution Period, as determined under this Article. For purposes of this Article, "eligible Tax-Deferred Contributions" with respect to an Employee mean the Tax-Deferred Contributions made on his behalf for the Contribution Period in an amount up to, but not exceeding, the "match level". For purposes of this Article, the "match level" means 4 percent of an Employee's Compensation for the Contribution Period, excluding Compensation with respect to any period ending prior to the date on which the Employee became 21 eligible to participate in the allocation of Matching Contributions. 6.5 ALLOCATION OF MATCHING CONTRIBUTIONS Any Matching Contribution made by an Employer for the Contribution Period shall be allocated among its Employees during the Contribution Period who are eligible to participate in the allocation of Matching Contributions for the contribution Period, as determined under this Article. The allocable share of each such Employee shall be an amount equal to 25 percent of the "eligible Tax-Deferred Contributions" made on his behalf for the Contribution Period. 6.6 VERIFICATION OF AMOUNT OF EMPLOYER CONTRIBUTIONS BY THE SPONSOR The Sponsor shall verify the amount of Employer Contributions to be made by each Employer in accordance with the provisions of the Plan. Notwithstanding any other provision of the Plan to the contrary, the Sponsor shall determine the portion off the Employer Contribution to be made by each Employer with respect to an Employee who transfers from employment with one Employer as an Employee to employment with another Employer as an Employee. 6.7 PAYMENT OF EMPLOYER CONTRIBUTIONS Employer Contributions made for a Contribution Period shall be paid in cash to the Trustee within the period of time required under the Code in order for the contribution to be deductible by the Employer in determining its Federal income taxes for the Plan Year. 6.8 ELIGIBILITY TO PARTICIPATE IN ALLOCATION Each Employee shall be eligible to participate in the allocation of Employer Contributions beginning on the date he becomes, or again becomes, an Eligible Employee in accordance with the provisions of Article III. 6.9 VESTING OF EMPLOYER CONTRIBUTIONS A Participant's vested interest in his Profit-Sharing and Matching Contributions Sub-Accounts shall be determined in accordance with the following schedule: YEARS OF VESTING SERVICE VESTED INTEREST Less than 3 0% 3 but lees than 4 33% 4 but less than 5 67% 5 or more 100% 22 Notwithstanding the foregoing, if a Participant is employed by an Employer or a Related Company on his Normal Retirement Date, the date he becomes physically or mentally disabled or the date he dies, his vested interest in his Profit-Sharing and Matching Contributions Sub-Accounts shall be 100 percent. A Participant shall be deemed to be physically and mentally disabled if, and only if, he is physically or mentally disabled such that he (i) can no longer continue in the service of his Employer and is eligible to receive a disability benefit under the terms of the Social Security Act (ii) can no longer continue in the service of his Employer, as determined by the Administrator on the basis of a written certificate of a physician acceptable to it or (iii) he can no longer continue in the service of his Employer and is eligible to receive a benefit under his Employer's long term disability plan. Further notwithstanding the foregoing, if a Participant was hired by Cambridge Filter Corporation prior to April 1, 1990, his vested interest in his Profit-Sharing and Matching Contributions Sub-Accounts shall be 100 percent. 6.10 ELECTION OF FORMER VESTING SCHEDULE If the Sponsor adopts an amendment to the Plan that directly or indirectly affects the computation of a Participant's vested interest in his Employer Contributions Sub-Account, any Participant with three or more years of Vesting Service shall have a right to have his vested interest in his Employer Contributions Sub-Account continue to be determined under the vesting provisions in effect prior to the amendment rather than under the new vesting provisions, unless the vested interest of the Participant in his Employer Contributions Sub-Account under the Plan as amended is not at any time less than such vested interest determined without regard to the amendment. A Participant shall exercise his right under this Section by giving written notice of his exercise thereof to the Administrator within 60 days after the latest of (i) the date he receives notice of the amendment from the Administrator, (ii) the effective date of the amendment, or (iii) the date the amendment is adopted. Notwithstanding the foregoing, a Participant's vested interest in his Employer Contributions Sub-Account on the effective date of such an amendment shall not be less than his vested interest in his Employer Contributions Sub-Account immediately prior to the effective date of the amendment. 6.11 FORFEITURES TO REDUCE EMPLOYER CONTRIBUTIONS Notwithstanding any other provision of the Plan to the contrary, the amount of the Employer Contribution required under this Article for a Plan Year shall be reduced by the amount of any forfeitures occurring during the Plan Year that are not used to pay Plan expenses. 23 ARTICLE VII LIMITATIONS ON CONTRIBUTIONS 7.1 DEFINITIONS For purposes of this Article, the following terms have the following meanings: (a) The "actual deferral percentage" with respect to an Eligible Employee for a particular Plan Year means the ratio of the Tax-Deterred Contributions made on his behalf for the Plan Year to his test compensation for the Plan Year; provided, however, that contributions made on a Participant's behalf for a Plan Year shall be included in determining his actual deferral percentage for such Plan Year only if the contributions are made to the Plan prior to the end of the 12-month period immediately following the Plan Year to which the contributions relate. The determination and treatment of the actual deferral percentage amounts for any Participant shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury. (b) The "aggregate limit" means the sum of (i) 125 percent of the greater of the average contribution percentage for eligible participants other than Highly Compensated Employees or the average actual deferral percentage for Eligible Employees other than Highly Compensated Employees and (ii) the lesser of 200 percent or two plus the lesser of such average contribution percentage or average actual deferral percentage, or, if it would result in a larger aggregate limit, the sum of (iii) 125 percent of the lesser of the average contribution percentage for eligible participants other than Highly Compensated Employees or the average actual deferral percentage for Eligible Employees other than Highly Compensated Employees and (iv) the lesser of 200 percent or two plus the greater of such average contribution percentage or average actual deferral percentage. (c) The "annual addition" with respect to a Participant for a limitation year means the sum of the Tax-Deferred Contributions, Employer Contributions, and After-Tax Contributions allocated to his Separate Account for the limitation year (including any excess contributions that are distributed pursuant to this Article), the employer contributions, employee contributions, and forfeitures allocated to his accounts for the limitation year under any other qualified defined contribution plan (whether or not terminated) maintained by an Employer or a Related Company concurrently with the Plan, and amounts described 24 in Sections 415(1) (2) and 419A(d) (2) of the Code allocated to his account for the limitation year; provided, however, that the annual addition for limitation years beginning prior to January 1, 1987 shall not be recalculated to treat all After-Tax Contributions and employee contributions as annual additions. (d) The "Code Section 402(g) limit" means the dollar limit imposed by Section 402(g) (1) of the Code or established by the Secretary of the Treasury pursuant to Section 402(g) (5) of the Code in effect on January 1 of the calendar year in which an Eligible Employee's taxable year begins. (e) The "contribution percentage" with respect to an eligible participant for a particular Plan Year means the ratio of the sum of the matching contributions made to the Plan on his behalf and the After-Tax contributions made by him for the Plan Year to his test compensation for such Plan Year, except that, to the extent permitted by regulations issued under Section 401(m) of the Code, the Sponsor may elect to take into account in computing the numerator of each eligible participant's contribution percentage the Tax-Deferred Contributions made to the Plan on his behalf for the Plan Year; provided, however, that any Tax-Deferred Contributions that were taken into account in computing the numerator of an eligible participant's actual deferral percentage may not be taken into account in computing the numerator of his contribution percentage; and provided, further, that contributions made by or on a Participant's behalf for a Plan Year shall be included in determining his contribution percentage for such Plan Year only if the contributions are made to the Plan prior to the end of the 12-month period immediately following the Plan Year to which the contributions relate. The determination and treatment of the contribution percentage amounts for any Participant shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury. (f) An "elective contribution" means any employer contribution made to a plan maintained by an Employer or any Related Company on behalf of a Participant in lieu of cash compensation pursuant to his written election to defer under any qualified CODA as defined in Section 401(k) of the Code, any simplified employee pension cash or deferred arrangement as described in Section 402(h) (1) (B) of the Code, any eligible deferred compensation plan under Section 457 of the Code, or any plan as described in Section 501(c) (18) of the Code, and any contribution made on behalf of the Participant by an Employer or a Related Company for the purchase of an annuity contract under 25 Section 403(b) of the Code pursuant to a salary reduction agreement. (g) An "eligible participant" means any Employee who is eligible to make After-Tax Contributions or to have Tax-Deferred Contributions made on his behalf (if Tax-Deferred Contributions are taken into account in computing contribution percentages) or to participate in the allocation of matching contributions. (h) A "family member" of an Employee means the Employee's spouse, his lineal ascendants, his lineal descendants, and the spouses of such lineal ascendants and descendants. (i) A "limitation year" means the calendar year. (j) A "matching contribution" means any employer contribution allocated to an Eligible Employee's account under the Plan or any other plan of an Employer or a Related Company solely on account of elective contributions made on his behalf or employee contributions made by him. (k) The "test compensation" of an Eligible Employee for a Plan Year means compensation as defined in Section 414(s) of the Code and regulations issued thereunder, limited, however, to (1) $200,000 for Plan Years beginning prior to January 1, 1994, or (2) $150,000 for Plan Years beginning on or after January 1, 1994 (subject to adjustment annually as provided in Section 401(a) (17) (B) and Section 415(d) of the Code; provided, however, that the dollar increase in effect on January 1 of any calendar year, if any, is effective for Plan Years beginning in such calendar year). If the test compensation of a Participant is determined over a period of time that contains fewer than 12 calendar months, then the annual compensation limitation described above shall be adjusted with respect to that Participant by multiplying the annual compensation limitation in effect for the Plan Year by a fraction the numerator of which is the number of full months in the period and the denominator of which is 12; provided, however, that no proration is required for a Participant who is covered under the Plan for less than one full Plan Year if the formula for allocations is based on Compensation for a period of at least 12 months. In determining the test compensation, for purposes of applying the annual compensation limitation described above, of a Participant who is a five-percent owner or among the ten Highly Compensated Employees receiving the greatest test compensation for the limitation year, the test compensation of the Participant's spouse and of his lineal descendants who have not attained age 19 as of the close of the limitation year shall be included as test 26 compensation of the Participant for the limitation year. If as a result of applying the family aggregation rule described in the preceding sentence the annual compensation limitation would be exceeded, the limitation shall be prorated among the affected family members in proportion to each member's test compensation as determined prior to application of the family aggregation rules. 7.2 CODE SECTION 402(G) LIMIT In no event shall the amount of the Tax-Deferred Contributions made on behalf of an Eligible Employee for his taxable year, when aggregated with any elective contributions made on behalf of the Eligible Employee under any other plan of an Employer or a Related Company for his taxable year, exceed the Code Section 402(g) limit. In the event that the Administrator determines that the reduction percentage elected by an Eligible Employee will result in his exceeding the Code Section 402(g) limit, the Administrator may adjust the reduction authorization of such Eligible Employee by reducing the percentage of his Tax-Deferred Contributions to such smaller percentage that will result in the Code Section 402(g) limit not being exceeded. If the Administrator determines that the Tax-Deferred Contributions made on behalf of an Eligible Employee would exceed the Code Section 402(g) limit for his taxable year, the Tax-Deferred Contributions for such Participant shall be automatically suspended for the remainder, if any, of such taxable year. If an Employer notifies the Administrator that the Code Section 402(g) limit has nevertheless been exceeded by an Eligible Employee for his taxable year, the Tax-Deferred Contributions that, when aggregated with elective contributions made on behalf of the Eligible Employee under any other plan of an Employer or a Related Company, would exceed the Code Section 402(g) limit, plus any income and minus any losses attributable thereto, shall be distributed to the Eligible Employee no later than the April 15 immediately following such taxable year. Any Tax-Deferred Contributions that are distributed to an Eligible Employee in accordance with this Section shall NOT be taken into account in computing the Eligible Employee's actual deferral percentage for the Plan Year in which the Tax-Deferred Contributions were made, unless the Eligible Employee is a Highly Compensated Employee. If an amount of Tax-Deferred Contributions is distributed to a Participant in accordance with this Section, matching contributions that are attributable solely to the distributed Tax-Deferred Contributions, plus any income and minus any losses attributable thereto, shall be forfeited by the Participant. Any such forfeited amounts shall be treated as a forfeiture under the Plan in accordance with the provisions of Article XIV as of the last day of the month in which the distribution of Tax-Deferred Contributions pursuant to this Section occurs. 27 7.3 LIMITATION ON TAX-DEFERRED CONTRIBUTIONS OF HIGHLY COMPENSATED EMPLOYEES Notwithstanding any other provision of the Plan to the contrary, the Tax-Deferred Contributions made with respect to a Plan Year on behalf of Eligible Employees who are Highly Compensated Employees may not result in an average actual deferral percentage for such Eligible Employees that exceeds the greater of: (a) a percentage that is equal to 125 percent of the average actual deferral percentage for all other Eligible Employees; or (b) a percentage that is not more than 200 percent of the average actual deferral percentage for all other Eligible Employees and that is not more than two percentage points higher than the average actual deferral percentage for all other Eligible Employees. In order to assure that the limitation contained herein is not exceeded with respect to a Plan Year, the Administrator is authorized to suspend completely further Tax-Deferred Contributions on behalf of Highly Compensated Employees for any remaining portion of a Plan Year or to adjust the projected actual deferral percentages of Highly Compensated Employees by reducing their percentage elections with respect to Tax-Deferred Contributions for any remaining portion of a Plan Year to such smaller percentages that will result in the limitation set forth above not being exceeded. In the event of any such suspension or reduction, Highly Compensated Employees affected thereby shall be notified of the reduction or suspension as soon as possible and shall be given an opportunity to make a new Tax-Deferred Contribution election to be effective the first day of the next following Plan Year. In the absence of such an election, the election in effect immediately prior to the Suspension or adjustment described above shall be reinstated as of the first day of the next following Plan Year. For purposes of applying the limitation contained in this Section, the Tax-Deferred Contributions and test compensation of any Eligible Employee who is a family member of another Eligible Employee who is a five percent owner or among the ten Highly Compensated Employees receiving the greatest test compensation for the Plan Year shall be aggregated with the Tax-Deferred Contributions and test compensation of such other Eligible Employee, and such family member shall not be considered an Eligible Employee for purposes of determining the average actual deferral percentage for all other Eligible Employees. In determining the actual deferral percentage for any Eligible Employee who is a Highly Compensated Employee for the Plan Year, elective contributions made to his accounts under any other plan 28 of an Employer or a Related Company shall be treated as if all such contributions were made to the Plan; provided, however, that if such a plan has a plan year different from the Plan Year, any such contributions made to the Highly Compensated Employee's accounts under the plan for the plan year ending with or within the same calendar year as the Plan Year shall be treated as it such contributions were made to the Plan. Notwithstanding the foregoing, such contributions shall not be treated as if they were made to the Plan if regulations issued under Section 401(k) of the Code do not permit such plan to be aggregated with the Plan. If one or more plans of an Employer or Related Company are aggregated with the Plan for purposes of satisfying the requirements of Section 401 (a) (4) or 410(b) of the Code, then actual deferral percentages under the Plan shall be calculated as if the Plan and such one or more other plane were a single plan. For Plan Years beginning after December 31, 1991, plans may be aggregated to satisfy Section 401(k) or the Code only if they have the same plan year. The Administrator shall maintain records sufficient to show that the limitation contained in this Section was not exceeded with respect to any Plan Year. 7.4 DISTRIBUTION OF EXCESS TAX-DEFERRED CONTRIBUTIONS Notwithstanding any other provision of the Plan to the contrary, in the event that the limitation contained in Section 7.3 is exceeded in any Plan Year, the Tax-Deferred Contributions made with respect to a Highly Compensated Employee that exceed the maximum amount permitted to be contributed to the Plan on his behalf under Section 7.3, plus any income and minus any losses attributable thereto, shall be distributed to the Highly Compensated Employee prior to the end of the next succeeding Plan Year. If excess amounts are attributable to Participants aggregated under the family aggregation rules described in Section 7.3, the excess shall be allocated among family members in proportion to the Tax-Deferred Contributions made with respect to each family member. If such excess amounts are distributed more than 2 1/2 months after the last day of the Plan Year for which the excess occurred, an excise tax may be imposed under Section 4979 of the Code on the Employer maintaining the Plan with respect to such amounts. The maximum amount permitted to be contributed to the Plan on a Highly Compensated Employee's behalf under Section 7.3 shall be determined by reducing Tax-Deferred Contributions made on behalf of Highly Compensated Employees in order of their actual deferral percentages beginning with the highest of such percentages. 29 If an amount of Tax-Deferred Contributions is distributed to a Participant in accordance with this Section, matching contributions that are attributable solely to the distributed Tax-Deferred Contributions, plus any income and minus any losses attributable thereto, shall be forfeited by the Participant. Any such forfeited amounts shall be treated as a forfeiture under the Plan in accordance with the provisions of Article XIV as of the last day of the month in which the distribution of Tax-Deferred Contributions pursuant to this Section occurs. 7.5 LIMITATION ON MATCHING CONTRIBUTIONS AND AFTER-TAX CONTRIBUTIONS OF HIGHLY COMPENSATED EMPLOYEES Notwithstanding any other provision of the Plan to the contrary, the matching contributions and After-Tax Contributions made with respect to a Plan Year by or on behalf of eligible participants who are Highly Compensated Employees may not result in an average contribution percentage for such eligible participants that exceeds the greater of: (a) a percentage that is equal to 125 percent of the average contribution percentage for all other eligible participants; or (b) a percentage that is not more than 200 percent of the average contribution percentage for all other eligible participants and that is not more than two percentage points higher than the average contribution percentage for all other eligible participants. For purposes of applying the limitation contained in this Section, the matching contributions, After-Tax Contributions, Tax-Deferred Contributions (to the extent that such Tax-Deferred Contributions are taken into account in computing contribution percentages), and test compensation of any eligible participant who is a family member of another eligible participant who is a five percent owner or among the ten Highly Compensated Employees receiving the greatest test compensation for the Plan Year shall be aggregated with the matching contributions, After-Tax Contributions, Tax-Deferred Contributions, and test compensation of such other eligible participant:, and such family member shall not be considered an eligible participant for purposes of determining the average contribution percentage for all other eligible participants. In determining the contribution percentage for any eligible participant who is a Highly Compensated Employee for the Plan Year, matching contributions, employee contributions, and elective contributions (to the extent that elective contributions are taken into account in computing contribution percentages) made to his accounts under any other plan of an Employer or a Related Company shall be treated as if all such contributions 30 were made to the Plan; provided, however, that if such a plan has a plan year different from the Plan Year, any such contributions made to the Highly Compensated Employee's accounts under the plan for the plan year ending with or within the same calendar year as the Plan Year shall be treated as if such contributions were made to the Plan. Notwithstanding the foregoing, such contributions shall not be treated as if they were made to the Plan if regulations issued under Section 401(m) of the Code do not permit such plan to be aggregated with the Plan. If one or more plans of an Employer or a Related Company are aggregated with the Plan for purposes of satisfying the requirements of Section 401(a) (4) or 410(b) of the Code, the contribution percentages under the Plan shall be calculated as if the Plan and such one or more other plans were a single plan. For Plan Years beginning after December 31, 1989, plans may be aggregated to satisfy Section 401(m) of the Code only if they have the same plan year. The Administrator shall maintain records sufficient to show that the limitation contained in this Section was not exceeded with respect to any Plan Year and the amount of the elective contributions taken into account in computing contribution percentages for any Plan Year. 7.6 FORFEITURE OR DISTRIBUTION OF EXCESS CONTRIBUTIONS Notwithstanding any other provision of the Plan to the contrary, in the event that the limitation contained in Section 7.5 is exceeded in any Plan Year, the matching contributions and After-Tax Contributions made by or on behalf of a Highly Compensated Employee that exceed the maximum amount permitted to be contributed to the Plan by or on behalf of such Highly Compensated Employee under Section 7.5, plus any income and minus any losses attributable thereto, shall be forfeited, to the extent forfeitable, or distributed to the Participant prior to the end of the next succeeding Plan Year as hereinafter provided. If excess amounts are attributable to Participants aggregated under the family aggregation rules described in Section 7.5, the excess shall be allocated among family members in proportion to the matching contributions and After-Tax Contributions made with respect to each family member. If such excess amounts are distributed more than 2 1/2 months after the last day of the Plan Year for which the excess occurred, an excise tax may be imposed under Section 4979 of the Code on the Employer maintaining the Plan with respect to such amounts. The maximum amount permitted to be contributed to the Plan by or on behalf of a Highly Compensated Employee under Section 7.5 shall be determined by reducing matching contributions and After-Tax Contributions made by or on behalf of Highly Compensated Employees in order of their contribution percentages 31 beginning with the highest of such percentages. The distribution or forfeiture requirement of this Section shall be satisfied by reducing contributions made by or on behalf of the Highly Compensated Employee to the extent necessary in the following order: After-Tax Contributions made by the Highly Compensated Employee, if any, shall be distributed. Matching contributions attributable to Tax-Deferred Contributions shall be distributed or forfeited, as appropriate. Any amounts forfeited with respect to a Participant pursuant to this Section shall be treated as a forfeiture under the Plan in accordance with the provisions of Article XIV as of the last day of the month in which the distribution of contributions pursuant to this Section occurs. The amount of excess After-Tax Contributions of a Participant shall in all cases be distributable; the excess matching contributions shall be distributable to the extent the Participant has a vested interest in his Employer Contributions Sub-Account that is attributable to matching contributions. The determination of the amount of excess matching contributions and After-Tax Contributions shall be made after application of Section 7.4, if applicable. 7.7 MULTIPLE USE LIMITATION Notwithstanding any other provision of the Plan to the contrary, the following multiple use limitation as required under Section 401(m) of the Code shall apply: the sum of the average actual deferral percentage for Eligible Employees who are Highly Compensated Employees and the average contribution percentage for eligible participants who are Highly Compensated Employees may not exceed the aggregate limit. In the event that, after satisfaction of Section 7.4 and Section 7.6, it is determined that contributions under the Plan fail to satisfy the multiple use limitation contained herein, the multiple use limitation shall be satisfied by further reducing the actual deferral percentages of Eligible Employees who are Highly Compensated Employees (beginning with the highest such percentage) to the extent necessary to eliminate the excess, with such further reductions to be treated as excess Tax-Deferred Contributions and disposed of as provided in Section 7.4, or in an alternative manner, consistently applied, that may be permitted by regulations issued under Section 401(m) of the Code. 32 7.8 DETERMINATION OF INCOME OR LOSS The income or loss attributable to excess contributions that are distributed pursuant to this Article shall be determined for the preceding Plan Year under the method otherwise used for allocating income or loss to Participant's Separate Accounts. 7.9 CODE SECTION 415 LIMITATIONS ON CREDITING OF CONTRIBUTIONS AND FORFEITURES Notwithstanding any other provision of the Plan to the contrary, the annual addition with respect to a Participant for a limitation year shall in no event exceed the lesser of (i) $30,000 (adjusted as provided in Section 415(d) of the Code) or (ii) 25 percent of the Participant's compensation, as defined in Section 415(c) (3) of the Code and regulations issued thereunder, for the limitation year. If the annual addition to the Separate Account of a Participant in any limitation year would otherwise exceed the amount that may be applied for his benefit under the limitation contained in this Section, the limitation shall be satisfied by reducing contributions made by or on behalf or the Participant to the extent necessary in the following order: After-Tax Contributions made by the Participant for the limitation year, if any, shall be reduced. Tax-Deferred Contributions made on the Participant's behalf for the limitation year that have not been matched, if any, shall be reduced. Tax-Deferred Contributions made on the Participant's behalf for the limitation year that have been matched and the matching contributions attributable thereto, if any, shall be reduced pro rata. Employer Contributions (other than matching contributions) otherwise allocable to the Participant's Separate Account for the limitation year shall be reduced. The amount of any reduction of Tax-Deferred Contributions or After-Tax Contributions (plus any income attributable thereto) shall be returned to the Participant. The amount of any reduction of Employer Contributions shall be deemed a forfeiture for the limitation year. Amounts deemed to be forfeitures under this Section shall be held unallocated in a suspense account established for the limitation year and shall be applied against the Employer's contribution obligation for the next following limitation year (and succeeding limitation years, as necessary) If a suspense account is in existence at any time during a limitation year, all amounts in the suspense account must be allocated to Participants' Separate Accounts (subject to the limitations contained herein) before any further Tax-Deferred 33 Contributions, Employer Contributions, or After-Tax Contributions may be made to the Plan by or on behalf of Participants. No suspense account established hereunder shall share in any increase or decrease in the net worth of the Trust. For purposes of this Article, excesses shall result only from the allocation of forfeitures, a reasonable error in estimating a Participant's annual compensation (as defined in Section 415(c) (3) of the Code and regulations issued thereunder), a reasonable error in determining the amount of Tax-Deferred Contributions that may be made with respect to any Participant under the limits of Section 415 of the Code, or other limited facts and circumstances that justify the availability of the provisions set forth above. 7.10 COVERAGE UNDER OTHER QUALIFIED DEFINED CONTRIBUTION PLAN If a Participant is covered by any other qualified defined contribution plan (whether or not terminated) maintained by an Employer or a Related Company concurrently with the Plan, and if the annual addition for the limitation year would otherwise exceed the amount that may be applied for the Participant's benefit under the limitation contained in Section 7.9, such excess shall be reduced first by returning the employee contributions made by the Participant for the limitation year under all of the defined contribution plans other than the Plan and the income attributable thereto to the extent necessary. If the limitation contained in Section 7.9 is still not satisfied after returning all of the employee contributions made by the Participant under all such other plans, the excess shall be reduced by returning the elective contributions made on the Participant's behalf for the limitation year under all such other plans and the income attributable thereto to the extent necessary on a pro rata basis among all of such plans. If the limitation contained in Section 7.9 is still not satisfied after returning all of the elective contributions made on the Participant's behalf under all such other plans, the procedure set forth in Section 7.9 shall be invoked to eliminate any such excess. It the limitation contained in Section 7.9 is still not satisfied after invocation of the procedure set forth in Section 7.9, the portion of the employer contributions and of forfeitures for the limitation year under all such other plans that has been allocated to the Participant thereunder, but which exceeds the limitation set forth in Section 7.9, shall be deemed a forfeiture for the limitation year and shall be disposed of as provided in such other plans; provided, however, that if the Participant is covered by a money purchase pension plan, the forfeiture shall be effected first under any other defined contribution plan that is not a money purchase pension plan and, if the limitation is still not satisfied, then under such money purchase pension plan. 34 7.11 COVERAGE UNDER QUALIFIED DEFINED BENEFIT PLAN If a Participant in the Plan is also covered by a qualified defined benefit plan (whether or not terminated) maintained by an Employer or a Related Company, in no event shall the sum of the defined benefit plan fraction (as defined in Section 415(e) (2) of the Code) and the defined contribution plan fraction (as defined in Section 415(e) (3) of the Code) exceed 1.0 in any limitation year. If, before October 3, 1973, the Participant was an active participant in a qualified defined benefit plan maintained by an Employer or a Related Company and otherwise satisfies the requirements of Section 2004(d) (2) of ERISA, then for purposes of applying this Section, the defined benefit plan fraction shall not exceed 1.0. If the Plan satisfied the applicable requirements of Section 415 of the Code as in effect for all limitation years beginning before January 1, 1987, an amount shall be subtracted from the numerator of the defined contribution plan traction (not exceeding such numerator) as prescribed by the Secretary of the Treasury so that the sum of the defined benefit plan fraction and the defined contribution plan fraction computed under Section 415(e) (1) of the Code, as revised by the Tax Reform Act of 1986, does not exceed 1.0 for such limitation year. In the event the special limitation contained in this Section is exceeded, the benefits otherwise payable to the Participant under any such qualified defined benefit plan shall be reduced to the extent necessary to meet such limitation. 7.12 SCOPE OF LIMITATIONS The limitations contained in Sections 7.9, 7.10, and 7.11 shall be applicable only with respect to benefits provided pursuant to defined contribution plans and defined benefit plans described in Section 415(k) of the Code. 35 ARTICLE VIII TRUST FUNDS AND SEPARATE ACCOUNTS 8.1 GENERAL FUND The Trustee shall maintain a General Fund as required to hold and administer any assets of the Trust that are not allocated among the Investment Funds as provided in the Plan or the Trust Agreement. The General Fund shall be held and administered as a separate common trust fund. The interest of each Participant or Beneficiary under the Plan in the General Fund shall be an undivided interest. 8.2 INVESTMENT FUNDS The Sponsor shall determine the number and type of Investment Funds and select the investments for such Investment Funds. The Sponsor shall communicate the same and any changes therein in writing to the Administrator and the Trustee. Each Investment Fund shall be held and administered as a separate common trust fund. The interest of each Participant or Beneficiary under the Plan in any Investment Fund shall be an undivided interest. 