-----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, I33nqMA/R/j8aSY6s0ilkmCEowfkjxtZ8tksZ8LtDB/o19uCTDGi7eahQ++jje77 nL/5Kkelay5wM/GCRZRkYQ== 0000898430-01-504046.txt : 20020413 0000898430-01-504046.hdr.sgml : 20020413 ACCESSION NUMBER: 0000898430-01-504046 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011221 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JACOBS ENGINEERING GROUP INC /DE/ CENTRAL INDEX KEY: 0000052988 STANDARD INDUSTRIAL CLASSIFICATION: HEAVY CONSTRUCTION OTHER THAN BUILDING CONST - CONTRACTORS [1600] IRS NUMBER: 954081636 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07463 FILM NUMBER: 1821834 BUSINESS ADDRESS: STREET 1: 1111 S ARROYO PARKWAY CITY: PASADENA STATE: CA ZIP: 91105-3063 BUSINESS PHONE: 8184492171 10-K 1 d10k.txt FORM 10-K 2001 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark one) (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 2001 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-7463 Jacobs Engineering Group Inc. (Exact name of Registrant as specified in its charter) Delaware 95-4081636 (State of incorporation) (I.R.S. employer identification number) 1111 South Arroyo Parkway, Pasadena, California 91105 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (626) 578-3500 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered ------------------- ------------------- Common Stock, $1 par value New York Stock Exchange 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. (X) YES ( ) NO Indicate by check-mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of Form 10-K or any amendment to this Form 10-K. ( ) ___________________ The aggregate market value of the Registrant's voting stock held by non-affiliates was approximately $1,621,922,000 as of December 20, 2001, based upon the last reported sales price on the New York Stock Exchange. For this purpose, the Registrant considers Dr. Joseph J. Jacobs to be its only affiliate. As of December 20, 2001, the Registrant had outstanding 26,900,429 shares of its common stock. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's definitive Proxy Statement issued in connection with its 2002 Annual Meeting of Shareholders (Part II and Part III). ================================================================================ PART I Item 1. BUSINESS General - ------- Jacobs Engineering Group Inc. was incorporated under the laws of the State of Delaware on January 8, 1987. On March 4, 1987, it succeeded by merger to the business and assets of Jacobs Engineering Group Inc., a California corporation that in 1974 had succeeded to a business organized originally by Dr. Joseph J. Jacobs in 1947. Unless the context otherwise requires, all references herein to "Jacobs" or the "Registrant" are to Jacobs Engineering Group Inc. and its predecessors, and references to the "Company", "we", "us" or "our" are to both Jacobs Engineering Group Inc. and its consolidated subsidiaries. The Registrant's common stock has been publicly held since 1970 and is currently listed on the New York Stock Exchange. The Company is one of the largest professional services firms in the United States. Our business is focused exclusively on providing a broad range of technical professional services to a large number of industrial, commercial and governmental clients around the world. The types of technical professional services we provide to our clients include project services; process, scientific and systems consulting services; operations and maintenance services; and construction services. We provide these services through offices and subsidiaries located in the United States, Europe, Asia, Mexico, Chile and Australia. We concentrate our services on selected industry groups and markets including chemicals and polymers; buildings (which includes projects in the fields of health care and education, as well as commercial, civic and governmental buildings); federal programs; pharmaceuticals and biotechnology; exploration, production and refining; infrastructure; technology and manufacturing; and pulp and paper, among others. Over the past several years, we have grown our business through both internal initiatives and strategic mergers and acquisitions. These mergers and acquisitions have allowed us to (i) expand or enhance the range of services we provide our clients; (ii) expand our client base; and (iii) provide access to new geographic areas. A discussion of some of the more recent mergers and acquisitions follows: . In May 2001, we completed the purchase of substantially all of the international engineering and construction management business of LawGibb Group Inc. (the "GIBB" businesses). Headquartered in the United Kingdom, GIBB is a leading international engineering consultancy firm, providing technical professional services in the fields of transportation, civil and structural engineering, water and wastewater, environmental and geotechnical services, infrastructure, building and building services, information technology, defense, finance, and commerce. The businesses acquired have approximately 900 employees conducting operations located primarily in the United Kingdom, southern Africa, and certain other countries located primarily in Europe. . In February 2001, we finalized the second phase of a two-part transaction to acquire all of the engineering and contracting business of Stork N.V., the Netherlands ("Stork"). The first phase ("Stork Phase I") was completed in February 2000. The Stork Phase I entities employ approximately 1,500 technical professional staff in offices located principally in Belgium, Germany, Southeast Asia and certain locations in the Netherlands. The second phase ("Stork Phase II") involved the balance of Stork's engineering and construction management operations in the Netherlands and the Middle East. The Stork Phase II entities employ approximately 540 technical professional staff. Stork, which is headquartered in Leiden, the Netherlands, provides a broad range of engineering and construction management services to clients in the refining, chemicals, basic resources and facilities industries, among others. Page 1 . In fiscal 1999, we completed our merger with the Sverdrup Corporation ("Sverdrup"). As a result of this transaction, Sverdrup, which is headquartered in St. Louis, Missouri, became a wholly-owned subsidiary of Jacobs. Sverdrup provides engineering, architecture, construction and scientific services for the development, design, construction and operation of buildings, infrastructure projects and advanced technical systems for public and private sector clients in the United States and internationally. At the time of the merger, Sverdrup employed more than 5,600 people in offices located throughout the United States, and in selected countries abroad. The Sverdrup transaction expanded our business opportunities in several key markets, added professional staff, as well as presence in new geographies. It also added civil and defense capabilities to the Company's range of professional services. . In fiscal 1997, we acquired the Serete Group of companies. The acquisition of the Serete Group, which is headquartered in Paris, France, provided us with an established business presence in France, Spain and Italy. The acquisition added professional staff, and enhanced our existing engineering capabilities. This transaction also expanded our client base in several key market groups. . Also in fiscal 1997, the Company increased its ownership interest and became the majority owner of Humphreys & Glasgow Consultants Limited, which is headquartered in Mumbai, India. Through Humphreys & Glasgow Consultants Limited, we gained access to the Southern Asia market, expanded our client base and added professional staff to the organization. In addition to the particular advantages described above, these mergers and acquisitions have allowed us to grow our relationships with our major clients. By expanding into new geographic areas, and by adding to our existing technical and project management capabilities, we strive to position ourselves as a preferred, single-source provider of technical professional services to our major clients. Services Provided - ----------------- As discussed above, our business is to provide technical professional services. The services we provide can be generally classified into four broad categories: project services (which includes engineering, design, architectural and other related services); process, scientific and systems consulting services; operations and maintenance ("O&M") services; and construction services. The scope of services we can provide our clients, therefore, range from consulting services, which are often required by clients in the very early stages of a project, to complete, single-responsibility, design-build-operate contracts. The following table sets forth the revenues of the Company from each of its four service categories for each of the five fiscal years ended September 30 (in thousands of dollars):
2001 2000 1999 1998 1997 --------------- --------------- --------------- --------------- --------------- Project Services $ 2,340,304 $ 1,809,309 $ 1,318,027 $ 861,608 $ 734,619 Process, Scientific and Systems Consulting 133,639 118,232 87,990 11,163 11,587 Operations and Maintenance 505,423 521,609 474,511 266,798 264,622 Construction 977,627 969,792 994,479 961,576 769,788 --------------- --------------- --------------- --------------- --------------- $ 3,956,993 $ 3,418,942 $ 2,875,007 $ 2,101,145 $ 1,780,616 =============== =============== =============== =============== ===============
Page 2 Project Services ---------------- We employ all of the engineering and related disciplines needed to design and engineer modern process plants (including projects for clients in the chemicals and polymers, pharmaceuticals and biotechnology, oil & gas, refining, food and consumer products, and the basic resources industries); industrial and commercial buildings (including facilities in the health care, education and criminal justice markets, as well as commercial buildings for clients in the private sector); infrastructure projects (including highways, roads, bridges and other transportation facilities); technology and manufacturing facilities (for clients in the semiconductor, electronics, automotive, aerospace and defense industries); pulp and paper plants; and other facilities. We also employ many of the requisite scientific, technical and program management capabilities necessary to provide program integration, testing and evaluation services for clients in the defense and aerospace industries and in support of environmental programs primarily for agencies of the U.S. federal government. Also included in the category of "Project Services" are construction management services, as well as all of the related support services necessary for the proper and effective delivery of the Company's engineering and other home-office services (among these are cost engineering, planning, scheduling, procurement, estimating, project accounting, and quality and safety). In the area of construction management, we provide our clients with a wide range of services as an agent for our clients. We may act as the program director, whereby we oversee, on behalf of the owner of the project, the complete planning, design and construction phases of the project, or, our services may be limited to providing construction consulting. Process, Scientific and Systems Consulting ------------------------------------------ We employ all of the professional and technical expertise necessary to provide a broad range of consulting services, including: performing pricing studies, market analyses and financial projections necessary in determining the feasibility of a project; performing gasoline reformulation modeling; analyzing and evaluating layout and mechanical designs for complex processing plants; analyzing automation and control systems; analyzing, designing and executing biocontainment strategies; developing and performing process protocols in respect of Federal Drug Administration mandated qualification/validation requirements; and performing geological and metallurgical studies. Also included in "Process, Scientific and Systems Consulting" are the professional and program management services required in order to assist clients (for example, the U.S. federal government and its agencies) in a wide range of defense and aerospace related programs. Such services typically are more technical and scientific in nature than are other project services provided by the Company, and may involve such tasks as supporting the development and testing of conventional weapons systems; weapons modeling and simulations; computer systems development, maintenance and support; evaluations and testing of mission-critical control systems; and other, highly technical programs and tasks. Operations & Maintenance ("O&M") ------------------------------- O&M activities generally refer to all of the tasks required to operate and maintain large, complex facilities on behalf of clients. In such situations, we typically provide key management and support services over all of the facility's operations, including subcontractors and other on-site personnel. Within the environmental area, O&M activities often include engineering and technical support services, as well as program management services necessary to remediate contaminated sites. Within the aerospace and defense areas, O&M activities often require us to provide all of the management and technical support services necessary to operate and maintain engine test facilities, weapons integration and high-tech simulation and verification centers. Such O&M contracts also frequently require us to provide facilities management and maintenance services, utilities operations and maintenance services, property management and disposition and construction support services. Page 3 Also included in this category are plant maintenance services. Plant maintenance services generally involve all of the tasks required to keep a plant (typically a refinery or chemical plant) in day-to-day operation, including the repair and replacement of pumps, piping, heat exchangers and other equipment. It also includes "turnaround" work, which involves major refurbishment which can only be performed when the plant is shut down. Since shutdowns are expensive to the owners of the plant, turnaround work will often require maximizing the number of skilled craft personnel that can work efficiently on a project on a 24 hours per day, seven days per week basis. We utilize sophisticated computer scheduling and programming to complete turnaround projects quickly, and we maintain contact with a large pool of skilled craft personnel we can hire as needed on maintenance and turnaround projects. Although the gross profit margins that can be realized from O&M services are generally lower than those associated with the other services we provide, the costs to support maintenance activities are also generally lower. Furthermore, since O&M contracts are normally cost-reimbursable in nature, they present less financial risk to the Company. Additionally, although engineering and construction projects may be of a short-term nature, O&M services often result in long-term relationships with clients. For example, the Company has been providing maintenance services at several major process plants for over 30 years. This aspect of maintenance services greatly reduces the selling costs in respect of such services. Construction ------------ We provide traditional field construction services to private and public sector clients in virtually all of the industries to which we provide project services. We can also provide our clients with Advanced Construction Technology ("ACT(R)"). ACT(R) is an advanced form of off-site engineering and design, fabrication, assembly and field erection. ACT(R) provides clients with an alternative approach to traditional methods of engineering and construction, which can compress and shorten the construction schedule, as well as help to reduce costs. In the environmental area, recent contract awards from clients in the public sector require us to perform environmental remedial construction services. Historically, the Company's field construction activities have been focused primarily on those construction projects for which we performed the related engineering and design work. By focusing our construction efforts on such projects, we seek to avoid the risk of constructing complex plants and facilities based on designs prepared by third parties. The financial risk to the Company of constructing complex plants and facilities based on designs prepared by third parties may be particularly significant on fixed-price contracts. We actively market all of our services to clients for projects where the scope of services required is within our fields of expertise. We believe that by integrating and bundling our services (i.e., providing design, engineering and construction services on the same project), we can price our services more competitively and can enhance the overall contract profitability. We also believe that clients benefit from such an approach because they can look to the Company as a single-source provider of design/build services. However, we will continue to pursue construction-only projects where we can negotiate pricing and other contract terms we find acceptable. Page 4 Industry Groups and Markets - --------------------------- We focus our services to clients that operate in the following industry groups and markets: chemicals and polymers; buildings; U.S. federal programs; pharmaceuticals and biotechnology; exploration, production and refining; infrastructure; technology and manufacturing; and pulp and paper, among others. We believe these industry groups and markets have sufficient common needs to permit cross-utilization of our resources which help to mitigate the negative effects of a downturn in a single industry. The following table sets forth the revenues of the Company from each of these industry groups and markets for each of the five fiscal years ended September 30 (in thousands of dollars):
2001 2000 1999 1998 1997 --------------- --------------- --------------- --------------- --------------- Chemicals and Polymers $ 653,573 $ 693,034 $ 796,501 $ 785,727 $ 490,347 Federal Programs 732,362 614,048 481,302 169,474 201,643 Buildings 457,488 539,691 454,589 314,293 169,286 Pharmaceuticals and Biotechnology 715,407 481,947 373,520 211,501 140,545 Oil & Gas, and Refining 451,103 280,942 243,311 255,579 248,799 Infrastructure 246,420 238,278 218,828 11,278 11,748 Technology and Manufacturing 332,995 213,557 173,023 128,501 335,627 Pulp and Paper 182,456 254,861 99,189 191,595 154,135 Other 185,189 102,584 34,744 33,197 28,486 --------------- --------------- --------------- --------------- --------------- $ 3,956,993 $ 3,418,942 $ 2,875,007 $ 2,101,145 $ 1,780,616 =============== =============== =============== =============== ===============
Chemicals and Polymers ---------------------- The Company has always considered the chemicals and polymers industries an important part of its overall business activities and growth. Revenues from this industry group have consistently accounted for a significant share of each year's total revenues. Historically, whenever we have sought to expand our business, the impact of such expansion on our chemicals business has always been a key consideration. The Company's first office outside the United States was opened in support of a bulk-chemical project for a large, U.S. company seeking to expand its operations internationally. Currently, the Company furnishes its full line of services to its clients operating in the chemicals industries. We believe our unique relationship-based approach to project execution and business development has helped us develop long-term alliance agreements with several of the industry's leading manufacturers as their full service provider of technical professional services. In such alliance arrangements, we contract with the client to perform a wide range of services. Projects can range from providing on-site engineering services, to completion of an entire capital improvement program. Occasionally, a small initial evaluation of a potential chemical market, or facility analysis performed for a client, expands to include fully-integrated engineering, procurement, construction and construction management services. We are continually expanding our presence globally to better meet the needs of our clients as they increase their operations internationally. We have provided technical, financial, marketing and business consulting services to many of our clients in this industry group. We have assisted our clients with their merger and acquisition due diligence activities. We have also performed feasibility studies, provided preliminary and detailed design and engineering services, as well as construction, and construction management services for our chemicals industry clients. Typical projects range from various basic, intermediate and polymer chemicals, to low-pressure, multi-product processes for the production of fine and specialty chemicals. We have also completed projects dealing with the modernization and upgrading of polyethylene and liquid polymer production facilities. We believe we have extensive knowledge of, and experience with, advanced polymerization reactions and state-of-the-art, post-reactor processing techniques, as well as many other specialty chemicals. Page 5 Another important aspect of the Company's service to its clients in the chemicals and polymers industries is in the area of contract maintenance. We have contracts with major chemical producers worldwide to provide on-site maintenance and turnaround activities. Many of these contracts are evergreen in nature and tend to be extended over many years. Federal Programs ----------------- The Company's Federal Programs can generally be categorized as relating to either environmental programs, or defense and aerospace programs. Environmental ------------- We believe we are one of the leading providers of environmental engineering and consulting services in the United States and abroad, including hazardous waste management and site cleanup and closure. Many of our projects for the U.S. federal government span several years. The Company's projects within this market generally relate to all major federal and state environmental statutes with particular emphasis on the Comprehensive Environmental Response Compensation and Liability Act ("CERCLA" or "Superfund") and the Resource Conservation and Recovery Act ("RCRA"). We are currently providing environmental investigation, restoration, engineering, construction and site operations and maintenance services to a number of U.S. federal government agencies, including the U.S. Department of Energy ("DOE") and the U.S. Department of Defense ("DOD"). As part of our environmental restoration work, we provide support in such areas as underground storage tank (UST) removal, contaminated soil and water remediation, and long-term groundwater monitoring. We also design, build, install, operate and maintain various types of soil and groundwater cleanup systems at multiple project locations across the United States and its territories for the U.S. Army Corps of Engineers and the U.S. Air Force Center for Environmental Excellence. Typical projects also include the preparation of feasibility studies and performance of remedial investigations, engineering, design and remediation services on several national programs. We provide a full range of environmental consulting services including air quality planning and permitting, water quality compliance, environmental conservation studies, pollution prevention assessments, and compliance with the National Environmental Policy Act ("NEPA"). This work is being performed at many locations worldwide. Demand for the Company's services in this area is strongly affected by the level of enforcement of environmental laws and regulations, and the spending patterns of public and private clients. As part of our support to our major clients, we provide asset management services in the form of infrastructure operations and maintenance. This is an integral part of the services to the Department of Energy at the Oak Ridge National Laboratory and at the Rocky Flats Environmental Technology Site. "Asset management" also includes building closures which involve deactivation, decommissioning and demolition of government facilities. Defense and Aerospace --------------------- We provide a wide range of professional services to clients for a variety of defense and aerospace facilities and systems, including wind tunnels, turbine and rocket engine test facilities, and launch facilities, as well as computer-based simulation and other systems. We operate and maintain ground mobile weapon system test facilities, multi-media laboratories, and artillery test ranges. We also operate and maintain aerodynamic, propulsion, and space facilities and systems for government clients at more than a dozen test centers across the continental United States. We have been a provider of technical services to the DOD for more than 50 years, and currently support defense programs in dozens of locations, both within the United States and internationally. In addition to operating and maintaining several DOD test centers, our support includes services such as aerodynamic testing of next-generation fighter aircraft; propulsion testing for space programs; launch support services for Titan, Atlas, and Delta rockets and payloads; and acquisition support to weapons systems such as air-to-air missile systems and precision guided, smart weapons used for various high- Page 6 value targets. We also support the acquisition and development of Special Operation Forces ("SOF") systems and equipment, as well as nuclear, biological, chemical ("NBC") detection and protection systems. We also support the DOD in a number of information technology programs, including networks, command and control technology, intelligence, and information warfare. In addition to the services described above, we provide technical assistance and program management support at several NASA facilities. We provide O&M services for these facilities, including support of tests of spacecraft and aeronautical systems; aerodynamic test facilities and systems; biological and life sciences experiments; and aircraft for research and development missions. We provide a broad range of engineering, science, and technical support services to four NASA centers, representing support to virtually every major space program - including the International Space Station and preparation for inter-planetary missions, as well as protein crystal growth research needed to develop new drugs and vaccines. Buildings --------- Buildings generally refers to the Company's full range of design and construction activities relating to institutional, government, corporate and commercial buildings and other specialized structures. We believe we are one of the leading providers of architectural, engineering and construction management services for buildings projects throughout the United States and in many parts of Europe. We have focused our efforts and resources in major growth markets we believe are being driven by strong demographic trends and capital spending initiatives. Typical projects include: large, multi-year federal building programs; major K-12 (kindergarten through high school) capital improvement programs; federal, state and local courts and correctional facilities; health and research facilities, including projects at many of the country's leading medical research centers; and aviation facilities at many of the nation's largest airports. We also provide design and construction-related services for higher education facilities, office complexes, corporate buildings, municipal and civic facilities, shopping and commercial centers, leisure parks and recreation complexes. We serve a diversified client base encompassing both public and private sector clients. We provide and/or manage a full range of planning, architectural, engineering, design, construction, construction management and/or total program management services for a variety of unique and technically complex buildings and complexes. We provide our services on projects that emphasize both new construction as well as those involving expansion, renovation and refurbishment of existing facilities. Of significance is the Company's growing success in applying its diversified, in-house technical skill base to clients requiring complete program management in both the private and public sectors. These contracts typically involve providing technical professional services over multiple years to many clients with whom the Company has long-standing relationships and tenure of successful service. For larger programs, we sometimes team with other companies in the execution of the program. We also provide "resourcing" services for which the Company (often through joint ventures with third parties) assumes full responsibility for the ongoing operations and maintenance of entire commercial or industrial complexes on behalf of the client. Pharmaceuticals and Biotechnology --------------------------------- We furnish our full line of services to our clients in the pharmaceutical and biotechnology industries. The scope of services we provide to clients in these markets includes master planning, programming, feasibility studies, engineering, preliminary and detailed design, procurement, construction, construction management, commissioning and start-up, validation, and maintenance. Accordingly, we are fully capable of executing the industry's largest capital programs on a single-responsibility basis. Typical projects for clients in these industries include laboratories, research and development facilities, pilot plants, bulk active pharmaceutical ingredient production facilities, full-scale biotechnology production facilities, and secondary manufacturing facilities. Regulatory considerations on these projects include current Good Laboratory Practices ("cGLP") and current Good Manufacturing Practices ("cGMP"). Page 7 In addition, state-of-the-art technology and know-how are critical to our clients. Such technology and know-how encompasses containment, barrier technology, locally controlled environments, process and building systems automation, and off-the-site design and fabrication of process and building modules. As the worldwide market demand for ethical and over-the-counter products continues to grow, pressure increases on companies within the pharmaceutical industry to decrease product time to market, reduce costs and increase return on investment. Accordingly, the scope of services we provide our clients in this industry has expanded over the years to include assisting them in delivering capital projects sooner, and more efficiently. The Company has local, cost effective technical professional resources in areas of major pharmaceutical and biotechnology concentration, and provides single-point EPCMV (engineering, procurement, construction management, and validation) project delivery. We continue to enhance our 3-D design capabilities, as well as other technological aspects of our EPCMV services, in order to better serve our clients, and to ensure that projects transition from their conceptual design phase through engineering, construction, start-up and commissioning, and validation phases as economically and efficiently as possible. We have also established formal alliances with numerous clients in the pharmaceutical and biotechnology industry. Oil & Gas, and Refining ----------------------- We provide our full line of traditional engineering, design and construction services to our clients in the exploration, production and refining industries. Typical projects in this area include new design and construction, revamps or expansions of existing plants, upgrades of individual process units within refineries, and maintenance services. We also provide a broad range of consulting services to our clients, including process assessments, feasibility studies, technology evaluations, project finance structuring and support, and multi-client subscription services. Although the Company's hydrocarbon-oriented revenues historically have related primarily to projects associated with petroleum refining and the processes and technologies required for the conversion of crude oil and gas into petroleum fuels, chemical feedstocks and lubricants, more recent contract awards have also included services to pipeline companies and companies in businesses upstream of refiners. The volume of business activity in this market group is often influenced by government regulations. We believe several specific regulations are providing momentum for project services by the Company to the refining industry. The requirement for lower sulfur fuels has been seen in numerous awards for Tier II gasoline and Ultra Low Sulfur Diesel projects. Additionally, consent decrees between the U.S. Environmental Protection Agency and various refining companies are resulting in additional project services work for us, particularly for nitrous oxide (NOx) emission reductions. We believe the finalized European clean fuels specifications for 2005 will provide additional opportunity for the Company in its European operations. The Company is actively involved in such regulatory based projects. We have also utilized our ACT(R) (our modular construction capabilities) on a number of projects in the refining and petroleum industry. In the U.S. and European refining markets, many projects involve the revamp of existing processing units, or the addition of new processes to an existing refinery. As a result of the close proximity of processing units in these refineries, we believe the use of off-site construction can decrease congestion at the construction site. We also believe that modular construction can offer cost and project execution benefits in remote locations. Like the chemicals industry, we provide a significant amount of maintenance services to our clients in the refining industry. Also like the chemicals industry, we have established a number of formal alliances with various clients in the refining industry. Some of these alliances have been both national and international in scope. Page 8 Infrastructure -------------- We provide a broad range of planning, design, consulting, engineering, construction and construction management services to our clients engaged in civil construction projects throughout the United States, as well as in selected countries overseas. Transportation infrastructure development and rehabilitation have been a mainstay of the Company's infrastructure business for many years. By integrating a broad range of professional disciplines, we now provide comprehensive planning, engineering, construction and program management services for transportation facilities and systems. Interdisciplinary teams work independently, or as an extension of agency staff, on highway, bridge, transit, tunnel, airport, railroad, intermodal facility, and lock and dam projects. Representative clients include state departments of transportation and district agencies, the U.S. Army Corps of Engineers, branches of the U.S. military, and private industry freight transport firms. Contributing to the growth in this market is the Transportation Equity Act for the 21st Century ("TEA-21"). Providing $218 billion in funding, TEA-21 is a large, U.S. federal commitment to improving transportation infrastructure, and allows considerable flexibility by state and local governments in selecting projects. The Company's "concept through completion" approach to infrastructure projects provides complete location selection, condition assessment, environmental analyses, preliminary design, documentation, final design, detailed construction planning, management, public involvement, resident engineering and maintenance engineering management services to agencies utilizing TEA-21 funding. Although TEA-21 will expire at the end of fiscal 2002, hearings are currently under way to establish the next reauthorization. As public pressure grows to accelerate the rehabilitation or expansion of aging infrastructure, we are providing a wide range of project delivery techniques as an alternate to the traditional design-bid-build process. An increasing number of clients are using design-build as a means to accelerate project completion, and we are involved in a number of large highway, bridge, transit, and water projects throughout the United States. Public clients are also utilizing program management contracts as a means to increase their capacity to deliver major projects, and the Company has won several large projects such as the Detroit Wastewater Treatment Expansion project and the St. Louis MSD project. The events of September 11, 2001 have caused our clients to re-focus on security and the protection of public assets. As a result, we are providing security assessment and implementation services to clients, including threat assessments, risk assessments and vulnerability analyses, blast assessment and hardening design, and chemical/biological agent detection, along with physical security. Our services in the area of water resources have helped public and private sector clients develop and rehabilitate critical water resource systems. Integrating water, wastewater, air quality, and hazardous waste remediation experience provides these clients with the comprehensive expertise needed to deliver complex projects. We provide planning, design, design-build, and program and construction management services to a diverse market, including regional wastewater treatment agencies, manufacturers and power generators, local water suppliers, and military facilities. New state and federal government regulations and funding authorizations under the Safe Drinking Water Act continue to influence the environmental market. We are developing water/wastewater conveyance systems and water resources management projects as two new specialty markets. We have developed micro-tunneling as a primary service and have successfully applied this specialized process to projects including water distribution systems and pipelines. Typical public sector projects include managing multi-project water and wastewater capital improvement programs, delivering design-build water/wastewater projects, conducting technology and planning studies, and managing construction of major water/wastewater infrastructure projects. Industrial services include planning, design and construction of air quality, high purity water and industrial wastewater treatment systems. Page 9 We believe that opportunities for construction-management and design-build projects will continue to grow as these project delivery methods gain acceptance in the public sector. Recent projects include program management/construction management for rehabilitation and upgrade of the Hartsfield International Airport in Atlanta, Georgia, program management for the St. Louis Metropolitan Sewer District expansion, and construction management for the Los Angeles International Airport. Technology and Manufacturing ---------------------------- We provide a broad range of project services for a variety of technology, manufacturing and test facilities. Included in this category are projects involving highly complex test facilities for clients in the aerospace and automotive industries. Typical projects range from conceptual design and feasibility studies to complete design/build programs of wind tunnels and engine test facilities; propulsion and certification test facilities; power-train and other automotive component parts test facilities; environmental and emissions test facilities; climatic test facilities; and computer-based measurement and control systems. We believe we are a leader in providing support to automotive manufacturers and component suppliers for the supply of testing services and the management of test assets, with test facility operations and maintenance contracts in place with both Ford Motor Company and Delphi Automotive Systems. Also included in this category are projects for clients operating in the semiconductor industry. We provide design, engineering, procurement, construction, and construction management services for a variety of clients in this industry. Typical projects range from on-site plant engineering and tool hook-ups, to multi-million dollar state-of-the-art wafer fabrication and crystal growing facilities used to produce microprocessors for computers and other consumer electronic devices. Generally, projects in the semiconductor industry are very complex, requiring a greater emphasis on cleanroom, and similar high-end technologies. Pulp and Paper -------------- We provide a broad range of engineering, construction, and maintenance services to our clients in the pulp and paper industry. Typical projects in the pulp and paper area range from small mill projects to complex, multi-million dollar paper machine rebuilds, mill expansions and construction of new facilities. As an example of the Company's capabilities to clients in this industry, we recently completed the single largest engineering, procurement and construction paper machine installation project in the United States for an international newsprint producer. Pulp and paper projects can and frequently do encompass many areas of a mill, including pulping and bleaching, papermaking, chemical recovery, material handling and power and steam generation. In the area of papermaking, our expertise includes tissue and towel, coated and uncoated fine papers, newsprint and linerboard. Our expertise and skills set also includes the converting and packaging of paper products for distribution and consumer use. We have been instrumental in the design and installation of state-of-the-art facilities for recycled fiber, deinking and pulp bleaching. Chemical recovery and power generation are also an integral part of the papermaking process. We have broad experience in these areas and have applied our expertise in the engineering and construction of such facilities for clients in the pulp and paper industry. We also provide strategic planning and conceptual studies for many of our clients, as well as environmental services relating to compliance with USEPA emission standards. As an example, we recently provided detail design and consulting services to one of the world's largest producers of pulp and paper products for its environmentally-driven Cluster Rule related work at four separate mills. The Company is now preparing to provide services for the next compliance standards, MACT II. These standards govern NOx and sulphur oxide (SOx) emissions in the pulp and paper industry. Like certain other markets, we have established formal alliances with various clients in the pulp and paper industry. Such alliances have allowed us to expand the types of services we provide our clients, while improving the overall quality and consistency of the engineering, construction, and maintenance services such clients receive. Page 10 Other ----- Included in "Other" are projects not classified into any of the other industry and market categories. This would include projects for clients in the food and consumer products industries, as well as basic resources (such as mining, minerals and fertilizers). Backlog - ------- For information regarding the Company's backlog, reference should be made to Item 7. - Management's Discussion and Analysis of Financial Condition and Results of Operations, incorporated by reference in this report. Customers - --------- For the fiscal years ended September 30, 2001, 2000, 1999, 1998 and 1997, revenues earned directly or indirectly from agencies of the U.S. federal government accounted for 17.3%, 17.7%, 17.4%, 12.1% and 12.0%, respectively, of total revenues. Due to the amount of pass-through costs (see "Contracts" below) that may be incurred on construction and maintenance projects, it is not unusual for a client in the private sector to account for more than 10% of consolidated revenues in any given year. Such was the case in fiscal 1997 when one client in the private sector accounted for 15.3% of total revenues. Foreign Operations - ------------------ For the fiscal years ended September 30, 2001, 2000, 1999, 1998 and 1997, revenues from the Company's operations outside the United States comprised approximately 22.3%, 16.4%, 15.8%, 20.2% and 23.5%, respectively, of total revenues. For fiscal years 1997 through 1999, substantially all such revenues related to the Company's offices in the United Kingdom, Ireland, France, Spain and Italy, with a small portion relating to the Company's operations in India. As a result of the Stork acquisition (parts of which were completed in fiscal 2000 and fiscal 2001), we expanded our European operations into the Netherlands, Belgium and Germany, and we acquired operations in South East Asia. As a result of the GIBB acquisition (which was completed in fiscal 2001), we further expanded our business in the United Kingdom, and acquired operations in the Middle East. Revenues earned over the past five years from the Company's operations in Mexico, South America and Australia were not material. Contracts - --------- While there is considerable variation in the pricing provisions of the contracts undertaken by the Company, our contracts can generally be grouped into three broad categories: Cost-reimbursable; fixed-price and guaranteed maximum price. The following table sets forth the percentages of total revenues represented by these types of contracts during each of the five fiscal years ended September 30:
2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- Cost-reimbursable 81% 77% 73% 81% 82% Fixed-price 16 18 22 18 16 Guaranteed maximum price 3 5 5 1 2
In accordance with industry practice, most of the Company's contracts are subject to termination at the discretion of the client. Contracts typically provide for reimbursement of costs incurred and payment of fees earned through the date of such termination. Page 11 When we are directly responsible for engineering, design, procurement and construction of a project or the maintenance of a process plant, we reflect the costs of materials, equipment and subcontracts in both revenues and costs. On other projects, where the client elects to pay for such items directly, these amounts are not reflected in either revenues or costs. The following table presents the approximate amount of such pass-through costs included in revenues for each of the five fiscal years ended September 30 (in millions):
2001 2000 1999 1998 1997 ----------- ----------- ----------- ----------- ----------- $ 1,272.9 $ 1,442.1 $ 1,167.0 $ 1,066.4 $ 919.6
Cost-reimbursable contracts --------------------------- Cost-reimbursable contracts provide for reimbursement of costs incurred by the Company plus a predetermined fee, or a fee based on a percentage of the costs incurred. The Company prefers this type of contract since it believes that the primary basis for its selection should be its technical expertise and professional qualifications rather than price considerations. Fixed-price contracts --------------------- Fixed-price contracts include both "negotiated fixed-price" contracts and "lump sum bid" contracts. Under a negotiated fixed-price contract, the Company is first selected as the contractor, and then the contract price is negotiated. Negotiated fixed-price contracts frequently exist in single-responsibility arrangements where the Company has the opportunity to perform engineering and design work before negotiating the total price of the project. Under lump sum bid contracts, the Company must bid against other contractors based upon specifications furnished by the client. This type of pricing presents certain inherent risks, including the possibility of ambiguities in the specifications, problems with new technologies and economic and other changes that may occur over the contract period, that are reduced by the negotiation process. Thus, although both types of contracts involve a firm price for the client, the lump sum bid contract provides the greater degree of risk to the Company. However, because of economies that may be realized during the contract term, both negotiated fixed-price and lump sum bid contracts may offer greater profit potential than the other types of contracts. Over the past five years, most of the Company's fixed price work has been either negotiated fixed-price contracts, or lump-sum bid contracts for services (rather than turn-key construction). Guaranteed maximum price contracts ---------------------------------- Guaranteed maximum price contracts are performed in the same manner as cost-reimbursable contracts; however, the total actual cost plus the fee cannot exceed the guaranteed price negotiated with the client. If the total actual cost of the contract exceeds the guaranteed maximum price, then the Company will bear all or a portion of the excess. In those cases where the total actual cost and fee are less than the guaranteed price, the Company will often share the savings on a predetermined basis with the client. Page 12 Competition - ----------- The Company is engaged in a highly competitive business. Some of our competitors are larger than us, or are subsidiaries of larger companies, and therefore may possess greater resources than the Company. Furthermore, because the engineering and technical support aspects of the business does not usually require large amounts of capital, there is relative ease of market entry for a new potential entrant possessing acceptable professional qualifications. Accordingly, we compete with both national and international firms in sizes ranging from very large, to a wide variety of small, regional and specialty firms. The extent of the Company's competition varies according to the industries and markets it serves, as well as the geographic areas in which the Company operates. The Company's largest competitors for engineering, construction and maintenance services for process plants include Bechtel Group, Inc., Fluor Corporation, Foster Wheeler Corp., Washington Group International, Parsons Corporation, Kellogg Brown & Root, and Kvaerner. In the area of buildings, the Company's competitors include several of the competitors previously mentioned, as well as HDR, Inc., Hellmuth, Obata & Kassabaum, AeCOM Technology and Day & Zimmermann. In the area of civil engineering and construction, the Company's competitors include several of the competitors previously mentioned, as well as Parsons Brinckerhoof, HNTB and W.S. Atkins. In the area of pulp and paper, the Company's principal competitors include BE&K, Kellogg Brown & Root, and Washington Group International. And in the area of U.S. federal programs, the Company's principal competitors include several of the companies listed above, as well as AlliedSignal, BDM, and other specialized companies such as IT Group, Inc. and Roy F. Weston. Employees - --------- At September 30, 2001, the Company had approximately 20,600 full-time, staff employees. Additionally, as of September 30, 2001, there were approximately 8,700 persons employed by the Company in the field on a project basis. The number of field employees varies in relation to the number and size of the maintenance and construction projects in progress at any particular time. Page 13 EXECUTIVE OFFICERS OF THE REGISTRANT Pursuant to the requirements of Item 401(b) and 401(e) of Regulation S-K, the following information is being furnished with respect to the Company's executive officers:
Year Joined the Name Age Position with the Company Registrant - -------------------------------- --- --------------------------------------------------- ---------- Joseph J. Jacobs 85 Director and Chairman of the Board 1947 Noel G. Watson 65 President, Chief Executive Officer and Director 1965 Richard E. Beumer 63 Director and Vice Chairman of the Board 1999 Thomas R. Hammond 50 Executive Vice President, Operations 1975 Craig L. Martin 52 Executive Vice President, Global Sales 1994 Richard J. Slater 55 Executive Vice President, Operations 1980 Walter C. Barber 60 Group Vice President, Asia 1999 Andrew E. Carlson 68 President, Jacobs Construction Services, Inc. 1990 Robert M. Clement 53 Group Vice President, International Operations 1990 Warren M. Dean 57 Group Vice President, Facilities 1994 Peter M. Evans 56 Group Vice President, Central Region 2001 Stephen K. Fritschle 58 Group Vice President, Field Services 1989 Michael J. Higgins 57 Group Vice President, Civil 1994 George A. Kunberger, Jr. 49 Group Vice President, Northern Region 1975 Gregory J. Landry 53 Group Vice President, Field Services 1984 John McLachlan 55 Group Vice President, International Operations 1974 Robert T. McWhinney 61 Group Vice President, Consulting Operations 2001 H. Gerard Schwartz, Jr. 63 Group Vice President, Civil 1999 Rogers F. Starr 58 President, Sverdrup Technology, Inc. 1999 Philip J. Stassi 46 Group Vice President, Western Region 1977 Allyn B. Taylor 53 Group Vice President, Southern Region 1993 James W. Thiesing 57 Group Vice President, Federal Operations 1992 William C. Markley, III 56 Senior Vice President, General Counsel and Secretary 1981 Michael P. Miller 41 Senior Vice President, Information Technology 2001 John W. Prosser, Jr. 56 Senior Vice President, Finance and Administration and Treasurer 1974 Laurence R. Sadoff 54 Senior Vice President, Quality and Safety 1993 Nazim G. Thawerbhoy 54 Senior Vice President and Controller 1979
All of the officers listed in the preceding table serve in their respective capacities at the pleasure of the Board of Directors and, with the exception of Messrs. Beumer, Barber, Evans, Schwartz, Starr, McWhinney and Miller, have served in executive and senior management capacities with the Company for more than five years. Prior to joining the Company in 1999, Messrs. Beumer, Schwartz and Starr were part of the senior management of Sverdrup Corporation, or one of its subsidiaries, for more than five years. Prior to joining the Company in 1999, Mr. Barber served as President and Chief Executive Officer ("CEO") of GTI, INC. (an environmental services firm) for more than five years. Prior to joining the Company in 2001, Mr. Evans served as President of Stone & Webster Engineers & Constructors, Inc. from February 1999 to May 2000; as Executive Vice President of Kellogg Brown & Root from October 1998 to February 1999; and as President and Chief Operating Officer of MW Kellogg from October 1996 to October 1998. Prior to joining the Company in 2001, Mr. McWhinney served as President and CEO of Stone & Webster Management Consultants, Inc. from February 1997 to December 2000, and as Senior Vice President of International Resources Group, Ltd. from September 1995 to September 1996. In June 2000, Stone & Webster, Inc. filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Mr. Miller served as Senior Vice President of Technology for Precision Response Corporation, a division of USA Networks, from April 1999 until he joined the Company in 2001. He served as Chief Technology Officer for Aegis Communications Group, Inc. from July 1997 to Page 14 March 1999, and as Chief Information Officer for Softbank Exposition and Conference Company from August 1995 to March 1997. Item 2. PROPERTIES The Company owns and leases offices for its technical professional and administrative staff. It also owns property (located in Charleston, South Carolina) which is the principal manufacturing facility for the Company's modular construction activities. The total amount of space used by the Company for all its operations is approximately 4.1 million square feet. The following is a representative list of the Company's principal locations:
Country State Cities - -------------------- ------------------- --------------------------------------------- U.S.A. California Pasadena, Cypress, Ridgecrest, Sacramento, and Walnut Creek. Arizona Phoenix. Colorado Golden (Denver). Florida Lakeland, Jacksonville, Orlando, and Tampa. Indiana Indianapolis. Louisiana Baton Rouge. Massachusetts Boston. Michigan Auburn Hills, Dearborn, Detroit, and Novi. Missouri St. Louis. New Mexico Albuquerque. New York New York and Purchase. North Carolina Raleigh. Ohio Cincinnati, and Beavercreek. Oregon Lake Oswego (Portland). Pennsylvania Conshohocken, and Philadelphia. South Carolina Greenville, and Charleston. Texas Houston. Tennessee Nashville, Oak Ridge, and Tullahoma. Virginia Arlington Washington Bellevue (Seattle). Wisconsin DePere (Green Bay). United Kingdom - Birmingham, Croydon, Glasgow, London, Manchester, Reading, and York. Republic of Ireland - Cork, and Dublin. France - Paris, and Lyon. Italy - Milan. Spain - Madrid. The Netherlands - Leiden, Rotterdam, and Meerssen. Belgium - Antwerp. Germany - Magdeburg.
