-----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, IPwzEkQ5Nzs1bvqFmluiFqcDnZK43QIitOE7rztB4XBc7bC1t9lEzSmUKJvwxPwU M1drFn9yOG8lZzAP6O2g5A== 0001047469-98-008241.txt : 19980304 0001047469-98-008241.hdr.sgml : 19980304 ACCESSION NUMBER: 0001047469-98-008241 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19971130 FILED AS OF DATE: 19980302 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDIA 100 INC CENTRAL INDEX KEY: 0000713138 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 042532613 STATE OF INCORPORATION: DE FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-14779 FILM NUMBER: 98554411 BUSINESS ADDRESS: STREET 1: 100 LOCKE DRIVE CITY: MARLBOROUGH STATE: MA ZIP: 01752-1192 BUSINESS PHONE: 5084813700 MAIL ADDRESS: STREET 2: 100 LOCKE DRIVE CITY: MARLBORO STATE: MA ZIP: 01752-1192 FORMER COMPANY: FORMER CONFORMED NAME: DATA TRANSLATION INC DATE OF NAME CHANGE: 19920703 10-K 1 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended: November 30, 1997 / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 0-14779 MEDIA 100 INC. (Exact name of registrant as specified in its charter) DELAWARE 04-2532613 (State or other (I.R.S. Employer jurisdiction of Identification organization or Number) incorporation)
290 DONALD LYNCH BOULEVARD MARLBOROUGH, MASSACHUSETTS 01752-4748 (Address of principal executive offices, including zip code) (508) 460-1600 (Registrant's telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: (NONE) SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, $0.01 PAR VALUE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Registration 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 Parts III of this Form 10-K or any amendment to this Form 10-K. / / The aggregate market value of voting stock held by non-affiliates of the registrant was $27,745,151 as of February 13, 1998. The number of shares of Common Stock outstanding, $0.01 par value, as of February 13, 1998 was 8,251,095. DOCUMENTS INCORPORATED BY REFERENCE The information required in response to certain portions of Part III of Form 10-K is hereby incorporated by reference to the specified portions of the registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on April 15, 1998. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS Media 100 Inc. (the "Company"), a Delaware corporation founded in 1973 as Data Translation, Inc., a Massachusetts corporation, changed its state of incorporation from Massachusetts to Delaware in September 1996 and adopted its present name on December 2, 1996. The Company is a technology and market leader in the market for personal computer-based digital video systems. The Media 100-Registered Trademark- family of products are digital video systems that allow users to create complete, broadcast-quality video programs without the use of traditional video tape equipment. On July 30, 1996, the Company announced its intention to separate its Media 100 digital video business from its data acquisition and imaging, commercial products and U.K.-based networking distribution businesses. The Company announced that it would contribute its data acquisition and imaging and commercial products businesses to a newly-formed subsidiary, Data Translation II, Inc. ("DTI"), the stock of which would then be distributed as a dividend to the Company's stockholders. The Company further announced that it planned to dispose of its networking distribution business within twelve months. On November 11, 1996, the Company sold substantially all of the assets associated with its networking distribution business in connection with the winding up of that business. On December 2, 1996, the Company distributed all of the shares of DTI, to which it had contributed its data acquisition and imaging and commercial products businesses and the remaining assets and liabilities of the networking distribution business, as a dividend to the Company's stockholders (the "Spin-Off"), in a ratio of one share of DTI common stock for every four shares of Company common stock. In connection with the Spin-Off, DTI changed its name to Data Translation, Inc. and the Company changed its name to Media 100 Inc. In connection with the Spin-Off and the disposal of the networking distribution business, the Company's historical financial statements and other financial information set forth herein and in the Consolidated Financial Statements on pages F-1 to F-19 of this Annual Report on Form 10-K, reflect the financial position, results of operations and cash flows of the Company as continuing operations; the related financial information of the businesses contributed to DTI and the networking distribution business has been segregated and reclassified as discontinued operations. The Company reports its operations within one principal industry segment: computer peripheral equipment. The amounts of net sales, operating profit or loss and identifiable assets attributable to each of the Company's geographic areas for the last three fiscal years are shown in Note 8 to the Consolidated Financial Statements included in this Annual Report on Form 10-K. COMPANY OVERVIEW Media 100 products are fundamentally analog and digital conversion systems that enable users to capture video and audio into a personal computer, perform random-access ("nonlinear") video editing and audio mixing, and directly produce a finished program with broadcast-quality picture and compact disc-quality sound. By combining high output quality with simple user operation, the Company's products are targeted to the corporate and institutional market consisting of video program producers, including nonbroadcast users, such as advertising agencies, independent producers, businesses, law firms, universities, governments and hospitals. In addition to targeting existing users of video production equipment, the Company is targeting new users who currently out-source their video production requirements. By eliminating the need to use comparatively complex and expensive mechanical videotape equipment to make a video, the Company believes that Media 100 products empower these individuals to compose finished videos largely on their own at relatively low cost. The Company introduced its first Media 100 product in August 1993. In August 1995 the Company began shipments of version 2.5 of its Media 100 application software which incorporated hardware that is compatible with the Peripheral Component Interconnect (PCI) standard. In April 1996, the Company 2 introduced Media 100 qx, a lower cost digital video system based on the Company's hardware that enables users of Apple QuickTime to create broadcast-quality video programs using Adobe Premiere editing software. In December 1996, the Company began shipments of version 3.0 of its Media 100 application software, and introduced a Media 100 product family consisting of six models which are intended to provide full video program authoring capabilities over a broad price/performance spectrum. In August 1997, the Company began shipments of version 4.0 of its Media 100 software application, and introduced Media 100 xr, its most advanced digital video system, with the capability of processing two streams of video data each running at high data rates, enabling real-time transitions without loss of image quality. MARKET New digital video and audio technologies are changing how video and multimedia programs are created and disseminated. Much as the desktop publishing revolution changed the technology and economics of offset printing, and made it possible for individuals to create easily and affordably their own publications, new personal computer-based digital video systems are allowing an increasing number of individuals to create complete, broadcast-quality video programs themselves. The Company believes that, as the prices of digital video systems, computers and hard disk memory decrease, increasing numbers of small companies and individuals will adopt digital video technology, and digital video authoring will become a core personal computer application much as desktop publishing is today. The Company believes that there are three general types of end-users of digital media production systems, professional, corporate and institutional, and mass market users, as described below. Within this market, the Company primarily targets the corporate and institutional users. The Company believes that more customers using costly, proprietary systems will eventually migrate to open personal computer-based systems providing the same or better quality results, such as the Media 100 product family. The Company also believes that users of non-integrated digital video components, providing inferior output quality and reliability, will want to upgrade to the Company's systems. - Professional users are broadcast, television and film producers, larger professional video post-production facilities and cable television stations that create video programs for others or for broadcast. These users typically spend $50,000 or more on a fully integrated video editing system. - Corporate and institutional users include businesses, hospitals, advertising agencies, law firms, government agencies, colleges, universities and smaller independent post-production facilities. These are users who are creating videos themselves. The average cost of a fully integrated system for a corporate or institutional user ranges between $10,000 and $50,000. - Mass market users are early stage users who desire to use video for informal presentations, for consumer-type video needs or for in-house communication within corporations or institutions. They typically are using non-integrated components with an aggregate purchase price of $10,000 or less. Media 100 products are targeted primarily at the corporate and institutional market. Many of these corporate and institutional users currently rely on analog video tape editing processes. Digital editing alternatives are relatively new and currently account for a small portion of this market of current users. The Company also believes that the corporate and institutional market includes a potential market of new users who currently out-source their video production requirements. The Company's future growth will depend, in part, on the rate at which existing users convert to digital editing processes and the rate at which new users adopt digital video systems as a communications resource. For a further discussion of the risks and uncertainties associated with the emerging corporate and institutional market for digital video products, see "Certain Factors That May Affect Future Results" included in Part II, Item 7 of this Annual Report on Form 10-K. 3 PRODUCTS The Company's Media 100 products have been developed and marketed as open systems, which means that they adhere to open systems standards such as Apple QuickTime and the PCI bus architecture, thereby facilitating use of Media 100 products with complementary and competitive software applications, computer peripherals and video equipment. The Company's adherence to an open system strategy is intended to facilitate the sales of its products by allowing customers to select off-the-shelf peripheral equipment to suit their particular needs and to avail themselves of third party software applications in conjunction with their Media 100 system. The Company's digital video systems consist of hardware printed circuit boards and related software that, when integrated with a desktop computer and related peripherals, enable the user to capture and compress source video and audio media and store it digitally in disk storage, perform nonlinear editing and related effects on the digital media, and then play the edited material back for preview, display or final recording. The Company's family of products is intended to offer full video program authoring capabilities over a broad price/performance spectrum. Each of these digital video systems is based on the Company's Vincent-TM- digital video hardware engine, and is differentiated by the related application software, which, with the exception of the Company's most advanced product offering, enables a software-only upgrade path from the entry systems to the advanced features and functionality of the Company's high data rate systems. The Company's current product offering is summarized below. - Media 100 qx and Media 100 qx with Component enable users of Apple QuickTime to create broadcast-quality programs using Adobe Premiere editing software. Media 100 qx with Component delivers the additional functionality of processing video signals in the broadcast industry standard YUV color space, 4:2:2 digital component. - Media 100 le offers users a complete digital video system using Media 100 application software. Media 100 le features JPEG 4:1 compression (150 kb/frame NTSC video format; 180 kb/frame PAL video format), real-time preview dissolve, real-time preview motion effects and real-time color effects and an integrated character generator. - Media 100 lx offers all the features of the Media 100 le, with additional features and functionality, including processing video signals in the broadcast industry standard YUV color space, 4:2:2 digital component, batch redigitizing, real-time waveform monitor/vectorscope and a rack-mountable junction box. - Media 100 xe offers all the features of the Media 100 lx with additional features and functionality, including JPEG 3:1 compression (200 kb/frame NTSC; 240 kb/frame PAL), real-time static titling, real-time keying of graphics with alpha channel, real-time 6-track compact disc-quality audio mixing and import/export industry-standard edit decision lists. - Media 100 xs offers all the features of the Media 100 xe with additional features and functionality, including JPEG 2:1 compression (300 kb/frame NTSC; 360 kb/frame PAL), real-time preview transitions and real-time 8-track compact disc-quality audio mixing. - Media 100 xr is the Company's most advanced digital video system. Media 100 xr includes the Vincent digital video engine and an additional HDRfx-TM-card, which enables the system to perform all the features of the Media 100 xs with two streams of video data each running at the highest data rate (300 kb/frame NTSC; 360 kb/frame PAL), enabling real-time transitions without loss of image quality. - Platinum Support Services are a variety of technical support and service packages offered to Media 100 users. For an annual fee, users purchase packages with options such as toll-free telephonic technical support (either during business hours, five days a week, or 24 hours a day, seven days a 4 week), automatic, free software updates, temporary replacement hardware, extended warranty and a quarterly newsletter. In addition, the Company has from time to time offered hardware upgrades, replacement hardware and new products to Platinum subscribers at preferred prices. The Company has also introduced the Platinum One-Stop service, in which subscribers can obtain telephonic technical support relating to compatible third-party components integrated with the user's Media 100 system. The markets for the Company's products are characterized by rapidly changing technology, evolving industry standards and frequent new product introductions. The Company's future success will depend in part upon its ability to enhance its existing products and to introduce new products and features in a timely manner to address customer requirements, respond to competitive offerings, adapt to new emerging industry standards and take advantage of new enabling technologies that could render the Company's existing products obsolete. In particular, the Company is developing new products that will operate on Microsoft's Windows NT operating system. For a further discussion of the risks and uncertainties associated with new product development and product introductions and transitions, see "Certain Factors That May Affect Future Results" included in Part II, Item 7 of this Annual Report on Form 10-K. TECHNOLOGY AND PRODUCT FEATURES The Company has designed its products as integrated hardware and software systems which offer high performance on a personal computer. The Company believes the basic performance of its hardware and software produces broadcast-quality picture and compact disc-quality sound, with an open system design. The Company's control of the development, design and manufacturing of both the hardware and the software of its products allows it to conform one to the other, specifically and solely to support the user requirements of the target market. The Media 100 product family's core hardware includes broadcast-quality video input and output decoder/encoder subsystems, a proprietary, dynamically-variable JPEG compression subsystem, a 16-bit eight-track compact disc-quality digital audio subsystem, and two high-speed 32-bit microprocessors responsible for transferring digital audio and video data, at throughput rates of up to 30 megabytes per second, inside the host computer's central processing unit ("CPU"). The Company's Vincent digital video hardware engine is the primary technical facilitator of real-time, nonlinear performance with output which provides broadcast-quality video and compact disc-quality audio. The Company's HDRfx card, when used in conjunction with the Vincent digital video engine, enables the processing of a second stream of video of similar quality. The output video is 30 frames per second, 60 fields per second (NTSC) or 25 frames per second, 50 fields per second (PAL) and synchronized with up to eight tracks of audio. The software features a proprietary operating system which is unseen by users and is integrated with the standard Apple Mac OS operating system. This software governs base level hardware operations to ensure real-time performance, particularly by controlling the two onboard microprocessors in concert with the host CPU. Layered on top of this base level of software, Media 100 products incorporate a higher level of software called application software, through which the user controls every function of the digital video system. The Company's products currently operate only on Apple Macintosh computers, and the Company plans to continue its development efforts to enhance its existing products for the Macintosh platform. For a further discussion of the risks and uncertainties associated with the Company's current dependence on the Apple Macintosh platform, see "Certain Factors That May Affect Future Results" included in Part II, Item 7 of this Annual Report on Form 10-K. SALES AND DISTRIBUTION The Company sells its products primarily through a worldwide network of approximately 400 independent value added resellers ("VARs") in over 50 countries. The Company also markets and sells 5 software upgrades and its Platinum technical support services directly to end-users. In the United States, the Company sells through a network of specialized VARs who integrate and support Media 100 systems sales. For a further discussion of the risks and uncertainties associated with the Company's dependence on an indirect sales channel of independent VAR's, see "Certain Factors That May Affect Future Results" included in Part II, Item 7 of this Annual Report on Form 10-K. Internationally, the Company has adopted the same indirect sales channel. In the United Kingdom, France, Germany and Italy, the Company has subsidiaries which establish VAR networks or contract with distributors who in turn establish VAR networks of their own. Elsewhere, the Company sells through distributors, which act as VARs or establish VAR networks in their respective territories. Sales of Media 100 products outside of North America represented approximately 44%, 38% and 39% of the Company's net sales from continuing operations for fiscal years 1997, 1996 and 1995, respectively. For a further discussion of the risks and uncertainties associated with international operations, see "Certain Factors That May Affect Future Results" included in Part II, Item 7 of this Annual Report on Form 10-K. COMPETITION The digital video systems market is highly competitive with a large number of suppliers providing different types of products, both analog-based linear systems and digital, nonlinear systems such as the Company's products, to different segments of the market, and is characterized by continuous pressure to reduce prices, incorporate new features and improve functionality. The Company encounters competition primarily from Avid Technology, Inc., Discreet Logic Inc., Pinnacle Systems, Inc., Scitex Corporation Ltd. and Truevision, Inc. in both the market of professional users and the emerging market of corporate and institutional users. In the market of professional users, competition also comes from comparatively sized or smaller competitors, such as Matrox Electronic Systems Ltd. and FAST Electronic GmbH, as well as from much larger vendors, such as Matsushita Electric Industrial Company Ltd. ("Matsushita"), Sony Corporation ("Sony") and Microsoft Corporation ("Microsoft"), which have either introduced or announced plans to introduce digital, nonlinear systems. Because the market of corporate and institutional users is new and still evolving, it is difficult to predict future sources of competition; however, competitors are likely to include larger vendors, such as Matsushita, Sony and Microsoft. Many of these competitors have substantially greater financial, technical and marketing resources than the Company. For a further discussion of the risks and uncertainties associated with the competitive landscape for the Company's products, see "Certain Factors That May Affect Future Results" included in Part II, Item 7 of this Annual Report on Form 10-K. RESEARCH AND DEVELOPMENT The Company invests in research and development for new products and for enhancements to its existing products. The Company employed, as of February 13, 1998, 57 full-time employees whose primary duties relate to product development. Outside firms and consultants are selectively engaged to develop or assist with development of products when favorable opportunities exist. In order to compete successfully, the Company must attract and retain qualified personnel and maintain a program of improvement of existing products, as well as the development of new products. For a further discussion of the risks and uncertainties associated with new product development, see "Certain Factors That May Affect Future Results" included in Part II, Item 7 of this Annual Report on Form 10-K. For the fiscal years ended November 30, 1997, 1996 and 1995, the Company invested approximately $8,508,000, $6,227,000 and $4,806,000 on the development of enhancements to its Media 100 products and the development of new Media 100 products. 6 MANUFACTURING The Company's manufacturing operations consist primarily of manufacturing and testing of printed circuit assemblies, final product assembly, quality assurance and shipping, and are conducted at its facility located in Marlboro, Massachusetts. The Company believes that its control of manufacturing significantly contributes to hardware design improvements, allows for quicker development of products for shipment to market, and results in superior product quality. The Company periodically assesses its production efficiencies against the benefits of out-sourcing certain hardware production. Components used in the assembly of the Company's hardware products are generally available from several distributors and manufacturers. However, the Company is dependent on single or limited source suppliers for several key components used in its products that have no ready substitutes, including various audio and video signal processing integrated circuits manufactured in each case only by Crystal Semiconductor Corp., Raytheon Company, LSI Logic Corp., Philips Semiconductors or Zoran Corp. The availability of many of these components is dependent on the Company's ability to provide suppliers with accurate forecasts of its future requirements, and certain components used by the Company have been subject to industry-wide shortages. For a further discussion of the risks and uncertainties associated with the Company's dependence on single or limited source suppliers, see "Certain Factors That May Affect Future Results" included in Part II, Item 7 of this Annual Report on Form 10-K. PROPRIETARY RIGHTS The Company's ability to compete successfully and achieve future revenue growth will depend, in part, on its ability to protect its proprietary technology and operate without infringing the rights of others. The Company relies on a combination of patent, copyright, trademark and trade secret laws and other intellectual property protection methods to protect its proprietary technology. In addition, the Company generally enters into confidentiality agreements with its employees and with third parties with whom it shares its proprietary information, and limits access to and distribution of such information. The Company owns four United States patents, expiring in 2013, and has five pending patent applications in the United States, none of which the Company believes is material. Although the Company pursues a policy of obtaining patents for appropriate inventions, the Company believes that its success depends primarily on the proprietary know-how, innovative skills, technical competence and marketing abilities of its employees, rather than upon the ownership of patents. Certain technology used in the Company's products is licensed from third parties on a royalty-bearing basis. Such royalties have not been, and are not expected to be, material. Generally, such agreements grant to the Company non-exclusive, worldwide rights to the subject technology and are either renewable on a periodic basis or provide for fully paid-up non-cancellable rights upon the receipt of certain aggregate payments. In certain cases the licensor may terminate the license for convenience, although the Company believes that the effect of any such termination would not be material. For a further discussion of the risks and uncertainties associated with proprietary rights in the Company's industry and certain pending litigation, see Item 3 and "Certain Factors That May Affect Future Results" included in Part II, Item 7 of this Annual Report on Form 10-K. BACKLOG Most customers order products on an as-needed basis relying, in the case of most products, on the Company's five-day delivery capability. As a result, the Company believes that its backlog at any point in time is not indicative of its future sales. 7 EMPLOYEES As of February 13, 1998, the Company employed approximately 180 persons worldwide. None of the employees is represented by a labor union. The Company believes it has good relations with its employees. Competition for employees with the skills required by the Company is intense in the geographic areas in which the Company's operations are located. The Company believes that its future success will depend on its continued ability to attract and retain qualified employees, especially in research and development. OTHER Media 100, Vincent, Gaudi, HDRfx and Platinum are trademarks of Media 100 Inc. and may be registered in certain jurisdictions. All other trademarks and registered trademarks are the property of their respective holders, and are hereby acknowledged. ITEM 2. PROPERTIES The Company's principal executive, engineering, manufacturing and sales operations occupy approximately 56,500 square feet in a leased facility located at 290 Donald Lynch Boulevard, Marlboro, Massachusetts. The lease for this facility terminates on March 31, 2002. Prior to moving into its current facility on May 2, 1997, the Company's operations occupied approximately 31,000 square feet in a facility which it shared with DTI located in Marlboro, Massachusetts. Total rental expense charged to continuing operations with respect to the Company's current Marlboro facility for fiscal year 1997 was $320,000, and with respect to its former Marlboro facility was $527,000, $546,000 and $459,000 for each of the fiscal years 1997, 1996 and 1995, respectively. Rental expense with respect to the former Marlboro facility for fiscal 1997 reflected the Company's pro rata portion of the rental charges and operating expenses associated with that facility and the use by the Company of certain manufacturing equipment belonging to DTI. The Company also occupies sales and customer support facilities in or near Paris, France; Bracknell, England; Munich, Germany; and Brescia, Italy. ITEM 3. LEGAL PROCEEDINGS On June 7, 1995, a lawsuit was filed against the Company by Avid Technology, Inc. ("Avid") in the United States District Court for the District of Massachusetts. The complaint generally alleges patent infringement by the Company arising from the manufacture, sale, and use of the Company's Media 100 products. The complaint includes requests for injunctive relief, treble damages, interest, costs and fees. In July 1995, the Company filed an answer and counterclaim denying any infringement and asserting that the Avid patent in question is invalid. The Company intends to vigorously defend the lawsuit. In addition, Avid is seeking reissue of the patent, including claims that it asserts are broader than in the existing patent, and these reissue proceedings remain pending before the U.S. Patent and Trademark Office. On January 16, 1998, the court dismissed the lawsuit without prejudice to either party moving to restore it to the docket upon completion of all matters pending before the U.S. Patent and Trademark Office. There can be no assurance that the Company will prevail in the lawsuit asserted by Avid or that the expense or other effects of the lawsuit, whether or not the Company prevails, will not have a material adverse effect on the Company's business, operating results and financial condition. From time to time the Company is involved in other disputes and/or litigation encountered in its normal course of business. The Company does not believe that the ultimate impact of the resolution of such other outstanding matters will have a material effect on the Company's business, operating results or financial condition. 8 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of stockholders during the fourth quarter of fiscal year 1997. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The common stock of the Company trades on the National Market tier of The Nasdaq Stock Market under the symbol "MDEA." The following table sets forth, for the periods indicated, the high and low sales prices per share of the Company's common stock as reported on the Nasdaq National Market:
HIGH LOW --------- --------- Fiscal year ended November 30, 1996: First Quarter................................................................................... $ 21 10 3/4 Second Quarter.................................................................................. $ 28 3/4 13 1/4 Third Quarter................................................................................... $ 28 1/4 7 3/4 Fourth Quarter.................................................................................. $ 12 1/2 7 7/8 1997: First Quarter................................................................................... $ 11 5/8 7 Second Quarter.................................................................................. $ 7 5/8 5 1/8 Third Quarter................................................................................... $ 6 7/8 4 1/8 Fourth Quarter.................................................................................. $ 6 7/8 4 1/2
The last reported sale price per share of the Company's common stock as reported on the Nasdaq National Market on February 13, 1998 was $3.438. As of February 13, 1998, there were 293 stockholders of record, and the Company believes that as of such date there were approximately 2,600 beneficial owners of the Company's common stock, based upon information provided by the Company's transfer agent. The Company has never paid a cash dividend on its common stock, and the Board of Directors does not anticipate paying cash dividends in the foreseeable future. ITEM 6. SELECTED FINANCIAL DATA The selected financial data should be read in conjunction with, and are qualified in their entirety by, the Company's consolidated financial statements, related notes and other financial information included herein. 9 CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
FISCAL YEARS ENDED NOVEMBER 30, ----------------------------------------------------- 1997 1996 1995 1994 1993 --------- --------- --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Total net sales............................................ $ 46,660 $ 50,826 $ 30,278 $ 12,415 $ 1,118 Cost of sales.............................................. 18,238 20,046 12,711 5,127 536 --------- --------- --------- --------- --------- Gross profit............................................. 28,422 30,780 17,567 7,288 582 Operating expenses: Research and development................................. 8,508 6,227 4,806 3,780 3,227 Sales and marketing...................................... 16,061 15,066 9,088 4,657 1,832 General and administrative............................... 4,330 5,034 2,024 997 112 Restructuring expense.................................... 526 -- -- -- -- --------- --------- --------- --------- --------- Total operating expenses............................... 29,425 26,327 15,918 9,434 5,171 --------- --------- --------- --------- --------- Income (loss) from operations.......................... (1,003) 4,453 1,649 (2,146) (4,589) Interest income............................................ 1,781 1,588 771 151 228 --------- --------- --------- --------- --------- Income (loss) from continuing operations before tax provision.............................................. 778 6,041 2,420 (1,995) (4,361) Tax provision (benefit).................................... 161 1,208 75 36 (33) --------- --------- --------- --------- --------- Income (loss) from continuing operations................... 617 4,833 2,345 (2,031) (4,328) --------- --------- --------- --------- --------- Discontinued operations: Income (loss) from discontinued operations of Data Translation II, Inc.................................... 0 (6,672) 2,426 2,351 30 --------- --------- --------- --------- --------- Net income (loss)...................................... $ 617 $ (1,839) $ 4,771 $ 320 $ (4,298) --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Income (loss) per common and common equivalent share from continuing operations.................................... $ 0.07 $ 0.57 $ 0.35 $ (0.43) $ (1.02) Income (loss) per common and common equivalent share from discontinued operations.................................. $ 0.00 $ (0.79) $ 0.36 $ 0.49 $ 0.01 --------- --------- --------- --------- --------- Net income (loss) per common and common equivalent share... $ 0.07 $ (0.22) $ 0.71 $ 0.07 $ (1.01) --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Weighted average number of common and common equivalent shares outstanding....................................... 8,247 8,470 6,701 4,764 4,256 --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
CONSOLIDATED BALANCE SHEET DATA:
FISCAL YEARS ENDED NOVEMBER 30, ------------------------------- 1997 1996 1995 --------- --------- --------- (IN THOUSANDS) Cash, cash equivalents and marketable securities................................. $ 32,934 $ 30,716 $ 35,161 Working capital.................................................................. 29,146 34,496 39,143 Total assets..................................................................... 50,759 59,990 51,123 Total stockholders' equity....................................................... 37,843 50,065 46,741