8.3 LOAN INVESTMENT FUND If a loan from the Plan to a Participant is approved in accordance with the provisions of Article XII, the Sponsor shall direct the establishment and maintenance of a loan Investment Fund in the Participant's name. The assets of the loan Investment Fund shall be held as a separate trust fund. A Participant's loan Investment Fund shall be invested in the note reflecting the loan that is executed by the Participant in accordance with the provisions of Article XII. Notwithstanding any other provision of the Plan to the contrary, income received with respect to a Participant's loan Investment Fund shall be allocated and the loan Investment Fund shall be administered as provided in Article XII. 8.4 INCOME ON TRUST Any dividends, interest, distributions, or other income received by the Trustee with respect to any Trust Fund maintained hereunder shall be allocated by the Trustee to the Trust Fund for which the income was received. 8.5 SEPARATE ACCOUNTS As of the first date a contribution is made by or on behalf of an Employee, there shall be established a Separate Account in his name reflecting his interest in the Trust. Each Separate Account shall be maintained and administered for each Participant and 36 Beneficiary in accordance with the provisions of the Plan. The balance of each Separate Account shall be the balance of the account after all credits and charges thereto, for and as of such date, have been made as provided herein. 8.6 SUB-ACCOUNTS A Participant's Separate Account shall be divided into individual Sub-Accounts reflecting the portion of the Participant's Separate Account that is derived from Tax-Deferred Contributions, After-Tax Contributions, Rollover Contributions, or Employer Contributions. Each Sub-Account shall reflect separately contributions allocated to each Trust Fund maintained hereunder and the earnings and losses attributable thereto. Such other Sub-Accounts may be established as are necessary or appropriate to reflect a Participant's interest in the Trust. 37 ARTICLE IX LIFE INSURANCE CONTRACTS 9.1 NO LIFE INSURANCE CONTRACTS There shall be no life insurance contracts purchased under the Plan. 38 ARTICLE X DEPOSIT AND INVESTMENT OF CONTRIBUTIONS 10.1 FUTURE CONTRIBUTION INVESTMENT ELECTIONS Each Eligible Employee shall make an investment election in the manner and form prescribed by the Administrator directing the manner in which his Tax-Deferred Contributions, After-Tax Contributions, Rollover Contributions, and Employer Contributions shall be invested. An Eligible Employee's investment election shall specify the percentage, in the percentage increments prescribed by the Administrator, of such contributions that shall be allocated to one or more of the Investment Funds with the sum or such percentages equaling 100 percent. The investment election by a Participant shall remain in effect until his entire interest under the Plan is distributed or forfeited in accordance with the provisions of the Plan or until he files a change of investment election with the Administrator, in such form as the Administrator shall prescribe. A Participant's change of investment election may be made effective as of the date or dates prescribed by the Administrator. 10.2 DEPOSIT OF CONTRIBUTIONS All Tax-Deferred Contributions, After-Tax Contributions, Rollover Contributions, and Employer Contributions shall be deposited in the Trust and allocated among the Investment Funds in accordance with the Participant's currently effective investment election. If no investment election is on file with the Administrator at the time contributions are to be deposited to a Participant's Separate Account, the Participant shall be notified and an investment election form shall be provided to him. Until such Participant shall make an effective election under this Section, his contributions shall be allocated among the Investment Funds as directed by the Administrator. 10.3 ELECTION TO TRANSFER BETWEEN FUNDS A Participant may elect to transfer investments from any Investment Fund to any other Investment Fund. The Participant's transfer election shall specify either (i) a percentage, in the percentage increments prescribed by the Administrator, of the amount eligible for transfer, which percentage may not exceed 100 percent, or (ii) a dollar amount that is to be transferred. Subject to any restrictions pertaining to a particular Investment Fund, a Participant's transfer election may be made effective as of the date or dates prescribed by the Administrator. 39 ARTICLE XI CREDITING AND VALUING SEPARATE ACCOUNTS 11.1 CREDITING SEPARATE ACCOUNTS All contributions made under the provisions of the Plan shall be credited to Separate Accounts in the Trust Funds by the Trustee, in accordance with procedures established in writing by the Administrator, either when received or on the succeeding Valuation Date after valuation of the Trust Fund has been completed for such Valuation Date as provided in Section 11.2, as shall be determined by the Administrator. 11.2 VALUING SEPARATE ACCOUNTS Separate Accounts in the Trust Funds shall be valued by the Trustee on the Valuation Date, in accordance with procedures established in writing by the Administrator, either in the manner adopted by the Trustee and approved by the Administrator or in the manner set forth in Section 11.3 as Plan valuation procedures, as determined by the Administrator. 11.3 PLAN VALUATION PROCEDURES With respect to the Trust Funds, the Administrator may determine that the following valuation procedures shall be applied. As of each Valuation Date hereunder, the portion of any Separate Accounts in a Trust Fund shall be adjusted to reflect any increase or decrease in the value of the Trust Fund for the period of time occurring since the immediately preceding Valuation Date for the Trust Fund (the "valuation period") in the following manner: (a) First, the value of the Trust Fund shall be determined by valuing all of the assets of the Trust Fund at fair market value. (b) Next, the net increase or decrease in the value of the Trust Fund attributable to net income and all profits and losses, realized and unrealized, during the valuation period shall be determined on the basis of the valuation under paragraph (a) taking into account appropriate adjustments for contributions, loan payments, and transfers to and distributions, withdrawals, loans, and transfers from such Trust Fund during the valuation period. (c) Finally, the net increase or decrease in the value of the Trust Fund shall be allocated among Separate Accounts in the Trust Fund in the ratio of the balance of the portion of such Separate Account in the Trust Fund as of the 40 preceding Valuation Date less any distributions, withdrawals, loans. and transfers from such Separate Account balance in the Trust Fund since the Valuation Date to the aggregate balances of the portions of all Separate Accounts in the Trust Fund similarly adjusted, and each Separate Account in the Trust Fund shall be credited or charged with the amount of its allocated share. Notwithstanding the foregoing, the Administrator may adopt such accounting procedures as it considers appropriate and equitable to establish a proportionate crediting of net increase or decrease in the value of the Trust Fund for contributions, loan payments, and transfers to and distributions, withdrawals, loans, and transfers from such Trust Fund made by or on behalf of a Participant during the valuation period. 11.4 FINALITY OF DETERMINATIONS The Trustee shall have exclusive responsibility for determining the balance of each Separate Account maintained hereunder. The Trustee's determinations thereof shall be conclusive upon all interested parties. 11.5 NOTIFICATION Within a reasonable period of time after the end of each Plan Year, the Administrator shall notify each Participant and Beneficiary of the balances of his Separate Account and Sub-Accounts as of a Valuation Date during the Plan Year. 41 ARTICLE XII LOANS 12.1 APPLICATION FOR LOAN A Participant who is a party in interest may make written application to the Administrator for a loan from his Separate Account. A loan shall not be made hereunder unless the Participant applying for the loan has incurred an immediate and heavy financial need as defined in Article XIII. As collateral for any loan granted hereunder, the Participant shall grant to the Plan a security interest in his vested interest under the Plan equal to the amount of the loan; provided, however, that in no event may the Security interest exceed 50 percent of the Participant's vested interest under the Plan determined as of the date as of which the loan is originated in accordance with Plan provisions. In the case of a Participant who is an active employee, the Participant also shall enter into an agreement to repay the loan by payroll withholding. No loan in excess of 50 percent of the Participant's vested interest under the Plan shall be made from the Plan. Loans shall not be made available to Highly Compensated Employees in an amount greater than the amount made available to other employees. A loan shall not be granted unless the Participant consents in writing to the charging of his Separate Account for unpaid principal and interest amounts in the event the loan is declared to be in default. 12.2 REDUCTION OF ACCOUNT UPON DISTRIBUTION Notwithstanding any other provision of the Plan, the amount of a Participant's Separate Account that is distributable to the Participant or his Beneficiary under Article XIII or XV shall he reduced by the portion of his vested interest that is held by the Plan as security for any loan outstanding to the Participant, provided that the reduction is used to repay the loan. If distribution is made because of the Participant's death prior to the commencement of distribution of his Separate Account and less than 100 percent of the Participant's vested interest in his Separate Account (determined without regard to the preceding sentence) is payable to his surviving spouse, then the balance of the Participant's vested interest in his Separate Account shall be adjusted by reducing the vested account balance by the amount of the security used to repay the loan, as provided in the preceding sentence, prior to determining the amount of the benefit payable to the surviving spouse. 42 12.3 REQUIREMENTS TO PREVENT A TAXABLE DISTRIBUTION Notwithstanding any other provision of the Plan to the contrary, the following terms and conditions shall apply to any loan made to a Participant under this Article: (a) The interest rate on any loan to a Participant shall be a reasonable interest rate commensurate with current interest rates charged for loans made under similar circumstances by persons in the business of lending money. (b) The amount of any loan to a Participant (when added to the outstanding balance of all other loans to the Participant from the Plan or any other plan maintained by an Employer or a Related Company) shall not exceed the lesser of: (i) $50,000, reduced by the excess, if any, of the highest outstanding balance of any other loan to the Participant from the Plan or any other plan maintained by an Employer or a Related Company during the preceding 12-month period over the outstanding balance of such loans on the date a loan is made hereunder; or (ii) 50 percent of the vested portions of the Participant's Separate Account and his vested interest under all other plans maintained by an Employer or a Related Company. (c) The term of any loan to a Participant shall be no greater than five years, except in the case of a loan used to acquire any dwelling unit which within a reasonable period of time is to be used (determined at the time the loan is made) as a principal residence of the Participant. (d) Except as otherwise permitted under Treasury regulations, substantially level amortization shall be required over the term of the loan with payments made not less frequently than quarterly. 12.4 ADMINISTRATION OF LOAN INVESTMENT FUND Upon approval or a loan to a Participant, the Administrator shall direct the Trustee to transfer an amount equal to the loan amount from the Investment Funds in which it is invested, as directed by the Administrator, to the loan Investment Fund established in the Participant's name. Any loan approved by the Administrator shall be made to the Participant out of the Participant's loan Investment Fund. All principal and interest paid by the Participant on a loan made under this Article shall be deposited to his Separate Account and shall be allocated upon receipt among the Investment Funds in accordance with the Participant's 43 currently effective investment election. The balance of the Participant's loan Investment Fund shall be decreased by the amount of principal payments and the loan Investment Fund shall be terminated when the loan has been repaid in full. 12.5 DEFAULT If a Participant fails to make or cause to be made, any payment required under the terms of the loan within 90 days following the date on which such payment shall become due or there is an outstanding principal balance existing on a loan after the last scheduled repayment date, the Administrator may direct the Trustee to declare the loan to be in default, and the entire unpaid balance of such loan, together with accrued interest, shall be immediately due and payable. In any such event, if such balance and interest thereon is not then paid, the Trustee shall charge the Separate Account of the borrower with the amount of such balance and interest as of the earliest date a distribution may be made from the Plan to the borrower without adversely affecting the tax qualification of the Plan or of the cash or deferred arrangement. 12.6 SPECIAL RULES APPLICABLE TO LOANS Any loan made hereunder shall be subject to the following rules: (a) Loans Limited to Eligible Employees: No loans shall be made to an Employee who makes a Rollover Contribution in accordance with Article IV, but who is not an Eligible Employee as provided in Article III. (b) Minimum Loan Amount: A Participant may not request a loan for less than $1,000. (c) Maximum Number of Outstanding Loans: A Participant with an outstanding loan may not apply for another loan until the existing loan is paid in full and may not refinance an existing loan or attain a second loan for the purpose of paying off the existing loan. A Participant may not apply for more than one loan during the Plan Year. The provisions of this paragraph shall not apply to any loans made prior to the effective date of this amendment and restatement; provided, however, that a Participant may not apply for a new loan hereunder. (d) Maximum Period for Real Estate Loans: The term of any loan to a Participant that is used to acquire any dwelling unit which within a reasonable period of time is to be used (determined at the time the loan is made) as a principal residence of the Participant shall be no greater than ten years. 44 (e) Pre-Payment Without Penalty: A Participant may pre-pay the balance of any loan hereunder prior to the date it is due without penalty. (f) Affect of Termination of Employment: Upon a Participant's termination of employment, the balance of any outstanding loan hereunder shall immediately become due and owing. 12.7 LOANS GRANTED PRIOR TO AMENDMENT Notwithstanding any other provision of this Article to the contrary, any loan made under the provisions of the Plan as in effect prior to this amendment and restatement shall remain outstanding until repaid in accordance with its terms or the otherwise applicable Plan provisions. 45 ARTICLE XIII WITHDRAWALS WHILE EMPLOYED 13.1 WITHDRAWALS OF AFTER-TAX CONTRIBUTIONS A Participant who is employed by an Employer or a Related Company may elect in writing, subject to the limitations and conditions prescribed in this Article, to make a cash withdrawal from his After-Tax Contributions Sub-Account. 13.2 WITHDRAWALS OF ROLLOVER CONTRIBUTIONS A Participant who is employed by an Employer or a Related Company and is determined by the Administrator to have incurred a hardship as defined in this Article may elect in writing, subject to the limitations and conditions prescribed in this Article, to make a cash withdrawal from his Rollover Contributions Sub-Account. 13.3 WITHDRAWALS OF TAX-DEFERRED CONTRIBUTIONS A Participant who is employed by an Employer or a Related Company and who is determined by the Administrator to have incurred a hardship as defined in this Article may elect in writing, subject to the limitations and conditions prescribed in this Article, to make a cash withdrawal from his Tax-Deferred Contributions Sub-Account. The maximum amount that a Participant may withdraw pursuant to this Section because of a hardship is the balance of his Tax-Deferred Contributions Sub-Account, exclusive of any earnings credited to such Sub-Account as of a date that is after December 31, 1988. 13.4 LIMITATIONS ON WITHDRAWALS OTHER THAN HARDSHIP WITHDRAWALS Withdrawals made pursuant to this Article, other than hardship withdrawals, shall be subject to the following conditions and limitations: A Participant must file a written withdrawal application with the Administrator such number of days prior to the date as of which it is to be effective as the Administrator shall prescribe. Withdrawals may be made effective as soon as reasonably practicable following the Administrator's receipt of the Participant's directions. A Participant who makes a withdrawal from his After-Tax Contributions Sub-Account may not make a further withdrawal of After-Tax Contributions under this Article 46 during the remainder of the Plan Year in which the withdrawal is effective. 13.5 CONDITIONS AND LIMITATIONS ON HARDSHIP WITHDRAWALS A Participant must file a written application for a hardship withdrawal with the Administrator such number of days prior to the date as of which it is to be effective as the Administrator may prescribe. Hardship withdrawals may be made effective as soon as reasonably practicable following the Administrator's receipt of the Participant's directions. The Administrator shall grant a hardship withdrawal only if it determines that the withdrawal is necessary to meet an immediate and heavy financial need of the Participant. An immediate and heavy financial need of the Participant means a financial need on account of: (a) expenses previously incurred by or necessary to obtain for the Participant, the Participant's spouse, or any dependent of the Participant (as defined in Section 152 of the Code) medical care described in section 213(d) of the Code; (b) costs directly related to the purchase (excluding mortgage payments) of a principal residence for the Participant; (c) payment of tuition, related educational fees, and room and board expenses for the next 12 months of post-secondary education for the Participant, the Participant's spouse, or any dependent of the Participant; or (d) the need to prevent the eviction of the Participant front his principal residence or foreclosure on the mortgage of the Participant's principal residence. A withdrawal shall be deemed to be necessary to satisfy an immediate and heavy financial need of a Participant only if all of the following requirements are satisfied: The withdrawal is not in excess of the amount of the immediate and heavy financial need of the Participant. The Participant has obtained all distributions, other than hardship distributions, and all non-taxable loans currently available under all plans maintained by an Employer or any Related Company. The Participant's Tax-Deferred Contributions and After-Tax Contributions and the Participant's elective tax-deferred contributions and employee After-Tax contributions under all other tax-qualified plans maintained by an Employer or any Related Company shall be suspended for at least twelve months after his receipt of the withdrawal. 47 The Participant shall not make Tax-Deferred Contributions or elective tax-deferred contributions under any other tax-qualified plan maintained by an Employer or any Related Company for the Participant's taxable year immediately following the taxable year of the withdrawal in excess of the applicable limit under Section 402(g) of the Code for such next taxable year less the amount of the Participant's Tax-Deferred contributions and elective tax-deferred contributions under any other plan maintained by an Employer or any Related Company for the taxable year of the withdrawal. The minimum hardship withdrawal that a Participant may make is $1,000. The amount of hardship withdrawal may include any amounts necessary to pay any Federal, state, or local income taxes or penalties reasonably anticipated to result from the distribution. A Participant shall not fail to be treated as an Eligible Employee for purposes of applying the limitations contained in Article VII of the Plan merely because his Tax-Deferred Contributions are suspended in accordance with this Section. 13.6 ORDER OF WITHDRAWAL FROM A PARTICIPANT'S SUB-ACCOUNTS Distribution of a withdrawal amount shall be made from a Participant's Sub-Accounts, to the extent necessary, in the order prescribed by the Administrator. If the Sub-Account from which a Participant is receiving a withdrawal is invested in more than one Investment Fund, the withdrawal shall be charged against the Investment Funds as directed by the Administrator. 48 ARTICLE XIV TERMINATION OF EMPLOYMENT AND SETTLEMENT DATE 14.1 TERMINATION OF EMPLOYMENT AND SETTLEMENT DATE A Participant's Settlement Date shall occur on the date he terminates employment with an Employer and all Related Companies because or death, disability, retirement, or other termination of employment. Written notice or a Participant's Settlement Date shall be given by the Administrator to the Trustee. 14.2 SEPARATE ACCOUNTING FOR NON-VESTED AMOUNTS If as of a Participant's Settlement Date the Participant's vested interest in his Employer Contributions Sub-Account is less than 100 percent, that portion of his Employer Contributions Sub-Account that is not vested shall be accounted for separately from the vested portion and shall be disposed of as provided in the following Section. 14.3 DISPOSITION OF NON-VESTED AMOUNTS That portion of a Participant's Employer Contributions Sub-Account that is not vested upon the occurrence of his Settlement Date shall be disposed of as follows: (a) If the Participant has no vested interest in his Separate Account upon the occurrence or his Settlement Date or his vested interest in his Separate Account as of the date of distribution does not exceed $3,500 resulting in the Participant's receipt of a single sum payment of such vested interest, the non-vested balance remaining in the Participant's Employer Contributions Sub-Account will be forfeited and his Separate Account closed as of (i) the Participant's Settlement Date, if the Participant has no vested interest in his Separate Account, or (ii) the date the single sum payment occurs. (b) If the Participant's vested interest in his Separate Account exceeds $3,500 and the Participant is eligible for and consents in writing to a single sum payment of his vested interest in his Separate Account, the non-vested balance remaining in the Participant's Employer Contributions Sub-Account will be forfeited and his Separate Account closed as of the date the single sum payment occurs, provided that such distribution occurs prior to the end of the second Plan Year beginning on or after the Participant's Settlement Date. (c) If neither paragraph (a) nor paragraph (b) is applicable, the non-vested portion of the Participant's Employer 49 Contributions Sub-Account will continue to be held in such Sub-Account and will not be forfeited until the end of the five-year period beginning on his Settlement Date. Whenever the non-vested portion of a Participant's Employer Contributions Sub-Account is forfeited under the provisions of the Plan with respect to a Plan Year, the amount of such forfeiture, as of the last day of the Plan Year, shall be applied first against Plan expenses for the Plan Year and then against the Employer Contribution obligations for the Plan Year of the Employer for which the Participant last performed services as an Employee. Notwithstanding the foregoing, however, should the amount of all such forfeitures for any Plan Year with respect to any Employer exceed the amount of such Employer's Employer Contribution obligation for the Plan Year, the excess amount of such forfeitures shall be held unallocated in a suspense account established with respect to the Employer and shall for all Plan purposes be applied against the Employer's Employer Contribution obligations for the following Plan Year. 50 ARTICLE XV DISTRIBUTIONS 15.1 DISTRIBUTIONS TO PARTICIPANTS A Participant whose Settlement Date occurs shall receive distribution of his vested interest in his Separate Account in the form provided under Article XVI beginning as soon as reasonably practicable following his Settlement Date or the date his application for distribution is filed with the Administrator, if later. In addition, a Participant who continues in employment with an Employer or a Related Company after his Normal Retirement Date may elect to receive distribution of all or any portion of his Separate Account in the form provided under Article XVI at any time following his Normal Retirement Date. 15.2 DISTRIBUTIONS TO BENEFICIARIES If a Participant dies prior to the date distribution of his vested interest in his Separate Account begins under this Article, his Beneficiary shall receive distribution of the Participant's vested interest in his Separate Account in the form provided under Article XVI beginning as soon as reasonably practicable following the date the Beneficiary's application for distribution is filed with the Administrator. Unless distribution is to be made over the life or over a period certain not greater than the life expectancy of the Beneficiary, distribution of the Participant's entire vested interest shall be made to the Beneficiary no later than the end of the fifth calendar year beginning after the Participant's death. If distribution is to be made over the life or over a period certain no greater than the life expectancy of the Beneficiary, distribution shall commence no later than: (a) If the Beneficiary is not the Participant's spouse, the end of the first calendar year beginning after the Participant's death; or (b) If the Beneficiary is the Participant's spouse, the later of (i) the end of the first calendar year beginning after the Participant's death or (ii) the end of the calendar year in which the Participant would have attained age 70 1/2. If distribution is to be made to a Participant's spouse, it shall be made available within a reasonable period of time after the Participant's death that is no less favorable than the period of time applicable to other distributions. If a Participant dies after the date distribution of his vested interest in his Separate Account begins under this Article, but before his entire vested interest in his Separate Account is distributed, his 51 Beneficiary shall receive distribution of the remainder of the Participant's vested interest in his Separate Account beginning as soon as reasonably practicable following the Participant's date of death in a form that provides for distribution at least as rapidly as under the form in which the Participant was receiving distribution. Notwithstanding the provisions of this Section, distribution may also be made to a Participant's Beneficiary in accordance with a valid election made by the Participant pursuant to Section 242(b) (2) of the Tax Equity and Fiscal Responsibility Act of 1982. 15.3 CASH OUTS AND PARTICIPANT CONSENT Notwithstanding any other provision or the Plan to the contrary, if a Participant's vested interest in his Separate Account does not exceed $3,500, distribution of such vested interest shall be made to the Participant in a single sum payment as soon as reasonably practicable following his Settlement Date. If a Participant's vested interest in his Separate Account is $0, he shall be deemed to have received distribution of such vested interest as of his Settlement Date. If a Participant's vested interest in his Separate Account exceeds $3,500, distribution shall not commence to such Participant prior to his Normal Retirement Date without the Participant's written consent. If a Participant made a withdrawal in accordance with the provisions or Article XIII or was in default on a loan for which a portion of his Separate Account was pledged as security as provided in Article XII and his vested interest in his Separate Account on the date immediately preceding the withdrawal or default exceeded $3,500, then for purposes of this Section, his vested interest in his Separate Account shall be deemed to exceed $3,500. 15.4 REQUIRED COMMENCEMENT OF DISTRIBUTION Notwithstanding any other provision or the Plan to the contrary, distribution of a Participant's vested interest in his Separate Account shall commence to the Participant no later than the earlier of: (a) 60 days after the close of the Plan Year in which (i) the Participant's Normal Retirement Date occurs, (ii) the 10th anniversary of the year in which he commenced participation in the Plan occurs, or (iii) his Settlement Date occurs, whichever is latest; or (b) the April 1 following the close of the calendar year in which he attains age 70 1/2, whether or not his Settlement Date has occurred, except that if a Participant attained age 70 1/2 prior to January 1, 1988, and was not a five-percent owner (as defined in Section 416 of the Code) at any time during the five-Plan-Year period ending within the calendar year in which he attained age 70 1/2, 52 distribution of such Participant's vested interest in his Separate Account shall commence no later than the April 1 following the close of the calendar year in which he attains age 70 1/2 or retires, whichever is later. Distributions required to commence under this Section shall be made in the form provided under Article XVI and in accordance with Section 401(a) (9) of the Code and regulations issued thereunder, including the minimum distribution incidental benefit requirements. Notwithstanding the provisions of this Section, distribution may also be made to a Participant in accordance with a valid election made by the Participant pursuant to Section 242(b) (2) of the Tax Equity and Fiscal Responsibility Act of 1982. 15.5 REEMPLOYMENT OF A PARTICIPANT If a Participant whose Settlement Date has occurred is reemployed by an Employer or a Related Company, he shall lose his right to any distribution or further distributions from the Trust arising from his prior Settlement Date and his interest in the Trust shall thereafter be treated in the same manner as that of any other Participant whose Settlement Date has not occurred. 15.6 RESTRICTIONS ON ALIENATION Except as provided in Section 401(a) (13) of the Code relating to qualified domestic relations orders and Section l.401(a)-13(b) (2) of Treasury regulations relating to Federal tax levies and judgments, no benefit under the Plan at any time shall be subject in any manner to anticipation, alienation, assignment (either at law or in equity) , encumbrance, garnishment, levy, execution, or other legal or equitable process; and no person shall have power in any manner to anticipate, transfer, assign (either at law or in equity), alienate or subject to attachment1 garnishment, levy, execution, or other legal or equitable process, or in any way encumber his benefits under the Plan, or any part thereof, and any attempt to do so shall be void. 15.7 FACILITY OF PAYMENT If the Administrator finds that any individual to whom an amount is payable hereunder is incapable of attending to his financial affairs because of any mental or physical condition, including the infirmities of advanced age, such amount (unless prior claim therefor shall have been made by a duly qualified guardian or other legal representative) may, in the discretion of the Administrator, be paid to another person for the use or benefit of the individual found incapable of attending to his financial affairs or in satisfaction of legal obligations incurred by or on behalf of such individual. The Trustee shall make such payment only upon receipt of written instructions to such effect from the 53 Administrator. Any such payment shall be charged to the Separate Account from which any such payment would otherwise have been paid to the individual found incapable of attending to his financial affairs and shall be a complete discharge of any liability therefor under the Plan. 15.8 INABILITY TO LOCATE PAYEE If any benefit becomes payable to any person, or to the executor or administrator of any deceased person, and if that person or his executor or administrator does not present himself to the Administrator within a reasonable period after the Administrator mails written notice of his eligibility to receive a distribution hereunder to his last known address and makes such other diligent effort to locate the person as the Administrator determines, that benefit will be forfeited. However, if the payee later files a claim for that benefit, the benefit will be restored. 15.9 DISTRIBUTION PURSUANT TO QUALIFIED DOMESTIC RELATIONS ORDERS Notwithstanding any other provision of the Plan to the contrary, if a qualified domestic relations order so provides, distribution may be made to an alternate payee pursuant to a qualified domestic relations order, as defined in Section 414(p) of the Code, regardless of whether the Participant's Settlement Date has occurred or whether the Participant is otherwise entitled to receive a distribution under the Plan. 54 ARTICLE XVI FORM OF PAYMENT 16.1 NORMAL FORM OF PAYMENT Unless the Participant, or his Beneficiary, if the Participant had died, elects the optional form of payment, distribution shall be made to the Participant, or his Beneficiary, as the case may be, in a single sum payment. Distribution under either the normal or optional forms of payment shall be made in cash or in kind, as elected by the Participant. 16.2 OPTIONAL FORM OF PAYMENT A Participant, or his Beneficiary, as the case may be, may elect to receive distribution in a series of installments over a period not exceeding the life expectancy of the Participant, or the Participant's Beneficiary, if the Participant has died, or a period not exceeding the joint life and last survivor expectancy of the Participant and his Beneficiary. Each installment shall be equal in amount except as necessary to adjust for any changes in the value of the Participant's Separate Account. The determination of life expectancies shall be made on the basis of the expected return multiples in Table V and VI of Section l.72-9 of the Treasury regulations and shall be calculated either once at the time installment payments begin or annually for the Participant and/or his Beneficiary, if his Beneficiary is his spouse, as determined by the Participant at the time installment payments begin. 16.3 CHANGE OF OPTION ELECTION A Participant or Beneficiary who has elected the optional form of payment may revoke or change his election at any time prior to the date as of which his benefit commences by filing with the Administrator a written election in the form prescribed by the Administrator. 