[continued] Page 15 Item 2. PROPERTIES - Continued
Country State Cities - ----------------------- ------------------ ------------------------------------- Singapore - Singapore. India - Mumbai, New Delhi, and Calcutta. United Arab Emirates - Abu Dhabi. Oman - Muscat. Poland - Warsaw. Portugal - Lisbon. Turkey - Istanbul. Mexico - Mexico City. Australia - Canberra. Chile - Santiago.
In addition to these properties, the Company leases smaller, project offices located throughout the United States and in certain other countries around the world. The Company maintains sales offices at many of its principal locations. The Company has equipment yards located in Houston, Texas and Baton Rouge, Louisiana. The majority of the Company's offices are leased. The Company also rents a portion of its construction equipment on a short-term basis. Item 3. LEGAL PROCEEDINGS In the normal course of business, the Company is subject to certain contractual guarantees and litigation. Generally, such guarantees relate to project schedules and plant performance. Most of the litigation involves the Company as a defendant in workers' compensation, personal injury and other similar lawsuits. In addition, as a contractor for many agencies of the United States Government, the Company is subject to many levels of audits, investigations and claims by, or on behalf of, the government with respect to its contract performance, pricing, costs, cost allocations and procurement practices. Management believes, after consultation with counsel, that such guarantees, litigation, and United States Government contract-related audits, investigations and claims should not have any material adverse effect on the Company's consolidated financial statements. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. Page 16 PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information required by this Item is hereby incorporated by reference from Exhibit C to the Company's definitive proxy statement to be filed with the Commission pursuant to Regulation 14A within 120 days after the close of the Company's fiscal year. Item 6. SELECTED FINANCIAL DATA The information required by this Item is hereby incorporated by reference from Exhibit C to the Company's definitive proxy statement to be filed with the Commission pursuant to Regulation 14A within 120 days after the close of the Company's fiscal year. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this Item is hereby incorporated by reference from Exhibit C to the Company's definitive proxy statement to be filed with the Commission pursuant to Regulation 14A within 120 days after the close of the Company's fiscal year. Item 7A. QUALITATIVE and QUANTITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this Item is hereby incorporated by reference from Exhibit C to the Company's definitive proxy statement to be filed with the Commission pursuant to Regulation 14A within 120 days after the close of the Company's fiscal year. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON FINANCIAL AND DISCLOSURE MATTERS Not applicable. Page 17 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by Paragraph (a) and Paragraphs (c) through (g) of Item 401 and by Item 405 of Regulation S-K is hereby incorporated by reference from the Company's definitive proxy statement to be filed with the Commission pursuant to Regulation 14A within 120 days after the close of the Company's fiscal year. See the information under the caption "Executive Officers of the Company" in Part I of this report for information required by Paragraph (b) of Item 401 of Regulation S-K. Item 11. EXECUTIVE COMPENSATION The information required by this Item is hereby incorporated by reference from the Company's definitive proxy statement to be filed with the Commission pursuant to Regulation 14A within 120 days after the close of the Company's fiscal year. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is hereby incorporated by reference from the Company's definitive proxy statement to be filed with the Commission pursuant to Regulation 14A within 120 days after the close of the Company's fiscal year. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is hereby incorporated by reference from the Company's definitive proxy statement to be filed with the Commission pursuant to Regulation 14A within 120 days after the close of the Company's fiscal year. Page 18 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The Company's consolidated financial statements at September 30, 2001 and 2000 and for each of the three years in the period ended September 30, 2001, together with the report of the independent auditors on those consolidated financial statements are hereby incorporated by reference from Exhibit 13 to this report. (b) Not applicable. (c) Exhibits and Index to Exhibits: 2.1 Agreement and Plan of Merger Among Sverdrup Corporation, Jacobs Engineering Group Inc., and Jacobs Acquisition Corp, dated as of December 21, 1998. Filed as Exhibit 99.1 to the Registrant's Current Report on Form 8-K dated January 14, 1999 and incorporated herein by reference. 3.1 Certificate of Incorporation of the Registrant, as amended. Filed as Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1995 and incorporated herein by reference. 3.2 Bylaws of the Registrant. Filed as Exhibit 3.2 to the Registrant's Annual Report on Form 10-K for the year ended September 30, 1999 and incorporated herein by reference. 4.1 See Sections 5 through 18 of Exhibit 3.1. 4.2 See Article II, Section 3.03 of Article III, Article VI and Section 8.04 of Article VIII of Exhibit 3.2. 4.3 Amended and Restated Rights Agreement, amended and restated as of December 20, 2000 by and between the Registrant and Mellon Investor Services LLC, as Rights Agent. Filed as Exhibit 1 to Registrant's Form 8-A/A filed on December 22, 2000 and incorporated herein by reference. 10.1 The Jacobs Engineering Group Inc. Incentive Bonus Plan for Officers and Key Managers. Filed as Exhibit 10.2 to the Registrant's Annual Report on Form 10-K for the year ended September 30, 1999 and incorporated herein by reference. 10.2 Agreement dated as of November 30, 1993 between the Registrant and Dr. Joseph J. Jacobs. Filed as Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1995 and incorporated herein by reference. + 10.3 Agreement dated as of December 3, 2001 between the Registrant and Dr. Joseph J. Jacobs. 10.4 The Executive Security Program of Jacobs Engineering Group Inc. Filed as Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1995 and incorporated herein by reference. 10.5 Jacobs Engineering Group Inc. and Subsidiaries 1991 Executive Deferral Plan, effective June 1, 1991. Filed as Exhibit 10.5 to the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1995 and incorporated herein by reference. Page 19 10.6 Jacobs Engineering Group Inc. and Subsidiaries 1993 Executive Deferral Plan, effective December 1, 1993. Filed as Exhibit 10.6 to the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1995 and incorporated herein by reference. + 10.7 Jacobs Engineering Group Inc. Amended and Restated Executive Deferral Plan. 10.8 The Jacobs Engineering Group Inc. 1989 Employee Stock Purchase Plan, as Amended and Restated. Filed as Exhibit 4.1 to the Registration Statement on Form S-8 filed by the Registrant on May 4, 2001, and incorporated herein by reference. 10.9 The Jacobs Engineering Group Inc. Global Employee Stock Purchase Plan. Filed as Exhibit 4.1 to the Registration Statement on Form S-8 filed by the Registrant on August 7, 2001, and incorporated herein by reference. 10.10 Form of Indemnification Agreement entered into between the Registrant and its officers and directors. Filed as Exhibit 10.10 to the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1995 and incorporated herein by reference. + 10.11 Jacobs Engineering Group Inc. 401(k) Plus Savings Plan and Trust, as Amended and Restated August 1, 2000. + 10.12 Jacobs Engineering Group Inc. 1999 Stock Incentive Plan, as Amended. 10.13 Jacobs Engineering Group Inc. 1999 Outside Director Stock Plan. Filed as Exhibit II to the Registrant's Annual Notice and Proxy Statement dated January 3, 2000 and incorporated herein by reference. 11. Statement of computation of net income per outstanding share of common stock is hereby incorporated by reference from Exhibit C to the Registrant's Notice of 2002 Annual Meeting of Shareholders and Proxy Statement, copies of which are being delivered to (but not filed with, except to the extent incorporated herein) the Commission as an exhibit to this report. + 13. Exhibit C to the Registrant's Notice of 2002 Annual Meeting of Shareholders and Proxy Statement (which contains the consolidated financial statements and financial information of Jacobs Engineering Group Inc. and subsidiaries for the fiscal year ended September 30, 2001). + 21. List of Subsidiaries of Jacobs Engineering Group Inc. + 23. Consent of Independent Auditors. _____________________________________________ + Being filed herewith. Page 20 UNDERTAKINGS For the purposes of complying with the amendments to the rules governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned Registrant hereby undertakes as follows, which undertaking shall be incorporated by reference into the Registrant's Registration Statements on Form S-8 Nos. 333-67048 (relating to the Jacobs Engineering Group Inc. Global Employee Stock Purchase Plan filed with the Commission on August 7, 2001), 333-38974 (relating to the Jacobs Engineering Group Inc. 1999 Stock Incentive Plan, filed with the Commission on June 9, 2000), 333-38984 (relating to the Jacobs Engineering Group Inc. Outside Director Stock Plan, filed with the Commission on June 9, 2000), 333-60296 (relating to the Jacobs Engineering Group Inc. 1989 Employee Stock Purchase Plan, filed with the Commission on May 4, 2001), and 333-45475 (relating to the Jacobs Engineering Group Inc. 1981 Executive Incentive Plan, filed with the Commission on February 3, 1998): Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by final adjudication of such issue. Page 21 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. JACOBS ENGINEERING GROUP INC. Dated: December 21, 2001 By: /s/ Noel G. Watson ------------------------------ Noel G. Watson President, Chief Executive Officer and Director (Principal 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 Company and in the capacities and on the dates indicated:
Signature Title Date /s/ Noel G. Watson Director December 21, 2001 ----------------------------------- Noel G. Watson Principal Executive Officer /s/ Joseph J. Jacobs Director December 21, 2001 ----------------------------------- Joseph J. Jacobs /s/ Richard E. Beumer Director December 21, 2001 ----------------------------------- Richard E. Beumer /s/ Peter H. Dailey Director December 21, 2001 ----------------------------------- Peter H. Dailey Director December __, 2001 ___________________________________ Robert C. Davidson, Jr. /s/ Robert B. Gwyn Director December 21, 2001 ----------------------------------- Robert B. Gwyn /s/ Linda K. Jacobs Director December 21, 2001 ----------------------------------- Linda K. Jacobs /s/ J. Clayburn LaForce Director December 21, 2001 ----------------------------------- J. Clayburn LaForce /s/ Linda Fayne Levinson Director December 21, 2001 ----------------------------------- Linda Fayne Levinson Director December __, 2001 ___________________________________ Benjamin F. Montoya /s/ David M. Petrone Director December 21, 2001 ----------------------------------- David M. Petrone /s/ James L. Rainey, Jr. Director December 21, 2001 ----------------------------------- James L. Rainey, Jr.
Page 22 SIGNATURES - Continued Senior Vice President Finance and Administration, and Treasurer (Principal /s/ John W. Prosser, Jr. Financial Officer) December 21, 2001 ----------------------------------- John W. Prosser, Jr. Senior Vice President and Controller (Principal Accounting /s/ Nazim G. Thawerbhoy Officer) December 21, 2001 ----------------------------------- Nazim G. Thawerbhoy
Page 23 EX-10.3 3 dex103.txt AGREEMENT WITH DR. JOSEPH JACOBS DATED 12/6/2001 EXHIBIT 10.3 ------------ AGREEMENT --------- This agreement is made as of the 3rd day of December, 2001, between JACOBS ENGINEERING GROUP INC., a Delaware corporation ("Company") and JOSEPH J. JACOBS ("Jacobs"). In accordance with previous practice, the term for the ending of the outstanding November 30, 1993 employment agreement between the parties is extended from September 30, 2005 to September 30, 2006. All of the other provisions of the agreement shall remain in force. IN WITNESS WHEREOF, the Company has caused this agreement to be executed by its duly authorized representatives, and Jacobs has affixed his signature, as of the date first above written. JOSEPH J. JACOBS ("Jacobs") /s/ Joseph J. Jacobs ------------------------------------------ 1111 S. Arroyo Parkway Pasadena, California 91105 JACOBS ENGINEERING GROUP INC. ("Company") By: /s/ Noel G. Watson ---------------------------------- Noel G. Watson, President By: /s/ John W. Prosser ---------------------------------- John W. Prosser, Jr., Senior Vice President Finance and Administration EX-10.7 4 dex107.txt AMENDED AND RESTATED EXECUTIVE DEFERRAL PLAN EXHIBIT 10.7 JACOBS ENGINEERING GROUP INC. AMENDED AND RESTATED EXECUTIVE DEFERRAL PLAN Purpose ------- The purpose of this Plan is to provide specified benefits to a select group of management and highly compensated Employees and Directors who contribute materially to the continued growth, development and future business success of Jacobs Engineering Group Inc. and its subsidiaries, if any, that sponsor this Plan. This Plan shall be unfunded for tax purposes and for purposes of Title I of ERISA. This Plan represents both an amendment and restatement of the Company's 1999 Executive Deferral Plan and a merger of the Company's 1998 Executive Deferral Plan into this amended and restated Plan. This amendment and restatement is effective as of January 1, 2002. ARTICLE 1 Definitions ----------- For purposes of this Plan, unless otherwise clearly apparent from the context, the following phrases or terms shall have the following indicated meanings: 1.1 "Account Balance" shall mean, at any given time, the balance in a Participant's Deferral Account. The Account Balance shall be a bookkeeping entry only and shall be utilized solely as a device for the measurement and determination of the amounts to be paid to a Participant, or his or her designated Beneficiary, pursuant to this Plan. 1.2 "Annual Bonus" shall mean any cash compensation, in addition to Base Annual Salary, otherwise payable in a Plan Year to a Participant as an Employee under any Employer's annual bonus, incentive bonus and cash incentive plans. 1.3 "Annual Deferral Amount" shall mean that portion of a Participant's Base Annual Salary, Annual Bonus and Directors Fees that a Participant elects to have, and is, deferred in accordance with Article 3, for any one Plan Year. 1.4 "Annual Installment Method" shall be an annual installment payment over the number of years selected by the Participant in accordance with this Plan, calculated as follows: The Account Balance of the Participant shall be calculated as of the close of business on the last business day of the Plan Year, in the case of an installment payment under Section 5.2, and on the last business day prior to the Participant's death, in the case of an installment payment under Section 6.2. The annual installment shall be calculated by multiplying this balance by a fraction, the numerator of which is one, and the denominator of which is the remaining number of annual payments due the Participant. By way of example, if the Participant elects a 10-year Annual Installment Method, the first payment shall be 1/10 of the Account Balance, calculated as described in this definition. The following year, the payment shall be 1/9 of the Account Balance, calculated as described in this definition. Each annual installment paid shall be divided by 12, and the resulting number shall be the monthly installment payment that shall be paid each month of the Plan Year to which such annual installment relates. Subject to the payment provisions of Section 5.2 or 6.2, as the case may be, the monthly installment payment shall be paid as soon as practicable after the first day of the month to which it relates. 1.5 "Base Annual Salary" shall mean the annual cash compensation relating to services performed during any calendar year, whether or not paid in such calendar year, excluding bonuses, commissions, overtime, fringe benefits, stock options, relocation bonus and/or expenses, incentive payments, non-monetary awards, directors fees and other fees, automobile and other allowances paid to a Participant for employment services rendered (whether or not such allowances are included in the Employee's gross income). Base Annual Salary shall be calculated before reduction for compensation voluntarily deferred or contributed by the Participant pursuant to all qualified or non-qualified plans of any Employer and shall be calculated to include amounts not otherwise included in the Participant's gross income under Code Sections 125, 402(e)(3), 402(h), or 403(b) pursuant to plans established by any Employer; provided, however, that all such amounts will be included in compensation only to the extent that, had there been no such plan, the amount would have been payable in cash to the Employee. 1.6 "Beneficiary" shall mean one or more persons, trusts, estates or other entities, designated in accordance with Article 9, that are entitled to receive benefits under this Plan upon the death of a Participant. 1.7 "Beneficiary Designation Form" shall mean the form established from time to time by the Committee that a Participant completes, signs and returns to the Committee to designate one or more Beneficiaries. 1.8 "Board" shall mean the board of directors of the Company. 1.9 "Change in Control" shall have the same meaning as contained in the Company's 1999 Stock Incentive Plan. 1.10 "Claimant" shall have the meaning set forth in Section 14.1. 1.11 "Code" shall mean the Internal Revenue Code of 1986, as it may be amended from time to time. 1.12 "Committee" shall mean the committee described in Article 12. 1.13 "Company" shall mean Jacobs Engineering Group Inc. and any successor to all or substantially all of the Company's assets or business. 1.14 "Deduction Limitation" shall mean, with respect to those distributions otherwise payable to a Participant (or his or her Beneficiary) under the Plan which are specifically subject to this Deduction Limitation, that amount which, when combined with other compensation paid to a Participant (or his or her Beneficiary) for a taxable year, would not be deductible by the Employer by reason of the limitation imposed by Code Section 162(m). The Deduction Limitation shall be determined by the Company in good faith. Once an amount has been determined by the Company to be subject to the Deduction Limitation, the Company may, at its sole discretion, defer the amount that would otherwise be paid to a Participant (or his or her Beneficiary). Any amounts so deferred will remain in the Participant's Account Balance, and shall be entitled to continued crediting and debiting of additional amounts in accordance with Section 3.4 below. The amounts so deferred and amounts credited thereon shall be distributed to the Participant or his or her Beneficiary at the earliest possible date, as determined by the Employer in good faith, on which the deductibility of compensation paid or payable to the Participant for the taxable year of the Employer during which the distribution is made will not be limited by Section 162(m), or if earlier, the effective date of a Change in Control. Notwithstanding anything to the contrary in this Plan, the Deduction Limitation shall not apply to distributions that become payable after a Change in Control. 1.15 "Deferral Account" shall mean (i) the sum of all of a Participant's Annual Deferral Amounts, plus or less, as the case may be, (ii) amounts credited or debited in accordance with all the applicable crediting provisions of this Plan that relate to the Participant's Deferral Account, less (iii) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to his or her Deferral Account. 1.16 "Director" shall mean any member of the board of directors of the Company. 1.17 "Directors Fees" shall mean the annual fees paid by the Company, including retainer fees and meetings fees, as compensation for serving on the board of directors. 1.18 "Disability" shall have the same meaning as contained in the Company's 1999 Stock Incentive Plan with regards to a Participant who is an employee of any Employer, but not a Director, and the Company's 1999 Outside Director Stock Plan with regards to a Participant who is a Director, but not an employee of any Employer. 1.19 "Disability Benefit" shall mean the benefit set forth in Article 8. 1.20 "Election Form" shall mean the form established from time to time by the Committee that a Participant completes, signs and returns to the Committee to make an election under the Plan. 1.21 "Employee" shall mean a person who is an employee of any Employer. 1.22 "Employer(s)" shall mean the Company and/or any of its subsidiaries (now in existence or hereafter formed or acquired) unless the subsidiary has been excluded from participation in the Plan, as a sponsor by the Board. 1.23 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as it may be amended from time to time. 1.24 "Participant" shall mean any Employee or Director (i) who is selected to participate in the Plan, (ii) who elects to participate in the Plan, (iii) who signs a Plan Agreement, an Election Form and a Beneficiary Designation Form, (iv) whose signed Plan Agreement, Election Form and Beneficiary Designation Form are accepted by the Committee, (v) who commences participation in the Plan, and (vi) whose Plan Agreement has not terminated. A spouse or former spouse of a Participant shall not be treated as a Participant in the Plan or have an account balance under the Plan, even if he or she has an interest in the Participant's benefits under the Plan as a result of applicable law or property settlements resulting from legal separation or divorce. 1.25 "Plan" shall mean the Company's Amended and Restated Executive Deferral Plan, which shall be evidenced by this instrument and by each Plan Agreement, as they may be amended from time to time. 1.26 "Plan Agreement" shall mean a written agreement, as may be amended from time to time, which is entered into by and between an Employer and a Participant. Each Plan Agreement executed by a Participant and the Participant's Employer shall provide for the entire benefit to which such Participant is entitled under the Plan; should there be more than one Plan Agreement, the Plan Agreement bearing the latest date of acceptance by the Employer shall supersede all previous Plan Agreements in their entirety and shall govern such entitlement. The terms of any Plan Agreement may be different for any Participant, as described in Section 11.3 below. 1.27 "Plan Year" shall mean a period beginning on January 1 of a particular calendar year and continuing through December 31 of such calendar year. 1.28 "Pre-Retirement Survivor Benefit" shall mean the benefit set forth in Article 6. 1.29 "Retirement" shall have the same meaning as contained in the Company's 1999 Stock Incentive Plan with regards to a Participant who is an employee of any Employer, but not a Director, and the Company's 1999 Outside Director Stock Plan with regards to a Participant who is a Director, but not an employee of any Employer. 1.30 "Retirement Benefit" shall mean the benefit set forth in Article 5. 1.31 "Short-Term Payout" shall mean the payout set forth in Section 4.1. 1.32 "Termination Benefit" shall mean the benefit set forth in Article 7. 1.33 "Termination of Employment" shall mean the severing of (i) employment with all Employers or (ii) service as a Director of the Company, in either case voluntarily or involuntarily, for any reason other than Retirement, Disability, death or an authorized leave of absence. If a Participant is both an Employee and a Director, a Termination of Employment shall occur only upon the termination of the last position held. 1.34 "Trust" shall mean one or more trusts established pursuant to that certain Master Trust Agreement, dated as of June 1, 1991 between the Company and the trustee named therein, as amended from time to time. 1.35 "Unforeseeable Financial Emergency" shall mean an unanticipated emergency that is caused by an event beyond the control of the Participant that would result in severe financial hardship to the Participant if the Participant continued participation in the Plan resulting from (i) a sudden and unexpected illness or accident of the Participant or a dependent of the Participant, (ii) a loss of the Participant's property due to casualty, or (iii) such other extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, all as determined in the sole discretion of the Committee. 1.36 "1998 Executive Deferral Plan" shall mean the Jacobs Engineering Group Inc. 1998 Executive Deferral Plan. 1.37 "1999 Outside Director Stock Plan" shall mean the Jacobs Engineering Group Inc. 1999 Outside Director Stock Plan, as that plan may be amended from time to time, and any successor plan thereto. 1.38 "1999 Stock Incentive Plan" shall mean the Jacobs Engineering Group Inc. 1999 Executive Incentive Plan, as that plan may be amended from time to time, and any successor plan thereto. ARTICLE 2 Selection, Enrollment, Eligibility ---------------------------------- 2.1 Selection by Committee. The Committee, in its sole discretion, shall ---------------------- establish eligibility requirements for participation in the Plan. Participation in the Plan shall be limited to a select group of management and highly compensated Employees of the Employers and Directors of the Company. 2.2 Enrollment Requirements. As a condition to participation, each selected ----------------------- Employee or Director shall complete, execute and return to the Committee a Plan Agreement, an Election Form and a Beneficiary Designation Form, all within the time period set by the Committee, in its sole discretion, for the purpose of returning documents and forms. In addition, the Committee shall establish from time to time such other enrollment requirements as it determines in its sole discretion are necessary. 2.3 Eligibility; Commencement of Participation. A Participant shall ------------------------------------------ commence participation in the Plan on the first day of the month following the month in which he or she has (i) satisfied all Enrollment Requirements and (ii) has had his or her Plan Agreement, Election Form and Beneficiary Designation Form accepted by the Committee. 2.4 Termination of Participation and/or Deferrals. If the Committee --------------------------------------------- determines in good faith that a Participant no longer qualifies as a member of a select group of management or highly compensated employees, as membership in such group is determined in accordance with Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA, the Committee shall have the right, in its sole discretion, to (i) terminate any deferral election the Participant has made for the remainder of the Plan Year in which the Participant's membership status changes, (ii) prevent the Participant from making future deferral elections and/or (iii) immediately distribute the Participant's then Account Balance as a Termination Benefit and terminate the Participant's participation in the Plan. 2.5 1998 Executive Deferral Plan. As of January 1, 2002, the Company's 1998 ---------------------------- Executive Deferral Plan shall be merged into this Plan and any participant in that plan shall automatically become a Participant in this Plan. Furthermore, the Participant's account balance under the 1998 Executive Deferral Plan shall automatically be transferred to this Plan and that account balance shall be governed by the terms and conditions of this Plan, with the following exceptions: (i) any short-term payout elections made under Section 4.2 of the 1998 Executive Deferral Plan for plan years starting before January 1, 2002 shall continue to be governed by the terms of the 1998 Executive Deferral Plan, and (ii) any distribution to be paid after January 1, 2002 that is the result of a participant's retirement, termination, disability or death prior to January 1, 2002 shall continue to be governed by the terms of 1998 Executive Deferral Plan. ARTICLE 3 Deferral Commitments/Crediting/Taxes ------------------------------------ 3.1 Deferral Amounts. ---------------- (a) Minimum and Maximum Deferral Commitment. For each Plan Year, a --------------------------------------- Participant may make an irrevocable election to defer, as his or her Annual Deferral Amount, an amount of Base Annual Salary, Annual Bonus and/or Director's Fees that may not be less than the minimum Annual Deferral Amount, nor more than the maximum Annual Deferral Amount, as announced by the Committee prior to the beginning of the Plan Year and set forth in the Election Form for the Plan Year. (b) Short Plan Year. If a Participant first becomes a Participant --------------- after the first day of a Plan Year, the minimum Base Annual Salary deferral shall be the amount determined by the Committee. (c) Other. ----- (i) Notwithstanding the foregoing, if a Participant first becomes a Participant after the first day of a Plan Year, the maximum Annual Deferral Amount, with respect to Base Annual Salary, Annual Bonus and Directors Fees shall be limited to the amount of compensation not yet earned by the Participant as of the date the Participant's Plan Agreement and Election Form is accepted by the Committee. (ii) Notwithstanding any provision of this Plan that may be construed properly to the contrary, a Base Annual Salary deferral shall be a fixed dollar amount, and an Annual Bonus or Directors Fees deferral shall be a fixed percentage of the applicable annual bonus or fee. 3.2 Withholding of Annual Deferral Amounts. For each Plan Year, the Base -------------------------------------- Annual Salary portion of the Annual Deferral Amount shall be withheld from each regularly scheduled Base Annual Salary payroll in equal amounts. The Annual Bonus and/or Directors Fees portion of the Annual Deferral Amount shall be withheld at the time the Annual Bonus or Directors Fees are or otherwise would be paid to the Participant. 3.3 Vesting. A Participant shall at all times be 100% vested in his or her ------- Deferral Account. 3.4 Crediting/Debiting of Account Balances. In accordance with, and subject -------------------------------------- to, the rules and procedures that are established from time to time by the Committee, in its sole discretion, deferral amounts shall be credited or debited to a Participant's Account Balance in accordance with the following rules: (a) Election of Measurement Funds. At the time an Employee becomes ----------------------------- a Participant in the Plan, he or she shall designate one or more Measurement Funds which shall be used to determine what additional amounts are to be credited or debited, as the case may be, to his or her Account Balance. Such designations shall apply to the Annual Deferral Amount, as such amounts are deferred by the Participant, and shall remain in force until changed by the Participant in accordance with the policies and procedures as set forth by the Committee, from time to time, which policies and procedures may be changed, modified, and/or amended by the Committee, without prior notice, at the Committee's sole discretion. Until changed by the Committee: (i) Measurement Fund allocation designations must be made in whole percentage points of 5%, or multiples thereof, not to exceed 100%; (ii) a Participant may change his or hers Measurement Fund allocation elections once per calendar quarter, at any time during such quarter, but no later than the third business day prior to the end of such calendar quarter, and (iii) a change in Measurement Fund allocations will take effect at the beginning of the first calendar quarter immediately following the date of change. Notice of any change in Measurement Fund elections must be made to the Committee, or its designee, in a form acceptable to it as determined by it in its sole discretion. (b) Measurement Funds. A Participant may elect one or more measurement funds ----------------- (the "Measurement Funds") from among those selected by the Committee for the purpose of crediting or debiting additional amounts to his or her Account Balance. As necessary, the Committee may, in its sole discretion, discontinue, substitute or add Measurement Funds. Each such action will take effect as of the first day of the calendar quarter that follows by thirty (30) days or more the day on which the Committee gives Participants advance written notice of such change. In selecting the Measurement Funds that are available from time to time, neither the Committee nor any Employer shall be liable to any Participant for such selection or adding, deleting or continuing any available Measurement Fund. (c) Crediting or Debiting Method. The performance of each elected Measurement ---------------------------- Fund (either positive or negative) will be determined by the Committee, in its sole discretion, based on the performance of the Measurement Funds themselves. A Participant's Account Balance shall be credited or debited on a daily basis based on the performance of each Measurement Fund selected by the Participant, as determined by the Committee in its sole discretion, as though (i) a Participant's Account Balance as of the close of business on the first business day of such calendar quarter were invested in the Measurement Fund(s) selected by the Participant, in the percentages applicable to such calendar quarter, at the closing price on such date; (ii) the portion of the Annual Deferral Amount that was actually deferred during any calendar quarter were invested in the Measurement Fund(s) selected by the Participant, in the percentages applicable to such calendar quarter, no later than the close of business on the third business day after the day on which such amounts are actually deferred from the Participant's Base Annual Salary through reductions in his or her payroll, at the closing price on such date; and (iii) any distribution made to a Participant that decreases such Participant's Account Balance ceased being invested in the Measurement Fund(s), in the percentages applicable to such calendar quarter, no earlier than three business days prior to the distribution, at the closing price on such date. (d) No Actual Investment. Notwithstanding any other provision of this Plan that -------------------- may be interpreted to the contrary, the Measurement Funds are to be used for measurement purposes only, and a Participant's election of any such Measurement Fund, the allocation to his or her Account Balance thereto, the calculation of additional amounts and the crediting or debiting of such amounts to a Participant's Account Balance shall not be considered or ----- --- construed in any manner as an actual investment of his or her Account Balance in any such Measurement Fund. In the event that the Company or the Trustee (as that term is defined in the Trust), in its own discretion, decides to invest funds in any or all of the Measurement Funds, no Participant shall have any rights in or to such investments themselves. Without limiting the foregoing, a Participant's Account Balance shall at all times be a bookkeeping entry only and shall not represent any investment made on his or her behalf by the Company or the Trust; the Participant shall at all times remain an unsecured creditor of the Company. 3.5 FICA and Other Taxes. For each Plan Year in which an Annual Deferral -------------------- Amount is being withheld from a Participant, the Participant's Employer(s) shall withhold from that portion of the Participant's Base Annual Salary and Bonus that is not being deferred, in a manner determined by the Employer(s), the Participant's share of FICA and other employment taxes on such Annual Deferral Amount. If necessary, the Committee may reduce the Annual Deferral Amount in order to comply with this Section. 3.6 Distributions. The Participant's Employer(s), or the trustee of the ------------- Trust, shall withhold from any payments made to a Participant under this Plan all federal, state and local income, employment and other taxes required to be withheld by the Employer(s), or the trustee of the Trust, in connection with such payments, in amounts and in a manner to be determined in the sole discretion of the Employer(s) and the trustee of the Trust. ARTICLE 4 Short-Term Payout; Unforeseeable Financial Emergencies; ------------------------------------------------------ Withdrawal Election ------------------- 4.1 Short-Term Payout. In connection with each election to defer an Annual ----------------- Deferral Amount, a Participant may irrevocably elect to receive a future "Short-Term Payout" from the Plan with respect to such Annual Deferral Amount. Subject to the Deduction Limitation, the Short-Term Payout shall be a lump sum payment in an amount that is equal to either (i) a percentage of some or all of the Annual Deferral Amount, as elected at the time of the deferral, or (ii) a stated dollar amount, as elected at the time of the deferral, not to exceed the Annual Deferral Amount, plus, in either case, amounts credited or debited in the manner provided in Section 3.4 above on that elected amount, determined at the time that the Short-Term Payout becomes payable. Subject to the Deduction Limitation and the other terms and conditions of this Plan, each Short-Term Payout elected shall be paid out during a 90 day period commencing immediately after the last day of any Plan Year designated by the Participant that is at least three Plan Years after the Plan Year in which the Annual Deferral Amount is actually deferred. By way of example, if a three year Short-Term Payout is elected for Annual Deferral Amounts that are deferred in the Plan Year commencing January 1, 2002, the three year Short-Term Payout would become payable during a 90 day period commencing January 1, 2006. 4.2 Other Benefits Take Precedence Over Short-Term Payout. Should an event ----------------------------------------------------- occur that triggers a benefit under Article 5, 6, 7 or 8, any Annual Deferral Amount, plus amounts credited or debited thereon, that is subject to a Short-Term Payout election under Section 4.1 shall not be paid in accordance with Section 4.1 but shall be paid in accordance with the other applicable Article. 4.3 Unforeseeable Financial Emergencies. If the Participant experiences an ----------------------------------- Unforeseeable Financial Emergency, the Participant may petition the Committee to (i) suspend any deferrals required to be made by a Participant and/or (ii) receive a partial or full payout from the Plan. The payout shall not exceed the lesser of the Participant's Account Balance, calculated as if such Participant were receiving a Termination Benefit, or the amount reasonably needed to satisfy the Unforeseeable Financial Emergency. If, subject to the sole discretion of the Committee, the petition for a suspension and/or payout is approved, suspension shall take effect upon the date of approval and any payout shall be made within 60 days of the date of approval. The payment of any amount under this Section 4.3 shall not be subject to the Deduction Limitation. 4.4 Withdrawal Election. A Participant (or his or her Beneficiary) may ------------------- elect, at any time, to withdraw all of his or her Account Balance, less a withdrawal penalty equal to 10% of such amount (the net amount shall be referred to as the "Withdrawal Amount"). This election can be made at any time, before or after Retirement, Disability, death or Termination of Employment, and whether or not the Participant (or Beneficiary) is in the process of being paid pursuant to an installment payment schedule. If made before Retirement, Disability or death, a Participant's Withdrawal Amount shall be his or her Account Balance calculated as if there had occurred a Termination of Employment as of the day of the election. No partial withdrawals of the Withdrawal Amount shall be allowed. The Participant (or his or her Beneficiary) shall make this election by giving the Committee advance written notice of the election in a form determined from time to time by the Committee. The Participant (or his or her Beneficiary) shall be paid the Withdrawal Amount within 60 days of his or her election. Once the Withdrawal Amount is paid, the Participant shall not be eligible to elect additional deferrals under the Plan for a period of time set by the Committee, which period cannot be less than one Plan Year. The payment of this Withdrawal Amount shall be subject to the Deduction Limitation. ARTICLE 5 Retirement Benefit ------------------ 5.1 Retirement Benefit. Subject to the Deduction Limitation, a ------------------- Participant who Retires shall receive, as a Retirement Benefit, his or her Account Balance. 5.2 Payment of Retirement Benefit. A Participant, in connection with his or ----------------------------- her commencement of participation in the Plan, shall elect on an Election Form to receive the Retirement Benefit in a lump sum or pursuant to an Annual Installment Method of up to 15 years. The Participant may change his or her election to an allowable alternative payout period by submitting a new Election Form to the Committee, provided that any such Election Form is submitted at least 1 year prior to the Participant's Retirement and is accepted by the Committee in its sole discretion. The Election Form most recently accepted by the Committee shall govern the payout of the Retirement Benefit. If a Participant does not make any election with respect to the payment of the Retirement Benefit, then such benefit shall be payable in a lump sum. The lump sum payment shall be made, or installment payments shall commence, no later than 60 days after the last day of the Plan Year in which the Participant Retires. Any payment made shall be subject to the Deduction Limitation. 5.3 Death Prior to Completion of Retirement Benefit. If a Participant dies ----------------------------------------------- after Retirement but before the Retirement Benefit is paid in full, the Participant's unpaid Retirement Benefit payments shall continue and shall be paid to the Participant's Beneficiary over the remaining number of years and in the same amounts as that benefit would have been paid to the Participant had the Participant not died. ARTICLE 6 Pre-Retirement Survivor Benefit ------------------------------- 6.1 Pre-Retirement Survivor Benefit. Subject to the Deduction Limitation, ------------------------------- the Participant's Beneficiary shall receive a Pre-Retirement Survivor Benefit equal to the Participant's Account Balance if the Participant dies while in the employ of any Employer. 6.2 Payment of Pre-Retirement Survivor Benefit. A Participant, in ------------------------------------------ connection with his or her commencement of participation in the Plan, shall elect on an Election Form whether the Pre-Retirement Survivor Benefit shall be received by his or her Beneficiary in a lump sum or pursuant to an Annual Installment Method of up to 15 years. The Participant may change this election to an allowable alternative payout period by submitting a new Election Form to the Committee, which form must be accepted by the Committee in its sole discretion. The Election Form most recently accepted by the Committee prior to the Participant's death shall govern the payout of the Participant's Pre-Retirement Survivor Benefit. If a Participant does not make any election with respect to the payment of the Pre-Retirement Survivor Benefit, then such benefit shall be paid in a lump sum. The lump sum payment shall be made, or installment payments shall commence, no later than 90 days after the date the Committee is provided with proof that is satisfactory to the Committee of the Participant's death. Any payment made shall be subject to the Deduction Limitation. ARTICLE 7 Termination Benefit ------------------- 7.1 Termination Benefit. Subject to the Deduction Limitation, the ------------------- Participant shall receive a Termination Benefit, which shall be equal to the Participant's Account Balance if a Participant experiences a Termination of Employment prior to his or her Retirement, death or Disability. 7.2 Payment of Termination Benefit. The Participant's Termination Benefit ------------------------------ shall be paid in a lump sum. The lump sum payment shall be made no later than 90 days after the day the Participant experiences the Termination of Employment. Any payment made shall be subject to the Deduction Limitation. ARTICLE 8 Disability Waiver and Benefit ----------------------------- 8.1 Disability Waiver. ----------------- (a) Waiver of Deferral. A Participant who is determined to be ------------------ suffering from a Disability shall be excused from fulfilling that portion of the Annual Deferral Amount commitment that would otherwise have been withheld from a Participant's Base Annual Salary, Annual Bonus and/or Directors Fees for the Plan Year during the period the Participant is on a leave of absence from work (or from service on the Board of Directors). The Participant will continue to be considered a Participant for all other purposes of this Plan. (b) Return to Work. Upon return to employment, or service as a -------------- Director, with an Employer, after a Disability ceases, the Participant shall continue his Annual Deferral Amount prospectively from the date the Participant returns to work or service as a Director. 8.2 Continued Eligibility; Disability Benefit. A Participant suffering a ----------------------------------------- Disability shall, for benefit purposes under this Plan, continue to be considered to be employed, or in the service of an Employer as a Director, and shall be eligible for the benefits provided for in Articles 4, 5, 6 or 7 in accordance with the provisions of those Articles. Notwithstanding the above, the Committee shall have the right to, in its sole and absolute discretion and for purposes of this Plan only, and must in the case of a Participant who is otherwise eligible to Retire, deem the Participant to have experienced a Termination of Employment, or in the case of a Participant who is eligible to Retire, to have Retired, at any time (or in the case of a Participant who is eligible to Retire, as soon as practicable) after such Participant is determined to be suffering a Disability, in which case the Participant shall receive a Disability Benefit equal to his or her Account Balance at the time of the Committee's determination; provided, however, that should the Participant otherwise have been eligible to Retire, he or she shall be paid in accordance with Article 5. The Disability Benefit shall be paid in a lump sum within 60 days of the Committee's exercise of such right. Any payment made shall be subject to the Deduction Limitation. ARTICLE 9 Beneficiary Designation ----------------------- 9.1 Beneficiary. Each Participant shall have the right, at any time, to ----------- designate his or her Beneficiary(ies) (both primary as well as contingent) to receive any benefits payable under the Plan to a beneficiary upon the death of a Participant. The Beneficiary designated under this Plan may be the same as or different from the Beneficiary designation under any other plan of an Employer in which the Participant participates. 9.2 Beneficiary Designation; Change; Spousal Consent. A Participant shall ------------------------------------------------ designate his or her Beneficiary by completing and signing the Beneficiary Designation Form, and returning it to the Committee or its designated agent. A Participant shall have the right to change a Beneficiary by completing, signing and otherwise complying with the terms of the Beneficiary Designation Form and the Committee's rules and procedures, as in effect from time to time. If the Participant names someone other than his or her spouse as a Beneficiary, a spousal consent, in the form designated by the Committee, must be signed by that Participant's spouse and returned to the Committee. Upon the acceptance by the Committee of a new Beneficiary Designation Form, all Beneficiary designations previously filed shall be canceled. The Committee shall be entitled to rely on the last Beneficiary Designation Form filed by the Participant and accepted by the Committee prior to his or her death. 9.3 Acknowledgment. No designation or change in designation of a -------------- Beneficiary shall be effective until received and acknowledged in writing by the Committee or its designated agent. 9.4 No Beneficiary Designation. If a Participant fails to designate a -------------------------- Beneficiary as provided in Sections 9.1, 9.2 and 9.3 above or, if all designated Beneficiaries predecease the Participant or die prior to complete distribution of the Participant's benefits, then the Participant's designated Beneficiary shall be deemed to be his or her surviving spouse. If the Participant has no surviving spouse, the benefits remaining under the Plan to be paid to a Beneficiary shall be payable to the executor or personal representative of the Participant's estate. 9.5 Doubt as to Beneficiary. If the Committee has any doubt as to the ----------------------- proper Beneficiary to receive payments pursuant to this Plan, the Committee shall have the right, exercisable in its discretion, to cause the Participant's Employer to withhold such payments until this matter is resolved to the Committee's satisfaction. 9.6 Discharge of Obligations. The payment of benefits under the Plan to a ------------------------ Beneficiary shall fully and completely discharge all Employers and the Committee from all further obligations under this Plan with respect to the Participant, and that Participant's Plan Agreement shall terminate upon such full payment of benefits. ARTICLE 10 Leave of Absence ---------------- 10.1 Paid Leave of Absence. If a Participant is authorized by the --------------------- Participant's Employer for any reason to take a paid leave of absence from the employment of the Employer, the Participant shall continue to be considered employed by the Employer and the Annual Deferral Amount shall continue to be withheld during such paid leave of absence in accordance with Section 3.2. 10.2 Unpaid Leave of Absence. If a Participant is authorized by the ----------------------- Participant's Employer for any reason to take an unpaid leave of absence from the employment of the Employer, the Participant shall continue to be considered employed by the Employer and the Participant shall be excused from making deferrals until the earlier of the date the leave of absence expires or the Participant returns to a paid employment status. Upon such expiration or return, deferrals shall resume for the remaining portion of the Plan Year in which the expiration or return occurs, based on the deferral election, if any, made for that Plan Year. If no election was made for that Plan Year, no deferral shall be withheld. ARTICLE 11 Termination, Amendment or Modification -------------------------------------- 11.1 Termination. Although it is anticipated that the Plan will continue for ----------- an indefinite period of time, there is no guarantee that the Company will continue the Plan. Accordingly, the Company reserves the right to discontinue its sponsorship of the Plan and/or to terminate the Plan at any time with respect to any Employer by action of the Board. Upon the termination of the Plan with respect to any Employer, the Plan Agreements of the affected Participants who are employed by that Employer, or in the service of that Employer as Directors, shall terminate and their Account Balances, determined as if they had experienced a Termination of Employment on the date of Plan termination or, if Plan termination occurs after the date upon which a Participant was eligible to Retire, then with respect to that Participant as if he or she had Retired on the date of Plan termination, shall be paid to the Participants as follows: Prior to a Change in Control, if the Plan is terminated with respect to all of its Participants, an Employer shall have the right, in its sole discretion, and notwithstanding any elections made by the Participant, to pay such benefits in a lump sum or pursuant to an Annual Installment Method of up to 15 years, with amounts credited and debited during the installment period as provided herein. If the Plan is terminated with respect to less than all of its Participants, an Employer shall be required to pay such benefits in a lump sum. After a Change in Control, the Employer shall be required to pay such benefits in a lump sum. The termination of the Plan shall not adversely affect any Participant or Beneficiary who has become entitled to the payment of any benefits under the Plan as of the date of termination; provided however, that the Employer shall have the right to accelerate installment payments without a premium or prepayment penalty by paying the Account Balance in a lump sum or pursuant to an Annual Installment Method using fewer years (provided that the present value of all payments that will have been received by a Participant at any given point of time under the different payment schedule shall equal or exceed the present value of all payments that would have been received at that point in time under the original payment schedule). 