10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Media 100 Inc. (the "Company") is a technology and market leader in the market for personal computer-based digital video systems. The Media 100 family of products are analog and digital conversion systems that enable users to capture video and audio into a personal computer, perform random access ("nonlinear") video editing and audio mixing, and directly produce a finished program with broadcast-quality picture and compact disc-quality sound, all without the use of traditional video tape equipment. On July 30, 1996, the Company announced its intention to separate its Media 100 digital video business from its data acquisition and imaging, commercial products and U.K.-based networking distribution businesses. The Company announced that it would contribute its data acquisition and imaging and commercial products businesses to a newly-formed subsidiary, Data Translation II, Inc. ("DTI"), the stock of which would then be distributed as a dividend to the Company's stockholders. The Company further announced that it planned to dispose of its networking distribution business within twelve months. On November 11, 1996, the Company sold substantially all of the assets associated with its networking distribution business in connection with the winding up of that business. On December 2, 1996, the Company distributed all of the shares of DTI, to which it had contributed its data acquisition and imaging and commercial products businesses and the remaining assets and liabilities of the networking distribution business, as a dividend to the Company's stockholders (the "Spin-Off"), in a ratio of one share of DTI common stock for every four shares of Company common stock. In connection with the Spin-Off, DTI changed its name to Data Translation, Inc. and the Company changed its name to Media 100 Inc. In connection with the Spin-Off and the disposal of the networking distribution business, the Company's historical financial statements and other financial information reflect the financial position, results of operations and cash flows of the Company as continuing operations; the related financial information of the businesses contributed to DTI and the networking distribution business has been segregated and reclassified as discontinued operations. The Company believes that there are three general types of end-users of digital media production systems, professional, corporate and institutional, and mass market users. Within this market, the Company primarily targets the corporate and institutional users. Many of these corporate and institutional users currently rely on analog video tape editing processes. Digital editing alternatives are relatively new and currently account for a small portion of this market of current users. The Company also believes that the corporate and institutional market includes a potential market of new users who currently out-source their video production requirements. In December 1996, the Company began shipments of six new Media 100 products, each of which is based on the Company's Vincent digital video hardware engine, and is differentiated by the related software, which, with the exception of the Company's most advanced product offering, enables a software-only upgrade path from the entry systems to the advanced features and functionality of the Company's high data rate systems. Prior to the introduction of these new products, the Company sold its hardware and software products separately, with options for the customer to bundle them in various configurations. With the introduction of the new products, the Company now sells its hardware and software as a family of integrated systems that is intended to provide full video program authoring capabilities over a broad price/ performance spectrum. In August 1997, the Company began shipments of version 4.0 of its Media 100 software application, and introduced Media 100 xr, its most advanced digital video system. Media 100 xr includes the Company's Vincent digital video engine and an additional HDRfx card, which enables the system to process two streams of video data each running at high data rates, enabling real-time transitions without loss of image quality. The Company sells its products primarily through a worldwide network of approximately 400 independent value added resellers ("VARs") who integrate and support Media 100 systems sales. The 11 Company also markets and sells software upgrades and its Platinum technical support services directly to end-users. RESULTS OF OPERATIONS The following table sets forth for the years indicated certain consolidated statements of operations data as a percentage of net sales. FISCAL YEARS ENDED NOVEMBER 30,
1997 1996 1995 --------- --------- --------- CONTINUING OPERATIONS Net sales.......................................................................... 100.0% 100.0% 100.0% Cost of sales...................................................................... 39.1 39.4 42.0 --------- --------- --------- Gross profit..................................................................... 60.9 60.6 58.0 --------- --------- --------- Operating expenses: Research and development expenses................................................ 18.2 12.3 15.9 Selling and marketing expenses................................................... 34.4 29.6 30.0 General and administrative expenses.............................................. 9.3 9.9 6.7 Restructuring expenses........................................................... 1.1 0.0 0.0 --------- --------- --------- Total operating expenses..................................................... 63.0 51.8 52.6 Operating income (loss)............................................................ (2.1) 8.8 5.4 Interest income (expense) and other, net........................................... 3.8 3.1 2.5 --------- --------- --------- Income (loss) before income taxes.................................................. 1.7 11.9 7.9 Provision for income taxes......................................................... 0.4 2.4 0.2 --------- --------- --------- Income (loss) from continuing operations........................................... 1.3% 9.5% 7.7% --------- --------- --------- --------- --------- ---------
COMPARISON OF FISCAL 1997 TO FISCAL 1996 NET SALES. The Company's net sales for fiscal 1997 decreased 8.2% to $46.7 million from $50.8 million for fiscal 1996. The decline is due primarily to lower average selling prices for the Company's Media 100 products and a higher percentage of the Company's units sales coming from its entry-level systems. The Company derived a substantial portion of its fiscal 1997 net sales from the introduction of several new products to the market and discontinued the sales of several other of its Media 100 products, as described above under "Overview". In response to competitive pressures, the Company reduced the selling price of several of its products including Media 100 qx by $2,000 to $1,995, Media 100 qx with component by $2,000 to $3,995, Media 100 xe by $2,000 to $12,995 and Media 100 xs by $7,000 to $14,995. These pricing actions resulted in lower average selling prices for the Company's products and resulted in lower total net sales for fiscal 1997; however, the lower selling prices allowed the Company to increase the total number of systems sold over fiscal 1996. The Company currently anticipates that sequential growth in quarterly revenues of the Company will not occur until new products based on the Windows NT platform have been introduced by the Company and have gained market acceptance. The Company has announced that it plans to significantly increase research and development expenditures in fiscal 1998 over fiscal 1997 to support the development of products running on the Windows NT platform. The Company currently anticipates that the first of these products will become commercially available during the latter half of fiscal 1998; however, there can be no 12 assurance these products will ship and if they do that they will generate significant net sales for the Company. Net sales from customers outside of North America accounted for approximately 44% of net sales in fiscal 1997 compared to approximately 38% in fiscal 1996. The Company is continuing to develop its indirect distribution channels in North America, Europe and Asia and currently anticipates that customers outside North America will continue to account for a substantial portion of its net sales, and as a percentage of net sales, to remain approximately the same. No customer accounted for more than 10% of the Company's total net sales in fiscal 1997. GROSS PROFIT. The Company's gross profit decreased 7.7% to $28.4 million in fiscal 1997 from $30.8 million in fiscal 1996. The decrease is due to the lower net sales mentioned above. The gross profit as a percentage of net sales increased to 60.9% in fiscal 1997 from 60.6% in fiscal 1996. The increase in the gross profit as a percentage of total net sales is due to reductions in the cost of key component parts used in the manufacture of the Media 100 hardware which more than offset the lower average selling prices of the Company's products. The Company currently anticipates continued pressure to reduce prices for the Company's Media 100 products which may negatively impact the gross profit as a percentage of net sales of the Company. If these price reductions are not offset with lower component costs or if the Company is unable to sell a higher percentage of its higher margin products there can be no assurance the Company will be able to maintain these gross profit levels as a percentage of net sales. RESEARCH AND DEVELOPMENT. Research and development expenses increased 36.6% to $8.5 million in fiscal 1997 from $6.2 million in fiscal 1996. Research and development expenses consist primarily of the cost of research and development personnel, depreciation on research and development capital equipment, occupancy and outside consulting services. The Company capitalizes certain computer software development costs. Capitalization of costs commences upon establishing technological feasibility. Capitalized costs as of November 30, 1997 and 1996 were approximately $89,000 and $104,000, respectively. These costs are amortized on a straight-line basis over two years, which approximates the economic life of the product. The remainder of the research and development expenses are expensed as incurred. Certain research and development expenditures for new products are incurred considerably in advance of anticipated net sales related to these products and in some cases do not generate any net sales. The Company has announced that it plans to significantly increase its research and development spending in fiscal 1998 over fiscal 1997 to support the development of products running on the Windows NT platform. This increase relates to additional research and development personnel, outside services, consultants and depreciation on capital equipment in support of these research and development projects. SALES AND MARKETING. Sales and marketing expenses increased 6.6% to $16.1 million in fiscal 1997 from $15.1 million in fiscal 1996. Sales expenses consist primarily of salaries and related benefits, commissions, travel, occupancy and depreciation on capital equipment. Marketing expenses consist primarily of salaries and related benefits, trade shows, seminars, advertising, sales literature and lead generation activities. The increase in sales and marketing expenses relate primarily to expansion of the Company's support for its indirect distribution channel in Europe. The Company currently anticipates that its sales and marketing expenses will remain relatively flat in fiscal 1998 compared to fiscal 1997 and are not currently planned to increase significantly until the Company begins shipping new products on the Windows NT platform. The Company will continue to attend industry trade shows to market and promote its products, however the Company has no plans to significantly increase the number or trade shows it attends or the amount of money it spends on the trade shows it will attend. GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased 14.0% to $4.3 million in fiscal 1997 from $5.0 million in fiscal 1996. General and administrative expenses include the cost of human resources, finance, information technology, legal and other administrative functions of the Company. The 13 decrease in general and administrative expenses resulted primarily from lower legal expenses for the defense of patent infringement litigation, as discussed in Note 6 to the Consolidated Financial Statements. The Company currently anticipates that its general and administrative expenses will remain relatively flat in fiscal 1998 compared to fiscal 1997. RESTRUCTURING EXPENSE. The Company incurred restructuring expenses of $526,000 in its third quarter of fiscal 1997 for severance and related costs associated with a reduction of the Company's workforce. Substantially all of these expenses have been paid out as of the end of the Company's first quarter of fiscal 1998 and the Company anticipates that any further expenses associated with this reduction in its workforce will be insignificant. INTEREST INCOME. Interest income increased 12.2% to $1.8 million in fiscal 1997 from $1.6 million in fiscal 1996. The increase in interest income is due to higher cash balances in fiscal 1997 versus 1996 due to the generation of positive cash flow from operations in fiscal 1997. The Company currently anticipates interest income will decline in fiscal 1998 as a portion of its cash balance is used to fund the increase in research and development expenditures mentioned previously. TAX PROVISION. The tax provision decreased 86.7% to $0.2 million in fiscal 1997 from $1.2 million in fiscal 1996. The lower tax provision reflects utilization of research and development tax credit carryforwards and lower income from operations in fiscal 1997. The Company anticipates that its tax provision in fiscal 1998 will be minimal due to the significant planned increase in research and development expenditures and the Company's belief that fiscal 1998 sales will remain relatively flat compared to fiscal 1997. NET INCOME (LOSS). Income for fiscal 1997 was $617,000, or $0.07 per share, compared to income from continuing operations for fiscal 1996 of $4,833,000, or $0.57 per share. Income from discontinued operations for fiscal 1997 was $0, compared to a loss from discontinued operations for fiscal 1996 of $6,672,000, or $0.79 per share. Of the $6,672,000 loss from discontinued operations, expenses related to the Spin-Off accounted for $1,500,000 and the loss on disposal of the networking distribution business was approximately $2,513,000. COMPARISON OF FISCAL 1996 TO FISCAL 1995 NET SALES. The Company's net sales for fiscal 1996 increased 67.9% to $50.8 million from $30.3 million for fiscal 1995. The increase was due to higher unit sales of Media 100, the introduction of a new lower cost product, Media 100 qx, and initial shipments of Gaudi, the Company's advanced digital video effects product. Shipments of Media 100 qx began in April 1996 and Gaudi in November 1996. Net sales from customers outside of North America accounted for approximately 38% of net sales in fiscal 1996 compared to approximately 39% in fiscal 1995. No customer accounted for more than 10% of the Company's net sales in fiscal 1996. GROSS PROFIT. The Company's gross profit increased 75.2% to $30.8 million in fiscal 1996 from $17.6 million in fiscal 1995. The increase was due primarily to the higher net sales mentioned above. The gross profit as a percentage of net sales increased to 60.6% in fiscal 1996 from 58.0% in fiscal 1995. The increase in the gross profit as a percentage of net sales was due to reductions in the cost of key component parts used in the manufacture of the Media 100 hardware and a favorable mix of software sales relative to hardware sales. RESEARCH AND DEVELOPMENT. Research and development expenses increased 29.6% to $6.2 million in fiscal 1996 from $4.8 million in fiscal 1995. Research and development expenses consist primarily of the cost of research and development personnel, depreciation on research and development capital equipment, occupancy and outside consulting services. The Company capitalizes certain computer software development costs. Capitalization of costs commences upon establishing technological feasibility. Capitalized costs as of November 30, 1996 and 1995 were approximately $104,000 and $84,000, respectively. These 14 costs are amortized on a straight-line basis over two years, which approximates the economic life of the product. The remainder of the research and development expenses are expensed as incurred. Certain research and development expenditures for new products are incurred considerably in advance of anticipated net sales related to these products and in some cases do not generate any net sales. SALES AND MARKETING. Sales and marketing expenses increased 65.8% to $15.1 million in fiscal 1996 from $9.1 million in fiscal 1995. Sales expenses consist primarily of salaries and related benefits, commissions, travel, occupancy and depreciation on capital equipment. Marketing expenses consist primarily of salaries and related benefits, trade shows, seminars, advertising, sales literature and lead generation activities. The increase in sales and marketing expenses relate primarily to expansion of the Company's support for its indirect distribution channel and increased lead generation activities such as seminars and direct mail and increased advertising expenses. GENERAL AND ADMINISTRATIVE. General and administrative expenses increased 148.7% to $5.0 million in fiscal 1996 from $2.0 million in fiscal 1995. General and administrative expenses include the cost of human resources, finance, information technology, legal and other administrative functions of the Company. The increase in general and administrative expenses resulted primarily from higher legal expenses for the defense of patent infringement litigation, as discussed in Note 6 to the Consolidated Financial Statements, and increased administrative expenses to support significantly higher net sales. INTEREST INCOME. Interest income increased 106.0% to $1.6 million in fiscal 1996 from $0.8 million in fiscal 1995. The increase in interest income was due to higher cash balances in fiscal 1996 versus 1995 as a result of a public offering of the Company's common stock in November 1995 and from positive cash flow generated from operations in fiscal 1996. TAX PROVISION. The tax provision increased 1,510.7% to $1.2 million in fiscal 1996 from $0.1 million in fiscal 1995. The higher tax provision reflects a significant increase in income from operations in fiscal 1996 from fiscal 1995. The Company utilized available research and development tax credit carryforwards and other business tax credits available for use against taxable income which reduced its tax rate below the statutory rate. NET INCOME (LOSS). Income from continuing operations for fiscal 1996 was $4,833,000, or $0.57 per share, compared to $2,345,000, or $0.35 per share, for the prior fiscal year. Loss from discontinued operations for fiscal year 1996 was $6,672,000, or $0.79 per share, compared to net income of $2,426,000, or $0.36 per share, for the prior fiscal year. Of the $6,672,000 loss from discontinued operations, expenses related to the Spin-Off accounted for $1,500,000 and the loss on disposal of the networking distribution business was estimated at $2,513,000. LIQUIDITY AND CAPITAL RESOURCES The Company has funded its operations to date primarily from public offerings of equity securities and cash flows from operations. As of November 30, 1997 the Company's principal sources of liquidity included cash and cash equivalents and marketable securities totaling approximately $32,934,000. During fiscal 1997, cash provided by continuing operating activities was approximately $9,819,000 compared to cash provided by continuing operating activities of approximately $5,897,000 for the same period a year ago. Cash was generated during fiscal 1997 from reductions in accounts receivable of $3,976,000 and inventory of $777,000 and increases in deferred revenue of $1,852,000 and accounts payable, accrued and prepaid expenses of $964,000. In addition, net income provided $617,000 and depreciation and amortization provided $1,614,000. Net cash used in investing activities was approximately $8,742,000 in fiscal 1997 compared to approximately $23,314,000 (primarily for purchases of marketable securities) for the same period a year ago. Cash used in investing activities during 1997 was primarily for purchases of capital equipment and leasehold improvements associated with the Company's move to its new facility in May 1997 of approximately $7,251,000 and net purchases of marketable securities of 15 approximately $1,010,000. Cash provided by financing activities during 1997 was approximately $442,000 compared to $4,812,000 for the same period a year ago. All of the cash provided by financing activities in fiscal 1997 came from proceeds from the Company's stock plans. The Company believes its existing cash balance, including cash equivalents and marketable securities, will be sufficient to meet the Company's cash requirements for at least the next twelve months. CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS Except for the historical information contained herein, the matters discussed in this Annual Report on Form 10-K are forward-looking statements, and are based on current expectations, and involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from those expressed in such forward-looking statements. The risks and uncertainties associated with such statements include the following: The Company's quarterly operating results may vary significantly for a number of reasons, including new product announcements and introductions by the Company or its competitors, changes in pricing, and the volume and timing of orders received during the quarter. Historically one-half or more of each quarter's revenue has resulted from orders booked and shipped during the third month, a substantial portion of which occur in the latter half of that month. The Company has also in the past experienced delays in the development of new products and enhancements, and such delays may occur in the future. These factors make the forecasting of revenue inherently uncertain. Additionally, a significant portion of the Company's operating expenses is relatively fixed, and operating expense levels are based primarily on internal expectations of future revenue. As a consequence, quarterly operating expense levels cannot be reduced rapidly in the event that quarterly revenue levels fail to meet internal expectations. Therefore, if quarterly revenue levels fail to meet internal expectations, the Company's operating results would be adversely affected. All of the Company's sales relate to a single family of products, Media 100 digital video systems. A decline in demand for Media 100 systems, or a failure of such systems to maintain market acceptance, as a result of competition, technological change or other factors, would have a material adverse effect on the Company's business and operating results. The Company's products currently operate only on Apple Macintosh computers. Apple Computer Inc. has suffered business and financial difficulties during the past several years. In addition, the Company believes that the market of users of the Company's products increasingly views Microsoft's Windows NT operating system as an alternative platform for new digital video products. As a result of the foregoing, there can be no assurance that resellers and customers will not delay purchases of Apple-based products or purchase substitute products based on non-Macintosh operating systems, the occurrence of any of which could have a material adverse effect on the Company's business and operating results. The Company currently anticipates sequential growth in quarterly revenues of the Company will not occur until new products based on the Windows NT platform have been introduced by the Company and have gained market acceptance. The market for the Company's products is characterized by rapidly changing technology, evolving industry standards and frequent new product introductions. The Company's future success will depend in part upon its ability to enhance its existing products and to introduce new products and features in a timely manner to address customer requirements, respond to competitive offerings, adapt to new emerging industry standards and take advantage of new enabling technologies that could render the Company's existing products obsolete. In this regard, the Company is developing new products that will operate on the Windows NT platform. The Company currently anticipates that the first of these new products will become commercially available during the latter half of the Company's current fiscal year. The Company also plans in fiscal 1998 to significantly increase its investment in research and development over prior levels, 16 primarily in connection with the development of new Windows NT-based hardware and software products. As a result of this increased investment, the Company currently expects that it will generate a net loss from operations for fiscal year 1998. Any delay or failure of the Company in developing such additional new products or any delay or failure of such new products to achieve market acceptance, as a result of competition, blocking proprietary rights of third parties or other factors, could have a material adverse effect on the Company's business and operating results. New product announcements by the Company's competitors and by the Company itself could have the effect of reducing customer demand for the Company's existing products. The introduction of new or enhanced products by the Company also requires the Company to manage the transitions from existing products. New product introductions require the Company to devote time and resources to the training of its sales channel in the features and target customers for such new products, which efforts could result in less selling efforts being made by the sales channel during such training period. New product announcements or introductions could contribute to significant quarterly fluctuations in operating results as orders for new products commence and orders for existing products decline. The Company's ability to compete successfully and achieve future revenue growth will depend, in part, on its ability to protect its proprietary technology and operate without infringing the rights of others. The Company has in the past received, and may in the future continue to receive, communications suggesting that its products may infringe patents or other intellectual property rights of third parties. The Company's policy is to investigate the factual basis of such communications and negotiate licenses where appropriate. While it may be necessary or desirable in the future to obtain licenses relating to one or more products, or relating to current or future technologies, there can be no assurance that the Company will be able to do so on commercially reasonable terms or at all. There can be no assurance that these or other future communications can be settled on commercially reasonable terms or that they will not result in protracted and costly litigation. There has been substantial industry litigation regarding patent, trademark and other intellectual property rights involving technology companies. In the future, litigation may be necessary to enforce any patents issued to the Company or to enforce trade secrets, trademarks and other intellectual property rights owned by the Company, to defend the Company against claimed infringement of the rights of others and to determine the scope and validity of the proprietary rights of others. For a description of certain pending litigation instituted against the Company, see Note 6 to the Consolidated Financial Statements. Any such litigation could be costly and a diversion of management's attention, which could adversely affect the Company's business, operating results and financial condition. Adverse determinations in any such litigation could result in the loss of the Company's proprietary rights, subject the Company to significant liabilities, require the Company to seek licenses from third parties or prevent the Company from manufacturing or selling its products, any of which could adversely affect the Company's business, operating results and financial condition. The corporate and institutional market to which the Company is targeting its products is an emerging market. Many of the current users in this market rely on analog video tape processes. Digital editing alternatives are relatively new and currently account for a small portion of this market of current users. The Company also believes that this market includes a potential market of new users who currently out-source their video production requirements. The Company's future growth will depend, in part, on the rate at which existing users convert to digital editing processes and the rate at which new users adopt digital video systems as a communications resource. There can be no assurance that the use of digital video products like Media 100 will expand among existing users of alternative video production processes or the market for new users, and any failure of the Company's products to achieve market acceptance in these markets, as a result of competition, technological change or other factors, could have a material adverse effect on the Company's business and operating results. 17 The market for the Company's products is highly competitive and characterized by pressure to reduce prices, incorporate new features and accelerate the release of new products. A number of companies currently offer products that compete directly or indirectly with the Company's products, including Avid Technology, Inc., Discreet Logic Inc., Pinnacle Systems, Inc., Scitex Corporation Ltd., Truevision, Inc., Matrox Electronic Systems Ltd. and FAST Electronic GmbH. In addition, the Company expects much larger vendors, such as Matsushita Electric Industrial Company Ltd., Sony Corporation and Microsoft Corporation, to develop and introduce digital editing systems that may compete with the Company's products. Many of these current and potential competitors have greater financial, technical and marketing resources than the Company. As a result, such competitors may be able to develop products comparable to or superior to the Company's products, adapt more quickly than the Company to new technologies, evolving industry standards or customer requirements, or lower their product costs and thus be able to lower prices to levels at which the Company could not operate profitably, the occurrence of any of which could have a material adverse effect on the Company's business and operating results. In this regard, the Company believes that it will continue to experience competitive pressure to reduce prices, particularly for its high data rate systems. The Company has historically realized higher gross profit on the sale of its high data rate systems than its entry-level systems, and such continued competitive pricing pressure could result in lower sales and gross margin, which in turn could adversely affect the Company's operating results. The Company is dependent on single or limited source suppliers for several key components used in its products. The availability of many of these components is dependent on the Company's ability to provide suppliers with accurate forecasts of its future requirements, and certain components used by the Company have been subject to industry-wide shortages. The Company does not carry significant inventories of these components and has no guaranteed supply arrangements with such suppliers. There can be no assurance that the Company's inventories would be adequate to meet the Company's production needs during any interruption of supply. The Company's inability to develop alternative supply sources, if required, or a reduction or stoppage in supply, could delay product shipments until new sources of supply become available, and any such delay could adversely affect the Company's business and operating results in any given period. The Company relies primarily on its worldwide network of independent VARs to distribute and sell its products to end users. The Company's resellers generally offer products of several different companies, including in some cases products which are competitive with the Company's products. In addition, many of these VARs are small organizations with limited capital resources. There can be no assurance that the Company's resellers will continue to purchase the Company's products or provide them with adequate levels of support, or that the Company's efforts to expand its VAR network will be successful, any significant failure of which could have a material adverse effect on the Company's business and operating results. Sales of Media 100 products outside of North America represented approximately 44% of the Company's net sales for the fiscal year ended November 30, 1997. International sales and operations may be subject to risks such as the imposition of government controls, export license requirements, restrictions on the export of critical technology, less effective enforcement of proprietary rights; currency exchange fluctuations, generally longer collection periods, political instability, trade restrictions, changes in tariffs, difficulties in staffing and managing international operations, potential insolvency of international resellers and difficulty in collecting accounts receivable. The Company's international sales are also subject to more seasonal fluctuation than domestic sales. In this regard, the traditional summer vacation period, which occurs during the Company's third fiscal quarter, may result in a decrease in sales, particularly in Europe. There can be no assurance that these factors will not have an adverse effect on the Company's future international operations and consequently, on the Company's business and operating results. As a result of the Spin-Off, the Company currently obtains certain information systems support from DTI, and currently anticipates that it will continue to rely on DTI for such support into the latter half of fiscal 1998 while it implements new information systems of its own. Any delay in implementing the 18 Company's new information systems, or any delay or failure of DTI to provide adequate information systems support prior to the time that the Company's new systems become fully implemented, if significant, could have an adverse effect on the Company's business and operating results, particularly during any period that the transition from DTI's systems to the Company's new systems occurs. Competition for employees with the skills required by the Company is intense in the geographic areas in which the Company's operations are located. The Company believes that its future success will depend on its continued ability to attract and retain qualified employees, especially in research and development. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's financial statements, together with the auditors' report thereon, appear on pages F-1 through F-19 of this Annual Report on Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT The Company will furnish to the Securities and Exchange Commission not later than 120 days after the close of its fiscal year ended November 30, 1997 a definitive Proxy Statement (the "Proxy Statement") for the Annual Meeting of Stockholders to be held on April 15, 1998. The information required by this Item is incorporated herein by reference to "Election of Directors," "Executive Officers" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is incorporated herein by reference to "Election of Directors" and "Executive Compensation" in the Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated herein by reference to "Security Ownership of Certain Beneficial Owners and Management" in the Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is incorporated herein by reference to "Certain Relationships and Related Transactions" in the Proxy Statement. 19 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K The following documents are filed as part of this report: (a) (1) Consolidated Financial Statements.