16.4 DIRECT ROLLOVER Notwithstanding any other provision of the Plan to the contrary, in lieu of receiving distribution in the form of payment provided under this Article, a "qualified distributee" may elect in writing, in accordance with rules prescribed by the Administrator, to have any portion or all of a distribution made on or after January 1, 1993, that is an "eligible rollover distribution" paid directly by the Plan to the "eligible retirement plan" designated by the "qualified distributee"; provided, however, that this provision shall not apply if the total distribution is less than $200 and that a "qualified distributee" may not elect this provision with respect to a 55 portion of a distribution that is less than $500. Any such payment by the Plan to another "eligible retirement plan" shall be a direct rollover. For purposes of this Section, the following terms have the following meanings: (a) An :eligible retirement plan" means an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, an annuity plan described in Section 403(a) of the Code, or a qualified trust described in Section 401(a) of the Code that accepts rollovers; provided, however, that, in the case of a direct rollover by a surviving spouse, an eligible retirement plan does not include a qualified trust described in Section 401(a) of the Code. (b) An "eligible rollover distribution" means any distribution of all or any portion of the balance of a Participant's Separate Account; provided, however, that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments made not less frequently than annually for the life or life expectancy of the qualified distributee or the joint lives or joint life expectancies of the qualified distributee and the qualified distributee's designated beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Section 401(a) (9) of the Code; and the portion of any distribution that consists of the Participant's After-Tax Contributions. (c) A "qualified distributee" means a Participant, his surviving spouse, or his spouse or former spouse who is an alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code. 16.5 NOTICE REGARDING FORMS OF PAYMENT Within the 60 day period ending 30 days before the date as of which distribution of a Participant's Separate Account commences, the Administrator shall provide the Participant with a written explanation of his right to defer distribution until his Normal Retirement Date, or such later date as may be provided in the Plan, his right to make a direct rollover, and the forms of payment available under the Plan. Distribution of the Participant's Separate Account may commence less than 30 days after such notice is provided to the Participant if (i) the Administrator clearly informs the Participant of his right to consider his election of whether or not to make a direct rollover or to receive a distribution prior to his Normal Retirement Date and his election of a form of payment for a period of at least 30 days following his receipt of the notice and (ii) the 56 Participant, after receiving the notice, affirmatively elects an early distribution. 16.6 REEMPLOYMENT If a Participant is reemployed by an Employer or a Related Company prior to receiving distribution of the entire balance of his vested interest in his Separate Account, his prior election of a form of payment hereunder shall become ineffective. 16.7 SECTION 242(B) (2) ELECTIONS Notwithstanding any other provisions of this Article, distribution on behalf of a Participant, including a five-percent owner, may be made pursuant to an election under Section 242(b) (2) of the Tax Equity and Fiscal Responsibility Act of 1982 and in accordance with all of the following requirements: (a) The distribution is one which would not have disqualified the Trust under Section 401(a) (9) of the Code as in effect prior to amendment by the Deficit Reduction Act of 1984. (b) The distribution is in accordance with a method of distribution elected by the Participant whose interest in the Trust is being distributed or, if the Participant is deceased, by a Beneficiary of such Participant. (c) Such election was in writing, was signed by the Participant or the Beneficiary, and was made before January 1, 1984. (d) The Participant had accrued a benefit under the Plan as of December 31, 1983. (e) The method of distribution elected by the Participant or the Beneficiary specifies the time at which distribution will commence, the period over which distribution will be made, and in the case of any distribution upon the Participant's death, the Beneficiaries of the Participant listed in order of priority. A distribution upon death shall not be made under this Section unless the information in the election contains the required information described above with respect to the distributions to be made upon the death of the Participant. For any distribution which commences before January 1, 1984, but continues after December 31, 1983, the Participant or the Beneficiary to whom such distribution is being made will be presumed to have designated the method of distribution under which the distribution is being made, if this method of distribution was specified in writing and the distribution satisfies the requirements in paragraphs (a) and (e) of this Section. If an 57 election is revoked, any subsequent distribution will be in accordance with the other provisions of the Plan. Any changes in the election will be considered to be a revocation of the election. However, the mere substitution or addition of another Beneficiary (one not designated as a Beneficiary in the election), under the election will be not considered to be a revocation of the election, so long as such substitution or addition does not alter the period over which distributions are to be made under the election directly, or indirectly (for example, by altering the relevant measuring life). 58 ARTICLE XVII BENEFICIARIES 17.1 DESIGNATION OF BENEFICIARY A married Participant's Beneficiary shall be his spouse, unless the Participant designates a person or persons other than his spouse as Beneficiary with his spouse's written consent. A Participant may designate a Beneficiary on the form prescribed by the Administrator. If no Beneficiary has been designated pursuant to the provisions of this Section, or if no Beneficiary survives the Participant and he has no surviving spouse, then the Beneficiary under the Plan shall be the Participant's estate. If a Beneficiary dies after becoming entitled to receive a distribution under the Plan but before distribution is made to him in full, and if no other Beneficiary has been designated to receive the balance of the distribution in that event, the estate of the deceased Beneficiary shall be the Beneficiary as to the balance of the distribution. 17.2 SPOUSAL CONSENT REQUIREMENTS Any written spousal consent given pursuant to this Article must acknowledge the effect of the action taken and must be witnessed by a Plan representative or a notary public. The spouse's written consent may be a general consent that permits the Participant to change the designated Beneficiary without the spouse's further consent. A Participant's spouse will be deemed to have given written consent to the Participant's designation of Beneficiary if the Participant establishes to the satisfaction of a Plan representative that such consent cannot be obtained because the spouse cannot be located or because of other circumstances set forth in Section 401(a) (11) of the Code and regulations issued thereunder. Any written Consent given or deemed to have been given by a Participant's spouse hereunder shall be valid only with respect to the spouse who signs the consent. 59 ARTICLE XVIII ADMINISTRATION 18.1 AUTHORITY OF THE SPONSOR The Sponsor, which shall be the administrator for purposes of ERISA and the plan administrator for purposes of the Code, shall be responsible for the administration of the Plan and, in addition to the powers and authorities expressly conferred upon it in the Plan, shall have all such powers and authorities as may be necessary to carry out the provisions of the Plan, including the power and authority to interpret and construe the provisions of the Plan, to make benefit determinations, and to resolve any disputes which arise under the Plan. The Sponsor may employ such attorneys, agents, and accountants as it may deem necessary or advisable to assist in carrying out its duties hereunder. The Sponsor shall be a "named fiduciary" as that term is defined in Section 402(a) (2) of ERISA. The Sponsor may; (a) allocate any of the powers, authority, or responsibilities for the operation and administration of the Plan (other than trustee responsibilities as defined in Section 405(c) (3) of ERISA) among named fiduciaries; and (b) designate a person or persons other than a named fiduciary to carry ou any of such powers, authority, or responsibilities; except that no allocation by the Sponsor of, or designation by the Sponsor with respect to, any of such powers, authority, or responsibilities to another named fiduciary or a person other than a named fiduciary shall become effective unless such allocation or designation shall first be accepted by such named fiduciary or other person in a writing signed by it and delivered to the Sponsor. 18.2 ACTION OF THE SPONSOR Any act authorized, permitted, or required to be taken under the Plan by the Sponsor and which has not been delegated in accordance with Section 18.1, may be taken by a majority of the members of the board of directors of the Sponsor, either by vote at a meeting, or in writing without a meeting, or by the employee or employees of the Sponsor designated by the board of directors to carry out such acts on behalf of the Sponsor. All notices, advice, directions, certifications, approvals, and instructions required or authorized to be given by the Sponsor as under the Plan shall be in writing and signed by either (i) a majority of the members of the board of directors of the Sponsor or by such member or members as may be designated by an instrument in writing, signed by all the members thereof, as having authority 60 to execute such documents on its behalf, or (ii) the employee or employees authorized to act for the Sponsor in accordance with the provisions of this Section. 18.3 CLAIMS REVIEW PROCEDURE Whenever a claim for benefits under the Plan filed by any person (herein referred to as the "Claimant") is denied, whether in whole or in part, the Sponsor shall transmit a written notice of such decision to the Claimant within 90 days of the date the claim was filed or, if special circumstances require an extension, within 180 days of such date, which notice shall be written in a manner calculated to be understood by the Claimant and shall contain a statement of (i) the specific reasons for the denial of the claim, (ii) specific reference to pertinent Plan provisions on which the denial is based, and (iii) a description of any additional material or information necessary for the Claimant to perfect the claim and an explanation of why such information is necessary. The notice shall also include a statement advising the Claimant that, within 60 days of the date on which he receives such notice, he may obtain review of such decision in accordance with the procedures hereinafter set forth. Within such 60-day period, the Claimant or his authorized representative may request that the claim denial be reviewed by filing with the Sponsor a written request therefore, which request shall contain the following information: (a) the date on which the Claimant's request was filed with the Sponsor; provided, however, that the date on which the Claimant's request for review was in fact filed with the Sponsor shall control in the event that the date of the actual filing is later than the date stated by the Claimant pursuant to this paragraph; (b) the specific portions of the denial of his claim which the Claimant requests the Sponsor to review; (c) a statement by the Claimant setting forth the basis upon which he believes the Sponsor should reverse the previous denial of his claim for benefits and accept his claim as made; and (d) any written material (offered as exhibits) which the Claimant desires the Sponsor to examine in its consideration of his position as stated pursuant to paragraph (a) of this Section. Within 60 days of the date determined pursuant to paragraph (a) of this Section or, if special circumstances require an extension, within 120 days of such date, the Sponsor shall conduct a full and fair review of the decision denying the Claimant's claim for benefits and shall render its written 61 decision on review to the Claimant. The Sponsor's decision on review shall be written in a manner calculated to be understood by the Claimant and shall specify the reasons and Plan provisions upon which the Sponsor's decision was based. 18.4 QUALIFIED DOMESTIC RELATIONS ORDERS The Sponsor shall establish reasonable procedures to determine the status of domestic relations orders and to administer distributions under domestic relations orders which are deemed to be qualified orders. Such procedures shall be in writing and shall comply with the provisions of Section 414(p) of the Code and regulations issued thereunder. 18.5 INDEMNIFICATION In addition to whatever rights of indemnification the Trustee or the members of the board of directors of the Sponsor or any employee or employees of the Sponsor to whom any power, authority, or responsibility is delegated pursuant to Section 18.2, may be entitled under the articles of incorporation or regulations of the Sponsor, under any provision of law, or under any other agreement, the Sponsor shall satisfy any liability actually and reasonably incurred by any such person or persons, including expenses, attorneys' fees, judgments, fines, and amounts paid in settlement (other than amounts paid in settlement not approved by the Sponsor), in connection with any threatened, pending or completed action, suit, or proceeding which is related to the exercising or failure to exercise by such person or persons of any of the powers, authority, responsibilities, or discretion as provided under the Plan, or reasonably believed by such person or persons to be provided hereunder, and any action taken by such person or persons in connection therewith, unless the same is judicially determined to be the result of such person's or persons' gross negligence or willful misconduct. 18.6 ACTIONS BINDING Subject to the provisions of Section 18.3, any action taken by the Sponsor which is authorized, permitted, or required under the Plan shall be final and binding upon the Employers, the Trustee, all persons who have or who claim an interest under the Plan, and all third parties dealing with the Employers or the Trustee. 62 ARTICLE XIX AMENDMENT AND TERMINATION 19.1 AMENDMENT Subject to the provisions of Section 19.2, the Sponsor may at any time and from time to time, by action of its board of directors, or such officers of the Sponsor as are authorized by its board of directors, amend the Plan, either prospectively or retroactively. Any such amendment shall be by written instrument executed by the Sponsor. 19.2 LIMITATION ON AMENDMENT The Sponsor shall make no amendment to the Plan which shall decrease the accrued benefit of any Participant or Beneficiary, except that nothing contained herein shall restrict the right to amend the provisions of the Plan relating to the administration of the Plan and Trust. Moreover, no such amendment shall be made hereunder which shall permit any part of the Trust to revert to an Employer or any Related Company or be used or be diverted to purposes other than the exclusive benefit of Participants and Beneficiaries. 19.3 TERMINATION The Sponsor reserves the right, by action of its board of directors, to terminate the Plan as to all Employers at any time (the effective date of such termination being hereinafter referred to as the "termination date"). Upon any such termination of the Plan, the following actions shall be taken for the benefit of Participants and Beneficiaries: (a) As of the termination date, each Investment Fund shall be valued and all Separate Accounts and Sub-Accounts shall be adjusted in the manner provided in Article XI, with any unallocated contributions or forfeitures being allocated as of the termination date in the manner otherwise provided in the Plan. The termination date shall become a Valuation Date for purposes of Article XI. In determining the net worth of the Trust, there shall be included as a liability such amounts as shall be necessary to pay all expenses in connection with the termination of the Trust and the liquidation and distribution of the property of the Trust, as well as other expenses, whether or not accrued, and shall include as an asset all accrued income. (b) All Separate Accounts shall then be disposed of to or for the benefit of each Participant or Beneficiary in accordance with the provisions of Article XV as if the termination date were his Settlement Date; provided, 63 however, that notwithstanding the provisions of Article XV, if the Plan does not offer an annuity option and if neither his Employer nor a Related Company establishes or maintains another defined contribution plan (other than an employee stock ownership plan as defined in Section 4975(e) (7) of the Code), the Participant's written consent to the commencement of distribution shall not be required regardless of the value of the vested portions of his Separate Account. (c) Notwithstanding the provisions of paragraph (b) of this Section, no distribution shall be made to a Participant of any portion of the balance of his Tax-Deferred Contributions Sub-Account prior to his separation from service (other than a distribution made in accordance with Article XIII or required in accordance with Section 401(a) (9) of the Code) unless (i) neither his Employer nor a Related Company establishes or maintains another defined contribution plan (other than an employee stock ownership plan as defined in Section 4975(e) (7) of the Code, a tax credit employee stock ownership plan as defined in Section 409 of the Code, or a simplified employee pension as defined in Section 408(k) of the Code) either at the time the Plan is terminated or at any time during the period ending 12 months after distribution of all assets from the Plan; provided, however, that this provision shall not apply if fewer than two percent of the Eligible Employees under the Plan were eligible to participate at any time in such other defined contribution plan during the 24-month period beginning 12 months before the Plan termination, and (ii) the distribution the Participant receives is a "lump sum distribution" as defined in Section 402(e) (4) or the Code, without regard to clauses (i) , (ii) , (iii) , and (iv) of sub-paragraph (A), sub-paragraph (B), or sub-paragraph (H) thereof. Notwithstanding anything to the contrary contained in the Plan, upon any such Plan termination, the vested interest of each Participant and Beneficiary in his Employer Contributions Sub-Account shall be 100 percent; and, if there is a partial termination of the Plan, the vested interest of each Participant and Beneficiary who is affected by the partial termination in his Employer Contributions Sub-Account shall be 100 percent. For purposes of the preceding sentence only, the Plan shall be deemed to terminate automatically if there shall be a complete discontinuance of contributions hereunder by all Employers. 64 19.4 REORGANIZATION The merger, consolidation, or liquidation of any Employer with or into any other Employer or a Related Company shall not constitute a termination of the Plan as to such Employer. If an Employer disposes of substantially all of the assets used by the Employer in a trade or business or disposes of a subsidiary and in connection therewith one or more Participants terminates employment but continues in employment with the purchaser of the assets or with such subsidiary, no distribution from the Plan shall be made to any such Participant prior to his separation from service (other than a distribution made in accordance with Article XIII or required in accordance with Section 401(a) (9) of the Code), except that a distribution shall be permitted to be made in such a case, subject to the Participant's consent (to the extent required by law), if (i) the distribution would constitute a "lump sum distribution" as defined in section 402(e) (4) of the Code, without regard to clauses (i), (ii), (iii), or (iv) of sub-paragraph (A), sub-paragraph (B), or sub-paragraph (H) thereof, (ii) the Employer continues to maintain the Plan after the disposition, (iii) the purchaser does not maintain the Plan after the disposition, and (iv) the distribution is made by the end of the second calendar year after the calendar year in which the disposition occurred. 19.5 WITHDRAWAL OF AN EMPLOYER An Employer other than the Sponsor may withdraw from the Plan at any time upon notice in writing to the Administrator (the effective date of such withdrawal being hereinafter referred to as the "withdrawal date"), and shall thereupon cease to be an Employer for all purposes of the Plan. An Employer shall be deemed automatically to withdraw from the Plan in the event of its complete discontinuance of contributions, or, subject to Section 19.4 and unless the Sponsor otherwise directs, it ceases to be a Related Company of the Sponsor or any other Employer. Upon the withdrawal of an Employer, the withdrawing Employer shall determine whether a partial termination has occurred with respect to its Employees. In the event that the withdrawing Employer determines a partial termination has occurred, the action specified in Section 19.3 shall be taken as of the withdrawal date, as on a termination of the Plan, but with respect only to Participants who are employed solely by the withdrawing Employer, and who, upon such withdrawal, are neither transferred to nor continued in employment with any other Employer or a Related Company. The interest of any Participant employed by the withdrawing Employer who is transferred to or continues in employment with any other Employer or a Related Company, and the interest of any Participant employed solely by an Employer or a Related Company other than the withdrawing Employer, shall remain unaffected by such withdrawal; no adjustment to his Separate Accounts shall be made by reason of 65 the withdrawal; and he shall continue as a Participant hereunder subject to the remaining provisions of the Plan. 66 ARTICLE XX ADOPTION BY OTHER ENTITIES 20.1 ADOPTION BY RELATED COMPANIES A Related Company that is not an Employer may, with the consent of the Sponsor, adopt the Plan and become an Employer hereunder by causing an appropriate written instrument evidencing such adoption to be executed in accordance with the requirements of its organizational authority. Any such instrument shall specify the effective date of the adoption. 20.2 EFFECTIVE PLAN PROVISIONS An Employer who adopts the Plan shall be bound by the provisions of the Plan in effect at the time of the adoption and as subsequently in effect because of any amendment to the Plan. 67 ARTICLE XXI MISCELLANEOUS PROVISIONS 21.1 NO COMMITMENT AS TO EMPLOYMENT Nothing contained herein shall be construed as a commitment or agreement upon the part of any person to continue his employment with an Employer or Related Company, or as a commitment on the part of any Employer or Related Company to continue the employment, compensation, or benefits of any person for any period. 21.2 BENEFITS Nothing in the Plan nor the Trust Agreement shall be construed to confer any right or claim upon any person, firm, or corporation other than the Employers, the Trustee, Participants, and Beneficiaries. 21.3 NO GUARANTEES The Employers, the Administrator, and the Trustee do not guarantee the Trust from loss or depreciation, nor do they guarantee the payment of any amount which may become due to any person hereunder. 21.4 EXPENSES The expenses of administration of the Plan, including the expenses of the Administrator and fees of the Trustee, shall be paid from the Trust as a general charge thereon, unless the Sponsor elects to make payment. Notwithstanding the foregoing, the Sponsor may direct that administrative expenses that are allocable to the Separate Account of a specific Participant shall be paid from that Separate Account and the costs incident to the management of the assets of an Investment Fund or to the purchase or sale of securities held in an Investment Fund shall be paid by the Trustee from such Investment Fund. 21.5 PRECEDENT Except as otherwise specifically provided, no action taken in accordance with the Plan shall be construed or relied upon as a precedent for similar action under similar Circumstances. 21.6 DUTY TO FURNISH INFORMATION The Employers, the Administrator, and the Trustee shall furnish to any of the others any documents, reports, returns, statements, or other information that the other reasonably deems necessary to perform its duties hereunder or otherwise imposed by law. 68 21.7 WITHHOLDING The Trustee shall withhold any tax which by any present or future law is required to be withheld, and which the Administrator notifies the Trustee in writing is to be so withheld, from any payment to any Participant or Beneficiary hereunder. 21.8 MERGER, CONSOLIDATION, OR TRANSFER OF PLAN ASSETS The Plan shall not be merged or consolidated with any other plan, nor shall any of its assets or liabilities be transferred to another plan, unless, immediately after such merger, consolidation, or transfer of assets or liabilities, each Participant in the Plan would receive a benefit under the Plan which is at least equal to the benefit he would have received immediately prior to such merger, consolidation, or transfer of assets or liabilities (assuming in each instance that the Plan had then terminated). 21.9 BACK PAY AWARDS The provisions of this Section shall apply only to an Employee or former Employee who becomes entitled to back pay by an award or agreement of an Employer without regard to mitigation of damages. If a person to whom this Section applies was or would have become an Eligible Employee after such back pay award or agreement has been effected, and if any such person who had not previously elected to make Tax-Deferred Contributions pursuant to Section 4.1 shall within 30 days of the date he receives notice of the provisions of this Section make an election to make Tax-Deferred Contributions in accordance with such Section 4.1 (retroactive to any Enrollment Date as of which he was or has become eligible to do so), then such Participant may elect that any Tax-Deferred Contributions not previously made on his behalf but which, after application of the foregoing provisions of this Section, would have been made under the provisions of Article IV and any After-Tax Contributions which he had not previously made but which, after application of the foregoing provisions of this Section, he would have made under the provisions of Article V, shall be made out of the proceeds of such back pay award or agreement. In addition, if any such Employee or former Employee would have been eligible to participate in the allocation of Employer Contributions under the provisions of Article VI for any prior Plan Year after such back pay award or agreement has been effected, his Employer shall make an Employer Contribution equal to the amount of the Employer Contribution which would have been allocated to such Participant under the provisions of Article VI as in effect during each such Plan Year. The amounts of such additional contributions shall be credited to the Separate Account of such Participant. Any additional contributions made by such Participant and by an Employer pursuant to this Section 69 shall be made in accordance with, and subject to the limitations of the applicable provisions of Articles IV, V, VI, and VII. 21.10 CONDITION ON EMPLOYER CONTRIBUTIONS Notwithstanding anything to the contrary contained in the Plan or the Trust Agreement, any contribution of an Employer hereunder is conditioned upon the continued qualification of the Plan under Section 401(a) of the Code, the exempt status of the Trust under Section 501(a) of the Code, and the deductibility of the contribution under Section 404 of the Code. Except as otherwise provided in this Section and Section 21.11, however, in no event shall any portion of the property 0(pound) the Trust ever revert to or otherwise inure to the benefit of an Employer or any Related Company. 21.11 RETURN OF CONTRIBUTIONS TO AN EMPLOYER Notwithstanding any other provision of the Plan or the Trust Agreement to the contrary, in the event any contribution of an Employer made hereunder; (a) is made under a mistake of fact, or (b) is disallowed as a deduction under Section 404 of the Code, such contribution may be returned to the Employer within one year after the payment of the contribution or the disallowance of the deduction to the extent disallowed, whichever is applicable. In the event the Plan does not initially qualify under Section 401(a) of the Code, any contribution of an Employer made hereunder may be returned to the Employer within one year or the date of denial of the initial qualification of the Plan, but only if an application for determination was made within the period of time prescribed under Section 403(c) (2) (B) of ERISA. 21.12 VALIDITY OF PLAN The validity of the Plan shall be determined and the Plan shall be construed and interpreted in accordance with the laws of the State or Commonwealth in which the Sponsor has its principal place of business, except as preempted by applicable Federal law. The invalidity or illegality of any provision of the Plan shall not affect the legality or validity of any other part thereof. 21.13 TRUST AGREEMENT The Trust Agreement and the Trust maintained thereunder shall be deemed to be a part of the Plan as if fully set forth herein and the provisions of the Trust Agreement are hereby incorporated by reference into the Plan. 70 21.14 PARTIES BOUND The Plan shall be binding upon the Employers, all Participants and Beneficiaries hereunder, and, as the case may be, the heirs, executors, administrators, successors, and assigns of each of them. 21.15 APPLICATION OF CERTAIN PLAN PROVISIONS A Participant's Beneficiary, if the Participant has died, or alternate payee under a qualified domestic relations order shall be treated as a Participant for purposes of directing investments as provided in Article X. For purposes of the general administrative provisions and limitations of the Plan, a Participant's Beneficiary or alternate payee under a qualified domestic relations order shall be treated as any other person entitled to receive benefits under the Plan. Upon any termination of the Plan, any such Beneficiary or alternate payee under a qualified domestic relations order who has an interest under the Plan at the time of such termination, which does not cease by reason thereof, shall be deemed to be a Participant for all purposes of the Plan. 21.16 LEASED EMPLOYEES Any leased employee, other than an excludable leased employee, shall be treated as an employee of the Employer for which he performs services for all purposes of the Plan with respect to the provisions of Sections 401(a) (3), (4), (7), and (16), and 408(k), 410, 411, 415, and 416 of the Code; provided, however, that no leased employee shall accrue a benefit hereunder based on service as a leased employee except as otherwise specifically provided in the Plan. A "leased employee" means any person who performs services for an Employer or a Related Company (the "recipient") (other than an employee of the recipient) pursuant to an agreement between the recipient and any other person (the "leasing organization") on a substantially full-time basis for a period of at least one year, provided that such services are of a type historically performed, in the business field of the recipient, by employees. An "excludable leased employee" means any leased employee of the recipient who is covered by a money purchase pension plan maintained by the leasing organization which provides for (i) a nonintegrated employer contribution on behalf of each participant in the plan equal to at least ten percent of compensation, (ii) full and immediate vesting, and (iii) immediate participation by employees of the leasing organization (other than employees who perform substantially all of their services for the leasing organization or whose compensation from the leasing organization in each plan year during the four-year period ending with the plan year is less than $1,000); provided, however, that leased employees do not constitute more than 20 percent of the recipient's nonhighly 71 compensated work force. For purposes of this Section, contributions or benefits provided to a leased employee by the leasing organization that are attributable to services performed for the recipient shall be treated as provided by the recipient. 21.17 TRANSFERRED FUNDS If funds from another qualified plan are transferred or merged into the Plan, such funds shall be held and administered in accordance with any restrictions applicable to them under such other plan to the extent required by law and shall be accounted for separately to the extent necessary to accomplish the foregoing. 72 ARTICLE XXII TOP HEAVY PROVISIONS 22.1 DEFINITIONS For purposes of this Article, the following terms shall have the following meanings: (a) The "compensation" of an employee means compensation as defined in Section 415 of the Code and regulations issued thereunder. In no event, however, shall the compensation of a Participant taken into account under the Plan for any Plan Year exceed (1) $200,000 for Plan Years beginning prior to January 1, 1994, or (2) $150,000 for Plan Years beginning on or after January 1, 1994 (subject to adjustment annually as provided in Section 401(a) (17) (B) and Section 415(d) of the Code; provided, however, that the dollar increase in effect on January 1 of any calendar year, if any, is effective for Plan Years beginning in such calendar year). If the compensation of a Participant is determined over a period of time that contains fewer than 12 calendar months, then the annual compensation limitation described above shall be adjusted with respect to that Participant by multiplying the annual compensation limitation in effect for the Plan Year by a fraction the numerator of which is the number of full months in the period and the denominator of which is 12; provided, however, that no proration is required for a Participant who is covered under the Plan for less than one full Plan Year if the formula for allocations is based on Compensation for a period of at least 12 months. In determining the compensation, for purposes of applying the annual compensation limitation described above, of a Participant who is a five-percent owner or one of the ten Highly Compensated Employees receiving the greatest compensation for the Plan Year, the compensation of the Participant's spouse and of his lineal descendants who have not attained age 19 as of the close of the Plan Year shall be included as compensation of the Participant for the Plan Year. If as a result of applying the family aggregation rule described in the preceding sentence the annual compensation limitation would be exceeded, the limitation shall be prorated among the affected family members in proportion to each member's compensation as determined prior to application of the family aggregation rules. (b) The "determination date" with respect to any Plan Year means the last day of the preceding Plan Year, except that the determination date with respect to the first Plan Year of the Plan, shall mean the last day of such Plan Year. 73 (c) A "key employee" means any Employee or former Employee who is a key employee pursuant to the provisions of Section 416(i) (1) of the Code and any Beneficiary of such Employee or former Employee. (d) A "non-key employee" means any Employee who is not a key employee. (e) A "permissive aggregation group" means those plans included in each Employer's required aggregation group together with any other plan or plans of the Employer, so long as the entire group of plans would continue to meet the requirements of Sections 401(a) (4) and 410 of the Code. (f) A "required aggregation group" means the group of tax-qualified plans maintained by an Employer or a Related Company consisting of each plan in which a key employee participates and each other plan that enables a plan in which a key employee participates to meet the requirements of Section 401(a) (4) or Section 410 of the code, including any plan that terminated within the five-year period ending on the relevant determination date. (g) A "super top-heavy group" with respect to a particular Plan Year means a required or permissive aggregation group that, as of the determination date, would qualify as a top-heavy group under the definition in paragraph (i) of this Section with "90 percent" substituted for "60 percent" each place where "60 percent" appears in the definition. (h) A "super top-heavy plan" with respect to a particular Plan Year means a plan that, as of the determination date, would qualify as a top-heavy plan under the definition in paragraph (j) of this Section with "90 percent" substituted for "60 percent" each place where "60 percent" appears in the definition. A plan is also a "super top-heavy plan" if it is part of a super top-heavy group. (i) A "top-heavy group" with respect to a particular Plan Year means a required or permissive aggregation group if the sum, as of the determination date, of the present value of the cumulative accrued benefits for key employees under all defined benefit plans included in such group and the aggregate of the account balances of key employees under all defined contribution plans included in such group exceeds 60 percent of a similar sum determined for all employees covered by the plans included in such group. (j) A "top-heavy plan" with respect to a particular Plan Year means (i), in the case of a defined contribution plan 74 (including any simplified employee pension plan), a plan for which, as of the determination date, the aggregate of the accounts (within the meaning of Section 416(g) of the Code and the regulations and rulings thereunder) of key employees exceeds 60 percent of the aggregate of the accounts of all participants under the plan, with the accounts valued as of the relevant valuation date and increased for any distribution of an account balance made in the five-year period ending on the determination date, (ii), in the case of a defined benefit plan, a plan for which, as of the determination date, the present value of the cumulative accrued benefits payable under the plan (within the meaning of Section 416(g) of the Code and the regulations and rulings thereunder) to key employees exceeds 60 percent of the present value of the cumulative accrued benefits under the plan for all employees, with the present value of accrued benefits to be determined under the accrual method uniformly used under all plans maintained by an Employer or, if no such method exists, under the slowest accrual method permitted under the fractional accrual rate of Section 411(b) (1) (C) of the Code and including the present value of any part of any accrued benefits distributed in the five-year period ending on the determination date, and (iii) any plan (including any simplified employee pension plan) included in a required aggregation group that is a top-heavy group. For purposes of this paragraph, the accounts and accrued benefits of any employee who has not performed services for an Employer or a Related Company during the five-year period ending on the determination date shall be disregarded. For purposes of this paragraph, the present value of cumulative accrued benefits under a defined benefit plan for purposes of top-heavy determinations shall be calculated using the actuarial assumptions otherwise employed under such plan, except that the same actuarial assumptions shall be used for all plans within a required or permissive aggregation group. A Participant's interest in the Plan attributable to any Rollover Contributions, except Rollover Contributions made from a plan maintained by an Employer or a Related Company, shall not be considered in determining whether the Plan is top-heavy. Notwithstanding the foregoing, if a plan is included in a required or permissive aggregation group that is not a top-heavy group, such plan shall not be a top-heavy plan. (k) The "valuation date" with respect to any determination date means the most recent Valuation Date occurring within the 12-month period ending on the determination date. 75 22.2 APPLICABILITY Notwithstanding any other provision of the Plan to the contrary, the provisions of this Article shall be applicable during any Plan Year in which the Plan is determined to be a top-heavy plan as hereinafter defined. If the Plan is determined to be a top-heavy plan and upon a subsequent determination date is determined no longer to be a top-heavy plan, the vesting provisions of Article VI shall again become applicable as of such subsequent determination date; provided, however, that if the prior vesting provisions do again become applicable, any Employee with three or more years of Vesting Service may elect in accordance with the provisions of Article VI, to continue to have his vested interest in his Employer Contributions Sub-Account determined in accordance with the vesting schedule specified in Section 22.5. 