11.2 Amendment. The Company may, at any time, through the Board amend or --------- modify the Plan, in whole or in part, with respect to any Employer; provided, however, that: (i) no amendment or modification shall be effective to decrease or restrict the value of a Participant's Account Balance in existence at the time the amendment or modification is made, calculated as if the Participant had experienced a Termination of Employment as of the effective date of the amendment or modification or, if the amendment or modification occurs after the date upon which the Participant was eligible to Retire, the Participant had Retired as of the effective date of the amendment or modification, and (ii) no amendment or modification of this Section 11.2 or Section 12.2 of the Plan shall be effective. The amendment or modification of the Plan shall not affect any Participant or Beneficiary who has become entitled to the payment of benefits under the Plan as of the date of the amendment or modification; provided, however, that the Employer shall have the right to accelerate installment payments by paying the Account Balance in a lump sum or pursuant to an Annual Installment Method using fewer years (provided that the present value of all payments that will have been received by a Participant at any given point of time under the different payment schedule shall equal or exceed the present value of all payments that would have been received at that point in time under the original payment schedule). 11.3 Plan Agreement. The terms of any Plan Agreement may be different for -------------- any Participant, and any Plan Agreement may provide additional benefits not set forth in the Plan or limit the benefits otherwise provided under the Plan; provided, however, that any such additional benefits or benefit limitations must be agreed to by both the Employer and the Participant. Despite the provisions of Sections 11.1 and 11.2 above, if a Participant's Plan Agreement contains benefits or limitations that are not in this Plan document, the Employer may only amend or terminate such provisions with the consent of the Participant. 11.4 Effect of Payment. The full payment of the applicable benefit under ----------------- Articles 4, 5, 6, 7 or 8 of the Plan shall completely discharge all obligations to a Participant and his or her designated Beneficiaries under this Plan and the Participant's Plan Agreement shall terminate. ARTICLE 12 Administration -------------- 12.1 Committee Duties. Except as otherwise provided in this Article 12, this ---------------- Plan shall be administered by a Committee appointed by the Board, which Committee may consist, in part or in full, of persons who are not on the Board. Members of the Committee may be Participants under this Plan. The Committee shall also have the discretion and authority to (i) make, amend, interpret, and enforce all appropriate rules and regulations for the administration of this Plan and (ii) decide or resolve any and all questions including interpretations of this Plan, as may arise in connection with the Plan. Any individual serving on the Committee who is a Participant shall not vote or act on any matter relating solely to himself or herself. When making a determination or calculation, the Committee shall be entitled to rely on information furnished by a Participant or the Company. 12.2 Administration Upon Change in Control. For purposes of this Plan, the ------------------------------------- Company shall be the "Administrator" at all times prior to the occurrence of a Change in Control. Upon and after the occurrence of a Change in Control, the "Administrator" shall be an independent third party selected by the Trustee and approved by the individual who, immediately prior to such event, was the Company's Chief Executive Officer or, if not so identified, the Company's highest ranking officer (the "Ex-CEO"). The Administrator shall have the discretionary power to determine all questions arising in connection with the administration of the Plan and the interpretation of the Plan and Trust including, but not limited to benefit entitlement determinations; provided, however, upon and after the occurrence of a Change in Control, the Administrator shall have no power to direct the investment of Plan or Trust assets or select any investment manager or custodial firm for the Plan or Trust. Upon and after the occurrence of a Change in Control, the Company must: (1) pay all reasonable administrative expenses and fees of the Administrator; (2) indemnify the Administrator against any costs, expenses and liabilities including, without limitation, attorney's fees and expenses arising in connection with the performance of the Administrator hereunder, except with respect to matters resulting from the gross negligence or willful misconduct of the Administrator or its employees or agents; and (3) supply full and timely information to the Administrator or all matters relating to the Plan, the Trust, the Participants and their Beneficiaries, the Account Balances of the Participants, the date of circumstances of the Retirement, Disability, death or Termination of Employment of the Participants, and such other pertinent information as the Administrator may reasonably require. Upon and after a Change in Control, the Administrator may be terminated (and a replacement appointed) by the Trustee only with the approval of the Ex-CEO. Upon and after a Change in Control, the Administrator may not be terminated by the Company. 12.3 Agents. In the administration of this Plan, the Committee may, from time to ------ time, employ agents and delegate to them such administrative duties as it sees fit (including acting through a duly appointed representative) and may from time to time consult with counsel who may be counsel to any Employer. 12.4 Binding Effect of Decisions. The decision or action of the Administrator --------------------------- with respect to any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all persons having any interest in the Plan. 12.5 Indemnity of Committee. All Employers shall indemnify and hold harmless the ---------------------- members of the Committee, any Employee to whom the duties of the Committee may be delegated, and the Administrator against any and all claims, losses, damages, expenses or liabilities arising from any action or failure to act with respect to this Plan, except in the case of willful misconduct by the Committee, any of its members, any such Employee or the Administrator. 12.6 Employer Information. To enable the Committee and/or Administrator to -------------------- perform its functions, the Company and each Employer shall supply full and timely information to the Committee and/or Administrator, as the case may be, on all matters relating to the compensation of its Participants, the date and circumstances of the Retirement, Disability, death or Termination of Employment of its Participants, and such other pertinent information as the Committee or Administrator may reasonably require. ARTICLE 13 Other Benefits and Agreements ----------------------------- 13.1 Coordination with Other Benefits. The benefits provided for a Participant -------------------------------- and Participant's Beneficiary under the Plan are in addition to any other benefits available to such Participant under any other plan or program for employees of the Participant's Employer. The Plan shall supplement and shall not supersede, modify or amend any other such plan or program except as may otherwise be expressly provided. ARTICLE 14 Claims Procedures ----------------- 14.1 Presentation of Claim. Any Participant or Beneficiary of a deceased --------------------- Participant (such Participant or Beneficiary being referred to below as a "Claimant") may deliver to the Committee a written claim for a determination with respect to the amounts distributable to such Claimant from the Plan. If such a claim relates to the contents of a notice received by the Claimant, the claim must be made within 60 days after such notice was received by the Claimant. All other claims must be made within 180days of the date on which the event that caused the claim to arise occurred. The claim must state with particularity the determination desired by the Claimant. 14.2 Notification of Decision. The Committee shall consider a Claimant's claim ------------------------ within a reasonable time, and shall notify the Claimant in writing: (a) that the Claimant's requested determination has been made, and that the claim has been allowed in full; or (b) that the Committee has reached a conclusion contrary, in whole or in part, to the Claimant's requested determination, and such notice must set forth in a manner calculated to be understood by the Claimant: (i) the specific reason(s) for the denial of the claim, or any part of it; (ii) specific reference(s) to pertinent provisions of the Plan upon which such denial was based; (iii) a description of any additional material or information necessary for the Claimant to perfect the claim, and an explanation of why such material or information is necessary; and (iv) an explanation of the claim review procedure set forth in Section 14.3 below. 14.3 Review of a Denied Claim. Within 60 days after receiving a notice from the ------------------------ Committee that a claim has been denied, in whole or in part, a Claimant (or the Claimant's duly authorized representative) may file with the Committee a written request for a review of the denial of the claim. Thereafter, but not later than 30 days after the review procedure began, the Claimant (or the Claimant's duly authorized representative): (a) may review pertinent documents; (b) may submit written comments or other documents; and/or (c) may request a hearing, which the Committee, in its sole discretion, may grant. 14.4 Decision on Review. The Committee shall render its decision on review ------------------ promptly, and not later than 60 days after the filing of a written request for review of the denial, unless a hearing is held or other special circumstances require additional time, in which case the Committee's decision must be rendered within 120 days after such date. Such decision must be written in a manner calculated to be understood by the Claimant, and it must contain: (a) specific reasons for the decision; (b) specific reference(s) to the pertinent Plan provisions upon which the decision was based; and (c) such other matters as the Committee deems relevant. 14.5 Legal Action. A Claimant's compliance with the foregoing provisions of this ------------ Article 14 is a mandatory prerequisite to a Claimant's right to commence any legal action with respect to any claim for benefits under this Plan. ARTICLE 15 Trust ----- 15.1 Establishment of the Trust. The Company has establish the Trust, and each -------------------------- Employer shall at least annually transfer over to the Trust such assets as the Employer determines, in its sole discretion, are necessary to provide, on a present value basis, for its respective future liabilities created with respect to the Annual Deferral Amounts for such Employer's Participants for all periods prior to the transfer, as well as any debits and credits to the Participants' Account Balances for all periods prior to the transfer, taking into consideration the value of the assets in the trust at the time of the transfer. 15.2 Interrelationship of the Plan and the Trust. The provisions of the Plan and ------------------------------------------- the Plan Agreement shall govern the rights of a Participant to receive distributions pursuant to the Plan. The provisions of the Trust shall govern the rights of the Employers, Participants and the creditors of the Employers to the assets transferred to the Trust. Each Employer shall at all times remain liable to carry out its obligations under the Plan. 15.3 Distributions From the Trust. Each Employer's obligations under the Plan ---------------------------- may be satisfied with Trust assets distributed pursuant to the terms of the Trust, and any such distribution shall reduce the Employer's obligations under this Plan. 15.4 Investment of Trust Assets. The Trustee of the Trust shall be authorized, -------------------------- upon written instructions received from the Committee or investment manager appointed by the Committee, to invest and reinvest the assets of the Trust in accordance with the applicable Trust Agreement, including the disposition of stock and reinvestment of the proceeds in one or more investment vehicles designated by the Committee. ARTICLE 16 Miscellaneous ------------- 16.1 Status of Plan. The Plan is intended to be a plan that is not -------------- qualified within the meaning of Code Section 401(a) and that "is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employee" within the meaning of ERISA Sections 201(2), 301(a)(3) and 401(a)(1). The Plan shall be administered and interpreted to the extent possible in a manner consistent with that intent. 16.2 Unsecured General Creditor. Participants and their Beneficiaries, -------------------------- heirs, successors and assigns shall have no legal or equitable rights, interests or claims in any property or assets of an Employer. For purposes of the payment of benefits under this Plan, any and all of an Employer's assets shall be, and remain, the general, unpledged unrestricted assets of the Employer. An Employer's obligation under the Plan shall be merely that of an unfunded and unsecured promise to pay money in the future. 16.3 Employer's Liability. An Employer's liability for the payment of -------------------- benefits shall be defined only by the Plan and the Plan Agreement, as entered into between the Employer and a Participant. An Employer shall have no obligation to a Participant under the Plan except as expressly provided in the Plan and his or her Plan Agreement. 16.4 Nonassignability. Neither a Participant nor any other person shall ---------------- have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate, alienate or convey in advance of actual receipt, the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are expressly declared to be, unassignable and non-transferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure, attachment, garnishment or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, be transferable by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency or be transferable to a spouse as a result of a property settlement or otherwise. 16.5 Not a Contract of Employment. The terms and conditions of this Plan ---------------------------- shall not be deemed to constitute a contract of employment between any Employer and the Participant. Such employment is hereby acknowledged to be an "at will" employment relationship that can be terminated at any time for any reason, or no reason, with or without cause, and with or without notice, unless expressly provided in a written employment agreement. Nothing in this Plan shall be deemed to give a Participant the right to be retained in the service of any Employer, either as an Employee or a Director, or to interfere with the right of any Employer to discipline or discharge the Participant at any time. 16.6 Furnishing Information. Participant or his or her Beneficiary will ---------------------- cooperate with the Committee by furnishing any and all information requested by the Committee and take such other actions as may be requested in order to facilitate the administration of the Plan and the payments of benefits hereunder, including but not limited to taking such physical examinations as the Committee may deem necessary. 16.7 Terms. Whenever any words are used herein in the masculine, they shall ----- be construed as though they were in the feminine in all cases where they would so apply; and whenever any words are used herein in the singular or in the plural, they shall be construed as though they were used in the plural or the singular, as the case may be, in all cases where they would so apply. 16.8 Captions. The captions of the articles, sections and paragraphs of -------- this Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions. 16.9 Governing Law. Subject to ERISA, the provisions of this Plan shall be ------------- construed and interpreted according to the internal laws of the State of California without regard to its conflicts of laws principles. 16.10 Notice. Any notice or filing required or permitted to be given to the ------ Committee under this Plan shall be sufficient if in writing and hand-delivered, or sent by registered or certified mail, to the address below: Jacobs Engineering Group Inc. -------------------------------- Employee Benefits -------------------------------- 1111 S. Arroyo Parkway -------------------------------- Pasadena, CA 91105 -------------------------------- Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. Any notice or filing required or permitted to be given to a Participant under this Plan shall be sufficient if in writing and hand-delivered, or sent by mail, to the last known address of the Participant. 16.11 Successors. The provisions of this Plan shall bind and inure to the ---------- benefit of the Participant's Employer and its successors and assigns and the Participant and the Participant's designated Beneficiaries. 16.12 Spouse's Interest. The interest in the benefits hereunder of a spouse ----------------- of a Participant who has predeceased the Participant shall automatically pass to the Participant and shall not be transferable by such spouse in any manner, including but not limited to such spouse's will, nor shall such interest pass under the laws of intestate succession. 16.13 Validity. In case any provision of this Plan shall be illegal or -------- invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Plan shall be construed and enforced as if such illegal or invalid provision had never been inserted herein. 16.14 Incompetent. If the Committee determines in its discretion that a ----------- benefit under this Plan is to be paid to a minor, a person declared incompetent or to a person incapable of handling the disposition of that person's property, the Committee may direct payment of such benefit to the guardian, legal representative or person having the care and custody of such minor, incompetent or incapable person. The Committee may require proof of minority, incompetence, incapacity or guardianship, as it may deem appropriate prior to distribution of the benefit. Any payment of a benefit shall be a payment for the account of the Participant and the Participant's Beneficiary, as the case may be, and shall be a complete discharge of any liability under the Plan for such payment amount. 16.15 Court Order. The Committee is authorized to make any payments directed ----------- by court order in any action in which the Plan or the Committee has been named as a party. In addition, if a court determines that a spouse or former spouse of a Participant has an interest in the Participant's benefits under the Plan in connection with a property settlement or otherwise, the Committee, in its sole discretion, shall have the right, notwithstanding any election made by a Participant, to immediately distribute the spouse's or former spouse's interest in the Participant's benefits under the Plan to that spouse or former spouse. 16.16 Distribution in the Event of Taxation. ------------------------------------- (a) In General. If, for any reason, all or any portion of a ---------- Participant's benefits under this Plan becomes taxable to the Participant prior to receipt, a Participant may petition the Committee before a Change in Control, or the trustee of the Trust after a Change in Control, for a distribution of that portion of his or her benefit that has become taxable. Upon the grant of such a petition, which grant shall not be unreasonably withheld (and, after a Change in Control, shall be granted), a Participant's Employer shall distribute to the Participant immediately available funds in an amount equal to the taxable portion of his or her benefit (which amount shall not exceed a Participant's unpaid Account Balance under the Plan). If the petition is granted, the tax liability distribution shall be made within 90 days of the date when the Participant's petition is granted. Such a distribution shall affect and reduce the benefits to be paid under this Plan. (b) Trust. If the Trust terminates in accordance with Section 3.6(e) ----- of the Trust and benefits are distributed from the Trust to a Participant in accordance with that Section, the Participant's benefits under this Plan shall be reduced to the extent of such distributions. 16.17 Insurance. The Employers, on their own behalf or on behalf of the --------- trustee of the Trust, and, in their sole discretion, may apply for and procure insurance on the life of the Participant, in such amounts and in such forms as the Employers may choose. The Employers or the trustee of the Trust, as the case may be, shall be the sole owner and beneficiary of any such insurance. The Participant shall have no interest whatsoever in any such policy or policies, and at the request of the Employers shall submit to medical examinations and supply such information and execute such documents as may be required by the insurance company or companies to whom the Employers have applied for insurance. 16.18 Legal Fees to Enforce Rights After Change in Control. The Company and ---------------------------------------------------- each Employer is aware that upon the occurrence of a Change in Control, the Board or the board of directors of a Participant's Employer (which might then be composed of new members) or a shareholder of the Company or the Participant's Employer, or of any successor corporation might then cause or attempt to cause the Company, the Participant's Employer or such successor to refuse to comply with its obligations under the Plan and might cause or attempt to cause the Company or the Participant's Employer to institute, or may institute, litigation seeking to deny Participants the benefits intended under the Plan. In these circumstances, the purpose of the Plan could be frustrated. Accordingly, if, following a Change in Control, it should appear to any Participant that the Company, the Participant's Employer or any successor corporation has failed to comply with any of its obligations under the Plan or any agreement thereunder or, if the Company, such Employer or any other person takes any action to declare the Plan void or unenforceable or institutes any litigation or other legal action designed to deny, diminish or to recover from any Participant the benefits intended to be provided, then the Company and the Participant's Employer irrevocably authorize such Participant to retain counsel of his or her choice at the expense of the Company and the Participant's Employer (who shall be jointly and severally liable) to represent such Participant in connection with the initiation or defense of any litigation or other legal action, whether by or against the Company, the Participant's Employer or any director, officer, shareholder or other person affiliated with the Company, the Participant's Employer or any successor thereto in any jurisdiction. IN WITNESS WHEREOF, the Company has signed this Plan document as of __________. "Company" Jacobs Engineering Group Inc. By: ____________________________ Title: ____________________________ EX-10.11 5 dex1011.txt AMENDED & RESTATED 401(K) PLUS SAVINGS PLAN Exhibit 10.11 Jacobs Engineering Group Inc. 401(k) Plus Savings Plan and Trust As Amended and Restated August 1, 2000 Table of Contents
1 DEFINITIONS ........................................................... 1 ----------- 2 ELIGIBILITY ........................................................... 11 ----------- 2.1 Eligibility ....................................................... 11 2.2 Ineligible Employees .............................................. 11 2.3 Ineligible, Terminated or Former Participants ..................... 11 3 PARTICIPANT CONTRIBUTIONS ............................................. 12 ------------------------- 3.1 Pre-Tax Contribution Election ..................................... 12 3.2 Changing a Contribution Election .................................. 12 3.3 Revoking and Resuming a Contribution Election ..................... 12 3.4 Contribution Percentage Limits .................................... 12 3.5 Refunds When Contribution Dollar Limit Exceeded ................... 13 3.6 Timing, Posting and Tax Considerations ............................ 13 4 ROLLOVER CONTRIBUTIONS AND TRANSFERS FROM AND TO OTHER ------------------------------------------------------ QUALIFIED PLANS ....................................................... 15 --------------- 4.1 Rollover Contributions ............................................ 15 4.2 Transfers From and To Other Qualified Plans ....................... 15 5 EMPLOYER CONTRIBUTIONS ................................................ 17 ---------------------- 5.1 Matching Contributions ............................................ 17 6 ACCOUNTING ............................................................ 18 ---------- 6.1 Individual Participant Accounting ................................. 18 6.2 Valuation Date and Investment Cycle ............................... 18 6.3 Accounting for Investment Funds ................................... 18 6.4 Payment of Fees and Expenses18 6.5 Accounting for Participant Loans .................................. 19 6.6 Error Correction .................................................. 19 6.7 Participant Statements ............................................ 19 6.8 Special Accounting During Conversion Period........................ 20 6.9 Accounts for Alternate Payees ..................................... 20 7 INVESTMENT FUNDS AND ELECTIONS ........................................ 21 ------------------------------ 7.1 Investment Funds .................................................. 21 7.2 Responsibility for Investment Choice .............................. 21
i 7.3 Investment Fund Elections ................................................................ 21 7.4 Default if No Valid Investment Election .................................................. 22 7.5 Investment Fund Election Change Fees ..................................................... 22 8 VESTING .......................................................................................... 23 ------- 8.1 Fully Vested Accounts .................................................................... 23 9 PARTICIPANT LOANS ................................................................................ 24 ----------------- 9.1 Participant Loans Permitted............................................................... 24 9.2 Loan Application, Note and Security....................................................... 24 9.3 Spousal Consent .......................................................................... 24 9.4 Loan Approval ............................................................................ 24 9.5 Loan Funding Limits, Account Sources and Funding Order ................................... 24 9.6 Maximum Number of Loans .................................................................. 25 9.7 Source and Timing of Loan Funding ........................................................ 25 9.8 Interest Rate ............................................................................ 25 9.9 Loan Payment ............................................................................. 25 9.10 Loan Payment Hierarchy ................................................................... 26 9.11 Repayment Suspension ..................................................................... 26 9.12 Loan Default ............................................................................. 26 9.13 Call Feature ............................................................................. 26 10 IN-SERVICE WITHDRAWALS ............................................................................ 27 ---------------------- 10.1 In-Service Withdrawals Permitted ......................................................... 27 10.2 In-Service Withdrawal Application and Notice ............................................. 27 10.3 Spousal Consent .......................................................................... 27 10.4 In-Service Withdrawal Approval ........................................................... 27 10.5 Payment Form and Medium .................................................................. 28 10.6 Source and Timing of In-Service Withdrawal Funding ....................................... 28 10.7 Hardship Withdrawals ..................................................................... 28 10.8 After-Tax Account Withdrawals ............................................................ 30 10.9 Rollover Account Withdrawals.............................................................. 30 10.10 Over Age 59 1/2 Withdrawals .............................................................. 31 11 DISTRIBUTIONS ONCE EMPLOYMENT ENDS OR BY REASON OF A PARTICIPANT'S REQUIRED BEGINNING DATE ........ 32 ------------------------------------------------------------------------------------------ 11.1 Benefit Information, Notices and Election ................................................ 32 11.2 Spousal Consent .......................................................................... 32 11.3 Payment Form and Medium .................................................................. 32 11.4 Source and Timing of Distribution Funding ................................................ 33 11.5 Latest Commencement Permitted ............................................................ 33 11.6 Payment Within Life Expectancy ........................................................... 34 11.7 Incidental Benefit Rule .................................................................. 34 11.8 Payment to Beneficiary ................................................................... 35 11.9 Beneficiary Designation .................................................................. 35
- -------------------------------------------------------------------------------- ii 12 ADP AND ACP TESTS .......................................................... 36 ----------------- 12.1 Contribution Limitation Definitions ................................ 36 12.2 ADP and ACP Tests .................................................. 38 12.3 Correction of ADP and ACP Tests .................................... 39 12.4 Multiple Use Test .................................................. 41 12.5 Correction of Multiple Use Test .................................... 41 12.6 Adjustment for Investment Gain or Loss ............................. 41 12.7 Testing Responsibilities and Required Records ...................... 41 12.8 Separate Testing ................................................... 41 13 MAXIMUM CONTRIBUTION AND BENEFIT LIMITATIONS ............................... 43 -------------------------------------------- 13.1 "Annual Addition" Defined .......................................... 43 13.2 Maximum Annual Addition ............................................ 43 13.3 Avoiding an Excess Annual Addition ................................. 43 13.4 Correcting an Excess Annual Addition ............................... 43 13.5 Correcting a Multiple Plan Excess .................................. 44 13.6 "Defined Benefit Fraction" Defined ................................. 44 13.7 "Defined Contribution Fraction" Defined ............................ 44 13.8 Combined Plan Limits and Correction ................................ 44 14 TOP HEAVY RULES ............................................................ 46 --------------- 14.1 Top Heavy Definitions .............................................. 46 14.2 Special Contributions .............................................. 47 14.3 Adjustment to Combined Limits for Different Plans .................. 48 15 PLAN ADMINISTRATION ........................................................ 49 ------------------- 15.1 Plan Delineates Authority and Responsibility ....................... 49 15.2 Fiduciary Standards ................................................ 49 15.3 Company is ERISA Plan Administrator................................. 49 15.4 Administrator Duties ............................................... 50 15.5 Advisors May be Retained ........................................... 50 15.6 Delegation of Administrator Duties.................................. 51 15.7 Committee Operating Rules .......................................... 51 16 MANAGEMENT OF INVESTMENTS .................................................. 52 ------------------------- 16.1 Trust Agreement .................................................... 52 16.2 Investment Funds ................................................... 52 16.3 Authority to Hold Cash ............................................. 53 16.4 Trustee to Act Upon Instructions ................................... 53 16.5 Administrator Has Right to Vote Registered Investment Company Shares ............................................................. 53 16.6 Custom Fund Investment Management .................................. 53 16.7 Master Custom Fund.................................................. 54 16.8 Authority to Segregate Assets ...................................... 54 17 TRUST ADMINISTRATION ....................................................... 55 --------------------
- -------------------------------------------------------------------------------- iii 17.1 Trustee to Construe Trust ........................................ 55 17.2 Trustee To Act As Owner of Trust Assets .......................... 55 17.3 United States Indicia of Ownership ............................... 55 17.4 Tax Withholding and Payment ...................................... 56 17.5 Trust Accounting ................................................. 56 17.6 Valuation of Certain Assets ...................................... 56 17.7 Legal Counsel .................................................... 57 17.8 Fees and Expenses ................................................ 57 17.9 Trustee Duties and Limitations ................................... 57 18 RIGHTS, PROTECTION, CONSTRUCTION AND JURISDICTION ........................ 58 ------------------------------------------------- 18.1 Plan Does Not Affect Employment Rights ........................... 58 18.2 Compliance With USERRA ........................................... 58 18.3 Limited Return of Contributions .................................. 58 18.4 Assignment and Alienation ........................................ 59 18.5 Facility of Payment .............................................. 59 18.6 Reallocation of Lost Participant's Accounts ...................... 59 18.7 Suspension of Certain Plan Provisions During Conversion Period ... 59 18.8 Suspension of Certain Plan Provisions During Other Periods ....... 60 18.9 Claims Procedure ................................................. 60 18.10 Construction ..................................................... 61 18.11 Jurisdiction and Severability .................................... 61 18.12 Indemnification by Employer....................................... 61 19 AMENDMENT, MERGER, DIVESTITURES AND TERMINATION .......................... 62 ----------------------------------------------- 19.1 Amendment ........................................................ 62 19.2 Merger ........................................................... 62 19.3 Divestitures ..................................................... 62 19.4 Plan Termination and Complete Discontinuance of Contributions .... 63 19.5 Amendment and Termination Procedures ............................. 63 19.6 Termination of Employer's Participation .......................... 64 19.7 Replacement of the Trustee ....................................... 64 19.8 Final Settlement and Accounting of Trustee ....................... 64 APPENDIX A - INVESTMENT FUNDS ................................................. 66 APPENDIX B - PAYMENT OF PLAN FEES AND EXPENSES ................................ 67 APPENDIX C - LOAN INTEREST RATE ............................................... 68
- -------------------------------------------------------------------------------- iv 1 DEFINITIONS ----------- When capitalized, the words and phrases below have the following meanings unless different meanings are clearly required by the context: 1.1 "Account". The records maintained by the Administrator for purposes of accounting for a Participant's interest in the Plan. "Account" may refer to one or all of the following accounts which have been created on behalf of a Participant to hold amounts attributable to specific types of Contributions under the Plan or to hold Contributions made under the plan of a Related Company in which a Participant formerly participated and which have been transferred to this Plan, contributions previously permitted under the Plan and amounts transferred from the Plan in accordance with Section 4.2: (a) "Pre-Tax Account". An account created to hold amounts attributable to Pre-Tax Contributions. (b) "After-Tax Account". An account created to hold amounts attributable to amounts previously contributed by an eligible Participant on an after-tax basis under former Plan provisions. (c) "Rollover Account". An account created to hold amounts attributable to Rollover Contributions. (d) "Matching Account". An account created to hold amounts attributable to Matching Contributions. (e) "Prior Plan Account". An account created to hold amounts attributable to amounts previously contributed by the Employer on an eligible Participant's behalf and allocated on a pay based formula under former Plan provisions 1.2 "ACP" or "Average Contribution Percentage". The percentage calculated in accordance with Section 12.1. 1.3 "Administrator". The Company, which may delegate all or a portion of the duties of the Administrator under the Plan to a Committee in accordance with Section 15.6. 1.4 "ADP" or "Average Deferral Percentage". The percentage calculated in accordance with Section 12.1. 1.5 "Alternate Payee". Any spouse, former spouse, child or other dependent (as defined in Code section 152) of a Participant who is recognized by a domestic relations order as having a right to receive all, or a portion, of the Participant's Account under the Plan. - -------------------------------------------------------------------------------- 1 1.6 "Beneficiary". The person or persons who is to receive benefits under the Plan after the death of the Participant pursuant to the "Beneficiary Designation" paragraph in Section 11. 1.7 "Code". The Internal Revenue Code of 1986, as amended. Reference to any specific Code section shall include such section, any valid regulation promulgated thereunder, and any comparable provision of any future legislation amending, supplementing or superseding such section. 1.8 "Committee". If applicable, the committee which has been appointed by the Administrator to administer the Plan in accordance with Section 15.6. 1.9 "Company". Jacobs Engineering Group Inc. or any successor by merger, purchase or otherwise. 1.10 "Compensation". The sum of a Participant's Taxable Income and salary reductions, if any, pursuant to Code section 125, 402(e)(3), 402(h)(1)(B), 403(b), 408(p)(2)(A)(i) or 457. For purposes of determining benefits under the Plan, Compensation is limited to $170,000 per Plan Year (as adjusted for cost of living increases pursuant to Code sections 401(a)(17) and 415(d)). For Plan Years commencing before January 1, 1997, for purposes of the preceding sentence, in the case of an HCE who is a 5% Owner or one of the 10 most highly compensated Employees, (i) such HCE and such HCE's family group (as defined below) shall be treated as a single employee and the Compensation of each family group member shall be aggregated with the Compensation of such HCE, and (ii) the limitation on Compensation shall be allocated among such HCE and his or her family group members in proportion to each individual's Compensation before the application of this sentence. For purposes of this Section, the term "family group" shall mean an Employee's spouse and lineal descendants who have not attained age 19 before the close of the year in question. For purposes of determining HCEs and key employees and for purposes of Sections 13.2 and 14.2, Compensation for the entire Plan Year shall be used. For purposes of determining ADP and ACP, Compensation shall be limited to amounts paid to an Eligible Employee while a Participant. 1.11 "Contribution". An amount contributed to the Plan by the Employer or an Eligible Employee, and allocated by contribution type to Participants' Accounts, as described in Section 1.1. Specific types of contribution include: (a) "Pre-Tax Contribution". An amount contributed by an eligible Participant in conjunction with his or her Code section 401(k) salary deferral election which shall be treated as made by the Employer on the eligible - -------------------------------------------------------------------------------- 2 Participant's behalf. (b) "Rollover Contribution". An amount cont ibuted by an Eligible Employee which originated from another employer's or an Employer's qualified plan. (c) "Matching Contribution". An amount contributed by the Employer on an eligible Participant's behalf based upon the amount contributed by the eligible Participant. 1.12 "Contribution Dollar Limit". The annual limit placed on each Participant's Pre-Tax Contributions, which shall be $10,500 per calendar year (as adjusted for cost of living increases pursuant to Code sections 402(g)(5) and 415(d)). For purposes of this Section, a Participant's Pre-Tax Contributions shall include (i) any employer contribution under a qualified cash or deferred arrangement (as defined in Code section 401(k)) to the extent not includible in gross income for the taxable year under Code section 402(e)(3) (determined without regard to Code section 402(g)), (ii) any employer contribution to the extent not includible in gross income for the taxable year under Code section 402(h)(1)(B) (determined without regard to Code section 402(g)), (iii) any employer contribution to purchase an annuity contract under Code section 403(b) under a salary reduction agreement (within the meaning of Code section 3121(a)(5)(D)) and (iv) any elective employer contribution under Code section 408(p)(2)(A)(i). 1.13 "Conversion Period". The period of converting the prior accounting system of the Plan and Trust or the prior accounting system of any plan and trust which is merged, in whole or in part, into the Plan and Trust, to the accounting system described in Section 6. 1.14 "Direct Rollover". An Eligible Rollover Distribution that is paid by the Plan directly to an Eligible Retirement Plan for the benefit of a Distributee. 1.15 "Disability". A Participant's total and permanent, mental or physical disability resulting in termination of employment as evidenced by (a) receipt of disability payments under the Employer's long-term disability program or (b) presentation of medical evidence satisfactory to the Administrator. 1.16 "Distributee". A Participant, a Beneficiary (if he or she is the surviving spouse of a Participant) or an Alternate Payee under a QDRO (if he or she is the spouse or former spouse of a Participant). 1.17 "Effective Date". The date upon which the provisions of this document become effective. This date is, August 1, 2000 unless stated otherwise. In general, the provisions of this document only apply to Participants who are Employees on or after the Effective Date. However, investment and distribution provisions apply - -------------------------------------------------------------------------------- 3 to all Participants with Account balances to be invested or distributed after the Effective Date. The effective date of the original Plan document is October 1, 1974. 1.18 "Eligible Employee". An Employee of an Employer, except any Employee: (a) whose compensation and conditions of employment are covered by a collective bargaining agreement to which the Employer is a party unless the agreement calls for the Employee's participation in the Plan; (b) who is treated as an Employee because he or she is a Leased Employee; or (c) who is a nonresident alien and who (i) receives no earned income (within the meaning of Code section 911(d)(2)), from sources within the United States under Code section 861(a)(3); or (ii) receives such earned income from such sources within the United States but such income is exempt from United States income tax under an applicable income tax convention. 1.19 "Eligible Retirement Plan". An individual retirement account described in Code section 408(a), an individual retirement annuity described in Code section 408(b), an annuity plan described in Code section 403(a), or a qualified trust described in Code section 401(a), that accepts a Distributee's Eligible Rollover Distribution, except that, if the Distributee is the surviving spouse of a Participant, an Eligible Retirement Plan is an individual retirement account or individual retirement annuity. 1.20 "Eligible Rollover Distribution". A distribution, (excluding hardship withdrawals of elective deferrals) of all or any portion of the balance to the credit of a Distributee, excluding (i) a distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee's designated Beneficiary, or for a specified period of ten years or more; (ii) a distribution to the extent such distribution is required under Code section 401(a)(9); and (iii) the portion of a distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to Employer securities). 1.21 "Employee". An individual who is: (a) directly employed by any Related Company and for whom any income for such employment is subject to withholding of income or social security taxes, or (b) a Leased Employee. - -------------------------------------------------------------------------------- 4 1.22 "Employer". The Company and any other Related Company which adopts the Plan with the approval of the Company. 1.23 "ERISA". The Employee Retirement Income Security Act of 1974, as amended. Reference to any specific ERISA section shall include such section, any valid regulation promulgated thereunder, and any comparable provision of any future legislation amending, supplementing or superseding such section. 1.24 "Former Participant". The Plan status of an individual after he or she is determined to be a Terminated Participant and his or her Account is distributed or forfeited. 1.25 "HCE" or "Highly Compensated Employee". An Employee described as a Highly Compensated Employee in Section 12. 1.26 "Hour of Service". Each hour for which an Employee is entitled to: (a) payment for the performance of duties for any Related Company; (b) payment from any 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), layoff, jury duty, military duty or leave of absence; (c) back pay, irrespective of mitigation of damages, by award or agreement with any Related Company (and these hours shall be credited to the period to which the award or agreement pertains); or (d) no payment, but is on a Leave of Absence (and these hours shall be based upon his or her normally scheduled hours per week or a 40 hour week if there is no regular schedule). The crediting of Hours of Service for which no duties are performed shall be in accordance with the U.S. Department of Labor regulation sections 2530.200b-2(b) and (c). Actual hours shall be used whenever an accurate record of hours are maintained for an Employee. Otherwise, an equivalent number of hours shall be credited for each payroll period in which the Employee would be credited with at least 1 Hour of Service. The payroll period equivalencies are 45 hours weekly, 90 hours biweekly, 95 hours semimonthly and 190 hours monthly. An Employee's service with a predecessor or acquired company shall only be counted in the determination of his or her Hours of Service for eligibility and/or vesting purposes if (1) the Company directs that credit for such service be - -------------------------------------------------------------------------------- 5 granted, or (2) a qualified plan of the predecessor or acquired company is subsequently maintained by any Related Company. 1.27 "Ineligible". The Plan status of an individual who is (1) an Employee of a Related Company which is not then an Employer, (2) an Employee of an Employer, but not an Eligible Employee, or (3) not an Employee. 1.28 "Investment Fund". An investment fund as described in Section 16.2. The Investment Funds authorized by the Administrator to be offered under the Plan as of the Effective Date are set forth in Appendix A. 1.29 "Leased Employee". An individual, not otherwise an Employee, who, pursuant to an agreement between a Related Company and a leasing organization, has performed, on a substantially full-time basis, for a period of at least 12 months, services under the primary direction or control of the Related Company, unless: (a) the individual is covered by a money purchase pension plan maintained by the leasing organization and meeting the requirements of Code section 414(n)(5)(B), and (b) such individuals do not constitute more than 20% of all Non-Highly Compensated Employees of all Related Companies (within the meaning of Code section 414(n)(5)(C)(ii)). 1.30 "Leave of Absence". A period during which an individual is deemed to be an Employee, but is absent from active employment, provided that the absence: (a) was authorized by a Related Company; or (b) was due to military service in the United States armed forces and the individual returns to active employment within the period during which he or she retains employment rights under federal law. 1.31 "Loan Account". The record maintained for purposes of accounting for a Participant's loan and payments of principal and interest thereon. 1.32 "NHCE" or "Non-Highly Compensated Employee". An Employee described as a Non-Highly Compensated Employee in Section 12. 1.33 "Normal Retirement Date". The date of a Participant's 65th birthday. 1.34 "Owner". A person with an ownership interest in the capital, profits, outstanding stock or voting power of a Related Company within the meaning of Code section 318 or 416 (which exclude indirect ownership through a qualified plan). 1.35 "Parental Leave". The period of absence from work by reason of the pregnancy of an Employee, the birth of the Employee's child, the placement of a child with - -------------------------------------------------------------------------------- 6 the Employee in connection with the child's adoption, or the caring for such child immediately after birth or placement as described in Code section 410(a)(5)(E). 1.36 "Participant". The Plan status of an Eligible Employee after he or she completes the eligibility requirements and enters the Plan as described in Section 2.1 and any individual for whom assets have been transferred from a predecessor plan merged, in whole or in part, with the Plan. An Eligible Employee who makes a Rollover Contribution prior to completing the eligibility requirements as described in Section 2.1 shall also be considered a Participant, except that he or she shall not be considered a Participant for purposes of Plan provisions related to Contributions, other than a Rollover Contribution, until he or she completes the eligibility requirements and enters the Plan as described in Section 2.1. A Participant's participation continues until his or her employment with all Related Companies ends and his or her Account is distributed or forfeited. 1.37 "Pay". The base pay paid to an Eligible Employee by an Employer while he or she is a Participant during the current period. Pay is neither increased by any salary credit or decreased by any salary reduction pursuant to Code sections 125 or 402(e)(3). Pay is limited to $170,000 per Plan Year (as adjusted for cost of living increases pursuant to Code sections 401(a)(17) and 415(d)). 1.38 "Plan". The Jacobs Engineering Group Inc. 401(k) Plus Savings Plan set forth in this document, as from time to time amended. 1.39 "Plan Year". The annual accounting period of the Plan and Trust which ends on each December 31. 1.40 "QDRO". A domestic relations order which the Administrator has determined to be a qualified domestic relations order within the meaning of Code section 414(p). 1.41 "Related Company". With respect to any Employer, that Employer and any corporation, trade or business which is, together with that Employer, a member of the same controlled group of corporations, a trade or business under common control, or an affiliated service group within the meaning of Code sections 414(b), (c), (m) or (o), except that for purposes of Section 13 "within the meaning of Code sections 414(b), (c), (m) or (o), as modified by Code section 415(h)" shall be substituted for the preceding reference to "within the meaning of Code sections 414(b), (c), (m) or (o)". 