PAGE ----- MEDIA 100 INC. AND SUBSIDIARIES Report of Independent Public Accountants............................................... F-2 Consolidated Balance Sheets as of November 30, 1997 and 1996........................... F-3 Consolidated Statements of Operations for the Fiscal Years Ended November 30, 1997, 1996 and 1995..................................................... F-4 Consolidated Statement of Stockholders' Equity for the Fiscal Years Ended November 30, 1997, 1996 and 1995.................................................................. F-5 Consolidated Statements of Cash Flows for the Fiscal Years Ended November 30, 1997, 1996 and 1995..................................................... F-6 Notes to Consolidated Financial Statements............................................. F-7
(a) (2) Financial Statement Schedules. Not applicable. (a) (3) List of Exhibits. Exhibits required as part of this Annual Report on Form 10-K are listed in the exhibit index on page X-1. (b) Reports on Form 8-K. No reports on Form 8-K were filed during the last quarter of the period covered by this report. 20 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Media 100 Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 27, 1998. MEDIA 100 INC. BY: /S/ JOHN A. MOLINARI ----------------------------------------- John A. Molinari PRESIDENT AND CHIEF EXECUTIVE OFFICER POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that each of the undersigned officers and directors of Media 100 Inc., a Delaware corporation (the "Company"), hereby constitutes and appoints John A. Molinari and Steven D. Shea, and each of them, with full power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities (until revoked in writing) to sign the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1997, and any and all amendments thereto, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully for all intents and purposes as he might or could do in person, thereby ratifying and confirming all that said attorneys-in-fact and agents or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. SIGNATURE TITLE DATE - ------------------------------ --------------------------- ------------------- President and Chief /s/ JOHN A. MOLINARI Executive Officer and - ------------------------------ Director (Principal February 27, 1998 John A. Molinari Executive Officer) Corporate Controller and /s/ STEVEN D. SHEA Chief Accounting Officer - ------------------------------ (Principal Financial February 27, 1998 Steven D. Shea Officer and Principal Accounting Officer) /s/ MAURICE L. CASTONGUAY Director - ------------------------------ February 27, 1998 Maurice L. Castonguay /s/ ROGER W. REDMOND Director - ------------------------------ February 27, 1998 Roger W. Redmond /s/ BRUCE I. SACHS Director - ------------------------------ February 27, 1998 Bruce I. Sachs /s/ PAUL J. SEVERINO Director - ------------------------------ February 27, 1998 Paul J. Severino 21 INDEX TO FINANCIAL STATEMENTS
PAGE ----- MEDIA 100 INC. AND SUBSIDIARIES Report of Independent Public Accountants................................................................. F-2 Consolidated Balance Sheets as of November 30, 1997 and 1996............................................. F-3 Consolidated Statements of Operations for the Fiscal Years Ended November 30, 1997, 1996 and 1995........ F-4 Consolidated Statement of Stockholders' Equity for the Fiscal Years Ended November 30, 1997, 1996 and 1995................................................................................................... F-5 Consolidated Statements of Cash Flows for the Fiscal Years Ended November 30, 1997, 1996 and 1995........ F-6 Notes to Consolidated Financial Statements............................................................... F-7
F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Media 100 Inc.: We have audited the accompanying consolidated balance sheets of Media 100 Inc. (a Delaware corporation) and subsidiaries as of November 30, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended November 30, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Media 100 Inc. and subsidiaries as of November 30, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended November 30, 1997, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Boston, Massachusetts January 15, 1998 (except with respect to the matters discussed in Note 6(b) and the last paragraph of Note 3(b), as to which the dates are January 16 and 26, 1998, respectively) F-2 MEDIA 100 INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, NOVEMBER 30, 1997 1996 ------------ ------------ IN THOUSANDS, EXCEPT SHARE AMOUNTS ASSETS Current assets: Cash and cash equivalents.......................................................... $ 4,042 $ 2,733 Marketable securities.............................................................. 28,892 27,983 Accounts receivable, net of reserves of $411 in 1997 and $328 in 1996.............. 7,689 11,665 Inventories........................................................................ 696 1,473 Prepaid expenses................................................................... 743 567 ------------ ------------ Total current assets............................................................... 42,062 44,421 Equipment, net....................................................................... 8,104 2,467 Other assets, net.................................................................... 593 112 Net assets of discontinued operations (Note 12)...................................... -- 12,990 ------------ ------------ Total assets................................................................... $ 50,759 $ 59,990 ------------ ------------ ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable................................................................... $ 1,953 $ 1,981 Accrued expenses................................................................... 6,958 5,791 Deferred revenue................................................................... 4,005 2,153 ------------ ------------ Total current liabilities.......................................................... 12,916 9,925 Commitments and contingencies(Note 6) Stockholders' equity: Preferred stock, $.01 par value, Authorized--1,000,000 shares, none issued......... -- -- Common stock, $.01 par value, Authorized--25,000,000 shares, Issued and outstanding--8,192,354 in 1997 and 8,087,884 in 1996............................. 82 81 Capital in excess of par value..................................................... 40,477 40,035 Retained earnings (deficit)........................................................ (2,547) 9,826 Cumulative translation adjustment.................................................. (87) 123 Unrealized holding loss on available for sale securities........................... (82) -- ------------ ------------ Total stockholders' equity..................................................... 37,843 50,065 Total liabilities and stockholders' equity..................................... $ 50,759 $ 59,990 ------------ ------------ ------------ ------------
The accompanying notes are an integral part of these consolidated financial statements. F-3 MEDIA 100 INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FISCAL YEARS ENDED NOVEMBER 30,
1997 1996 1995 --------- --------- --------- IN THOUSANDS, EXCEPT PER SHARE AMOUNTS Net sales........................................................................ $ 46,660 $ 50,826 $ 30,278 Cost of sales.................................................................... 18,238 20,046 12,711 --------- --------- --------- Gross profit................................................................... 28,422 30,780 17,567 --------- --------- --------- Operating expenses: Research and development....................................................... 8,508 6,227 4,806 Selling and marketing.......................................................... 16,061 15,066 9,088 General and administrative..................................................... 4,330 5,034 2,024 Restructuring expense.......................................................... 526 -- -- --------- --------- --------- Total operating expenses................................................... 29,425 26,327 15,918 --------- --------- --------- Operating income (loss).......................................................... (1,003) 4,453 1,649 --------- --------- --------- Interest income.................................................................. 1,781 1,588 771 --------- --------- --------- Income from continuing operations before tax provision......................... 778 6,041 2,420 Tax provision.................................................................... 161 1,208 75 --------- --------- --------- Income from continuing operations.............................................. 617 4,833 2,345 Discontinued operations: Income (loss) from discontinued operations..................................... -- (6,672) 2,426 --------- --------- --------- Net income (loss).............................................................. $ 617 $ (1,839) $ 4,771 --------- --------- --------- --------- --------- --------- Income per common and common equivalent share from continuing operations......... $ 0.07 $ 0.57 $ 0.35 Income (loss) per common and common equivalent share from discontinued operations..................................................................... $ 0.00 $ (0.79) $ 0.36 --------- --------- --------- Net income (loss) per common and common equivalent share......................... $ 0.07 $ (0.22) $ 0.71 --------- --------- --------- --------- --------- --------- Weighted average number of common and common equivalent shares outstanding....... 8,247 8,470 6,701 --------- --------- --------- --------- --------- ---------
The accompanying notes are an integral part of these consolidated financial statements. F-4 MEDIA 100 INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
UNREALIZED HOLDING GAIN COMMON STOCK (LOSS) ON $.01 PAR VALUE CAPITAL IN CUMULATIVE AVAILABLE ----------------- EXCESS OF PAR RETAINED TRANSLATION TREASURY FOR SALE SHARES AMOUNT VALUE EARNINGS ADJUSTMENT STOCK SECURITIES --------- ------ ------------- -------- ------------ -------- ---------- IN THOUSANDS, EXCEPT SHARE AMOUNTS Balance, November 30, 1994.............. 6,765,472 $68 $ 8,739 $ 6,894 $ 37 $ (4,781) -$- Proceeds from issuance of common stock under stock plans........................... 325,736 3 1,166 -- -- -- -- Public sale of treasury stock, net of issuance costs of $375................ -- -- 5,864 -- -- 2,938 -- Public sale of common stock, net of issuance costs of $400................ 1,400,000 14 21,293 -- -- -- -- Translation adjustment.................. -- -- -- -- (210) -- -- Net income.............................. -- -- -- 4,771 -- -- -- Unrealized holding loss on available for sales securities...................... -- -- -- -- -- -- (55) --------- ------ ------------- -------- ----- -------- --- Balance, November 30, 1995.............. 8,491,208 $85 $37,062 $ 11,665 $(173) $ (1,843) $(55) Proceeds from issuance of common stock under stock plans........................... 242,272 3 1,359 -- -- -- -- Retirement of treasury stock............ (869,096) (9) (1,834) -- -- 1,843 -- Issuance of common stock................ 223,500 2 3,448 -- -- -- -- Translation adjustment.................. -- -- -- -- 296 -- -- Net loss................................ -- -- -- (1,839) -- -- -- Unrealized holding gain on available for sale securities....................... -- -- -- -- -- -- 55 --------- ------ ------------- -------- ----- -------- --- Balance, November 30, 1996.............. 8,087,884 $81 $40,035 $ 9,826 $ 123 $ -- -$- Proceeds from issuance of common stock under stock plans........................... 104,470 1 442 -- -- -- -- Dividend of Data Translation II, Inc. stock to stockholders................. -- -- -- (12,990) -- -- -- Translation adjustment.................. -- -- -- -- (210) -- -- Net income.............................. -- -- -- 617 -- -- -- Unrealized holding loss on available for sale securities....................... -- -- -- -- -- -- (82) --------- ------ ------------- -------- ----- -------- --- Balance, November 30, 1997.............. 8,192,354 $82 $40,477 $ (2,547) $ (87) $ -- $(82) --------- ------ ------------- -------- ----- -------- --- --------- ------ ------------- -------- ----- -------- ---
The accompanying notes are an integral part of these consolidated financial statements. F-5 MEDIA 100 INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED NOVEMBER 30, IN THOUSANDS CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)................................................................... $ 617 $ (1,839) $ 4,771 (Income) loss from discontinued operations.......................................... -- 6,672 (2,426) ---------- ---------- ---------- Income from continuing operations................................................... 617 4,833 2,345 Adjustments to reconcile income from operations to net cash provided by (used in) operating activities: Depreciation and amortization..................................................... 1,614 898 878 Deferred income taxes............................................................. -- (3) 1 Loss on sale of equipment......................................................... -- -- 2 (Gain) loss on sale of marketable securities...................................... 19 (33) 35 Changes in assets and liabilities: Accounts receivable............................................................... 3,976 (5,603) (3,035) Inventories....................................................................... 777 427 (1,248) Prepaid income taxes.............................................................. -- (61) 1 Accounts payable, accrued and prepaid expenses.................................... 964 4,296 1,383 Deferred revenue.................................................................. 1,852 1,143 785 ---------- ---------- ---------- Net cash provided by continuing operating activities................................ 9,819 5,897 1,147 Net cash (used in) provided by discontinued operating activities.................... -- (13,560) 1,274 ---------- ---------- ---------- Net cash provided by (used in) operating activities................................. $ 9,819 $ (7,663) $ 2,421 ---------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Net purchase of equipment........................................................... (7,251) (1,951) (1,425) Increase in other assets............................................................ (481) (27) (68) Purchases of marketable securities.................................................. (65,716) (78,620) (13,270) Proceeds from sales of marketable securities........................................ 64,706 57,284 9,108 ---------- ---------- ---------- Net cash used in investing activities............................................... $ (8,742) $ (23,314) $ (5,655) ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from stock plans........................................................... 442 1,362 1,169 Net proceeds from public sale of treasury stock..................................... -- -- 8,802 Net proceeds from public sale of common stock....................................... -- 3,450 21,307 ---------- ---------- ---------- Net cash provided byfinancing activities............................................ $ 442 $ 4,812 $ 31,278 ---------- ---------- ---------- EFFECT OF EXCHANGE RATE CHANGES ON CASH............................................. (210) 296 (220) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................ 1,309 (25,869) 27,824 CASH AND CASH EQUIVALENTS, beginning of period...................................... 2,733 28,602 778 ---------- ---------- ---------- CASH AND CASH EQUIVALENTS, end of period............................................ $ 4,042 $ 2,733 $ 28,602 ---------- ---------- ---------- ---------- ---------- ---------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for income taxes.......................................................... $ 92 $ 743 $ 46 ---------- ---------- ---------- ---------- ---------- ---------- OTHER TRANSACTIONS NOT PROVIDING (USING) CASH: Dividend of Data Translation II, Inc. stock to stockholders......................... $ (12,990) $ -- $ -- ---------- ---------- ---------- ---------- ---------- ---------- Retirement of treasury stock........................................................ $ -- $ 1,843 $ -- ---------- ---------- ---------- ---------- ---------- ---------- Change in value of marketable securities............................................ $ (82) $ (55) $ 55 ---------- ---------- ---------- ---------- ---------- ----------
The accompanying notes are an integral part of these consolidated financial statements. F-6 MEDIA 100 INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) OPERATIONS On July 30, 1996, Media 100 Inc. (the "Company") announced its intention to separate its Media 100 digital video business from its data acquisition and imaging, commercial products and U.K.-based networking distribution businesses. The Company announced that it would contribute its data acquisition and imaging and commercial products businesses to a newly-formed subsidiary, Data Translation II, Inc. ("DTI"), the stock of which would then be distributed as a dividend to the Company's stockholders. The Company further announced that it planned to dispose of its networking distribution business within twelve months. On November 11, 1996, the Company sold substantially all of the assets associated with its networking distribution business in connection with the winding up of that business. On December 2, 1996, the Company distributed all of the shares of DTI, to which it had contributed its data acquisition and imaging and commercial products businesses and the remaining assets and liabilities of the networking distribution business, as a dividend to the Company's stockholders (the "Spin-Off"), in the ratio of one share of DTI common stock for every four shares of Company common stock. The dividend reduced retained earnings in an amount equal to $12,990,000. In connection with the Spin-Off, the Company retained only its Media 100 related business and changed its name to Media 100 Inc. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries after elimination of significant intercompany transactions and balances. These consolidated financial statements reflect the utilization of the following significant accounting policies, as described below and elsewhere in the notes to consolidated financial statements. These consolidated financial statements are prepared in accordance with generally accepted accounting principles. (A) CASH AND CASH EQUIVALENTS AND MARKETABLE SECURITIES Cash equivalents are carried at cost, which approximates market value, and have original maturities of less than three months. Cash equivalents include money market accounts and repurchase agreements with overnight maturities. The Company accounts for marketable securities in accordance with Statement of Financial Accounting Standards No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES (SFAS No. 115). Under this standard, the Company is required to classify all investments in debt and equity securities into one or more of the following three categories: held-to-maturity, available-for-sale or trading. Available-for-sale securities are recorded at fair market value with unrealized gains and losses excluded from earnings and included as a component of to stockholders' equity. All of the Company's marketable securities are classified as available-for-sale. F-7 MEDIA 100 INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Marketable securities held as of November 30, 1997, consist of the following (in thousands):
MATURITY MARKET VALUE ------------------- ------------ Investments available for sale: U.S. Treasury Notes......................................................... less than 1 year $ 3,031 U.S. Treasury Notes......................................................... 1-5 years 4,306 ------------ Total U.S. Treasury Notes................................................. 7,337 Municipal Bonds............................................................. less than 1 year 2,021 Municipal Bonds............................................................. 1-2 years 514 ------------ Total Municipal Bonds..................................................... 2,535 U.S. Agency Bonds........................................................... less than 1 year 605 U.S. Agency Bonds........................................................... more than 1 year 2,535 ------------ Total U.S. Agency Bonds................................................... 3,140 Money Market Instruments.................................................... 9,402 Corporate Obligations....................................................... less than 1 year 3,956 Corporate Obligations....................................................... 1-2 years 2,522 ------------ Total Corporate Obligations............................................... 6,478 Total investments available for sale.......................................... $ 28,892 ------------ ------------
Marketable securities had a cost of $28,974 and $27,983 at November 30, 1997 and 1996, respectively, and a market value of $28,892 and $27,983, respectively. To reduce the carrying amount of the November 30, 1997 marketable securities portfolio to market value, an unrealized loss has been reflected as a separate component of stockholders' equity on November 30, 1997 pursuant to the provisions of SFAS No. 115. (B) INVENTORIES Inventories at November 30, 1997 and 1996 are stated at the lower of first-in, first-out (FIFO) cost or market and consist of the following (in thousands):
1997 1996 --------- --------- Raw Materials................................................................ $ 305 $ 780 Work-in-Process.............................................................. 252 302 Finished Goods............................................................... 139 391 --------- --------- $ 696 $ 1,473 --------- --------- --------- ---------
Work-in-process and finished goods inventories include material, labor and manufacturing overhead. Management performs periodic reviews of inventory and disposes of items not required by their manufacturing plan. F-8 MEDIA 100 INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (C) DEPRECIATION AND AMORTIZATION The Company provides for depreciation and amortization, using the straight-line and declining balance methods by charges to operating expenses in amounts that allocate the cost of the equipment over the following estimated useful lives:
DESCRIPTION USEFUL LIVES - ------------------------------------------------------------------------------- ------------- Machinery and equipment........................................................ 3 to 7 years Furniture and fixtures......................................................... 7 years Vehicles....................................................................... 3 years
(D) PROPERTY AND EQUIPMENT, NET Equipment, net at November 30, 1997 and 1996 is stated at cost, less accumulated depreciation and amortization, and consists of the following (in thousands):
1997 1996 --------- --------- Machinery and equipment.................................................. $ 10,428 $ 4,251 Furniture and fixtures................................................... 1,288 480 Vehicles................................................................. 12 14 --------- --------- $ 11,728 $ 4,745 Less accumulated depreciation and amortization........................... 3,624 2,278 --------- --------- $ 8,104 $ 2,467 --------- --------- --------- ---------
(E) FOREIGN CURRENCY The accounts of the Company and its subsidiaries are translated in accordance with Statement of Financial Accounting Standards No. 52, FOREIGN CURRENCY TRANSLATION. The financial statements of the Company's subsidiaries are translated from their functional currency into U.S. dollars utilizing the current rate method. Accordingly, assets and liabilities of the Company's foreign subsidiaries are translated at the rates of exchange in effect at year-end. Revenues and expenses are translated using exchange rates in effect during the year. Gains and losses from foreign currency translation are credited or charged to "Cumulative translation adjustment" included in stockholders' equity in the accompanying consolidated balance sheets. Net realized foreign currency transaction losses for the year ended November 30, 1997 were $215,000 and are classified in general and administrative expenses. For fiscal year ended November 30, 1996 the Company had net realized foreign currency transaction gains of $144,000 and for the fiscal year ended November 30, 1995 these gains and losses were not significant. (F) REVENUE RECOGNITION In accordance with Statement of Position (SOP) 91-1, the Company recognizes revenue when products are shipped or, for postcontract support agreements, ratably over the terms of the agreements. The Company's policy is to defer the revenue associated with any vendor and postcontract support obligations remaining at the time of shipment until the related obligations are satisfied. Costs of service and warranty are not significant and are charged to operations as incurred. Revenues from hardware systems with other than incidental software components and stand alone software sales are recognized upon shipment, provided that no significant vendor or postcontract support obligations remain outstanding F-9 MEDIA 100 INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) and collection of the resulting receivable is deemed probable. Effective in fiscal year 1998, the Company will apply the provisions of SOP 97-2, which supercedes SOP 91-1. The Company does not expect the adoption of SOP 97-2 to have a material effect on its consolidated financial statements. (G) NET INCOME (LOSS) PER COMMON SHARE Net income per common share is determined by dividing net income by the weighted average number of common and common equivalent shares outstanding during the period. Net loss per common share is determined by dividing net loss by the weighted average number of common shares outstanding during the period. Common equivalent shares have been calculated in accordance with the treasury stock method and are included for all periods where their effect is dilutive. Fully diluted net income (loss) per common and common equivalent share has not been separately presented, as the amounts would not be materially different from net income (loss) per common and common equivalent share for all periods presented. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE (SFAS No. 128). The new standard simplifies the computation of earnings per share and increased comparability to international standards. Under SFAS No. 128, primary earnings per share is replaced by "Basic" earnings per share, which excludes potentially dilutive equity instruments and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. "Diluted" earnings per share, which is computed similarly to fully diluted earnings per share, reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. The Company will be required to disclose both basic and diluted earnings per share. The Company is required to adopt the new standard in its first fiscal 1998 quarter. All prior-period earnings per share information will be restated at that time. Early adoption of this standard is not permitted. (H) CAPITALIZED SOFTWARE DEVELOPMENT COSTS The Company capitalizes certain computer software development costs. Capitalization of costs commences upon establishing technological feasibility. Capitalized costs, net of accumulated amortization, were approximately $89,000 and $104,000 as of November 30, 1997 and 1996, respectively, and are included in other assets. These costs are amortized on a straight-line basis over two years, which approximates the economic life of the product. Amortization expense, included in cost of sales in the accompanying consolidated statements of operations, was $80,000 and $40,000 in 1997 and 1996, respectively. (I) RESTRUCTURING EXPENSE The Company incurred restructuring expenses of $526,000 in its third quarter of fiscal 1997 for severance and related costs associated with a reduction of the Company's workforce. Substantially all of these expenses have been paid out as of the end of the Company's first quarter of fiscal 1998 and the Company anticipates that any further expenses associated with this reduction in its workforce will be insignificant. (J) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and F-10 MEDIA 100 INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (3) STOCKHOLDERS' EQUITY (A) STOCK SPLIT On June 28, 1995, the Board of Directors approved a 2-for-1 stock split effected in the form of a dividend for all shareholders of record as of July 17, 1995. All share and per share data included in these financial statements have been retroactively restated to reflect the stock split. (B) STOCK OPTIONS Prior to April 1992, options were granted under the Company's 1982 Key Employee Inventive Plan (the "1982 Plan"). Subject to certain limitations imposed by the 1982 Plan, options were granted at a price determined by the Board. The Board resolved to issue options under the 1982 Plan at not less than 100% of fair market value. The options expire six years from the date of grant and become exercisable at the rate of 20% per year beginning one year from the date of grant. No further options may be granted under the 1982 Plan. In 1992, the Company adopted the 1992 Key Employee Incentive Plan (the "1992 Plan"), and 1,000,000 shares of common stock were reserved for issuance. At the Company's Annual Meeting on April 10, 1996, the Company's stockholders approved an increase in the number of options available for grant from 1,000,000 to 2,000,000. Options granted pursuant to the 1992 Plan may, at the discretion of the Board, be incentive stock options as defined by the Internal Revenue Code. Subject to the provisions of the 1992 Plan, options granted are at a price as specified by the Board. The Board has, to date, issued options under the 1992 Plan at not less than 100% of fair market value. The options become exercisable at a rate of 20% per year beginning one year from the date of grant unless otherwise specified by the Board. The Board will determine when the options will expire, but in no event will the option period exceed ten years. No options may be granted under the 1992 Plan on or after February 29, 2002. F-11 MEDIA 100 INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (3) STOCKHOLDERS' EQUITY (CONTINUED) Information concerning stock options for each of the three years ended November 30, 1997 follows:
WEIGHTED AVERAGE NUMBER OF OPTION PRICE OPTIONS PRICE RANGES PER SHARE ---------- ------------- ----------------- Outstanding at November 30, 1994.................................... 1,029,976 $ 1.32-7.03 $ 4.03 Granted........................................................... 338,000 7.15-16.20 11.33 Exercised......................................................... (305,806) 1.32-7.03 3.33 Expired/canceled.................................................. (15,290) 1.43-10.48 5.50 ---------- ------------- ------ Outstanding at November 30, 1995.................................... 1,046,880 $ 1.32-16.20 $ 6.53 Granted........................................................... 595,000 7.75-16.91 13.65 Exercised......................................................... (215,310) 1.32-10.66 4.39 Expired/canceled.................................................. (210,740) 1.43-16.91 9.96 ---------- ------------- ------ Outstanding at November 30, 1996.................................... 1,215,830 $ 1.73-16.91 $ 10.20 Granted........................................................... 474,225 4.19-10.00 8.48 Exercised......................................................... (37,940) 1.73-4.72 3.72 Expired/canceled.................................................. (504,189) 1.73-16.91 9.93 ---------- ------------- ------ Outstanding at November 30, 1997.................................... 1,147,926 $ 1.73-16.91 $ 9.80 ---------- ------------- ------ ---------- ------------- ------ Exercisable at November 30, 1997.................................... 315,204 $ 1.73-16.91 $ 5.31 ---------- ------------- ------ ---------- ------------- ------ Available for grant at November 30, 1997............................ 648,924 ---------- ----------
In connection with the Spin-Off, all stock options that were outstanding at December 2, 1996 were adjusted by multiplying the exercise price thereof by .95238 (rounding up to the nearest whole cent). Information in the above table for November 30, 1996 and prior periods has been restated to reflect this adjustment. In 1994, the Company amended the 1986 Employee Stock Purchase Plan (the "Plan") pursuant to which an additional 200,000 shares of common stock were reserved for issuance for a total of 600,000 shares. Effective July 1, 1995, employees who have worked for the Company for at least one month are eligible to participate in the Plan. The Plan allows participants to purchase common stock of the Company at 85% of the fair market value as defined. Under the Plan, the Company issued 67,311, 26,962 and 22,930 shares in fiscal years 1997, 1996 and 1995, respectively. At November 30, 1997, there were 99,331 shares available for issuance under the Plan. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK BASED COMPENSATION (SFAS No. 123), which requires the measurement of the fair market value of stock options or warrants to be included in the statement of operations or disclosed in the notes to the financial statements. As permitted by SFAS No. 123, the Company will continue to account for stock-based compensation for employees under Accounting Principles Board Opinion No. 25 and has elected the disclosure-only alternative under SFAS No. 123 for options F-12 MEDIA 100 INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (3) STOCKHOLDERS' EQUITY (CONTINUED) granted using the Black-Scholes option pricing model prescribed by SFAS No. 123. The weighted average assumptions are as follows:
1997 1996 --------------- ------------ Risk-free interest rate....................................... 6.07%-6.12% 6.3%-6.6% Expected dividend yield....................................... -- -- Expected lives................................................ 6 years 6 years Expected volatility........................................... 75.92% 77.3%
The table below presents pro forma net income (loss) and earnings per share, had compensation cost for the Company's stock-based employee compensation plans been determined using the provisions of SFAS No. 123 (in thousands, except per share amounts).