22.3 MINIMUM EMPLOYER CONTRIBUTION If the Plan is determined to be a top-heavy plan, the Employer Contributions allocated to the Separate Account of each non-key employee who is an Eligible Employee and who is employed by an Employer or a Related Company on the last day of such top-heavy Plan Year shall be no less than the lesser or (i) three percent of his compensation or (ii) the largest percentage of compensation that is allocated as an Employer Contribution and/or Tax-Deferred Contribution for such Plan Year to the Separate Account of any key employee; except that, in the event the Plan is part of a required aggregation group, and the Plan enables a defined benefit plan included in such group to meet the requirements of Section 401(a) (4) or 410 of the Code, the minimum allocation of Employer Contributions to each such non-key employee shall be three percent of the compensation of such non-key employee. Any minimum allocation to a non-key employee required by this Section shall be made without regard to any social security contribution made on behalf of the non-key employee, his number of hours of service, his level of compensation, or whether he declined to make elective or mandatory contributions. Notwithstanding the minimum top-heavy allocation requirements of this Section, if the Plan is a top-heavy plan, each non-key employee who is an Eligible Employee and who is employed by an Employer or a Related Company on the last day of a top-heavy Plan Year and who is also covered under any other top-heavy plan or plans of an Employer will receive the top-heavy benefits provided under such other plan in lieu of the minimum top-heavy allocation under the Plan. 22.4 ADJUSTMENTS TO SECTION 415 LIMITATIONS If the Plan is determined to be a top-heavy plan and an Employer maintains a defined benefit plan covering some or all of the Employees that are covered by the Plan, the defined benefit plan fraction and the defined contribution plan fraction, described in 76 Article VII, shall be determined as provided in Section 415 of the Code by substituting "1.0" for "1.25" each place where "1.25" appears, except that such substitutions shall not be applied to the Plan if (i) the Plan is not a super top-heavy plan, (ii) the Employer Contribution for such top-heavy Plan Year for each non-key employee who is to receive a minimum top-heavy benefit hereunder is not less than four percent of such non-key employee's compensation, and (iii) the minimum annual retirement benefit accrued by a non-key employee who participates under one or more defined benefit plans of an Employer or a Related Company for such top-heavy Plan Year is not less than the lesser of three percent times years of service with an Employer or a Related Company or thirty percent. 22.5 ACCELERATED VESTING If the Plan is determined to be a top-heavy plan, a Participant's vested interest in his Employer Contributions Sub-Account shall be determined no less rapidly than in accordance with the following vesting schedule: YEARS OF VESTING VESTED INTEREST less than 2 0% 2 but less than 3 20% 3 but less than 4 40% 4 but less than 5 60% 5 or more 100% 77 ARTICLE XXIII EFFECTIVE DATE 23.1 EFFECTIVE DATE OF AMENDMENT AND RESTATEMENT This amendment and restatement is effective as of January 1, 1996. * * EXECUTED AT FARR COMPANY, EL SEGUNDO, CALIFORNIA, this 15 day of DECEMBER, 1995. FARR COMPANY By: /s/ Kenneth W. Gerstner ----------------------- Kenneth W. Gerstner Title: SVP & CFO 78 EX-10 8 EX 10.36 SUPPLEMENTAL EXECUTIVE SAVINGS Exhibit 10.36 CPR SELECT THE CORPORATEPLAN FOR RETIREMENT SELECT PLAN Adoption Agreement IMPORTANT NOTE This document is NOT an IRS approved Prototype Plan. An Adopting Employer may not rely solely on this Plan to ensure that the Plan is "unfunded and maintained primarily for the purpose of providing deferred compensation to a select group of management or highly compensated employees" and exempt from Parts 2 through 4 of Title I of the Employee Retirement Income Security Act of 1974 with respect to the Employer's particular situation. Fidelity Management Trust Company, its affiliates and employees may not provide you with legal advice in connection with the execution of this document This document should be reviewed by your attorney and/or accountant prior to execution. 4/11/94 ADOPTION AGREEMENT ARTICLE I 1.01 PLAN INFORMATION (a) Name of Plan: This is the FARR COMPANY SUPPLEMENTARY EXECUTIVE SAVINGS Plan (the "Plan"). (b) Name of Plan Administrator, if not the Employer: Address: _________________________________________ Phone Number: _________________________________________ The Plan Administrator is the agent for service of legal process for the Plan. (c) Three Digit Plan Number: 010 (d) Plan Year End (month/day): 12/31 (e) Plan Status (check one): (1) /X/ Effective Date of new Plan: 1/1/96 -- (2) / / Amendment Effective Date: ________ -- The original effective date of the Plan: __________ 4/11/94 1.02 EMPLOYER (a) The Employer is: FARR COMPANY Address: 2221 PARK PLACE EL SEGUNDO, CA 90245 Contact's Name: RICHARD BROUSSEAU Telephone Number: (310) 536-6375 (1) Employer's Tax Identification Number: 95-1288401 (2) Business form of Employer (check one): (A) /X/ Corporation -- (B) / / Sole proprietor or partnership -- (C) / / Subchapter S Corporation -- (3) Employer's fiscal year end: NEAREST SATURDAY TO 12/31 (b) The term "Employer" includes the following Related Employer(s) (as defined in Section 2.0l(a)(21)): ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ 4/11/94 2 1.03 COVERAGE (a) Only those Employees listed in Attachment A will be eligible to participate in the Plan. (b) The Entry Date(s) shall be (check one): (1) /X/ the first day of each Plan Year. -- (2) / / the first day of each Plan Year and the date six months -- later. (3) / / the first day of each Plan Year and the first day of the -- fourth, seventh, and tenth months. (4) / / the first day of each month. -- 1.04 COMPENSATION For purposes of determining Contributions under the Plan, Compensation shall be as defined in Section 2.01(a)(6), but excluding (check the appropriate box(es)): (a) / / Overtime Pay. -- (b) / / Bonuses. -- (c) / / Commissions. -- (d) /X/ The value of a qualified or a non-qualified stock option -- granted to an Employee by the Employer to the extent such value is includable in the Employee's taxable income. (e) / / No exclusions. -- 1.05 CONTRIBUTIONS (a) Deferral Contributions The Employer shall make a Deferral Contribution in accordance with Section 4.01 on behalf of each Participant who has an executed salary reduction agreement in effect with the Employer for the Plan Year (or portion of the Plan Year) in question, not to exceed 50% of Compensation for that Plan Year. 4/11/94 3 (b) / / Matching Contributions -- (1) The Employer shall make a Matching Contribution on behalf of each Participant in an amount equal to the following percentage of a Participant's Deferral Contributions during the Plan Year (check one): (A) / / 5O% -- (B) /X/ 100% -- (C) / / ___% -- (D) / / (Tiered Match) ____% of the first ____% of the -- Participant's Compensation contributed to the Plan, _____% of the next ____% of the Participant's Compensation contributed to the Plan, _____% of the next _____% of the Participant's Compensation contributed to the Plan. (E) / / The percentage declared for the year, if any, by -- a Board of Directors' resolution. (F) / / Other: ________________________________________ -- (2) /X/ Matching Contribution Limits (check the -- appropriate box(es)); (A) /X/ Deferral Contributions in excess of 2% of the -- Participant's Compensation for the period in question shall not be considered for Matching Contributions. Note: If the Employer elects a percentage limit in (A) above and requests the Trustee to account separately for matched and unmatched Deferral Contributions, the Matching Contributions allocated to each Participant must be computed, and the percentage limit applied, based upon each period. (B) / / Matching Contributions for each Participant for -- each Plan Year shall be limited to $__________. 4/11/94 4 (3) Eligibility Requirement(s) for Matching Contributions A Participant who makes Deferral Contributions during the Plan Year under Section 1.05(a) shall be entitled to Matching Contributions for that Plan Year if the Participant satisfies the following requirement(s) (Check the appropriate box(es). Options (B) and (C) may not be elected together): (A) / / Is employed by the Employer on the last day of -- the Plan Year. (B) / / Earns at least 500 Hours of Service during -- the Plan Year. (C) / / Earns at least 1,000 Hours of Service during the -- Plan Year. (D) /X/ No requirements. -- Note: If option (A), (B) or (C) above is selected then Matching Contributions can only be made by the Employer after the Plan Year ends. Any Matching Contribution made before Plan Year end shall not be subject to the eligibility requirements of this Section 1.05(b)(3)). 1.06 DISTRIBUTION DATES A Participant may elect to receive a distribution or commence distributions from his Account pursuant to Section 8.02 upon the following date(s) (check the appropriate box(es). If Option (c) is elected, then options (a) and (b) may not be elected): (a) / / Attainment of Normal Retirement Age. Normal Retirement -- Age under the Plan is (check one): (1) / / age 65. -- (2) / / age ____ (specify from 55 through 64). -- (3) / / later of the age ____ (can not exceed 65) or the -- fifth anniversary of the Participant's Commencement Date. (b) / / Attainment of Early Retirement Age. Early Retirement Age -- is the first day of the month after the Participant attains age ____ (specify 55 or greater) and completes ____ Years of Service for Vesting. 4/11/94 5 (c) /X/ Termination of employment with the Employer. -- 1.07 VESTING SCHEDULE (a) The Participant's vested percentage in Matching Contributions elected in Section 1.05(b) shall be based upon the schedule(s) selected below. (1) / / N/A - No Matching Contributions -- (2) /X/ 100% Vesting immediately -- (3) / / 3 year cliff (see C below) -- (4) / / 5 year cliff (see D below) -- (5) / / 6 year graduated (see E below) -- (6) / / 7 year graduated (see F below) -- (7) / / G below -- (8) / / Other (Attachment "B") -- Years of VESTING SCHEDULE Service for VESTING C D E F G 0 0% 0% 0% 0% -- 1 0% 0% 0% 0% -- 2 0% 0% 20% 0% -- 3 100% 0% 40% 20% -- 4 100% 0% 60% 40% -- 5 100% 100% 80% 60% -- 6 100% 100% 100% 80% -- 7 100% 100% 100% 100% 100% (b) / / Years of Service for Vesting shall exclude (check one): -- (1) / / for new plans, service prior to the Effective Date -- as defined in Section 1.01(e)(l). (2) / / for existing plans converting from another plan -- document, service prior to the original Effective Date as defined in Section l.01(e)(2). (c) / / A Participant will forfeit his Matching Contributions upon -- the occurrence of the following event(s): ________________ __________________________________________________________ __________________________________________________________ 4/11/94 6 (d) A Participant will be 100% vested in his Matching Contributions upon (check the appropriate box(es), if any): (1) / / Normal Retirement Age (as defined in -- Section 1.06(a)). (2) / / Early Retirement Age (as defined in -- Section 1.06(b)). (3) / / Death -- 1.08 PREDECESSOR EMPLOYER SERVICE Service for purposes of vesting in Section 1.07(a) shall include service with the following employer(s): (a) ___________________________________________________ (b) ___________________________________________________ (c) ___________________________________________________ (d) ___________________________________________________ 1.09 HARDSHIP WITHDRAWALS Participant withdrawals for hardship prior to termination of employment (check one): (a) / / will be allowed in accordance with Section 707, subject to -- a $_________ minimum amount. (Must be at least $1,000) (b) /X/ will NOT be allowed. -- 1.10 DISTRIBUTIONS Subject to Articles 7 and 8, distributions under the Plan will be paid (check the appropriate box(es)): (a) /X/ as a lump sum. -- (b) /X/ under a systematic withdrawal plan (installment) not to -- exceed l0 years. 4/11/94 7 1.11 INVESTMENT DECISIONS (a) Investment Directions Investments in which the Accounts of Participants shall be treated as invested and reinvested shall be directed (check one): (1) / / by the Employer among the options listed in (b) below. -- (2) /X/ by each PARTICIPANT among the options listed in -- (b) below. (3) / / by each Participant with respect to Deferral -- Contributions and by the Employer with respect to Employer Matching Contributions. The Employer must direct the Employer Matching Contributions among the same investment options made available for Participant directed sources listed in (b) below. (b) Plan Investment Options Participant Accounts will be treated as invested among the Fidelity Funds listed below pursuant to Participant and/or Employer directions. FUND NAME FUND NUMBER --------- ----------- (1) Retirement Money Market 0630 (2) Intermediate Bond 0032 (3) Balanced Fund 0304 (4) Growth Fund 0027 (5) Magellan 0021 (6) ________________________ ________ (7) ________________________ ________ (8) ________________________ ________ (9) ________________________ ________ (10) ________________________ ________ Note: An additional annual recordkeeping fee will be charged for each fund in excess of five funds. 4/11/94 8 EXECUTION PAGE (Fidelity's Copy) IN WITNESS WHEREOF, the Employer has caused this Adoption Agreement to be executed this 21st day of November, 1995. Employer FARR Company By John Vissers Title Controller, Assist. Secretary Employer _____________________________ By _____________________________ Title _____________________________ 4/11/94 10 Attachment A Pursuant to Section 1.03(a), the following are the Employees who are eligible to participate in the Plan: FARR COMPANY Summary Listing of Eligible Employees - SESP 1996 # ref. Name ------ -------------------- 1 JOHNSTON, JOHN 2 GERSTNER, KENNETH W. 3 FARR, RICHARD L. 4 RASMUSSEN, MYRON G. 5 GOULDING, CECIL H. 6 SEMONZA JR., NICK 7 VISSERS, JOHN 8 VU, HOA 9 RABER JR, ROBERT 10 MCKINNEY, TODD 11 MARTIN, JOHN W. 12 GIDLEY, DAVID 13 VIDMAR, THOMAS 14 BENSON JR., GEORGE 15 HLADIK, STEVE 16 DEAN, DARRELL 17 KARPENSKI, EDWARD 18 MEANY, JACK Above list based on following criteria: Position, earnings, sustained period of earnings and performance. Farr Company John Vissers Controller, Assistant Secretary November 21, 1995 Note: The Employer must revise Attachment A to add employees as they become eligible or delete employees who are no longer eligible. 4/11/94 12 EX-10 9 EX 10.37 RETIREMENT SELECT PLAN Exhibit 10.37 4/11/94 The CORPORATEplan for Retirement Select Plan BASIC PLAN DOCUMENT IMPORTANT NOTE This document is NOT an IRS approved Prototype Plan. An Adopting Employer may not rely solely on this Plan to ensure that the Plan is "unfunded and maintained primarily for the purpose of providing deferred compensation to a select group of management or highly compensated employees" and exempt from parts 2 through 4 of Title I of the Employee Retirement Income Security Act of 1974 with respect to the Employer's particular situation. Fidelity Management Trust Company, its affiliates and employees may not provide you with legal advice in connection with the execution of this document. This document should be reviewed by your attorney and/or accountant prior to execution. 4/11/94 CPR SELECT BASIC PLAN DOCUMENT ARTICLE 1 ADOPTION AGREEMENT ARTICLE 2 DEFINITIONS 2.01 - Definitions ARTICLE 3 PARTICIPATION 3.01 - Date of Participation 3.02 - Resumption of Participation Following Re employment 3.03 - Cessation or Resumption of Participation Following a Change in Status ARTICLE 4 CONTRIBUTIONS 4.01 - Deferral Contributions 4.02 - Matching Contributions 4.03 - Time of Making Employer Contributions ARTICLE 5 PARTICIPANTS' ACCOUNTS 5.01 - Individual Accounts ARTICLE 6 INVESTMENT OF CONTRIBUTIONS 6.01 - Manner of Investment 6.02 - Investment Decisions ARTICLE 7 RIGHT TO BENEFITS 7.01 - Normal or Early Retirement 7.02 - Death 7.03 - Other Termination Of Employment 7.04 - Separate Account 7.05 - Forfeitures 7.06 - Adjustment for Investment Experience 7.07 - Hardship Withdrawals ARTICLE 8 DISTRIBUTION OF BENEFITS PAYABLE AFTER TERMINATION OF SERVICE 8.01 - Distribution of Benefits to Participants and Beneficiaries 8.02 - Determination of Method of Distribution 8.03 - Notice to Trustee 8.04 - Time of Distribution ARTICLE 9 AMENDMENT AND TERMINATION 9.01 - Amendment by Employer 9.02 - Retroactive Amendments 9.03 - Termination 9.04 - Distribution Upon Termination of the Plan 2 4/11/94 ARTICLE 10 MISCELLANEOUS 10.01 - Communication to Participants 10.02 - Limitation of Rights 10.03 - Nonalienability of Benefits 10.04 - Facility of Payment 10.05 - Information between Employer and Trustee 10.06 - Notices 10.07 - Governing Law ARTICLE 11 PLAN ADMINISTRATION 11.01 - Powers and Responsibilities of the Administrator 11.02 - Nondiscriminatory Exercise of Authority 11.03 - Claims and Review Procedures 11.04 - Cost of Administration 3 4/11/94 PREAMBLE It is the intention of the Employer to establish herein an unfunded plan maintained solely for the purpose of providing deferred compensation for a select group of management or highly compensated employees for purposes of Title I of ERISA. Article 1. ADOPTION AGREEMENT. Article 2. DEFINITIONS. 2.01. DEFINITIONS. (a) Wherever used herein, the following terms have the meanings set forth below, unless a different meaning is clearly required by the context: (1) "Account" means an account established on the books of the Employer for the purpose of recording amounts credited on behalf of a Participant and any income, expenses, gains or losses included thereon. (2) "Administrator" means the Employer adopting this Plan, or other person designated by the Employer in Section 1.01(b). (3) "Adoption Agreement" means Article 1 under which the Employer establishes and adopts or amends the Plan and designates the optional provisions selected by the Employer. The provisions of the Adoption Agreement shall be an integral part of the Plan. (4) "Beneficiary" means the person or persons entitled under Section 7.02 to receive benefits under the Plan upon the death of a Participant. (5) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (6) "Compensation" shall mean for purposes of Article 4 (Contributions) wages as defined in Section 3401(a) of the Code and all other payments of compensation to an employee by the employer (in the course of the employers trade or business) for which the employer is required to finish the employee a written statement under Section 6041(d) and 6051(a)(3) of the Code, excluding any items elected by the Employer in Section 1.04, reimbursements or other expense allowances, fringe benefits (cash and non-cash), moving expenses, deferred compensation and welfare benefits, but including amounts that are not includable in the gross income of the participant under a salary reduction agreement by reason of the application of Sections 125, 402(a)(8), 402(h), or 403(b) of the Code. Compensation must be determined without regard to any rules under Section 3401(a) of the Code that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Section 3401(a)(2) of the Code). Compensation shall generally be based on the amount that would have been actually paid to the Participant during the Plan year but for an election under Section 4.01. 4/11/94 In the case of any Self-Employed Individual or an Owner-Employee Compensation shall mean the Individual's Earned Income. (7) "Earned Income" means the net earnings of a Self-Employed Individual derived from the trade or business with respect to which the Plan is established and for which the personal services of such individual are a material income-providing factor, excluding any items not included in gross income and the deductions allocated to such items, except that for taxable years beginning after December 31, 1989 net earnings shall be determined with regard to the deduction allowed under Section 164(f) of the Code, to the extent applicable to the Employer. Net earnings shall be reduced by contributions of the Employer to any qualified plan, to the extent a deduction is allowed to the Employer for such contributions under Section 404 of the Code. (8) "Employee" means any employee of the Employer, Self-Employed Individual or Owner-Employee. (9) "Employer" means the employer named in Section 1.02(a) and any Related Employers designated in Section 1.02(b). (10) "Employment Commencement Date" means the date on which the Employee first performs an Hour of Service. (11) "ERISA" means the Employee Retirement Income Security Act of 1974, as from time to time amended. (12) "Fidelity Fund" means any Registered Investment Company which is made available to plans utilizing the CORPORATEplan for Retirement Select Plan. (13) "Fund Share" means the share, unit, or other evidence of ownership in a Fidelity Fund. (14) "Hour of Service" means, with respect to any Employee, (A) Each hour for which the Employee is directly or indirectly paid, or entitled to payment, for the performance of duties for the Employer or a Related Employer, each such hour to be credited to the Employee for the computation period in which the duties were performed; (B) Each hour for which the Employee is directly or indirectly paid, or entitled to payment, by the Employer or Related Employer (including payments made or due from a trust fund or insurer to which the Employer contributes or pays premiums) on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity, disability, layoff, jury duty, military duty, or leave of absence, each such hour to be credited to the Employee for the Eligibility Computation Period in which such period of time occurs, subject to the following rules: (i) No more than 501 Hours of Service shall be credited under this paragraph (B) on account of any single continuous period during which the Employee performs no duties; 2 4/11/94 (ii) Hours of Service shall not be credited under this paragraph (B) for a payment which solely reimburses the Employee for medically-related expenses, or which is made or due under a plan maintained solely for the purpose of complying with applicable workmen's compensation, unemployment compensation or disability insurance laws; and (iii) If the period during which the Employee performs no duties falls within two or more computation periods and if the payment made on account of such period is not calculated on the basis of units of time, the Hours of Service credited with respect to such period shall be allocated between not more than the first two such computation periods on any reasonable basis consistently applied with respect to similarly situated Employees; and (C) Each hour not counted under paragraph (A) or (B) for which back pay, irrespective of mitigation of damages, has been either awarded or agreed to be paid by the Employer or a Related Employer, each such hour to be credited to the Employee for the computation period to which the award or agreement pertains rather than the computation period in which the award agreement or payment is made. For purposes of determining Hours of Service, Employees of the Employer and of all Related Employers will be treated as employed by a single employer. For purposes of paragraphs (B) and (C) above, Hours of Service will be calculated in accordance with the provisions of Section 2530.200b-2(b) of the Department of Labor regulations which are incorporated herein by reference. Solely for purposes of determining whether a break in service for participation purposes has occurred in a computation period, an individual who is absent from work for maternity or paternity reasons shall receive credit for the hours of service which would otherwise have been credited to such individual but for such absence, or in any case in which such hours cannot be determined, 8 hours of service per day of such absence. For purposes of this paragraph, an absence from work for maternity reasons means an absence (1) by reason of the pregnancy of the individual, (2) by reason of a birth of a child of the individual, (3) by reason of the placement of a child with the individual in connection with the adoption of such child by such individual, or (4) for purposes of caring for such child for a period beginning immediately following such birth or placement. The hours of service credited under this paragraph shall be credited (1) in the computation period in which the absence begins if the crediting is necessary to prevent a break in service in that period, or (2) in all other cases, in the following computation period. (15) "Normal Retirement Age" means the normal retirement age specified in Section 1.06(a) of the Adoption Agreement. (16) "Owner-Employee" means, if the Employer is a sole proprietorship, the individual who is the sole proprietor, or if the Employer is a partnership, a partner who owns more than 10 percent of either the capital interest or the profits interest of the partnership. 3 4/11/94 (17) "Participant" means any Employee who participates in the Plan in accordance with Article 3 hereof. (18) "Plan" means the plan established by the Employer as set forth herein as a new plan or as an amendment to an existing plan, by executing the Adoption Agreement, together with any and all amendments hereto. (19) "Plan Year" means the 12-consecutive month period designated by the Employer in Section 1.01(d). (20) "Registered Investment Company" means any one or more corporations, partnerships or trusts registered under the Investment Company Act of 1940 for which Fidelity Management and Research Company serves as investment advisor. (21) "Related Employer" means any employer other than the Employer named in Section 1.02(a), if the Employer and such other employer are members of a controlled group of corporations (as defined in Section 414(b) of the Code) or an affiliated service group (as defined in Section 414(m)), or are trades or businesses (whether or not incorporated) which are under common control (as defined in Section 414(c)), or such other employer is required to be aggregated with the Employer pursuant to regulations issued under Section 414(o). (22) "Self-Employed Individual" means an individual who has Earned Income for the taxable year from the Employer or who would have Earned Income but for the fact that the trade or business had no net profits for the taxable year. (23) "Trust" means the trust created by the Employer. (24) "Trust Agreement" means the agreement between the Employer and the Trustee, as set forth in a separate agreement, under which assets are held, administered, and managed subject to the claims of the Employer's creditors in the event of the Employer's insolvency, until paid to plan Participants and their Beneficiaries as specified in the Plan. (25) "Trust Fund" means the property held in the Trust by the Trustee. (26) "Trustee" means the corporation or individuals appointed by the Employer to administer the Trust in accordance with the Trust Agreement. (27) "Years of Service for Vesting" means, with respect to any Employee, the number of whole years of his periods of service with the Employer or a Related Employer (the elapsed time method to compute vesting service), subject to any exclusions elected by the Employer in Section 1.07(b). An Employee will receive credit for the aggregate of all time period(s) commencing with the Employee's Employment Commencement Date and ending on the date a break in service begins, unless any such years are excluded by Section 1.07(b). An Employee will also receive credit for any period of severance of less than 12 consecutive months. Fractional periods of a year will be expressed in terms of days. 4 4/11/94 In the case of a Participant who has 5 consecutive 1-year breaks in service, all years of service after such breaks in service will be disregarded for the purpose of vesting the employer-derived account balance that accrued before such breaks, but both pre-break and post-break service will count for the purposes of vesting the Employer-derived account balance that accrues after such breaks. Both accounts will share in the earnings and losses of the fund. In the case of a participant who does not have 5 consecutive l-year breaks in service, both the pre-break and post-break service will count in vesting both the pre-break and post-break employer-derived account balance. A break in service is a period of severance of at least 12 consecutive months. Period of severance is a continuous period of time during which the Employee is not employed by the Employer. Such period begins on the date the Employee retires, quits or is discharged, or if earlier, the 12 month anniversary of the date on which the Employee was otherwise first absent from service. In the case of an individual who is absent from work for maternity or paternity reasons, the 12-consecutive month period beginning on the first anniversary of the first date of such absence shall not constitute a break in service. For purposes of this paragraph, an absence from work for maternity or paternity reasons means an absence (1) by reason of the pregnancy of the individual, (2) by reason of the birth of a child of the individual, (3) by reason of the placement of a child with the individual in connection with the adoption of such child by such individual, or (4) for purposes of caring for such child for a period beginning immediately following such birth or placement. If the plan maintained by the Employer is the plan of a predecessor employer, an Employee's Years of Service for Vesting shall include years of service with such predecessor employer. In any case in which the Plan maintained by the Employer is not the plan maintained by a predecessor employer, service for such predecessor shall be treated as service for the Employer to the extent provided in Section 1.08. (b) Pronouns used in the Plan are in the masculine gender but include the feminine gender unless the context clearly indicates otherwise. Article 3. PARTICIPATION. 3.01. DATE OF PARTICIPATION. An eligible Employee (as set forth in Section 1.03(a)) will become a Participant in the Plan on the first Entry Date after which he becomes an eligible Employee if he has filed an election pursuant to Section 4.01. If the eligible Employee does not file an election pursuant to Section 4.01 prior to his first Entry Date, then the eligible Employee will become a Participant in the Plan as of the first day of a Plan Year for which he has filed an election. 3.02. RESUMPTION OF PARTICIPATION FOLLOWING RE EMPLOYMENT. If a Participant ceases to he an Employee and thereafter returns to the employ of the Employer he will again become a Participant as of an Entry Date following the date on which he completes an Hour of Service for the Employer following his re employment, if he is an eligible Employee as defined in Section 1.03(a), and has filed an election pursuant to Section 4.01. 5 4/11/94 3.03. CESSATION OR RESUMPTION OF PARTICIPATION FOLLOWING A CHANGE IN STATUS. If any Participant continues in the employ of the Employer or Related Employer but ceases to be an eligible Employee as defined in Section 1.03(a), the individual shall continue to be a Participant until the entire amount of his benefit is distributed; however, the individual shall not be entitled to make Deferral Contributions or receive an allocation of Matching contributions during the period that he is not an eligible Employee. Such Participant shall continue to receive credit for service completed during the period for purposes of determining his vested interest in his Accounts. In the event that the individual subsequently again becomes an eligible Employee, the individual shall resume full participation in accordance with Section 3.01. Article 4. CONTRIBUTIONS. 4.01. DEFERRAL CONTRIBUTIONS. Each Participant may elect to execute a salary reduction agreement with the Employer to reduce his Compensation by a specified percentage not exceeding the percentage set forth in Section 1.05(a) and equal to a whole number multiple of one (1) percent. Such agreement shall become effective on the first day of the period as set forth in the Participant's election. The election will be effective to defer Compensation relating to all services performed in a Plan Year subsequent to the filing of such an election. An election once made will remain in effect until a new election is made. A new election will be effective as of the first day of the following Plan Year and will apply only to Compensation payable with respect to services rendered after such date. Amounts credited to a Participant's account prior to the effective date of any new election will not be affected and will be paid in accordance with that prior election. The Employer shall credit an amount to the account maintained on behalf of the Participant corresponding to the amount of said reduction. Under no circumstances may a salary reduction agreement be adopted retroactively. A Participant may not revoke a salary reduction agreement for a Plan year during that year. 4.02. MATCHING CONTRIBUTIONS. If so provided by the Employer in Section 1.05(b),the Employer shall make a Matching Contribution to be credited to the account maintained on behalf of each Participant who had Deferral Contributions made on his behalf during the year and who meets the requirement, if any, of Section 1.05(b)(3). The amount of the Matching Contribution shall be determined in accordance with Section l.05(b). 