1.42 "Required Beginning Date". The latest date benefit payments shall commence to a Participant. (a) For calendar years commencing before January 1, 1997, such date shall - -------------------------------------------------------------------------------- 7 mean: (1) with regard to a Participant who attained age 70 1/2 in 1996, did not terminate employment with all Related Companies before January 1, 1997, and is not or was not a 5% Owner, the April 1 that next follows (i) the calendar year in which the Participant attained age 70 1/2, or (ii) if the Participant elects to apply this clause (ii), the calendar year in which the Participant terminates employment with all Related Companies (and any such election must be made prior to January 1, 1998);and (2) with regard to a Participant who attained age 70 1/2 after December 31, 1987 and before January 1, 1996 or, in 1996 if he or she terminated employment with all Related Companies before January 1, 1997 or is or was a 5% Owner, the April 1 that next follows the calendar year in which the Participant attains age 70 1/2; and (3) with regard to a Participant who attained age 70 1/2 before January 1, 1988 and who is not 5% Owner, the April 1 that next follows the later of (i) the calendar year in which the Participant attained age 70 1/2, or (ii) the calendar year in which the Participant terminates employment with all Related Companies; and (4) with regard to a Participant who attained age 70 1/2 before January 1, 1988 and who is a 5% Owner, the April 1 that next follows the later of (i) the calendar year in which the Participant attained age 70 1/2, or (ii) the earlier of the calendar year in which or within which ends the Plan Year in which the Participant becomes a 5% Owner or the calendar year in which he or she terminates employment with all Related Companies. A Participant shall be considered a 5% Owner for this purpose if such Participant is a 5% Owner as defined in Code section 416(i) (determined in accordance with Code section 416 but without regard to whether the Plan is top-heavy) at any time during the Plan Year ending with or within the calendar year in which the Participant attains age 66 1/2 or in any subsequent Plan Year. (b) For calendar years commencing after December 31, 1996 and before January 1, 1999, such date shall mean: (1) with regard to a Participant who attained age 70 1/2 in 1997 or 1998, the April 1 that next follows the calendar year in which he or she attained age 70 1/2, except that if the Participant (i) did not - ------------------------------------------------------------------------------- 8 terminate employment with all Related Companies before January 1 of the calendar year following the calendar year in which he or she attained age 70 1/2, (ii) is not a 5% Owner, such date shall instead mean the April 1 that next follows (i) the calendar year in which the Participant attained age 70 1/2, or (ii) if the Participant elects to apply this clause (ii), the calendar year in which the Participant terminates employment with all Related Companies (and any such election must be made prior to the April 1 of the calendar year following the calendar year in which he or she attained age 70 1/2); and (2) with regard to a Participant who is a 5% Owner, the April 1 that next follows the calendar year in which the Participant attains age 70 1/2. A Participant shall be considered a 5% Owner for this purpose if such Participant is a 5% Owner with respect to the Plan Year ending in the calendar year in which the Participant attains age 70 1/2. (c) For calendar years commencing after December 31, 1998, such date shall mean: (1) with regard to a Participant who is not a 5% Owner, the April 1 that next follows the later of (i) the calendar year in which the Participant attained age 70 1/2, or (ii) the calendar year in which the Participant terminates employment with all Related Companies; and (2) with regard to a Participant who is a 5% Owner, the April 1 that next follows the calendar year in which the Participant attains age 70 1/2. A Participant shall be considered a 5% Owner for this purpose if such Participant is a 5% Owner with respect to the Plan Year ending in the calendar year in which the Participant attains age 70 1/2. 1.43 "Spousal Consent". The written consent given by a spouse to a Participant's election or waiver of Beneficiary designation. The spouse's consent must acknowledge the effect on the spouse of the Participant's election, waiver or designation, and be duly witnessed by a notary public. Spousal Consent shall be valid only with respect to the spouse who signs the Spousal Consent and only for the particular choice made by the Participant which requires Spousal Consent. A Participant may revoke (without Spousal Consent) a prior election, waiver or designation that required Spousal Consent at any time before payments begin. Spousal Consent also means a determination by the - -------------------------------------------------------------------------------- 9 Administrator that there is no spouse, the spouse cannot be located, or such other circumstances as may be established under Code section 417(a)(2)(B). 1.44 "Taxable Income". Compensation in the amount reported by the Employer or a Related Company as "Wages, tips, other compensation" on Form W-2, or any successor method of reporting under Code section 6041(d). 1.45 "Terminated Participant". The Plan status of a Participant who is not an Employee and with respect to whom the Administrator has reported to the Trustee that the Participant's employment has terminated with all Related Companies. 1.46 "Trust". The legal entity created by those provisions of this document which relate to the Trustee. The Trust is part of the Plan and holds the Plan assets which are comprised of the aggregate of Participants' Accounts, and any unallocated funds invested in interest bearing deposits (which may include interest bearing deposits of the Trustee) and/or money market type assets or funds, pending allocation to Participants' Accounts or disbursement to pay Plan fees and expenses. 1.47 "Trustee". Vanguard Fiduciary Trust Company 1.48 "USERRA". The Uniformed Services Employment and Reemployment Rights Act of 1994, as amended. 1.49 "Valuation Date". Each business day the New York Stock Exchange is open for business. - -------------------------------------------------------------------------------- 10 2 ELIGIBILITY ----------- 2.1 Eligibility All Participants as of January 1, 1998 shall continue their eligibility to participate. For purposes of Pre-Tax Contributions, each other individual who is an Eligible Employee on January 1, 1998 shall become a Participant on that date. Each other Eligible Employee shall become a Participant as soon as administratively feasible after date of hire but not more than 30 days. For purposes of Matching Contributions, each Eligible Employee shall become a Participant on the first day of the next month after the date he or she completes a 12-month eligibility period in which he or she is credited with at least 1,000 Hours of Service. The initial eligibility period begins on the date an Employee first performs an Hour of Service. Subsequent eligibility periods begin with the start of each Plan Year beginning after the first Hour of Service is performed. 2.2 Ineligible Employees If an Employee completes the above eligibility requirements, but is Ineligible at the time participation would otherwise begin (if he or she were not Ineligible), he or she shall become a Participant on the first subsequent date on which he or she is an Eligible Employee. 2.3 Ineligible, Terminated or Former Participants An Ineligible, Terminated or Former Participant may not make or share in any Contributions, other than such Contributions due to be made on his or her behalf after the date he or she became an Ineligible, Terminated or Former Participant for periods prior to such date, nor may an Ineligible or Terminated Participant be eligible for a new Plan loan (except as described in Section 9.1), during the period he or she is an Ineligible or Terminated Participant, but he or she shall continue to participate for all other purposes. An Ineligible, Terminated or Former Participant shall automatically become an active Participant on the date he or she again becomes an Eligible Employee. - -------------------------------------------------------------------------------- 11 3 PARTICIPANT CONTRIBUTIONS ------------------------- 3.1 Pre-Tax Contribution Election Upon becoming a Participant, an Eligible Employee may elect to reduce his or her Pay by an amount which does not exceed the Contribution Dollar Limit or the limits described in the Contribution Percentage Limits paragraph of this Section 3, and have such amount contributed to the Plan by the Employer as a Pre-Tax Contribution. The election shall be made in such manner and with such advance notice as prescribed by the Administrator and may be limited to a whole percentage of Pay. In no event shall an Employee's Pre-Tax Contributions under the Plan and comparable contributions to all other plans, contracts or arrangements of all Related Companies exceed the Contribution Dollar Limit for the Employee's taxable year beginning in the Plan Year. 3.2 Changing a Contribution Election A Participant who is an Eligible Employee may change his or her Pre-Tax Contribution election at any time in such manner and with such advance notice as prescribed by the Administrator, and such election change shall be effective as soon as administratively feasible after such date. A Participant's Contribution election made as a percentage of Pay shall automatically apply to Pay increases or decreases. 3.3 Revoking and Resuming a Contribution Election A Participant may revoke his or her Pre-Tax Contribution election at any time in such manner and with such advance notice as prescribed by the Administrator, and such revocation shall be effective as soon as administratively feasible after such date. A Participant who is an Eligible Employee may resume Pre-Tax Contributions by making a new election at the same time in which a Participant may change his or her election and such election shall be effective as soon as administratively feasible after such date. 3.4 Contribution Percentage Limits The Administrator may establish and change from time to time, in writing, without the necessity of amending the Plan and Trust, the minimum, if applicable, and maximum Pre-Tax Contribution percentages, prospectively or retrospectively (for the current Plan Year), for all Participants. In addition, the Administrator may establish any lower percentage limits for Highly Compensated Employees as it deems necessary to satisfy the tests described in Section 12. As of the Effective Date, the maximum Contribution percentages are: - ------------------------------------------------------------------------------- 12 Highly Contribution Compensated All Other Type Employees Participants --------- ------------ Pre-Tax 10% 18% Irrespective of the limits that may be established by the Administrator in accordance with the paragraph above, in no event shall the Contributions made by or on behalf of a Participant for a Plan Year exceed the maximum allowable under Code section 415. 3.5 Refunds When Contribution Dollar Limit Exceeded A Participant who makes Pre-Tax Contributions for a calendar year to the Plan and comparable contributions to any other qualified defined contribution plan in excess of the Contribution Dollar Limit may notify the Administrator in writing by the following March 1 (or as late as April 14 if allowed by the Administrator) that an excess has occurred. In this event, the amount of the excess specified by the Participant, adjusted for investment gain or loss, shall be refunded to him or her by the April 15 following the year of deferral and shall not be included as an Annual Addition (as defined in Section 13.1) under Code section 415 for the year contributed. The excess amounts shall first be taken from unmatched Pre-Tax Contributions and then from matched Pre-Tax Contributions. Any Matching Contributions attributable to refunded excess Pre-Tax Contributions as described in this Section, adjusted for investment gain or loss, shall be forfeited and used to reduce future Contributions to be made by an Employer as soon as administratively feasible. Refunds and forfeitures shall not include investment gain or loss for the period between the end of the applicable calendar year and the date of distribution or forfeiture. 3.6 Timing, Posting and Tax Considerations Participants' Contributions, other than Rollover Contributions, may only be made through payroll deduction. Such amounts shall be paid to the Trustee in cash and posted to each Participant's Account(s) as soon as such amounts can reasonably be separated from the Employer's general assets and balanced against the specific amount made on behalf of each Participant. In no event, however, shall such amounts be paid to the Trustee more than 15 business days following the end of the month that includes the date amounts are deducted from a Participant's Pay (or as that maximum period may be otherwise extended by ERISA). Pre-Tax Contributions shall be treated as Contributions made by an Employer in determining tax deductions under Code section 404(a). - -------------------------------------------------------------------------------- 13 4 ROLLOVER CONTRIBUTIONS AND TRANSFERS FROM AND TO OTHER QUALIFIED PLANS ---------------------------------------------------------------------- 4.1 Rollover Contributions The Administrator may authorize the Trustee to accept a Rollover Contribution in cash, directly from an Eligible Employee or as a Direct Rollover from another qualified plan on behalf of the Eligible Employee, even if he or she is not yet a Participant. The Employee shall be responsible for providing satisfactory evidence, in such manner as prescribed by the Administrator, that such Rollover Contribution qualifies as a rollover contribution, within the meaning of Code section 402(c) or 408(d)(3)(A)(ii). Such amounts received directly from an Eligible Employee must be paid to the Trustee in cash within 60 days after the date received by the Eligible Employee from a qualified plan or conduit individual retirement account. Rollover Contributions shall be posted to the Eligible Employee's Rollover Account as of the date received by the Trustee. If the Administrator later determines that an amount contributed pursuant to the above paragraph did not in fact qualify as a rollover contribution, within the meaning of Code section 402(c) or 408(d)(3)(A)(ii), the balance credited to the Participant's Rollover Account shall immediately be (1) segregated from all other Plan assets, (2) treated as a nonqualified trust established by and for the benefit of the Participant, and (3) distributed to the Participant. Any such amount shall be deemed never to have been a part of the Plan. 4.2 Transfers From and To Other Qualified Plans The Administrator may instruct the Trustee to receive assets in cash or in kind directly from another qualified plan or to transfer assets in cash or in kind directly to another qualified plan; provided that receipt of a transfer shall not be directed if: (a) any amounts are not exempted by Code section 401(a)(11)(B) from the annuity requirements of Code section 417 unless the Plan complies with such requirements; or (b) any amounts include benefits protected by Code section 411(d)(6) which would not be preserved under applicable Plan provisions. The Trustee may refuse to receive any such transfer if: (a) the Trustee finds the in kind assets unacceptable; or (b) instructions for posting amounts to Participants' Accounts are incomplete. - -------------------------------------------------------------------------------- 14 Such amounts shall be posted to the appropriate Accounts of Participants as of the date received by the Trustee. To the extent a receipt of a transfer includes Participant loans, such loans shall continue in effect subject to the terms and conditions in effect as of the date of the transfer or as otherwise agreed to by the Administrator. - -------------------------------------------------------------------------------- 15 5 EMPLOYER CONTRIBUTIONS ---------------------- 5.1 Matching Contributions (a) Frequency and Eligibility. For each period for which Participants' Contributions are made, the Employer shall make Matching Contributions, as described in the following Allocation Method paragraph, on behalf of each Participant who contributed during the period and who has met the eligibility requirements of Section 2.1. (b) Allocation Method. The Matching Contributions for each period shall total 50% of each eligible Participant's Pre-Tax Contributions for the period, provided that no Matching Contributions shall be made based upon a Participant's Contributions in excess of 6% of his or her Pay. The Employer may change the 50% matching rate or the 6% of considered Pay to any other percentages, including 0%, generally by notifying eligible Participants in sufficient time to adjust their Contribution elections prior to the start of the period for which the new percentages apply. (c) Timing, Medium and Posting. The Employer shall make each period's Matching Contribution in cash as soon as administratively feasible, and for purposes of deducting such Contribution, not later than the Employer's federal tax filing date, including extensions, for the Employer's taxable year that ends with or within the Plan Year for which the Matching Contribution is made. Such amounts shall be paid to the Trustee and posted to each Participant's Matching Account once the total Matching Contribution received has been balanced against the specific amount to be credited to each Participant's Matching Account. - -------------------------------------------------------------------------------- 16 6 ACCOUNTING ---------- 6.1 Individual Participant Accounting The Administrator shall maintain an individual set of Accounts for each Participant in order to reflect transactions both by type of Account and investment medium. Financial transactions shall be accounted for at the individual Account level by posting each transaction to the appropriate Account of each affected Participant. Participant Account values shall be maintained in shares for the Investment Funds and in dollars for the Loan Account. At any point in time, the Account value shall be determined using the most recent Valuation Date values provided by the Trustee. 6.2 Valuation Date Accounting and Investment Cycle Participant Account values shall be determined as of each Valuation Date. For any transaction to be processed as of a Valuation Date, the Trustee must receive instructions for the transaction by the Valuation Date. Such instructions shall apply to amounts held in the Account on that Valuation Date. Financial transactions of the Investment Funds shall be posted to Participants' Accounts as of the Valuation Date, based upon the Valuation Date values provided by the Trustee, and settled on the Valuation Date. 6.3 Accounting for Investment Funds Investments in each Investment Fund shall be maintained in shares. The Trustee is responsible for determining the share values of each Investment Fund as of each Valuation Date. To the extent an Investment Fund is comprised of collective investment funds offered by the Trustee or any other entity authorized to offer collective investment funds, the share values shall be determined in accordance with the rules governing such collective investment funds, which are incorporated herein by reference. All other share values shall be determined by the Trustee. The share value of each Investment Fund shall be based on the fair market value of its underlying assets. 6.4 Payment of Fees and Expenses Except to the extent Plan fees and expenses related to Account maintenance, transaction and Investment Fund management and maintenance, set forth below, are paid by the Employer directly, such fees and expenses shall be paid as set forth below. (a) Account Maintenance: Account maintenance fees and expenses, may include but are not limited to, administrative, Trustee, government annual report preparation, audit, legal, nondiscrimination testing and fees for - -------------------------------------------------------------------------------- 17 any other special services. Account maintenance fees shall be charged to Participants on a per Participant basis provided that no fee shall reduce a Participant's Account balance below zero. (b) Investment Fund Management and Maintenance: Management and maintenance fees and expenses related to the Investment Funds shall be charged at the Investment Fund level and reflected in the net gain or loss of each Investment Fund. The Company may determine that the Employers pay a lower portion of the fees and expenses allocable to the Accounts of Participants who are no longer Employees or who are not Beneficiaries, unless doing so would result in discrimination prohibited under Code section 401(a)(4) or a significant detriment prohibited by Code section 411(a)(11). As of the Effective Date, a breakdown of which Plan fees and expenses shall generally be borne by the Trust (and charged to individual Participants' Accounts or charged at the Investment Fund level and reflected in the net gain or loss of each Investment Fund) and those that shall be paid by the Employer is set forth in Appendix B, which may be changed from time to time by the Company, in writing, without the necessity of amending the Plan and Trust. The Trustee shall have the authority to pay any such fees and expenses, which remain unpaid by the Employer for 60 days, from the Trust. 6.5 Accounting for Participant Loans Participant loans shall be held in a separate Loan Account of the Participant and accounted for in dollars as an earmarked asset of the borrowing Participant's Account. 6.6 Error Correction The Administrator may correct any errors or omissions in the administration of the Plan by restoring any Participant's Account balance with the amount that would be credited to the Account had no error or omission been made. Funds necessary for any such restoration shall be provided through payment made by the Employer, or by the Trustee to the extent the error or omission is attributable to actions or inactions of the Trustee. 6.7 Participant Statements The Administrator shall provide Participants with statements of their Accounts as soon after the end of each quarter of the Plan Year as administratively feasible. - -------------------------------------------------------------------------------- 18 6.8 Special Accounting During Conversion Period The Administrator and Trustee may use any reasonable accounting methods in performing their respective duties during any Conversion Period. This includes, but is not limited to, the method for allocating net investment gains or losses and the extent, if any, to which contributions received by and distributions paid from the Trust during this period share in such allocation. 6.9 Accounts for Alternate Payees A separate Account shall be established for an Alternate Payee entitled to any portion of a Participant's Account under a QDRO as of the date and in accordance with the directions specified in the QDRO. In addition, a separate Account may be established during the period of time the Administrator, a court of competent jurisdiction or other appropriate person is determining whether a domestic relations order qualifies as a QDRO. Such a separate Account shall be valued and accounted for in the same manner as any other Account. (a) Distributions Pursuant to QDROs. If a QDRO so provides, the portion of a Participant's Account payable to an Alternate Payee may be distributed, in a form permissible under Section 11 and Code section 414(p), to the Alternate Payee at any time beginning as soon as practicable after the QDRO determination is made, regardless of whether the Participant is entitled to a distribution from the Plan at such time. The Alternate Payee shall be provided the notice prescribed by Code section 402(f). (b) Participant Loans. Except to the extent required by law, an Alternate Payee, on whose behalf a separate Account has been established, shall not be entitled to borrow from such Account. If a QDRO specifies that the Alternate Payee is entitled to any portion of the Account of a Participant who has an outstanding loan balance, all outstanding loans shall generally continue to be held in the Participant's Account and shall not be divided between the Participant's and Alternate Payee's Accounts. (c) Investment Direction. Where a separate Account has been established on behalf of an Alternate Payee and has not yet been distributed, the Alternate Payee may direct the investment of such Account in the same manner as if he or she were a Participant. - -------------------------------------------------------------------------------- 19 7 INVESTMENT FUNDS AND ELECTIONS ------------------------------ 7.1 Investment Funds Except for Participants' Loan Account and any unallocated funds invested in interest bearing deposits (which may include interest bearing deposits of the Trustee) and/or money market type assets or funds, pending allocation to Participants' Accounts, or disbursement to pay Plan fees and expenses, the Trust shall be maintained in various Investment Funds. The Administrator shall select the Investment Funds offered to Participants and may change the number or composition of the Investment Funds, subject to the terms and conditions agreed to with the Trustee. As of the Effective Date, a list of the Investment Funds offered under the Plan is set forth in Appendix A, which may be changed from time to time by the Administrator, in writing, and as agreed to by the Trustee, without the necessity of amending the Plan and Trust. The Administrator may set a maximum percentage of the total election that a Participant may direct into any specific Investment Fund, which maximum, if any, as of the Effective Date is set forth in Appendix A, which may be changed from time to time by the Administrator, in writing, without the necessity of amending the Plan and Trust. 7.2 Responsibility for Investment Choice Each Participant shall be solely responsible for the selection of his or her Investment Fund choices. No fiduciary with respect to the Plan is empowered to advise a Participant as to the manner in which his or her Accounts are to be invested, and the fact that an Investment Fund is offered shall not be construed to be a recommendation for investment. During any Conversion Period, Trust assets may be held in any investment vehicle permitted by the Plan, as directed by the Administrator, irrespective of prior Participant investment elections. 7.3 Investment Fund Elections A Participant shall provide his or her initial investment election upon becoming a Participant and may change his or her investment election at any time in accordance with procedures established by the Administrator and the Trustee. A Participant shall make his or her investment election in any combination of one or any number of the Investment Funds offered in accordance with the procedures established by the Administrator and Trustee. Investment elections received by the Trustee shall be effective on the Valuation Date. - -------------------------------------------------------------------------------- 20 7.4 Default if No Valid Investment Election The Administrator shall specify an Investment Fund for the investment of that portion of a Participant's Account which is not yet held in an Investment Fund and for which no valid investment election is on file. The Investment Fund specified as of the Effective Date is set forth in Appendix A, which may be changed from time to time by the Administrator, in writing, without the necessity of amending the Plan and Trust. 7.5 Investment Fund Election Change Fees A reasonable processing fee may be charged directly to a Participant's Account for Investment Fund election changes in excess of a specified number per year as determined by the Administrator. - -------------------------------------------------------------------------------- 21 8 VESTING ------- 8.1 Fully Vested Accounts A Participant shall be fully vested in all Accounts at all times. - -------------------------------------------------------------------------------- 22 9 PARTICIPANT LOANS ----------------- 9.1 Participant Loans Permitted Loans to Participants and Beneficiaries are permitted pursuant to the terms and conditions set forth in this Section, except that a loan shall not be permitted to a Participant who is no longer an Employee or to a Beneficiary, unless such Participant or Beneficiary is otherwise a party in interest (as defined in ERISA section 3(14)). 9.2 Loan Application, Note and Security A Participant shall apply for any loan in such manner and with such advance notice as prescribed by the Administrator. Each loan shall be evidenced by a promissory note, secured only by the portion of the Participant's Account from which the loan is made, and the Plan shall have a lien on this portion of his or her Account. 9.3 Spousal Consent A Participant is not required to obtain Spousal Consent in order to borrow from his or her Account under the Plan, unless they have transferred into this plan with a grandfathered benefit that allows a joint and survivor option. 9.4 Loan Approval The Administrator, or the Trustee, if otherwise authorized by the Administrator and agreed to by the Trustee, is responsible for determining that a loan request conforms to the requirements described in this Section and granting such request. 9.5 Loan Funding Limits, Account Sources and Funding Order The loan amount must meet all of the following limits as determined as of the Valuation Date then the loan is processed and shall be funded from the Participant's Accounts as follows: (a) Plan Minimum Limit. The minimum amount for any loan is $500. (b) Plan Maximum Limit, Account Sources and Funding Order. Subject to the legal limit described in (c) below, the maximum a Participant may borrow, including the aggregate outstanding balances of existing Plan loans, is 100% of the Participant's Accounts. (c) Legal Maximum Limit. The maximum a Participant may borrow, - -------------------------------------------------------------------------------- 23 including the aggregate outstanding balances of existing Plan loans, is 50% of his or her vested Account balance, not to exceed $50,000. However, the $50,000 maximum is reduced by the Participant's highest aggregate outstanding Plan loan balance during the 12-month period ending on the day before the Valuation Date as of which the loan is made. For purposes of this paragraph, the qualified plans of all Related Companies shall be treated as though they are part of the Plan to the extent it would decrease the maximum loan amount. 9.6 Maximum Number of Loans A Participant may have only one loan outstanding at any given time. 9.7 Source and Timing of Loan Funding A loan to a Participant shall be made solely from the assets of his or her own Account. The available assets shall be determined first by Account and then within each Account used for funding a loan, amounts shall be taken from the Investment Fund in direct proportion to the market value of the Participant's interest in each Investment Fund. as of the Valuation Date on which the loan is processed. The loan shall be funded on the Valuation Date as of which the loan is processed. The Trustee shall make payment to the Participant as soon thereafter as administratively feasible. 9.8 Interest Rate The interest rate charged on Participant loans shall be a fixed reasonable rate of interest, determined from time to time by the Administrator, which provides the Plan with a return commensurate with the prevailing interest rate charged by persons in the business of lending money for loans which would be made under similar circumstances. As of the Effective Date, the interest rate is determined as set forth in Appendix C, which may be changed from time to time by the Administrator, in writing, without the necessity of amending the Plan and Trust. 9.9 Loan Payment Substantially level amortization shall be required of each loan with payments made at least monthly, generally through payroll deduction. Loans may be prepaid in full or in part at any time. The Participant may choose the loan repayment period, not to exceed 5 years. - -------------------------------------------------------------------------------- 24 9.10 Loan Payment Hierarchy Loan principal payments shall be credited to the Participant's Accounts in the inverse of the order used to fund the loan. Loan interest shall be credited to the Participant's Accounts in direct proportion to the principal payment. Loan payments are credited to the Investment Funds based upon the Participant's current investment election for new Contributions. 9.11 Repayment Suspension The Administrator may agree to a suspension of loan payments for up to 12 months for a Participant who is on a Leave of Absence without pay. During the suspension period, interest shall continue to accrue on the outstanding loan balance. At the expiration of the suspension period all outstanding loan payments and accrued interest thereon shall be due unless otherwise agreed upon by the Administrator. 9.12 Loan Default A loan is treated as in default if a scheduled loan payment is not made at the time required. A Participant shall then have a grace period to cure the default before it becomes final. Such grace period shall be for a period that does not extend beyond the last day of the calendar quarter following the calendar quarter in which the scheduled loan payment was due or such lesser or greater maximum period as may later be authorized by Code section 72(p). In the event a default is not cured within the grace period, the Administrator may direct the Trustee to report the outstanding principal balance of the loan and accrued interest thereon as a taxable distribution to the Participant. As soon as a Plan withdrawal or distribution to such Participant would otherwise be permitted, the Administrator may instruct the Trustee to execute upon its security interest in the Participant's Account by distributing the note to the Participant. 9.13 Call Feature The Administrator shall have the right to call any Participant loan once a Participant's employment with all Related Companies has terminated, unless he or she is otherwise a party in interest (as defined in ERISA section 3(14)), or if the Plan is terminated. - ------------------------------------------------------------------------------- 25 10 IN-SERVICE WITHDRAWALS ---------------------- 10.1 In-Service Withdrawals Permitted In-service withdrawals to a Participant who is an Employee are permitted pursuant to the terms and conditions set forth in this Section and pursuant to the terms and conditions set forth in Section 11 with regard to an in-service withdrawal made in accordance with a Participant's Required Beginning Date. 10.2 In-Service Withdrawal Application and Notice A Participant shall apply for any in-service withdrawal in such manner and with such advance notice as prescribed by the Administrator. The Participant shall be provided the notice prescribed by Code section 402(f). Code sections 401(a)(11) and 417 do not apply to in-service withdrawals under the Plan. An in-service withdrawal may commence less than 30 days after the aforementioned notice is provided, if: (a) the Participant is clearly informed that he or she has the right to a period of at least 30 days after receipt of such notice to consider his or her option to elect or not elect a Direct Rollover for all or a portion, if any, of his or her in-service withdrawal which constitutes an Eligible Rollover Distribution; and (b) the Participant after receiving such notice, affirmatively elects a Direct Rollover for all or a portion, if any, of his or her in-service withdrawal which constitutes an Eligible Rollover Distribution or alternatively elects to have all or a portion made payable directly to him or her, thereby not electing a Direct Rollover for all or a portion thereof. Notwithstanding the foregoing, Hardship Withdrawal amounts withdrawn from a Participant's Pre-Tax Account shall not constitute an Eligible Rollover Distribution. 10.3 Spousal Consent A Participant is not required to obtain Spousal Consent in order to receive an in-service withdrawal under the Plan. 10.4 In-Service Withdrawal Approval The Administrator, or the Trustee, if otherwise authorized by the Administrator and agreed to by the Trustee, is responsible for determining whether an in-service withdrawal request conforms to the requirements described in this Section and granting such request. - -------------------------------------------------------------------------------- 26 10.5 Payment Form and Medium The form of payment for an in-service withdrawal shall be a single lump sum and payment shall be made in cash. With regard to the portion of an in-service withdrawal representing an Eligible Rollover Distribution, a Participant may elect a Direct Rollover for all or a portion of such amount. 10.6 Source and Timing of In-Service Withdrawal Funding An in-service withdrawal to a Participant shall be made solely from the assets of his or her own Account and shall be based on the Account values as of the Trade Date the in-service withdrawal is processed. The available assets shall be determined first by Account and then within each Account used for funding an in-service withdrawal, amounts shall be taken by Investment Fund in direct proportion to the market value of the Participant's interest in each Investment Fund (which excludes his or her Loan Account balance) as of the Valuation Date on which the in-service withdrawal is processed. 10.7 Hardship Withdrawals (a) Requirements. A Participant who is an Employee may request the withdrawal of up to the amount necessary to satisfy a financial need including amounts necessary to pay any federal, state or local income taxes or penalties reasonably anticipated to result from the withdrawal. Only requests for withdrawals (1) on account of a Participant's "Deemed Financial Need" and (2) which are "Deemed Necessary" to satisfy the financial need shall be approved. (b) "Deemed Financial Need". An immediate and heavy financial need relating to: (1) the payment of unreimbursed medical care expenses (described under Code section 213(d)) incurred (or to be incurred) by the Employee, his or her spouse or dependents (as defined in Code section 152); (2) the purchase (excluding mortgage payments) of the Employee's principal residence; (3) the payment of unreimbursed tuition, related educational fees and room and board for up to the next 12 months of post-secondary education for the Employee, his or her spouse or dependents (as defined in Code section 152); (4) the payment of amounts necessary for the Employee to prevent - -------------------------------------------------------------------------------- 27 losing his or her principal residence through eviction or foreclosure on the mortgage; or (5) any other circumstance specifically permitted under Code section 401(k)(2)(B)(i)(IV). (c) "Deemed Necessary". A withdrawal is "Deemed Necessary" to satisfy the financial need only if the withdrawal amount does not exceed the financial need and all of these conditions are met: (1) the Employee has obtained all possible withdrawals (other than hardship withdrawals) and nontaxable loans available from the Plan and all other plans maintained by Related Companies, unless repayment of this loan would create an additional financial hardship. (2) the Administrator shall suspend the Employee from making any contributions to the Plan and all other qualified and nonqualified plans of deferred compensation and all stock option or stock purchase plans maintained by Related Companies for 12 months from the date the withdrawal payment; and (3) the Administrator shall reduce the Contribution Dollar Limit for the Employee with regard to the Plan and all other plans maintained by Related Companies, for the calendar year next following the calendar year of the withdrawal by the amount of the Employee's Pre-Tax Contributions for the calendar year of the withdrawal. (c) Account Sources and Funding Order. All available amounts must first be withdrawn from a Participant's After-Tax Account. The remaining withdrawal shall come from the following of the Participant's Accounts, in the priority order as follows: Rollover Account Matching Account Prior Plan Account Pre-Tax Account The amount that may be withdrawn from a Participant's Pre-Tax Account shall not include any amounts attributable to earnings after December 31, 1988. The amount that may be withdrawn from a Participant's Matching - -------------------------------------------------------------------------------- 28 Account shall not include any amounts attributable to contributions or earnings after the start of the first Plan Year beginning after December 31, 1988. (d) Minimum Amount. There is no minimum amount for a hardship withdrawal. (e) Permitted Frequency. There is no restriction on the number of hardship withdrawals permitted to a Participant. (f) Suspension from Further Contributions. Upon making a hardship withdrawal, a Participant may not make additional Pre-Tax Contributions (or additional contributions to all other qualified and nonqualified plans of deferred compensation and all stock option or stock purchase plans maintained by Related Companies), if his or her hardship withdrawal was "Deemed Necessary", and shall not be eligible to receive Match Contributions, for a period of 12 months from the date the withdrawal payment is made. 10.8 After-Tax Account Withdrawals (a) Requirements. A Participant who is an Employee may make an After-Tax Account withdrawal. (b) Account Sources and Funding Order. The withdrawal shall come from a Participant's After-Tax Account. (c) Minimum Amount. There is no minimum amount for an After-Tax Account withdrawal. (c) Permitted Frequency. There is no restriction on the number of After-Tax Account withdrawals permitted to a Participant. (d) Suspension from Further Contributions. An After-Tax Account withdrawal shall not affect a Participant's ability to make further Contributions. 10.9 Rollover Account Withdrawals (a) Requirements. A Participant who is an Employee may make a Rollover Account withdrawal. (b) Account Sources and Funding Order. The withdrawal shall come from a Participant's Rollover Account. (c) Minimum Amount. There is no minimum amount for a Rollover Account withdrawal. (c) Permitted Frequency. There is no restriction on the number of Rollover Account - -------------------------------------------------------------------------------- 29 withdrawal. (c) Permitted Frequency. There is no restriction on the number of Rollover Account withdrawals permitted to a Participant. (d) Suspension from Further Contributions. A Rollover Account withdrawal shall not affect a Participant's ability to make further Contributions. 10.10 Over Age 59 1/2 Withdrawals (a) Requirements. A Participant who is an Employee and over age 59 1/2 may make an Over Age 59 1/2 withdrawal. (b) Minimum Amount. There is no minimum amount for an Over Age 59 1/2 withdrawal. (c) Permitted Frequency. The maximum number of Over Age 59 1/2 withdrawals permitted to a Participant in any 12-month period is not to exceed one per month. (d) Suspension from Further Contributions. An Over Age 59 1/2 withdrawal shall not affect a Participant's ability to make or be eligible to receive further Contributions. - -------------------------------------------------------------------------------- 30 11 DISTRIBUTIONS ONCE EMPLOYMENT ENDS OR BY REASON OF A PARTICIPANT'S REQUIRED --------------------------------------------------------------------------- BEGINNING DATE -------------- 11.1 Benefit Information, Notices and Election A Participant, or his or her Beneficiary in the case of his or her death, shall be provided with information regarding all optional times and forms of distribution available under the Plan, including the notices prescribed by Code sections 402(f) and 411(a)(11). Subject to the other requirements of this Section, a Participant, or his or her Beneficiary in the case of his or her death, may elect, in such manner and with such advance notice as prescribed by the Administrator, to have his or her vested Account balance distributed beginning upon any Valuation Date following the Participant's termination of employment with all Related Companies and a reasonable period of time during which the Administrator shall process, and inform the Trustee of, the Participant's termination or, if earlier, at the time of the Participant's Required Beginning Date. Notwithstanding, if a Participant's termination of employment with all Related Companies does not constitute a separation from service for purposes of Code section 401(k)(2)(B)(i)(I) or otherwise constitute an event set forth under Code section 401(k)(10)(A)(ii) or (iii) as described in Section 19.3, the portion of a Participant's Account subject to the distribution rules of Code section 401(k) may not be distributed until such time as he or she separates from service for purposes of Code section 401(k)(2)(B)(i)(I) or, if earlier, upon such other event as described in Code section 401(k)(2)(B) and as provided for in the Plan. Code sections 401(a)(11) and 417 do not apply to distributions under the Plan. A distribution may commence less than 30 days after the aforementioned notices are provided, if: (a) the Participant is clearly informed that he or she has the right to a period of at least 30 days after receipt of such notices to consider the decision as to whether to elect a distribution and if so to elect a particular form of distribution and to elect or not elect a Direct Rollover for all or a portion, if any, of his or her distribution which constitutes an Eligible Rollover Distribution; and (b) the Participant after receiving such notices, affirmatively elects a distribution and a Direct Rollover for all or a portion, if any, of his or her distribution which constitutes an Eligible Rollover Distribution or alternatively elects to have all or a portion made payable directly to him or her, thereby not electing a Direct Rollover for all or a portion thereof. 11.2 Spousal Consent - -------------------------------------------------------------------------------- 31 A Participant is not required to obtain Spousal Consent in order to receive a distribution under the Plan. 11.3 Payment Form and Medium Except to the extent otherwise provided by Section 11.4, a Participant may elect to be paid in any of these forms: (a) a single lump sum; or (b) a portion paid in a lump sum, and the remainder paid later (partial payment); or (c) periodic installments over a period not to exceed the life expectancy of the Participant and his or her Beneficiary. Distributions shall be made in cash, except to the extent a distribution consists of a loan call as described in Section 9. With regard to the portion of a distribution representing an Eligible Rollover Distribution, a Distributee may elect a Direct Rollover for all or a portion of such amount. 11.4 Source and Timing of Distribution Funding A distribution to a Participant shall be made solely from the assets of his or her own Account and shall be based on the Account values as of the Valuation Date the distribution is processed. The available assets shall be determined first by Account and then within each Account used for funding a distribution, amounts shall be taken from the Investment Fund in direct proportion to the market value of the Participant's interest in each Investment Fund as of the Valuation Date on which the distribution is processed. The distribution shall be funded on the Valuation Date as of which the distribution is processed. The Trustee shall make payment to the Participant or on behalf of the Participant as soon thereafter as administratively feasible. 11.5 Latest Commencement Permitted In addition to any other Plan requirements and unless a Participant elects otherwise, his or her benefit payments shall begin not later than 60 days after the end of the Plan Year in which he or she attains his or her Normal Retirement Date or retires, whichever is later. However, if the amount of the payment or the location of the Participant (after a reasonable search) cannot be ascertained by that deadline, payment shall be made no later than 60 days after the earliest date on which such amount or location is ascertained but in no event later than the Participant's Required Beginning Date. A Participant's failure to elect in such - -------------------------------------------------------------------------------- 32 manner as prescribed by the Administrator to have his or her vested Account balance distributed, shall be deemed an election by the Participant to defer his or her distribution but in no event shall his or her benefit payments commence later than his or her Required Beginning Date. With regard to a Participant who is an Employee and who commenced benefit payments in accordance with Code section 401(a)(9) as in effect prior to January 1, 1997, and who is not a 5% Owner, he or she may, but is not required to, discontinue such benefit payments until he or she is otherwise required to again commence benefit payments in accordance with Code section 401(a)(9) as in effect for calendar years commencing after December 31, 1996. Notwithstanding any provision of the Plan to the contrary, distributions may be made pursuant to the terms of any method of distribution elected by an Employee who was a Participant prior to January 1, 1984, in accordance with the terms of the Plan as in effect immediately prior to that date, provided that the election shall remain in effect only until revoked and (if revoked) may not later be reinstated. If benefit payments cannot begin at the time required because the location of the Participant cannot be ascertained (after a reasonable search), the Administrator may, at any time thereafter, treat such person's Account as forfeited subject to the provisions of Section 18.6. 11.6 Payment Within Life Expectancy The Participant's payment election must be consistent with the requirement of Code section 401(a)(9) that all payments are to be completed within a period not to exceed the lives or the joint and last survivor life expectancy of the Participant and his or her Beneficiary. The life expectancies of a Participant and his or her Beneficiary, if such Beneficiary is his or her spouse, may be recomputed annually. 11.7 Incidental Benefit Rule The Participant's payment election must be consistent with the requirement that, if the Participant's spouse is not his or her sole primary Beneficiary, the minimum annual distribution for each calendar year, beginning with the calendar year preceding the calendar year that includes the Participant's Required Beginning Date, shall not be less than the quotient obtained by dividing (a) the Participant's vested Account balance as of the last Valuation Date of the preceding year by (b) the applicable divisor as determined under the incidental benefit requirements of Code section 401(a)(9). 11.8 Payment to Beneficiary - -------------------------------------------------------------------------------- 33 Payment to a Beneficiary must either (i) be completed by the end of the calendar year that contains the fifth anniversary of the Participant's death or (ii) begin by the end of the calendar year that contains the first anniversary of the Participant's death and be completed within the period of the Beneficiary's life or life expectancy, except that: (a) If the Participant dies after his or her Required Beginning Date, payment to his or her Beneficiary must be made at least as rapidly as provided in the Participant's distribution election; (b) If the surviving spouse is the Beneficiary, payments need not begin until the later of (i) the end of the calendar year that includes the first anniversary of the Participant's death, or (ii) the end of the calendar year in which the Participant would have attained age 70 1/2 and must be completed within the spouse's life or life expectancy; and (c) If the Participant and the surviving spouse who is the Beneficiary die (i) before the Participant's Required Beginning Date and (ii) before payments have begun to the spouse, the spouse shall be treated as the Participant in applying these rules. 