1997 1996 --------- --------- Income (loss) from continuing operations As Reported.............................................................. $ 617 $ 4,833 Pro Forma................................................................ $ (153) $ 4,600 Income (loss) per share from continuing operations As Reported.............................................................. $ 0.07 $ 0.57 Pro Forma................................................................ $ (0.02) $ 0.54
Because the method prescribed by SFAS No. 123 has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation may not be representative of that to be expected in future years. The following table summarizes information about options outstanding at November 30, 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ----------------------------------------------------- ------------------------------ WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE RANGE OF NUMBER REMAINING EXERCISE PRICE NUMBER EXERCISE PRICE EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE PER SHARE OUTSTANDING PER SHARE - -------------- ----------- --------------------- ----------------- ----------- ----------------- $ 1.73- 6.08 285,834 3.2 $ 4.17 127,142 $ 3.31 6.42-10.00 404,906 4.7 8.79 56,800 7.04 10.48-16.91 457,186 3.9 14.37 131,262 13.83 ----------- ----------- 1,147,926 315,204 ----------- ----------- ----------- -----------
In January 1998, the Company offered employees the opportunity to participate in an option repricing program, pursuant to which each employee could elect to replace his or her then outstanding options with new options on a one-for-one basis. The per share exercise price of the replacement options is $3.94. The replacement options are exercisable as follows: replacement options that were granted in exchange for exercisable old options become exercisable six months following the new grant date; replacement options that were granted in exchange for unexercisable old options become exercisable over four years from the new grant date, 12.5% six months following the new grant date and 6.25% quarterly thereafter; and all replacement options expire ten years after the new grant date. An aggregate of 694,810 options were cancelled and replaced in connection with this program. The option repricing program resulted in a new measurement date for all options replaced. Since the new exercise price was equal to the fair market value of the Company's common stock on the new measurement date, the Company will not record any compensation cost in connection with this program. F-13 MEDIA 100 INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. RETIREMENT PLAN In November 1985, the Company adopted an employee savings plan (the "Savings Plan") in compliance with Section 401(k) of the Internal Revenue Code. Effective April 1, 1995, the Savings Plan provides for annual Company contributions of up to 15% of the first 6% of total compensation per participant. Effective January 1, 1998, these contributions vest in full after a three-year period of service. The Company's contributions to the Savings Plan were $98,000, $50,000 and $16,000 in 1997, 1996 and 1995, respectively. The Company does not provide postretirement benefits to any employees as defined under Statement of Financial Accounting Standards No. 106, EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS. 5. BANK FACILITIES The Company entered into an irrevocable standby letter of credit agreement for a sum not to exceed $300,000 effective January 16, 1997 and terminating March 31, 1998. This facility was entered into in connection with the lease of Company's new office and manufacturing facility (Note 6(a)). This letter of credit is automatically extended without amendment annually from the termination date, unless written notice is provided electing not to renew for any such additional period. Notwithstanding the above, this letter of credit expires on March 31, 2002. The Company's obligation is secured by a pledge of cash in the amount of $350,000. The Company has informed the bank it intends to allow this letter of credit to automatically renew. 6. LEASE COMMITMENTS AND CONTINGENCIES (A) LEASE COMMITMENTS The Company's principal executive, engineering, manufacturing and sales operations occupy approximately 56,500 square feet in a leased facility located at 290 Donald Lynch Boulevard, Marlboro, Massachusetts. The lease for this facility terminates on March 31, 2002. Prior to moving into its current facility on May 2, 1997, the Company's operations occupied approximately 31,000 square feet in a facility which it shared with DTI located in Marlboro, Massachusetts. Total rental expense charged to continuing operations with respect to the Company's current Marlboro facility for fiscal year 1997 was $320,000, and with respect to its former Marlboro facility was $527,000, $546,000 and $459,000 for each of the fiscal years 1997, 1996 and 1995, respectively. Rental expense with respect to the former Marlboro facility for fiscal 1997 reflected the Company's pro rata portion of the rental charges and operating expenses associated with that facility and the use by the Company of certain manufacturing equipment belonging to DTI. F-14 MEDIA 100 INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. LEASE COMMITMENTS AND CONTINGENCIES (CONTINUED) Future minimum lease payments, excluding operating costs, under all operating leases are as follows (in thousands):
FISCAL YEARS ENDING NOVEMBER 30, AMOUNT - ------------------------------------------------------------------------------------- --------- 1998................................................................................. $ 656 1999................................................................................. 660 2000................................................................................. 670 2001................................................................................. 592 2002................................................................................. 188 --------- Total minimum lease payments......................................................... $ 2,766
(B) CONTINGENCIES On June 7, 1995, a lawsuit was filed against the Company by Avid Technology, Inc. ("Avid") in the United States District Court for the District of Massachusetts. The complaint generally alleges patent infringement by the Company arising from the manufacture, sale, and use of the Company's Media 100 products. The complaint includes requests for injunctive relief, treble damages, interest, costs and fees. In July 1995, the Company filed an answer and counterclaim denying any infringement and asserting that the Avid patent in question is invalid. The Company intends to vigorously defend the lawsuit. In addition, Avid is seeking reissue of the patent, including claims that it asserts are broader than in the existing patent, and these reissue proceedings remain pending before the U.S. Patent and Trademark Office. On January 16, 1998, the court dismissed the lawsuit without prejudice to either party moving to restore it to the docket upon completion of all matters pending before the U.S. Patent and Trademark Office. There can be no assurance that the Company will prevail in the lawsuit asserted by Avid or that the expense or other effects of the lawsuit, whether or not the Company prevails, will not have a material adverse effect on the Company's business, operating results and financial condition. From time to time the Company is involved in other disputes and/or litigation encountered in its normal course of business. The Company does not believe that the ultimate impact of the resolution of such other outstanding matters will have a material effect on the Company's business, operating results or financial condition. 7. INCOME TAXES The Company accounts for income taxes in accordance with the provisions of Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES. The components of the net deferred tax liability recognized in the accompanying consolidated balance sheets are as follows (in thousands):
FISCAL YEARS ENDED NOVEMBER 30, 1997 1996 - --------------------------------------------------------------------------------------------- --------- --------- Deferred tax assets.......................................................................... $ 2,304 $ 1,595 Deferred tax liabilities..................................................................... (32) (27) --------- --------- Subtotal................................................................................... 2,272 1,568 --------- --------- Valuation allowance.......................................................................... (1,768) (1,568) --------- --------- Net deferred tax assets...................................................................... $ 504 $ -- --------- --------- --------- ---------
F-15 MEDIA 100 INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. INCOME TAXES (CONTINUED) Due to the uncertainty surrounding the realization of the benefits of its favorable tax attributes in future income tax returns, the Company has placed a valuation allowance against its deferred tax assets, except for previously paid taxes that the Company believes are refundable. These deferred tax assets are included as a component of other assets, net on the accompanying consolidated balance sheets. The approximate tax effect of each type of temporary difference and carryforward before allocation of the valuation allowance is summarized as follows (in thousands):
FISCAL YEARS ENDED NOVEMBER 30, 1997 1996 - ----------------------------------------------------------------------------------------------- --------- --------- Other temporary differences, principally nondeductible reserves................................ $ 1,562 $ 1,096 Research and development credits............................................................... 685 447 Alternative minimum tax credits................................................................ 25 25 --------- --------- $ 2,272 $ 1,568 --------- --------- --------- ---------
The tax credit carryforwards expire at various dates through 2009. The Tax Reform Act of 1986 contains provisions that may limit the tax credit carryforwards available to be used in any given year in the event of significant changes in ownership, as defined. The income (loss) from continuing operations before tax provision in the accompanying consolidated statements of operations consisted of the following (in thousands):
1997 1996 1995 --------- --------- --------- United States.......................................................................... $ 792 $ 6,819 $ 2,761 Foreign................................................................................ (14) (778) (341) --------- --------- --------- $ 778 $ 6,041 $ 2,420 --------- --------- --------- --------- --------- ---------
The income tax provision shown in the accompanying consolidated statements of operations consists of the following (in thousands):
FISCAL YEARS ENDED NOVEMBER 30, 1997 1996 1995 - ----------------------------------------------------------------------------------------- --------- --------- ----- Federal: Current................................................................................ $ 581 $ 1,008 $ 70 Deferred............................................................................... (504) -- -- --------- --------- --- 77 1,008 70 --------- --------- --- State: Current................................................................................ 24 100 1 Deferred............................................................................... -- -- -- --------- --------- --- 24 100 1 --------- --------- --- Foreign--Current......................................................................... 60 100 4 --------- --------- --- $ 161 $ 1,208 $ 75 --------- --------- --- --------- --------- ---
F-16 MEDIA 100 INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. INCOME TAXES (CONTINUED) The effective income tax rate varies from the amount computed using the statutory U.S. income tax rate as follows:
FISCAL YEARS ENDED NOVEMBER 30, 1997 1996 1995 - ------------------------------------------------------------------------------------------ --------- --------- --------- Tax provision (benefit) at statutory rate................................................. 34.0% 34.0% 34.0% Federal benefit from loss carryforward.................................................... -- (5.6) (33.0) Utilization of research and development credits........................................... (30.5) (14.8) -- State taxes............................................................................... 3.1 1.6 -- Foreign taxes............................................................................. 7.7 1.6 0.2 Tax credits............................................................................... 1.8 3.2 1.9 Other permanent differences............................................................... 4.5 -- -- --------- --------- --------- 20.6% 20.0% 3.1% --------- --------- --------- --------- --------- ---------
8. GEOGRAPHIC INFORMATION Operations in various geographic areas for the three years ended November 30, 1997 are summarized as follows (in thousands):
UNITED STATES EUROPE ELIMINATIONS CONSOLIDATED ------------ --------- ------------ ------------ FISCAL 1995 Sales to unaffiliated customers (1)......................... $ 26,651 $ 3,627 $ -- $ 30,278 Sales or transfers between geographic areas................. 2,507 -- (2,507) -- ------------ --------- ------------ ------------ Net sales................................................... $ 29,158 $ 3,627 $ (2,507) $ 30,278 ------------ --------- ------------ ------------ Income (loss) from continuing operations.................... $ 1,983 $ (341) $ 7 $ 1,649 Identifiable assets of continuing operations................ $ 44,892 $ 1,876 $ (1,747) $ 45,021 ------------ --------- ------------ ------------ ------------ --------- ------------ ------------ FISCAL 1996 Sales to unaffiliated customers (1)......................... $ 44,677 $ 6,149 $ -- $ 50,826 Sales or transfers between geographic areas................. 4,780 -- (4,780) -- ------------ --------- ------------ ------------ Net sales................................................... $ 49,457 $ 6,149 $ (4,780) $ 50,826 ------------ --------- ------------ ------------ Income (loss) from continuing operations.................... $ 5,314 $ (778) $ (83) $ 4,453 Identifiable assets of continuing operations................ $ 46,601 $ 3,647 $ (3,248) $ 47,000 ------------ --------- ------------ ------------ ------------ --------- ------------ ------------ FISCAL 1997 Sales to unaffiliated customers (1)......................... $ 37,398 $ 9,262 $ -- $ 46,660 Sales or transfers between geographic areas................. 4,516 -- (4,516) -- ------------ --------- ------------ ------------ Net sales................................................... $ 41,914 $ 15,814 $ (4,516) $ 46,660 ------------ --------- ------------ ------------ Income (loss) from continuing operations.................... $ 502 $ (20) $ 135 $ 617 Identifiable assets of continuing operations................ $ 49,529 $ 5,287 $ (4,561) $ 50,255 ------------ --------- ------------ ------------ ------------ --------- ------------ ------------
- ------------------------ (1) Foreign sales from the United States to unaffiliated customers for the years ended November 30, 1997, 1996 and 1995 were approximately $11,361, $13,317 and $8,243 respectively. F-17 MEDIA 100 INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. ACCRUED EXPENSES Accrued expenses at November 30, 1997 and 1996 consist of the following (in thousands):
1997 1996 --------- --------- Accrued commissions............................................................................ $ 213 $ 133 Payroll and related taxes...................................................................... 1,552 1,190 Expenses relating to Spin-Off of Data Translation II, Inc...................................... -- 737 Accrued marketing, legal and other expense..................................................... 4,689 3,731 Deferred tax assets............................................................................ 504 -- --------- --------- $ 6,958 $ 5,791 --------- --------- --------- ---------
10. VALUATION AND QUALIFYING ACCOUNTS The following table sets forth activity in the Company's accounts receivable reserve account (in thousands):
BALANCE AT CHARGES TO COST BALANCE AT BEGINNING OF YEAR AND EXPENSE DEDUCTIONS END OF YEAR ------------------- ----------------- ------------- ------------- For the Year Ended November 30, 1995................... $ 123 $ 85 $ 5 $ 203 ----- ----- ----- ----- ----- ----- ----- ----- For the Year Ended November 30, 1996................... $ 203 $ 177 $ 52 $ 328 ----- ----- ----- ----- ----- ----- ----- ----- For the Year Ended November 30, 1997................... $ 328 $ 187 $ 104 $ 411 ----- ----- ----- ----- ----- ----- ----- -----
11. SELECTED QUARTERLY INFORMATION (UNAUDITED)
FISCAL 1997 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) FEBRUARY 28 MAY 31 AUGUST 31 NOVEMBER 30 - ---------------------------------------------------------------- ----------- --------- ----------- ------------ Net sales....................................................... $ 11,524 $ 12,102 $ 11,107 $ 11,927 Gross profit.................................................... $ 7,163 $ 7,372 $ 6,720 $ 7,167 Income (loss)................................................... $ 165 $ 336 $ (405) $ 521 ----------- --------- ----------- ------------ ----------- --------- ----------- ------------ Income (loss) per share......................................... $ 0.02 $ 0.04 $ (0.05) $ 0.06 ----------- --------- ----------- ------------ ----------- --------- ----------- ------------
FISCAL 1996 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) FEBRUARY 29 MAY 31 AUGUST 31 NOVEMBER 30 - ---------------------------------------------------------------- ----------- --------- ----------- ------------ Net sales....................................................... $ 10,690 $ 12,921 $ 13,066 $ 14,149 Gross profit.................................................... $ 6,377 $ 7,673 $ 8,119 $ 8,611 Income from continuing operations............................... $ 1,001 $ 1,211 $ 1,232 $ 1,389 ----------- --------- ----------- ------------ ----------- --------- ----------- ------------ Income per share from continuing operations..................... $ 0.12 $ 0.13 $ 0.15 $ 0.17 ----------- --------- ----------- ------------ ----------- --------- ----------- ------------
F-18 MEDIA 100 INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. DISCONTINUED OPERATIONS Pursuant to the Spin-Off described in Note 1, the Company did not retain any assets of the discontinued operations. The components of net assets of discontinued operations included in the accompanying consolidated balance sheets at November 30, 1996 follow (in thousands): Current assets..................................................................... $ 14,090 Net assets (liabilities) of networking distribution business....................... (1,424) Equipment, net..................................................................... 2,351 Other assets, net.................................................................. 260 Current liabilities................................................................ (2,317) Cumulative translation adjustment.................................................. 30 --------- --------- $ 12,990 --------- ---------
The Company's fiscal 1997 results do not include any results from discontinued operations. The components of discontinued operations included in the accompanying consolidated statements of operations for the fiscal years ended November 30, 1996 and 1995 follow (in thousands):
1996 1995 --------- --------- Net sales................................................................................... $ 21,201 $ 21,826 Income(loss) from continuing operations..................................................... (1,617) 2,402 Income (loss) from networking distribution business......................................... (3,555) 24 Spin-off transaction costs.................................................................. (1,500) -- --------- --------- Income (loss)............................................................................... $ (6,672) $ 2,426 --------- ---------
The above income (loss) from networking distribution business includes an estimated loss on disposal of approximately $2,500. The loss for the year ended November 30, 1996 also reflects an allocation of $560 of interest income relating to the $9,168 of cash contributed to DTI by the Company. F-19 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - --------------- ------------------------------------------------------------------------------------------------- 3.1 Restated Certificate of Incorporation of Media 100 Inc. (filed as Exhibit 3.1 to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1996). 3.2 By-laws of Media 100 Inc. as amended through January 19, 1998; filed herewith. 10.1* Key Employee Incentive Plan (1982), as amended through November 15, 1996 (filed as Exhibit 10.1 to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1996). 10.2* 1986 Employee Stock Purchase Plan, as amended through November 15, 1996 (filed as Exhibit 10.2 to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1996). 10.3* Key Employee Incentive Plan (1992), as amended through January 19, 1998; filed herewith. 10.4* Media 100 Inc. 401(k) Savings Plan; filed herewith. 10.5.1 Lease dated January 31, 1997 relating to 290 Donald Lynch Boulevard, Marlboro, MA (filed as Exhibit 10.5.1 to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1996). 10.5.2 License Agreement dated as of January 31, 1997 relating to 290 Donald Lynch Boulevard, Marlboro, MA (filed as Exhibit 10.5.2 to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1996). 10.6.1 Distribution Agreement dated as of November 19, 1996 with Data Translation II, Inc. (DTI) (filed as Exhibit 10.8.1 to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1996). 10.6.2 Intellectual Property Agreement dated as of December 2, 1996 with DTI (filed as Exhibit 10.8.2 to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1996). 10.6.3 Corporate Services Agreement dated as of December 2, 1996 with DTI (filed as Exhibit 10.8.3 to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1996). 10.6.4 Amendment to Corporate Services Agreement dated November 18, 1997; filed herewith. 21 Subsidiaries of Media 100 Inc. 23 Consent of Arthur Andersen LLP. 24 Power of Attorney (included in the signature page of this Annual Report on Form 10-K). 27 Financial Data Schedule.