4.03. TIME OF MAKING EMPLOYER CONTRIBUTIONS. The Employer will from time to time make a transfer of assets to the Trustee for each Plan Year. The Employer shall provide the Trustee with information on the amount to be credited to the separate account of each Participant maintained under the Trust. Article 5. PARTICIPANTS' ACCOUNTS. 5.01. INDIVIDUAL ACCOUNTS. The Administrator will establish and maintain an Account for each Participant which will reflect Matching and Deferral Contributions credited to the Account on behalf of the Participant and earnings, expenses, gains and losses credited thereto, and deemed investments made with amounts in the Participant's Account. The Administrator will establish and maintain such other accounts and records as it decides in its discretion to be reasonably required or appropriate in order to discharge its duties under the Plan. Participants will be furnished statements of their Account values at least once each Plan Year. 6 4/11/94 Article 6. INVESTMENT OF CONTRIBUTIONS. 6.01. MANNER OF INVESTMENT. All amounts credited to the Accounts of Participants shall be treated as though invested and reinvested only in eligible investments selected by the Employer in Section 1.11(b). 6.02. INVESTMENT DECISIONS. Investments in which the Accounts of Participants shall be treated as invested and reinvested shall be directed by the Employer or by each Participant, or both, in accordance with the Employer's election in Section 1.11(a). (a) All dividends, interest, gains and distributions of any nature earned in respect of Fund Shares in which the Account is treated as investing shall be credited to the Account as though reinvested in additional shares of that Fidelity Fund. (b) Expenses attributable to the acquisition of investments shall be charged to the Account of the Participant for which such investment is made. Article 7. RIGHT TO BENEFITS. 7.01. NORMAL OR EARLY RETIREMENT. If provided by the Employer in Section 1.07(d), each Participant who attains his Normal Retirement Age or Early Retirement Age will have a nonforfeitable interest in his Account in accordance with the vesting schedule elected in Section l.07. If a Participant retires on or after attainment of Normal or Early Retirement Age, such retirement is referred to as a normal retirement. On or after his normal retirement, the balance of the Participant's Account, plus any amounts thereafter credits to his Account, subject to the provisions of Section 7.06, will be distributed to him in accordance with Article 8. If provided by the Employer in Section 1.06, a Participant who separates from service before satisfying the age requirements for early retirement, but has satisfied the service requirement will be entitled to the distribution of his Account, subject to the provisions of Section 7.06, in accordance with Article 8, upon satisfaction of such age requirement. 7.02. DEATH. If a Participant dies before the distribution of his Account has commenced, or before such distribution has been completed, his Account shall become vested in accordance with the vesting schedule elected in Section 1.07 and his designated Beneficiary or Beneficiaries will be entitled to receive the balance or remaining balance of his Account, plus any amounts thereafter credited to his Account, subject to the provisions of Section 7.06. Distribution to the Beneficiary or Beneficiaries will be made in accordance with Article 8. A Participant may designate a Beneficiary or Beneficiaries, or change any prior designation of Beneficiary or Beneficiaries by giving notice to the Administrator on a form designated by the Administrator. If more than one person is designated as the Beneficiary, their respective interests shall he as indicated on the designation form. 7 4/11/94 A copy of the death notice or other sufficient documentation must be filed with and approved by the Administrator. If upon the death of the Participant there is, in the opinion of the Administrator, no designated Beneficiary for part or all of the Participant's Account, such amount will be paid to his surviving spouse or, if none, to his estate (such spouse or estate shall be deemed to be the Beneficiary for purposes of the Plan). If a Beneficiary dies after benefits to such Beneficiary have commenced, but before they have been completed, and, in the opinion of the Administrator, no person has been designated to receive such remaining benefits, then such benefits shall be paid to the deceased Beneficiary's estate. 7.03. OTHER TERMINATION OF EMPLOYMENT. If provided by the Employer in Section 1.06, if a Participant terminates his employment for any reason other than death or normal retirement, he will be entitled to a termination benefit equal to (i) the vested percentage(s) of the value of the Matching Contributions to his Account, as adjusted for income, expense, gain, or loss, such percentage(s) determined in accordance with the vesting schedule(s) selected by the Employer in Section 1.07, and (ii) the value of the Deferral Contributions to his Account as adjusted for income, expense, gain or loss. The amount payable under this Section 7.03 will be subject to the provisions of Section 7.06 and will be distributed in accordance with Article 8. 7.04. SEPARATE ACCOUNT. If a distribution from a Participant's Account has been made to him at a time when he has a nonforfeitable right to less than 100 percent of his Account, the vesting schedule in Section 1.07 will thereafter apply only to amounts in his Account attributable to Matching Contributions allocated after such distribution. The balance of his Account immediately after such distribution will be transferred to a separate account which will be maintained for the purpose of determining his interest therein according to the following provisions. At any relevant time prior to a forfeiture of any portion thereof under Section 7.05, a Participant's nonforfeitable interest in his Account held in a separate account described in the preceding paragraph will be equal to P(AB + (RxD))-(RxD), where P is the nonforfeitable percentage at the relevant time determined under Section 7.O5; AB is the account balance of the separate account at the relevant time; D is the amount of the distribution; and R is the ratio of the account balance at the relevant time to the account balance after distribution. Following a forfeiture of any portion of such separate account under Section 7.05 below, any balance in the Participant's separate account will remain fully vested and nonforfeitable. 7.05. FORFEITURES. If a Participant terminates his employment, any portion of his Account (including any amounts credited after his termination of employment) not payable to him under Section 7.03 will be forfeited by him. For purposes of this paragraph, if the value of a Participant's vested account balance is zero, the Participant shall be deemed to have received a distribution of his vested interest immediately following termination of employment. Such forfeitures will be applied to reduce the contributions of the Employer under the Plan (or administrative expenses of the Plan). 8 4/11/94 7.06. ADJUSTMENT FOR INVESTMENT EXPERIENCE. If any distribution under this Article 7 is not made in a single payment, the amount remaining in the Account after the distribution will be subject to adjustment until distributed to reflect the income and gain or loss on the investments in which such amount is treated as invested and any expenses properly charged under the Plan and Trust to such amounts. 7.07. HARDSHIP WITHDRAWALS. Subject to the provisions of Article 8, a Participant shall not be permitted to withdraw his Account (and earnings thereon) prior to retirement or termination of employment, except if permitted under Section 1.09, a Participant may apply to the Administrator to withdraw some or all of his Account if such withdrawal is made on account of a hardship as determined by the Employer. Article 8. DISTRIBUTION OF BENEFITS PAYABLE AFTER TERMINATION OF SERVICE. 8.01. DISTRIBUTION OF BENEFITS TO PARTICIPANTS AND BENEFICIARIES. (a) Distributions under the Plan to a Participant or to the Beneficiary of the Participant shall be made in a lump sum in cash or, if elected by the Employer in Section 1.10 and specified in the Participant's deferral election, under a systematic withdrawal plan (installment(s)) not exceeding 10 years upon retirement, death or other termination of employment. (b) Distributions under a systematic withdrawal plan must be made in substantially equal annual, or more frequent, installments, in cash, over a period certain which does not extend 10 years. The period certain specified in a Participant's first deferral election specifying distribution under a systematic withdrawal plan shall apply to all subsequent elections of distributions under a systematic withdrawal plan made by the Participant. 8.02. DETERMINATION OF METHOD OF DISTRIBUTION. The Participant will determine the method of distribution of benefit's to himself and the method of distribution to his Beneficiary. Such determination will be made at the time the Participant makes a deferral election. If the Participant does not determine the method of distribution to him or his Beneficiary, the method shall be a lump sum. 8.03. NOTICE TO TRUSTEE. The Administrator will notify the Trustee in writing whenever any Participant or Beneficiary is entitled to receive benefits under the plan. The administrator's notice shall indicate the form, amount and frequency of benefits that such Participant or Beneficiary shall receive. 8.04. TIME OF DISTRIBUTION. In no event will distribution to a Participant be made later than the date specified by the Participant in his salary reduction agreement. 9 4/11/94 Article 9. AMENDMENT AND TERMINATION. 9.01. AMENDMENT BY EMPLOYER. The Employer reserves the authority to amend the Plan by filing with the Trustee an amended Adoption Agreement, executed by the Employer only, on which said Employer has indicated a change or changes in provisions previously elected by it. Such changes are to be effective on the effective date of such amended Adoption Agreement. Any such change notwithstanding, no Participant's Account shall be reduced by such change below the amount to which the Participant would have been entitled if he had voluntarily left the employ of the Employer immediately prior to the date of the change. The Employer may from time to time make any amendment to the Plan that may he necessary to satisfy the Code or ERISA. The Employer's board of directors or other individual specified in the resolution adopting this Plan shall act on behalf of the Employer for purposes of this Section 9.01. 9.02. RETROACTIVE AMENDMENTS. An amendment made by the Employer in accordance with Section 9.01 may be made effective on a date prior to the first day of the Plan Year in which it is adopted if such amendment is necessary or appropriate to enable the Plan and Trust to satisfy the applicable requirements of the Code or ERISA or to conform the Plan to any change in federal law or to any regulations or ruling thereunder. Any retroactive amendment by the Employer shall be subject to the provisions of Section 9.01. 9.03. TERMINATION. The Employer has adopted the Plan with the intention and expectation that contributions will be continued indefinitely. However, said Employer has no obligation or liability whatsoever to maintain the Plan for any length of time and may discontinue contributions under the Plan or terminate the Plan at any time by written notice delivered to the Trustee without any liability hereunder for any such discontinuance or termination. 9.04. DISTRIBUTION UPON TERMINATION OF THE PLAN. Upon termination of the Plan, no further Deferral Contributions or Matching Contributions shall be made under the Plan, but Accounts of Participants maintained under the Plan at the time of termination shall continue to be governed by the terms of the Plan until paid out in accordance with the terms of the Plan. Article 10. MISCELLANEOUS. 10.01. COMMUNICATION TO PARTICIPANTS. The Plan will be communicated to all Participants by the Employer promptly after the Plan is adopted. 10.02. LIMITATION OF RIGHTS. Neither the establishment of the Plan and the Trust, nor any amendment thereof, nor the creation of any fund or account, nor the payment of any benefits, will be construed as giving to any Participant or other person any legal or equitable right against the Employer, Administrator or Trustee, except as provided herein; and in no event will the terms of employment or service of any Participant be modified or in any way affected hereby. 10.03. NONALIENABILITY OF BENEFITS. The benefits provided hereunder will not he subject to alienation, assignment, garnishment, attachment, execution or levy of any kind, either voluntarily or involuntarily, and any attempt to cause such benefits to be so subjected will not be recognized, except to such extent as may be required by law. 10 4/11/94 10.04. FACILITY OF PAYMENT. In the event the Administrator determines, on the basis of medical reports or other evidence satisfactory to the Administrator, that the recipient of any benefit payments under the Plan is incapable of handling his affairs by reason of minority, illness, infirmity or other incapacity, the Administrator may direct the Trustee to disburse such payments to a person or institution designated by a court which has jurisdiction over such recipient or a person or institution otherwise having the legal authority under state law for the care and control of such recipient. The receipt by such person or institution of any such payments shall be complete acquittance therefore, and any such payment to the extent thereof, shall discharge the liability of the Trust for the payment of benefits hereunder to such recipient. 10.05. INFORMATION BETWEEN EMPLOYER AND TRUSTEE. The Employer agrees to furnish the Trustee, and the Trustee agrees to furnish the Employer with such information relating to the Plan and Trust as may be required by the other in order to carry out their respective duties hereunder, including without limitation information required under the Code or ERISA and any regulations issued or forms adopted thereunder. 10.06. NOTICES. Any notice or other communication in connection with this Plan shall be deemed delivered in writing if addressed as provided below and if either actually delivered at said address or, in the case of a letter, three business days shall have elapsed after the same shall have been deposited in the United States mails, first-class postage prepaid and registered or certified: (a) If to the Employer or Administrator, to it at the address set forth in the Adoption Agreement, to the attention of the person specified to receive notice in the Adoption Agreement; (b) If to the Trustee, to it at the address set forth in the Trust Agreement; or, in each case at such other address as the addressee shall have specified by written notice delivered in accordance with the foregoing to the addressor's then effective notice address. 10.07. GOVERNING LAW. The Plan and the accompanying Adoption Agreement will be construed, administered and enforced according to ERISA, and to the extent not preempted thereby, the laws of the Commonwealth of Massachusetts. Article 11. PLAN ADMINISTRATION. 11.01. POWERS AND RESPONSIBILITIES OF THE ADMINISTRATOR. The Administrator has the full power and the full responsibility to administer the Plan in all of its details, subject, however, to the applicable requirements of ERISA. The Administrator's powers and responsibilities include, but are not limited to, the following: (a) To make and enforce such rules and regulations as it deems necessary or proper for the efficient administration of the Plan; (b) To interpret the Plan, its interpretation thereof in good faith to be final and conclusive on all persons claiming benefits under the Plan; (c) To decide all questions concerning the Plan and the eligibility of any person to participate in the Plan; 11 4/11/94 (d) To administer the claims and review procedures specified in Section 11.03; (e) To compute the amount of benefits which will be payable to any Participant, former Participant or Beneficiary in accordance with the provisions of the Plan; (f) To determine the person or persons to whom such benefits will be paid; (g) To authorize the payment of benefits; (h) To comply with the reporting and disclosure requirements of Part 1 of Subtitle B of Title I of ERISA; (i) To appoint such agents, counsel, accountants, and consultants as may be required to assist in administering the Plan; (j) By written instrument, to allocate and delegate its responsibilities including the formation of an Administrative Committee to administer the Plan. 11.02. NONDISCRIMINATORY EXERCISE OF AUTHORITY. Whenever, in the administration of the Plan, any discretionary action by the Administrator is required, the Administrator shall exercise its authority in a nondiscriminatory manner so that all persons similarly situated will receive substantially the same treatment. 11.03. CLAIMS AND REVIEW PROCEDURES (a) CLAIMS PROCEDURE. If any person believes he is being denied any rights or benefits under the Plan, such person may file a claim in writing with the Administrator. If any such claim is wholly or partially denied, the Administrator will notify such person of its decision in writing. Such notification will contain (i) specific reasons for the denial, (ii) specific reference to pertinent Plan provisions, (iii) a description of any additional material or information necessary for such person to perfect such claim and an explanation of why such material or information is necessary, and (iv) information as to the steps to be taken if the person wishes to submit a request for review. Such notification will be given within 90 days after the claim is received by the Administrator (or within 180 days, if special circumstances require an extension of time for processing the claim, and if written notice of such extension and circumstances is given to such person within the initial 90-day period). If such notification is not given within such period, the claim will be considered denied as of the last day of such period and such person may request a review of his claim. (b) REVIEW PROCEDURE. Within 60 days after the date on which a person receives a written notice of a denied claim (or, if applicable, within 60 days after the date on which such denial is considered to have occurred), such person (or his duly authorized representative) may (i) file a written request with the Administrator for a review of his denied claim and of pertinent documents and (ii) submit written issues and comments to the Administrator. The Administrator will notify such person of its decision in writing. Such notification will be written in a manner calculated to be understood by such person and will contain specific reasons for the decision as well as specific references to pertinent Plan provisions. The decision on review will be made within 6O days after the request for review is received by the Administrator (or within 120 days, if special circumstances require an extension of time for processing the request, such 12 4/11/94 as an election by the Administrator to hold a hearing. and if written notice of such extension and circumstances is given to such person within the initial 60-day period). If the decision on review is not made within such period, the claim will be considered denied. 11.04. COSTS OF ADMINISTRATION. Unless some or all costs and expenses are paid by the Employer, all reasonable costs and expenses (including legal, accounting, and employee communication fees) incurred by the Administrator and the Trustee in administering the Plan and Trust will be paid first from the forfeitures (if any) resulting under Section 7.05, then from the remaining Trust Fund. All such costs and expenses paid from the Trust Fund will, unless allocable to the Accounts of particular Participants, be charged against the Accounts of all participants on a prorata basis or in such other reasonable manner as may be directed by the Employer. 13 EX-10 10 EX 10.38 TRUST FOR 401K/RETIREMENT PLAN Exhibit 10.38 TRUST AGREEMENT FOR FARR COMPANY 401K/RETIREMENT PLAN Fidelity Management Trust Company, its affiliates and employees may not provide you with legal or tax advice in connection with the execution of this document. It should be reviewed by your attorney and/or accountant prior to execution. CORPORATEplan for RETIREMENT VOLUME SUBMITTER PLAN DOCUMENT SYSTEMS TABLE OF CONTENTS PREAMBLE ARTICLE I DEFINITIONS; PURPOSE: RIGHTS OF ELIGIBLE EMPLOYEES AND BENEFICIARIES 1.1 Definitions 2 1.2 Purpose 2 1.3 Rights of Eligible Employees and Beneficiaries 2 ARTICLE II POWERS AND DUTIES OF THE TRUSTEE 2.1 Powers and Duties of Trustee 3 2.2 Selection of Investment Funds 4 2.3 Available Investment Funds 5 2.4 Participant Direction 5 2.5 Adjustment of Claims 6 2.6 Voting Rights 6 2.7 Participant Loans 6 2.8 Registration of Securities; Nominees 6 2.9 Agents, Attorneys, Actuaries, and Accountants 7 2.10 Deposit of Funds 7 2.11 Payment of Taxes; Indemnity 7 2.12 Records and Statements 7 2.13 Authority 8 2.14 Court Action Not Required 8 2.15 Reliance on Written Directions 8 2.16 Trustee's Performance 9 2.17 Counsel 9 2.18 Annuity Contracts 9 2.19 Sponsor Stock 9 ARTICLE III PAYMENTS OUT OF THE TRUST 3.1 Payments 10 3.2 Compensation and Expenses 10 3.3 Return of Contributions to the Sponsor 10 ARTICLE IV SUCCESSION TO THE TRUSTEESHIP 4.1 Resignation of the Trustee 11 4.2 Removal of the Trustee 11 4.3 Appointment of a Successor Trustee 11 ARTICLE V AMENDMENT 5.1 Right of Amendment 12 5.2 Limitation on Amendment 12 ARTICLE VI MISCELLANEOUS 6.1 Validity of Trust Agreement 13 6.2 No Guarantees 13 6.3 Duty to Furnish Information 13 6.4 Federal Income Tax Withholding 13 6.5 Parties Bound 14 6.6 Indemnification by Sponsor 14 6.7 Bonding Requirements 14 6.8 Separate Trust or Fund for Existing Plan Assets 14 PREAMBLE THIS Trust Agreement is entered into by and between Farr Company (the "Sponsor") and Fidelity Management Trust Company, a corporation organized and operating under the laws of the Commonwealth of Massachusetts, and authorized to carry on a trust business (the "Trustee"); WHEREAS, the Sponsor has adopted the Farr Company 401K/Retirement Plan (the "Plan") for the benefit of eligible employees and their beneficiaries; and WHEREAS, the Sponsor desires to establish a trust for the exclusive benefit of eligible employees and their beneficiaries to hold assets of the Plan; and WHEREAS, the Trustee agrees to act as trustee of said trust; and WHEREAS, the Sponsor and any person designated by the Sponsor pursuant to Article XVIII of the Plan, serves as a named fiduciary of the Plan for purposes of Section 402(a) (2) of ERISA (the "Named Fiduciary"); NOW, THEREFORE, the parties agree that effective as of January 1, 1996, the Trustee shall hold all funds and other property from time to time contributed or transferred to it pursuant to the provisions of the Plan, together with all the increments, proceeds, investments and reinvestments thereof, in trust, for the uses and purposes and upon the terms and conditions hereinafter set forth. ARTICLE I DEFINITIONS; PURPOSE; RIGHTS OF ELIGIBLE EMPLOYEES AND BENEFICIARIES 1.1 DEFINITIONS For all purposes of this Trust Agreement, the terms defined in the Plan shall have the meanings therein set forth, unless, as the case may be, a different meaning is clearly required by the context hereof. 1.2 PURPOSE The Trust is established to provide retirement and other benefits for eligible employees and their beneficiaries. Except as provided in Section 3.3, prior to the satisfaction of all liabilities under the Plan, no part of the Trust assets may be applied to any purpose other than providing benefits under the Plan and for defraying expenses of administering the Plan and the Trust. 1.3 RIGHTS OF ELIGIBLE EMPLOYEES AND BENEFICIARIES The rights of eligible employees and their beneficiaries shall be determined solely under the Plan. 2 ARTICLE II POWERS AND DUTIES OF THE TRUSTEE 2.1 POWERS AND DUTIES OF TRUSTEE In the administration of the Trust, the Trustee shall have the powers and duties set forth in this Article II, in addition to all powers and duties otherwise expressly set forth in this Trust Agreement. Subject to the other provisions of this Agreement, the Trustee is empowered; (a) To invest and reinvest all or any part of trust units or the trust, including both principal and income, in securities pursuant to this agreement; (b) to purchase annuities and hold and retain such contract or contracts as part of the Trust; (c) to invest and reinvest all or any part of the Trust under an insurance contract or contracts that contain provisions relating to a specified rate of return on such investment; (d) to sell, lease, exchange, or otherwise dispose of all or any part of the Trust at such prices, upon such terms and conditions, and in such manner as it shall determine, including the right to surrender an annuity contract or contracts at any time held in the Trust; (e) to exercise, buy, or sell rights of conversion or subscription; (f) to enter into or oppose any plan of consolidation, merger, reorganization, capital readjustment, or liquidation of any corporation or other issuer of securities held hereunder (including any plan for the sale, lease, or mortgage of any of its property or the adjustment or liquidation of any of its indebtedness) and, in connection with any such plan, to enter into any security holders' trust agreement, to deposit securities under such agreement, and to pay assessments or subscriptions from the other assets held hereunder; (g) to retain in cash or in forms of investment otherwise unproductive of income such portion of the Trust as determined by the Sponsor is necessitated by the cash requirements of the Trust; provided, however, that, to the maximum extent feasible, such amounts shall be held which are productive of income but are sufficiently liquid to meet such cash requirements; (h) to deposit securities held hereunder in any depository; 3 (i) to transfer to and invest all or any part of the Trust in any collective investment trust which constitutes an exempt trust within the meaning of the code and which is then maintained by a bank or trust company, or any of its affiliates, when such bank or trust company is acting as Trustee or agent for the Trustee; provided that the instrument establishing such collective investment trust, as amended from time to time, shall govern any investment therein, and is hereby made a part of this Trust Agreement as if fully set forth herein; provided further, that, to the extent that the Named Fiduciary selects as an investment option the Managed Income Portfolio of the Fidelity Group Trust for Employee Benefit Plans (the "Group Trust"), the Sponsor hereby agrees to the terms of the Group Trust and adopts said terms as a part of this Trust Agreement and acknowledges that it has received from the Trustee a copy of the Group Trust, the Declaration of Separate Fund for the Managed Income Portfolio of the Group Trust, and the Circular for the Managed Income Portfolio; (j) pursuant to the direction of the Administrator, to purchase and sell interests in a registered investment company registered under the Investment Company Act of 1940, for which the Trustee or an affiliate of the Trustee serves as investment advisor or sub-advisor and receives compensation from the registered investment company for its services as investment advisor or sub-advisor, provided that the applicable conditions of Department of Labor Transaction Exemption 77-4 are satisfied; and (k) to transfer to and invest all or any part of the Trust in any trust which forms a part of a pension or profit-sharing plan of an Employer or a Related Company qualified under the Code and which constitutes an exempt trust within the meaning of the Code; provided that the instrument establishing such trust, as amended from time to time, shall govern any investment therein, and is hereby made a part of this Trust Agreement as if fully set forth herein. The term "securities", wherever used in this Trust Agreement, shall include common and preferred stocks, contractual obligations of every kind, whether secured or unsecured, equitable interests in real or personal property, and intangible property of every description and howsoever evidenced. 2.2 SELECTION OF INVESTMENT FUNDS The Trustee shall have no responsibility for the selection of Investment Funds under the Trust and shall not render investment 4 advice to any person in connection with the selection of such options. 2.3 AVAILABLE INVESTMENT FUNDS The Named Fiduciary shall direct the Trustee as to (i) the Investment Funds the Trust shall be invested in during the Participant recordkeeping reconciliation period, and (ii) the Investment Funds in which Plan Participants and/or the Sponsor may invest in, subject to the following limitations. The Named Fiduciary may determine to offer as Investment Funds only (i) securities issued by the investment companies advised by Fidelity Management and Research Company ("Mutual Funds"), (ii) notes evidencing loans to Plan Participants in accordance with the terms of the Plan, and (iii) collective investment funds maintained by the Trustee for qualified plans; provided, however, that the Trustee shall be considered a fiduciary with investment discretion only with respect to Plan assets that are invested in collective investment funds maintained by the Trustee for qualified plans. The Investment Funds initially selected by the Named Fiduciary are identified in Schedule A attached hereto. The Named Fiduciary may add additional Investment Funds with the consent of the Trustee and upon mutual amendment of Schedule A of this Trust Agreement. The Sponsor hereby acknowledges that it has received from the Trustee a copy of the prospectus for each Mutual Fund selected by the Named Fiduciary as a Plan Investment Fund. 2.4 PARTICIPANT DIRECTION Each Plan Participant shall direct the Trustee in which Investment Fund(s) to invest the assets in the Participant's Separate Account as provided in the Plan. Such directions may be made by Plan Participants by use of the telephone exchange system maintained for such purposes by the Trustee or its agent, in accordance with written telephone exchange guidelines set forth in the service agreement between the Sponsor and Fidelity Management and Research Company (the "Service Agreement"). In the event that the Trustee fails to receive a proper direction, the assets shall be invested in the securities of the Mutual Fund set forth for such purpose in the Service Agreement, until the Trustee receives a proper direction. Additionally, in the event any assets in the Participant's Separate Account are not subject to the Participant's investment direction, such assets shall be invested as directed by the Sponsor in accordance with the Service Agreement. 2.5 ADJUSTMENT OF CLAIMS Subject to the consent of the Sponsor, the Trustee is empowered to compromise and adjust any and all claims, debts, or obligations in favor of or against the Trust, whether such claims 5 be in litigation or not, upon such terms and conditions as it shall determine, and to reduce the rate of interest on, to extend or otherwise modify, to foreclose upon default, or otherwise to enforce any such claim, debt, or obligation. 2.6 VOTING RIGHTS At the time of mailing of notice of each annual or special stockholders' meeting of any Mutual Fund, the Trustee shall send a copy of the notice and all proxy solicitation materials to each Participant who has shares of the Mutual Fund credited to the Participant's Separate Account, together with a voting direction form for return to the Trustee or designee. The Participant shall have the right to direct the Trustee as to the manner in which the Trustee is to vote the shares credited to the Participant's Separate Account (both vested and unvested), except as otherwise provided in this Section 2.6. The Trustee shall vote the shares as directed by the Participant. The Sponsor shall have the right to direct the Trustee as to the manner in which the Trustee is to vote the shares of the Mutual Funds in the Trust during the Participant recordkeeping reconciliation period and any shares credited to the Participant's Separate Account which are not subject to Participant direction. With respect to all rights other than the right to vote, the Trustee shall follow the directions of the Named Fiduciary. The Trustee shall have no duty to solicit directions from Participants or the Sponsor. 2.7 PARTICIPANT LOANS If provided under the terms of the Plan, the Sponsor may direct the Trustee in writing to establish a separate loan Investment Fund with respect to a Participant and to transfer assets from any of the other Trust Funds to the separate loan Investment Fund for the purpose of making loans to the Participant as provided in the Plan. The Trustee shall be required to follow the directions so given to it; provided, however, that the Trustee shall not be required to follow any directions which would result in a breach of the Trustee's fiduciary duties. 2.8 REGISTRATION OF SECURITIES; NOMINEES The Trustee is empowered to register securities in its own name, or in the name of its nominee, without disclosing the trust, or to hold the same in bearer form, and to take title to other property in its own name or in the name of its nominee without disclosing the trust; provided, however, that the Trustee shall be responsible for the acts of its nominees. 6 2.9 AGENTS, ATTORNEYS, ACTUARIES, AND ACCOUNTANTS The Trustee is empowered to employ such agents, attorneys (including attorneys who may be of counsel for the Sponsor), actuaries, and accountants as it may deem necessary or proper in connection with its duties hereunder, and to determine and pay the reasonable compensation and expenses of such agents, attorneys, actuaries, and accountants. 2.10 DEPOSIT OF FUNDS The Trustee is empowered to deposit funds, pending investment or distribution thereof, in the commercial or, savings department of any bank, savings and loan association or trust company supervised by the United States or a state or agency thereof; and it is authorized to accept such regulations covering the withdrawal of funds so deposited as it shall deem proper. The Trustee may deposit all or any part of the Trust, including both principal and interest, in the banking department of the Trustee (and any of its affiliates) and of any other fiduciary or party-in-interest with respect to the Trust; provided, however, that the deposits bear a reasonable rate of interest and are authorized pursuant to the provisions of Section 408 of ERISA. 2.11 PAYMENT OF TAXES; INDEMNITY The Trustee is empowered to pay out of the Trust, as a general charge thereon, any and all taxes of whatsoever nature assessed on or in respect to the Trust; provided, however, that, if the Sponsor shall notify the Trustee in writing that in the opinion of its counsel any such tax is not lawfully assessed, the Trustee, if so requested by the Sponsor, shall contest the validity of such tax in any manner deemed appropriate by the Sponsor or its counsel. The word "taxes", as used herein, shall be deemed to include any interest or penalties assessed in respect to such taxes. Unless the Trustee first shall have been indemnified to its satisfaction by the Sponsor, the Trustee shall not be required to contest the validity of any tax, to institute, maintain, or defend against any other action or proceeding, or to incur any other expense in connection with the Trust, except to the extent that the Trust is sufficient therefor. 