11.9 Beneficiary Designation Each Participant may complete a beneficiary designation form indicating the Beneficiary who is to receive the Participant's remaining Plan interest at the time of his or her death and such designation may be changed at any time. However, a Participant's spouse shall be the sole primary Beneficiary unless the designation includes Spousal Consent for another Beneficiary. If no proper designation is in effect at the time of a Participant's death or if the Beneficiary does not survive the Participant, the Beneficiary shall be, in the order listed, the: (a) Participant's surviving spouse, (b) Participant's children, in equal shares, (or if a child does not survive the Participant, and that child leaves issue, the issue shall be entitled to that child's share, by right of representation) or (c) Participant's estate. - -------------------------------------------------------------------------------- 34 12 ADP AND ACP TESTS ----------------- 12.1 Contribution Limitation Definitions The following definitions are applicable to this Section 12 (where a definition is contained in both Sections 1 and 12, for purposes of Section 12 the Section 12 definition shall be controlling): (a) "ACP" or "Average Contribution Percentage". The Average Percentage calculated using Contributions allocated to Participants as of a date within the Plan Year. (b) "ACP Test". The determination of whether the ACP is in compliance with the Basic or Alternative Limitation for a Plan Year (as defined in Section 12.2). (c) "ADP" or "Average Deferral Percentage". The Average Percentage calculated using Deferrals allocated to Participants as of a date within the Plan Year. (c) "ADP Test". The determination of whether the ADP is in compliance with the Basic or Alternative Limitation for a Plan Year (as defined in Section 12.2). (d) "Average Percentage". The average of the calculated percentages for Participants within the specified group. The calculated percentage refers to either the "Deferrals" or "Contributions" (as defined in this Section) made on each Participant's behalf for the Plan Year, divided by his or her Compensation. (Pre-Tax Contributions to the Plan or comparable contributions to plans of Related Companies which must be refunded solely because they exceed the Contribution Dollar Limit are included in the percentage for the HCE Group but not for the NHCE Group.) (e) "Contributions" shall include Matching and may include Pre-Tax, but with regard to Pre-Tax, only to the extent that (1) the Administrator elects to use them, (2) they are not used or counted in the ADP Test and (3) they otherwise satisfy the requirements as prescribed under Code section 401(m) permitting treatment as Contributions for purposes of the ACP Test. (f) "Current Year Testing Method". The use of the Plan Year's ADP for the Plan Year's NHCE Group for purposes of performing the Plan Year's ADP Test and/or the use of the Plan Year's ACP for the Plan Year's NHCE Group for purposes of performing the Plan Year's ACP Test. (g) "Deferrals" shall include Pre-Tax Contributions. - -------------------------------------------------------------------------------- 35 (h) "HCE" or "Highly Compensated Employee". For Plan Years commencing after December 31, 1996, with respect to all Related Companies, an Employee who (in accordance with Code section 414(q)): (1) Was a more than 5% Owner (within the meaning of Code section 414(q)(2)) at any time during the Plan Year or the preceding Plan Year; or (2) Received Compensation during the preceding Plan Year in excess of $80,000 (as adjusted for such Year pursuant to Code sections 414(q)(1) and 415(d)) or, if the Company elects for such preceding Plan Year, "in excess of $80,000 (as adjusted for such Year pursuant to Code sections 414(q)(1) and 415(d)) and was a member of the "top-paid group" (within the meaning of Code section 414(q)(3)) for such preceding Plan Year" shall be substituted for the preceding reference to "in excess of $80,000 (as adjusted for such Year pursuant to Code sections 414(q)(1) and 415(d))". A former Employee shall be treated as an HCE if (1) such former Employee was an HCE when he or she separated from service, or (2) such former Employee was an HCE in service at any time after attaining age 55. The determination of who is an HCE and the determination of the number and identity of Employees in the top-paid group shall be made in accordance with Code section 414(q). (i) "HCE Group" and "NHCE Group". With respect to all Related Companies, the respective group of HCEs and NHCEs who are eligible to have amounts contributed on their behalf for the respective Plan Year, including Employees who would be eligible but for their election not to participate or to contribute, or because their Pay is greater than zero but does not exceed a stated minimum. For Plan Years commencing after December 31, 1998, with respect to all Related Companies, if the Plan permits participation prior to an Eligible Employee's satisfaction of the minimum age and service requirements of Code section 410(a)(1)(A), Eligible Employees who have not met the minimum age and service requirements of Code section 410(a)(1)(A) may be excluded in the determination of the NHCE Group, but not in the determination of the HCE Group, for purposes of (i) the ADP Test, if Code section 410(b)(4)(B) is applied in determining whether the 401(k) portion of the Plan meets the requirements of Code section 410(b), or (ii) the ACP Test, if Code section 410(b)(4)(B) is applied in determining whether the 401(m) portion of the Plan meets the requirements of Code section - -------------------------------------------------------------------------------- 36 410(b). (3) If the Related Companies maintain two or more plans which are subject to the ADP or ACP Test and are considered as one plan for purposes of Code sections 401(a)(4) or 410(b), all such plans shall be aggregated and treated as one plan for purposes of meeting the ADP and ACP Tests, provided that the plans may only be aggregated if they have the same plan year. (4) If an HCE is covered by more than one cash or deferred arrangement, or more than one arrangement permitting employee or matching contributions, maintained by the Related Companies, all such plans shall be aggregated and treated as one plan (other than those plans that may not be permissively aggregated) for purposes of calculating the separate percentage for the HCE which is used in the determination of the Average Percentage. For purposes of the preceding sentence, if such plans have different plan years, the plans are aggregated with respect to the plan years ending with or within the same calendar year. (j) "Multiple Use Test". The test described in Section 12.4 which a Plan must meet where the Alternative Limitation (described in Section 12.2) is used to meet both the ADP and ACP Tests. (k) "NHCE" or "Non-Highly Compensated Employee". An Employee who is not an HCE. (l) "Prior Year Testing Method". The use of the preceding Plan Year's ADP for the preceding Plan Year's NHCE Group for purposes of performing the Plan Year's ADP Test and/or the use of the preceding Plan Year's ACP for the preceding Plan Year's NHCE Group for purposes of performing the Plan Year's ACP Test. 12.2 ADP and ACP Tests For Plan Years commencing before January 1, 1997, for each Plan Year, the Current Year Testing Method shall be used and the ADP and ACP for the HCE Group must meet either the Basic or Alternative Limitation when compared to the respective ADP and ACP for the NHCE Group, defined below: For Plan Years commencing after December 31, 1996, for each Plan Year, the Prior Year Testing Method shall be used and the ADP and ACP for the HCE Group must meet either the Basic or Alternative Limitation when compared to the respective preceding Plan Year's ADP and ACP for the preceding Plan Year's NHCE Group, defined as follows: - -------------------------------------------------------------------------------- 37 (a) Basic Limitation. The HCE Group Average Percentage may not exceed 1.25 times the NHCE Group Average Percentage. (b) Alternative Limitation. The HCE Group Average Percentage is limited by reference to the NHCE Group Average Percentage as follows: If the NHCE Group Then the Maximum HCE Average Percentage is: Group Average Percentage is: ---------------------- ---------------------------- Less than 2% 2 times NHCE Group Average % 2% to 8% NHCE Group Average % plus 2% More than 8% NA - Basic Limitation applies Alternatively, the Company may elect to use the Current Year Testing Method and the ADP and/or ACP for the HCE Group must meet either the Basic or Alternative Limitation as defined above when compared to the respective Plan Year's ADP and/or ACP for the Plan Year's NHCE Group. If a Current Year Testing Method election is made, such election may not be changed except as provided by the Code. In the case of the first Plan Year in which the Plan is subject to the requirements of Code section 401(k), the amount taken into account as the "preceding Plan Year's ADP for the preceding Plan Year's NHCE Group", shall be (i) 3%, or (ii) if the Company elects, the Plan Year's ADP. The preceding sentence shall not apply with regard to a Plan that is a successor plan or, if for such first Plan Year, the Plan is aggregated with another plan that was subject to the requirements of Code section 401(k) in the preceding year and treated as one plan for purposes of meeting the ADP Test. 12.3 Correction of ADP and ACP Tests For Plan Years commencing after December 31, 1996, for each Plan Year, if the ADP or ACP Tests are not met, the Administrator shall determine, no later than the end of the next Plan Year, a maximum percentage to be used in place of the calculated percentage for all HCEs that would reduce the ADP and/or ACP for the HCE Group by a sufficient amount to meet the ADP and ACP Tests. With regard to each HCE whose Deferral percentage and/or Contribution percentage is in excess of the maximum percentage, a dollar amount of excess Deferrals and/or excess Contributions shall then be determined by (i) subtracting the product of such maximum percentage for the ADP and the HCE's Compensation from the HCE's actual Deferrals and (ii) subtracting the product of such maximum percentage for the ACP and the HCE's Compensation from the HCE's actual Contributions. Such amounts shall then be aggregated to determine the total dollar amount of excess Deferrals and/or excess - -------------------------------------------------------------------------------- 38 Contributions. ADP and/or ACP corrections shall be made in accordance with the leveling method as described below. (a) ADP Correction. The HCE with the highest Deferral dollar amount shall have his or her Deferral dollar amount reduced in an amount equal to the lesser of the dollar amount of excess Deferrals for all HCEs or the dollar amount that would cause his or her Deferral dollar amount to equal that of the HCE with the next highest Deferral dollar amount. The process shall be repeated until the total of the Deferral dollar amount reductions equals the dollar amount of excess Deferrals for all HCEs. To the extent an HCE's Deferrals were determined to be reduced as described in the paragraph above, Pre-Tax Contributions shall, by the end of the next Plan Year, be refunded to the HCE, except that such amount to be refunded shall be reduced by Pre-Tax Contributions previously refunded because they exceeded the Contribution Dollar Limit. The excess amounts shall first be taken from unmatched Pre-Tax Contributions and then from matched Pre-Tax Contributions. Any Matching Contributions attributable to refunded excess Pre-Tax Contributions as described in this Section, adjusted for investment gain or loss for the Plan Year to which the excess Pre-Tax Contributions relate, shall be forfeited and used to reduce future Contributions to be made by an Employer as soon as administratively feasible. (b) ACP Correction. The HCE with the highest Contribution dollar amount shall have his or her Contribution dollar amount reduced in an amount equal to the lesser of the dollar amount of excess Contributions for all HCEs or the dollar amount that would cause his or her Contribution dollar amount to equal that of the HCE with the next highest Contribution dollar amount. The process shall be repeated until the total of the Contribution dollar amount reductions equals the dollar amount of excess Contributions for all HCEs. To the extent an HCE's Contributions were determined to be reduced as described in the paragraph above, Matching Contributions shall, by the end of the next Plan Year, be refunded to the HCE. (c) Investment Fund Sources. Once the amount of excess Deferrals and/or Contributions is determined, and with regard to excess Contributions, allocated by type of Contribution, within each Account from which amounts are refunded amounts shall be taken from the Investment Fund in direct proportion to the market value of the Participant's interest in each Investment Fund (which excludes his or her Loan Account balance) as of the Valuation Date on which the correction is processed. 12.4 Multiple Use Test - -------------------------------------------------------------------------------- 39 If the Alternative Limitation (defined in Section 12.2) is used to meet both the ADP and ACP Tests, the ADP and ACP for the HCE Group must also comply with the requirements of Code section 401(m)(9). Such Code section requires that the sum of the ADP and ACP for the HCE Group (as determined after any corrections needed to meet the ADP and ACP Tests have been made) not exceed the sum (which produces the most favorable result) of: (a) the Basic Limitation (defined in Section 12.2) applied to either the ADP or ACP for the NHCE Group, and (b) the Alternative Limitation applied to the other NHCE Group percentage. 12.5 Correction of Multiple Use Test If the multiple use limit is exceeded, the Administrator shall determine a maximum percentage to be used in place of the calculated percentage for all HCEs that would reduce either or both the ADP or ACP for the HCE Group by a sufficient amount to meet the multiple use limit. Any excess shall be corrected in the same manner that excess Deferrals or Contributions are corrected. 12.6 Adjustment for Investment Gain or Loss Any excess Deferrals or Contributions to be refunded to a Participant in accordance with this Section 12 shall be adjusted for investment gain or loss. Refunds shall not include investment gain or loss for the period between the end of the applicable Plan Year and the date of distribution. 12.7 Testing Responsibilities and Required Records The Administrator shall be responsible for ensuring that the Plan meets the ADP Test, and if applicable, the ACP Test and the Multiple Use Test, and that the Contribution Dollar Limit is not exceeded. The Administrator shall maintain records which are sufficient to demonstrate that the ADP Test, and if applicable, the ACP Test and the Multiple Use Test, have been met for each Plan Year for at least as long as the Employer's corresponding tax year is open to audit. 12.8 Separate Testing (a) Multiple Employers: The determination of HCEs, NHCEs, and the performance of the ADP Test, and if applicable, the ACP Test and the Multiple Use Test, and any corrective action resulting therefrom, shall be conducted separately with regard to the Employees of each Employer (and its Related Companies) that is not a Related Company with respect to the other Employer(s). - -------------------------------------------------------------------------------- 40 (b) Collective Bargaining Units: The performance of the ADP Test, and if applicable, the ACP Test and the Multiple Use Test, and any corrective action resulting therefrom, shall be conducted separately with regard to Employees who are eligible to participate in the Plan as a result of a collective bargaining agreement. In addition, testing may be conducted separately, at the discretion of the Administrator and to the extent permitted under Treasury regulations, with regard to any group of Employees for whom separate testing is permissible under such regulations. - -------------------------------------------------------------------------------- 41 13 MAXIMUM CONTRIBUTION AND BENEFIT LIMITATIONS -------------------------------------------- 13.1 "Annual Addition" Defined The sum for a Plan Year of all (i) contributions (excluding rollover contributions) and forfeitures allocated to the Participant's Account and his or her account in all other defined contribution plans maintained by any Related Company, (ii) amounts allocated to the Participant's individual medical account (within the meaning of Code section 415(l)(2)) which is part of a defined benefit plan maintained by any Related Company, and (iii) if the Participant is a key employee (within the meaning of Code section 419A(d)(3)) for the applicable or any prior Plan Year, amounts attributable to post-retirement medical benefits allocated to his or her separate account under a welfare benefit fund (within the meaning of Code section 419(e)) maintained by any Related Company. The Plan Year refers to the year to which the allocation pertains, regardless of when it was allocated. The Plan Year shall be the Code section 415 limitation year. 13.2 Maximum Annual Addition A Participant's Annual Addition for any Plan Year shall not exceed the lesser of (i) 25% of his or her Compensation or (ii) $30,000 (as adjusted for cost of living increases pursuant to Code section 415(d)); provided, however, that clause (i) shall not apply to Annual Additions described in clauses (ii) and (iii) of Section 13.1. 13.3 Avoiding an Excess Annual Addition If, at any time during a Plan Year, the allocation of any additional Contributions would produce an excess Annual Addition for such year, Contributions to be made for the remainder of the Plan Year shall be limited to the amount needed for each affected Participant to receive the maximum Annual Addition. 13.4 Correcting an Excess Annual Addition Upon the discovery of an excess Annual Addition to a Participant's Account (resulting from a reasonable error in determining a Participant's compensation or the maximum permissible amount of his or her elective deferrals (within the meaning of Code section 402(g)(3)), or other facts and circumstances acceptable to the Internal Revenue Service), the excess amount (adjusted to reflect investment gains) shall first be returned to the Participant to the extent of his or her Pre-Tax Contributions (however to the extent Pre Tax Contributions were matched, the applicable Matching Contributions shall be forfeited in proportion to the returned matched Pre-Tax Contributions) and the remaining excess, if any, shall be forfeited by the Participant and used to reduce future Contributions to be made by an Employer as soon as administratively feasible. - -------------------------------------------------------------------------------- 42 13.5 Correcting a Multiple Plan Excess If a Participant, whose Account is credited with an excess Annual Addition, received allocations to more than one defined contribution plan, the excess shall be corrected by reducing the Annual Addition to the Plan only after all possible reductions have been made to the other defined contribution plans. 13.6 "Defined Benefit Fraction" Defined The fraction, for any Plan Year, where the numerator is the "projected annual benefit" and the denominator is the greater of 125% of the "protected current accrued benefit" or the normal limit which is the lesser of (i) 125% of the dollar limitation in effect under Code section 415(b)(1)(A) for the Plan Year or (ii) 140% of the amount which may be taken into account under Code section 415(b)(1)(B) for the Plan Year, where a Participant's: (a) "projected annual benefit" is the annual benefit provided by the plan determined pursuant to Code section 415(e)(2)(A), and (b) "protected current accrued benefit" in a defined benefit plan in existence (1) on July 1, 1982, shall be the accrued annual benefit provided for under Public Law 97-248, section 235(g)(4), as amended, or (2) on May 6, 1986, shall be the accrued annual benefit provided for under Public Law 99-514, section 1106(i)(3). 13.7 "Defined Contribution Fraction" Defined The fraction where the numerator is the sum of the Participant's Annual Addition for each Plan Year to date and the denominator is the sum of the "annual amounts" for each year in which the Participant has performed service with a Related Company. The "annual amount" for any Plan Year is the lesser of (i) 125% of the dollar limitation in effect under Code section 415(c)(1)(A) (determined without regard to subsection (c)(6)) for the Plan Year or (ii) 140% of the amount which may be taken into account under Code section 415(c)(1)(B) for the Plan Year, where: (a) each Annual Addition is determined pursuant to the Code section 415(c) rules in effect for such Plan Year, and (b) the numerator is adjusted pursuant to Public Law 97-248, section 235(g)(3), as amended, or Public Law 99-514, section 1106(i)(4). 13.8 Combined Plan Limits and Correction The sum of a Participant's Defined Benefit Fraction and Defined Contribution Fraction for any Plan Year may not exceed 1.0. If the combined fraction - -------------------------------------------------------------------------------- 43 exceeds 1.0 for any Plan Year, the Participant's benefit under any defined benefit plan (to the extent it has not been distributed or used to purchase an annuity contract) shall be limited so that the combined fraction does not exceed 1.0 before any defined contribution limits shall be enforced. For Plan Years commencing after December 31, 1999, the provisions of the preceding paragraph shall no longer be effective. - -------------------------------------------------------------------------------- 44 14 TOP HEAVY RULES --------------- 14.1 Top Heavy Definitions When capitalized, the following words and phrases have the following meanings when used in this Section: (a) "Aggregation Group". The group consisting of each qualified plan of the Related Companies (1) in which a Key Employee is a participant or was a participant during the determination period (regardless of whether such plan has terminated), or (2) which enables another plan in the group to meet the requirements of Code sections 401(a)(4) or 410(b). The Administrator may also treat any other qualified plan of the Related Companies as part of the group if the resulting group would continue to meet the requirements of Code sections 401(a)(4) and 410(b) with such plan being taken into account. (b) "Determination Date". For any Plan Year, the last Valuation Date of the preceding Plan Year or, in the case of the Plan's first Plan Year, the last Valuation Date of that Plan Year. (c) "Key Employee". A current or former Employee (or his or her Beneficiary) who at any time during the five year period ending on the Determination Date was: (5) an officer of a Related Company whose Compensation (i) exceeds 50% of the amount in effect under Code section 415(b)(1)(A) and (ii) places him or her within the following highest paid group of officers: Number of Employees not Excluded Under Number of Code Highest Paid Section 414(q)(5) Officers Included ----------------- ----------------- Less than 30 3 30 to 500 10% of the number of Employees not excluded under Code section 414(q)(5) More than 500 50 (6) a more than 5% Owner, (7) a more than 1% Owner whose Compensation exceeds $150,000, or - -------------------------------------------------------------------------------- 45 (8) a more than 0.5% Owner who is among the 10 Employees owning the largest interest in a Related Company and whose Compensation exceeds the amount in effect under Code section 415(c)(1)(A). (d) "Plan Benefit". The sum as of the Determination Date of (1) an Employee's Account, (2) the present value of his or her other accrued benefits provided by all qualified plans within the Aggregation Group, and (3) the aggregate distributions made within the five year period ending on such Date. For this purpose, the present value of the Employee's accrued benefit in a defined benefit plan shall be determined by the method that is used for benefit accrual purposes under all such plans maintained by the Related Companies or, if there is no such single method used under all such plans, as if the benefit accrues no more rapidly than the slowest rate permitted by the fractional accrual rule in Code section 411(b)(1)(C). Plan Benefits shall exclude rollover contributions and similar transfers made after December 31, 1983 as provided in Code section 416(g)(4)(A). (e) "Top Heavy". The Plan's status when the Plan Benefits of Key Employees account for more than 60% of the Plan Benefits of all Employees who have performed services at any time during the five year period ending on the Determination Date. The Plan Benefits of Employees who were, but are no longer, Key Employees (because they have not been an officer or Owner during the five year period), are excluded in the determination. 14.2 Special Contributions (a) Minimum Contribution Requirement. For each Plan Year in which the Plan is Top Heavy, the Employer shall not allow any contributions (other than a Rollover Contribution from a plan maintained by a non Related Company) to be made by or on behalf of any Key Employee unless the Employer makes a contribution (other than contributions made by an Employer in accordance with a Participant's salary deferral election or contributions made by an Employer based upon the amount contributed by a Participant) on behalf of all Participants who were Eligible Employees as of the last day of the Plan Year in an amount equal to at least 3% of each such Participant's Compensation. (b) Overriding Minimum Benefit. Notwithstanding, contributions shall be permitted on behalf of Key Employees if the Employer also maintains a defined benefit plan which automatically provides a benefit which satisfies the Code section 416(c)(1) minimum benefit requirements, including the adjustment provided in Code section 416(h)(2)(A), if - -------------------------------------------------------------------------------- 46 applicable. If the Plan is part of an Aggregation Group under which a Key Employee is receiving a benefit and no minimum contribution is provided under any other plan, a minimum contribution of at least 3% of Compensation shall be provided to the Participants specified in the preceding paragraph. In addition, the Employer may offset a defined benefit minimum by contributions (other than contributions made by an Employer in accordance with a Participant's salary deferral election or contributions made by an Employer based upon the amount contributed by a Participant) made to the Plan. 14.3 Adjustment to Combined Limits for Different Plans For each Plan Year in which the Plan is Top Heavy, 100% shall be substituted for 125% in determining the Defined Benefit Fraction and the Defined Contribution Fraction. For Plan Years commencing after December 31, 1999, the provisions of the preceding sentence shall no longer be effective. - -------------------------------------------------------------------------------- 47 15 PLAN ADMINISTRATION ------------------- 15.1 Plan Delineates Authority and Responsibility Plan fiduciaries include the Company, the Administrator, the Committee and/or the Trustee, as applicable, whose specific duties are delineated in the Plan and Trust. In addition, Plan fiduciaries also include any other person to whom fiduciary duties or responsibilities are delegated with respect to the Plan. Any person or group may serve in more than one fiduciary capacity with respect to the Plan. To the extent permitted under ERISA section 405, no fiduciary shall be liable for a breach by another fiduciary. 15.2 Fiduciary Standards Each fiduciary shall: (a) discharge his or her duties in accordance with the Plan and Trust to the extent they are consistent with ERISA; (b) use that degree of care, skill, prudence and diligence that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims; (c) act with the exclusive purpose of providing benefits to Participants and their Beneficiaries, and defraying reasonable expenses of administering the Plan; (d) diversify Plan investments, to the extent such fiduciary is responsible for directing the investment of Plan assets, so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so; and (e) treat similarly situated Participants and Beneficiaries in a uniform and nondiscriminatory manner. 15.3 Company is ERISA Plan Administrator The Company is the administrator of the Plan (within the meaning of ERISA section 3(16)) and is responsible for compliance with all reporting and disclosure requirements, except those that are explicitly the responsibility of the Trustee under applicable law. The Administrator and/or Committee shall have any necessary authority to carry out such functions through the actions of the Administrator, duly appointed officers of the Company and/or the Committee. 15.4 Administrator Duties - -------------------------------------------------------------------------------- 48 The Administrator shall have the discretionary authority to construe the Plan and Trust, other than the provisions which relate to the Trustee, and to do all things necessary or convenient to effect the intent and purposes thereof, whether or not such powers are specifically set forth in the Plan and Trust. Actions taken in good faith by the Administrator shall be conclusive and binding on all interested parties, and shall be given the maximum possible deference allowed by law. In addition to the duties listed elsewhere in the Plan and Trust, the Administrator's authority shall include, but not be limited to, the discretionary authority to: (a) determine who is eligible to participate, if a contribution qualifies as a rollover contribution, the allocation of Contributions, and the eligibility for loans, in-service withdrawals and distributions; (b) provide each Participant with a summary plan description no later than 90 days after he or she has become a Participant (or such other period permitted under ERISA section 104(b)(1)), as well as informing each Participant of any material modification to the Plan in a timely manner; (c) make a copy of the following documents available to Participants during normal work hours: the Plan and Trust (including subsequent amendments), all annual and interim reports of the Trustee related to the entire Plan, the latest annual report and the summary plan description; (d) determine the fact of a Participant's death and of any Beneficiary's right to receive the deceased Participant's interest based upon such proof and evidence as it deems necessary; (e) establish and review at least annually a funding policy bearing in mind both the short-run and long-run needs and goals of the Plan and to the extent Participants may direct their own investments, the funding policy shall focus on which Investment Funds are available for Participants to use; and (f) adjudicate claims pursuant to the claims procedure described in Section 18. 15.5 Advisors May be Retained The Administrator may retain such agents and advisors (including attorneys, accountants, actuaries, consultants, record keepers, investment counsel and administrative assistants) as it considers necessary to assist it in the performance of its duties. The Administrator shall also comply with the bonding requirements of ERISA section 412. 15.6 Delegation of Administrator Duties - -------------------------------------------------------------------------------- 49 The Company, as Administrator of the Plan, has appointed a Committee to administer the Plan on its behalf. The Company shall provide the Trustee with the names and specimen signatures of any persons authorized to serve as Committee members and act as or on its behalf. Any Committee member appointed by the Company shall serve at the pleasure of the Company, but may resign by written notice to the Company. Committee members shall serve without compensation from the Plan for such services. Except to the extent that the Company otherwise provides, any delegation of duties to the Committee shall carry with it the full discretionary authority of the Administrator to complete such duties. 15.7 Committee Operating Rules (a) Actions of Majority. Any act delegated by the Company to the Committee may be done by a majority of its members. The majority may be expressed by a vote at a meeting or in writing without a meeting, and a majority action shall be equivalent to an action of all Committee members. (b) Meetings. The Committee shall hold meetings upon such notice, place and times as it determines necessary to conduct its functions properly. (c) Reliance by Trustee. The Committee may authorize one or more of its members to execute documents on its behalf and may authorize one or more of its members or other individuals who are not members to give written direction to the Trustee in the performance of its duties. The Committee shall provide such authorization in writing to the Trustee with the name and specimen signatures of any person authorized to act on its behalf. The Trustee shall accept such direction and rely upon it until notified in writing that the Committee has revoked the authorization to give such direction. The Trustee shall not be deemed to be on notice of any change in the membership of the Committee, parties authorized to direct the Trustee in the performance of its duties, or the duties delegated to and by the Committee until notified in writing. - -------------------------------------------------------------------------------- 50 16 MANAGEMENT OF INVESTMENTS ------------------------- 16.1 Trust Agreement All Plan assets shall be held by the Trustee in trust, in accordance with those provisions of the Plan and Trust which relate to the Trustee, for use in providing Plan benefits and paying Plan fees and expenses not paid directly by the Employer. Plan benefits shall be drawn solely from the Trust and paid by the Trustee as directed by the Administrator. Notwithstanding, the Company may appoint, with the approval of the Trustee, another trustee to hold and administer Plan assets which do not meet the requirements of Section 16.2. 16.2 Investment Funds The Administrator is hereby granted authority to direct the Trustee to invest Trust assets in one or more Investment Funds. The number and composition of Investment Funds may be changed from time to time, without the necessity of amending the Plan and Trust. The Trustee may establish reasonable limits on the number of Investment Funds as well as the acceptable assets for any such Investment Fund. Each of the Investment Funds may be comprised of any of the following: (a) shares of a registered investment company, whether or not the Trustee or any of its affiliates is an advisor to, or other service provider to, such company; (b) collective investment funds maintained by the Trustee, or any other fiduciary to the Plan, which are available for investment by trusts which are qualified under Code sections 401(a) and 501(a); (c) individual equity and fixed income securities which are readily tradable on the open market; (d) synthetic guaranteed investment contracts and guaranteed investment contracts issued by an insurance company and/or synthetic guaranteed investment contracts and bank investment contracts issued by a bank; and (e) interest bearing deposits (which may include interest bearing deposits of the Trustee). Any Investment Fund assets invested in a collective investment fund, shall be subject to all the provisions of the instruments establishing and governing such fund. These instruments, including any subsequent amendments, are incorporated herein by reference. - -------------------------------------------------------------------------------- 51 16.3 Authority to Hold Cash The Trustee shall have the authority to cause the investment manager of each Investment Fund to maintain sufficient deposit or money market type assets in each Investment Fund to handle the Investment Fund's liquidity and disbursement needs. 16.4 Trustee to Act Upon Instructions The Trustee shall carry out instructions to invest assets in the Investment Funds as soon as practicable after such instructions are received from the Administrator, Participants or Beneficiaries. Such instructions shall remain in effect until changed by the Administrator, Participants or Beneficiaries. 16.5 Administrator Has Right to Vote Registered Investment Company Shares The Administrator shall be entitled to vote proxies or exercise any shareholder rights relating to shares held on behalf of the Plan in a registered investment company. Notwithstanding, the authority to vote proxies and exercise shareholder rights related to such shares held in a Custom Fund is vested as provided otherwise in Section 16. 16.6 Custom Fund Investment Management The Administrator may designate, with the consent of the Trustee, an investment manager for any Investment Fund established by the Trustee solely for Participants of the Plan and, subject to Section 16.7, any other qualified plan of the Company or a Related Company (a "Custom Fund"). The investment manager may be the Administrator, Trustee or an investment manager pursuant to ERISA section 3(38). The Administrator shall advise the Trustee in writing of the appointment of an investment manager and shall cause the investment manager to acknowledge to the Trustee in writing that the investment manager is a fiduciary to the Plan. A Custom Fund shall be subject to the following: (a) Guidelines. Written guidelines, acceptable to the Trustee, shall be established for a Custom Fund. If a Custom Fund consists solely of collective investment funds or shares of a registered investment company (and sufficient deposit or money market type assets to handle the Custom Fund's liquidity and disbursement needs), its underlying instruments shall constitute the guidelines. - -------------------------------------------------------------------------------- 52 (b) Authority of Investment Manager. The investment manager of a Custom Fund shall have the authority to vote or execute proxies, exercise shareholder rights, manage, acquire, and dispose of Trust assets. (c) Custody and Trade Settlement. Unless otherwise agreed to by the Trustee, the Trustee shall maintain custody of all Custom Fund assets and be responsible for the settlement of all Custom Fund trades. For purposes of this Section, shares of a collective investment fund, shares of a registered investment company and synthetic guaranteed investment contracts and guaranteed investment contracts issued by an insurance company and/or synthetic guaranteed investment contracts and bank investment contracts issued by a bank, shall be regarded as the Custom Fund assets instead of the underlying assets of such instruments. (d) Limited Liability of Co-Fiduciaries. Neither the Administrator nor the Trustee shall be obligated to invest or otherwise manage any Custom Fund assets for which the Trustee or Administrator is not the investment manager nor shall the Administrator or Trustee be liable for acts or omissions with regard to the investment of such assets except to the extent required by ERISA. 16.7 Master Custom Fund The Trustee may establish, at the direction of the Administrator, a single Custom Fund (the "Master Custom Fund"), for the benefit of the Plan and any other qualified plan of the Company or a Related Company for which the Trustee acts as trustee pursuant to a plan and trust document that contains a provision substantially identical to this provision. The assets of the Plan, to the extent invested in the Master Custom Fund, shall consist only of that percentage of the assets of the Master Custom Fund represented by the shares held by the Plan. 16.8 Authority to Segregate Assets The Administrator may direct the Trustee to split an Investment Fund into two or more funds in the event any assets in the Investment Fund are illiquid or the value is not readily determinable. In the event of such segregation, the Administrator shall give instructions to the Trustee on what value to use for the split-off assets, and the Trustee shall not be responsible for confirming such value. - -------------------------------------------------------------------------------- 53 17 TRUST ADMINISTRATION -------------------- 17.1 Trustee to Construe Trust The Trustee shall have the discretionary authority to construe those provisions of the Plan and Trust which relate to the Trustee and to do all things necessary or convenient to the administration of the Trust, whether or not such powers are specifically set forth in the Plan and Trust. Actions taken in good faith by the Trustee shall be conclusive and binding on all interested parties, and shall be given the maximum possible deference allowed by law. 17.2 Trustee To Act As Owner of Trust Assets Subject to the specific conditions and limitations set forth in the Plan and Trust, the Trustee shall have all the power, authority, rights and privileges of an absolute owner of the Trust assets and, not in limitation but in amplification of the foregoing, may: (a) receive, hold, manage, invest and reinvest, sell, tender, exchange, dispose of, encumber, hypothecate, pledge, mortgage, lease, grant options respecting, repair, alter, insure, or distribute any and all property in the Trust; (b) borrow money, participate in reorganizations, pay calls and assessments, vote or execute proxies, exercise subscription or conversion privileges, exercise options and register any securities in the Trust in the name of the nominee, in federal book entry form or in any other form as shall permit title thereto to pass by delivery; (c) renew, extend the due date, compromise, arbitrate, adjust, settle, enforce or foreclose, by judicial proceedings or otherwise, or defend against the same, any obligations or claims in favor of or against the Trust; and (d) lend, through a collective investment fund, any securities held in such collective investment fund to brokers, dealers or other borrowers and to permit such securities to be transferred into the name and custody and be voted by the borrower or others. 17.3 United States Indicia of Ownership The Trustee shall not maintain the indicia of ownership of any Trust assets outside the jurisdiction of the United States, except as authorized under ERISA section 404(b). - -------------------------------------------------------------------------------- 54 17.4 Tax Withholding and Payment (a) Withholding. The Trustee shall calculate and withhold federal (and, if applicable, state) income taxes as required by law if no election is made or the election is less than the amount required by law. With regard to any taxable distribution that is not an Eligible Rollover Distribution, the Trustee shall calculate and withhold federal (and, if applicable, state) income taxes in accordance with the Participant's withholding election or as required by law if no election is made. (b) Taxes Due From Investment Funds. The Trustee shall pay from the Investment Fund any taxes or assessments imposed by any taxing or governmental authority on such Investment Fund or its income, including related interest and penalties. 17.5 Trust Accounting (a) Annual Report. Within 90 days (or other reasonable period) following the close of the Plan Year, the Trustee shall provide the Administrator with an annual accounting of Trust assets and information to assist the Administrator in meeting ERISA's annual reporting and audit requirements. (b) Periodic Reports. The Trustee shall maintain records and provide sufficient reporting to allow the Administrator to properly monitor the Trust's assets and activity. (c) Administrator Approval. Approval of any Trustee accounting shall automatically occur 90 days after such accounting has been received by the Administrator, unless the Administrator files a written objection with the Trustee within such time period. Such approval shall be final as to all matters and transactions stated or shown therein and binding upon the Administrator. 17.6 Valuation of Certain Assets If the Trustee determines the Trust holds any asset which is not readily tradable and listed on a national securities exchange registered under the Securities Exchange Act of 1934, as amended, the Trustee may engage a qualified independent appraiser to determine the fair market value of such property, and the appraisal fees shall be paid from the Investment Fund containing the asset. - -------------------------------------------------------------------------------- 55 17.7 Legal Counsel The Trustee may consult with legal counsel of its choice, including counsel for the Employer or counsel of the Trustee, upon any question or matter arising under the Plan and Trust. When relied upon by the Trustee, the opinion of such counsel shall be evidence that the Trustee has acted in good faith. 17.8 Fees and Expenses The Trustee's fees for its services as Trustee shall be such as may be mutually agreed upon by the Company and the Trustee. Trustee fees and all reasonable expenses of counsel and advisors retained by the Trustee shall be paid in accordance with Section 6. 17.9 Trustee Duties and Limitations The Trustee's duties, unless otherwise agreed to by the Trustee, shall be confined to construing the terms of the Plan and Trust as they relate to the Trustee, receiving funds on behalf of and making payments from the Trust, safeguarding and valuing Trust assets, investing and reinvesting Trust assets in the Investment Funds as directed by the Administrator, Participants or Beneficiaries, and those duties as described in this Section 17. The Trustee shall have no duty or authority to ascertain whether Contributions are in compliance with the Plan, to enforce collection or to compute or verify the accuracy or adequacy of any amount to be paid to it by the Employer. The Trustee shall not be liable for the proper application of any part of the Trust with respect to any disbursement made at the direction of the Administrator. - -------------------------------------------------------------------------------- 56 18 RIGHTS, PROTECTION, CONSTRUCTION AND JURISDICTION ------------------------------------------------- 18.1 Plan Does Not Affect Employment Rights The Plan does not provide any employment rights to any Employee. The Employer expressly reserves the right to discharge an Employee at any time, with or without cause, without regard to the effect such discharge would have upon the Employee's interest in the Plan. 18.2 Compliance With USERRA Notwithstanding any provision of the Plan to the contrary, effective October 13, 1996, with regard to an Employee who after serving in the uniformed services is reemployed on or after December 12, 1994, within the time required by USERRA, contributions shall be made and benefits and service credit shall be provided under the Plan with respect to his or her qualified military service (as defined in Code section 414(u)(5)) in accordance with Code section 414(u). Furthermore, notwithstanding any provision of the Plan to the contrary, Participant loan payments may be suspended during a period of qualified military service. 18.3 Limited Return of Contributions Except as provided in this Section 18.3, (i) Plan assets shall not revert to the Employer nor be diverted for any purpose other than the exclusive benefit of Participants and Beneficiaries and defraying reasonable expenses of administering the Plan; and (ii) a Participant's vested interest shall not be subject to divestment. As provided in ERISA section 403(c)(2), the actual amount of a Contribution or portion thereof made by the Employer (or the current value of such if a net loss has occurred) may revert to the Employer if: (a) such Contribution or portion thereof is made by reason of a mistake of fact; (b) a determination with respect to the initial qualification of the Plan under Code section 401(a) is not received and a request for such determination is made within the time prescribed under Code section 401(b) (the existence of and Contributions under the Plan are hereby conditioned upon such initial qualification); or (c) such Contribution or portion thereof is not deductible under Code section 404 (such Contributions are hereby conditioned upon such deductibility) in the taxable year of the Employer for which the Contribution is made. The reversion to the Employer must be made (if at all) within one year of the mistaken payment, the date of denial of qualification, or the date of disallowance - -------------------------------------------------------------------------------- 57 of deduction, as the case may be. A Participant shall have no rights under the Plan with respect to any such reversion. 18.4 Assignment and Alienation As provided by Code section 401(a)(13) and to the extent not otherwise required by law, no benefit provided by the Plan may be anticipated, assigned or alienated, except: (a) to create, assign or recognize a right to any benefit with respect to a Participant pursuant to a QDRO; or (b) to use a Participant's vested Account balance as security for a loan from the Plan which is permitted pursuant to Code section 4975. 18.5 Facility of Payment If a Plan benefit is due to be paid to a minor or if the Administrator reasonably believes that any payee is legally incapable of giving a valid receipt and discharge for any payment due him or her, the Administrator shall have the payment of the benefit, or any part thereof, made to the person (or persons or institution) whom it reasonably believes is caring for or supporting the payee, unless it has received due notice of claim therefor from a duly appointed guardian or conservator of the payee. Any payment shall to the extent thereof, be a complete discharge of any liability under the Plan to the payee. 18.6 Reallocation of Lost Participant's Accounts If the Administrator cannot locate a person entitled to payment of a Plan benefit after a reasonable search, the Administrator may at any time thereafter treat such person's Account as forfeited and use such amount to reduce future Contributions to be made by an Employer as soon as administratively feasible. If such person subsequently presents the Administrator with a valid claim for the benefit, such person shall be paid the amount treated as forfeited. The Administrator shall pay the amount through an additional amount contributed by the Employer. 18.7 Suspension of Certain Plan Provisions During Conversion Period Notwithstanding any provision of the Plan to the contrary, during any Conversion Period, in accordance with procedures established by the Administrator and the Trustee, the Administrator may temporarily suspend, in whole or in part, certain provisions under the Plan, which may include, but are not limited to, a Participant's right to change his or her Contribution election, a Participant's right to change his or her investment election and a Participant's right to borrow or withdraw from his or her Account or obtain a distribution from his or her Account. - -------------------------------------------------------------------------------- 58 18.8 Suspension of Certain Plan Provisions During Other Periods Notwithstanding any provision of the Plan to the contrary, in accordance with procedures established by the Administrator and the Trustee, the Administrator may temporarily suspend a Participant's right to borrow or withdraw from his or her Account or obtain a distribution from his or her Account, if (i) the Administrator receives a domestic relations order and the Participant's Account is a source of the payment for such domestic relations order, or (ii) if the Administrator receives notice that a domestic relations order is being sought by the Participant, his or her spouse, former spouse, child or other dependent (as defined in Code section 152) and the Participant's Account is a source of the payment for such domestic relations order. Such suspension may continue for a reasonable period of time (as determined by the Administrator) which may include the period of time the Administrator, a court of competent jurisdiction or other appropriate person is determining whether the domestic relations order qualifies as a QDRO. 18.9 Claims Procedure (a) Right to Make Claim. An interested party who disagrees with the Administrator's determination of his or her right to Plan benefits must submit a written claim and exhaust this claim procedure before legal recourse of any type is sought. The claim must include the important issues the interested party believes support the claim. The Administrator, pursuant to the authority provided in the Plan, shall either approve or deny the claim. (b) Process for Denying a Claim. The Administrator's partial or complete denial of an initial claim must include an understandable, written response covering (1) the specific reasons why the claim is being denied (with reference to the pertinent Plan provisions) and (2) the steps necessary to perfect the claim and obtain a final review. (c) Appeal of Denial and Final Review. The interested party may make a written appeal of the Administrator's initial decision, and the Administrator shall respond in the same manner and form as prescribed for denying a claim initially. (d) Time Frame. The initial claim, its review, appeal and final review shall be made in a timely fashion, subject to the following time table: - -------------------------------------------------------------------------------- 59 Days to Respond Action From Last Action ------ ---------------- Administrator determines benefit NA Interested party files initial request 60 days Administrator's initial decision 90 days Interested party requests final review 60 days Administrator's final decision 60 days However, the Administrator may take up to twice the maximum response time for its initial and final review if it provides an explanation within the normal period of why an extension is needed and when its decision shall be forthcoming. 18.10 Construction Headings are included for reading convenience. The text shall control if any ambiguity or inconsistency exists between the headings and the text. The singular and plural shall be interchanged wherever appropriate. References to Participant shall include Alternate Payee and/or Beneficiary when appropriate and even if not otherwise already expressly stated. 