- ------------------------ * Identifies a management contract or compensatory plan or arrangement in which an executive officer or director of the Company participates. X-1 EX-3.2 2 EX 3.2 Exhibit 3.2 BY-LAWS OF MEDIA 100 INC. (as amended through January 19, 1998) Section 1. LAW, CERTIFICATE OF INCORPORATION AND BY-LAWS 1.1. These by-laws are subject to the certificate of incorporation of the corporation. In these by-laws, references to law, the certificate of incorporation and by-laws mean the law, the provisions of the certificate of incorporation and the by-laws as from time to time in effect. Section 2. STOCKHOLDERS 2.1. Annual Meeting. The annual meeting of stockholders shall be held at 10:00 a.m. on the third Wednesday in April in each year (or if that day is a legal holiday at the place where the meeting is to be held, then at the same hour on the next succeeding day that is not a legal holiday), or at such other date and time as shall be designated from time to time by the board of directors and stated in the notice of the meeting, at which they shall elect a board of directors and transact such other business as may be required by law or these by-laws or as may properly come before the meeting. At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting as (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board of directors, (b) otherwise properly brought before the meeting by or at the direction of the board of directors, or (c) otherwise properly brought before the meeting by a stockholder by the stockholder's giving timely notice thereof in writing to the secretary of the corporation. To be timely, a stockholder's notice must be received at the principal executive offices of the corporation: (1) not less than 60 days in advance of such meeting if such meeting is to be held on a day which is within 30 days preceding the anniversary of the previous year's annual meeting or 90 days in advance of such meeting if such meeting is to be held on or after the anniversary of the previous year's annual meeting; and (2) with respect to any other annual meeting of stockholders, on or before the close of business on the 15th day following the earliest date of public disclosure of the date of such meeting. For purposes of this section, the date of public disclosure of a meeting shall include, but not be limited to, the date on which disclosure of the date of the meeting is made in a press release reported by the Dow Jones News Services, Associated Press or a comparable national news service, or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) (or the rules and regulations thereunder) of the Securities Exchange Act of 1934, as amended. A stockholder's notice to the secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (a) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name, age and business and residential address, as they appear on the corporation's records, of the stockholder proposing such business, (c) the class and number of shares of the corporation which are beneficially owned by the stockholder, and (d) any material interest of the stockholder in such business. Notwithstanding anything in the by-laws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth herein. The chairman of the annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions hereof and if the chairman should so determine, the chairman shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. 2.2. Special Meetings. A special meeting of the stockholders may be called at any time by the president or the board of directors. A special meeting of the stockholders shall be called by the secretary, or, in the case of the death, absence, incapacity or refusal of the secretary, by an assistant secretary or some other officer, upon application of a majority of the directors. Any such application shall state the purpose or purposes of the proposed meeting. Any such call shall state the place, date, hour, and purposes of the meeting. 2.3. Place of Meeting. All meetings of the stockholders for the election of directors or for any other purpose shall be held at such place within or without the State of Delaware as may be determined from time to time by the president or the board of directors. Any adjourned session of any meeting of the stockholders shall be held at the place designated in the vote of adjournment. 2.4. Notice of Meetings. Except as otherwise provided by law, a written notice of each meeting of stockholders stating the place, day and hour thereof and, in the case of a special meeting, the purposes for which the meeting is called, shall be given not less than ten nor more than sixty days before the meeting, to each stockholder entitled to vote thereat, and to each stockholder who, by law, by the certificate of incorporation or by these by-laws, is entitled to notice, by leaving such notice with him or at his residence or usual place of business, or by depositing it in the United States mail, postage prepaid, and addressed to such stockholder at his address as it appears in the records of the corporation. Such notice shall be given by the secretary, or by an officer or person designated by the board of directors, or in the case of a special meeting by the officer calling the meeting. As to any adjourned session of any meeting of stockholders, notice of the adjourned meeting need not be given if the time and place thereof are announced at the meeting at which the adjournment was taken except that if the adjournment is for more than thirty days or if after the adjournment a new record date is set for the adjourned session, notice of any such adjourned session of the meeting shall be given in the manner heretofore described. No notice of any meeting of stockholders or any adjourned session thereof need be given to a stockholder if a written waiver of notice, executed before or after the meeting or such adjourned session by such stockholder, is filed with the records of the meeting or if the stockholder attends such meeting without objecting at the 2 beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any meeting of the stockholders or any adjourned session thereof need be specified in any written waiver of notice. 2.5. Quorum of Stockholders. At any meeting of the stockholders a quorum as to any matter shall consist of a majority of the votes entitled to be cast on the matter, except where a larger quorum is required by law, by the certificate of incorporation or by these by-laws. Any meeting may be adjourned from time to time by a majority of the votes properly cast upon the question, whether or not a quorum is present. If a quorum is present at an original meeting, a quorum need not be present at an adjourned session of that meeting. Shares of its own stock belonging to the corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the corporation, shall neither be entitled to vote nor be counted for quorum purposes; provided, however, that the foregoing shall not limit the right of any corporation to vote stock, including but not limited to its own stock, held by it in a fiduciary capacity. 2.6. Action by Vote. When a quorum is present at any meeting, a plurality of the votes properly cast for election to any office shall elect to such office and a majority of the votes properly cast upon any question other than an election to an office shall decide the question, except when a larger vote is required by law, by the certificate of incorporation or by these by-laws. No ballot shall be required for any election unless requested by a stockholder present or represented at the meeting and entitled to vote in the election. 2.7. Proxy Representation. Every stockholder may authorize another person or persons to act for him by proxy in all matters in which a stockholder is entitled to participate, whether by waiving notice of any meeting, objecting to or voting or participating at a meeting, or expressing consent or dissent without a meeting. Every proxy must be signed by the stockholder or by his attorney-in-fact. No proxy shall be voted or acted upon after three years from its date unless such proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the corporation generally. The authorization of a proxy may but need not be limited to specified action, provided, however, that, if a proxy limits its authorization to a meeting or meetings of stockholders, unless otherwise specifically provided such proxy shall entitle the holder thereof to vote at any adjourned session but shall not be valid after the final adjournment thereof. 2.8. Inspectors. The directors or the person presiding at the meeting may, and shall if required by applicable law, appoint one or more inspectors of election and any substitute inspectors to act at the meeting or any adjournment thereof. Each inspector, 3 before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors, if any, shall determine the number of shares of stock outstanding and the voting power of each, the shares of stock represented at the meeting, the existence of a quorum, and the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the person presiding at the meeting, the inspectors shall make a report in writing of any challenge, question or matter determined by them and execute a certificate of any fact found by them. 2.9. List of Stockholders. The secretary shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in his name. The stock ledger shall be the only evidence as to who are stockholders entitled to examine such list or to vote in person or by proxy at such meeting. Section 3. BOARD OF DIRECTORS 3.1. Number. The corporation shall have one or more directors, the number of directors to be determined from time to time by vote of a majority of the directors then in office. Except in connection with the election of directors at the annual meeting of stockholders, the number of directors may be decreased only to eliminate vacancies by reason of death, resignation or removal of one or more directors. No director need be a stockholder. 3.2. Tenure. Each director shall hold office until the next annual meeting and until his successor is elected and qualified, or until he sooner dies, resigns, is removed or becomes disqualified. 3.3. Powers. The business and affairs of the corporation shall be managed by or under the direction of the board of directors who shall have and may exercise all the powers of the corporation and do all such lawful acts and things as are not by law, the certificate of incorporation or these by-laws directed or required to be exercised or done by the stockholders. 3.4. Vacancies. Vacancies and any newly created directorships resulting from any increase in the number of directors may be filled by vote of the holders of the particular class or series of stock entitled to elect such director at a meeting called for the purpose, or by a majority of the directors then in office, although less than a quorum, or by a sole remaining director, in each case elected by the particular class or series of stock entitled to elect such directors. When one or more directors shall resign from the board, effective at a future date, a majority of the directors then in office, including those who 4 have resigned, who were elected by the particular class or series of stock entitled to elect such resigning director or directors shall have power to fill such vacancy or vacancies, the vote or action by writing thereon to take effect when such resignation or resignations shall become effective. The directors shall have and may exercise all their powers notwithstanding the existence of one or more vacancies in their number, subject to any requirements of law or of the certificate of incorporation or of these by-laws as to the number of directors required for a quorum or for any vote or other actions. 3.5. Committees. The board of directors may, by vote of a majority of the whole board, (a) designate, change the membership of or terminate the existence of any committee or committees, each committee to consist of one or more of the directors; (b) designate one or more directors as alternate members of any such committee who may replace any absent or disqualified member at any meeting of the committee; and (c) determine the extent to which each such committee shall have and may exercise the powers of the board of directors in the management of the business and affairs of the corporation, including the power to authorize the seal of the corporation to be affixed to all papers which require it and the power and authority to declare dividends or to authorize the issuance of stock; excepting, however, such powers which by law, by the certificate of incorporation or by these by-laws they are prohibited from so delegating. In the absence or disqualification of any member of such committee and his alternate, if any, the member or members thereof present at any meeting and not disqualified from voting, whether or not constituting a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Except as the board of directors may otherwise determine, any committee may make rules for the conduct of its business, but unless otherwise provided by the board or such rules, its business shall be conducted as nearly as may be in the same manner as is provided by these by-laws for the conduct of business by the board of directors. Each committee shall keep regular minutes of its meetings and report the same to the board of directors upon request. 3.6. Regular Meetings. Regular meetings of the board of directors may be held without call or notice at such places within or without the State of Delaware and at such times as the board may from time to time determine, provided that notice of the first regular meeting following any such determination shall be given to absent directors. A regular meeting of the directors may be held without call or notice immediately after and at the same place as the annual meeting of stockholders. 3.7. Special Meetings. Special meetings of the board of directors may be held at any time and at any place within or without the State of Delaware designated in the notice of the meeting, when called by the president, or by one-third or more in number of the directors, reasonable notice thereof being given to each director by the secretary the president or any one of the directors calling the meeting. 3.8. Notice. It shall be reasonable and sufficient notice to a director to send notice by mail at least forty-eight hours or by telegram at least twenty-four hours before 5 the meeting addressed to him at his usual or last known business or residence address or to give notice to him in person or by telephone at least twenty-four hours before the meeting. Notice of a meeting need not be given to any director if a written waiver of notice, executed by him before or after the meeting, is filed with the records of the meeting, or to any director who attends the meeting without protesting prior thereto or at its commencement the lack of notice to him. Neither notice of a meeting nor a waiver of a notice need specify the purposes of the meeting. 3.9. Quorum. Except as may be otherwise provided by law, by the certificate of incorporation or by these by-laws, at any meeting of the directors a majority of the directors then in office shall constitute a quorum; a quorum shall not in any case be less than one-third of the total number of directors constituting the whole board. Any meeting may be adjourned from time to time by a majority of the votes cast upon the question, whether or not a quorum is present, and the meeting may be held as adjourned without further notice. 3.10. Action by Vote. Except as may be otherwise provided by law, by the certificate of incorporation or by these by-laws, when a quorum is present at any meeting the vote of a majority of the directors present shall be the act of the board of directors. 3.11. Action Without a Meeting. Any action required or permitted to be taken at any meeting of the board of directors or a committee thereof may be taken without a meeting if all the members of the board or of such committee, as the case may be, consent thereto in writing, and such writing or writings are filed with the records of the meetings of the board or of such committee. Such consent shall be treated for all purposes as the act of the board or of such committee, as the case may be. 3.12. Participation in Meetings by Conference Telephone. Members of the board of directors, or any committee designated by such board, may participate in a meeting of such board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other or by any other means permitted by law. Such participation shall constitute presence in person at such meeting. 3.13. Compensation. In the discretion of the board of directors, each director may be paid such fees for his services as director and be reimbursed for his reasonable expenses incurred in the performance of his duties as director as the board of directors from time to time may determine. Nothing contained in this section shall be construed to preclude any director from serving the corporation in any other capacity and receiving reasonable compensation therefor. 3.14. Interested Directors and Officers. (a) No contract or transaction between the corporation and one or more of its directors or officers, or between the corporation and any other corporation, partnership, 6 association, or other organization in which one or more of the corporation's directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the board or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if: (1) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the board of directors or the committee, and the board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (2) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (3) The contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified, by the board of directors, a committee thereof, or the stockholders. (b) Common or interested directors may be counted in determining the presence of a quorum at a meeting of the board of directors or of a committee which authorizes the contract or transaction. Section 4. OFFICERS AND AGENTS 4.1. Enumeration; Qualification. The officers of the corporation shall be a president, a treasurer, a secretary and such other officers, if any, as the board of directors from time to time may in its discretion elect or appoint including without limitation a chairman of the board, one or more vice presidents and a controller. The corporation may also have such agents, if any, as the board of directors from time to time may in its discretion choose. Any officer may be but none need be a director or stockholder. Any two or more offices may be held by the same person. Any officer may be required by the board of directors to secure the faithful performance of his duties to the corporation by giving bond in such amount and with sureties or otherwise as the board of directors may determine. 4.2. Powers. Subject to law, to the certificate of incorporation and to the other provisions of these by-laws, each officer shall have, in addition to the duties and powers herein set forth, such duties and powers as are commonly incident to his office and such additional duties and powers as the board of directors may from time to time designate. 4.3. Election. The officers may be elected by the board of directors at their first meeting following the annual meeting of the stockholders or at any other time. At 7 any time or from time to time the directors may delegate to any officer their power to elect or appoint any other officer or any agents. 4.4. Tenure. Each officer shall hold office until the first meeting of the board of directors following the next annual meeting of the stockholders and until his respective successor is chosen and qualified unless a shorter period shall have been specified by the terms of his election or appointment, or in each case until he sooner dies, resigns, is removed or becomes disqualified. Each agent shall retain his authority at the pleasure of the directors, or the officer by whom he was appointed or by the officer who then holds agent appointive power. 4.5. Chairman of the Board of Directors, President and Vice President. The chairman of the board, if any, shall have such duties and powers as shall be designated from time to time by the board of directors. Unless the board of directors otherwise specifies, the president shall be the chief executive officer and shall have direct charge of all business operations of the corporation and, subject to the control of the directors, shall have general charge and supervision of the business of the corporation. Any vice presidents shall have such duties and powers as shall be set forth in these by-laws or as shall be designated from time to time by the board of directors or by the president. 4.6. Treasurer and Assistant Treasurers. Unless the board of directors otherwise specifies, the treasurer shall be the chief financial officer of the corporation and shall be in charge of its funds and valuable papers, and shall have such other duties and powers as may be designated from time to time by the board of directors or by the president. If no controller is elected, the treasurer shall, unless the board of directors otherwise specifies, also have the duties and powers of the controller. Any assistant treasurers shall have such duties and powers as shall be designated from time to time by the board of directors, the president or the treasurer. 4.7. Controller and Assistant Controllers. If a controller is elected, he shall, unless the board of directors otherwise specifies, be the chief accounting officer of the corporation and be in charge of its books of account and accounting records, and of its accounting procedures. He shall have such other duties and powers as may be designated from time to time by the board of directors, the president or the treasurer. Any assistant controller shall have such duties and powers as shall be designated from time to time by the board of directors, the president, the treasurer or the controller. 4.8. Secretary and Assistant Secretaries. The secretary shall record all proceedings of the stockholders, of the board of directors and of committees of the board 8 of directors in a book or series of books to be kept therefor and shall file therein all actions by written consent of stockholders or directors. In the absence of the secretary from any meeting, an assistant secretary, or, if there be none or he is absent, a temporary secretary chosen at the meeting, shall record the proceedings thereof. Unless a transfer agent has been appointed the secretary shall keep or cause to be kept the stock and transfer records of the corporation, which shall contain the names and record addresses of all stockholders and the number of shares registered in the name of each stockholder. He shall have such other duties and powers as may from time to time be designated by the board of directors or the president. Any assistant secretaries shall have such duties and powers as shall be designated from time to time by the board of directors, the president or the secretary. Section 5. RESIGNATIONS AND REMOVALS 5.1. Any director or officer may resign at any time by delivering his resignation in writing to the president, or the secretary or to a meeting of the board of directors. Such resignation shall be effective upon receipt unless specified to be effective at some other time, and without in either case the necessity of its being accepted unless the resignation shall so state. A director (including persons elected by stockholders or directors to fill vacancies in the board) may be removed from office with or without cause by the vote of the holders of a majority of the issued and outstanding shares of the particular class or series entitled to vote in the election of such director. The board of directors may at any time remove any officer either with or without cause. The board of directors may at any time terminate or modify the authority of any agent. Section 6. VACANCIES 6.1. If the office of the president or the treasurer or the secretary becomes vacant, the directors may elect a successor by vote of a majority of the directors then in office. If the office of any other officer becomes vacant, any person or body empowered to elect or appoint that officer may choose a successor. Each such successor shall hold office for the unexpired term, and in the case of the president, the treasurer and the secretary until his successor is chosen and qualified or in each case until he sooner dies, resigns, is removed or becomes disqualified. Any vacancy of a directorship shall be filled as specified in Section 3.4 of these by-laws. Section 7. CAPITAL STOCK 7.1. Stock Certificates. Each stockholder shall be entitled to a certificate stating the number and the class and the designation of the series, if any, of the shares held by him, in such form as shall, in conformity to law, the certificate of incorporation and the by-laws, be prescribed from time to time by the board of directors. Such certificate shall be signed by the president or a vice president and by the treasurer or an assistant treasurer or by the secretary or an assistant secretary. Any of or all the 9 signatures on the certificate may be a facsimile. In case an officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent, or registrar at the time of its issue. 7.2. Loss of Certificates. In the case of the alleged theft, loss, destruction or mutilation of a certificate of stock, a duplicate certificate may be issued in place thereof, upon such terms, including receipt of a bond sufficient to indemnify the corporation against any claim on account thereof, as the board of directors may prescribe. Section 8. TRANSFER OF SHARES OF STOCK 8.1. Transfer on Books. Subject to the restrictions, if any, stated or noted on the stock certificate, shares of stock may be transferred on the books of the corporation by the surrender to the corporation or its transfer agent of the certificate therefor properly endorsed or accompanied by a written assignment and power of attorney properly executed, with necessary transfer stamps affixed, and with such proof of the authenticity of signature as the board of directors or the transfer agent of the corporation may reasonably require. Except as may be otherwise required by law, by the certificate of incorporation or by these by-laws, the corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to receive notice and to vote or to give any consent with respect thereto and to be held liable for such calls and assessments, if any, as may lawfully be made thereon, regardless of any transfer, pledge or other disposition of such stock until the shares have been properly transferred on the books of the corporation. It shall be the duty of each stockholder to notify the corporation of his post office address. 8.2. Record Date. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which record date shall not be more than sixty nor less than ten days before the date of such meeting. If no such record date is fixed by the board of directors, the record date for determining the stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. 10 In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which date shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the board of directors. If no such record date has been fixed by the board of directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the board of directors is required by the General Corporation Law of the State of Delaware, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in Delaware by hand or certified or registered mail, return receipt requested, to its principal place of business or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. If no record date has been fixed by the board of directors and prior action by the board of directors is required by the General Corporation Law of the State of Delaware, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the board of directors adopts the resolution taking such prior action. In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty days prior to such payment, exercise or other action. If no such record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto. Section 9. CORPORATE SEAL 9.1. Subject to alteration by the directors, the seal of the corporation shall consist of a flat-faced circular die with the word "Delaware" and the name of the corporation cut or engraved thereon, together with such other words, dates or images as may be approved from time to time by the directors. Section 10. EXECUTION OF PAPERS 10.1. Except as the board of directors may generally or in particular cases authorize the execution thereof in some other manner, all deeds, leases, transfers, contracts, bonds, notes, checks, drafts or other obligations made, accepted or endorsed by the corporation shall be signed by the president, a vice president or the treasurer. 11 Section 11. FISCAL YEAR 11.1. The fiscal year of the corporation shall end on November 30 of each year. Section 12. AMENDMENTS 12.1. These by-laws may be adopted, amended or repealed by vote of a majority of the directors then in office or by vote of a majority of the voting power of the stock outstanding and entitled to vote. Any by-law, whether adopted, amended or repealed by the stockholders or directors, may be amended or reinstated by the stockholders or the directors. 12 EX-10.3 3 EX-10.3 Exhibit 10.3 MEDIA 100 INC. Key Employee Incentive Plan (1992), as amended through January 19, 1998 1. Plan; Purpose; General. The purpose of this Key Employee Incentive Plan (1992) (the "Plan") is to advance the interests of Media 100 Inc. (formerly Data Translation, Inc.) (the "Company") by enhancing the ability of the Company and its subsidiaries to attract and retain selected advisers, consultants, key employees and directors, by creating for such persons incentives and rewards for their contributions to the success of the Company, and by encouraging such persons to become owners of shares of the Company's Common Stock, par value $0.01 per share (the "common stock" or "stock"). Options granted pursuant to the Plan may be incentive stock options as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") (such options being referred to herein as "incentive options") or non-incentive options. The proceeds received from the sale of stock pursuant to the Plan shall be used for general corporate purposes. Except as otherwise expressly provided with respect to an option grant, no option granted pursuant to the Plan shall be an incentive option. 