2.12 RECORDS AND STATEMENTS The Trustee shall keep accurate records of all receipts, disbursements, and other transactions affecting the Trust which, together with the assets comprising the Trust and all evidences thereof, shall be available for inspection or for the purpose of making copies or reproductions thereof by the Sponsor or any of its duly authorized representatives. The Trustee shall render to the Sponsor at intervals agreed to by the Sponsor and the Trustee statements of receipts and disbursements and of all transactions 7 during the preceding interval affecting the Trust and a statement of all assets held in the Trust and the investment performance or the Investment Funds. 2.13 AUTHORITY The Trustee is authorized to execute and deliver any and all instruments and to perform any and all acts which may be necessary or proper to enable it to discharge its duties under this Trust Agreement and to carry out the powers and authority conferred upon it. The Sponsor specifically acknowledges and authorizes that affiliates of the Trustee may act as its agent in the performance of ministerial, non-fiduciary duties under the Trust. The expenses and compensation of such agent shall be paid by the Trustee. 2.14 COURT ACTION NOT REQUIRED All the powers and authority herein conferred upon the Trustee shall be exercised by it without the necessity of applying to any court for leave or confirmation. No person, firm, or corporation dealing with the Trustee shall be required to ascertain whether the Trustee shall have obtained the approval of any court or of any person with respect to any action which it may propose to take hereunder, but every such person, firm, or corporation shall be protected in relying solely upon the deed, transfer, or assurance of the Trustee. 2.15 RELIANCE ON WRITTEN DIRECTIONS Any written direction, request, approval, or other document signed in the name of the Sponsor or the Administrator by a duly authorized individual shall be conclusively deemed to constitute the written direction, request, approval, or other document of the Sponsor or the Administrator and the Trustee shall not be liable for any loss, or by reason of any breach, arising from the direction unless it is clear on the direction's face that the actions to be taken under the direction would be prohibited by the fiduciary duty rules of Section 404(a) of ERISA or would be contrary to the terms of the Plan or this Trust Agreement. The Trustee will be entitled to rely on the latest certificate it has received from the Sponsor or Administrator as to any person or persons authorized to act for the Sponsor or Administrator hereunder and to sign on behalf of the Sponsor or Administrator any directions or instructions, until it receives from the Sponsor or Administrator written notice that such authority has been revoked. 8 2.16 TRUSTEE'S PERFORMANCE In the exercise of any of the powers and authority herein conferred upon it, the Trustee shall adhere at all times to the fiduciary standards established by ERISA. 2.17 COUNSEL The Trustee may consult with counsel selected by it, who may be of counsel for the Sponsor, as to any matters or questions arising hereunder, and the opinion of such counsel shall be full and complete authority and protection in respect to any action taken, suffered, or omitted by the Trustee in good faith and in accordance with the opinion of such counsel. 2.18 ANNUITY CONTRACTS Notwithstanding any other provision of this Trust Agreement or the Plan to the contrary, the Administrator shall retain all discretionary power relating to any annuity contract acquired by or delivered to the Trustee. As directed by the Administrator, the Trustee will acquire, hold and dispose of annuity contracts, deliver the purchase price, and exercise any and all rights, privileges, options, and elections under those policies. The Trustee will be fully discharged with respect to any policy when it is delivered to the Administrator. 9 ARTICLE III PAYMENTS OUT OF THE TRUST 3.1 PAYMENTS The Trustee shall make payments from the Trust to such persons in such amounts and at such times as the Sponsor or the Administrator from time to time shall direct in writing to be payable under the Plan. 3.2 COMPENSATION AND EXPENSES The Trustee shall be entitled to such reasonable compensation for its services as the Sponsor and the Trustee from time to time shall agree, and shall be entitled to reimbursement for all reasonable expenses incurred by the Trustee in the administration of the Trust. All compensation, if applicable, and expenses of administering the Plan or Trust, including fees assessed against the Plan, the Trust, the Sponsor, or the Administrator, shall be paid out of the Trust as a general charge thereon, unless the Sponsor elects to make payment thereof. 3.3 RETURN OF CONTRIBUTIONS TO THE SPONSOR Upon written notice of the Sponsor, the Trustee shall pay over to the Sponsor the amount of any contribution (i) made under a mistake of fact, or (ii) disallowed as a deduction contribution under Section 404 of the Code, or (iii) with respect to which the Plan does not qualify initially under Section 401(a) of the Code or the Trust is not exempt under Section 501(a) of the Code. In no event shall the Trustee make such payment later than one year after (i) the payment of the contribution, or (it) the disallowance of the deduction to the extent disallowed, or (iii) the date of denial of the initial qualification of the Plan. 10 ARTICLE IV SUCCESSION TO THE TRUSTEESHIP 4.1 RESIGNATION OF THE TRUSTEE Any Trustee acting hereunder may resign at any time by giving notice in writing to the Sponsor at least 60 days before such resignation is to become effective, unless the Sponsor shall accept as adequate a shorter notice. 4.2 REMOVAL OF THE TRUSTEE The Sponsor may, with or without cause, remove any Trustee acting hereunder by giving notice in writing to the Trustee at least 60 days before such removal is to become effective, unless the Trustee shall accept as adequate a shorter notice. 4.3 APPOINTMENT OF A SUCCESSOR TRUSTEE If for any reason a vacancy should occur in the trusteeship, a successor Trustee shall forthwith be appointed by the Sponsor. Any successor Trustee appointed hereunder shall execute, acknowledge, and deliver to the Sponsor an instrument in writing accepting such appointment hereunder. Such successor Trustee thereupon shall become vested with the same title to the property comprising the Trust, and shall have the same powers and duties with respect thereto, as are hereby vested in the original Trustee. The predecessor Trustee shall execute all such instruments and perform all such other acts as the successor Trustee or Sponsor shall reasonably request to effectuate the provisions hereof. The successor Trustee shall have no duty to inquire into the administration of the Trust for any period prior to its succession. 11 ARTICLE V AMENDMENT 5.1 RIGHT OF AMENDMENT The Sponsor reserves the right, at its sole discretion, from time to time to amend the provisions of this Trust Agreement in any manner; provided, however, that the powers, duties, and immunities of the Trustee under this Trust Agreement shall not be substantively changed without its written approval. Any such amendment shall be by written instrument executed by the Sponsor and delivered to the Trustee, and may be made retroactively if in the opinion of the Sponsor such amendment is necessary to enable the Plan and the Trust to meet the requirements of the Code (including the regulations and rulings issued thereunder) or the requirements of any governmental authority. 5.2 LIMITATION ON AMENDMENT The Sponsor shall make no amendment to this Trust Agreement that results in the forfeiture or reduction of the accrued benefit of any Participant or Beneficiary. Notwithstanding the preceding sentence, nothing herein contained shall restrict the right to amend the provisions of this Trust Agreement relating to the administration of the Plan and the Trust. Moreover, no such amendment shall be made under this Article which shall permit any part of the Trust to revert to the Sponsor or any Related Company or to be used for or be diverted to purposes other than for the exclusive benefit of Participants and Beneficiaries. 12 ARTICLE VI MISCELLANEOUS 6.1 VALIDITY OF TRUST AGREEMENT The validity of this Trust Agreement shall be determined and this Trust Agreement shall be construed in accordance with the laws of the Commonwealth of Massachusetts, except to the extent that they are superseded by Section 514 of ERISA. The invalidity or illegality of any provision of this Trust Agreement shall not affect the validity or legality of any other part hereof. 6.2 NO GUARANTEES Neither the Sponsor nor the Trustee guarantees the Trust from loss or depreciation. 6.3 DUTY TO FURNISH INFORMATION The Administrator, the Employers, and the Trustee shall furnish to any of the others any documents, reports, returns, statements, or other information that such other reasonably deems necessary to perform its duties imposed under the Plan or this Trust Agreement or otherwise imposed by law. 6.4 FEDERAL INCOME TAX WITHHOLDING The Trustee shall not be responsible for withholding federal and state income tax from distributions unless the Administrator provides the Trustee with the following information concerning each distribution: (a) The name, address, and social security number of the Participant (and the Participant's spouse or other Beneficiary if applicable). By forwarding such information, the Administrator shall be deemed hereby to have certified the accuracy of such information. (b) A statement of the reason for the payment or distribution and directions as to the type of distribution (i.e. total qualified, periodic or non-periodic distribution) requested. If the Administrator does not provide the Trustee with the above information, the responsibility for withholding federal and state income taxes and the reporting thereof shall remain with the Administrator. 13 6.5 PARTIES BOUND This Trust Agreement shall be binding upon the parties hereto, all Participants, and persons claiming under or through them pursuant to the Plan, and, as the case may be, the heirs, executors, administrators, successors, and assigns of each of them. 6.6 INDEMNIFICATION BY SPONSOR The Sponsor shall indemnify and save harmless from and against any and all liability to which the Trustee may be subjected by reason of any act or conduct in its capacity as Trustee, including all expenses reasonably incurred in its defense, except for losses or expenses resulting from the negligence or willful misconduct of the Trustee or its affiliates. 6.7 BONDING REQUIREMENTS Every fiduciary, except a bank or an insurance company, unless exempted by ERISA and the regulations thereunder, shall be bonded in an amount not less than ten percent of the funds such fiduciary handles; provided, however, that the minimum bond shall be $1,000 and the maximum bond shall be $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 Plan 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 Section 412(a) (2) of ERISA), and the bond shall be in a form approved by the Secretary of Labor. Notwithstanding anything to the contrary contained in the Plan or this Trust Agreement, the cost of such bonds shall be an expense of and may, at the election of the Sponsor, be paid from the Trust or by the Sponsor. 6.8 SEPARATE TRUST OR FUND FOR EXISTING PLAN ASSETS With the consent of the Trustee, an Employer may maintain a trust or fund (including a group annuity contract) under the Plan separate from the Trust Fund to hold Plan assets acquired prior to the effective date of this Trust Agreement which are not among the available Investment Funds provided under Section 2.3. The duties and responsibilities of the trustee of the separate trust (hereinafter referred to as the "trustee") shall be provided by a separate trust agreement between the Employer and the trustee. Notwithstanding the preceding paragraph, the Trustee or an affiliate of the Trustee may agree in writing to provide 14 ministerial recordkeeping service for guaranteed investment contracts held in the separate trust or fund. Any such guaranteed investment contract shall be valued as directed by the Employer or the trustee. The trustee shall be the owner of any insurance contract purchased prior to the effective date of this Trust Agreement. Any such insurance contract must provide that the proceeds will be payable to the trustee; provided, however, that the trustee shall be required to pay over all proceeds of the contract to the Participant's Beneficiary in accordance with the distribution provisions of the Plan. Under no circumstances will the Trust Fund retain any part of the proceeds. In the event of any conflict between the terms of the Plan and the terms of any insurance contract held hereunder, the Plan provisions shall control. Any life insurance contracts held in the Trust Fund or in the separate trust shall be subject to the provisions of Article IX of the Plan. 15 EXECUTED AT Farr Company, El Sugundo, this 15 day of December, 1995. FARR COMPANY By Kenneth W. Gerstner (Signature) Title: Senior Vice President & CFO FIDELITY MANAGEMENT TRUST COMPANY By Wayne A. Isaacs (Signature) Title: Senior Legal Counsel/ Authorized Signatory 16 SCHEDULE A INVESTMENT FUNDS Participant accounts under the Trust shall be invested among the Mutual Funds or collective investment funds listed below pursuant to Participant and/or Sponsor directions. Fund Name Fund Number --------- ----------- (1) Retirement Money Market 630 (2) Intermediate Bond Fund 032 (3) Balanced Fund 304 (4) Growth & Income Portfolio 027 (5) Magellan 021 17 EX-10 11 EX 10.39 TRUST FOR SUPPLEMENTAL EXECUTIVE SAVINGS Exhibit 10.39 TRUST AGREEMENT Between FARR COMPANY [Sponsor] and FIDELITY MANAGEMENT TRUST COMPANY [Trustee] Dated as of November 21, 1995 IMPORTANT NOTE This Trust Agreement may only be used in conjunction with the CORPORATEplan for Retirement Select Plan Adoption Agreement and Basic Plan Document. An Employer may not rely solely on said documents to ensure that the Plan is "unfunded and maintained primarily for the purpose of providing deferred compensation to a select group of management or highly compensated employees" and exempt from parts 2 through 4 of Title I of the Employee Retirement Income Security Act of 1974 with respect to the Employer's particular situation. Fidelity Management Trust Company, its affiliates and employees may not provide you with legal advice in connection with the execution of this document. This document should be reviewed by your attorney and/or accountant prior to execution. 4/11/94 TABLE OF CONTENTS Section Page 1. Trust 1 (a) Establishment 1 (b) Grantor Trust 1 (c) Trust Assets 1 (d) Non-Assignment 1 2. Payments to Sponsor 2 3. Disbursements 2 (a) Directions from Administrator 2 (b) Limitations 2 4. Investment of Trust 2 (a) Selection of Investment Options 2 (b) Available Investment Options 2 (c) Investment Direction 3 (d) Mutual Funds 3 (e) Trustee Powers 4 5. Recordkeeping and Administrative Services to be Performed 5 (a) General 5 (b) Accounts 5 (c) Inspection and Audit 5 (d) Effect of Plan Amendment 5 (e) Returns, Reports and Information 6 6. Compensation and Expenses 6 7. Directions and Indemnification 6 (a) Identity of Administrator 6 (b) Directions from Administrator 6 (c) Directions from Sponsor 6 (d) Indemnification 7 (e) Survival 7 8. Resignation or Removal of Trustee 7 (a) Resignation 7 (b) Removal 7 9. Successor Trustee 7 (a) Appointment 7 (b) Acceptance 7 (c) Corporate Action 8 10. Termination 8 11. Resignation, Removal, and Termination Notices 8 4/11/94 12. Duration 8 13. Insolvency of Sponsor 8 14. Amendment or Modification 9 15. General 10 (a) Performance by Trustee, its Agents or Affiliates 10 (b) Entire Agreement 10 (c) Waiver 10 (d) Successors and Assigns 10 (e) Partial Invalidity 10 (d) Section Headings 10 16. Governing Law 11 (a) Massachusetts Law Controls 11 (b) Trust Agreement Controls 11 4/11/94 TRUST AGREEMENT, dated as of the 21 day of November, 1995 , between FARR COMPANY, a Delaware corporation, having an office at 2221 Park Place, El Segundo, CA 90245 (the "Sponsor"), and FIDELITY MANAGEMENT TRUST COMPANY, a Massachusetts trust company, having an office at 82 Devonshire Street, Boston, Massachusetts 02109 (the "Trustee"). WITNESSETH: WHEREAS, the Sponsor is the sponsor of the Farr Company Supplementary Savings Plan (the "Plan"); and WHEREAS, the Sponsor wishes to establish an irrevocable trust and to contribute to the trust assets that shall be held therein, subject to the claims of Sponsor's creditors in the event of Sponsor's Insolvency, as herein defined, until paid to Plan participants and their beneficiaries in such manner and at such times as specified in the Plan; and WHEREAS, it is the intention of the Sponsor that this Trust shall constitute an unfunded arrangement and shall not affect the status of the Plan as an unfunded plan maintained for the purpose of providing deferred compensation for a select group of management or highly compensated employees for purposes of Title I of the Employee Retirement Income Security Act of 1974 ("ERISA"); and WHEREAS, it is the intention of the Sponsor to make contributions to the trust to provide itself with a source of funds to assist it in the meeting of its liabilities under the Plan; and WHEREAS, the Trustee is willing to hold and invest the aforesaid plan assets in trust among several investment options selected by the Sponsor; and WHEREAS, the Sponsor wishes to have the Trustee perform certain ministerial recordkeeplng and administrative functions under the Plan; and WHEREAS, the Employer or such other individual named in the Plan is the Administrator of the Plan; and WHEREAS, the Trustee is willing to perform recordkeeping and administrative services for the Plan if the services are purely ministerial in nature and are provided within a framework of plan provisions, guidelines and interpretations conveyed in writing to the Trustee by the Administrator. NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants and agreements set forth below, the Sponsor and the Trustee agree as follows: 4/11/94 SECTION 1. - --------- 1. TRUST. (a) ESTABLISHMENT. The Sponsor hereby establishes a trust (hereinafter the "Trust"), with the Trustee. The Trust shall consist of an initial contribution of money or other property acceptable to the Trustee in its sole discretion, made by the Sponsor or transferred from a previous trustee under the Plan, such additional sums of money as shall from time to time be delivered to the Trustee under the Plan, all investments made therewith and proceeds thereof, and all earnings and profits thereon, less the payments that are made by the Trustee as provided herein, without distinction between principal and income. The Trustee hereby accepts the Trust on the terms and conditions set forth in this Agreement. In accepting this Trust, the Trustee shall be accountable for the assets received by it, subject to the terms and conditions of this Agreement (b) GRANTOR TRUST. The Trust is intended to be a grantor trust, of which the Sponsor is the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be construed accordingly. (c) TRUST ASSETS. The principal of the Trust, and any earnings thereon shall be held separate and apart from other funds of the Sponsor and shall be used exclusively for the uses and purposes of Plan participants and general creditors as herein set forth. Plan participants and their beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any assets of the Trust. Any rights created under the Plan and this Trust Agreement shall he mere unsecured contractual rights of Plan participants and their beneficiaries against the Sponsor. Any assets held by the Trust will be subject to the claims of the Sponsor's general creditors under federal and state law in the event of Insolvency, as defined in Section 13(a). (d) NON-ASSIGNMENT. Benefit payments to Plan participants and their beneficiaries funded under this Trust may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered, or subjected to attachment, garnishment, levy, execution, or other legal or equitable process. 4/11/94 SECTION 2. - --------- 2. PAYMENTS TO SPONSOR. Except as provided under Section 13, the Sponsor shall have no right to retain or divert to others any of the Trust assets before all payment of benefits have been made to the participants and their beneficiaries pursuant to the terms of the Plan. SECTION 3. - --------- 3. DISBURSEMENTS. (a) DIRECTIONS FROM ADMINISTRATOR. The Trustee shall disburse monies to the Sponsor for benefit payments in the amounts that the Administrator directs from time to time in writing. The Trustee shall have no responsibility to ascertain any direction's compliance with the terms of the Plan or of any applicable law. The Trustee shall not be responsible for making benefit payments to participants under the Plan, nor shall the Trustee be responsible for any Social Security or Federal, State or local income tax reporting or withholding with respect to such Plan benefits. (b) LIMITATIONS. The Trustee shall not be required to make any disbursement in excess of the net realizable value of the assets of the Trust at the time of the disbursement. The Trustee shall not be required to make any disbursement in cash unless the Administrator has provided a written direction as to the assets to be converted to cash for the purpose of making the disbursement. SECTION 4. - --------- 4. INVESTMENT OF TRUST. (a) SELECTION OF INVESTMENT OPTIONS. The Trustee shall have no responsibility for the selection of investment options under the Trust and shall not render investment advice to any person in connection with the selection of such options. (b) AVAILABLE INVESTMENT OPTIONS. In accordance with Section 1.14 of the Plan, the Sponsor shall direct the Trustee as to the investment options available under the Trust provided, however, that the Trustee shall not be considered a fiduciary with investment discretion. The Sponsor may add additional investment options with the consent of the Trustee and upon amendment of the Plan. 4/11/94 2 (c) INVESTMENT DIRECTION. In order to provide for an accumulation of assets comparable to the contractual liabilities accruing under the Plan, the Sponsor may direct the Trustee in writing to invest the assets held in the Trust to correspond to the hypothetical investments made for Participants under the P1an. Such directions may be made by Plan participants by use of the telephone exchange system maintained for such purposes by the Trustee or its agent. In the event that the Trustee fails to receive a proper direction from the Sponsor or from Participants, the assets in question shall be invested in Fidelity Retirement Money Market Fund, or such other fund designated by the Sponsor for this purpose, until the Trustee receives a proper direction. (d) MUTUAL FUNDS. The Sponsor hereby acknowledges that it has received from the Trustee a copy of the prospectus for each Mutual Fund selected by the Sponsor as a Plan investment option. Trust investment in Mutual Funds shall be subject to the following limitations: (i) EXECUTION OF PURCHASES AND SALES. Purchase and sales of Mutual Funds (other than for Exchanges) shall be made on the date on which the Trustee receives from the Sponsor in good order all information and documentation necessary to accurately effect such purchases and sales (or in the case of a purchase, the subsequent date on which the Trustee has received a wire transfer of funds necessary to make such purchase). Exchanges of Mutual Funds shall be made on the same business day that the Trustee receives a proper direction if received before 4:00 p.m. eastern time; if the direction is received after 4:00 p.m. eastern time, the exchange shall be made the following day. (ii) VOTING. At the time of mailing of notice of each annual or special stockholders meeting of any Mutual Fund, the Trustee shall send a copy of the notice and all proxy solicitation materials to each Plan participant who has shares of the Mutual Fund credited to the participant's account, together with a voting direction form for return to the Trustee or its designee. The participant shall have the right to direct the Trustee as to the manner in which the Trustee is to vote the shares credited to the participant's account (both vested and unvested). The Trustee shall vote the shares as directed by the participant. The Trustee shall not vote shares for which it has received no directions from the participant. During the participant recordkeeping reconciliation ("transition") period; the Sponsor shall have the right to direct the Trustee as to the manner in which the Trustee is to vote the shares of the Mutual funds in the Trust. With respect to all rights other than the right to vote, the Trustee shall follow the directions of the participant and if no such directions are received, the directions of the Sponsor. The Trustee shall have no duty to solicit directions from participants or the Sponsor. 4/11/94 3 (e)TRUSTEE POWERS. The Trustee shall have the following powers and authority: (i) Subject to paragraphs (b),(c) and (d) of this Section 4, to sell, exchange, convey, transfer, or otherwise dispose of any property held in the Trust, 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 other property delivered to the Trustee or to inquire into the validity, expediency, or propriety of any such sale or other disposition. (ii) To cause any securities or other property held as part of the Trust to be registered in the Trustee's own name, in the name of one or more of its nominees, or in the Trustee's account with the Depository Trust Company of New York 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. (iii) To keep that portion of the Trust in cash or cash balances as the Sponsor or Administrator may, from time to time, deem to be in the best interest of the Trust. (iv) To make, execute, acknowledge, and deliver any and all documents of transfer or conveyance and to carry out the powers herein granted. (v) To settle, compromise, or submit to arbitration any claims, debts, or damages due to or arising from the Trust; to commence or defend suits or legal or administrative proceedings; to represent the Trust in all suits and legal and administrative hearings; and to pay all reasonable expenses arising from any such action, from the Trust if not paid by the Sponsor. (vi) To employ legal, accounting, clerical, and other assistance as may be required in carrying out the provisions of this Agreement and to pay their reasonable expenses and compensation from the Trust if not paid by the Sponsor. (vii) To do all other acts although not specifically mentioned herein, as the Trustee may deem necessary to carry out any of the foregoing powers and the purposes of the Trust. Notwithstanding any powers granted to Trustee pursuant to this Trust Agreement or to applicable law, Trustee shall not have any power that could give this trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of Section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Internal Revenue Code. 4/11/94 4 SECTION 5. - --------- 5. RECORDKEEPING AND ADMINISTRATIVE SERVICES TO BE PERFORMED. (a) GENERAL. The Trustee shall perform those recordkeeping and administrative functions described in the CORPORATEplan for Retirement Select Plan Service Agreement between the Trustee and the Sponsor ("Service Agreement"). (b) ACCOUNTS. The Trustee shall keep accurate accounts of all investments, receipts, disbursements, and other transactions hereunder and shall report the value of the assets held in the Trust as of the last day of each fiscal quarter of the Plan and, if not on the last day of a fiscal quarter, the date on which the Trustee resigns or is removed as provided in Section 8 of this Agreement or is terminated as provided in Section 10 (the "Reporting Date"). Within thirty(30) days following each Reporting Date or within sixty (60) days in the case of a Reporting date caused by the resignation or removal of the Trustee, or the termination of this Agreement, the Trustee shall file with the Administrator a written account setting forth all investments, receipts, disbursements, and other transactions effected by the Trustee between the Reporting Date and the prior Reporting Date, and setting forth the value of the trust as of the Reporting Date. Except as otherwise required under applicable law, upon the expiration of six(6) months from the date of filing such account with the Administrator, the Trustee shall have no liability or further accountability to anyone with respect to the propriety of its acts or transactions shown in such account, except with respect to such acts or transactions as to which the Sponsor shall within such six(6) month period file with the Trustee written objections. (c) INSPECTION AND AUDIT. All records generated by the Trustee in accordance with paragraphs (a) and (b) shall be open to inspection and audit, during the Trustee's regular business hours prior to the termination of this Agreement, by the Administrator or any person designated by the Administrator. Upon the resignation or removal of the Trustee or the termination of this Agreement, the Trustee shall provide to the Administrator, at no expense to the Sponsor, in the format regularly provided to the Administrator, a statement of each participant's accounts as of the resignation, removal, or termination, and the Trustee shall provide to the Administrator or the Plan's new recordkeeper such further records as are reasonable, at the Sponsor's expense. (d) EFFECT OF PLAN AMENDMENT. The Trustee's provision of the recordkeeping and administrative services set forth in this Section 5 shall be conditioned on the Sponsor delivering to the Trustee a copy of any amendment to the Plan as soon as administratively feasible following the amendment's adoption, and on the Administrator providing the Trustee on a timely basis with all the information the Administrator deems necessary for the Trustee to perform the recordkeeping and administrative services and such other information as the Trustee may reasonably request. 4/11/94 5 (e) RETURNS, REPORTS AND INFORMATION. The Administrator shall be responsible for the preparation and filing of all returns, reports, and information required of the Trust or Plan by law including but not limited to any annual fiduciary tax return. The Trustee shall provide the Administrator with such information as the Administrator may reasonably request to make these filings. The Administrator shall also be responsible for making any disclosures to participants required by law. SECTION 6. - --------- 6. COMPENSATION AND EXPENSES. As consideration for its services, the Trustee shall be entitled to the fees computed and billed in accordance with the Service Agreement. All expenses of the Trustee relating directly to the acquisition and disposition of investments constituting part of the Trust, and all taxes of any kind whatsoever that may be levied or assessed under existing or future laws upon or in respect of the Trust or the income thereof, shall be a charge against and paid from the appropriate Plan participants' accounts. SECTION 7. - --------- 7. DIRECTIONS AND INDEMNIFICATION. (a) IDENTITY OF ADMINISTRATOR. The Trustee shall be fully protected in relying on the fact that the Administrator under the Plan is the individual or persons named as such above or such other individuals or persons as the Sponsor may notify the Trustee in writing. (b) DIRECTIONS FROM ADMINISTRATOR. Whenever the Administrator provides a direction to the Trustee, the Trustee shall not be liable for any loss, or by reason of any breach, arising from the direction if the direction is contained in a writing (or is oral and immediately confirmed in written) signed by any individual whose name and signature have been submitted (and not withdrawn) in writing to the Trustee in the Service Agreement provided the Trustee reasonably believes the signature of the individual to be genuine. Such direction may be made via EDT in accordance with procedures agreed to by the Administrator and the Trustee; provided, however, that the Trustee shall be fully protected in relying on such direction as if it were a direction made in writing by the Administrator. The Trustee shall have no responsibility to ascertain any direction's (i) accuracy, (ii) compliance with the terms of the Plan or any applicable law, or (iii) effect for tax purposes or otherwise. (c) DIRECTIONS FROM SPONSOR. The Trustee shall not be liable for any loss which arises from the Sponsor's exercise or non-exercise of rights under Section 4 over the assets in a participant's account. 4/11/94 6 (d) INDEMNIFICATION. The Sponsor shall indemnify the Trustee against, and hold the Trustee harmless from, any and all loss, damage, penalty, liability, cost, and expense, including without limitation, reasonable attorneys' fees and disbursements, that may be incurred by, imposed upon, or asserted against the Trustee by reason of any claim, regulatory proceeding or litigation arising from any act done or omitted to be done by any individual or person with respect to the Plan or Trust, excepting only any and all loss, etc., arising solely from the Trustee's negligence or bad faith. (e) SURVIVAL. The provisions of this Section 7 shall survive the termination of this Agreement. SECTION 8. - --------- 8. RESIGNATION OR REMOVAL OF TRUSTEE. (a) RESIGNATION. The Trustee may resign at any time upon sixty(60) days' notice in writing to the Sponsor, unless a shorter period of notice is agreed upon by the Sponsor. (b) REMOVAL. The Sponsor may remove the Trustee at any time upon sixty(60) days' notice in writing to the Trustee, unless a shorter period of notice is agreed upon by the Trustee. SECTION 9. - --------- 9. SUCCESSOR TRUSTEE. (a) APPOINTMENT. If the office of Trustee becomes vacant for any reason, the Sponsor may in writing appoint a successor trustee under this Agreement. The successor trustee shall have all of the rights, powers, privileges, obligations, duties, liabilities, and immunities granted to the Trustee under this Agreement. The successor trustee and predecessor trustee shall not be liable for the acts or omissions of the other with respect to the Trust. (b) ACCEPTANCE. When the successor trustee accepts its appointment under this Agreement, title to and possession of the Trust assets shall immediately vest in the successor trustee without any further action on the part of the predecessor trustee. The predecessor trustee shall execute all instruments and do all acts that reasonably may be necessary or reasonably may be requested in writing by the Sponsor or the successor trustee to vest title to all Trust assets in the successor trustee or to deliver all Trust assets to the successor trustee. 