18.11 Jurisdiction and Severability The Plan and Trust shall be construed, regulated and administered under ERISA and other applicable federal laws and, where not otherwise preempted, by the laws of the State of Pennsylvania. If any provision of the Plan and Trust is or becomes invalid or otherwise unenforceable, that fact shall not affect the validity or enforceability of any other provision of the Plan and Trust. All provisions of the Plan and Trust shall be so construed as to render them valid and enforceable in accordance with their intent. 18.12 Indemnification by Employer The Employers hereby agree to indemnify all Plan fiduciaries against any and all liabilities resulting from any action or inaction, (including a Plan termination in which the Company fails to apply for a favorable determination from the Internal Revenue Service with respect to the qualification of the Plan upon its termination), in relation to the Plan or Trust (i) including (without limitation) expenses reasonably incurred in the defense of any claim relating to the Plan or its assets, and amounts paid in any settlement relating to the Plan or its assets, but (ii) excluding liability resulting from actions or inactions made in bad faith, or resulting from the negligence or willful misconduct of the Trustee. The Company shall have the right, but not the obligation, to conduct the defense of any action to which this Section applies. The Plan fiduciaries are not entitled to indemnity from the Plan assets relating to any such action. - -------------------------------------------------------------------------------- 60 19 AMENDMENT, MERGER, DIVESTITURES AND TERMINATION ----------------------------------------------- 19.1 Amendment The Company reserves the right to amend the Plan and Trust at any time, to any extent and in any manner it may deem necessary or appropriate. The Company (and not the Trustee) shall be responsible for adopting any amendments necessary to maintain the qualified status of the Plan and Trust under Code sections 401(a) and 501(a). If the Committee is acting as the Administrator in accordance with Section 15.6, it shall have the authority to adopt Plan and Trust amendments which have no substantial adverse financial impact upon any Employer or the Plan. All interested parties shall be bound by any amendment, provided that no amendment shall: (a) become effective unless it has been adopted in accordance with the procedures set forth in Section 19.5; (b) except to the extent permissible under ERISA and the Code, make it possible for any portion of the Trust assets to revert to an Employer or to be used for, or diverted to, any purpose other than for the exclusive benefit of Participants and Beneficiaries entitled to Plan benefits and to defray reasonable expenses of administering the Plan; (c) decrease the rights of any Participant to benefits accrued (including the elimination of optional forms of benefits) to the date on which the amendment is adopted, or if later, the date upon which the amendment becomes effective, except to the extent permitted under ERISA and the Code; nor (d) permit a Participant to be paid any portion of his or her Account subject to the distribution rules of Code section 401(k) unless the payment would otherwise be permitted under Code section 401(k). 19.2 Merger The Plan and Trust may not be merged or consolidated with, nor may its assets or liabilities be transferred to, another plan unless each Participant and Beneficiary would, if the resulting plan were then terminated, receive a benefit just after the merger, consolidation or transfer which is at least equal to the benefit which would be received if either plan had terminated just before such event. 19.3 Divestitures In the event of a sale by an Employer which is a corporation of: (i) substantially all of the Employer's assets used in a trade or business to an unrelated ________________________________________________________________________________ 61 corporation, or (ii) a sale of such Employer's interest in a subsidiary to an unrelated entity or individual, lump sum distributions shall be permitted from the Plan, except as provided below, to Participants with respect to Employees who continue employment with the corporation acquiring such assets or who continue employment with such subsidiary, as applicable. Notwithstanding, distributions shall not be permitted if the purchaser agrees, in connection with the sale, to be substituted as the Company as the sponsor of the Plan or to accept a transfer in a transaction subject to Code section 414(l)(1) of the assets and liabilities representing the Participants' benefits into a plan of the purchaser or a plan to be established by the purchaser. 19.4 Plan Termination and Complete Discontinuance of Contributions The Company may, at any time and for any reason, terminate the Plan in accordance with the procedures set forth in Section 19.5, or completely discontinue contributions. Upon either of these events, or in the event of a partial termination of the Plan within the meaning of Code section 411(d)(3), the Accounts of each affected Participant shall be fully vested. In the event of the Plan's termination, if no successor plan is established or maintained, lump sum distributions shall be made in accordance with the terms of the Plan as in effect at the time of the Plan's termination or as thereafter amended, provided that a post-termination amendment shall not be effective to the extent that it violates Section 19.1 unless it is required in order to maintain the qualified status of the Plan upon its termination. The Trustee's and Employer's authority shall continue beyond the Plan's termination date until all Trust assets have been liquidated and distributed. 19.5 Amendment and Termination Procedures The following procedural requirements shall govern the adoption of any amendment or termination (a "Change") of the Plan and Trust: (a) The Company may adopt any Change by action of its board of directors in accordance with its normal procedures. (b) The Committee, if acting as Administrator in accordance with Section 15.6, may adopt any Change within the scope of its authority provided under Section 19.1 and in the manner specified in Section 15.7(a). (c) Any Change must be (1) set forth in writing, and (2) signed and dated by an executive officer of the Company or, in the case of a Change adopted by the Committee, at least one of its members. (d) If the effective date of any Change is not specified in the document ________________________________________________________________________________ 62 setting forth the Change, it shall be effective as of the date it is signed by the last person whose signature is required under clause (2) above, except to the extent that another effective date is necessary to maintain the qualified status of the Plan and Trust under Code sections 401(a) and 501(a). (e) No Change shall become effective until it is accepted and signed by the Trustee (which acceptance shall not unreasonably be withheld). 19.6 Termination of Employer's Participation Any Employer may, at any time and for any reason, terminate its Plan participation by action of its board of directors in accordance with its normal procedures. Written notice of such action shall be signed and dated by an executive officer of the Employer and delivered to the Company. If the effective date of such action is not specified, it shall be effective on, or as soon as reasonably practicable after, the date of delivery. Upon the Employer's request, the Company may instruct the Trustee and Administrator to spin off all affected Accounts and underlying assets into a separate qualified plan under which the Employer shall assume the powers and duties of the Company. Alternatively, the Company may continue to maintain the Accounts under the Plan. 19.7 Replacement of the Trustee The Trustee may resign as Trustee under the Plan and Trust or may be removed by the Company at any time upon at least 90 days written notice (or less if agreed to by both parties). In such event, the Company shall appoint a successor trustee by the end of the notice period. The successor trustee shall then succeed to all the powers and duties of the Trustee under the Plan and Trust. If no successor trustee has been named by the end of the notice period, the Company's chief executive officer shall become the trustee, or if he or she declines, the Trustee may petition the court for the appointment of a successor trustee. 19.8 Final Settlement and Accounting of Trustee (a) Final Settlement. As soon as administratively feasible after its resignation or removal as Trustee, the Trustee shall transfer to the successor trustee all property currently held by the Trust. However, the Trustee is authorized to reserve such sum of money as it may deem advisable for payment of its accounts and expenses in connectionwith the settlement of its accounts or other fees or expenses payable by the Trust. Any balance remaining after payment of such fees and expenses shall be paid to the successor trustee. ________________________________________________________________________________ 63 (b) Final Accounting. The Trustee shall provide a final accounting to the Administrator within 90 days of the date Trust assets are transferred to the successor trustee. (c) Administrator Approval. Approval of the final accounting shall automatically occur 90 days after such accounting has been received by the Administrator, unless the Administrator files a written objection with the Trustee within such time period. Such approval shall be final as to all matters and transactions stated or shown therein and binding upon the Administrator. ________________________________________________________________________________ 64 APPENDIX A - INVESTMENT FUNDS I. Investment Funds Available The Investment Funds offered under the Plan as of the Effective Date include this set of daily valued funds: Funds ----- Vanguard Prime Money Market Fund Vanguard Retirement Savings Trust Vanguard Total Bond Market Index Fund Vanguard Asset Allocation Fund Vanguard 500 Index fund Vanguard PRIMECAP Fund Vanguard Growth and Income Fund Vanguard Mid-Cap Index Fund Vanguard Windsor Fund VanKampen Emerging Growth Fund RS Emerging Growth Fund Janus Overseas Fund Janus Twenty Fund II. Default Investment Fund The default Investment Fund as of the Effective Date is the Vanguard Prime Money Market Fund. ________________________________________________________________________________ 65 APPENDIX B - PAYMENT OF PLAN FEES AND EXPENSES As of the Effective Date, payment of Plan fees and expenses shall be as follows: I. Investment Management Fees: These are paid by Participants in that management fees reduce the investment return reported and credited to Participants. II. Recordkeeping Fees: These are paid by Participants and are assessed monthly and billed/collected from Accounts quarterly. III. Additional Fees Paid by Participants: Audit Fees, periodic RFI expenses, Plan related legal and consulting fees, and other expenses necessary for plan administration shall be added to the recordkeeping fees and assessed against Participants' Accounts, per 2) above. Estimates of the fees shall be determined and reconciled, at least annually. IV. Additional Fees Paid by Employer: All other Plan related fees and expenses shall be paid by the Employer. To the extent that the Administrator later elects that any such fees shall be borne by Participants, the fees shall be added to the recordkeeping fees and assessed against Participants' Accounts, per 2) above and estimates of the fees shall be determined and reconciled, at least annually. ________________________________________________________________________________ 66 APPENDIX C - LOAN INTEREST RATE Effective January 1, 1998, the interest rate charged on Participant loans shall be equal to the U.S. Treasury rate for a note of the same maturity, plus 1%. Effective January 1, 1999, the interest rate charged on Participant loans shall be equal to the prime rate published in The Wall Street Journal at the time the loan is processed, plus 1%. If multiple prime rates are published in The Wall Street Journal, the prime rate selected shall be the rate closest to the last prime rate used for this purpose. The rate may be determined once for all loans made in a month, and the maturity may be determined to the nearest year. ________________________________________________________________________________ 67 Amendment No. to the Jacobs Engineering Group Inc. 401(k) Plus Savings Plan and Trust WHEREAS, Jacobs Engineering Group Inc. (the "Company"){, (formerly known as PRIOR CO NAME)}, approved and adopted the {PRIOR NAME as renamed effective CUT OVER DATE the} Jacobs Engineering Group Inc. 401(k) Plus Savings Plan (the "Plan") and Trust Agreement (the "Trust") which were originally effective January 1, 1998 {and most recently restated effective CUT OVER DATE}{, most recently restated effective CUT OVER DATE, and subsequently amended}; WHEREAS, Section 19.1 of the Plan and Trust provides that the Company reserves the right to amend the Plan and Trust; NOW THEREFORE RESOLVED, {that Section{s} {#s} {is} {are }amended effective {date}{,} {and} Section{s} {#s} {is} {are }amended effective {date} and Section{s} {is} {are }amended effective {date}}{ that the Plan is amended effective {date}} as follows: [insert amended provision(s)] Date: ____________________ ,20__ Jacobs Engineering Group Inc. By: Title: The provisions of the above amendment which relate to the Trustee are hereby approved and executed. Date: ____________________ ,20__ Vanguard Fiduciary Trust Company By: Title: EX-10.12 6 dex1012.txt 1999 STOCK INCENTIVE PLAN, AS AMENDED EXHIBIT 10.12 JACOBS ENGINEERING GROUP INC. 1999 Stock Incentive Plan (as Amended) 1. Purpose. The purpose of the Jacobs Engineering Group Inc. 1999 Stock Incentive Plan (the "Plan") is to advance the interests of Jacobs Engineering Group Inc. (the "Company") and its Related Companies (as defined in Section 2) by encouraging and enabling the acquisition of a financial interest in the Company by officers and other employees of the Company and its Related Companies. In addition, the Plan is intended to aid the Company and its Related Companies in attracting and retaining employees, to stimulate the efforts of such employees and to strengthen their desire to remain in the employ of the Company and its Related Companies. 2. Definitions. Unless the context clearly indicates otherwise, the following terms, when used in this Plan, shall have the meanings set forth in this Paragraph 2. "Board of Directors" means the Board of Directors of the Company. "Business Day" means a day on which the New York Stock Exchange is open for securities trading. "Change in Control" shall mean, with respect to the Company, a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A under the Securities Exchange Act of 1934, as amended ("1934 Act"), provided that such a change in control shall be deemed to have occurred at such time as (i) any "person" (as that term is used in Sections 13(d) and 14(d)(2) of the 1934 Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities representing 25% or more of the combined voting power for election of directors of the then outstanding securities of the Company or any successor of the Company; (ii) during any period of two (2) consecutive years or less, individuals who at the beginning of such period constituted the Board of Directors of the Company cease, for any reason, to constitute at least a majority of the Board of Directors of the Company, unless the election or nomination for election of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period; (iii) the shareholders of the Company approve any merger or consolidation as a result of which the Jacobs Common Stock (as defined below) shall be changed, converted or exchanged (other than a merger with a wholly owned subsidiary of the Company) or any liquidation of the Company or any sale or other disposition of 50% or more of the assets or earning power of the Company; or (iv) the shareholders of the Company approve any merger or consolidation to which the Company is a party as a result of which the persons who were shareholders of the Company immediately prior to the effective date of the merger or consolidation shall have beneficial ownership of less than 50% of the combined voting power for election of directors of the surviving corporation following the effective date of such merger or consolidation; provided, however, that no Change in Control shall be deemed to have occurred if, prior to such time as a Change in Control would otherwise be deemed to have occurred, the Board of Directors of the Company determines otherwise. "Committee" means the Compensation Committee of the Board of Directors of the Company, or any committee appointed by the Board of Directors of the Company in accordance with the Company's By-Laws from among its members for the purpose of administering the Plan. Members of the Committee shall be Non Employee Directors within the meaning of Rule 16b-3 under the 1934 Act, as amended. "Disabled" or "Disability" means the employee meets the definition of "disabled" under the terms of the long term disability plan of the Company or Related Company by which the employee is employed in effect on the date in question, whether or not the employee is covered by such plan. "Employee" means an employee of the Company or a Related Company. "Fair Market Value" means the closing price of one share of Jacobs Common Stock as reported by the New York Stock Exchange for the day on which the value is determined. If such day is not a Business Day, then the fair market value shall be determined by reference to the closing price on the first immediately preceding Business Day. "Incentive Award" means an ISO, an NQSO or Restricted Stock granted or awarded under this Plan. "ISO" means an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended. "Jacobs Common Stock" means the Common Stock, par value $1.00 per share, of the Company. "Majority-Owned Related Company" means a Related Company in which the Company owns, directly or indirectly, 50% or more of the voting stock on the date an Incentive Award is granted. "NQSO" means a stock option that does not constitute an ISO. "Options" means ISOs and NQSOs granted under this Plan. "Optionee" means any person to whom an Option is granted under the Plan. 2 "Related Company" or "Related Companies" means corporation(s) or other business organization(s) in which the Company owns, directly or indirectly, 20% or more of the voting stock or capital at the relevant time. "Restricted Stock" means shares of Jacobs Common Stock awarded pursuant to Section 13 of this Plan. "Retire" means to enter Retirement. "Retirement" means the termination of an Optionee's employment with the Company or a Related Company by reason of an Optionee having either (1) attained the age of 65, or (2) attained the age of 60 and completed a total of ten (10) or more consecutive years of employment with the Company, and/or a Related Company. 3. Incentive Awards. The Company may grant or award Incentive Awards to those persons meeting the eligibility requirements in Section 6. 4. Administration. (a) The Plan shall be administered by the Committee. The Board of Directors shall fill vacancies on, and from time to time may remove or add members to, the Committee. The Committee shall act pursuant to a majority vote or unanimous written consent. (b) The Committee shall determine the employees of the Company and its Related Companies (including officers) to whom, and the time or times at which, Incentive Awards will be granted or awarded; the number of shares to be subject to each Incentive Award; the duration of each Incentive Award; the time or times within which Options may be exercised; the cancellation of the Incentive Award (with the consent of the holder thereof); and the other terms and conditions of the grant or award of the Incentive Award, at grant or award or while outstanding, pursuant to the terms of the Plan. The provisions and conditions of the Incentive Awards need not be the same with respect to each employee or with respect to each Incentive Award. (c) The Committee may, subject to the provisions of the Plan, establish such rules, regulations, policies and procedures as it deems necessary or advisable for the proper administration of the Plan, and may make determinations and may take such other action in connection with or in relation to the Plan as it deems necessary or advisable. Each determination or other action made or taken pursuant to the Plan, including interpretations of the Plan and the specific conditions and provisions of the Incentive Awards granted or awarded hereunder by the Committee, shall be final and conclusive for all purposes and upon all persons including, but without limitation, the Company, its Related Companies, the Committee, the Board of Directors of the Company, officers and the affected employees of the Company and/or its Related Companies, employees and the respective successors in interest of any of the foregoing. 3 (d) Notwithstanding the foregoing, with respect to any Incentive Award that is not intended to satisfy the conditions of Rule 16b-3 under the 1934 Act or Section 162(m)(4)(C) of the Internal Revenue Code of 1986, as amended, the Committee may appoint one or more separate committees (any such committee, a "Subcommittee") composed of one or more directors of the Company, who unlike the members of the Committee, may be employee directors of the Company. The Committee may delegate to any such Subcommittee(s) the authority to grant Incentive Awards, to determine all terms of such Incentive Awards and/or to administer the Plan, pursuant to the terms of the Plan. Subject to the limitations of the Plan and the limitations of the Committee's delegation, any such Subcommittee would have the full authority of the Committee pursuant to the terms of the Plan. Any such Subcommittee shall not, however, grant Incentive Awards on terms more favorable than Incentive Awards granted by the Committee. Actions by any such Subcommittee within the scope of delegation shall be deemed for all purposes to have been taken by the Committee. Any such Subcommittee shall be required to report to the Committee on any actions that the Subcommittee has taken. (e) The Committee may designate the Secretary of the Company or any other Company employee to assist the Committee in the administration of the Plan, and may grant authority to such persons to execute agreements evidencing Incentive Awards made under the Plan or other documents entered into under the Plan on behalf of the Committee or the Company. 5. Stock. The Jacobs Common Stock to be issued, transferred and/or sold under the Plan shall be made available from authorized and unissued Jacobs Common Stock or from the Company's treasury shares. The total number of shares of Jacobs Common Stock that may be issued or transferred under the Plan pursuant to Incentive Awards hereunder may not exceed 2,000,000 shares (subject to adjustment as described below). Such number of shares shall be subject to adjustment in accordance with this Section 5 and Section 12. Jacobs Common Stock subject to any unexercised portion of an Option that expires or is canceled, surrendered or terminated for any reason may again be subject to Incentive Awards granted under the Plan. 6. Eligibility. Incentive Awards may be granted or awarded to employees of the Company and its Related Companies. In no event may Incentive Awards be granted or awarded to any Employee for more than one million shares in any one calendar year, subject to the adjustment provisions of Section 12 of the Plan. 7. Grants of Options. Each Option grant shall be evidenced by a written instrument containing such terms and conditions, not inconsistent with the Plan, as the Committee may approve. 4 Except as otherwise specifically provided in this Plan, Options granted pursuant to the Plan shall be subject to the following terms and conditions: (a) Option Price. The option price of all ISOs shall be 100% ------------ of the Fair Market Value of the Jacobs Common Stock on the date of grant. The option price of all NQSOs shall be not less than 85% of the Fair Market Value of the Jacobs Common Stock on the date of grant. (b) Duration of Options. The duration of Options shall be ------------------- determined by the Committee, but in no event shall the duration exceed ten (10) years from the date of its grant. (c) Other Terms and Conditions. Options may contain such other -------------------------- provisions, not inconsistent with the provisions of the Plan, as the Committee shall determine appropriate from time to time, including, without limitation, provisions for accelerated vesting of Options, and provisions relating to the termination of Options for conduct deemed detrimental to the Company and/or its Related Companies; provided, however, that, except in the event of a Change in Control or the Disability or death of the employee, no Option shall be exercisable in whole or in part for a period of twelve (12) months from the date on which the Option is granted. The grant of an Option to any employee shall not affect in any way the right of the Company and any Related Company to terminate the employment of the holder thereof. (d) ISOs. The Committee, with respect to each grant of an ---- Option to an employee, shall determine whether such Option shall be an ISO, and, upon determining that an Option shall be an ISO, shall designate it as such in the written instrument evidencing such Option. Each written instrument evidencing an ISO shall contain all terms and conditions required by Section 422 of the Internal Revenue Code of 1986, as amended. If the written instrument evidencing an Option does not contain a designation that it is an ISO, it shall not be an ISO. The Employee to whom an ISO is granted must be eligible to receive an ISO pursuant to Section 422 of the Internal Revenue Code of 1986, as amended. The aggregate Fair Market Value (determined in each instance on the date on which an ISO is granted) of the Jacobs Common Stock with respect to which ISOs are first exercisable by any employee in any calendar year shall not exceed $100,000 for such employee. If any Majority-Owned Related Company of the Company shall adopt a stock option plan under which options constituting ISOs may be granted, the fair market value of the stock on which any such ISOs are granted and the times at which such ISOs will first become exercisable shall be taken into account in determining the maximum amount of ISOs that may be granted to the employee under this Plan in any calendar year. 5 8. Exercises of Options. (a) An exercisable Option may be exercised in whole or in part. However, an Option may not be exercised in a manner that will result in fractional shares of Jacobs Common Stock being issued. (b) All, or any portion, of an exercisable Option shall be deemed exercised upon delivery to the representative of the Company designated for such purpose by the Committee of all of the following: (i) notice of exercise in such form and in such manner as the Committee may authorize; (ii) payment of the exercise price for such Options being exercised; (iii) such representations and documents as the Committee may, in its sole discretion, deem necessary or advisable to effect compliance with all applicable provisions of the Securities Act of 1933, as amended, and any other federal, state, or foreign securities laws or regulations; and (iv) in the event that the Option is being exercised pursuant to Section 9 of the Plan by any person other than the Employee, proof deemed appropriate by the Committee in its sole discretion of the right of such person to exercise the Option. (c) The option price shall be paid in full at the time of exercise. Payment is to be made in cash or, at the discretion of the Committee and upon conditions established by it, by the delivery or constructive exchange of shares of Jacobs Common Stock acceptable to the Committee owned by the Employee for such period of time as may be established by the Committee. (d) The Committee may make such provisions as it may deem appropriate for the withholding or payment by the Employee of any taxes which it determines are required in connection with an exercise of an Option, and an Optionee's rights in any Incentive Award are subject to satisfaction of such conditions. If permitted by the Committee, the Employee may elect to satisfy all or any portion of such taxes by instructing the Company to withhold shares of Jacobs Common Stock that would otherwise be issuable to the employee by reason of the exercise. If shares of Jacobs Common Stock are delivered or constructively exchanged to pay the option price, or if shares of Jacobs Common Stock otherwise issuable to the employee by reason of the exercise are withheld to satisfy tax liabilities, the value of the shares delivered or exchanged or that are withheld shall be computed using the Fair Market Value of the Jacobs Common Stock delivered or exchanged, or withheld, determined as of the date of exercise. 9. Transferability of Incentive Awards. Except as otherwise provided by the Committee: (a) Incentive Awards granted or awarded pursuant to the Plan shall not be transferable other than by will or by the laws of descent and distribution. (b) During the lifetime of an employee, an Option shall be exercisable only by the employee personally, or by the employee's legal representative. 6 10. Effect on Options of Termination of Employment, Other Changes of Employment or Employer Status, Death, Retirement,or a Change in Control. Schedule A, attached hereto, establishes the effects on outstanding Options of an Employee's termination of employment, other changes of employment or employer status, death, Disability, Retirement, or a Change in Control, and is hereby incorporated by reference. The Committee may approve grants of Options containing terms and conditions different from, or in addition to, those set forth in Schedule A. Notwithstanding the provisions of the foregoing paragraph, no Option may have a term of more than ten years. In the case of leaves of absence, employees will not be deemed to have terminated employment unless the Committee, in its sole discretion, determines otherwise. The Committee may, with the consent of the affected employee, modify the terms and conditions pertaining to the effect of an employee's termination on the expiration or exercisability of an Option subsequent to the date of grant. 11. No Rights as a Shareholder. An employee or a transferee of an employee pursuant to Section 9 shall have no rights as a shareholder with respect to any Jacobs Common Stock covered by an Option or receivable upon the exercise of an Option until the employee or transferee shall have become the holder of record of such Jacobs Common Stock, and no adjustments shall be made for dividends in cash or other property or other distributions or rights in respect to such Jacobs Common Stock for which the record date is prior to the date on which the employee or transferee shall have in fact become the holder of record of the share of Jacobs Common Stock acquired pursuant to the Incentive Award. 12. Adjustment in the Number of Shares and in Option Price. In the event there is any change in the shares of Jacobs Common Stock through the declaration of stock dividends, or stock splits or through recapitalization or merger or consolidation or combination of shares or spin-offs or otherwise, the Committee or the Board of Directors of the Company shall make such adjustment, if any, as it may deem appropriate in the number of shares of Jacobs Common Stock available for Options as well as the number of shares of Jacobs Common Stock subject to any outstanding Option and the option price thereof. Any such adjustment may provide for the elimination of any fractional shares that might otherwise become subject to any Option without payment therefor. 13. Awards of Restricted Stock. (a) An Incentive Award in the form of shares of Restricted Stock may be awarded under this Section 13 as determined by the Committee. The shares of 7 Restricted Stock so issued shall not be sold, exchanged, transferred, pledged, hypothecated or otherwise disposed of, and in the event of termination of the Employee's employment with the Company for any reason (including death and Disability unless the Committee in its sole discretion terminates the Forfeiture Restrictions following the death or Disability of such Employee), the Employee shall be obligated, for no consideration, to forfeit and surrender such shares (to the extent then subject to the Forfeiture Restrictions) to the Company. The restrictions against disposition and the obligation to forfeit and surrender shares to the Company are herein referred to as "Forfeiture Restrictions", and the shares that are then subject to the Forfeiture Restrictions are herein sometimes referred to as "Restricted Stock." Certificates representing Restricted Stock shall be appropriately legended to reflect the Forfeiture Restrictions. (b) The number of shares of Restricted Stock that may be awarded under this Plan shall be limited to 10% of the total number of shares authorized to be made subject to Incentive Awards under this Plan. Any shares of Restricted Stock awarded under this Plan that are forfeited shall again be available for reissuance as Restricted Stock. (c) The Forfeiture Restrictions with respect to Restricted Stock issued under this Section 13 shall lapse and be of no further force and effect upon the expiration of the period of time fixed by the Committee upon the issuance of such Restricted Stock. (d) Should the Employee's employment with the Company or Related Company be terminated for any reason upon or within thirty-six (36) months following a Change in Control, then all remaining Forfeiture Restrictions, if any, shall be deemed to have lapsed. (e) In order to enforce the restrictions imposed upon shares of Restricted Stock, the Committee may require the recipient to enter into an escrow agreement providing that the certificates representing such shares of Restricted Stock shall remain in the physical custody of an escrow holder until any or all of the restrictions imposed pursuant to the Plan expire or shall have been removed. (f) The Committee may make such provisions as it may deem appropriate for the withholding or payment by the Employee of any taxes which it determines are required in connection the lapse of Forfeiture Restrictions, and an Employee's rights in any Incentive Award are subject to satisfaction of such conditions. If permitted by the Committee, the Employee may elect to satisfy all or any portion of such taxes by instructing the Company to withhold shares of Jacobs Common Stock as to which the Restrictions have lapsed. (g) If shares of Jacobs Common Stock are withheld to satisfy tax liabilities, the value of such shares shall be computed using the Fair Market Value of the Jacobs Common Stock on the date of Forfeiture Restrictions lapse. 8 (h) All of the foregoing restrictions, terms and other conditions regarding shares of Restricted Stock shall be evidenced by a written instrument executed by the Company and the Employee and containing such terms and conditions, not inconsistent with the Plan, as the Committee shall approve. 14. Amendments, Modifications and Termination of the Plan. (a) The Board of Directors of the Company or the Committee may terminate the Plan at any time. From time to time, the Board of Directors or the Committee may suspend the Plan, in whole or in part. From time to time, the Board of Directors or the Committee may amend the Plan, in whole or in part, including the adoption of amendments deemed necessary or desirable to qualify the Incentive Awards under the laws (including tax laws) of various countries and under rules and regulations promulgated by the Securities and Exchange Commission with respect to employees who are subject to the provisions of Section 16 of the 1934 Act, or to correct any defect or supply an omission or reconcile any inconsistency in the Plan or in any Incentive Award granted hereunder, or for any other purpose or to any effect permitted by applicable laws and regulations, without the approval of the shareholders of the Company. However, in no event may additional shares of Jacobs Common Stock be allocated to the Plan, or may the minimum exercise price for Options be reduced, or may any outstanding Option be repriced or replaced without shareholder approval. Without limiting the foregoing, the Board of Directors or the Committee may make amendments applicable or inapplicable only to employees who are subject to Section 16 of the 1934 Act. (b) No amendment or termination or modification of the Plan shall in any manner affect any Incentive Award theretofore granted without the consent of the employee, except that the Committee may amend or modify the Plan in a manner that does affect Incentive Awards theretofore granted upon a finding by the Committee that such amendment or modification is in the best interest of holders of outstanding Incentive Awards affected thereby. (c) Grants of ISOs may be made under this Plan until December 2, 2009 or such earlier date as this Plan is terminated, and grants of NQSOs and awards of Restricted Stock may be made until all of the shares of Jacobs Common Stock authorized for issuance hereunder (adjusted as provided in Sections 5 and 12) have been issued or until this Plan is terminated, whichever first occurs. The Plan shall terminate when there are no longer Options outstanding under the Plan, or when there are no longer shares of Restricted Stock outstanding that are subject to Forfeiture Restrictions, unless earlier terminated by the Board or by the Committee. 15. Non-U.S. Employees. The Committee may determine, in its sole discretion, whether it is desirable or feasible under local law, custom or practice to grant or award Incentive Awards to Employees in countries other than the United States. In order to facilitate any such grants or awards, the Committee may provide for such modifications and additional 9 terms and conditions ("special terms") in the grant and award agreements to Employees who are employed outside the United States (or who are foreign nationals temporarily within the United States) as the Committee may consider necessary, appropriate or desirable to accommodate differences in, or otherwise comply with, local law, policy or custom or to facilitate administration of the Plan. The Committee may adopt or approve sub- plans, appendices or supplements to, or amendments, restatements or alternative versions of, the Plan as it may consider necessary, appropriate or desirable for purposes of implementing any special terms or facilitating the grant or award of an Incentive Award, without thereby affecting the terms of the Plan as in effect for any other purpose. The special terms and any appendices, supplements, amendments, restatements or alternative versions, however, shall not include any provisions that are inconsistent with the terms of the Plan as then in effect, unless the Plan could have been amended to eliminate such inconsistency without further approval by the Board of Directors of the Company. 16. Governing Law. The Plan shall be governed by and shall construed and enforced in accordance with the laws of the State of Delaware without giving effect to its choice of law rules. 17. Adoption of the Plan. The Plan shall become effective upon its approval by the Board of Directors of the Company and a majority of the shares present at a duly called meeting of the shareholders of the Company held within twelve months of approval by the Board. However, Incentive Awards may be granted at any time following the approval of the Plan by the Board, but no shares may be issued pursuant to any Incentive Awards until the Plan has been approved by the shareholders, and all listing requirements of all securities exchanges on which the Jacobs Common Stock is listed have been satisfied. 10 SCHEDULE A to the JACOBS ENGINEERING GROUP INC. 1999 Stock Incentive Plan
Event Impact on Vesting Impact on Exercise Period Employment terminates due to Unvested Options are Option expiration date provided in the Retirement forfeited grant agreement continues to apply Employment terminates due to All Options become Option expiration date provided in the Disability or death immediately vested grant agreement continues to apply Employment terminates upon, or All Options become Option expiration date provided in the within 36 months following, a immediately vested grant agreement continues to apply Change in Control Employment terminates for Unvested Options are Expires on the earlier to occur of reasons other than a Change in forfeited (1) the Option expiration date provided Control, Disability, Retirement, or in the grant agreement, or (2) three death (for purposes of this months from the date of termination section, the receipt of severance pay or similar compensation by the Optionee does not extend his or her termination date) Optionee is an employee of a Unvested Options are Expires on the earlier to occur of Related Company, and the forfeited (1) the Option expiration date provided Company's investment in the in the grant agreement, or (2) three Related Company falls below months from the date of termination 20% (this constitutes a termination of employment under the Plan) Employee becomes an employee Unvested Options are Expires on the earlier to occur of of an entity in which the forfeited (1) the Option expiration date Company's ownership interest is provided in the grant agreement, less than 20% (this constitutes a or (2) three months from the date termination of employment under of termination the Plan) Employment transferred to a Vesting continues after Option expiration date provided in Related Company transfer the grant agreement, continues to apply
11 Event Impact on Vesting Impact on Exercise Period Death after termination of Not applicable Right of executor or administrator employment but before Option of estate (or other transferee has expired permitted by Section 9) terminates on the earlier to occur of (1) the Option expiration date provided in the grant agreement, or (2) the Option expiration date that applied immediately prior to the death of the Optionee
12 EX-13 7 dex13.txt EXHIBIT C TO THE REGISTRANT'S NOTICE & PROXY STMNT EXHIBIT C JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS WITH REPORT OF INDEPENDENT AUDITORS September 30, 2001 C-1 JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES SELECTED HIGHLIGHTS For the Years Ended September 30, 2001, 2000 and 1999 (Dollars in thousands, except per share information)
2001 2000 1999 ---------- ---------- ---------- Revenues........................... $3,956,993 $3,418,942 $2,875,007 Net earnings....................... 87,760 50,981 65,445 ---------- ---------- ---------- Per share information: Basic EPS....................... $ 3.30 $ 1.95 $ 2.54 Diluted EPS..................... 3.22 1.93 2.47 Net book value.................. 21.72 18.72 16.95 Closing year-end stock price.... 62.40 40.3125 32.50 ---------- ---------- ---------- Total assets....................... $1,557,040 $1,384,376 $1,220,186 Stockholders' equity............... 591,801 495,543 448,717 Return on average equity........... 16.14% 10.80% 15.96% Stockholders of record............. 1,036 1,115 1,208 ---------- ---------- ---------- Backlog: Technical professional services. $2,689,300 $2,375,300 $1,760,000 Total........................... 5,912,500 5,430,100 4,448,200 ---------- ---------- ---------- Permanent staff.................... 20,628 18,812 15,900 ========== ========== ==========
Net earnings for fiscal 2000 includes an after-tax charge of $23.7 million, or $0.89 per diluted share, relating to the settlement of certain litigation. C-2 JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES SELECTED FINANCIAL DATA For the Years Ended September 30 (In thousands, except per share information)
2001 2000 1999 1998 1997 ---------- ---------- ---------- ---------- ---------- Results of Operations: Revenues....................... $3,956,993 $3,418,942 $2,875,007 $2,101,145 $1,780,616 Net earnings................... 87,760 50,981 65,445 54,385 46,895 ---------- ---------- ---------- ---------- ---------- Financial Position: Current ratio.................. 1.35 to 1 1.24 to 1 1.25 to 1 1.54 to 1 1.56 to 1 Working capital................ $ 245,500 $ 167,160 $ 144,638 $ 197,659 $ 178,203 Current assets................. 946,159 851,023 729,620 566,007 497,361 Total assets................... 1,557,040 1,384,376 1,220,186 807,489 737,643 Long-term debt................. 164,308 146,820 135,371 26,221 54,095 Stockholders' equity........... 591,801 495,543 448,717 371,405 324,308 Return on average equity....... 16.14% 10.80% 15.96% 15.63% 15.43% Backlog: Technical professional services................. $2,689,300 $2,375,300 $1,760,000 $1,004,500 $ 912,057 Total...................... 5,912,500 5,430,100 4,448,200 3,329,500 3,050,000 ---------- ---------- ---------- ---------- ---------- Per share information: Basic EPS...................... $ 3.30 $ 1.95 $ 2.54 $ 2.12 $ 1.82 Diluted EPS.................... 3.22 1.93 2.47 2.08 1.80 Stockholders' equity........... 21.72 18.72 16.95 14.23 12.48 ---------- ---------- ---------- ---------- ---------- Average Number of Common and Common Stock Equivalents Outstanding (Diluted)........... 27,248 26,473 26,478 26,096 25,989 ---------- ---------- ---------- ---------- ----------
Net earnings for fiscal 2000 includes an after-tax charge of $23.7 million, or $0.89 per diluted share, relating to the settlement of certain litigation. C-3 JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES SELECTED FINANCIAL DATA For the Years Ended September 30 (In thousands, except per share information)
1996 1995 1994 1993 1992 ---------- ---------- ---------- ---------- ---------- Results of Operations: Revenues....................... $1,798,970 $1,723,057 $1,165,754 $1,142,926 $1,106,427 Net earnings................... 40,360 32,242 18,767 28,670 26,605 ---------- ---------- ---------- ---------- ---------- Financial Position: Current ratio.................. 1.68 to 1 1.44 to 1 1.41 to 1 1.61 to 1 1.56 to 1 Working capital................ $ 155,569 $ 113,339 $ 106,058 $ 100,688 $ 92,706 Current assets................. 383,644 368,614 367,485 264,949 258,206 Total assets................... 572,505 533,947 504,364 351,020 316,731 Long-term debt................. 36,300 17,799 25,000 -- -- Stockholders' equity........... 283,387 238,761 200,433 173,797 139,813 Return on average equity....... 15.46% 14.68% 10.03% 18.28% 21.56% Backlog: Technical professional services................. $ 845,300 $ 828,400 $ 793,060 $ 736,600 $ 647,100 Total...................... 2,750,200 2,625,000 2,500,000 1,858,600 1,760,000 ---------- ---------- ---------- ---------- ---------- Per share Information: Basic EPS...................... $ 1.58 $ 1.28 $ 0.75 $ 1.17 $ 1.14 Diluted EPS.................... 1.56 1.27 0.75 1.15 1.11 Stockholders' equity........... 10.93 9.41 7.96 6.96 5.81 ---------- ---------- ---------- ---------- ---------- Average Number of Common and Common Stock Equivalents Outstanding (Diluted)........... 25,921 25,384 25,173 24,964 24,070 ---------- ---------- ---------- ---------- ----------
Net earnings for fiscal 1994 included special charges totaling $10.2 million, or $0.40 per diluted share. Net earnings for fiscal 1992 included a net gain of $2.1 million, or $0.09 per diluted share, from the sale of 40% of the Company's holdings of the common stock of Genetics Institute, Inc. C-4 JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS Results of Operations The following table sets forth the Company's revenues by type of service for each year ended September 30 (in thousands):
2001 2000 1999 ---------- ---------- ---------- Project Services.......................... $2,340,304 $1,809,309 $1,318,027 Construction.............................. 977,627 969,792 994,479 Operations and Maintenance................ 505,423 521,609 474,511 Process, Scientific and Systems Consulting 133,639 118,232 87,990 ---------- ---------- ---------- $3,956,993 $3,418,942 $2,875,007 ========== ========== ==========
The Company focuses its services on certain industry groups and markets, which the Company believes has sufficient common needs to permit cross-utilization of its resources. The following table sets forth the Company's revenues by these industry groups and markets for each year ended September 30 (in thousands):
2001 2000 1999 ---------- ---------- ---------- Federal Programs................. $ 732,362 $ 614,048 $ 481,302 Pharmaceuticals and Biotechnology 715,407 481,947 373,520 Chemicals and Polymers........... 653,573 693,034 796,501 Buildings........................ 457,488 539,691 454,589 Oil & Gas, and Refining.......... 451,103 280,942 243,311 Technology and Manufacturing..... 332,995 213,557 173,023 Infrastructure................... 246,420 238,278 218,828 Pulp and Paper................... 182,456 254,861 99,189 Other............................ 185,189 102,584 34,744 ---------- ---------- ---------- $3,956,993 $3,418,942 $2,875,007 ========== ========== ==========