2. Effective Date of Plan. This Plan will become effective upon approval by at least a majority of the votes cast at the next duly called Annual Meeting of Stockholders of the Company at which a quorum representing a majority of the voting power of all outstanding voting stock of the Company is, either in person or by proxy, present and voting thereon or at any adjournment thereof. Grants of awards under the Plan may be made prior to that date (but after Board adoption of the Plan), subject to approval of the Plan by such shareholders.(1) 3. Administration of the Plan. The Plan will be administered by the Board of Directors (the "Board") of the Company. The Board will have authority, to take all action necessary or appropriate thereunder, to interpret its provisions, and to decide all questions and resolve all disputes which may arise in connection therewith. Such determinations of the Board shall be conclusive and shall bind all parties. The Board may, in its discretion, delegate some or all of its powers with respect to the Plan to the Executive Compensation and Stock Option Committee or any other committee (the "Committee"), in which event all references to the Board hereunder, except the references in Section 11 hereof, shall be deemed to refer to the Committee. The Committee, if one is appointed, shall consist of not fewer than two members, and each member of the Committee shall be, at the time - ---------------- (1) The Plan was approved by the requisite vote of stockholders at the Annual Meeting of Stockholders of the Company held on April 8, 1992. of his appointment and at any time he exercises discretion in administering the Plan, a "non-employee director" as that term is defined in Rule 16b-3 adopted pursuant to the Securities Exchange Act of 1934, as amended. A majority of the members of any such Committee shall constitute a quorum, and all determinations of the Committee shall be made by a majority of its members. Any determination of the Committee under the Plan may be made without notice or meeting of the Committee by a writing signed by a majority of the Committee members. 4. Eligibility. The "Participants" in the Plan will be such key employees, including part-time employees, advisers, consultants and directors whether or not they are employees, of the Company or of any of its present or future subsidiaries (as defined in Section 10) as may be selected from time to time by the Board in its discretion. No incentive option shall be granted to a Participant who is not an "employee" as defined in the provisions of the Code or regulations thereunder applicable to incentive options. No incentive option shall be granted to a Participant who at the time of grant owns, directly or indirectly through application or the attribution rules of Section 424(d) of the Code, stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of its subsidiaries (a "Ten-Percent Shareholder") unless (i) the option price at the time it is granted is at least 110% of the fair market value of the stock subject to the option, and (ii) the period of the option does not exceed five years from the date of grant. 5. Grant of Awards. Subject to the express provisions of the Plan, the Board shall have the sole authority and discretion (a) to determine which Participants will be granted awards; (b) to grant awards consisting of options or stock appreciation rights ("SARs"), or both to Participants; (c) to determine whether the options granted to any Participants shall be incentive options or non-incentive options; (d) to determine the time or times when awards will be granted and the number of shares of common stock to be subject to each award; (e) to determine the option price of the shares subject to each option in accordance with Section 6(a) hereof and the value of the shares subject to each SAR on the exercise date of such SAR in accordance with Section 6(d) hereof, and the method of payment of such price; (f) to determine the time or times when each award becomes exercisable and the duration of the exercise period; (g) to impose additional conditions or restrictions on any award, such conditions or restrictions, if any, to be set forth in the award form or other instrument evidencing the award; (h) to prescribe the form or forms of any instruments evidencing any awards granted under the Plan and of any other instruments required under the Plan and to make changes in such forms from time to time; (i) to determine the price, vesting schedule and other attributes of awards granted to Participants working abroad; and (j) to adopt, amend and rescind rules and regulations for the administration of the Plan and the awards and for its own acts and proceedings. Subject to Section 2 12 hereof, the Board shall also have the authority, in its sole discretion, both generally and in particular instances, to waive compliance by a Participant with any obligation to be performed by him under an award, to waive any condition or provision of an award, and to amend or cancel any award (and if an award is cancelled, to grant a new award on such terms as the Board shall specify) except that the Board may not take any action with respect to an outstanding award that would adversely affect the rights of the Participant under such award without such Participant's consent. Nothing in the preceding sentence shall be construed as limiting the power of the Board to make adjustments required by Section 8(c) hereof. No award shall be granted on or after February 20, 2002 but awards previously granted may extend beyond that date. 6. Terms and Conditions of Awards. a. Exercise Price of Options. The purchase price per share for shares issuable upon exercise of options shall be determined by the Board but in the case of incentive options shall not be less than 100% (110% in the case of an incentive option granted to a Ten-Percent Shareholder) of the fair market value of the stock on the date of grant; nor shall the option price be less, in the case of an original issue of authorized stock, than par value per share. For this purpose, "fair market value" will be determined as set forth in Section 10 hereof. b. Period of Options. An option shall be exercisable during such period or periods as the Board may specify. The latest date on which an option may be exercised (the "Final Exercise Date") shall be the date which is ten years (five years, in the case of an incentive option granted to a Ten-Percent Shareholder) from the date the option was granted or such earlier date as may be specified by the Board at the time the option is granted. c. Exercise of Options. (i) Unless the Board at the time of grant or at any other time otherwise specifies in the case of a particular option or options, each option shall first become exercisable with respect to one-fifth of the shares covered by it upon the completion of one year from the date of the grant of the option (the "Initial Exercise Date"), and with respect to an additional one-fifth each succeeding year until the option becomes exercisable with respect to all of the shares covered by it. 3 (ii) In the case of options intended to be incentive options, any award forms or other instruments evidencing such options shall contain such provisions relating to exercise and other matters as are required of incentive options under the applicable provisions of the Code and Treasury Regulations, as from time to time in effect. (iii) A person electing to exercise part or all of his options shall give written notice to the Company, as specified by the Board, of his election and of the number of shares he has elected to purchase, such notice to be accompanied by the instrument evidencing such option and any other documents required by the Board, and shall at the time of such exercise tender the purchase price of the shares he has elected to purchase. If the notice of election to exercise is given by the executor or administrator of a deceased Participant, or by the person or persons to whom the option has been transferred by the Participant's will or the applicable laws of descent and distribution, the Company will be under no obligation to deliver shares pursuant to such exercise unless and until the Company is satisfied that the person or persons giving such notice is or are entitled to exercise the option. (iv) In the case of an option that is not an incentive option, the Board shall have the right to require that the Participant exercising the option remit to the Company an amount sufficient to satisfy any federal, state, or local withholding tax requirements (or make other arrangements satisfactory to the Company with regard to such taxes) prior to the delivery of any common stock pursuant to the exercise of the option. If permitted by the Board, either at the time of the grant of the option or the time of exercise, the Participant may elect, at such time and in such manner as the Board may prescribe, to satisfy such withholding obligation by (i) delivering to the Company common stock owned by such individual having a fair market value equal to such withholding obligation, or (ii) requesting that the Company withhold from the shares of common stock to be delivered upon exercise of the option a number of shares of common stock having a fair market value equal to such withholding obligation. 4 In the case of an incentive option, if at the time the option is exercised the Board determines that under applicable law and regulations the Company could be liable for the withholding of any federal, state or local tax with respect to a disposition of the common stock received upon exercise, the Board may require as a condition of exercise that the Participant exercising the option agree (i) to inform the Company promptly of any disposition (within the meaning of Section 424(c) of the Code and the regulations thereunder) of common stock received upon exercise, and (ii) to give such security as the Board deems adequate to meet the potential liability of the Company for the withholding of tax, and to augment such security from time to time in any amount reasonably deemed necessary by the Board to preserve the adequacy of such security. d. Stock Appreciation Rights. The Board in its discretion may grant SARs either in tandem with or independent of options awarded under the Plan. Except as hereinafter provided, each SAR will entitle the Participant to receive upon exercise, with respect to each share of common stock to which the SAR relates, the excess of (i) the share's value on the date of exercise, over (ii) the share's fair market value on the date it was granted. For purposes of clause (i), "value" shall mean fair market value; provided, that the Board may adjust such value to take into account dividends on the stock and may also grant SARs that provide, in such limited circumstances following a change in control of the Company (as determined by the Board) as the Board may specify, that "value" for purposes of clause (i) is to be determined by reference to a specified value (which may include an average of values) for the common stock during a period immediately preceding the change in control, all as determined by the Board. The amount payable to a Participant upon exercise of an SAR shall be paid either in cash or in shares of common stock, as the Board determines. Each SAR shall be exercisable during such period or periods and on such terms as the Board may specify. No SAR shall be exercisable after the date which is ten years from the date of grant. e. Payment for and Delivery of Shares. Shares which are subject to options shall be issued only upon receipt by the Company of full payment of the purchase price for the shares as to which the award is exercised. The purchase price shall be payable by the option holder to the Company either (i) in cash or by check, bank draft or money order payable to the order of the Company; or (ii) if so permitted by the Board (which in the case of an incentive option, shall specify such method of payment at the time of grant), (A) 5 through the delivery of shares of common stock (duly owned by the option holder and for which the option holder has good title free and clear of any liens and encumbrances and which, in the case of common stock acquired from the Company, shall have been held for at least six months) having a fair market value on the last business day preceding the date of exercise equal to the purchase price or (B) by delivery of a promissory note of the option holder to the Company, such note to be payable on such terms as are specified by the Board or (C) by delivery of an unconditional and irrevocable undertaking by a broker to deliver promptly to the Company sufficient funds to pay the exercise price; or (iii) by a combination of the permissible forms of payment as provided in (i) and (ii) above; provided, that if the common stock delivered upon exercise of the option is an original issue of authorized common stock, at least so much of the exercise price as represents the par value of such common stock shall be paid other than with a personal check or promissory note of the person exercising the option. The Company shall not be obligated to deliver any shares unless and until, in the opinion of the Company's counsel, all applicable federal and state laws and regulations have been complied with, nor, if the outstanding common stock is at the time listed on any securities exchange, unless and until the shares to be delivered have been listed (or authorized to be added to the list upon official notice of issuance) upon such exchange, nor unless and until all other legal matters in connection with the issuance and delivery of shares have been approved by the Company's counsel. Without limiting the generality of the foregoing, the Company may require from the person exercising an option such investment representation or such agreement, if any, as counsel for the Company may consider necessary in order to comply with the Securities Act of 1933, as amended, and may require that such person agree that any sale of the shares will be made only on a national securities exchange or in such other manner as is permitted by the Board and that he will notify the Company before he makes any disposition of the shares whether by sale, gift or otherwise. A Participant shall have the rights of a shareholder only as to shares actually acquired by him under the Plan. f. Nontransferability of Awards. No award may be sold, assigned or otherwise transferred or disposed of in any manner whatsoever other than by will or by the laws of descent and distribution, and 6 during the Participant's lifetime the award may be exercised only by him. g. Forfeiture of Awards upon Termination of Employment. If a Participant's (other than a non-employee director's) employment or service with the Company and its subsidiaries terminates for any reason other than death, the portion of any award held by the Participant that was not exercisable immediately prior to such termination of employment or service shall immediately expire and except as the Board may otherwise determine, in its sole discretion, the remaining portion, if any, of the award shall continue to be exercisable for a period of ninety (90) days immediately following the date of termination of the Participant's employment or other service with the Company and its subsidiaries. Notwithstanding the foregoing, if the Participant was terminated for cause all awards held by the Participant immediately prior to such termination, whether or not then exercisable, shall immediately expire.(2) For purposes of this Section 6(g), employment shall not be considered terminated (i) in the case of sick leave or other bona fide leave of absence approved for purposes of the Plan by the Board, so long as the Participant's right to reemployment is guaranteed either by statute or by contract, (ii) in the case of a transfer of employment between the Company and a subsidiary or between subsidiaries, or to the employment of a corporation (or a parent or subsidiary corporation of such corporation) issuing or assuming an option in a transaction to which Section 424(a) of the Code applies, or (iii) in the case of a transfer of employment between the Company and its wholly-owned subsidiary Data Translation, Inc. (formerly Data Translation II, Inc.) ("DTI") and subsequent distribution of the stock of such subsidiary to the Company's stockholders (the "Distribution"); provided, that this - ---------------- (2) The preceding two sentences were adopted by amendment dated January 19, 1998 and are effective as to awards granted, regranted or amended on or after such date, except as the Board may otherwise determine; provided, that any incentive option granted prior to such date that is amended on or after such date shall not be subject to such amendment without the consent of the Participant holding the option if application of such amendment would cause the option (as amended) to fail to qualify as an incentive stock option. With respect to all awards which are not subject to the foregoing amendment, the following provision shall apply: "If a Participant's (other than a non-employee director's) employment or service with the Company and its subsidiaries terminates for any reason other than death, all awards held by the Participant shall terminate unless the Board determines, in its sole discretion, that such awards as were exercisable immediately prior to termination shall continue to be exercisable for a period of time after termination (but in no event beyond the Final Exercise Date). If the Board determines that a post-termination exercise period for exercisable awards is appropriate, such awards shall terminate and be forfeited after completion of such period to the extent not previously exercised, expired or terminated." 7 clause (iii) shall apply only in the case of Participants whose transfer of employment to DTI occurs in connection with the Distribution; and further provided, that in the case of any such Participant, post-Distribution service for DTI shall be treated for purposes of this paragraph as service for the Company and any post-Distribution termination of employment with DTI shall be treated for purposes of this paragraph as a termination of employment with the Company and its subsidiaries. The Company may require that any Participant described in clause (iii) above provide, prior to any post-Distribution exercise of an award hereunder by such Participant and as a condition thereto, evidence satisfactory to the Company as to the period of such Participant's employment with DTI. h. Death. If a Participant dies at a time when he is entitled to exercise an option, then at any time or times within one year after his death (or such further period as the Board may allow) such option may be exercised, as to all or any of the shares which the Participant was entitled to purchase immediately prior to his death, by his executor or administrator or the person or persons to whom the option is transferred by will or the applicable laws of descent and distribution, and except as so exercised such option will expire at the end of such period. In no event, however, may any option be exercised after the Final Exercise Date. i. Confidentiality Agreement. Each Employee, including employees of DTI who received options while employees of the Company, shall execute, prior to or contemporaneously with the grant of any option to such Participant hereunder, the Company's then standard form of agreement relating to confidentiality, inventions and the like. 7. Replacement Awards. The Company may grant awards under the Plan on terms differing from those provided in Section 6, where such awards are granted in substitution for awards held by employees of another corporation who concurrently become employees of the Company or a subsidiary as the result of a merger or consolidation of that corporation with the Company or a subsidiary, or the acquisition by the Company or a subsidiary of property or stock of that corporation. The Board may direct that the substitute awards be granted on such terms and conditions as the Board considers appropriate in the circumstances. Such awards will be in addition to those which may be granted under the Plan and will not be counted as granted under the Plan. 8 8. Shares Subject to Plan. a. Number of Shares and Stock to be Delivered. Shares delivered pursuant to this Plan shall in the discretion of the Board be authorized but unissued shares of common stock or previously issued stock acquired by the Company. Subject to adjustment as described below and exclusive of the shares that are subject to the options provided for in Section 13, the aggregate number of shares which may be delivered under this Plan shall not exceed 2,000,000 shares of common stock of the Company. b. Limitations on Grants to Individuals. Subject to adjustment as described below and exclusive of the shares that are subject to the options provided for in Section 13, the aggregate number of shares for which options may be granted under this Plan to any individual in any calendar year shall not exceed 250,000 shares of common stock of the Company. c. Changes in Stock. In the event of a stock dividend, stock split or combination of shares, recapitalization, merger in which the Company is the surviving corporation or other change in the Company's capital stock, the number and kind of shares of stock or securities of the Company to be subject to the Plan and to options then outstanding or to be granted thereunder, the maximum number of shares or securities which may be delivered under the Plan, the option price and other relevant provisions shall be appropriately adjusted by the Board, whose determination shall be binding on all persons. In the event of a consolidation or merger in which the Company is not the surviving corporation or which results in the acquisition of substantially all the Company's outstanding stock by a single person or entity, or in the event of the sale or transfer of substantially all the Company's assets, all outstanding awards shall thereupon terminate, provided that at least twenty days prior to the effective date of any such merger, consolidation or sale of assets, all outstanding awards shall become exercisable immediately prior to consummation of such merger, consolidation or sale of assets, unless the Board shall have arranged for the surviving or acquiring corporation or an affiliate of that corporation to assume the awards or to grant to the Participants replacement awards having equivalent terms and conditions as determined by the Board including, in the case of incentive options, terms and conditions that satisfy the requirements of Section 424(a) of the Code. 9 The Board may also adjust the number of shares subject to outstanding awards granted under Sections 5 or 6 hereof, the exercise price of outstanding options and the terms of outstanding options to take into consideration material changes in accounting practices or principles, consolidations or mergers (except those described in the immediately preceding paragraph), acquisitions or dispositions of stock or property or any other event if it is determined by the Board that such adjustment is appropriate to avoid distortion in the operation of the Plan, including without limitation, the special option adjustments made in connection with the Distribution and described in Section 14 herein. 9. Employment Rights. Neither the adoption of the Plan nor the grant of awards shall confer upon any Participant any right to continued employment with the Company or a subsidiary or affect in any way the right of the Company to terminate the employment of a Participant at any time. Except as specifically provided by the Board, in its sole discretion, in any particular case, the loss of existing or potential profit in awards granted under this Plan shall not constitute an element of damages in the event of termination of the relationship of a Participant even if the termination is in violation of an obligation of the Company to the Participant by contract or otherwise. 10. Definitions. a. For purposes of the Plan a subsidiary is any corporation (i) in which the Company owns, directly or indirectly, stock possessing 50% or more of the total combined voting power of all classes of stock, or (ii) over which the Company has effective operating control; provided, however, that no corporation shall be deemed a subsidiary for the purpose of any provisions applicable to incentive options, and no incentive options shall be granted to employees of such corporation, unless in each case, such corporation shall constitute a subsidiary as defined in clause (i) above. For special rules relating to DTI, see Section 14, below. b. The fair market value of the common stock shall be determined in accordance with the applicable provisions of the Code or regulations issued thereunder, or in the absence of any such provisions or regulations, shall be deemed to be the last sale price at which such common stock is traded on the date in question as reported in the Wall Street Journal; or, if the Wall Street Journal is not published at the date in question or does not list the common stock, then in such other appropriate newspaper of general circulation as the Board may prescribe; or, if there is no sale of the common stock on the date in question or the last price at which the 10 common stock traded is not listed, then the mean between the bid and asked price at the close of the market on such day. 11. Indemnification of Board. In addition to and without affecting such other rights of indemnification as they may have as members of the Board or otherwise, each member of the Board shall be indemnified by the Company to the extent legally possible against reasonable expenses, including attorneys' fees, actually and reasonably incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which he may be a party by reason of any action taken or failure to act under or in connection with the Plan, or any option granted thereunder, and against all judgments, fines and amounts paid by him in settlement thereof; provided that such payment of amounts so indemnified is first approved by a majority of the members of the Board who are not parties to such action, suit or proceeding, or by independent legal counsel selected by the Company, in either case on the basis of a determination that such member acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company; and except that no indemnification shall be made in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such Board member is liable for negligence or misconduct in his duties; and provided, further that the Board member shall in writing offer the Company the opportunity, at its own expense, to handle and defend the same. 12. Amendments. The Board may at any time discontinue granting awards under the Plan. The Board may at any time or times amend the Plan or amend any outstanding award or awards for the purpose of satisfying the requirements of Section 422 of the Code or of any changes in applicable laws or regulations, to comply with any applicable laws and requirements of foreign jurisdictions or for any other purpose that may at the time be permitted by law, provided that no such amendment will adversely affect the rights of any Participant (without his consent) under any award theretofore granted. 13. Non-Employee Directors. Notwithstanding anything to the contrary contained elsewhere herein: a. Eligible Directors and Grant. Each director of the Company who is not a full-time employee of the Company or any of its subsidiaries and is a director on April 8, 1992 shall be automatically granted on such date non-incentive stock options covering 10,000 shares of common stock and each non-employee director who is initially elected after April 8, 1992 and prior to February 20, 2002 shall be granted on the date of such election non-incentive stock options covering 10,000 shares of common stock (notwithstanding the two-for-one split of the common stock effected on July 31, 1995), all such options to be exercisable with 11 respect to one-fifth of the covered shares one year from the date of grant and with respect to an additional one-fifth each succeeding year. b. Terms of Options. The Final Exercise Date of options granted pursuant to Section 13(a) hereof shall be 10 years from the date of grant. If a director's service with the Company terminates for any reason other than death, in lieu of the provisions of Section 6(g) hereof, all options held by the director that are exercisable on the date of termination shall continue to be exercisable for a period of six months, but shall terminate immediately if the director was removed for cause or resigned under circumstances which in the opinion of the Board of Directors casts such discredit on the Company or him as to justify termination of his options. After completion of said six-month period, such options shall terminate to the extent not previously exercised, expired or terminated. All options held by a director that are not exercisable on the date such director's service with the Company terminates shall immediately terminate. The purchase price for shares of common stock issuable upon the exercise of options granted pursuant to Section 13(a) hereof shall be the fair market value of the common stock at the close of business on the date the option is granted, determined in accordance with Section 10(b) hereof; provided, however, that in no event shall the exercise price be less than par value per share. 14. Special Option Adjustments. Notwithstanding any other provision of the Plan, each option outstanding under the Plan immediately prior to the Distribution (an "affected option") shall be adjusted in accordance with Section 8.7 of the Distribution Agreement between the Company and DTI dated as of November 19, 1996 (the "Distribution Agreement"). Except as otherwise provided herein, the adjusted option shall have substantially the same terms as prior to the Distribution. To the extent any such adjustment shall be treated as an option grant for purposes of Section 8.7 of such Agreement, it shall be made in accordance with the terms of said Section 8.7 and without regard to the option-grant rules and limitations set forth in this Plan. 12 EX-10.4 4 EX-10.4 ________________________________________________________ MERRILL LYNCH --------------- SPECIAL --------------- PROTOTYPE DEFINED CONTRIBUTION PLAN ADOPTION AGREEMENT ________________________________________________________ 401(k) PLAN EMPLOYEE THRIFT PLAN PROFIT-SHARING PLAN Letter Serial Number: D359287b National Office Letter Date: 6/29/93 This Prototype Plan and Adoption Agreement are important legal instruments with legal and tax implications for which the Sponsor, Merrill Lynch, Pierce, Fenner & Smith, Incorporated, does not assume responsibility. The Employer is urged to consult with its own attorney with regard to the adoption of this Plan and its suitability to its circumstances. Adoption of Plan The Employer named below hereby establishes or restates a profit-sharing plan that includes a 401(k), profit-sharing and/or thrift plan feature (the "Plan") by adopting the Merrill Lynch Special Prototype Defined Contribution Plan and Trust as modified by the terms and provisions of this Adoption Agreement. Employer and Plan Information Employer Name:* Media 100 Inc. Business Address: 290 Donald Lynch Boulevard Marlboro, MA 01752-4748 Telephone Number: (508) 460-1600 Employer Taxpayer ID Number: 04-2532613 Employer Taxable Year ends on: November 30th Plan Name: Media 100 Inc. 401(k) Savings Plan Plan Number: 001 401(k) Profit Sharing Thrift Effective Date of Adoption or Restatement: 01/01/98 ---/---/---. Original Effective Date: 11/15/85 ---/---/--- ---/---/---. If this Plan is a continuation or an amendment of a prior plan, all optional forms of benefits provided in the prior plan must be provided under this Plan to any Participant who had an account balance, whether or not vested, in the prior plan. __________________________________________________ * If there are any Participating Affiliates in this Plan, list below the proper name of each Participating Affiliate. _____. _____. _____. 