4/11/94 7 (c) CORPORATE ACTION. Any successor of the Trustee or successor trustee, through sale or transfer of the business or trust department of the Trustee or successor trustee, or through reorganization, consolidation, or merger, or any similar transaction, shall, upon consummation of the transaction, become the successor trustee under the Agreement. SECTION 10. - ---------- 10. TERMINATION. This Agreement may be terminated at any time by the Sponsor upon sixty (60) days' notice in writing to the Trustee. On the date of the termination of this Agreement, the Trustee shall forthwith transfer and deliver to such individual or entity as the Sponsor shall designate, all cash and assets then constituting the Trust. If, by the termination date, the Sponsor has not notified the Trustee in writing as to whom the assets and cash are to be transferred and delivered, the Trustee may bring an appropriate action or proceeding for leave to deposit the assets and cash in a court of competent jurisdiction. The Trustee shall be reimbursed by the Sponsor for all costs and expenses of the action or proceeding including, without limitation, reasonable attorneys' fees and disbursements. SECTION 11. - ---------- 11. RESIGNATION, REMOVAL, AND TERMINATION NOTICES. All notices of resignation, removal or termination under this Agreement must be in writing and mailed to the party to which the notice is being given by certified or registered mail, return receipt requested, to the Sponsor at the address designated in the Service Agreement, and to the Trustee at the afore-mentioned address or to such other addresses as the parties have notified each other of in the foregoing manner. SECTION 12. - ---------- 12. DURATION. This Trust shall continue in effect without limit as to time, subject, however, to the provisions of this Agreement relating to amendment, modification, and termination thereof. SECTION 13. - ---------- 13. INSOLVENCY OF SPONSOR. (a) Trustee shall cease disbursement of funds for payment of benefits to Plan participants and their beneficiaries if the Sponsor is Insolvent. Sponsor shall be considered "Insolvent" for purposes of this Trust Agreement if (i) Sponsor is unable to pay its debts as they become due or (ii) Sponsor is subject to a pending proceeding as a debtor under the United States Bankruptcy Code. 4/11/94 8 (b) All times during the continuance of this Trust, the principal and income of the Trust shall be subject to claims of general creditors of the Sponsor under federal and state Law as set forth below: (i) The Board of Directors and the Chief Executive Officer of the Sponsor shall have the duty to inform Trustee in writing of Sponsor's Insolvency. If a person claiming to be a creditor of the Sponsor alleges in writing to trustee that Sponsor has become Insolvent, Trustee shall determine whether Sponsor is Insolvent and pending such determination, Trustee shall discontinue disbursements for payment of benefits to Plan participants or their beneficiaries. (ii) Unless Trustee has actual knowledge of Sponsor's Insolvency, or has received notice from Sponsor or a person claiming to be a creditor alleging that Company is Insolvent, Trustee shall have no duty to inquire whether Sponsor is Insolvent. Trustee may in all events rely on such evidence concerning Sponsor's solvency as may be furnished to Trustee and that provides Trustee with a reasonable basis for making a determination concerning Sponsor's solvency. (iii) If any time Trustee has determined that Sponsor is Insolvent, Trustee shall discontinue disbursements for payments to Plan participants or their beneficiaries and shall hold the assets of the Trust for the benefit of Sponsor's general creditors. Nothing in this Trust Agreement shall in any way diminish any rights of Plan participants or their beneficiaries to pursue their rights as general creditors of Sponsor with respect to benefits due under the Plan or otherwise. (iv) Trustee shall resume disbursement for the payment of benefits to Plan participants or their beneficiaries in accordance with Section 2 of this Trust Agreement only after Trustee has determined that Sponsor is not Insolvent (or is no longer Insolvent). (c) Provided that there are sufficient assets, if Trustee discontinues the payment of benefits from the Trust pursuant to (a) hereof and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to Plan participants or their beneficiaries under the terms of the Plan for the period of such discontinuance, less the aggregate amount of any payments made to Plan participants or their beneficiaries by Sponsor in lieu of the payments provided for hereunder during any such period of discontinuance. SECTION 14. - ---------- 14. AMENDMENT OR MODIFICATION. This agreement may be amended or modified at any time and from time to time only by an instrument executed by both the Sponsor and the Trustee. 4/11/94 9 SECTION 15. - ---------- 15. GENERAL. (a) PERFORMANCE BY TRUSTEE, ITS AGENTS OR AFFILIATES. The sponsor acknowledges and authorizes that the services to be provided under this Agreement shall be provided by the Trustee, its agents or affiliates, including Fidelity Investments Institutional Operations Company or its successor, and that certain of such services may be provided pursuant to one or more other contractual agreements or relationships. (b) ENTIRE AGREEMENT. This Agreement contains all of the terms agreed upon between the parties with respect to the subject matter hereof. (c) WAIVER. No waiver by either party of any failure or refusal to comply with an obligation hereunder shall be deemed a waiver of any other or subsequent failure or refusal to so comply. (d) SUCCESSORS AND ASSIGNS. The stipulations in this Agreement shall inure to the benefit of, and shall bind, the successors and assigns of the respective parties. (e) PARTIAL INVALIDITY. If any term or provision of this Agreement or the application thereof to any person or circumstances shall to any extent be invalid or unenforceable, the remainder of this Agreement, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. (f) SECTION HEADINGS. The heading of the various sections and subsections of this Agreement have been inserted only for the purposes of convenience and are not part of this Agreement and shall not be deemed in any manner to modify, explain, expand or restrict any of the provision of this Agreement. 4/11/94 10 SECTION 16. - ---------- 16. GOVERNING LAW. (a) MASSACHUSETTS LAW CONTROLS. This Agreement is being made in the Commonwealth of Massachusetts, and the Trust shall be administered as a Massachusetts trust. The validity, construction, effect and administration of this Agreement shall be governed by and interpreted in accordance with the laws of the Commonwealth of Massachusetts, except to the extent those laws are superseded under Section 514 of ERISA. (b) TRUST AGREEMENT CONTROLS. The Trustee is not a party to the Plan, and in the event of any conflict between the provisions of the Plan and the provisions of this Agreement, the provisions of this Agreement shall control. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers as of the day and year first above written. [SPONSOR] By: /s/ John Vissers John Vissers Controller, Assistant Secretary Attest: /s/ Richard Brousseau Richard Brousseau Assistant Controller FIDELITY MANAGEMENT TRUST COMPANY [TRUSTEE] By: /s/ Wayne A. Isaacs Wayne A. Isaacs Senior Legal Counsel Authorized Signatory 4/11/94 11 EX-11 12 EX 11 EARNINGS PER SHARE CALCULATIONS Exhibit 11 Earnings Per Share Calculation
December 30, 1995 December 31, 1994 January 1, 1994 ----------------- ----------------- --------------- Earnings: - --------- Income (loss) before extraordinary item $3,124,000 ($355,000) $1,433,000 Extraordinary item ( 149,000) ---------- --------- ---------- Net Income (Loss) $3,124,000 ($355,000) $1,284,000 ========== ========= ========== Shares: - ------- Weighted average number of common shares outstanding 3,683,582 3,678,218 3,669,297 ========= ========= ========= Income (loss) before extraordinary item per common share $ 0.85 ($ 0.10) $ 0.39 Extraordinary item per common share ( 0.04) ---------- --------- ---------- Net Income (Loss) Per Common Share $ 0.85 ($ 0.10) $ 0.35 Earnings Assuming Full Dilution: - -------------------------------- Income (loss) before extraordinary item $3,124,000 ($355,000) $1,433,000 Extraordinary item ( 149,000) ---------- --------- ---------- Net (loss) income $3,124,000 ($355,000) $1,284,000 ========== ========= ========== Shares: - ------- Weighted average number of common shares and dilutive common share equivalents outstanding 3,691,509 3,678,218 3,674,706 ========= ========= ========= Income (loss) before extraordinary item per common share $ 0.85 ($ 0.10) $ 0.39 Extraordinary item per common share ( 0.04) ---------- --------- ---------- Net Income (Loss) Per Common Share $ 0.85 ($ 0.10) $ 0.35 ========== ========= ==========
EX-13 13 EX 13 ANNUAL REPORT Exhibit 13 FARR COMPANY A PERIOD OF CHANGE (bar graph showing 1994 and 1995 quarterly net profits appears here)
Measurement Period Net Profits (Quarter) (thousands) --------- ----------- 1994 - Q1 $ (415) - Q2 $ (625) - Q3 $ 275 - Q4 $ 410 1995 - Q1 $ 633 - Q2 $ 675 - Q3 $ 726 - Q4 $1,090
1995 ANNUAL REPORT -1- EVIDENCE OF CHANGE SALES NET PROFIT (bar graph showing 1994 and 1995 (bar graph showing 1994 and 1995 quarterly sales, in millions) quarterly net profits, in thousands) LONG TERM DEBT MARKET CAPITALIZATION (bar graph showing 1994 and 1995 (bar graph showing 1994 and 1995 end of quarter long term debt, quarterly market capitalization, in millions) in millions)
Measurement Long Market Period Sales Net Profits Term Debt Capitalization (quarter) (millions) (thousands) (millions) (millions) - --------- ---------- ----------- ---------- ---------- 1994 - Q1 $25.2 $ (415) $22.9 $23.4 - Q2 $26.5 $ (625) $22.5 $17.9 - Q3 $27.5 $ 275 $22.0 $25.7 - Q4 $27.8 $ 410 $20.9 $22.5 1995 - Q1 $27.3 $ 633 $17.7 $24.4 - Q2 $28.7 $ 675 $17.5 $27.6 - Q3 $28.4 $ 726 $16.5 $31.3 - Q4 $28.9 $1,090 $10.1 $29.5
-2- FINANCIAL HIGHLIGHTS
(In thousands, except per share items) 1995 1994 1993 =========================================================================== Net sales $113,275 $106,989 $112,363 Income (loss) before income taxes 5,163 ( 642) 2,161 Income tax provision (benefit) 2,039 ( 287) 728 Net Income (loss) 3,124 ( 355) 1,284 Net Income (loss) per common share .85 ( .10) .35 Current assets 38,928 40,075 37,653 Current liabilities 18,745 18,293 16,800 Working capital 20,183 21,782 20,853 Long-term debt, net of current portion 9,412 18,957 21,913 Property, plant, and equipment, net 16,406 17,930 21,914 Stockholders' Investment 24,785 21,172 21,605 ===========================================================================
ABOUT THE COMPANY Farr Company's basic business is the control of particulate and vapor contaminants in air and liquids. The Company is engaged in the design, development, manufacture, sale and service of filters and filtration systems. These products are used for a wide variety of applications including heating, ventilation and air conditioning systems, manufacturing and process cleanrooms, special filters for original equipment manufacturers, natural gas, gasoline and diesel-powered engines, railroad locomotives, dust collection systems and gas turbines. Air filter efficiencies range from 20 percent (on outdoor air) in disposable products to 99.9999+ percent (@ .12 microns particulate) in cleanroom products. Products are available as standard items or may be custom engineered. They range in size and complexity from a small throwaway air filter to a large gas turbine system with a single filter component module weighing in excess of twenty tons. Products are sold throughout the world. Sales are made through direct Company salesmen, manufacturer's representatives, distributors and foreign licensees. -3- To Our Shareholders: As predicted a year ago, 1995 was a period during which our major efforts were shifted from being principally that of problem solving and damage control to pursuing opportunities and developing new ideas. The problem solving was high priority and the results are strongly evident in every facet of the Company. For the year of 1995, net profit was $3,124,000 or 85 cents per share, up from a loss of $355,000 or 10 cents per share in 1994. Sales for 1995 advanced to a record $113,275,000 or a 6 percent increase from $106,989,000 in 1994. The increase in sales during 1995 was spread across all of the Company's markets. Sales for 1995 were up due to improved quality and delivery times coupled with the renewed confidence and effort of the sales organization. Costs are down due to improved manufacturing procedures, lower waste, better expense control and improved efficiency in almost everything we do. The charts on the inside cover graphically show the cumulative effects of the many improvements made throughout the Company. In 1995, the Company reduced its long-term debt by over $10 million. This debt reduction was primarily accomplished through increased profits, net loss tax credit carryforward, the sale of our Rialto facility, capital spending conservation and controls aimed at minimizing our working capital requirements. In addition to debt reduction in 1995, we leveraged our improved financial position and performance to negotiate reductions in the cost of borrowed capital from our lenders. The decreases in both our borrowing amounts and interest rates will significantly decrease 1996 interest expense and will contribute towards improving profit performance. The new borrowing arrangements also relieve us of some peripheral charges and onerous terms and conditions. While the numerical results are important, more encouraging are the cultural changes that are taking place and the effects of these changes on the future growth and success of the business. Higher levels of accomplishment are being displayed by all of our managers as they fine-tune the Farr business machine. During the year, the Company's various U. S. retirement benefit programs were replaced with a single 401(K) retirement plan. The new plan provides employees with a basic retirement benefit which is 100% Company funded. It also affords employees the opportunity for additional investment with matching participation by the Company up to certain levels. The former retirement plans were difficult to understand and administrate and did not provide adequate retirement benefits for all employees. This has been well received and it is felt that this improved benefit will be an important factor in attracting and retaining good employees needed for further growth and success. Obviously we are pleased with the results to date, but more importantly, there still remain many opportunities for improvements and these are being identified and undertaken on an ongoing vigorous basis. One of these operating improvements is the reorganization of our manufacturing and distribution operations in North America in which, taking advantage of NAFTA, we will be able to supply the northeast United States from our Canadian facility. This and other improvements should manifest themselves in continued performance improvement. -4- The business pace at Farr has quickened and morale and enthusiasm have developed to higher levels as we see previous failures converted to successes and new programs implemented with goals being realized. In addressing the matter of what the future holds for your Company, it is worthwhile to restate some significant parameters. Farr is: o In a growing industry. o A recognized leader in several areas of filtration. o The possessor of considerable technology in product development, product application and manufacturing. o Well structured for growth in several markets. We believe that our long term growth in revenue and profit will come from new and higher performing products which meet the growing needs for a cleaner environment. Many projects are underway for such product enhancements as well as new products. Several of these have come to fruition and are just now beginning to enter the market. Others will be ready during 1996 while longer range ideas are being formulated. All of this creates an aura of excitement and enthusiasm at Farr as we see the potential for these new ideas in the marketplace. The die is cast, the management team is committed and we believe in what we are doing and where we are heading. Admittedly, this is a slow process but we are exerting much effort to move things along at the fastest pace -- in the end the market will make its own determination of our success. While we are happy to recognize 1995 as a turnaround year for Farr Company, we are also saddened by the passing in January 1996 of its remaining founder, Chairman Emeritus Morrill Spencer Farr who had devoted almost 60 years to the endeavor bearing his name. We believe the future remains bright for Farr Company and its dedicated employees without whom there would be no enterprise at all. Your management team also joins us in appreciation of the support shown by our shareholders -- we are dedicated to achievement and continuous improvement. H. Jack Meany John C. Johnston Chairman and Chief Executive Officer President and Chief Operating Officer John C. Johnston, a former Farr manager, returned to the Company as Vice President in January 1995 from J. D. Easton, Inc. where he was President of Easton Aluminum, Van Nuys Division. He was elected President and Chief Operating Officer of Farr Company on February 27, 1996. -5- CONSOLIDATED BALANCE SHEETS FARR COMPANY AND SUBSIDIARIES
December 30, 1995 December 31, 1994 ----------------- ----------------- Assets Current Assets: Cash and cash equivalents $ 812,000 $ 127,000 Accounts receivable, less allowances of $214,000 in 1995 and $266,000 in 1994 20,077,000 21,011,000 Inventories 15,437,000 14,655,000 Prepaid expenses 622,000 597,000 Asset held for sale 2,083,000 Deferred income tax benefit 1,980,000 1,602,000 ---------- ---------- Total current assets 38,928,000 40,075,000 ---------- ---------- Property, plant and equipment at cost Land 2,094,000 2,092,000 Buildings and improvements 15,231,000 14,879,000 Machinery and equipment 33,829,000 33,766,000 ----------- ----------- 51,154,000 50,737,000 Less accumulated depreciation and amortization 34,748,000 32,807,000 ----------- ----------- 16,406,000 17,930,000 Investments and other 236,000 1,264,000 ----------- ----------- $55,570,000 $59,269,000 =========== =========== Liabilities & Stockholders' Investment Current Liabilities: Notes payable to banks $ 432,000 $ Current portion of long-term debt 664,000 2,012,000 Accounts payable 8,875,000 8,326,000 Accrued liabilities 8,248,000 7,692,000 Income taxes payable and current deferred income taxes 526,000 263,000 ----------- ------------ Total current liabilities 18,745,000 18,293,000 ----------- ------------ Long-term debt, net of current portion 9,412,000 18,957,000 Deferred income taxes 2,628,000 847,000 Commitments and contingencies Stockholders' investment Common stock, $.10 par value - Authorized - 10,000,000 shares Outstanding 3,794,336 shares at December 30, 1995 and 3,782,806 shares at December 31, 1994 362,000 368,000 Additional paid-in capital 11,668,000 12,005,000 Cumulative translation adjustments (1,624,000) (1,847,000) Retained earnings 14,379,000 11,281,000 Loans to ESOPs (635,000) ----------- ----------- Total stockholders' investment 24,785,000 21,172,000 ----------- ----------- $55,570,000 $59,269,000 =========== =========== The accompanying notes are an integral part of these balance sheets.
-6- CONSOLIDATED OPERATIONS STATEMENTS FARR COMPANY AND SUBSIDIARIES
For the Years Ended December 30, 1995 December 31, 1994 January 1, 1994 - -------------------------------------------- ----------------- ----------------- --------------- Net Sales $113,275,000 $106,989,000 $112,363,000 Costs and Expenses: Cost of sales 85,496,000 84,437,000 87,489,000 Selling, general and administrative expenses 20,956,000 20,065,000 20,268,000 Interest expense 1,796,000 2,129,000 2,445,000 Restructuring costs 540,000 1,000,000 Gain on sale of assets (676,000) ------------ ------------- ------------- Total Costs and Expenses 108,112,000 107,631,000 110,202,000 ------------ ------------- ------------- Income (Loss) Before Income Taxes 5,163,000 ( 642,000) 2,161,000 Income Tax (Benefit) Provision 2,039,000 ( 287,000) 728,000 ------------ ------------- ------------- Income (Loss) Before Extraordinary Item 3,124,000 ( 355,000) 1,433,000 Extraordinary Item (149,000) ------------ ------------- ------------- Net Income (Loss) $ 3,124,000 ($ 355,000) $ 1,284,000 ============ ============= ============= Income (Loss) Before Extraordinary Item per common share $ .85 ($ .10) $ .39 Extraordinary Item per common share ( .04) ----------- ------------ ------------- Net Income (Loss) per common share $ .85 ($ .10) $ .35 =========== ============ ============= The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT FARR COMPANY AND SUBSIDIARIES
Cumulative For the Years Ended December 30, 1995, Common Additional Retained Translation Loans to December 31, 1994 and January 1, 1994 Stock Paid-in Capital Earnings Adjustments ESOPs - ---------------------------------------- --------- --------------- ----------- ------------- ---------- Balance-- January 2, 1993 $367,000 $11,909,000 $10,377,000 ($1,188,000) ($876,000) Exercise of Stock Options 2,000 112,000 Cumulative Translation Adjustment ( 451,000) Treasury Stock Acquired-- 8,235 shares ( 1,000) ( 26,000) ( 25,000) Principal Loan Payments from ESOPs 121,000 Net Income 1,284,000 --------- ------------ ------------ ----------- --------- Balance-- January 1, 1994 368,000 11,995,000 11,636,000 ( 1,639,000) ( 755,000) Exercise of Stock Options 10,000 Cumulative Translation Adjustment ( 208,000) Principal Loan Payments from ESOPs 120,000 Net Loss ( 355,000) --------- ------------ ------------ ----------- --------- Balance-- December 31, 1994 368,000 12,005,000 11,281,000 ( 1,847,000) ( 635,000) Exercised and Granted Stock Options 1,000 174,000 Cumulative Translation Adjustment 223,000 Principal Loan Payments from ESOP's ( 26,000) 635,000 Treasury Stock Acquired - 66,033 shares ( 7,000) ( 511,000) Net Income 3,124,000 --------- ------------ ------------ ----------- --------- Balance -- December 30, 1995 $362,000 $11,668,000 $14,379,000 ($1,624,000) $ 0 ========= ============ ============ =========== ========= The accompanying notes are an integral part of these statements.
-7- CONSOLIDATED STATEMENTS OF CASH FLOWS FARR COMPANY AND SUBSIDIARIES
For the Years Ended December 30, 1995 December 31, 1994 January 1, 1994 - ------------------- ----------------- ----------------- --------------- Operating Activities: Net Income (Loss) $ 3,124,000 ($ 355,000) $1,284,000 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization 3,299,000 3,308,000 3,482,000 Provision for loss on accounts receivable 151,000 202,000 330,000 Change in deferred income taxes 1,501,000 ( 466,000) 177,000 Extraordinary item 149,000 Exchange loss (gain) 14,000 ( 128,000) 304,000 Net (gain) loss on sale/retirement of property, plant and equipment ( 701,000) 33,000 94,000 Provision for (gain) loss on investments ( 115,000) 170,000 Change in assets and liabilities Inventories ( 734,000) 815,000 2,251,000 Receivables and prepaid expenses 1,186,000 ( 1,393,000) ( 594,000) Accounts payable and accrued expenses 1,104,000 1,695,000 ( 1,669,000) Income taxes payable ( 100,000) ( 103,000) 1,340,000 ------------ ------------ ----------- Net cash provided by operating activities 8,729,000 3,778,000 7,148,000 ------------ ------------ ----------- Investing Activities: Purchases of property, plant and equipment ( 1,163,000) ( 987,000) ( 674,000) Proceeds from sale of property, plant and equipment 2,945,000 44,000 Proceeds from sale of investments 567,000 ------------ ------------ ----------- Net cash provided by (used in) investing activities 2,349,000 ( 987,000) ( 630,000) ------------ ------------ ----------- Financing Activities: Proceeds from revolving line of credit and long-term debt 432,000 18,939,000 Principal payments on revolving line of credit and long-term debt ( 10,893,000) ( 21,843,000) ( 6,765,000) Principal payments received on ESOP loans 635,000 120,000 121,000 Deferred financing costs ( 552,000) ( 26,000) Proceeds from sale of stock, stock option plans 175,000 10,000 114,000 Treasury stock acquired (66,033 and 8,235 shares in 1995 and 1993, respectively) ( 518,000) ( 52,000) Other ( 167,000) ----------- ------------ ----------- Net cash used in financing activities ( 10,336,000) ( 3,326,000) ( 6,608,000) ----------- ------------ ----------- Effect of Exchange Rate Changes on Cash ( 57,000) ( 9,000) ( 33,000) Increase (decrease) in cash and cash equivalents 685,000 ( 544,000) ( 123,000) Cash and Cash Equivalents at Beginning of Period 127,000 671,000 794,000 ------------ ------------ ----------- Cash and Cash Equivalents at End of Period $ 812,000 $ 127,000 $ 671,000 ============ ============ =========== The accompanying notes are an integral part of these statements.
-8- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FARR COMPANY AND SUBSIDIARIES 1. SIGNIFICANT ACCOUNTING POLICIES Farr Company and its wholly-owned subsidiaries (the "Company") has prepared its financial statements in accordance with generally accepted accounting principles. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Following are the Company's significant accounting policies: Basis of Presentation -- Farr Company is a multinational company engaged principally in the design, development, manufacture, sale and service of air and liquid filters. The principal market for the Company's products and services are North American based commercial wholesale distributors, HVAC OEMs and contractors and transportation businesses. The accompanying consolidated financial statements include the accounts of Farr Company and its wholly-owned subsidiaries. A functional currency has been determined for each foreign entity of the Company, and the exchange gain or loss from translating the foreign currency statements to their U. S. dollar equivalents at the rates of exchange in effect at the end of each period is charged or credited to cumulative translation adjustments within stockholders' investment. Differences from converting nonfunctional to functional currencies and transaction gains and losses are included in income. During 1995, 1994 and 1993, $14,000 was charged, $128,000 was credited and $304,000 was charged to income, respectively. Accounting Period -- The Company's fiscal year ends on the Saturday closest to December 31. The fiscal year ended December 30, 1995, December 31, 1994 and January 1, 1994, were all comprised of fifty-two weeks. Cash and Cash Equivalents -- Cash includes currency on hand, demand deposits with financial institutions and investments with original maturities of three months or less. Inventories -- Inventories include material, labor and factory overhead. Domestic inventories are stated at cost, determined by the last-in, first-out method. All other inventories are stated at the lower of cost, using the first-in, first-out method, or market. Property, Plant and Equipment -- The cost of property, plant and equipment is depreciated over the estimated useful lives of the respective assets, using declining-balance and straight-line methods, based upon the following lives. Building and improvements 10 - 40 years Machinery and equipment 3 - 12 years Maintenance and repairs are charged to expense as incurred and the cost of additions and betterments are capitalized. When assets are retired or otherwise disposed of, the assets and the related accumulated depreciation accounts are relieved, and any resulting gains or losses from sales or retirements, are reflected in income. Investments and Other -- Investments and other include intangible assets that are amortized on a straight-line basis over various periods of time ranging from 3 to 5 years. The accumulated amount of amortization at December 30, 1995 and December 31, 1994 was $950,000, and $1,228,000, respectively. In 1992, pursuant to an employment contract, the Company invested $350,000 in a private residence of the Company's former Chairman, President and Chief Executive Officer. This residence was sold in 1994 and in February 1995, the Company settled this investment. Product Engineering and Development -- Engineering and development costs aggregating $2,251,000, $2,221,000 and $2,048,000 in 1995, 1994, and 1993, respectively, for new products or improvements of existing products, were expensed as incurred. Revenue Recognition -- Revenue is recognized at the time the product is shipped to the customer. Income Taxes -- The Company accounts for income taxes in accordance with the Statement of Financial Accounting Standards No. 109, "Accounting for Incomes Taxes," which requires the use of the liability method of accounting for deferred income taxes. The provision for income taxes includes Federal, foreign, state and local income taxes currently payable and those deferred because of temporary differences between the financial statement and tax bases of assets and liabilities. In 1995, the Financial Accounting Standards Board (FASB) issued Statement No. 121 - "Accounting for the Impairment of Long Lived Assets to Be Disposed Of" (FASB No. 121), effective for 1996. The Company is completing an analysis of FASB No. 121 which is not expected to have a material impact on the Company's results of operations or financial position. Certain reclassifications have been made to the prior years' financial statements to conform with current year presentation. -9- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED FARR COMPANY AND SUBSIDIARIES 2. INVENTORIES Domestic inventories totaling $11,140,000 and $10,908,000 at December 30, 1995 and December 31, 1994, respectively, are stated at cost determined by the last-in, first-out method. If the first-in, first-out method of inventory valuation had been used, inventories would have been $6,857,000 and $6,713,000 higher than reported at December 30, 1995 and December 31, 1994, respectively. 3. RESTRUCTURING COSTS In the fourth quarter of 1995, the Company recorded a restructuring charge of $360,000 related to the costs associated with the reorganization of its manufacturing and distribution operations in North America. This reorganization is being implemented as part of the Company's effort to consolidate manufacturing and distribution operations and increase production efficiency, asset utilization and profitability. The charge was comprised of $230,000 of work force related costs (approximately 40 people) and $130,000 for facility related costs. The majority of the costs associated with this restructuring are planned to be incurred during the first quarter of 1996. At December 30, 1995, the balance of this restructuring charge was approximately $308,000 and was included as a component of accrued liabilities in the accompanying Consolidated Balance Sheets. In the second quarter of 1994, the Company recorded a restructuring charge of $1,000,000 related to the costs associated with closing its manufacturing facility located in Rialto, California. This plant was closed as part of the Company's effort to consolidate manufacturing operations and increase production efficiency, asset utilization and profitability. This facility was sold during the fourth quarter of 1995. As of December 31, 1994 this facility's net book value was classified in current assets. The Company recorded a restructuring charge of $1,500,000 in the fourth quarter of 1992 related to anticipated costs associated with the closures of two manufacturing plants. The two United States plants located in Pryor, Oklahoma and Eatonton, Georgia were closed in 1993 as part of the Company's efforts to consolidate manufacturing operations and increase production efficiency, asset utilization and profitability. During the fourth quarter of 1995, the Company recorded and increased its restructuring costs by $180,000 for facility related costs associated with these two facilities. The remaining $418,000 balance of this restructuring charge is included as a component of accrued liabilities in the accompanying Consolidated Balance Sheet as of December 30, 1995. If the present weak real estate market in Eatonton, Georgia continues beyond 1998, the Company may need to record an additional provision to cover the costs of leasing and maintaining the facility beyond the estimated disposition date. 4. GAIN ON SALE OF U.S. PLANT In November 1995, the Company sold its plant located in Rialto, California for $3,050,000 which resulted in a gain of $676,000. The entire amount of the net proceeds were received in cash and were primarily used to retire secured debt on the subject property. 5. COMMON STOCK On April 3, 1989, the Company's Board of Directors declared a dividend distribution of one common share purchase right for each share of common stock outstanding on April 18, 1989. An exercisable right will, under certain conditions, entitle its holder to purchase from the Company one-half of one share of common stock at the exercise price, subject to adjustment, at a price of $40 per whole share, subject to adjustment. The exercise price as of March 31, 1996 is $32 per whole share of common stock. The rights will become exercisable ten days after any person acquires 20 percent or more of the Company's outstanding common stock, or announces an offer which would result in such person acquiring 30 percent or more of the Company's common stock. The rights will expire on April 3, 1999, and may be redeemed by the Company for $.01 per right at any time until ten business days after a person acquires 20 percent or more of the Company's common stock. Under certain circumstances after a person acquires 20 percent or more of the Company's common stock, or after a merger or other business combination involving the Company, an exercisable right will entitle its holder to purchase shares of common stock (or shares of an acquiring company) having a market value of twice the exercise price of one right. In 1995 the Company received 66,033 shares from the Employee Stock Ownership Plans as payment against the Company's outstanding loans to the Plans. As of December 30, 1995 and December 31, 1994 the Company held in treasury 168,687 and 102,654 shares of its common stock at a cost of $1,417,000 and $899,000, respectively. Treasury shares are reflected net of outstanding amounts in the Consolidated Statements of Stockholder's Investment. -10- 6. NOTES PAYABLE AND LONG-TERM DEBT The Company's foreign subsidiaries utilize overdraft facilities that amounted to approximately $2,309,000 of which $432,000 was utilized as of December 30, 1995. As of December 31, 1994, total foreign overdraft facilities amounted to approximately $2,268,000 of which none were utilized. In February 1996, the Company completed the restructure of its long term credit facilities financing. The new secured long term revolving credit facility retired and replaced the Company's $22,000,000 revolving credit facility and $4,000,000 term credit facility. In addition, a new $2,155,000 term credit facility will be used to retire and replace the Company's $2,500,000 Holly Springs Mississippi Industrial Revenue Bonds. Long-term debt as of December 30, 1995 and December 31, 1994 (as revised to reflect the maturity terms under the replacement credit facilities) were as follows:
December 30, 1995 December 31, 1994 ----------------- ----------------- Revolving credit facility $4,603,000 $11,348,000 Term loan 106,000 Notes secured by deeds of trust on real property - Term loans 2,753,000 6,361,000 Jonesboro, Arkansas Industrial Revenue Bonds at 5.6 percent 385,000 885,000 Holly Springs, Mississippi Industrial Revenue Bonds at 7.4 percent 2,230,000 2,375,000 ---------- ----------- 10,076,000 20,969,000 Less current portion (664,000) (2,012,000) ---------- ----------- Net long-term debt $9,412,000 $18,957,000 ========== ===========