"Other" includes projects for clients operating in a number of industries, including food and beverage, and basic resources (such as mining, minerals and fertilizers). 2001 Compared to 2000 On May 3, 2001, the Company completed the purchase of substantially all of the international engineering and construction management business of LawGibb Group Inc. (the "GIBB" businesses). The total purchase price of $34.5 million in cash was financed with a combination of internal funds and borrowings made under the Company's $230.0 million revolving credit facility. The GIBB transaction was accounted for as a purchase. Accordingly, the Company's consolidated results of operations for fiscal 2001 include the results of GIBB's operations since the date of acquisition. The purchase price has been allocated to the assets and liabilities acquired based on their estimated fair values. The purchase price allocation, which may be adjusted further, resulted in goodwill, net of related tax benefits, of approximately $31.3 million. The Company's consolidated results of operations for fiscal 2001 were not significantly impacted by GIBB's operations. The Company's consolidated revenues of $4.0 billion for fiscal 2001 include $46.1 million of revenues from GIBB's operations since the acquisition date. C-5 On February 23, 2001, the Company finalized the second phase of the two-part transaction to acquire the engineering and contracting business of Stork N.V., the Netherlands ("Stork"). The first phase was completed in February 2000. The second phase of the transaction was accounted for as a purchase. Accordingly, the Company's consolidated results of operations for fiscal 2001 include the operating results of the second phase of Stork since the date of acquisition. The purchase price for the second phase of Stork has been allocated to the assets and liabilities acquired based on their estimated fair values. The purchase price allocation, which may be adjusted further, resulted in goodwill, net of related tax benefits, of approximately $29.9 million. The Company's consolidated results of operations for both fiscal 2001 and 2000 were not significantly impacted by Stork's operations. The Company's consolidated revenues of $4.0 billion for fiscal 2001 include $36.4 million of revenues from Stock Phase II operations since the acquisition date. The Company recorded net earnings of $87.8 million, or $3.22 per diluted share for the fiscal year ended September 30, 2001, compared to net earnings of $51.0 million, or $1.93 per diluted share for fiscal 2000. Net earnings for the prior year included a first quarter pre-tax provision for litigation settlement of $38.0 million ($23.7 million after-tax). Excluding the after-tax impact of this special litigation charge, the Company's operations during fiscal 2000 resulted in pro forma net earnings of $74.7 million, or $2.82 per diluted share. Total revenues for fiscal 2001 increased by $538.1 million, or 15.7%, to $4.0 billion, compared to $3.4 billion for fiscal 2000. The Stork Phase II and GIBB transactions contributed approximately $80.8 million of revenues during fiscal 2001. Revenues from project services activities, which include design, engineering and agency construction management services, increased by $531.0 million, or 29.3%, to $2.3 billion during fiscal 2001, compared to $1.8 billion for fiscal 2000. Revenues from construction services of $977.6 million in fiscal 2001 were consistent with revenue levels during fiscal 2000 and 1999 of $969.8 million and $994.5 million, respectively. Revenues from operations and maintenance ("O&M") activities decreased by $16.2 million, or 3.1%, to $505.4 million during fiscal 2001, compared to $521.6 million during fiscal 2000. Revenues from process, scientific and systems consulting services increased by $15.4 million, or 13.0%, to $133.6 million during fiscal 2001, compared to $118.2 million last year. As a percentage of revenues, direct costs of contracts were 87.2% for fiscal 2001 as compared to 87.3% for fiscal 2000. The percentage relationship between direct costs of contracts and revenues generally fluctuate between reporting periods depending on a variety of factors including the mix of business during the reporting periods being compared, as well as the level of margins earned from the various types of services provided by the Company. Selling, general and administrative ("SG&A") expenses for fiscal 2001 increased by $49.7 million, or 16.0%, to $360.8 million, compared to $311.1 million for fiscal 2000. Approximately $19.9 million, or 40% of the increase in SG&A expenses was attributable to the Stork Phase II and GIBB operations. However, as a percentage of revenues, SG&A expenses for fiscal 2001 remained at the prior fiscal year level of 9.1%, reflecting the Company's continuing efforts to control costs. During fiscal 2001, the Company's operating profit (defined as revenues, less direct costs of contracts and SG&A expenses) increased by $19.2 million, or 15.4%, to $143.9 million, compared to C-6 $124.6 million last year. The increase in the Company's operating profit for fiscal 2001 as compared to last year was due primarily to significant increases in business volume while keeping direct costs of contracts and SG&A expenses as a percentage of revenues at approximately the same levels as last year's. During fiscal 2001, interest expense increased minimally by 2.5%, or $0.3 million, to $11.7 million, compared to $11.4 million in fiscal 2000, due to additional borrowings from the Company's $230.0 million revolving credit facility at lower interest rates. At September 30, 2001 and 2000, outstanding borrowings under this facility were $164.3 million at 4.10% and $138.9 million at 8.20%, respectively. During fiscal 2001, the Company borrowed $162.4 million from the same facility, primarily to partially finance the GIBB acquisition for approximately $20.3 million, to fund $9.5 million of stock repurchases as discussed below, and the balance to cover working capital requirements. The Company recorded income tax expense of $50.4 million and $30.3 million in fiscal 2001 and 2000, respectively. The Company's overall effective tax rate was 36.5% for fiscal 2001, compared to an effective tax rate of 37.3% for fiscal 2000. 2000 Compared to 1999 On February 16, 2000, the Company completed the first phase of the two-part transaction to acquire the engineering and contracting business of Stork for a total purchase price of EUR 25.0 million (approximately $24.2 million). The first phase of the Stork transaction was accounted for as a purchase. Accordingly, the purchase price has been allocated to the assets and liabilities acquired based on their estimated fair values. The purchase price allocation resulted in goodwill, net of related tax benefits, of approximately $29.0 million. The Company's consolidated results of operations for fiscal 2000 include the results of Stork's operations since the acquisition date. The effect of Stork on the Company's consolidated results of operations for fiscal 2000 was not material. The Company's consolidated revenues of $3.4 billion for fiscal 2000 include $87.2 million of revenues from Stork's operations since the acquisition date. In January 1999, the Company completed its merger with Sverdrup Corporation ("Sverdrup"). Accordingly, Sverdrup's results of operations are included in the Company's consolidated results of operations for all of fiscal 2000, compared to only the second, third and fourth quarters of fiscal 1999. The Company recorded net earnings of $51.0 million, or $1.93 per diluted share, for fiscal 2000, compared to net earnings of $65.4 million, or $2.47 per diluted share for fiscal 1999. As discussed above, net earnings for fiscal 2000 included a first quarter pre-tax provision for litigation settlement of $38.0 million ($23.7 million after-tax). This special, one-time pre-tax charge, which consisted of the settlement amount of $35.0 million and related litigation costs of $3.0 million, resulted from an agreement with the United States Department of Justice to settle a previously disclosed whistleblower suit. The suit alleged that the Company improperly charged the U.S. government for lease costs associated with its former headquarters building, which the Company sold and leased back in 1982, and then permanently vacated in 1997. The Company denied the government's allegations in the suit but agreed to the settlement to avoid the costs and risks of further litigation. The settlement was paid in March 2000 and has no continuing impact on the Company's operating results. Total revenues for fiscal 2000 increased by $543.9 million, or 18.9%, to $3.4 billion, compared to $2.9 billion for fiscal 1999. This increase reflects the inclusion of Sverdrup's operations for the entire fiscal 2000 as compared to only the second, third and fourth quarters of fiscal 1999. Excluding the impact of Sverdrup's operations on the Company's revenues during the first quarter of fiscal 2000, total revenues increased by $320.7 million, or 11.2% on a year-to-date basis. C-7 Revenues from project services activities increased by $491.3 million, or 37.3%, to $1.8 billion during fiscal 2000, compared to $1.3 billion for fiscal 1999. Excluding the impact of Sverdrup's operations on the Company's revenues during the first quarter of fiscal 2000, revenues from project services activities increased by $345.0 million, or 26.2% on a year-to-date basis. Revenues from construction services of $969.8 million in fiscal 2000 were consistent with the fiscal 1999 revenue level of $994.5 million. Revenues from O&M activities increased by $47.1 million, or 9.9%, to $521.6 million during fiscal 2000, compared to $474.5 million for fiscal 1999. The increase of $47.1 million in O&M revenues in fiscal 2000 was due to the inclusion of Sverdrup's operations for the entire fiscal 2000 as compared to only the second, third and fourth quarters of fiscal 1999. Revenues from process, scientific and systems consulting services increased by $30.2 million, or 34.4%, to $118.2 million during fiscal 2000, compared to $88.0 million for fiscal 1999. Approximately $24.4 million, or 81% of the increase in revenues during fiscal 2000 was due to the inclusion of Sverdrup's operations for the entire fiscal 2000 as compared to only the second, third and fourth quarters of fiscal 1999. Prior to the merger with Sverdrup, the Company's revenues from process, scientific and systems consulting service activities were minimal. As a percentage of revenues, direct costs of contracts was 87.3% for the fiscal year ended September 30, 2000, compared to 86.2% for fiscal 1999. The movement in this percentage relationship was due primarily to proportionately lower margins earned on the Company's new volume of business during fiscal 2000 as compared to fiscal 1999. SG&A expenses for fiscal 2000 increased by $22.0 million, or 7.6%, to $311.1 million, compared to $289.0 million in fiscal 1999. The increase of $22.0 million during fiscal 2000 was due to the inclusion of Sverdrup's operations for the entire fiscal 2000 as compared to only the second, third and fourth quarters of fiscal 1999. As a percentage of revenues, however, SG&A expenses for fiscal 2000 decreased to 9.1%, compared to 10.1% last year, reflecting the Company's continuing efforts to control costs. During fiscal 2000, the Company's operating profit increased by $16.3 million, or 15.1%, to $124.6 million, compared to $108.3 million during fiscal 1999. The increase in the Company's operating profit for fiscal 2000 as compared to last year was due primarily to significant increases in business volume and reduced SG&A expenses as a percentage of revenues. During fiscal 2000, interest expense increased by 30.3%, or $2.7 million, to $11.4 million, compared to interest expense of $8.8 million last year. The increase in interest expense in fiscal 2000 as compared to fiscal 1999 was due to additional borrowings from the Company's $230.0 million revolving credit facility at higher interest rates compared to fiscal 1999. At September 30, 2000, outstanding borrowings under this facility were $138.9 million. During fiscal 2000, the Company borrowed $103.9 million from the same facility, primarily to pay the $35.0 million litigation settlement, to partially finance the first phase of the Stork acquisition for approximately $14.8 million, to fund $13.7 million of stock repurchases as discussed below, and the balance to cover working capital requirements. The Company recorded $2.2 million of net miscellaneous income during fiscal 2000, compared to net miscellaneous income of $2.0 million for fiscal 1999. Included in net miscellaneous income in fiscal 2000 were one-time charges totaling $4.6 million relating to a terminated retirement plan and impairment of a non-operating investment. Offsetting these one-time charges was approximately $5.2 million representing the break-up fee and expense reimbursement amount received from Stone & C-8 Webster, Inc., net of associated costs and expenses. The fee and expense reimbursement was received as a result of the termination of an asset purchase agreement between the Company and Stone & Webster, Inc. The Company recorded income tax expense of $30.3 million and $39.1 million in fiscal 2000 and 1999, respectively. The Company's overall effective tax rate was 37.3% for fiscal 2000, compared to an effective tax rate of 37.4% for fiscal 1999. Backlog Backlog represents the total dollar amount of revenues the Company expects to record in the future as a result of performing work under contracts that have been awarded to it. The Company's policy with respect to O&M contracts, however, is to include in backlog the amount of revenues it expects to receive for one succeeding year, regardless of the remaining life of the contract. For federal programs (other than federal O&M contracts), the Company's policy is to include in backlog the full contract award, whether funded or unfunded, and exclude option periods. In accordance with industry practice, substantially all of the Company's contracts are subject to cancellation or termination at the option of the client. However, the Company has not experienced cancellations that have had a material effect on the reported backlog amounts. In a situation where a client terminates a contract, the Company would ordinarily be entitled to receive payment for work performed up to the date of termination and, in certain instances, may be entitled to allowable termination and cancellation costs. While management uses all information available to it to determine backlog, the Company's backlog at any given time is subject to changes in the scope of services to be provided as well as increases or decreases in costs relating to the contracts included therein. The following table summarizes the Company's total backlog at September 30, 2001, 2000 and 1999 (in millions):
2001 2000 1999 -------- -------- -------- Technical professional services $2,689.3 $2,375.3 $1,760.0 Total.......................... 5,912.5 5,430.1 4,448.2 -------- -------- --------
Total backlog at September 30, 2001 included approximately $1.9 billion, or 32.4% of total backlog, relating to work to be performed either directly or indirectly for the U.S. federal government and its agencies. This compares to approximately $1.4 billion and $1.5 billion of U.S. federal backlog at September 30, 2000 and 1999, respectively. Most of these federal contracts extend beyond one year. In general, these contracts must be funded annually (i.e., the amounts to be spent under the contract must be appropriated by Congress to the procuring agency, and then the agency must allot these sums to the specific contracts). The Company's backlog for fiscal 2001 increased by $482.4 million, or 8.9%, to $5.9 billion, compared to fiscal 2000, and increased in fiscal 2000 by $981.9 million, or 22.1%, to $5.4 billion, compared to fiscal 1999. The increase in fiscal 2001 as compared to fiscal 2000 was attributable primarily to new awards in the defense and aerospace, and exploration, production and refining areas of the Company's business, and the impact of the acquisitions of Stork and GIBB. The increase in fiscal 2000 as compared to fiscal 1999 was attributable primarily to new awards in the semiconductor, pharmaceuticals and biotechnology, and infrastructure areas of the Company's business. The Company estimates that approximately $2.5 billion, or 42.8% of total backlog at September 30, 2001 will be realized as revenues within the next fiscal year. C-9 Effects of Inflation During fiscal 2001 and 2000, approximately 81% and 77%, respectively, of the Company's consolidated revenues were realized from cost-reimbursable type contracts. Because a significant portion of the Company's revenues continues to be earned under cost-reimbursable type contracts, the effects of inflation on the Company's financial condition and results of operations have been generally low. However, as the Company expands its business into markets and geographic areas where fixed-price and lump-sum work may be more prevalent, inflation may begin to have a larger impact on the Company's results of operations. To the extent permitted by competition, the Company intends to continue to emphasize contracts which are either cost-reimbursable or negotiated fixed-price. For contracts the Company accepts with fixed-price or lump-sum terms, the Company monitors closely the actual costs on the project as they compare to the budget estimates. On these projects, the Company also attempts to secure fixed-price commitments from key subcontractors and vendors. However, due to the competitive nature of the Company's business, combined with the fluctuating demands and prices associated with personnel, equipment and materials the Company traditionally needs in order to perform on its contracts, there can be no guarantee that inflation will not effect the Company's results of operations in the future. Liquidity and Capital Resources During fiscal 2001, the Company's cash and cash equivalents decreased by $16.6 million, to $49.3 million. This compares to a net increase of $12.4 million, to $65.8 million during fiscal 2000, and to a net decrease of $47.8 million, to $53.5 million, during fiscal 1999. During fiscal 2001, the Company experienced net cash outflows from investing activities and the effect on cash of exchange rate changes, of $63.6 million and $0.2 million, respectively, offset in part by net cash inflows from financing and operating activities of $32.2 million and $15.1 million, respectively. Operations resulted in net cash inflows of $15.1 million during fiscal 2001. This compares to a net contribution of $81.3 million and $83.5 million during fiscal 2000 and 1999, respectively. The $66.2 million decrease in cash provided by operations in fiscal 2001 as compared to fiscal 2000 was due primarily to a net increase in outflows of $91.4 million relating to the timing of cash receipts and payments within the Company's working capital accounts, and the effects of deferred income taxes, and depreciation and amortization of property, equipment and improvements of $10.3 million and $1.8 million, respectively. These outflows were partially offset by an increase of $36.8 million in net earnings. The Company's investing activities resulted in net cash outflows of $63.6 million during fiscal 2001. This compares to net cash outflows of $106.7 million and $220.6 million during fiscal 2000 and 1999, respectively. The net decrease of $43.1 million in cash used for investing activities in fiscal 2001 as compared to fiscal 2000 was due primarily to decreases in other noncurrent assets, net additions to property and equipment, and purchases of investments of $26.9 million, $14.1 million and $3.6 million, respectively. These were partially offset by a $1.3 million increase in cash used for acquisitions of businesses. The Company's financing activities resulted in net cash inflows of $32.2 million during fiscal 2001. This compares to net cash inflows of $42.8 million and $92.6 million during fiscal 2000 and 1999, respectively. The $10.7 million net decrease in cash provided by financing activities in fiscal 2001 compared to fiscal 2000 was due primarily to increases in the repayments of long-term and short-term borrowings of $67.3 million and $9.4 million, respectively. These outflows were partially offset by an increase of $58.5 million in proceeds from long-term borrowings, and a decrease of $4.2 million in purchases of common stock for treasury. During fiscal 2001, the Company borrowed $162.4 million from its $230.0 million revolving credit facility, primarily to partially finance the GIBB acquisition for approximately $20.3 million, to fund $9.5 million of stock repurchases as discussed below, and the C-10 balance to cover working capital requirements. During fiscal 2000, the Company borrowed $103.9 million from the same facility, primarily to pay the $35.0 million litigation settlement, to partially finance the first phase of the Stork acquisition for approximately $14.8 million, to fund $13.7 million of stock repurchases, and the balance to cover working capital requirements. The Company believes it has adequate capital resources to fund its operations in fiscal 2002 and beyond. The Company's consolidated working capital position was $245.5 million at September 30, 2001 compared to $167.2 million at September 30, 2000. As discussed earlier, the Company has a long-term $230.0 million revolving credit facility against which $164.3 million was outstanding at September 30, 2001 in the form of direct borrowings. At September 30, 2001, the Company had $50.8 million available through committed short-term credit facilities, of which $29.5 million was outstanding at that date in the form of direct borrowings and letters of credit. Under its stock repurchase program, the Company is authorized to buy-back up to 3.0 million shares of its common stock in the open market. Repurchases of common stock will be financed from existing credit facilities and available cash balances. The Company has repurchased a total of 1,835,700 shares of its common stock at a total cost of $57.1 million since the program's inception in July 1996. During fiscal 2001, the Company repurchased 178,600 shares of its common stock at a total cost of $9.5 million, all of which were subsequently reissued for the Company's employee stock purchase and stock option plans. The Company has filed a protective claim with the Internal Revenue Service. The nature of the claim involves monies the Company believes it is due from the government relating to the research and development tax credit for fiscal years 1991 through 1998. Although the Company has been working on quantifying the amount of the credit, the final tax refund amount has not yet been determined. Based on a preliminary review of the information available, the ultimate refund amount may have a significant and positive effect on the Company's overall liquidity. Acquisition On October 31, 2001, the Company finalized the acquisition of McDermott Engineers & Constructors (Canada) Limited (including Delta Catalytic and Delta Hudson Engineering) (collectively "Delta"). Delta provides engineering, construction, and maintenance services to various industries including upstream oil and gas, petroleum refining, petrochemicals, and chemicals. Delta has approximately 3,500 employees conducting operations located primarily in Canada and the United Kingdom. The total purchase price of $47.5 million in cash was financed with a new, short-term, $50.0 million 180-day bilateral credit facility. The Delta transaction was accounted for as a purchase. Accordingly, Delta's operations will be included in the Company's results of operations for fiscal 2002 from the date of acquisition. The purchase price will be allocated to the assets and liabilities acquired based on their estimated fair values. Current Accounting Pronouncements In June 2001, the Financial Accounting Standards Board ("FASB") issued Statements of Financial Accounting Standards No. 141--Business Combinations ("SFAS 141"), and No. 142--Goodwill and Other Intangible Assets ("SFAS 142"). SFAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. The pooling-of-interests method of accounting is no longer permitted. SFAS 141 also provides guidance on the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination that is completed after June 30, 2001. C-11 SFAS 142 no longer permits amortization of goodwill (including existing goodwill prior to the date of adoption of SFAS 142) and intangible assets deemed to have indefinite lives. Instead, these assets must be tested for impairment using a fair value approach in accordance with SFAS 142. The Company will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of fiscal 2002. The Company is currently in the process of quantifying the impact of the new standards. However, the Company anticipates that all amortization of goodwill as a charge to earnings will be eliminated. During fiscal 2002, the Company will also perform the first of the required impairment tests of goodwill. Forward-Looking Statements Statements included in this Management's Discussion and Analysis that are not based on historical facts are "forward-looking statements", as that term is discussed in the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current estimates, expectations and projections about the issues discussed, the industries in which the Company's clients operate and the services the Company provides. By their nature, such forward-looking statements involve risks and uncertainties. The Company has tried, wherever possible, to identify such statements by using words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe" and words and terms of similar substance in connection with any discussion of future operating or financial performance. The Company cautions the reader that a variety of factors could cause business conditions and results to differ materially from what is contained in its forward-looking statements including the following: . increase in competition by foreign and domestic competitors; . availability of qualified engineers and other professional staff needed to execute contracts; . the timing of new awards and the funding of such awards; . the ability of the Company to meet performance or schedule guarantees: . cost overruns on fixed, maximum or unit priced contracts; . the outcome of pending and future litigation and governmental proceedings; . the cyclical nature of the individual markets in which the Company's customers operate; . the successful closing and/or subsequent integration of any merger or acquisition transaction; and, . the amount of any continent consideration the Company may be required to pay in the future in connection with the Sverdrup merger (including the availability of financing that may be required). The preceding list is not all-inclusive, and the Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Readers of this Management's Discussion and Analysis should also read the Company's most recent Annual Report on Form 10-K for a further description of the Company's business, legal proceedings and other information that describes factors that could cause actual results to differ from such forward-looking statements. C-12 JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS September 30, 2001 and 2000 (In thousands, except share information)
2001 2000 ---------- ---------- ASSETS Current Assets: Cash and cash equivalents............................................ $ 49,263 $ 65,848 Receivables.......................................................... 817,160 710,979 Deferred income taxes................................................ 64,651 61,968 Prepaid expenses and other........................................... 15,085 12,228 ---------- ---------- Total current assets.......................................... 946,159 851,023 ---------- ---------- Property, Equipment and Improvements, Net............................... 149,979 150,491 ---------- ---------- Other Noncurrent Assets: Goodwill, net........................................................ 317,664 269,043 Other................................................................ 143,238 113,819 ---------- ---------- Total other noncurrent assets................................. 460,902 382,862 ---------- ---------- $1,557,040 $1,384,376 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Notes payable........................................................ $ 19,688 $ 18,460 Accounts payable..................................................... 197,712 224,063 Accrued liabilities.................................................. 295,763 274,991 Billings in excess of costs.......................................... 163,833 145,708 Income taxes payable................................................. 23,663 20,641 ---------- ---------- Total current liabilities..................................... 700,659 683,863 ---------- ---------- Long-term Debt.......................................................... 164,308 146,820 ---------- ---------- Other Deferred Liabilities.............................................. 95,174 52,946 ---------- ---------- Minority Interests...................................................... 5,098 5,204 ---------- ---------- Commitments and Contingencies Stockholders' Equity: Capital stock: Preferred stock, $1 par value, authorized--1,000,000 shares, issued and outstanding--none................................... -- -- Common stock, $1 par value, authorized--100,000,000 shares; issued and outstanding--26,872,358 and 26,386,238 shares, respectively................................................... 26,872 26,386 Additional paid-in capital........................................... 105,612 79,352 Retained earnings.................................................... 472,010 400,791 Accumulated other comprehensive loss................................. (10,620) (10,515) ---------- ---------- 593,874 496,014 Unearned compensation................................................ (2,073) (471) ---------- ---------- Total stockholders' equity.................................... 591,801 495,543 ---------- ---------- $1,557,040 $1,384,376 ========== ==========
See the accompanying Notes to Consolidated Financial Statements. C-13 JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS For the Years Ended September 30, 2001, 2000 and 1999 (In thousands, except per share information)
2001 2000 1999 ----------- ----------- ----------- Revenues........................................ $ 3,956,993 $ 3,418,942 $ 2,875,007 Costs and Expenses: Direct costs of contracts.................... (3,452,320) (2,983,247) (2,477,678) Selling, general and administrative expenses. (360,821) (311,082) (289,034) ----------- ----------- ----------- Operating Profit................................ 143,852 124,613 108,295 Other (Expense) Income: Interest income.............................. 3,718 3,961 3,031 Interest expense............................. (11,705) (11,420) (8,767) Miscellaneous income......................... 2,341 2,168 1,963 Provision for litigation settlement.......... -- (38,000) -- ----------- ----------- ----------- Total other expense...................... (5,646) (43,291) (3,773) ----------- ----------- ----------- Earnings Before Taxes........................... 138,206 81,322 104,522 Income Tax Expense.............................. (50,446) (30,341) (39,077) ----------- ----------- ----------- Net Earnings.................................... $ 87,760 $ 50,981 $ 65,445 =========== =========== =========== Net Earnings Per Share: Basic........................................ $ 3.30 $ 1.95 $ 2.54 Diluted...................................... $ 3.22 $ 1.93 $ 2.47 =========== =========== ===========
See the accompanying Notes to Consolidated Financial Statements. C-14 JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the Years Ended September 30, 2001, 2000 and 1999 (In thousands)
2001 2000 1999 ------- ------- ------- Net Earnings............................................................ $87,760 $50,981 $65,445 ------- ------- ------- Other Comprehensive Income (Loss): Unrealized holding gains on securities............................... 2,395 3,556 4,118 Less: reclassification adjustment for gains realized in net earnings. (2,083) (1,455) (648) ------- ------- ------- Unrealized gains on securities, net of reclassification adjustment... 312 2,101 3,470 Foreign currency translation adjustments............................. (324) (8,236) (3,946) ------- ------- ------- Other Comprehensive Loss Before Income Taxes............................ (12) (6,135) (476) Income Tax Expense Relating to Other Comprehensive Income............... (93) (785) (1,319) ------- ------- ------- Other Comprehensive Loss................................................ (105) (6,920) (1,795) ------- ------- ------- Total Comprehensive Income.............................................. $87,655 $44,061 $63,650 ======= ======= =======
See the accompanying Notes to Consolidated Financial Statements. C-15 JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY For the Years Ended September 30, 2001, 2000 and 1999 (In thousands)
2001 2000 1999 -------- -------- -------- Common Stock: Balance at the beginning of the year..................... $ 26,386 $ 26,143 $ 25,867 Issuances under stock plans, net......................... 625 440 399 Repurchases under stock plans............................ (187) (197) (131) Issuances of restricted stock, net of forfeitures........ 48 -- 8 -------- -------- -------- Balance at the end of the year........................... 26,872 26,386 26,143 -------- -------- -------- Additional Paid-in Capital: Balance at the beginning of the year..................... 79,352 68,049 55,698 Issuances of common stock under stock plans, net......... 24,910 12,078 12,399 Repurchases of common stock under stock plans............ (696) (764) (293) Issuances of restricted stock, net of forfeitures........ 2,046 (11) 245 -------- -------- -------- Balance at the end of the year........................... 105,612 79,352 68,049 -------- -------- -------- Retained Earnings: Balance at the beginning of the year..................... 400,791 358,958 300,296 Net earnings............................................. 87,760 50,981 65,445 Issuances of treasury stock for stock option exercises... (1,381) (2,922) (1,618) Repurchases of common stock under stock plans............ (15,160) (6,226) (5,165) -------- -------- -------- Balance at the end of the year........................... 472,010 400,791 358,958 -------- -------- -------- Accumulated Other Comprehensive Income (Loss): Balance at the beginning of the year..................... (10,515) (3,595) (1,800) Foreign currency translation adjustments................. (324) (8,236) (3,946) Net unrealized gains on securities....................... 219 1,316 2,151 -------- -------- -------- Balance at the end of the year........................... (10,620) (10,515) (3,595) -------- -------- -------- Unearned Compensation: Balance at the beginning of the year..................... (471) (838) (1,056) Issuances of restricted stock............................ (2,094) (153) (253) Amortization............................................. 492 520 471 -------- -------- -------- Balance at the end of the year........................... (2,073) (471) (838) -------- -------- -------- Treasury Stock, at Cost: Balance at the beginning of the year..................... -- -- (7,600) Purchases of common stock for treasury................... (9,523) (13,714) -- Reissuances of treasury stock for stock option exercises. 9,523 13,714 7,600 -------- -------- -------- Balance at the end of the year........................... -- -- -- -------- -------- -------- Total Stockholders' Equity.................................. $591,801 $495,543 $448,717 ======== ======== ========
See the accompanying Notes to Consolidated Financial Statements. C-16 JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended September 30, 2001, 2000 and 1999 (In thousands)
2001 2000 1999 --------- --------- --------- Cash Flows from Operating Activities: Net earnings........................................................ $ 87,760 $ 50,981 $ 65,445 Adjustments to reconcile net earnings to net cash flows from operations: Depreciation and amortization of property, equipment and improvements.................................................... 31,388 33,192 26,259 Amortization of goodwill......................................... 7,552 6,906 5,327 Gains on sales of assets......................................... (3,318) (3,143) (3,986) Changes in assets and liabilities, excluding the effects of businesses acquired: Receivables................................................... (68,669) (105,541) (10,897) Prepaid expenses and other current assets..................... (1,482) 142 476 Accounts payable.............................................. (27,849) 35,807 17,035 Accrued liabilities........................................... (17,906) (10,497) 25,107 Billings in excess of costs................................... (7,313) 50,134 (30,879) Income taxes payable.......................................... 10,356 8,526 (3,650) Deferred income taxes............................................ 4,097 14,437 (7,195) Other, net....................................................... 492 357 470 --------- --------- --------- Net cash provided by operating activities........................... 15,108 81,301 83,512 --------- --------- --------- Cash Flows from Investing Activities: Acquisitions of businesses, net of cash acquired.................... (28,605) (27,284) (201,052) Additions to property and equipment................................. (28,795) (44,369) (38,970) Disposals of property and equipment................................. 1,850 3,357 4,926 Net increase in other non-current assets............................ (6,892) (33,806) (4,868) Purchases of marketable securities.................................. -- -- (1,800) Proceeds from sales of marketable securities........................ -- -- 18,282 Purchases of investments............................................ (4,209) (7,772) (1,442) Proceeds from sales of investments.................................. 3,023 3,169 4,285 --------- --------- --------- Net cash used for investing activities.............................. (63,628) (106,705) (220,639) --------- --------- --------- Cash Flows from Financing Activities: Proceeds from long-term borrowings.................................. 162,403 103,900 170,220 Repayments of long-term borrowings.................................. (145,516) (78,244) (97,027) Net change in short-term borrowings................................. 235 9,622 9,141 Exercises of stock options.......................................... 18,198 16,006 12,947 Purchases of common stock for treasury.............................. (9,523) (13,714) -- Other, net.......................................................... 6,354 5,277 (2,652) --------- --------- --------- Net cash provided by financing activities........................... 32,151 42,847 92,629 --------- --------- --------- Effect of Exchange Rate Changes......................................... (216) (5,077) (3,348) --------- --------- --------- (Decrease) Increase in Cash and Cash Equivalents........................ (16,585) 12,366 (47,846) Cash and Cash Equivalents at Beginning of Period........................ 65,848 53,482 101,328 --------- --------- --------- Cash and Cash Equivalents at End of Period.............................. $ 49,263 $ 65,848 $ 53,482 ========= ========= =========
See the accompanying Notes to Consolidated Financial Statements. C-17 JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Accounting Policies Basis of Presentation The consolidated financial statements include the accounts of Jacobs Engineering Group Inc. and its subsidiaries (the "Company"). All significant intercompany accounts and transactions have been eliminated. Description of the Business The Company's principal business is to provide technical professional services, consisting primarily of engineering, design, and architectural services, scientific and technical support services, construction and construction management services, and plant maintenance services to its industrial, commercial and government clients in diverse markets. The Company provides its services from offices located primarily throughout the United States, Europe and Asia. The Company provides its services under cost-reimbursable, cost-reimbursable with a guaranteed maximum price, and fixed-price contracts. The percentage of revenues realized from each of these types of contracts for each year ended September 30 was as follows:
2001 2000 1999 ---- ---- ---- Cost-reimbursable....... 81% 77% 73% Fixed-price............. 16 18 22 Guaranteed maximum price 3 5 5
Revenue Accounting for Contracts In general, the Company recognizes revenues at the time services are performed. On cost-reimbursable contracts, revenue is recognized as costs are incurred, and includes applicable fees earned through the date services are provided. On fixed-price contracts, revenues are recorded using the percentage-of-completion method of accounting by relating contract costs incurred to date to total estimated contract costs at completion. Contract costs may include both direct and indirect costs. Contract losses are provided for in their entirety in the period they become known, without regard to the percentage-of-completion. Some of the Company's contracts with the U.S. federal government, as well as certain contracts with commercial clients, provide that contract costs (including indirect costs) are subject to audit and adjustment. For all such contracts, revenues have been recorded at the time services were performed based upon those amounts expected to be realized upon final settlement. As is common in the industry, the Company executes certain contracts jointly with third parties through partnerships and joint ventures. For certain of these contracts, the Company recognizes its proportionate share of venture revenues, costs and operating profit in its consolidated statements of earnings. When the Company is directly responsible for subcontractor labor, or third-party materials and equipment, the Company reflects the costs of such items in both revenues and costs. On other projects, where the client elects to pay for such items directly and the Company has no associated responsibility for such items, these amounts are not reflected in either revenues or costs. C-18 JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Cash Equivalents The Company considers all highly liquid investments with original maturities of less than three months as cash equivalents. Cash equivalents at September 30, 2001 and 2000 consisted primarily of time certificates of deposit. Marketable Securities and Investments The Company's investments in equity and debt securities are classified as trading securities, held-to-maturity securities or available-for-sale securities. Management determines the appropriate classification of all its investments at the time of purchase and reviews such designations at each balance sheet date. Trading securities are recorded at fair value. Changes in the fair value of trading securities are recognized in earnings in the period in which the change occurs and is included in "Miscellaneous income" in the accompanying consolidated statements of earnings. Held-to-maturity securities and available-for-sale securities are included as long-term investments in "Other Noncurrent Assets" in the accompanying consolidated balance sheets. Held-to-maturity securities are carried at cost, or amortized cost, adjusted for the amortization (accretion) of any related premiums (discounts) over the estimated remaining period until maturity. Marketable equity securities that are not held for trading, and debt securities that are not classified as held-to-maturity, are classified as available-for-sale securities. Securities designated as available-for-sale are recorded at fair value. Changes in the fair value of securities available-for-sale are recorded as unrealized gains or losses, net of the related tax effect in "Accumulated Other Comprehensive Income (Loss)" in the accompanying consolidated statements of changes in stockholders' equity. Receivables and Billings in Excess of Costs Included in "Receivables'' in the accompanying consolidated balance sheets at September 30, 2001 and 2000 were recoverable amounts under contracts in progress of $420.6 million and $372.0 million, respectively, that represent amounts earned under contracts in progress but not billable at the respective balance sheet dates. These amounts become billable according to the contract terms, which usually consider the passage of time, achievement of certain milestones or completion of the project. Included in these unbilled receivables at September 30, 2001 and 2000 were contract retentions totaling $6.6 million and $5.0 million, respectively. The Company anticipates that substantially all of such unbilled amounts will be billed and collected over the next twelve months. Billings in excess of costs represent cash collected from clients on contracts in advance of revenues earned thereon, as well as advanced billings to clients in excess of costs and earnings on uncompleted contracts. The Company anticipates that substantially all such amounts will be earned over the next twelve months. Property, Equipment and Improvements Property, equipment and improvements are stated at cost in the accompanying consolidated balance sheets. Depreciation and amortization of property and equipment is computed primarily by using the straight-line method over the estimated useful lives of the assets. The cost of leasehold improvements is amortized using the straight-line method over the lesser of the estimated useful life of C-19 JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) the asset or the remaining term of the related lease. Estimated useful lives range from 20 to 40 years for buildings, from 3 to 10 years for equipment and from 4 to 10 years for leasehold improvements. Goodwill Goodwill represents the excess of the purchase price paid over the fair value of the net assets of acquired companies and was amortized against earnings using the straight-line method over periods not exceeding 40 years. The carrying value of goodwill was subject to review for recoverability, and if there were indications of impairment, the Company assessed any potential impairment based upon undiscounted cash flow forecasts. No impairment losses have been recognized in any of the periods presented. Goodwill is shown in the accompanying consolidated balance sheets net of accumulated amortization of $28.4 million and $20.8 million at September 30, 2001 and 2000, respectively. In June 2001, the Financial Accounting Standards Board ("FASB") issued Statements of Financial Accounting Standards No. 141--Business Combinations ("SFAS 141"), and No. 142--Goodwill and Other Intangible Assets ("SFAS 142"). SFAS 141 provides guidance on the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination that is completed after June 30, 2001. SFAS 142 no longer permits amortization of goodwill (including existing goodwill prior to the date of adoption of SFAS 142) and intangible assets deemed to have indefinite lives. Instead, these assets must be tested for impairment using a fair value approach in accordance with SFAS 142. The Company will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of fiscal 2002. The Company is currently in the process of quantifying the impact of the new standards. However, the Company anticipates that all amortization of goodwill as a charge to earnings will be eliminated. During fiscal 2002, the Company will also perform the first of the required impairment tests of goodwill. Earnings Per Share Earnings per share ("EPS") is calculated in accordance with Statement of Financial Accounting Standards No. 128--Earnings per Share ("SFAS 128"). Basic EPS was computed by dividing net earnings by the weighted average number of shares of common stock outstanding during the period. Diluted EPS gives effect to all dilutive securities that were outstanding during the period. The Company's dilutive securities consisted solely of nonqualified stock options. Stock-based Compensation The Company accounts for stock issued to employees and outside directors in accordance with APB Opinion No. 25--Accounting for Stock Issued to Employees ("APB 25"). Accordingly, no compensation cost has been recorded in connection with grants of stock options. With respect to the issuance of restricted stock, unearned compensation expense equivalent to the market value of the stock issued on the date of award is charged to stockholders' equity and subsequently amortized against earnings over the periods during which the restrictions lapse. During fiscal years 2001, 2000 and 1999, the Company recognized compensation expense on restricted stock of $0.5 million, $0.4 million and $0.5 million, respectively. C-20 JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Concentrations of Credit Risk, Uncertainties and Use of Estimates The Company's cash balances and short-term investments are maintained in accounts held by major banks and financial institutions located primarily in the United States and Europe. In the normal course of its business and consistent with industry practices, the Company grants credit to its clients without requiring collateral. Concentrations of credit risk is the risk that, if the Company extends a significant portion of its credit to clients in a specific geographic area or industry, the Company may experience disproportionately high levels of default, if those clients are adversely affected by factors particular to their geographic area or industry. Concentrations of credit risk relative to trade receivables are limited due to the Company's diverse client base, which includes the U.S. federal government and multi-national corporations operating in a broad range of industries and geographic areas. Additionally, in order to mitigate credit risk, the Company continually evaluates the credit worthiness of its major commercial clients. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the dates of the balance sheets and revenues and expenses for the periods covered. The more significant estimates affecting amounts reported in the consolidated financial statements relate to revenues under long-term construction contracts and self-insurance accruals. Actual results could differ significantly from those estimates and assumptions. 2. Earnings Per Share The following table reconciles the denominator used to compute basic EPS to the denominator used to compute diluted EPS for each year ended September 30 (in thousands):
2001 2000 1999 ------ ------ ------ Weighted average shares outstanding (denominator used to compute Basic EPS).................................... 26,615 26,179 25,803 Effect of employee and outside director stock options... 633 294 675 ------ ------ ------ Denominator used to compute Diluted EPS................. 27,248 26,473 26,478 ====== ====== ======
3. Business Combinations On May 3, 2001, the Company completed the purchase of substantially all of the international engineering and construction management business of LawGibb Group Inc. (the "GIBB" businesses). GIBB is a leading international engineering consultancy firm, providing technical professional services in the fields of transportation, civil and structural engineering, water and wastewater, environmental and geotechnical services, infrastructure, building and building services, information technology, defense, finance and commerce. GIBB has approximately 900 employees conducting operations located primarily in the United Kingdom, southern Africa, and certain other countries located primarily in Europe. The total purchase price of $34.5 million in cash was financed with a combination of internal funds and borrowings made under the Company's $230.0 million revolving credit facility. The GIBB transaction was accounted for as a purchase. Accordingly, the Company's consolidated results of operations for fiscal 2001 include the results of GIBB's operations since the date of acquisition. The purchase price has been allocated to the assets and liabilities acquired based on their estimated fair values. The purchase price allocation, which may be adjusted further, resulted in goodwill, net of related tax benefits, of approximately $31.3 million. The Company's consolidated results of operations for fiscal 2001 were not significantly impacted by GIBB's operations. C-21 JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) On February 23, 2001, the Company finalized the second phase of a two-part transaction to acquire the engineering and contracting business of Stork N.V., the Netherlands ("Stork"). The second phase involved the balance of Stork's engineering and construction operations in the Netherlands and the Middle East. These offices employ approximately 540 technical professional staff. The second phase of the transaction was accounted for as a purchase. Accordingly, the Company's consolidated results of operations for fiscal 2001 include the operating results of the second phase of Stork since the date of acquisition. The purchase price for the second phase of Stork has been allocated to the assets and liabilities acquired based on their estimated fair values. The purchase price allocation, which may be adjusted further, resulted in goodwill, net of related tax benefits, of approximately $29.9 million. During the second quarter of fiscal 2000, the Company completed the first phase of the Stork transaction. The first phase included Stork's operations in Belgium, Germany, Southeast Asia and certain locations in the Netherlands. These offices employ approximately 1,500 technical professional staff. The purchase price of EUR 25.0 million (approximately $24.2 million) was financed in part by long-term borrowings of EUR 15.0 million (approximately $14.8 million) under the Company's $230.0 million revolving credit facility. The transaction was accounted for as a purchase. Accordingly, the purchase price has been allocated to the assets and liabilities acquired based on their estimated fair values. The purchase price allocation, resulted in goodwill, net of related tax benefits, of approximately $29.0 million. The Company's consolidated results of operations for both fiscal 2001 and 2000 were not significantly impacted by Stork's operations. During the second quarter of fiscal 1999, the Company completed its Agreement and Plan of Merger with Sverdrup Corporation ("Sverdrup"). Under the terms of the merger agreement, each outstanding share of common stock of Sverdrup was converted into the right to receive a proportional share of the total amount of initial merger consideration of $198.0 million paid at closing. Each outstanding share of common stock of Sverdrup will also receive a proportional amount of any additional merger consideration that may be paid in the future ("Deferred Merger Consideration"). Amounts payable as Deferred Merger Consideration, if any, will be payable shortly after each of the first three anniversaries of the date of the merger agreement, and is contingent upon the Company's stock price exceeding certain price thresholds as defined in the merger agreement. The total amount payable as Deferred Merger Consideration is limited to a maximum of $31.0 million. The amount paid as Deferred Merger Consideration on January 14, 2001, the second anniversary of the date of the merger agreement was immaterial. No amount was payable as Deferred Merger Consideration on January 14, 2000, the first anniversary of the date of the merger agreement. The Sverdrup transaction has been accounted for as a purchase. The purchase price allocation resulted in goodwill, net of related tax benefits, of approximately $176.3 million. 4. Investments At September 30, 2001, the Company had available-for-sale securities of $10.2 million included in "Other Noncurrent Assets", for which a net unrealized gain of $0.2 million was recorded in stockholders' equity during fiscal 2001. At September 30, 2000, the Company had available-for-sale securities of $10.0 million, for which a net unrealized gain of $1.3 million was recorded in stockholders' equity during fiscal 2000. C-22 JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following table summarizes certain information regarding the Company's available-for-sale equity securities at September 30, 2001 and 2000, and for each year ended September 30 (in thousands):
2001 2000 ------- ------- Total cost (specific identification method) $ 4,297 $ 4,472 Gross unrealized gains..................... 5,883 5,572 Estimated fair value....................... 10,180 10,044 Gross realized gains....................... 2,847 3,147 Gross proceeds from sales.................. 3,023 5,262
5. Property, Equipment and Improvements, Net Property, equipment and improvements consisted of the following at September 30, 2001 and 2000 (in thousands):