2 ARTICLE I. Definitions A. "Compensation" (1) With respect to each Participant, except as provided below, Compensation shall mean the (select all those applicable for each column): 401(k) and/ Profit or Thrift Sharing / / / / (a) amount reported in the "Wages Tips and Other Compensation" Box on Form W-2 for the applicable period selected in Item 5 below. / / / /(b) compensation for Code Section 415 safe-harbor purposes (as defined in Section 3.9.1 (H)(i) of basic plan document #03) for the applicable period selected in Item 5 below. /X / / /(c) amount reported pursuant to Code Section 3401(a) for the applicable period selected in Item 5 below. / / / /(d) all amounts received (under options (a) (b) or (c) above) for personal services rendered to the Employer but excluding (select one): / / overtime / / bonuses / / commissions / / amounts in excess of $ / / other (specify) ______. (2) Treatment of Elective Contributions (select one): / X /(a) For purposes of contributions, Compensation shall include Elective Deferrals and amounts excludable from the gross income of the Employee under Code Section 125, Code Section 402(e)(3), Code Section 402(h) or Code Section 403(b) ("elective contributions"). / /(b) For purposes of contributions, Compensation shall not include "elective contributions." (3) CODA Compensation (select one): / X /(a) For purposes of the ADP and ACP Tests, Compensation shall include "elective contributions." / /(b) For purposes of the ADP and ACP Tests, Compensation shall not include "elective contributions." 3 (4) With respect to Contributions to an Employer Contributions Account, Compensation shall include all Compensation (select one): /X /(a) during the Plan Year in which the Participant enters the Plan. / /(b) after the Participant's Entry Date. (5) The applicable period for determining Compensation shall be (select one): /X /(a) the Plan Year. / /(b) the Limitation Year. / /(c) the consecutive 12-month period ending on ______. B. "Disability" (1) Definition Disability shall mean a condition which results in the Participant's (select one): / X /(a) inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months. / /(b) total and permanent inability to meet the requirements of the Participant's customary employment which can be expected to last for a continuous period of not less than 12 months. / /(c) qualification for Social Security disability benefits. / /(d) qualification for benefits under the Employer's long-term disability plan. (2) Contributions Due to Disability (select one): / X /(a) No contributions to an Employer Contributions Account will be made on behalf of a Participant due to his or her Disability. / /(b) Contributions to an Employer Contributions Account will be made on behalf of a Participant due to his or her Disability provided that: the Employer elected option (a) or (c) above as the definition of Disability, contributions are not made on behalf of a Highly Compensated Employee, the contribution is based on the Compensation each such Participant would have received for the Limitation Year if the Participant had been paid at the rate of Compensation paid immediately before his or her Disability, and contributions made on behalf of such Participant will be nonforfeitable when made. 4 C. "Early Retirement" is (select one): / /(1) not permitted. / X /(2) permitted if a Participant terminates Employment before Normal Retirement Age and has (select one): / X /(a) attained age 59 1/2. / /(b) attained age _____ and completed _____ Years of Service. / /(c) attained age _____ and completed _____ Years of Service as a Participant. D. "Eligible Employees" (select one): / X /(1) All Employees are eligible to participate in the Plan. / /(2) The following Employees are not eligible to participate in the Plan (select all those applicable): / /(a) Employees included in a unit of Employees covered by a collective bargaining agreement between the Employer or a Participating Affiliate and the Employee representatives (not including any organization more than half of whose members are Employees who are owners, officers, or executives of the Employer or Participating Affiliate) in the negotiation of which retirement benefits were the subject of good faith bargaining, unless the bargaining agreement provides for participation in the Plan. / /(b) non-resident aliens who received no earned income from the Employer or a Participating Affiliate which constitutes income from sources within the United States. / /(c) Employees of an Affiliate. / /(d) Employees employed in or by the following specified division, plant, location, job category or other identifiable individual or group of Employees: _____. 5 E. "Entry Date" Entry Date shall mean (select as applicable): 401(k) and/or Profit Thrift Sharing / / / / (1) If the initial Plan Year is less than twelve months, the day of and thereafter: / / / / (2) the first day of the Plan Year following the date the Employee meets the eligibility requirements. If the Employer elects this option (2) establishing only one Entry Date, the eligibility "age and service" requirements elected in Article II must be no more than age 20-1/2 and 6 months of service. / X / / / (3) the first day of the month following the date the Employee meets the eligibility requirements. / / / / (4) the first day of the Plan Year and the first day of the seventh month of the Plan Year following the date the Employee meets the eligibility requirements. / / / / (5) the first day of the Plan Year, the first day of the fourth month of the Plan Year, the first day of the seventh month of the Plan Year, and the first day of the tenth month of the Plan Year following the date the Employee meets the eligibility requirements. / / / / (6) other: . provided that the Entry Date or Dates selected are no later than any of the options above. F. "Hours of Service" Hours of Service for the purpose of determining a Participant's Period of Severance and Year of Service shall be determined on the basis of the method specified below: (1) Eligibility Service: For purposes of determining whether a Participant has satisfied the eligibility requirements, the following method shall be used (select one): 401(k) and/or Profit Thrift Sharing / X / / / (a) elapsed time method / / / / (b) hourly records method 6 (2) Vesting Service: A Participant's nonforfeitable interest shall be determined on the basis of the method specified below (select one): / X /(a) elapsed time method / /(b) hourly records method / /(c) If this item (c) is checked, the Plan only provides for contributions that are always 100% vested and this item (2) will not apply. (3) Hourly Records: For the purpose of determining Hours of Service under the hourly record method (select one): / /(a) only actual hours for which an Employee is paid or entitled to payment shall be counted. / /(b) an Employee shall be credited with 45 Hours of Service if such Employee would be credited with at least 1 Hour of Service during the week. G. "Integration Level" / X /(1) This Plan is not integrated with Social Security. / / (2) This Plan is integrated with Social Security. The Integration Level shall be (select one): / /(a) the Taxable Wage Base. / /(b) $ (a dollar amount less than the Taxable Wage Base). / /(c) % of the Taxable Wage Base (not to exceed 100%). / /(d) the greater of $10,000 or 20% of the Taxable Wage Base. H. "Limitation Compensation" For purposes of Code Section 415, Limitation Compensation shall be compensation as determined for purposes of (select one): / /(1) Code Section 415 Safe-Harbor as defined in Section 3.9.1(H)(i) of basic plan document #03. / /(2) the "Wages, Tips and Other Compensation" Box on Form W-2. / X /(3) Code Section 3401(a) Federal Income Tax Withholding. I. "Limitation Year" For purposes of Code Section 415, the Limitation Year shall be (select one): / X /(1) the Plan Year. / /(2) the twelve consecutive month period ending on the day of the month of . 7 J. "Net Profits" are (select one): / X /(1) not necessary for any contribution. / /(2) necessary for (select all those applicable): / /(a) Profit-Sharing Contributions. / /(b) Matching 401(k) Contributions. / /(c) Matching Thrift Contributions. K. "Normal Retirement Age" Normal Retirement Age shall be (select one): / X /(1) attainment of age 65 (not more than 65) by the Participant. / /(2) attainment of age (not more than 65) by the Participant or the anniversary (not more than the 5th) of the first day of the Plan Year in which the Eligible Employee became a Participant, whichever is later. / /(3) attainment of age (not more than 65) by the Participant or the . anniversary (not more than the 5th) of the first day on which the Eligible Employee performed an Hour of Service, whichever is later. L. "Participant Directed Assets" are: 401(k) and/ Profit or Thrift Sharing / X / / / (1) permitted. / / / / (2) not permitted. M. "Plan Year" The Plan Year shall end on the 31st day of December. N. "Predecessor Service" Predecessor service will be credited (select one): / /(1) only as required by the Plan. / /(2) to include, in addition to the Plan requirements and subject to the limitations set forth below, service with the following predecessor employer(s) determined as if such predecessors were the Employer: . 8 Service with such predecessor employer applies [select either or both (a) and/or (b); (c) is only available in addition to (a) and/or (b)]: / /(a) for purposes of eligibility to participate; / /(b) for purposes of vesting; / /(c) except for the following service: . O. "Valuation Date" Valuation Date shall mean (select one for each column, as applicable): 401(k) and/ Profit or Thrift Sharing / / / /(1) the last business day of each month. / / / /(2) the last business day of each quarter within the Plan Year. / / / /(3) the last business day of each semi-annual period within the Plan Year. / / / /(4) the last business day of the Plan Year. / X / / /(5) other: daily basis. ARTICLE II. Participation Participation Requirements An Eligible Employee must meet the following requirements to become a Participant (select one or more for each column, as applicable): 401(k) and/ Profit or Thrift Sharing / / / /(1) Performance of one Hour of Service. / / / /(2) Attainment of age (maximum 20 1/2) and completion of (not more than 1/2) Years of Service. If this item is selected, no Hours of Service shall be counted. / X / / /(3) Attainment of age 18 (maximum 21) and completion of 1/12 Year(s) of Service. If more than one Year of Service is selected, the immediate 100% vesting schedule must be selected in Article VII of this Adoption Agreement. 9 401(k) and/ Profit or Thrift Sharing / / / /(4) Attainment of age (maximum 21) and completion of Year(s) of Service. If more than one Year of Service is selected, the immediate l00% vesting schedule must be selected in Article VII of this Adoption Agreement. / X / / /(5) Each Employee who is an Eligible Employee on 01/01/98 will be deemed to have satisfied the participation requirements on the effective date without regard to such Eligible Employee's actual age and/or service. ARTICLE III. 401(k) Contributions and Account Allocation A. Elective Deferrals If selected below, a Participant's Elective Deferrals will be (select all applicable): / X /(1) a dollar amount or a percentage of Compensation, as specified by the Participant on his or her 401(k) Election form, which may not exceed 16% of his or her Compensation. / /(2) with respect to bonuses, such dollar amount or percentage as specified by the Participant on his or her 401(k) Election form with respect to such bonus. B. Matching 401(k) Contributions If selected below, the Employer may make Matching 401(k) Contributions for each Plan Year (select one): / X /(1) Discretionary Formula: Discretionary Matching 401(k) Contribution equal to such a dollar amount or percentage of Elective Deferrals, as determined by the Employer, which shall be allocated (select one): / /(a) based on the ratio of each Participant's Elective Deferral for the Plan Year to the total Elective Deferrals of all Participants for the Plan Year. If inserted, Matching 40l(k) Contributions shall be subject to a maximum amount of $ for each Participant or % of each Participant's Compensation. 10 / X /(b) in an amount not to exceed 100% of each Participant's first 15% of Compensation contributed as Elective Deferrals for the Plan Year. If any Matching 401(k) Contribution remains, it is allocated to each such Participant in an amount not to exceed % of the next % of each Participant's Compensation contributed as Elective Deferrals for the Plan Year. Any remaining Matching 401(k) Contribution shall be allocated to each such Participant in the ratio that such Participant's Elective Deferral for the Plan Year bears to the total Elective Deferrals of all such Participants for the Plan Year. If inserted, Matching 40l(k) Contributions shall be subject to a maximum amount of $ for each Participant or % of each Participant's Compensation. / /(2) Nondiscretionary Formula: A nondiscretionary Matching 401(k) Contribution for each Plan Year equal to (select one): / /(a) % of each Participant's Compensation contributed as Elective Deferrals. If inserted, Matching 40l(k) Contributions shall be subject to a maximum amount of $ for each Participant or % of each Participant's Compensation. / /(b) % of the first % of the Participant's Compensation contributed as Elective Deferrals and % of the next % of the Participant's Compensation contributed as Elective Deferrals. If inserted, Matching 40l(k) Contributions shall be subject to a maximum amount of $ for each Participant or % of each Participant's Compensation. C. Participants Eligible for Matching 401(k) Contribution Allocation The following Participants shall be eligible for an allocation to their Matching 401(k) Contributions Account (select all those applicable): / X /(1) Any Participant who makes Elective Deferrals. / /(2) Any Participant who satisfies those requirements elected by the Employer for an allocation to his or her Employer Contributions Account as provided in Article IV Section C. / /(3) Solely with respect to a Plan in which Matching 401(k) Contributions are made quarterly (or on any other regular interval that is more frequent than annually) any Participant whose 401(k) Election is in effect throughout such entire quarter (or other interval). (quarterly, monthly or semi-annual) 11 D. Qualified Matching Contributions If selected below, the Employer may make Qualified Matching Contributions for each Plan Year (select all those applicable): (1) In its discretion, the Employer may make Qualified Matching Contributions on behalf of (select one): / /(a) all Participants who make Elective Deferrals in that Plan Year. / X /(b) only those Participants who are Nonhighly Compensated Employees and who make Elective Deferrals for that Plan Year. (2) Qualified Matching Contributions will be contributed and allocated to each Participant in an amount equal to (select one): / /(a) % of the Participant's Compensation contributed as Elective Deferrals. If inserted, Qualified Matching Contributions shall not exceed % of the Participant's Compensation. / X /(b) Such an amount, determined by the Employer, which is needed to meet the ACP Test. (3) In its discretion, the Employer may elect to designate all or any part of Matching 401(k) Contributions as Qualified Matching Contributions that are taken into account as Elective Deferrals -- included in the ADP Test and excluded from the ACP Test -- on behalf of (select one): / /(a) all Participants who make Elective Deferrals for that Plan Year. / X /(b) Only Participants who are Nonhighly Compensated Employees who make Elective Deferrals for that Plan Year. E. Qualified Nonelective Contributions If selected below, the Employer may make Qualified Nonelective Contributions for each Plan Year (select all those applicable): (1) In its discretion, the Employer may make Qualified Nonelective Contributions on behalf of (select one): / /(a) all Eligible Participants. / X /(b) only Eligible Participants who are Nonhighly Compensated Employees. 12 (2) Qualified Nonelective Contributions will be contributed and allocated to each Eligible Participant in an amount equal to (select one): / /(a) ____% (no more than 15%) of the Compensation of each Eligible Participant eligible to share in the allocation. / X /(b) Such an amount determined by the Employer, which is needed to meet either the ADP Test or ACP Test. (3) At the discretion of the Employer, as needed and taken into account as Elective Deferrals included in the ADP Test on behalf of (select one): / /(a) all Eligible Participants. / X /(b) only those Eligible Participants who are Nonhighly Compensated Employees. F. Elective Deferrals used in ACP Test (select one): / X /(1) At the discretion of the Employer, Elective Deferrals may be used to satisfy the ACP Test. / /(2) Elective Deferrals may not be used to satisfy the ACP Test. G. Making and Modifying a 401(k) Election An Eligible Employee shall be entitled to increase, decrease or resume his or her Elective Deferral percentage with the following frequency during the Plan Year (select one): / /(1) annually. / /(2) semi-annually. / X /(3) quarterly. / /(4) monthly / /(5) other (specify): . Any such increase, decrease or resumption shall be effective as of the first payroll period coincident with or next following the first day of each period set forth above. A Participant may completely discontinue making Elective Deferrals at any time effective for the payroll period after written notice is provided to the Administrator. 13 ARTICLE IV. Profit-Sharing Contributions and Account Allocation A. Profit-Sharing Contributions If selected below, the following contributions for each Plan Year will be made: Contributions to Employer Contributions Accounts (select one): / /(a) Such an amount, if any, as determined by the Employer. / /(b) % of each Participant's Compensation. B. Allocation of Contributions to Employer Contributions Accounts (select one): / /(1) Non-Integrated Allocation The Employer Contributions Account of each Participant eligible to share in the allocation for a Plan Year shall be credited with a portion of the contribution, plus any forfeitures if forfeitures are reallocated to Participants, equal to the ratio that the Participant's Compensation for the Plan Year bears to the Compensation for that Plan Year of all Participants entitled to share in the contribution. / /(2) Integrated Allocation Contributions to Employer Contributions Accounts with respect to a Plan Year, plus any forfeitures if forfeitures are reallocated to Participants, shall be allocated to the Employer Contributions Account of each eligible Participant as follows: (a) First, in the ratio that each such eligible Participant's Compensation for the Plan Year bears to the Compensation for that Plan Year of all eligible Participants but not in excess of 3% of each Participant's Compensation. (b) Second, any remaining contributions and forfeitures will be allocated in the ratio that each eligible Participant's Compensation for the Plan Year in excess of the Integration Level bears to all such Participants' excess Compensation for the Plan Year but not in excess of 3%. 14 (c) Third, any remaining contributions and forfeitures will be allocated in the ratio that the sum of each Participant's Compensation and Compensation in excess of the Integration Level bears to the sum of all Participants' Compensation and Compensation in excess of the Integration Level, but not in excess of the Maximum Profit-Sharing Disparity Rate (defined below). (d) Fourth, any remaining contributions or forfeitures will be allocated in the ratio that each Participant's Compensation for that year bears to all Participants' Compensation for that year. The Maximum Profit-Sharing Disparity Rate is equal to the lesser of: (a) 2.7% or (b) The applicable percentage determined in accordance with the following table:
If the Integration Level is (as a % of the Taxable Wage Base ("TWB")). The applicable percentage is: --------------------------- ----------------------------- 20% (or $10,000 if greater) or less of the TWB 2.7% More than 20% (but not less than $10,001 but not more than 80% of the TWB 1.3% More than 80% but not less than 100% of the TWB 2.4% 100% of the TWB 2.7%
15 C. Participants Eligible for Employer Contribution Allocation The following Participants shall be eligible for an allocation to their Employer Contributions Account (select all those applicable): / /(1) Any Participant who was employed during the Plan Year. / /(2) In the case of a Plan using the hourly record method for determining Vesting Service, any Participant who was credited with a Year of Service during the Plan Year. / /(3) Any Participant who was employed on the last day of the Plan Year. / /(4) Any Participant who was on a leave of absence on the last day of the Plan Year. / /(5) Any Participant who during the Plan Year died or became Disabled while an Employee or terminated employment after attaining Normal Retirement Age. / /(6) Any Participant who was credited with at least 501 Hours of Service whether or not employed on the last day of the Plan Year. / /(7) Any Participant who was credited with at least 1,000 Hours of Service and was employed on the last day of the Plan Year. ARTICLE V. Thrift Contributions A. Employee Thrift Contributions If selected below, Employee Thrift Contributions, which are required for Matching Thrift Contributions, may be made by a Participant in an amount equal to (select one): / /(1) A dollar amount or a percentage of the Participant's Compensation which may not be less than % nor may not exceed % of his or her Compensation. / /(2) An amount not less than % of and not more than % of each Participant's Compensation. 16 B. Making and Modifying an Employee Thrift Contribution Election A Participant shall be entitled to increase, decrease or resume his or her Employee Thrift Contribution percentage with the following frequency during the Plan Year (select one): / /(1) annually / /(2) semi-annually / /(3) quarterly / /(4) monthly / /(5) other (specify): . Any such increase, decrease or resumption shall be effective as of the first payroll period coincident with or next following the first day of each period set forth above. A Participant may completely discontinue making Employee Thrift Contributions at any time effective for the payroll period after written notice is provided to the Administrator. C. Thrift Matching Contributions If selected below, the Employer will make Matching Thrift Contributions for each Plan Year (select one): / /(1) Discretionary Formula: A discretionary Matching Thrift Contribution equal to such a dollar amount or percentage as determined by the Employer, which shall be allocated (select one): / /(a) based on the ratio of each Participant's Employee Thrift Contribution for the Plan Year to the total Employee Thrift Contributions of all Participants for the Plan Year. If inserted, Matching Thrift Contributions shall be subject to a maximum amount of $____for each Participant or____% of each Participant's Compensation. / /(b) in an amount not to exceed____% of each Participant's first____% of Compensation contributed as Employee Thrift Contributions for the Plan Year. If any Matching Thrift Contribution remains, it is allocated to each such Participant in an amount not to exceed ____% of the next____% of each Participant's Compensation contributed as Employee Thrift Contributions for the Plan Year. Any remaining Matching Thrift Contribution shall be allocated to each such Participant in the ratio that such Participant's Employee Thrift Contributions for the Plan Year bears to the total Employee Thrift Contributions of all such Participants for the Plan Year. If inserted, Matching Thrift Contributions shall be subject to a maximum amount of $___for each Participant or___% of each Participant's Compensation. 17 / /(2) Nondiscretionary Formula: A nondiscretionary Matching Thrift Contribution for each Plan Year equal to (select one): / /(a) % of each Participant's Compensation contributed as Employee Thrift Contributions. If inserted, Matching Thrift Contributions shall be subject to a maximum amount of $ for each Participant or % of each Participant's Compensation. / /(b) % of the first % of the Participant's Compensation contributed as Employee Thrift Contributions and % of the next % of the Participant's Compensation contributed as Employee Thrift Contributions. If inserted, Matching Thrift Contributions shall be subject to a maximum amount of $____for each Participant or)____% of each Participant's Compensation. D. Qualified Matching Contributions If selected below, the Employer may make Qualified Matching Contributions for each Plan Year (select all those applicable): (1) In its discretion, the Employer may make Qualified Matching Contributions on behalf of (select one): / /(a) all Participants who make Employee Thrift Contributions. / /(b) only those Participants who are Nonhighly Compensated Employees and who make Employee Thrift Contributions. (2) Qualified Matching Contributions will be contributed and allocated to each Participant in an amount equal to: / /(a) % of the Participant's Employee Thrift Contributions. If inserted, Qualified Matching Contributions shall not exceed % of the Participant's Compensation. / /(b) such an amount, determined by the Employer, which is needed to meet the ACP Test. ARTICLE VI. Participant Contributions Participant Voluntary Nondeductible Contributions Participant Voluntary Nondeductible Contributions are (select one): / /(a) permitted. / /(b) not permitted. 18 ARTICLE VII. Vesting A. Employer Contribution Accounts (1) A Participant shall have a vested percentage in his or her Profit-Sharing Contributions, Matching 401(k) Contributions and/or Matching Thrift Contributions, if applicable, in accordance with the following schedule (Select one):
Matching 401(k) and/or Matching Profit-Sharing Thrift Contributions Contributions - -------------------- -------------- / / / / (a) 100% vesting immediately upon participation. / X / / / (b) 100% after 3 (not more than 5) years of Vesting Service. / / / / (c) Graded vesting schedule: % % after 1 year of Vesting Service; % % after 2 years of Vesting Service; % % (not less than 20%) after 3 years of Vesting Service; % % (not less than 40%) after 4 years of Vesting Service; % % (not less than 60%) after 5 years of Vesting Service; % % (not less than 80%) after 6 years of Vesting Service; 100% after 7 years of Vesting Service.
19 (2) Top Heavy Plan
Matching 401(k) and/or Matching Profit-Sharing Thrift Contributions Contributions - -------------------- -------------- Vesting Schedule (Select one): / / / / (a) 100% vesting immediately upon participation. / / / / (b) 100% after 3 (not more than 3) years of Vesting Service. / / / / (c) Graded vesting schedule: % % after 1 year of Vesting Service; % % (not less than 20%) after 2 years of Vesting Service; % % (not less than 40%) after 3 years of Vesting Service; % % (not less than 60%) after 4 years of Vesting Service; % % (not less than 80%) after 5 years of Vesting Service; 100% after 6 years of Vesting Service.
Top Heavy Ratio: (a) If the adopting Employer maintains or has ever maintained a qualified defined benefit plan, for purposes of establishing present value to compute the top-heavy ratio, any benefit shall be discounted only for mortality and interest based on the following: Interest Rate: 8 % Mortality Table: UP '84 (b) For purposes of computing the top-heavy ratio, the valuation date shall be the last business day of each Plan Year. 20 B. Allocation of Forfeitures Forfeitures shall be (select one from each applicable column):
Matching 401(k) and/or Matching Profit-Sharing Thrift Contributions Contributions - -------------------- -------------- / X / / / (1) used to reduce Employer contributions for succeeding Plan Year. / / / / (2) allocated in the succeeding Plan Year in the ratio which the Compensation of each Participant for the Plan Year bears to the total Compensation of all Participants entitled to share in the Contributions. If the Plan is integrated with Social Security, forfeitures shall be allocated in accordance with the formula elected by the Employer.
C. Vesting Service For purposes of determining Years of Service for Vesting Service [select (1) or (2) and/or (3)]: / X /(1) All Years of Service shall be included. / /(2) Years of Service before the Participant attained age 18 shall be excluded. / /(3) Service with the Employer prior to the effective date of the Plan shall be excluded. ARTICLE VIII. Deferral of Benefit Distributions, In-Service Withdrawals and Loans A. Deferral of Benefit Distributions
401(k) and/ Profit or Thrift Sharing ----------- -------- / / / / If this item is checked, a Participant's vested benefit in his or her Employer Accounts shall be payable as soon as practicable after the earlier of: (1) the date the Participant terminates Employment due to Disability or (2) the end of the Plan Year in which a terminated Participant attains Early Retirement Age, if applicable, or Normal Retirement Age.
21 B. In-Service Distributions / X /(1) In-service distributions may be made from any of the Participant's vested Accounts, at any time upon or after the occurrence of the following events (select all applicable): / X /(a) a Participant's attainment of age 59-1/2. / X /(b) due to hardships as defined in Section 5.9 of the Plan. / /(2) In-service distributions are not permitted. C. Loans are:
401(k) and/ Profit or Thrift Sharing - ----------- ------- / / / / (1) permitted. / / / / (2) not permitted.