At December 30, 1995, real, personal and intangible property of $44,641,000 were pledged as security for long-term debt. At December 30, 1995, the Company's domestic operations had the following long-term credit facilities: o A $22,000,000 revolving credit facility obtained in February 1994, was secured by liens on accounts receivables and inventories. The facility also contained certain restrictive covenants, including limitations on the Company's ability to incur debt, grant liens, make investments, sell assets, make capital expenditures, pay dividends or merge or consolidate with another entity. Available borrowings under the revolving credit facility were limited under a formula percentage calculation of combined domestic inventories and accounts receivables up to $22,000,000. As of December 30, 1995, the Company had borrowed $4,603,000 under this agreement. Interest was payable on the loan at a floating rate equal to the latest published rate for 30-day dealer placed commercial paper plus 2.5 percent. The applicable interest rate on December 30, 1995 was 8.3 percent. This facility was retired in February 1996, as part of the Company's new long-term debt financing restructure. o A $4,000,000 term credit facility obtained in February 1994, was secured by liens on substantially all of the unencumbered personal property at various locations and real property located in El Segundo, California. The facility also contained certain restrictive covenants similar to the Company's $22,000,000 revolving credit facility. Under the terms of the agreement, the principal was required to be repaid monthly in installments of $55,556. As of December 30, 1995, the Company had borrowed $2,753,000 under this agreement. Interest was payable on the loan at a floating rate equal to the latest published rate for 30-day dealer placed commercial paper plus 2.75 percent. The applicable interest rate on December 30, 1995 was 8.55 percent. This facility was retired in February 1996, as part of the Company's new long-term debt financing restructure. o Industrial Revenue Bond financing of $8,000,000 was obtained in December 1985, to finance the Company's facility in Jonesboro, Arkansas. Terms of the sixteen year bonds required annual principal payments of $500,000 commencing December 1, 1986. The interest rate was the lesser of 12.5 percent or a rate adjusted weekly and which, based upon prevailing market conditions, was the rate necessary to keep the price of the bonds at 100 percent of their face value. The credit rating and liquidity of the bonds were guaranteed by an irrevocable letter of credit issued by a bank at an annual cost to the Company of 1.5 percent of the principal amount of the bonds outstanding as of December 15, each year. These bonds were retired in January 1996. o Industrial Revenue Bond financing of $2,500,000 was obtained in August 1991, to finance the Company's facility in Holly Springs, Mississippi. Terms of the twenty year bonds require principal payments commencing on August 1, 1994. The interest rates on scheduled principal payments through August 2002, covering $1,100,000 are fixed and vary from 6.5 percent to 7.625 percent. The interest rate on the remaining principal is fixed at 7.625 percent. The credit rating and liquidity of the bonds are guaranteed by an irrevocable letter of credit issued by a bank at an annual cost to the Company of 1.5 percent of the principal amount of the bonds outstanding as of August 15, each year. These bonds will be retired in August 1996 as part of the Company's long-term debt financing restructure. -11- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED FARR COMPANY AND SUBSIDIARIES The principal sources of the Company's domestic long-term debt financing restructure completed in February 1996 includes a $15,000,000 revolving credit facility and a $2,155,000 term credit facility. The new facilities consists of: A $15,000,000 revolving credit facility obtained in February 1996, is secured by liens on accounts receivable and inventories. The facility also contains certain restrictive covenants, including the Company's ability to incur additional debt, sell assets or merge or consolidate with another entity. This loan will mature on June 1, 1998 when the then outstanding loan balance will be due. Interest is payable on the loan at a floating rate equal to the Prime rate or the bank's Offshore rate plus 1.75 percent. A $2,155,000 term credit facility to be funded in August 1996 to replace the Company's existing Holly Springs Mississippi Industrial Revenue Bonds. Under terms of the lending commitment, principal will be repaid monthly in approximate installments of $17,958 through August 2001 when the remaining principal balance of $1,078,000 will become due. Interest will be payable on the loan at a floating rate equal to the Prime rate plus .25 percent or the bank's Offshore rate plus 2.25 percent. Under the Company's new domestic credit agreements effective February 1996, the Company is required to maintain among other things, a minimum net domestic tangible net worth less foreign intercompany receivables balance of $10,500,000, a minimum fixed charge coverage ratio of not less than 1.35, a quick ratio of not less than .7 to 1.0 and a minimum consolidated liabilities to tangible net worth ratio of not more than 1.5 to 1.0 through December 31, 1996 and not more than 1.25 to 1.0 thereafter. Interest paid on outstanding debt and obligations net of amounts capitalized were $1,839,000, $1,964,000, and $2,643,000 in 1995, 1994, and 1993, respectively. Principal payments, as revised to reflect the maturity terms of the Company's new long-term credit facilities, are as follows: Year Ending Long-term Debt ----------- -------------- 1996 $ 664,000 1997 237,000 1998 7,482,000 1999 237,000 2000 237,000 Thereafter 1,219,000 ----------- $10,076,000 =========== 7. INCOME TAXES As of December 30, 1995, the Company has net loss carryforwards of approximately $600,000 which are available to offset future taxable income. These carryforwards, which are expected to be fully utilized, expire in the years 2006 through 2009. Accordingly, the Company has recognized a deferred tax asset relating to these carryforwards. The provision for income taxes is summarized as follows:
For the Years Ended December 30, 1995 December 31, 1994 January 1, 1994 - ------------------- ----------------- ----------------- --------------- Current -- Federal $ 81,000 $ $ State 171,000 48,000 22,000 Foreign 286,000 69,000 529,000 ---------- --------- --------- 538,000 117,000 551,000 ---------- --------- --------- Deferred-- Federal 1,230,000 ( 489,000) 324,000 State 173,000 Foreign 98,000 85,000 ( 147,000) ---------- --------- --------- 1,501,000 ( 404,000) 177,000 ---------- --------- --------- $2,039,000 ($287,000) $728,000 ========== ========= =========
-12- The following is a reconciliation of income taxes at the Federal statutory rate with income taxes recorded by the Company:
For the Years Ended December 30, 1995 December 31, 1994 January 1, 1994 - --------------------------------------------------- ----------------- ----------------- --------------- Computed income taxes at statutory rate $1,755,000 ($218,000) $735,000 State income taxes, net Federal Income Tax benefit 113,000 31,000 15,000 Taxes on foreign subsidiaries' net income in excess of (less than) income taxes at statutory rates 46,000 ( 86,000) ( 8,000) Other items, net 125,000 ( 14,000) ( 14,000) ---------- --------- --------- Provision (benefit) for income taxes $2,039,000 ($287,000) $728,000 ========== ========== =========
Deferred taxes are recorded based upon differences between the financial statement and tax basis of assets and liabilities and available tax credit carryforwards. Temporary differences and carryforwards which give rise to a significant portion of deferred tax assets and liabilities were as follows:
For the Years Ended December 30, 1995 December 31, 1994 January 1, 1994 - --------------------------------------------------- ----------------- ----------------- --------------- Net operating loss $ 231,000 $1,873,000 $2,060,000 Depreciation ( 622,000) ( 671,000) ( 813,000) Employee compensation accruals 753,000 633,000 651,000 Plant relocation and restructuring 230,000 385,000 191,000 DISC commission accrual ( 1,782,000) ( 1,974,000) ( 1,834,000) Acquisition reserves ( 735,000) ( 832,000) ( 928,000) Inventory 788,000 908,000 683,000 Other items, net 290,000 332,000 178,000 ----------- ----------- ----------- ($ 847,000) $ 654,000 $ 188,000 =========== ========== ===========
Included in income taxes payable and current deferred income taxes at December 30, 1995 and December 31, 1994 were $199,000 and $101,000, respectively, of foreign deferred income taxes. The consolidated income (loss) before income tax, by domestic and foreign sources is as follows:
For the Years Ended December 30, 1995 December 31, 1994 January 1, 1994 - ------------------- ----------------- ----------------- --------------- Domestic $4,170,000 ($1,350,000) $1,060,000 Foreign 993,000 708,000 1,101,000 ---------- ----------- ---------- $5,163,000 ($ 642,000) $2,161,000 ========== =========== ==========
Net income taxes paid (refunded) were $466,000, $613,000 and ($748,000) in 1995, 1994 and 1993, respectively. 8. EMPLOYEE BENEFIT PLANS The Company has defined contribution retirement plans and 401(K) deferred salary plans covering domestic employees who meet eligibility requirements. Company contributions are based on a formula as specified in the respective plan agreements. Contributions, which aggregated $916,000 in 1995, $352,000 in 1994, and $347,000 in 1993, were charged to expense in accordance with the approved plan formulas. In 1995, the Company approved a new 401(K) retirement plan to be effective January 1996, that will replace the previously effective defined contribution plans. The Company has two employee stock ownership plans (ESOPs) that operated in conjunction with the Company's former defined contribution plans. The ESOPs previously purchased outstanding shares on a leveraged basis, with the Company making sufficient contributions to cover the interest and principal payments resulting from the borrowings. The Company contributed $133,000, $180,000 and $169,000 to cover interest and principal payments on outstanding borrowings in 1995, 1994, and 1993, respectively. The Company recognizes expense for the ESOPs using the cash payments method, which is subject to certain minimum amounts. In 1995, the Company discontinued its contributions to the ESOPs and plans to terminate the plans subject to IRS approval. -13- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED FARR COMPANY AND SUBSIDIARIES Pension costs for the Company's defined benefit plans, covering eligible employees in foreign operations, are determined by independent actuarial valuations. Pension expense under the provisions of Statement of Financial Accounting Standards (SFAS) No. 87, "Employers' Accounting for Pensions", was ($17,000) in 1995, $56,000 in 1994, and $92,000 in 1993. The components of the 1995, 1994 and 1993 net periodic pension cost were as follows: For the Years Ended 1995 1994 1993 - -------------------------------------------- --------- --------- --------- Service cost $165,000 $216,000 $176,000 Interest cost on projected benefit obligation 302,000 288,000 244,000 Actual loss (return) on plan assets ( 696,000) 115,000 ( 798,000) Net amortization and deferral 212,000 ( 563,000) 470,000 --------- --------- --------- ($ 17,000) $ 56,000 $ 92,000 ========= ========= ========= The assumptions used were: Discount rate 8.0%-- 9.0% 9.0% 6.5%-- 8.5% Rate of compensation increase 5.0%-- 6.0% 5.0%-- 6.5% 5.5%-- 8.0% Long-term rate of return on assets 9.0%--10.0% 9.0%--10.0% 8.5%--10.0% The following table sets forth the funded status of the defined benefit plans and amounts recognized in the Company's consolidated balance sheets as of December 30, 1995 and December 31, 1994:
1995 1994 ----------- ----------- Actuarial present value of benefit obligations -- Vested benefit obligation $3,947,000 $3,255,000 Accumulated benefit obligation 3,947,000 3,257,000 =========== =========== Projected benefit obligation 4,219,000 3,402,000 Plan assets at fair value 5,112,000 4,324,000 ----------- ----------- Plan assets in excess of projected benefit obligation 893,000 922,000 Unrecognized net (gain) loss ( 1,003,000) ( 806,000) ----------- ----------- Prior service cost not yet recognized in net periodic pension cost 142,000 102,000 Unrecognized net transition asset ( 119,000) ( 147,000) ----------- ----------- Prepaid (accrued) pension cost obligation recognized in the consolidated balance sheets ($ 87,000) $ 71,000 =========== ===========
The Company provides no post-retirement health care and life insurance benefits or other post-employment benefits to its employees. 9. STOCK OPTIONS Under the 1983 and 1993 stock option plans, the Company may grant non-qualified and incentive stock options to officers and employees. Options are contingent upon continued employment, and become exercisable from at least one year after date of grant at such times and installments as the Compensation Committee of the Board shall provide. All options outstanding at December 30, 1995 had an exercise price equal to 100 percent of the fair market value on the date the option was granted except for 79,000 shares that were granted in 1995. Compensation expense recorded under the plan was $27,000 in 1995. Options expire ten years from the date of grant, subject to earlier expiration under the terms of the plan. The 1983 plan covered a total of 312,500 shares of the Company's common stock of which at December 30, 1995, 80,822 shares were subject to presently outstanding options. At December 30, 1995, 350,000 shares of common stock were reserved for distribution under the 1993 plan, of which 160,875 shares were subject to outstanding options. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" (SFAS 123). SFAS 123 encourages, but does not require, companies to adopt a fair value based method for determining expenses related to stock based compensation. Companies who do not adopt the provisions of SFAS 123 for recognition purposes must disclose pro forma effects as if the fair value based method of accounting had been applied. The Company does not intend to adopt the new recognition aspects of SFAS 123 but will provide required disclosure of pro forma information beginning in 1996. The pro forma impact has not yet been determined. -14- Activity under both plans is summarized as follows:
1995 1994 1993 Shares Option Price Shares Option Price Shares Option Price ------------------------ ------------------------- ------------------------ Options outstanding at beginning of year 166,745 $ 5.25 - $11.25 149,648 $ 5.25 - $11.63 185,475 $ 5.52 - $11.63 Granted 99,000 $ 5.00 - $ 7.25 110,500 $ 6.38 31,000 $ 5.25 - $ 7.25 Exercised 6,530 $ 6.16 - $ 6.38 20,605 $ 5.52 - $ 6.16 Cancelled and expired 17,518 $ 5.25 - $11.25 93,403 $ 5.25 - $11.63 46,222 $ 5.52 - $11.25 ------- --------------- ------- --------------- ------- --------------- Options outstanding end of year 241,697 $ 5.00 - $11.25 166,745 $ 5.25 - $11.25 149,648 $ 5.25 - $11.63 ======= =============== ======= =============== ======= =============== End of year shares exercisable 98,172 84,970 81,745 ====== ====== ======
On January 22, 1991, the Company's Board of Directors adopted and approved the 1991 Stock Option Plan for Non-Employee Directors. Under the 1991 Stock Option Plan, the Company is authorized to issue up to 48,000 shares of common stock to the Company's non-employee directors of which 28,000 shares are subject to presently outstanding options. In 1995 the Company amended this plan, subject to stockholder approval, to increase the number of shares issuable under the plan to 100,000 shares. Activity for fiscal years 1995, 1994 and 1993 under the 1991 Plan are summarized as follows:
1995 1994 1993 Shares Option Price Shares Option Price Shares Option Price ------------------------ ------------------------- ------------------------ Options outstanding at beginning of year 34,000 $ 5.00 - $ 9.25 24,000 $ 5.00 - $ 9.25 16,000 $ 9.13 - $ 9.25 Granted 8,000 $ 6.88 - $ 9.13 12,000 $ 5.38 - $ 6.38 8,000 $ 5.00 Exercised 4,000 $ 5.00 - $ 6.38 2,000 $ 5.00 Cancelled 10,000 $ 6.38 - $ 9.25 ------ --------------- ------ --------------- ------ --------------- Options outstanding at end of year 28,000 $ 5.00 - $ 9.25 34,000 $ 5.00 - $ 9.25 24,000 $ 5.00 - $ 9.25 ====== =============== ====== =============== ====== =============== End of year shares exercisable 20,000 22,000 16,000 ====== ====== ======
10. PER SHARE AMOUNTS The weighted average number of common shares outstanding for 1995, 1994, and 1993 were 3,683,582, 3,678,218, and 3,669,297, respectively. These share amounts approximated the number of shares outstanding for fully diluted earnings per share calculations. 11. COMMITMENTS AND CONTINGENCIES The Company leases certain facilities and equipment under agreements, the majority of which expire at various dates through 2004. The majority of the Company's leases provide for the payment of real estate taxes and insurance. Net rental expense was $1,120,000 for the year ended December 30, 1995, $1,083,000 for the year ended December 31, 1994 and $1,448,000 for the year ended January 1, 1994. As of December 30, 1995, approximate minimum rental commitments under noncancelable leases which have not been capitalized were as follows: Year Ending Amount ----------- ---------- 1996 $1,024,000 1997 773,000 1998 543,000 1999 205,000 2000 187,000 Thereafter 472,000 ---------- Total $3,204,000 ========== The Company is involved in several claims and suits that arise out of the ordinary course of business, and has tax returns under review. Management believes that these matters are either adequately reserved, covered by insurance, or would not have a material adverse effect on the financial position or operations of the Company if disposed of unfavorably. -15- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED FARR COMPANY AND SUBSIDIARIES 12. SEGMENT INFORMATION Industry Segments: The Company is engaged in one line of business - filtration. The Company's basic business is manufacturing filters for the control of particulate and vapor containments in air and liquids. Geographic Segments: Information about the Company's operations in different geographic areas for the three years ended December 30, 1995, are presented as follows:
Transfers Net Sales Sales to Unaffiliated Customers Between Geographic Areas Total Net Sales (In thousands) 1995 1994 1993 1995 1994 1993 1995 1994 1993 - ------------------ -------------------------------- --------------------------- -------------------------------- United States $ 93,189 $ 88,831 $ 95,165 $3,540 $ 2,809 $2,540 $ 96,729 $ 91,640 $ 97,705 Canada 11,002 9,165 8,639 4,251 2,412 3,990 15,253 11,577 12,629 Europe 9,084 8,993 8,559 268 23 79 9,352 9,016 8,638 --------- --------- --------- ------- ------- ------- -------- -------- -------- Total Segments 113,275 106,989 112,363 8,059 5,244 6,609 121,334 112,233 118,972 Adjustments & Eliminations ( 8,059) ( 5,244) ( 6,609) ( 8,059) ( 5,244) ( 6,609) --------- --------- --------- ------- ------- ------- -------- -------- -------- Consolidated Totals $113,275 $106,989 $112,363 $ $ $ $113,275 $106,989 $112,363 ========= ========= ========= ======= ======= ======= ======== ======== ========
Operating Profit (Loss) Before Income Taxes Identifiable Assets (In thousands) 1995 1994 1993 1995 1994 1993 - ------------------------------------------------------ --------------------------- ------------------------------ United States $5,239 ($ 58) $2,639 $43,286 $48,788 $51,274 Canada 867 669 1,101 11,055 10,001 10,525 Europe 909 829 815 6,078 6,033 5,669 ------- ------- ------- -------- -------- ------- Total Segments 7,015 1,440 4,555 60,419 64,822 67,468 Adjustments & Eliminations ( 56) 47 51 ( 4,849) ( 5,935) ( 7,115) Interest Expense ( 1,796) ( 2,129) ( 2,445) Corporate Assets 382 552 ------- ------- ------- -------- -------- ------- Consolidated Totals $5,163 ($ 642) $2,161 $55,570 $59,269 $60,905 ======= ======= ======= ======== ======== =======
Transfers between geographic areas are accounted for on an "arms-length" basis. Operating profit is total net sales less costs and expenses excluding interest. Identifiable assets are those of the Company that are identified with the operations in each geographic area. Corporate assets consist principally of real estate. To reconcile geographic information with consolidated totals, the following eliminations have been made: $8,059,000 in 1995, $5,244,000 in 1994, and $6,609,000 in 1993 of intercompany sales; a loss of $56,000 in 1995, a gain of $47,000 in 1994, and a gain of $51,000 in 1993 relating to the net change in unrealized operating profit in beginning and ending inventories; $4,849,000 in 1995, $5,935,000 in 1994 and $7,115,000 in 1993 of intercompany accounts receivable and unrealized operating profit in inventory at the end of each year. -16- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of Farr Company: We have audited the accompanying consolidated balance sheets of Farr Company (a Delaware corporation) and subsidiaries as of December 30, 1995 and December 31, 1994, and the related consolidated statements of operations, stockholders' investment and cash flows for each of the three years in the period ended December 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Farr Company and subsidiaries as of December 30, 1995 and December 31, 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 30, 1995, in conformity with generally accepted accounting principles. Los Angeles, California Arthur Andersen LLP February 7, 1996 -17- SELECTED FINANCIAL DATA FARR COMPANY AND SUBSIDIARIES
Years Ended (In thousands, except share and per share data) Dec. 30, 1995 Dec. 31, 1994 Jan. 1, 1994 Jan. 2, 1993 Dec. 28, 1991 - ----------------------------------------------- ------------- ------------- ------------ ------------ ------------- Net Sales $ 113,275 $ 106,989 $ 112,363 $ 112,094 $ 112,410 Net Income (Loss) (Notes D, E, F, G & I) 3,124 ( 355) 1,284 ( 4,590) ( 2,996) Net Income (Loss) per share .85 ( .10) .35 ( 1.26) ( .83) Total Assets (Notes A, B & C) 55,570 59,269 60,905 67,383 83,531 Long-term Debt, net of current portion (Notes A, B, C, H & I) 9,412 18,957 21,913 27,001 32,747 Cash Dividends per share .06 .24 Weighted average number of shares 3,683,582 3,678,218 3,669,297 3,653,151 3,611,386 Capital expenditures 1,163 987 674 715 5,139 Net property, plant and equipment 16,406 17,930 21,914 24,595 27,903 Working Capital (Notes A & B) 20,183 21,782 20,853 21,289 32,206 ==========================================================================================================================
Note A. In December 1985, the Company negotiated an agreement for $8,000,000 in Industrial Revenue Bonds to finance the Company's facility in Jonesboro, Arkansas. In December 1993 and February 1994, the Company redeemed a total of $2,615,000 of the bonds with surplus cash held in trust. In January 1996 the Company fully retired these bonds. Note B. In August 1991, the Company negotiated an agreement for $2,500,000 in Industrial Revenue Bonds to finance the Company's facility in Holly Springs, Mississippi. Note C. In April 1991, the Company negotiated an agreement to purchase substantially all of the assets and assume certain liabilities of Cambridge Filter Corporation. The purchase was financed with $15,000,000 in term loan borrowings and available cash flows. Note D. In 1991, pretax loss included a provision of $5,733,000 for the estimated restructuring cost relative to the Cambridge Filter Corporation asset acquisition. Note E. In 1995, 1994, and 1992, pretax income (loss) included provisions of $540,000, $1,000,000 and $1,500,000 respectively for the estimated cost of closing U.S. manufacturing facilities. Note F. In 1992, the Company changed its method of accounting for income taxes, to comply with the provisions of Statement of the Financial Accounting Standards Board (SFAS) No. 109, "Accounting for Income Taxes", and the cumulative effect of this change ($500,000) is included in 1992 results. Note G. In 1993, the Company recorded a $149,000 extraordinary charge relating to the write off of unamortized deferred financing costs as a result of refinancing its long-term debt with new lending institutions. Note H. In 1994, the Company completed refinancing of its long-term debt with new lending institutions including a $22,000,000 revolving credit facility and $7,500,000 of term loan credit facilities. Note I. In November 1995, the Company sold its plant located in Rialto, California for $3,050,000 which resulted in a gain of $676,000. The entire amount of the net proceeds were received in cash and were primarily used to retire secured debt on the subject property. -18- MANAGEMENT'S DISCUSSION AND ANALYSIS Results of Operations - --------------------- Sales -- Sales for 1995 were a record $113,275,000, up 6.0 percent from $106,989,000. The 1995 increase in sales was spread across all of the Company's market segments. Sales were $106,989,000 in 1994, representing a decrease of $5,374,000 from the $112,363,000 level achieved in 1993. The decrease in sales from the prior year was primarily attributable to a decline from 1993's record level Engineered Systems volume experienced in the first half of 1993 that resulted from delayed 1992 shipments carried over into 1993. Costand Expenses -- During 1995, selling, general and administrative expenses increased primarily as a result of performance based incentive plans and loan fee amortization. Interest expense decreased in 1995 as a result of lower debt levels and interest rates. As a result of lower interest rates negotiated with new lenders effective February 1996 and lower debt levels, interest expense will significantly decrease in 1996. A gain of $676,000 was recognized during the fourth quarter of 1995 from the sale of the Company's Rialto California plant. Profit -- For the year of 1995 net profit was $3,124,000, up from a loss of $355,000 in 1994. More progress in the area of operating efficiencies will be realized in 1996 as a result of the operating improvements made during 1995 coupled with the added reductions in overhead from reorganizing the manufacturing and distribution operations in North America. During 1995 manufacturing efficiencies at the Company's Holly Springs, Mississippi plant improved substantially over 1994's levels and are anticipated to improve more during 1996. In the fourth quarter of 1995, the Company recorded a restructuring charge of $360,000 related to the costs associated with the reorganization of its manufacturing and distribution operations in North America. The charge was comprised of $230,000 of work force related costs (approximately 40 people) and $130,000 for facilities. As of December 30, 1995 the Company had incurred approximately $52,000 of the $360,000 provision. By the end of July 1996, the Company anticipates that all costs associated with this reorganization will have been incurred. 1994 results yielded a loss of $355,000 compared to a profit of $1,284,000 in 1993. Operating results continued to be unfavorably impacted during most of 1994 by manufacturing inefficiencies at the Holly Springs, Mississippi plant. In the second quarter of 1994, the Company recorded a restructuring charge of $1,000,000 related to the costs associated with closing its manufacturing facility located in Rialto, California. This plant was closed as part of the Company's effort to consolidate manufacturing operations and increase production efficiency, asset utilization and profitability. The two United States plants located in Pryor, Oklahoma and Eatonton, Georgia were closed in 1993 as part of the Company's efforts to consolidate manufacturing operations and increase production efficiency, asset utilization and profitability. During the fourth quarter of 1995, the Company recorded and increased its restructuring costs by $180,000 for facility related cost associated with these two facilities. If the present weak real estate market in Eatonton, Georgia continues beyond 1998, the Company may need to record an additional provision to cover the costs of leasing and maintaining that facility beyond the estimated disposition date. Liquidity and Capital Resources - ------------------------------- During 1995, the Company significantly improved its cash flow from operating activities. As a result of 1995 operating improvements, cash flows provided by operating activities totaled $8,729,000, a 131 percent increase over cash flows of $3,778,000 from operating activities in 1994. The 1995 increase in cash flow was attributable to an increase in net income, a decrease in working capital requirements and a net decrease in deferred taxes relating to the utilization of net operating loss carryforward credits. -19- As a result of completing the sale of the Company's previously closed manufacturing plant located in Rialto, California, cash proceeds of $2,890,000 were received during the fourth quarter of 1995. As a result, cash flows generated from 1995 investing activities totaled $2,349,000. 1995 capital expenditures increased to $1,163,000 from $987,000 in 1994. Although capital expenditures increased modestly in 1995, overall capital spending remained relatively low to conserve capital resources. Capital expenditures in 1996 are expected to increase moderately to support operating requirements. During the first quarter of 1995, the Company settled the sale transactions of two investment properties that generated $567,000 in proceeds. One investment was formerly held pursuant to an employment contract with the Company's former Chairman, President and Chief Executive Officer and the other investment was an unimproved parcel of land. Working capital decreased $1,599,000 in 1995. The 1995 decrease in working capital was primarily accounted for by decreases in asset held for sale of $2,083,000 and accounts receivable of $934,000 and increases in accounts payable and accrued liabilities of $1,105,000 partially offset by increases in inventories of $782,000 and cash of $685,000 and a decrease in notes payable to banks and the current portion of long term debt of $916,000. The increase in accounts payable and accrued liabilities is primarily related to accrued restructuring costs, accrued employee benefit plan liabilities and deferred compensation liabilities. As a result of the decrease in working capital requirements coupled with the Company's improvement in operating income and limited capital expenditures, long term debt was decreased by $10,893,000 or 52 percent compared to the balance at December 31, 1994. The Company's cash flows from operating activities and surplus borrowing availability under its revolving credit facility are anticipated to generate adequate cash flow to meet planned operating needs, provide for capital spending, and to meet current debt service requirements. The Company's foreign subsidiaries utilize overdraft facilities that amounted to approximately $2,309,000 of which $432,000 was utilized as of December 30, 1995. As of December 31, 1994, total foreign overdraft facilities amounted to approximately $2,268,000 of which none was utilized. During 1995, the Company's domestic operations were financed through a combination of long-term credit facilities and Industrial Revenue Bonds which were utilized for major capital projects. In December 1995, the Company completed and committed to the terms of restructuring its long term debt credit facilities with a new lender. The new long term credit facilities will provide $17,155,000 of long term revolving and term loan credit that will be secured by inventories and accounts receivable and are anticipated to meet the Company's general working capital and capital expenditure requirements over the next two years. As of December 30, 1995, $4,603,000 was outstanding under the Company's existing $22,000,000 revolving credit facility. Unused borrowing availability under the existing credit facility was $10,917,000 as of December 30, 1995. As of December 30, 1995, the Company had $2,615,000 of Industrial Revenue Bonds outstanding related to the financing of its Jonesboro, Arkansas and Holly Springs, Mississippi plants. As of December 30, 1995, the Company has net loss carryforwards of approximately $600,000 which are available to offset future taxable income. These carryforwards, which are expected to be fully utilized, expire in the years 2006 through 2009. Accordingly, the Company has recognized a deferred tax asset relating to these carryforwards. In December 1995, the Company recorded a $540,000 restructuring charge related to the reorganization of its North American distribution and manufacturing operations and additional reserves for the previous closure of its Eatonton, Georgia facility. Financing of the restructuring costs are anticipated to be provided by operating cash flows and borrowing availability under its revolving credit facility. -20- The primary component of 1995's restructuring includes the closure of the Company's Hazleton, Pennsylvania plant which is anticipated to provide better service to our customers and improve asset utilization. As of December 30, 1995, the Company's 1992 restructuring reserve balance was $418,000. This reserve is related to the anticipated costs associated with the closures of two manufacturing plants and is included as a component under accrued liabilities in the Company's Consolidated Balance Sheets. During 1995, $149,000 in facility related costs were charged against this reserve and $180,000 of additional reserves were provided to dispose of these lease commitments. # # # SUMMARIZED QUARTERLY FINANCIAL DATA (Unaudited) FARR COMPANY AND SUBSIDIARIES (In thousands, except per share data)
1995 1994 1993 Net Gross Net Per Net Gross Net Per Net Gross Net Per Quarter Sales Profit Income Share Sales Profit Income Share Sales Profit Income Share - --------- -------------------------------- -------------------------------- --------------------------------- First $ 27,253 $ 6,396 $ 633 $ .17 $ 25,171 $ 4,876 ($415) ($ .11) $ 30,631 $ 7,097 $ 578 $ .16 Second 28,682 6,956 675 .18 26,525 5,181 ( 625) ( .17) 29,652 7,047 505 .14 Third 28,444 6,752 726 .20 27,462 5,775 275 .07 26,704 5,519 168 .04 Fourth 28,896 7,675 1,090 .30 27,831 6,720 410 .11 25,376 5,211 33 .01 -------- ------- ------ ----- -------- ------- ----- ------ -------- ------- ------ ----- Year $113,275 $27,779 $3,124 $ .85 $106,989 $22,552 ($355) ($ .10) $112,363 $24,874 $1,284 $ .35 ======== ======= ====== ===== ======== ======= ===== ====== ======== ======= ====== =====
SUMMARY OF STOCK QUOTATIONS 1995 1994 1993 Quarter High Low High Low High Low - ------------ -------------- -------------- -------------- First $8 $5 7/8 $6 5/8 $5 3/4 $7 5/8 $4 5/8 Second 7 1/2 6 3/8 6 3/8 4 1/2 8 1/4 5 1/8 Third 9 1/2 6 5/8 7 1/4 4 5/8 8 3/8 6 Fourth 8 1/4 6 7/8 7 1/4 5 3/4 7 3/8 6 ------ ------ ------ ------ ------ ------ Year $9 1/2 $5 7/8 $7 1/4 $4 1/2 $8 3/8 $4 5/8 ====== ====== ====== ====== ====== ====== The above information was obtained from the National Association of Securities Dealers, Inc. (NASD) Monthly Statistical Report. The Company's stock is traded in the over-the-counter National Market System. No cash dividends were declared on the Company's common stock in 1995, 1994 or 1993. -21- CORPORATE INFORMATION FARR COMPANY AND SUBSIDIARIES Directors FARR COMPANY H. Jack Meany Chairman and Chief Executive Officer Robert Batinovich President, Glenborough Realty Trust Incorporated Management of Commercial Real Estate Richard P. Bermingham Vice Chairman of the Board American Golf Corporation David J. Farr President, David J. Farr Insurance Services Provider of Financial Planning Services Richard L. Farr Senior Vice President, Farr Company John J. Kimes President and CEO Computerized Security Systems Inc. Manufacturer of Electronic and Mechanical Lock Hardware and Systems Officers FARR COMPANY H. Jack Meany Chairman and Chief Executive Officer John C. Johnston President and Chief Operating Officer Richard L. Farr Senior Vice President Kenneth W. Gerstner Senior Vice President, Chief Financial Officer and Secretary Myron G. Rasmussen Vice President FARR FILTRATION, LTD. (UNITED KINGDOM) Donald A. Parker Managing Director FARR INC. (CANADA) Dominique Mignacco Vice President and General Manager -22- Corporate Offices 2221 Park Place El Segundo, California 90245 310-536-6300 Subsidiaries Farr, Inc., Montreal, Canada Farr Filtration, Ltd., Birmingham, England Manufacturing and Distribution Facilities Jonesboro, Arkansas Corcoran, California Delano, California Crystal Lake, Illinois Holly Springs, Mississippi Conover, North Carolina Montreal, Canada Birmingham, England Singapore Manufacturing Licensees Anfilco Ltd., Curgaon, India Antung Trading Corp., Taipei, Taiwan Boart MSA (PTY) Ltd., South Africa Casiba S. A., Buenos Aires, Argentina Clyde-Apac Ltd., Woodville, Australia Genmech Engineering, Singapore Industries Filvac S.A. de C.V., Mexico Nihon Spindle Mfg., Co., Ltd., Osaka, Japan Quest Technology, SND. BHD, Malaysia Taylor's Ltd., Christchurch, New Zealand Turbiparts, C.A., Caracas, Venezuela Vibran Engineering (M) SDN. BHD., Petaling Jaya, Malaysia Wilectec Co., Ltd., Kwai Chung, N.T., Hong Kong Yamashita Iron Works Ltd., Osaka, Japan Manufacturing Distributors Genmech Engineering, Singapore FEI (France Equipement Industriels), Florange, France Registrar and Transfer Agent Chemical Mellon Shareholder Services Los Angeles, California Legal Counsel Latham & Watkins Los Angeles, California Auditors Arthur Andersen LLP Los Angeles, California Form 10-K Shareholders of record as of March 8, 1996 may obtain copies of the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission by writing to: Kenneth Gerstner Farr Company 2221 Park Place El Segundo, California 90245-4900 -23- FARR 1995 ANNUAL REPORT -24- EX-22 14 EX 22 LIST OF SUBSIDIARIES Exhibit 22 List of Subsidiaries FARR COMPANY AND SUBSIDIARIES Name of Subsidiary Jurisdiction of Incorporation ------------------ ----------------------------- Farr Filtration Limited England Farr Company International California Farr Incorporated Canada EX-24 15 EX 24 AUDITOR'S CONSENT Exhibit 24 Consent of Independent Public Accountants As independent public accountants, we hereby consent to the incorporation of our report incorporated by reference in this Form 10-K, into Farr Company's previously filed Registration Statements on File Numbers 2-83890, 33-18897, 33-47836, 33-71400 and 33-64387. Los Angeles, California Arthur Andersen LLP March 28, 1996 EX-27 16 EX 27 ART. 5 FDS FOR 1995 10-K
5 1,000 12-MOS DEC-30-1995 DEC-31-1994 DEC-30-1995 812 0 20,077 214 15,437 38,928 51,154 34,748 55,570 18,745 0 0 0 362 24,423 55,570 113,275 113,275 85,496 85,496 20,820 0 1,796 5,163 2,039 3,124 0 0 0 3,124 0.85 0.85
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