2001 2000 --------- --------- Land..................................... $ 7,106 $ 11,579 Buildings................................ 51,725 59,369 Equipment................................ 231,322 201,896 Leasehold improvements................... 16,126 19,755 Construction in progress................. 16,290 11,497 --------- --------- 322,569 304,096 Accumulated depreciation and amortization (172,590) (153,605) --------- --------- $ 149,979 $ 150,491 ========= =========
Operating expenses include provisions for depreciation and amortization of $31.4 million, $33.2 million and $26.3 million for fiscal 2001, 2000 and 1999, respectively. 6. Borrowings Short-term Credit Arrangements At September 30, 2001, the Company had approximately $50.8 million available through multiple bank lines of credit, under which the Company may borrow on an overdraft or short-term basis. Interest under these lines is determined at the time of borrowing based on the banks' prime or base rates, rates paid on certificates of deposit, the banks' actual costs of funds or other variable rates. Most of the agreements require the payment of a fee based on the amount of the facility. The Company is also required to maintain certain minimum levels of working capital and net worth. C-23 JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Other information regarding the lines of credit for each year ended September 30 follows (dollars in thousands):
2001 2000 1999 ------- ------- ------- Amount outstanding at year end......................... $19,688 $18,077 $ 6,868 Weighted average interest rate at year end............. 5.19% 8.8% 6.5% Weighted average borrowings outstanding during the year $ 5,748 $ 7,952 $ 2,295 Weighted average interest rate during the year......... 6.90% 6.77% 6.02% Maximum amount outstanding during the year............. $19,688 $30,955 $14,210
Long-term Debt and Credit Arrangements Long-term debt consisted of the following at September 30, 2001 and 2000 (in thousands):
2001 2000 -------- -------- Borrowings under the $230.0 million long-term, revolving credit agreement.................................................... $164,308 $138,879 Mortgage loans payable......................................... -- 6,833 Other.......................................................... -- 1,491 -------- -------- 164,308 147,203 Less--current maturities (included in "Notes payable" in the accompanying consolidated balance sheets).................... -- 383 -------- -------- $164,308 $146,820 ======== ========
The Company's long-term debt of $164.3 million at September 30, 2001 consisted solely of borrowings under its $230.0 million long-term, revolving credit agreement, which expires in March 2004. These borrowings are unsecured, and bear interest at either fixed rates offered by the banks at the time of borrowing, or at variable rates based on the agent bank's base rate, LIBOR or the latest federal funds rate. During fiscal 2001 and 2000, the weighted average interest rates on these borrowings were 6.02% and 7.85%, respectively. The agreement requires the Company to maintain certain minimum levels of net worth, a minimum coverage ratio of certain fixed charges, and a minimum leverage ratio of earnings before interest, taxes, depreciation and amortization to funded debt (all as defined in the agreement). The agreement also restricts the payment of cash dividends and requires the Company to pay a facility fee based on the total amount of the commitment. Interest payments made during fiscal 2001, 2000 and 1999 totaled $11.1 million, $11.8 million, and $9.0 million, respectively. 7. Pension Plans Company-only Sponsored Plans The Company sponsors various pension plans covering employees of certain U.S. domestic and international subsidiaries. These plans provide pension benefits that are based on the employee's compensation and years of service. The Company's funding policy is to fund the actuarially determined accrued benefits, allowing for projected compensation increases using the projected unit method. C-24 JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following table sets forth the change in the plans' net benefit obligation for each year ended September 30 (in thousands):
2001 2000 -------- -------- Net benefit obligation at the beginning of the year $309,590 $316,875 Service cost....................................... 10,216 10,530 Interest cost...................................... 22,527 22,902 Participants' contributions........................ 2,903 2,361 Actuarial losses (gains)........................... 5,083 (9,482) Benefits paid...................................... (22,712) (21,010) Effect of plan amendments.......................... (1,050) -- Settlements........................................ -- (1,060) Other.............................................. 407 (11,526) -------- -------- Net benefit obligation at the end of the year...... $326,964 $309,590 ======== ========
The following table sets forth the change in the fair values of the plans' assets for each year ended September 30 (in thousands):
2001 2000 -------- -------- Fair value of plan assets at the beginning of the year..... $324,707 $320,920 Actual return on plan assets............................... (9,291) 27,369 Employer contributions..................................... 11,162 13,287 Participants' contributions................................ 2,903 2,361 Gross benefits paid........................................ (22,712) (21,010) Customer note payment...................................... (2,961) (3,182) Settlements................................................ -- (1,060) Other...................................................... (305) (13,978) -------- -------- Fair value of plan assets at the end of the year........... $303,503 $324,707 ======== ========
In both of the preceding tables, "Other" consists primarily of the effects of exchange rate fluctuations used to translate the information disclosed therein. The following table reconciles the funded status of the plans, as well as amounts recognized and not recognized in the accompanying consolidated balance sheets at September 30, 2001 and 2000 (in thousands):
2001 2000 -------- ------- Funded status at the end of the year............. $(23,461) $15,117 Unrecognized actuarial losses (gains)............ 37,987 (6,267) Other............................................ 189 668 -------- ------- Net amount recognized at end of the year......... $ 14,715 $ 9,518 ======== =======
C-25 JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Amounts recognized in the accompanying consolidated balance sheets at September 30, 2001 and 2000 consisted of the following (in thousands):
2001 2000 ------- ------- Prepaid pension asset............................ $16,377 $16,795 Accrued benefit liability........................ 1,662 7,277 ------- ------- Net amount recognized at the end of the year..... $14,715 $ 9,518 ======= =======
The pension plans have a total, net under-funded status of approximately $23.5 million at September 30, 2001. At that date, the aggregate fair values of plan assets and net benefit obligations for underfunded plans were approximately $197.3 million and $220.9 million, respectively. The pension plans had a total, net over-funded status of approximately $15.1 million at September 30, 2000. Included in that amount is a domestic pension plan sponsored in connection with an operating contract with the United States government, which was under-funded by approximately $6.1 million at that date. Included in "Other Noncurrent Assets" in the accompanying consolidated balance sheets at September 30, 2001 and 2000 is $11.4 million and $11.7 million, respectively, representing the accumulated excess funding of benefits over the amounts reimbursed by the U.S. government in connection with an operating contract. The components of net periodic pension cost for each year ended September 30 were as follows (in thousands):
2001 2000 1999 -------- -------- -------- Service costs.................................... $ 10,216 $ 10,530 $ 8,857 Interest cost.................................... 22,527 22,902 18,899 Expected return on plan assets................... (28,233) (28,978) (24,957) Other............................................ -- 9 -- -------- -------- -------- Net periodic costs, before the effects of special termination.................................... 4,510 4,463 2,799 Special termination charge....................... -- -- 820 -------- -------- -------- Total net periodic pension cost.................. $ 4,510 $ 4,463 $ 3,619 ======== ======== ========
The significant actuarial assumptions used in determining the funded status of the plans for each year ended September 30 were as follows:
2001 2000 1999 ------------- ------------- ------------- Weighted average discount rate......... 6.5% to 7.75% 6.1% to 7.75% 6.5% to 7.75% Rate of compensation increases......... 4.0% to 4.5% 4.0% to 4.5% 4.0% to 4.5% Expected return on plan assets......... 8.0% to 9.5% 7.3% to 9.5% 7.3% to 9.5%
In connection with the acquisition of the Stork group of companies (see Note 3, above), the Company is obligated to form a pension plan and an early-retirement plan ("VUT") for substantially all of its employees located in the Netherlands. These plans will replace existing programs sponsored by Stork N.V. When the replacement plans are formed, the Company will negotiate with both Stork N.V. and the trustees of the existing multi-employer plans to set a value of the assets to be transferred into the replacement plans. Although the Company has not finalized the design of the replacement pension C-26 JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) and VUT plans and thus has not commenced negotiations of the value of the assets to be transferred into the replacement plans, the Company expects that the value of the assets to be transferred will be less than the value of the assumed benefit obligations. Included in "Other Deferred Liabilities" in the accompanying consolidated balance sheet at September 30, 2001 is approximately $35.0 million relating to the under-funding of the replacement pension and VUT plans. Multiemployer Plans In the United States, the Company contributes to various trusteed pension plans covering hourly construction employees under industry-wide agreements. In selected operations in the Netherlands, the Company contributes to multiemployer plans covering both hourly and certain salaried employees. Contributions are based on the hours worked by employees covered under these agreements and are charged to direct costs of contracts on a current basis. Information from the plans' administrators is not available to permit the Company to determine its share of unfunded benefits, if any. Company contributions to these plans totaled $7.9 million, $5.7 million and $3.8 million for each of the three years ended September 30, 2001, 2000 and 1999, respectively. 8. Savings and Deferred Compensation Plans Savings Plans The Company maintains savings plans for substantially all of its domestic, nonunion employees, which allow participants to make contributions by salary deduction pursuant to section 401(k) of the Internal Revenue Code. The Company's contributions to these plans totalled $20.8 million, $19.6 million and $16.0 million, for fiscal 2001, 2000 and 1999, respectively. Company contributions are voluntary for most of the savings plans, and represent a partial matching of employee contributions. Deferred Compensation Plans The Company's Executive Security Plan ("ESP") and Executive Deferral Plans ("EDP") are nonqualified deferred compensation programs that provide benefits payable to directors, officers and certain key employees or their designated beneficiaries at specified future dates, upon retirement, or death. Benefit payments under both plans are funded by a combination of contributions from participants and the Company, and most of the participants are covered by life insurance policies with the Company designated as the beneficiary. Amounts charged to expense relating to these programs for each of the three years ended September 30, 2001, 2000 and 1999 were $2.6 million, $5.7 million and $2.4 million, respectively. Included in "Other Deferred Liabilities" in the accompanying consolidated balance sheets at September 30, 2001 and 2000 was $37.1 million and $38.4 million, respectively, relating to the ESP and EDP plans. Included in "Other Noncurrent Assets" at September 30, 2001 and 2000 were life insurance policies with cash surrender values of $42.8 million and $35.8 million, respectively, relating to the ESP and EDP plans. C-27 JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 9. Stock Purchase and Stock Option Plans Stock Purchase Plans The Company sponsors two broad-based employee stock purchase plans: the Jacobs Engineering Group Inc. 1989 Employee Stock Purchase Plan (the "1989 ESPP") and the Jacobs Engineering Group Inc. Global Employee Stock Purchase Plan (the "GESPP"). Both plans provide for the granting of options to participating employees to purchase shares of the Company's common stock. The purchase price for the stock varies by plan. Under the 1989 ESPP, the purchase price is generally the lower of 90% of the common stock's closing market price on either the first day or the last day of the option period. Under the GESPP, the purchase price varies by sub-plan (there being one sub-plan for each foreign country where a participating subsidiary is domiciled), but is never less than the lower of 90% of the common stock's closing market price on either the first day or the last day of the option period. Under both plans, option periods are six months in duration, running from September 1 to February 28 or 29, and from March 1 to August 31. A summary of shares issued under the 1989 ESPP during each year ended September 30 follows:
2001 2000 1999 ----------- ----------- ----------- Aggregate purchase price $13,538,734 $12,685,179 $10,306,530 Shares purchased........ 327,202 499,032 385,017
In February 2001, the Company's shareholders approved an amendment to the 1989 ESPP to provide for a 2.0 million-share increase in the number of shares authorized for issuance thereunder. At September 30, 2001, there were 1,681,630 shares reserved for issuance under the 1989 ESPP. On July 26, 2001, by resolution of the Company's Board of Directors, 300,000 shares of the Company's common stock have been reserved for issuance under the GESPP. During fiscal 2001, no shares were issued under the GESPP. Stock Option Plans In February 2000, the Company's shareholders approved the 1999 Stock Incentive Plan and the 1999 Outside Director Stock Plan (the "1999 Plans"). The 1999 Plans replaced the Company's 1981 Stock Executive Incentive Plan (the "1981 Plan"), which would have expired on March 1, 2001. Effective February 14, 2000, the Company's Board of Directors resolved that no further incentive awards would be made under the 1981 Plan. The 1999 Stock Incentive Plan authorizes the issuance of incentive stock options, nonqualified stock options and restricted stock to employees to acquire up to an aggregate of 2,000,000 shares of the Company's common stock. The total number of shares of restricted stock that can be awarded under the 1999 Stock Incentive Plan is limited to 10% (or 200,000 shares) of the total number authorized, and any forfeited shares of restricted stock awarded is available again for issuance as restricted stock. The 1999 Outside Director Stock Plan reserves 200,000 shares of the Company's common stock for grants of nonqualified stock options and awards of stock and restricted stock to outside directors. At September 30, 2001, there were 2,141,825 shares of common stock reserved for issuance under the 1999 Plans. C-28 JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following is a summary of the stock option activity under the 1981 Plan and the 1999 Plans (collectively, the "Stock Option Plans") for each year ended September 30:
Weighted Number Average of Exercise Options Price --------- -------- Outstanding at September 30, 1998 2,214,450 $24.79 Granted.......................... 611,000 34.62 Exercised........................ (306,819) 23.55 Cancelled or expired............. (18,400) 26.31 --------- ------ Outstanding at September 30, 1999 2,500,231 27.33 Granted.......................... 560,250 33.03 Exercised........................ (401,281) 24.36 Cancelled or expired............. (115,600) 28.88 --------- ------ Outstanding at September 30, 2000 2,543,600 29.00 Granted.......................... 672,000 59.69 Exercised........................ (608,168) 24.34 Cancelled or expired............. (106,875) 32.10 --------- ------ Outstanding at September 30, 2001 2,500,557 $38.20 ========= ======
Certain other information regarding the Company's stock options follows:
2001 2000 1999 ------------- ------------- ------------- At September 30: Range of exercise prices for options outstanding........................ $19.13-$65.75 $17.32-$39.31 $16.58-$37.36 Options exercisable.................. 874,619 1,000,800 994,681 Options available for grant.......... 965,875 1,665,750 151,250 For the fiscal year ended: Range of prices for options exercised.......................... $17.32-$37.36 $16.58-$30.92 $16.58-$28.79 Estimated weighted average fair value of options granted........... $30.41 $15.35 $17.33
C-29 JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following table presents information regarding options outstanding and exercisable at September 30, 2001:
Options Outstanding Options Exercisable ------------------------------ ------------------- Weighted Average Remaining Weighted Weighted Contractual Average Average Life Exercise Exercise Range of Exercise Prices Number (in years) Price Number Price - ------------------------ --------- ----------- -------- ------- -------- $19.13-$19.87................ 60,402 1.2 $19.55 60,402 $19.55 $20.40-$26.88................ 347,005 5.5 $23.25 231,805 $23.25 $27.15-$33.44................ 1,090,850 7.5 $31.45 465,137 $30.73 $34.25-$40.13................ 397,300 7.7 $36.49 117,275 $36.17 $43.13-$46.60................ 56,500 9.4 $46.24 -- -- $50.87-$53.97................ 6,000 9.8 $53.45 -- -- $55.04-$65.75................ 542,500 9.7 $63.65 -- -- --------- --- ------ ------- ------ 2,500,557 7.6 $38.20 874,619 $28.70 ========= === ====== ======= ======
Options outstanding at September 30, 2001 consisted entirely of nonqualified stock options. The Stock Option Plans allow participants to satisfy the exercise price by tendering shares of the Company's common stock already owned by the participants. Shares so tendered are retired and canceled by the Company and are shown as repurchases of common stock in the accompanying consolidated statements of stockholders' equity. During the years ended September 30, 2001, 2000 and 1999, the Company issued 48,000, 5,000 and 8,000 shares, respectively, of restricted stock under the Stock Option Plans. The restrictions generally relate to the recipient's ability to sell or otherwise transfer the stock. There are also restrictions that subject the stock to forfeiture back to the Company until earned by the recipient through continued employment or service. C-30 JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Pro Forma Disclosures As discussed in Note 1, the Company accounts for stock issued to employees and outside directors in accordance with APB 25. Statement of Financial Accounting Standards No. 123--Accounting for Stock-Based Compensation ("SFAS 123") prescribes an optional, fair-value based method of accounting for stock issued to employees and others. Had the Company determined compensation cost under SFAS 123, the Company's net earnings and earnings per share for each year ended September 30 would have been reduced to the pro forma amounts as follows (in thousands, except per share data):
2001 2000 1999 ------- ------- ------- Net earnings: As reported.................................... $87,760 $50,981 $65,445 Pro forma...................................... 75,876 42,355 57,976 Earnings per share: Basic: As reported................................ $ 3.30 $ 1.95 $ 2.54 Pro forma.................................. 2.85 1.62 2.25 Diluted: As reported................................ 3.22 1.93 2.47 Pro forma.................................. 2.78 1.60 2.19
The fair value of each option is estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted average assumptions:
2001 2000 1999 ----- ----- ----- Dividend yield................................... 0% 0% 0% Expected volatility.............................. 39.72% 27.62% 25.30% Risk-free interest rate.......................... 4.29% 6.70% 5.40% Expected life of options (in years).............. 6.63 6.85 6.76
The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. Like all option-pricing models, the Black-Scholes model requires the use of highly subjective assumptions including the expected volatility of the underlying stock price. Since the Company's stock options possess characteristics significantly different from those of traded options, changes in the subjective input assumptions can materially affect the fair value estimates of the Company's options. The Company believes that existing models do not necessarily provide a reliable single measure of the fair value of its stock options. The effects of applying SFAS 123 for these pro forma disclosures are not likely to be representative of the effects on reported earnings for future years as options vest over several years and additional awards are generally made each year. C-31 JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 10. Income Taxes The following is a summary of the Company's consolidated income tax expense for each year ended September 30 (in thousands):
2001 2000 1999 ------- ------- ------- Current taxes: Federal....................................... $31,882 $14,980 $31,603 State......................................... 6,570 4,707 5,137 Foreign....................................... 5,519 4,810 4,053 ------- ------- ------- Total current tax expense..................... 43,971 24,497 40,793 ------- ------- ------- Deferred taxes: Federal....................................... 6,707 6,948 (1,263) State......................................... (232) (1,104) (453) ------- ------- ------- Total deferred tax expense.................... 6,475 5,844 (1,716) ------- ------- ------- Consolidated income tax expense.................. $50,446 $30,341 $39,077 ======= ======= =======
Deferred taxes reflect the tax effects of differences between the amounts recorded as assets and liabilities for financial reporting purposes and the amounts recorded for income tax purposes. Deferred tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The components of the Company's net deferred tax asset at September 30, 2001 and 2000 were as follows (in thousands):
2001 2000 -------- -------- Deferred tax assets: Liabilities relating to employee benefit plans..... $ 41,420 $ 36,599 Contract revenues and costs........................ 26,483 23,428 Self-insurance reserves............................ 16,798 18,349 Settlement of pension obligations.................. 7,649 -- Accrual for office consolidations.................. 682 643 Other, net......................................... -- (57) -------- -------- Gross deferred tax assets.......................... 93,032 78,962 -------- -------- Deferred tax liabilities: Depreciation and amortization...................... (5,680) (5,264) State income and franchise taxes................... (2,251) (2,735) Unrealized gain on available-for-sale securities... (2,198) (2,584) Foreign deferred taxes............................. (1,545) 404 Unremitted foreign earnings........................ (5,521) (4,717) Settlement of pension obligations.................. -- (4,511) Other, net......................................... (1,221) -- -------- -------- Gross deferred tax liabilities..................... (18,416) (19,407) -------- -------- Net deferred tax asset................................ $ 74,616 $ 59,555 ======== ========
Included in "Other Deferred Liabilities" in the accompanying consolidated balance sheets at September 30, 2001 and 2000 are deferred tax liabilities of $8.1 million and $2.4 million, respectively. C-32 JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Included in the change in "Income taxes payable" in the accompanying consolidated statements of cash flows for fiscal 2001, 2000 and 1999 are income tax benefits of $7.3 million, $1.4 million and $1.2 million, respectively, realized by the Company upon the exercises of nonqualified stock options. The reconciliation from the statutory federal income tax expense to the consolidated effective income tax expense for each year ended September 30 follows (dollars in thousands):
2001 2000 1999 ------- ------- ------- Statutory amount................................. $48,372 $28,463 $36,583 State taxes, net of the federal benefit.......... 4,119 2,341 3,045 Other, net....................................... (2,045) (463) (551) ------- ------- ------- $50,446 $30,341 $39,077 ======= ======= ======= Rate used to compute statutory amount............ 35.0% 35.0% 35.0% ======= ======= ======= Consolidated effective income tax rate........... 36.5% 37.3% 37.4% ======= ======= =======
During fiscal 2001, 2000 and 1999, the Company paid approximately $29.6 million, $19.5 million and $45.5 million, respectively, in income taxes. Consolidated earnings before taxes consisted of the following for each year ended September 30 (in thousands):
2001 2000 1999 -------- ------- -------- United States earnings........................... $103,419 $64,125 $ 87,247 Foreign earnings................................. 34,787 17,197 17,275 -------- ------- -------- $138,206 $81,322 $104,522 ======== ======= ========
United States income taxes, net of applicable credits, have been provided on the undistributed earnings of foreign subsidiaries, except in those instances where the earnings are expected to be permanently reinvested. At September 30, 2001, $7.8 million of such undistributed earnings was expected to be permanently reinvested. Should these earnings be repatriated, approximately $2.1 million of income taxes would be payable. C-33 JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 11. Commitments and Contingencies The Company leases certain of its facilities and equipment under operating leases with net aggregate future lease payments of approximately $282.2 million at September 30, 2001 payable as follows (in thousands): Year ending September 30, 2002................................... $ 52,498 2003................................... 44,342 2004................................... 38,798 2005................................... 32,265 2006................................... 28,135 Thereafter............................. 100,117 -------- 296,155 Less--amounts representing sublease income (13,985) -------- $282,170 ========
Rent expense for fiscal years 2001, 2000 and 1999 amounted to $57.5 million, $54.8 million and $47.4 million, respectively, and was offset by sublease income of approximately $3.9 million, $3.6 million and $3.7 million, respectively. Letters of credit outstanding at September 30, 2001 totaled $89.0 million. The Company maintains insurance coverage for various aspects of its business and operations. The Company has elected, however, to retain a portion of losses that occur through the use of various deductibles, limits and retentions under its insurance programs. This situation may subject the Company to some future liability for which it is only partially insured, or completely uninsured. The Company intends to mitigate any such future liability by continuing to exercise prudent business judgment in negotiating the terms and conditions of its contracts. In the normal course of business, the Company is subject to certain contractual guarantees and litigation. Generally, such guarantees relate to project schedules and plant performance. Most of the litigation involves the Company as a defendant in workers' compensation, personal injury and other similar lawsuits. In addition, as a contractor for many agencies of the United States Government, the Company is subject to many levels of audits, investigations and claims by, or on behalf of, the Government with respect to its contract performance, pricing, costs, cost allocations and procurement practices. Management believes, after consultation with counsel, that such guarantees, litigation, and United States Government contract-related audits, investigations and claims should not have any material adverse effect on the Company's consolidated financial statements. The Company has entered into an employment agreement expiring September 30, 2006 with the Chairman of its Board of Directors. The agreement provides for annual base payments of $432,200 to either the Chairman or, in the event of his death, his beneficiary. The agreement also provides that the Chairman may participate in any bonus plan sponsored by the Company; specifies certain promotional and other activities to be performed by the Chairman in the event he leaves employment with the Company; and, contains other provisions, including some intended to prevent the Chairman from entering into any form of competition with the Company. C-34 JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Included in "Other Expense" in the accompanying consolidated statement of earnings for fiscal 2000 is a $38.0 million charge relating to a negotiated settlement of a lawsuit between the Company and the U.S. federal government, which was originally filed against the Company by a former employee under the False Claims Act. The subject of the lawsuit was the accounting treatment of the occupancy costs associated with the Company's former headquarters building, which the Company sold and leased back in 1982, and then permanently vacated in 1997. The charge, which has no continuing impact on the Company's operating results, consisted of the settlement amount of $35.0 million (which was paid in March 2000) and $3.0 million of related costs and expenses. 12. Common and Preferred Stock The Company is authorized to issue two classes of capital stock: common stock and preferred stock (each has a par value of $1.00 per share). The preferred stock may be issued in one or more series. The number of shares to be included in a series, as well as each series' designation, relative powers, dividend and other preferences, rights and qualifications, redemption provisions and restrictions are to be fixed by the Company's Board of Directors at the time each series is issued. Except as may be provided by the Board of Directors in a preferred stock designation, or otherwise provided for by statute, the holders of the Company's common stock have the exclusive right to vote for the election of Directors and all other matters requiring stockholder action. The holders of the Company's common stock are entitled to dividends if and when declared by the Board of Directors from whatever assets are legally available for that purpose. Pursuant to the Company's Amended and Restated Rights Agreement dated December 20, 2000, each outstanding share of common stock has attached to it one stock purchase right (a "Right"). Each Right entitles the common stockholder to purchase, in certain circumstances generally relating to a change in control of the Company, one one-hundredth of a share of the Company's Series A Junior Participating Cumulative Preferred Stock, par value $1.00 per share (the "Series A Preferred Stock") at the exercise price of $175.00 per share, subject to adjustment. Alternatively, the Right holder may purchase common stock of the Company having a market value equal to two times the exercise price, or may purchase shares of common stock of the acquiring corporation having a market value equal to two times the exercise price. The Series A Preferred Stock confers to its holders rights as to dividends, voting and liquidation which are in preference to common stockholders. The Rights are nonvoting, are not presently exercisable and currently trade in tandem with the common shares. In accordance with the Rights Plan, the Company may redeem the Rights at $0.01 per Right. The Rights will expire on December 20, 2010, unless earlier exchanged or redeemed. C-35 JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 13. Other Financial Information Other noncurrent assets consisted of the following at September 30, 2001 and 2000 (in thousands):
2001 2000 -------- -------- Cash surrender value of life insurance policies............ $ 42,800 $ 35,762 Investments................................................ 31,801 27,496 Deferred tax asset......................................... 18,054 -- Prepaid pension costs...................................... 16,377 16,795 Reimbursable pension costs................................. 11,388 11,691 Notes receivable........................................... 9,764 11,847 Miscellaneous.............................................. 13,054 10,228 -------- -------- $143,238 $113,819 ======== ========
Accrued liabilities consisted of the following at September 30, 2001 and 2000 (in thousands):
2001 2000 -------- -------- Accrued payroll and related liabilities.................... $150,978 $131,921 Insurance liabilities...................................... 41,439 46,332 Project related accruals................................... 28,922 24,786 Other...................................................... 74,424 71,952 -------- -------- $295,763 $274,991 ======== ========
14. Comprehensive Income The Company has disclosed the components of comprehensive income in the accompanying consolidated statements of comprehensive income and consolidated statements of changes in stockholders' equity. The accumulated balances related to each component of other comprehensive income (loss), net of related income tax, for each year ended September 30 follows (in thousands):
Total Foreign Accumulated Unrealized Currency Other Gains on Translation Comprehensive Securities Adjustments Loss ---------- ----------- ------------- Balances at September 30, 1998......... $ 1 $ (1,801) $ (1,800) Changes during the year................ 2,151 (3,946) (1,795) ------ -------- -------- Balances at September 30, 1999......... 2,152 (5,747) (3,595) Changes during the year................ 1,316 (8,236) (6,920) ------ -------- -------- Balances at September 30, 2000......... 3,468 (13,983) (10,515) Changes during the year................ 219 (324) (105) ------ -------- -------- Balances at September 30, 2001......... $3,687 $(14,307) $(10,620) ====== ======== ========
C-36 JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 15. Segment Information As discussed above, the Company's principal business is to provide various technical professional services. The Company provides its services from offices located primarily throughout the United States, Europe and Asia. All of the Company's operations share similar economic characteristics. For example, all of the Company's operations are highly influenced by the general availability of qualified engineers and other professional staff. They also provide similar services, as well as share similar processes for delivering the Company's services. In addition, the use of technology among the Company's performance units is highly similar and consistent throughout the Company's organization, as is the Company's customer base (with the exception of the Company's operations outside the United States which performs very little work for the U.S. federal government), and the Company's quality assurance and safety programs. Accordingly, based on these similarities, the Company has concluded that its operations may be aggregated into one reportable segment for purposes of this disclosure. The following table presents certain information by geographic area for fiscal 2001, 2000 and 1999 (in thousands):
Total Long-lived Revenues Assets ---------- ---------- 2001: United States....................... $3,075,969 $116,196 Europe.............................. 825,456 22,332 Asia................................ 50,608 11,322 Other............................... 4,960 129 ---------- -------- Total........................... $3,956,993 $149,979 ---------- -------- 2000: United States....................... $2,858,197 $120,396 Europe.............................. 532,887 17,486 Asia................................ 27,858 12,609 ---------- -------- Total........................... $3,418,942 $150,491 ---------- -------- 1999: United States....................... $2,421,871 $116,984 Europe.............................. 440,545 10,376 Asia................................ 12,591 12,293 ---------- -------- Total........................... $2,875,007 $139,653 ---------- --------
Revenues were earned from unaffiliated customers located primarily within the respective geographic areas. Long-lived assets consist of property and equipment, net of accumulated depreciation and amortization. In fiscal 2001, "Other" consists primarily of the Company's operations in South America and the Middle East. For each of the three years ended September 30, 2001, 2000 and 1999, projects with or for the benefit of agencies of the U.S. federal government accounted for 17.3%, 17.7% and 17.4%, respectively, of total revenues. Within the private sector, no single client accounted for 10% or more of total revenues in the past three fiscal years. C-37 JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 16. Subsequent Event On October 31, 2001, the Company completed the acquisition of McDermott Engineers & Constructors (Canada) Limited (including Delta Catalytic and Delta Hudson Engineering) (collectively, "Delta"). Delta provides engineering, construction, and maintenance services to various industries including upstream oil and gas, petroleum refining, petrochemicals, and chemicals. Delta has approximately 3,500 employees conducting operations located primarily in Canada and the United Kingdom. The total purchase price of $47.5 million in cash was financed with a new, short-term, $50.0 million credit facility. The Delta acquisition was accounted for as a purchase. Accordingly, Delta's operations will be included in the Company's results of operations for fiscal 2002 from the date of acquisition. The total purchase price will be allocated to the assets and liabilities acquired based on their estimated fair values. C-38 JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 17. Quarterly Data--Unaudited Summarized quarterly financial information for each year ended September 30 is presented below (in thousands, except per share amounts):
First Second Third Fourth 2001 Quarter Quarter Quarter Quarter Fiscal Year - ---- -------- ---------- ---------- -------- ----------- Revenues.......................... $929,182 $1,009,869 $1,041,417 $976,525 $3,956,993 Operating profit.................. 33,187 35,127 36,770 38,768 143,852 Earnings before taxes............. 31,654 33,953 35,464 37,135 138,206 Net earnings...................... 20,100 21,560 22,520 23,580 87,760 Earnings per share: Basic.......................... 0.76 0.81 0.84 0.88 3.30 Diluted........................ 0.75 0.79 0.82 0.86 3.22 Stock price: High........................... 49.188 59.000 75.670 70.580 75.670 Low............................ 37.969 42.250 56.400 50.700 37.969 2000 - ---- Revenues.......................... $809,088 $ 881,799 $ 857,828 $870,227 $3,418,942 Operating profit.................. 30,028 30,208 31,709 32,668 124,613 (Loss) earnings before taxes...... (9,232) 28,962 30,560 31,032 81,322 Net (loss) earnings............... (5,769) 18,100 19,100 19,550 50,981 (Loss) earnings per share: Basic.......................... (0.22) 0.69 0.73 0.74 1.95 Diluted........................ (0.22) 0.69 0.72 0.73 1.93 Stock price: High........................... 35.750 33.125 36.813 40.375 40.375 Low............................ 29.250 26.188 29.375 32.875 26.188 1999 - ---- Revenues.......................... $555,172 $ 779,874 $ 771,905 $768,056 $2,875,007 Operating profit.................. 23,165 28,142 28,515 28,473 108,295 Earnings before taxes............. 24,054 25,872 26,818 27,778 104,522 Net earnings...................... 15,155 16,170 16,760 17,360 65,445 Earnings per share: Basic.......................... 0.59 0.63 0.65 0.67 2.54 Diluted........................ 0.58 0.61 0.63 0.65 2.47 Stock price: High........................... 40.750 42.750 42.688 38.563 42.750 Low............................ 26.938 35.250 35.563 32.125 26.938
The Company's common stock is listed on the New York Stock Exchange. At September 30, 2001, there were 1,036 stockholders of record. C-39 Report of Ernst & Young LLP Independent Auditors The Board of Directors and Stockholders Jacobs Engineering Group Inc. We have audited the accompanying consolidated balance sheets of Jacobs Engineering Group Inc. and subsidiaries as of September 30, 2001 and 2000, and the related consolidated statements of earnings, comprehensive income, changes in stockholders' equity, and cash flows for each of the three years in the period ended September 30, 2001. 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 auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Jacobs Engineering Group Inc. and subsidiaries at September 30, 2001 and 2000, and the consolidated results of their operations and their cash flows for each of the three years in the period ended September 30, 2001, in conformity with accounting principles generally accepted in the United States. ERNST & YOUNG LLP Los Angeles, California October 31, 2001 C-40 MANAGEMENT'S RESPONSIBILITIES FOR FINANCIAL REPORTING The consolidated financial statements and other information included in this exhibit to this proxy statement have been prepared by management, which is responsible for their fairness, integrity, and objectivity. The consolidated financial statements have been prepared in accordance with generally accepted accounting principles applied on a basis consistent with prior years and contain some amounts that are based upon management's best estimates and judgment. The other financial information contained in this exhibit has been prepared in a manner consistent with the preparation of the financial statements. In meeting its responsibility for the fair presentation of the Company's financial statements, management necessarily relies on the Company's system of internal accounting controls. This system is designed to provide reasonable, but not absolute, assurance that assets are safeguarded and that transactions are executed in accordance with management's instructions and are properly recorded in the Company's books and records. The concept of reasonable assurance is based on the recognition that in any system of internal controls, there are certain inherent limitations and that the cost of such systems should not exceed the benefits to be derived. We believe the Company's system of internal accounting controls is cost-effective and provides reasonable assurance that material errors and irregularities will be prevented, or detected and corrected on a timely basis. The Company's consolidated financial statements have been audited by independent auditors, whose report thereon was based on examinations conducted in accordance with generally accepted auditing standards and is presented on the preceding page. As part of their audit, the independent auditors perform a review of the Company's system of internal accounting controls for the purpose of determining the amount of reliance to place on those controls relative to the audit tests they perform. The Company has provided written affirmation to the New York Stock Exchange that it is in compliance with the Exchange's membership, independence, and other requirements relating to the Audit Committee of its Board of Directors. The Company's Audit Committee, which is composed entirely of nonemployee directors, meets regularly with both management and the independent auditors to review the Company's financial results and to ensure that both management and the independent auditors are properly performing their respective functions. C-41 EX-21 8 dex21.txt LIST OF SUBSIDIARIES EXHIBIT 21. JACOBS ENGINEERING GROUP INC. PARENTS AND SUBSIDIARIES The following table sets forth all subsidiaries of the Company other than subsidiaries that, when considered in the aggregate, would not constitute a significant subsidiary, including the percentage of issued and outstanding voting securities beneficially owned by the Company. Jacobs Engineering Company, a California corporation .................................................... 100.00% Jacobs Engineering Group of Ohio, Inc., an Ohio corporation ............................................. 100.00% Jacobs Services Company, a California corporation ....................................................... 100.00% JE Merit Constructors, Inc., a Texas corporation ........................................................ 100.00% JE Remediation Technologies, Inc., a Louisiana corporation ......................................... 100.00% Jacobs Constructors, Inc., a Louisiana corporation ...................................................... 100.00% Jacobs Industrial Maintenance Inc., a U.S. Virgin Islands corporation .............................. 80.00% Jacobs Maintenance, Inc., a Louisiana corporation .................................................. 100.00% Jacobs Consultancy, Inc., a Texas corporation ........................................................... 100.00% Jacobs International Limited Inc., a Panamanian corporation ............................................. 100.00% Jacobs Engineering U.K. Limited, a corporation of England and Wales ("JEL") ........................ 100.00% JacobsGIBB Ltd., a corporation of England and Wales ............................................ 100.00% JacobsGIBB (Ireland) Limited, an Irish corporation ............................................. 100.00% Crispin Wride Architectural Design Studio Ltd., a corporation of England and Wales ................................................................................. 100.00% Jacobs Catalytic (UK) Ltd., a corporation of England and Wales ................................. 100.00% JE Professional Resources Limited, a corporation of England and Wales .......................... 100.00% Jacobs Engineering Inc., a Delaware corporation ("JEI") ................................................. 100.00% Jacobs Engineering Espana, S.L., a Spanish corporation ............................................. 100.00% Jacobs Engineering Ireland Limited, a Republic of Ireland corporation .......................... 100.00% Jacobs Consultancy U.K. Limited, a corporation of England and Wales ............................ 100.00% Jacobs Engineering de Mexico, S.A. de C.V., a Mexican corporation .............................. 100.00% Jacobs Luxembourg, Sarl, a Luxembourg corporation .............................................. 100.00% Jacobs France SAS, a French corporation ................................................... 100.00% Jacobs Switzerland, GmbH, a Switzerland corporation ....................................... 100.00% Jacobs Serete SAS, a French corporation ................................................... 100.00% Jacobs Italia, SpA, an Italian corporation ............................................ 100.00% Jacobs Sereland, S.L., a Spanish corporation ................................................... 100.00% Jacobs Sereland Argentina SRL, an Argentinean corporation ................................. 100.00% Jacobs Engineering Deutschland GmbH, a German corporation ...................................... 100.00% Jacobs MBK GmbH, a German corporation ..................................................... 100.00% Jacobs Deutschland GmbH, a German corporation ......................................... 100.00% Jacobs Nederland BV, a Netherlands corporation ................................................. 100.00% Jacobs Advanced Manufacturing B.V., a Netherlands corporation ............................. 100.00% Jacobs Consultancy Nederland B.V., a Netherlands corporation .............................. 100.00% Jacobs International Holdings, Inc., a Delaware corporation ........................................ 100.00% Gibb Hellas Consulting Engineers SA, a Greek corporation ....................................... 100.00% Sir Alexander Gibb (Polska) SPz.o.o., a Polish corporation ..................................... 100.00% Gibb Portugal Lda, a Portuguese corporation .................................................... 100.00% Jacobs H&G Private Limited, an Indian corporation ..................................................* 69.98% HGC Constructors, Ltd., an Indian corporation .................................................. 56.00%
EXHIBIT 21. Continued Jacobs Engineering Singapore Pte. Ltd., a Singapore corporation ..................... 100.00% Jacobs Pan American Corp., a Virgin Islands corporation ............................. 100.00% Jacobs Belgie NV, a Belgian corporation ............................................. 100.00% Interhuis SA, a Belgian corporation ............................................. 100.00% Jacobs International (Thailand) Ltd, a Thai corporation ............................. 100.00% Jacobs Engineering (Thailand) Ltd., a Thai corporation .......................... 100.00% P.T. Jacobs Engineering Indonesia, an Indonesian corporation ........................ 100.00% Jacobs Canada Inc., a Canadian corporation .......................................... 100.00% Jacobs Catalytic Industrial Services Ltd., a Canadian corporation ............... 100.00% Delta Catalytic Ltd., a Cyprus corporation ...................................... 100.00% Delta Catalytic Saudi Arabia Ltd., a Saudi Arabian corporation ............. 100.00% JE Professional Resources, Inc., a California corporation ................................ 100.00% Payne & Keller Company, Inc., a Louisiana corporation .................................... 100.00% Jacobs Applied Technology, Inc., a Delaware corporation .................................. 100.00% Jacobs Facilities, Inc., a Missouri corporation .......................................... 100.00% GPR Planners Collaborative, Inc., a Missouri corporation ............................ 100.00% SP Operations and Management Services Company, a Missouri corporation ............... 100.00% Sverdrup Technology, Inc., a Tennessee corporation ....................................... 100.00% Sverdrup Technology Australia, Pty Ltd, an Australian corporation ................... 100.00% Sverdrup Civil, Inc., a Missouri corporation ............................................. 100.00% Sverdrup Asia Ltd., an Indian corporation ........................................... 100.00% Sverdrup & Parcel Consultants, Inc., a New York corporation ......................... 100.00% Sverdrup of Puerto Rico, a Puerto Rican corporation ................................. 100.00% Sverdrup Canada, ULC, a Nova Scotia corporation ..................................... 100.00% Sverdrup Investments, Inc., a Delaware corporation ....................................... 100.00% Riverport Development, Inc., a Missouri corporation ................................. 100.00% Jacobs Construction Services, Inc., a Delaware corporation ............................... 100.00% CRSS International, Inc., a South Carolina corporation ................................... 100.00% Jacobs Engineering New York, Inc., a New York corporation ................................ 100.00% Jacobs Engineering Foreign Sales Corporation, a Barbados corporation ..................... 100.00% Jacobs Engineering S.A., a Chilean corporation ........................................... 100.00% Rocky Flats Closure Site Services LLC, a Delaware corporation ............................ 100.00%
* Ownership is divided between JEI and JEL. All subsidiaries and affiliates are included in the Consolidated FinancialStatements. Dr. Joseph J. Jacobs may be deemed to be a "parent" of Jacobs Engineering Group Inc. under the federal securities laws. Refer to Item 12 of the accompanying report on Form 10-K for information about Dr. Jacobs' share ownership and position with the Company. EX-23 9 dex23.txt CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23. CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of Jacobs Engineering Group Inc. of our report dated October 31, 2001, included in Exhibit C to the Notice of 2002 Annual Meeting of Shareholders and Proxy Statement of Jacobs Engineering Group Inc. We also consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-67048) pertaining to the Jacobs Engineering Group Inc. Global Employee Stock Purchase Plan, in the Registration Statement (Form S-8 No. 333-38974) pertaining to the Jacobs Engineering Group Inc. 1999 Stock Incentive Plan, in the Registration Statement (Form S-8 No. 333-38984) pertaining to the Jacobs Engineering Group Inc. 1999 Outside Director Stock Plan, in the Registration Statement (Form S-8 No. 333-60296) pertaining to the Jacobs Engineering Group Inc. 1989 Employee Stock Purchase Plan, and in the Registration Statement (Form S-8 No. 333-45475) pertaining to the Jacobs Engineering Group Inc. 1981 Executive Incentive Plan of our report dated October 31, 2001 with respect to the consolidated financial statements of Jacobs Engineering Group Inc. and subsidiaries included in and incorporated by reference in the Annual Report (Form 10-K) for the year ended September 30, 2001. ERNST & YOUNG LLP Los Angeles, California December 21, 2001 -----END PRIVACY-ENHANCED MESSAGE-----