ARTICLE IX. Group Trust If this item is checked, the Employer elects to establish a Group Trust consisting of such Plan assets as shall from time to time be transferred to the Trustee pursuant to Article X of the Plan. The Trust Fund shall be a Group Trust consisting of assets of this Plan plus assets of the following plans of the Employer or of an Affiliate: . ARTICLE X. Miscellaneous A. Identification of Sponsor The address and telephone number of the Sponsor's authorized representative is 800 Scudders Mill Road, Plainsboro, New Jersey 08536; (609) 282-2272. This authorized representative can answer inquiries regarding the adoption of the Plan, the intended meaning of any Plan provisions, and the effect of the opinion letter. The Sponsor will inform the adopting Employer of any amendments made to the Plan or the discontinuance or abandonment of the Plan. 22 B. Plan Registration 1. Initial Registration This Plan must be registered with the Sponsor, Merrill Lynch, Pierce, Fenner & Smith Incorporated, in order to be considered a Prototype Plan by the Sponsor. Registration is required so that the Sponsor is able to provide the Administrator with documents, forms and announcements relating to the administration of the Plan and with Plan amendments and other documents, all of which relate to administering the Plan in accordance with applicable law and maintaining compliance of the Plan with the law. The Employer must complete and sign the Adoption Agreement. Upon receipt of the Adoption Agreement, the Plan will be registered as a Prototype Plan of Merrill Lynch, Pierce, Fenner & Smith Incorporated. The Adoption Agreement will be countersigned by an authorized representative and a copy of the countersigned Adoption Agreement will be returned to the Employer. 2. Registration Renewal Annual registration renewal is required in order for the Employer to continue to receive any and all necessary updating documents. There is an annual registration renewal fee in the amount set forth with the initial registration material. The adopting Employer authorizes Merrill Lynch, Pierce, Fenner & Smith Incorporated, to debit the account established for the Plan for payment of agreed upon annual fee; provided, however, if the assets of an account are invested solely in Participant-Directed Assets, a notice for this annual fee will be sent to the Employer annually. The Sponsor reserves the right to change this fee from time to time and will provide written notice in advance of any change. C. Prototype Replacement Plan This Adoption Agreement is a replacement prototype plan for the (1) Merrill Lynch Special Prototype Defined Contribution Plan and Trust - 401(k) Plan #03-004 and (2) Merrill Lynch Asset Management, Inc., Special Prototype Defined Contribution Plan and Trust - 401(k) Plan Adoption Agreement #03-004. D. Reliance The adopting Employer may not rely on the opinion letter issued by the National Office of the Internal Revenue Service as evidence that this Plan is qualified under Code Section 401. In order to obtain reliance, the Employer must apply to the appropriate Key District Director of the Internal Revenue Service for a determination letter with respect to the Plan. 23 EMPLOYER'S SIGNATURE Name of Employer:_____________________________________________ By: ___________________________________________________ Authorized Signature ___________________________________________________ Print Name ___________________________________________________ Title Dated: _____________________________, 19________ TO BE COMPLETED BY MERRILL LYNCH: Sponsor Acceptance: Subject to the terms and conditions of the Prototype Plan and this Adoption Agreement, this Adoption Agreement is accepted by Merrill Lynch, Pierce, Fenner & Smith Incorporated as the Prototype Sponsor. Authorized Signature:_______________________________________________________________ 24 TRUSTEE(S) SIGNATURE This Trustee Acceptance is to be completed only if the Employer appoints one or more Trustees and does not appoint a Merrill Lynch Trust Company as Trustee. The undersigned hereby accept all of the terms, conditions, and obligations of appointment as Trustee under the Plan. If the Employer has elected a Group Trust in this Adoption Agreement, the undersigned Trustee(s) shall be the Trustee(s) of the Group Trust. AS TRUSTEE: merrill lynch - --------------------------------- ----------------------------------------- (Signature) (print or type name) - --------------------------------- ----------------------------------------- (Signature) (print or type name) - --------------------------------- ----------------------------------------- (Signature) (print or type name) - --------------------------------- ----------------------------------------- (Signature) (print or type name) - --------------------------------- ----------------------------------------- (Signature) (print or type name) - --------------------------------- ----------------------------------------- (Signature) (print or type name) Dated: ________________________, 19 ________ 25 THE MERRILL LYNCH TRUST COMPANIES AS TRUSTEE This Trustee Acceptance and designation of Investment Committee are to be completed only when a Merrill Lynch Trust Company is appointed as Trustee. To be completed by the Employer: Designation Of Investment Committee The Investment Committee for the Plan is (print or type names): Name: ______________________________________________________________________ Name: ______________________________________________________________________ Name: ______________________________________________________________________ Name: ______________________________________________________________________ Name: ______________________________________________________________________ Name: ______________________________________________________________________ To be completed by Merrill Lynch Trust Company: Acceptance By Trustee: The undersigned hereby accept all of the terms, conditions, and obligations of appointment as Trustee under the Plan. If the Employer has elected a Group Trust in this Adoption Agreement, the undersigned Trustee(s) shall be the Trustee(s) of the Group Trust. SEAL MERRILL LYNCH TRUST COMPANY [------------------] By: ________________________________ Dated: _________, 19____ 26 THE MERRILL LYNCH TRUST COMPANIES AS ONE OF THE TRUSTEES This Trustee Acceptance is to be completed only if, in addition to a Merrill Lynch Trust Companies as Trustee, the Employer appoints an additional Trustee of a second trust fund. The undersigned hereby accept all of the terms, conditions, and obligations of appointment as Trustee under the Plan. If the Employer has elected a Group Trust in this Adoption Agreement, the undersigned Trustee(s) shall be the Trustee(s) of the Group Trust. as TRUSTEE ____________________________________ _____________________________________ (Signature) (print or type name) Dated: _______________, 19_________ SEAL MERRILL LYNCH TRUST COMPANY [____________________] By: _________________________________________ Dated: _______________, 19_________ DESIGNATION OF INVESTMENT COMMITTEE The Investment Committee for the Plan is (print or type names): Name: ______________________________________________________________________ Name: ______________________________________________________________________ Name: ______________________________________________________________________ Name: ______________________________________________________________________ 27 ----------------------------------------- MERRILL LYNCH -------------- SPECIAL -------------- PROTOTYPE DEFINED CONTRIBUTION PLAN ----------------------------------------- Base Plan Document #03 used in conjunction with: Non-standardized Profit Sharing Plan with CODA Letter Serial Number: D359287b National Office Letter Date: 6/29/93 Non-standardized Money Purchase Pension Plan Letter Serial Number: D359288b National Office Letter Date: 6/29/93 Non-standardized Profit Sharing Plan Letter Serial Number: D359289b National Office Letter Date: 6/29/93 Non-standardized Target Benefit Plan Letter Serial Number: D361009a National Office Letter Date: 6/29/93 This Prototype Plan and Adoption Agreement are important legal instruments with legal and tax implications for which the Sponsor, Merrill Lynch, Pierce, Fenner & Smith, Incorporated, does not assume responsibility. The Employer is urged to consult with its own attorney with regard to the adoption of this Plan and its suitability to its circumstances.
Internal Revenue Service Department of the Treasury Plan Description: Prototype Non-standardized Profit Sharing Plan with CODA FFN: 50339816103-004 Washington, DC: 20224 Case: 9201920 EIN: 13-5674085 BPD: 03 Plan: 004 Letter Serial No: D359287b Person to Contact: Mr. Wolf MERRILL LYNCH PIERCE FENNER & SMITH INC Telephone Number: (202) 622-8380 P O BOX 9038 Refer Reply to: E:EP:Q:1 PRINCETON, NJ 08543 Date: 06/29/93
Dear Applicant: In our opinion, the amendment to the form of the plan identified above does not in and of itself adversely affect the plan's acceptability under section 401 of the Internal Revenue Code. This opinion relates only to the amendment to the form of the plan. It is not an opinion as to the acceptability of any other amendment or of the form of the plan as a whole, or as to the effect of other Federal or local statutes. You must furnish a copy of this letter to each employer who adopts this plan: You are also required to send a copy of the approved form of the plan, any approved amendments and related documents to each Key District Director of Internal Revenue Service in whose jurisdiction there are adopting employers. An employer who adopts the amended form of the plan after the date of the amendment should apply for a determination letter by filing an application with the Key District Director of Internal Revenue on Form 5307, Short Form Application for Determination for Employee Benefit Plan. This letter with respect to the amendment to the form of the plan does not affect the applicability to the plan of the continued, interim and extended reliance provisions of sections 13 and 17.03 of Rev. Proc. 89-9, 1989-1 C.B. 780. The applicability of such provisions may be determined by reference to the initial opinion letter issued with respect to the plan. If you, the sponsoring organization, have any questions concerning the IRS processing of this case, please call the above telephone number. This number is only for use of the sponsoring organization. Individual participants and/or adopting employers with questions concerning the plan should contact the sponsoring organization. The plan's adoption agreement must include the sponsoring organization's address and telephone number for inquiries by adopting employers. If you write to the IRS regarding this plan, please provide your telephone number and the most convenient time for us to call in case we need more information. Whether you call or write, please refer to the Letter Serial Number and File Folder Number shown in the heading of this letter. You should keep this letter as a permanent record. Please notify us if you modify or discontinue sponsorship of this plan. Sincerly yours, /s/ Illegible ----------------------- Chief, Employee Plans Qualifications Branch TABLE OF CONTENTS ARTICLE I DEFINITIONS 1.1 "Account" 1 1.2 "Account Balance" 1 1.3 "ACP Test" 1 1.4 "Actual Deferral Percentage" 1 1.5 "Adjustment Factor" 1 1.6 "Administrator" 1 1.7 "Adoption Agreement" 1 1.8 "ADP Test 1 1.9 "Affiliate" 1 1.10 "Annuity Contract" 1 1.11 "Average Actual Deferral Percentage" 1 1.12 "Average Contribution Percentage" 1 1.13 "Beneficiary" 1 1.14 "Benefit Commencement Date" 2 1.15 "CODA" 2 1.16 "CODA Compensation" 2 1.17 "Code" 2 1.18 "Compensation" 2 1.19 "Contribution Percentage" 3 1.20 "Contribution Percentage Amounts" 3 1.21 "Defined Benefit Plan" 3 1.22 "Defined Contribution Plan" 3 1.23 "Disability" 3 1.24 "Early Retirement" 3 1.25 "Early Retirement Date" 3 1.26 "Earned Income" 3 1.27 "Elective Deferrals" 3 1.28 "Elective Deferrals Account" 4 1.29 "Eligible Employee" 4 1.30 "Eligible Participant" 4 1.31 "Employee" 4 1.32 "Employee Thrift Contributions" 4 1.33 "Employee Thrift Contributions Account" 4 1.34 "Employer" 4 1.35 "Employer Account" 4 1.36 "Employer Contributions" 4 1.37 "Employer Contributions Account" 4 1.38 "Employment" 4 1.39 "Entry Date" 4 1.40 "ERISA" 4 1.41 "Excess Aggregate Contributions" 5 1.42 "Excess Contributions" 5 1.43 "Excess Elective Deferrals" 5 1.44 "Family Member" 5 1.45 "401(k) Contributions Accounts" 5 1.46 "401(k) Election" 5 1.47 "Fully Vested Separation" 5 1.48 "Group Trust" 5 1.49 "Highly Compensated Employee" 5 1.50 "Hour of Service" 6 1.51 "Immediately Distributable" 6 1.52 "Investment Manager" 6 1.53 "Key Employee" 6 TABLE OF CONTENTS 1.54 "Leased Employee" 7 1.55 "Limitation Year" 7 1.56 "Master or Prototype Plan" 7 1.57 "Matching 401(k) Contribution" 7 1.58 "Matching 401(k) Contributions Account" 7 1.59 "Matching Thrift Contributions" 7 1.60 "Matching Thrift Contributions Account" 7 1.61 "Net Profits" 7 1.62 "Nonhighly Compensated Employee" 7 1.63 "Nonvested Separation" 7 1.64 "Normal Retirement Age" 7 1.65 "Owner-Employee" 7 1.66 "Partially Vested Separation" 8 1.67 "Participant" 8 1.68 "Participant Contributions Account" 8 1.69 "Participant-Directed Assets" 8 1.70 "Participant Voluntary Nondeductible Contributions" 8 1.71 "Participant Voluntary Nondeductible Contributions Account" 8 1.72 "Participating Affiliate" 8 1.73 "Period of Severance 8 1.74 "Plan" 8 1.75 "Plan Year" 8 1.76 "Prototype Plan" 9 1.77 "Qualified Joint and Survivor Annuity" 9 1.78 "Qualified Matching Contributions" 9 1.79 "Qualified Matching Contributions Account" 9 1.80 "Qualified Nonelective Contributions" 9 1.81 "Qualified Nonelective Contributions Account" 9 1.82 "Qualified Plan" 9 1.83 "Qualifying Employer Securities" 9 1.84 "Rollover Contribution" 9 1.85 "Rollover Contributions Account" 9 1.86 "Self-Employed Individual" 9 l.87 "Social Security Retirement Age" 9 1.88 "Sponsor" 9 1.89 "Spouse" 9 1.90 "Surviving Spouse" 10 1.91 "Taxable Wage Base" 10 1.92 "Transferred Account" 10 1.93 "Trust" 10 1.94 "Trust Fund" 10 1.95 "Trustee" 10 1.96 "Valuation Date" 10 1.97 "Vesting Service" 10 1.98 "Years of Service" 10 ARTICLE II PARTICIPATION 2.1 Admission as a Participant 10 2.2 Rollover Membership and Trust to Trust Transfer 11 2.3 Crediting of Service for Eligibility Purposes 11 2.4 Termination of Participation 11 2.5 Limitation for Owner-Employee 11 2.6 Corrections with Regard to Participation 12 2.7 Provision of Information 12 TABLE OF CONTENTS ARTICLE III CONTRIBUTIONS AND ACCOUNT ALLOCATIONS 3.1 Employer Contributions and Allocations 12 3.2 Participant Voluntary Nondeductible Contributions 13 3.3 Rollover Contributions and Trust to Trust Transfers 13 3.4 Section 401(k) - Contributions and Account Allocations 13 3.5 Matching 401(k) Contributions 16 3.6 Thrift Contributions 18 3.7 Treatment of Forfeitures 19 3.8 Establishing of Accounts 19 3.9 Limitation on Amount of Allocations 19 3.10 Return of Employer Contributions Under Special Circumstances 24 ARTICLE IV VESTING 4.1 Determination of Vesting 24 4.2 Rules for Crediting Vesting Service 24 4.3 Employer Accounts Forfeitures 24 4.4 Top-Heavy Provisions 25 ARTICLE V AMOUNT AND DISTRIBUTION OF BENEFITS, WITHDRAWALS AND LOANS 5.1 Distribution Upon Termination of Employment 27 5.2 Amount of Benefits Upon a Fully Vested Separation 27 5.3 Amount of Benefits Upon a Partially Vested Separation 27 5.4 Amount of Benefits Upon a Nonvested Separation 27 5.5 Amount of Benefits Upon a Separation Due to Disability 27 5.6 Distribution and Restoration 27 5.7 Withdrawals During Employment 28 5.8 Loans 28 5.9 Hardship Distributions 30 5.10 Limitation on Commencement of Benefits 30 5.11 Distribution Requirements 30 ARTICLE VI FORMS OF PAYMENT OF RETIREMENT BENEFITS 6.1 Methods of Distribution 34 6.2 Election of Optional Forms 35 6.3 Change in Form of Benefit Payments 36 6.4 Direct Rollovers 36 ARTICLE VII DEATH BENEFITS 7.1 Payment of Account Balances 37 7.2 Beneficiaries 37 7.3 Life Insurance 39 ARTICLE VIII FIDUCIARIES 8.1 Named Fiduciaries 40 8.2 Employment of Advisers 41 8.3 Multiple Fiduciary Capacities 41 8.4 Indemnification 41 8.5 Payment of Expenses 41 TABLE OF CONTENTS ARTICLE IX PLAN ADMINISTRATION 9.1 The Administrator 41 9.2 Powers and Duties of the Administrator 41 9.3 Delegation of Responsibility 42 ARTICLE X TRUSTEE AND INVESTMENT COMMITTEE 10.1 Appointment of Trustee and Investment Committee 42 10.2 The Trust Fund 42 10.3 Relationship with Administrator 42 10.4 Investment of Assets 43 10.5 Investment Direction, Participant-Directed Assets and Qualifying Employer Investments 44 10.6 Valuation of Accounts 45 10.7 Insurance Contracts 46 10.8 The Investment Manager 46 10.9 Powers of Trustee 47 10.10 Accounting and Records 48 10.11 Judicial Settlement of Accounts 48 10.12 Resignation and Removal of Trustee 48 10.13 Group Trust 48 ARTICLE XI PLAN AMENDMENT OR TERMINATION 11.1 Prototype Plan Amendment 48 11.2 Plan Amendment 49 11.3 Right of the Employer to Terminate Plan 49 11.4 Effect of Partial or Complete Termination or Complete Discontinuance of Contributions 50 11.5 Bankruptcy 50 ARTICLE XII MISCELLANEOUS PROVISIONS 12.1 Exclusive Benefit of Participants 50 12.2 Plan Not a Contract of Employment 51 12.3 Action by Employer 51 12.4 Source of Benefits 51 12.5 Benefits Not Assignable 51 12.6 Domestic Relations Orders 51 12.7 Claims Procedure 51 12.8 Records and Documents; Errors 51 12.9 Benefits Payable to Minors, Incompetents and Others 52 12.10 Plan Merger or Transfer of Assets 52 12.11 Participating Affiliates 52 12.12 Controlling Law 52 12.13 Singular and Plural and Article and Section References 52 ARTICLE I DEFINITIONS As used in this Prototype Plan and in each Adoption Agreement, each of the following terms shall have the meaning for that term set forth in this Article I: 1.1 Account: A separate Elective Deferrals Account, Employee Thrift Contributions Account, Employer Contributions Account, Matching 401(k) Contributions Account, Matching Thrift Contributions Account, Participant Voluntary Nondeductible Contributions Account, Qualified Matching Contributions Account, Qualified Nonelective Contributions Account, Rollover Contribution Account, and Transferred Account, as the case may be. 1.2 Account Balance: The value of an Account determined as of the applicable Valuation Date. 1.3 ACP Test: The Contribution Percentage test that is set forth in Section 3.5.2 of the Plan. 1.4 Actual Deferral Percentage: The ratio (expressed as a percentage), of (A) Elective Deferrals made on behalf of an Eligible Participant for the Plan Year (including Excess Elective Deferrals of Highly Compensated Employees and, at the election of the Employer, Qualified Nonelective Contributions and/or Qualified Matching Contributions), but excluding (1) Excess Elective Deferrals of Nonhighly Compensated Employees that arise solely from Elective Deferrals made under the Plan or plans of the Employer or an Affiliate and (2) Elective Deferrals that are taken into account in the ACP Test (provided the ADP Test is satisfied with or without the exclusion of such Elective Deferrals) to (B) the Participant's CODA Compensation for the Plan Year (whether or not the Eligible Employee was a Participant for the entire Plan Year). The Actual Deferral Percentage of an Eligible Participant who would be a Participant but for the failure to make an Elective Deferral is zero. 1.5 Adjustment Factor: The cost of living adjustment factor prescribed by the Secretary of the Treasury under Code Section 415(d) for years beginning after December 31, 1987, as applied to such items and in such manner as the Secretary shall provide. 1.6 Administrator: The Employer, unless otherwise specified by duly authorized action by the Employer. 1.7 Adoption Agreement: The document so designated with respect to this Prototype Plan that is executed by the Employer, as amended from time to time. 1.8 ADP Test: The Average Actual Deferral Percentage test set forth in Section 3.4.2(B) of the Plan. 1.9 Affiliate: Any corporation or unincorporated trade or business (other than the Employer) while it is: (A) a member of a "controlled group of corporations" (within the meaning of Code Section 414(b)) of which the Employer is a member; (B) a member of any trade or business under "common control" (within the meaning of Code Section 414(c)) with the Employer; (C) a member of an "affiliated service group" (as that term is defined in Code Section 414(m)) which includes the Employer; or (D) any other entity required to be aggregated with the Employer pursuant to Code Section 414(o). With respect to Section 3.9, "Affiliate" status shall be determined in accordance with Code Section 415(h). 1.10 Annuity Contract: An individual or group annuity contract issued by an insurance company providing periodic benefits, whether fixed, variable or both, the benefits or value of which a Participant or Beneficiary cannot transfer, sell, assign, discount, or pledge as collateral for a loan or as security for the performance of an obligation, or for any other purpose, to any person other than the issuer thereof. The terms of any annuity contract purchased and distributed by the Plan to a Participant or Spouse shall comply with the requirements of this Plan. 1.11 Average Actual Deferral Percentage: For any group of Eligible Participants, the average (expressed as a percentage) of the Actual Deferral Percentages for each of the Eligible Participants in that group, including those not making Elective Deferrals. 1.12 Average Contribution Percentage: For any group of Eligible Participants, the average (expressed as a percentage) of the Contribution Percentages for each of the Participants in that group, including those on whose behalf Matching 401(k) Contributions and/or Matching Thrift Contributions, if applicable, are not being made. 1.13 Beneficiary: A person or persons entitled to receive any payment of benefits pursuant to Article VII. 1.14 Benefit Commencement Date: The first day, determined pursuant to Article V, for which a Participant or Beneficiary receives or begins to receive payment in any form of distribution as a result of death, Disability, termination of Employment, Early Retirement, Plan termination or upon or after Normal Retirement Age or age 70-1/2. 1.15 CODA: A cash or deferred arrangement pursuant to Code Section 401(k) which is part of a profit sharing plan and under which an Eligible Participant may elect to make Elective Deferrals in accordance with Section 3.4.1. 1.16 CODA Compensation: Solely for purposes of determining the Actual Deferral Percentage and the Contribution Percentage, CODA Compensation shall be Compensation excluding or including "elective contributions" as specified in the Adoption Agreement. The preceding sentence shall be effective for Plan Years beginning on or after January 1, 1989. 1.17 Code: The Internal Revenue Code of 1986, as now in effect or as amended from time to time. A reference to a specific provision of the Code shall include such provision and any applicable regulation pertaining thereto. 1.18 Compensation: For purposes of contributions, Compensation shall be defined in the Adoption Agreement and Section 3.9.1(H), subject to any exclusions elected under Section IAA(d) of the Adoption Agreement, Section 3.1.4 and the following modifications: (A) For a Self-Employed Individual, Compensation means his or her Earned Income, provided that if the Self-Employed Individual is not a Participant for an entire Plan Year, his or her Compensation for that Plan Year shall be his or her Earned Income for that Plan Year multiplied by a fraction the numerator of which is the number of days he or she is a Participant during the Plan Year and the denominator of which is the number of days in the Plan Year. (B) Compensation of each Participant taken into account under this Plan for any Plan Year beginning after December 21, 1988 shall be limited to the first $200,000 as adjusted by the Adjustment Factor. In determining the Compensation of a Participant for purposes of this limitation, the rule of Code Section 414(q)(6) shall apply, except in applying such rules, the term "family" shall include only the Spouse of the Participant and any lineal descendants of the Participant who have not attained the age of 19 before the close of the year. If, as a result of the application of such rules, the adjusted $200,000 limitation is exceeded, (except for purposes of determining the portion of Compensation up to the Integration Level if this Plan is integrated with Social Security), the limitation shall be prorated among the affected Participants in proportion to each such Participant's Compensation as determined under this Section 1.18 prior to the application of this limitation. In a manner applied uniformly to all Eligible Employees, only Compensation during the period in which the Employee is an Eligible Employee may be taken into account for purposes of the nondiscrimination tests described in Code Section 401(k) and 401(m). (C) If Compensation for any prior Plan Year is taken into account in determining an Employee's contributions or benefits for the current year, the Compensation for such prior year is subject to the applicable annual compensation limit in effect for that prior year. For this purpose, for years beginning before January 1, l990, the applicable annual compensation limit is $200,000. (D) In addition to other applicable limitations set forth in the Plan, and not withstanding any other provision of the Plan to the contrary, for Plan Years beginning on or after January 1,, 1994, the annual compensation of each employee taken into account under the Plan shall not exceed the OBRA'93 annual compensation limit. The OBRA'93 annual compensation limit is $150,000 as adjusted by the Commissioner for increases in the cost of living in accordance with Section 401(a)(17)(B) of the Internal Revenue Code. The cost of living adjustment in effect for a calendar year applies to any period, not exceeding 12 months, over which compensation is determined (determination period) beginning in such calendar year. If a determination period consists of fewer than 12 months, the OBRA'93 annual compensation limit will be multiplied by a fraction the numerator of which is the number of months in the determination period, and the denominator of which is 12. For Plan years beginning on or after January 1, 1994, any reference in this Plan to the limitations under Section 401(a)(17) of the Code shall mean the OBRA'93 annual compensation limit set forth in this provision. If Compensation for any prior determination period is taken into account in determining an Employee's benefits accruing, in the current Plan year, the Compensation for that prior determination period is subject to the OBRA'93 annual compensation limit in effect for that prior determination period. For this purpose, for prior determination periods beginning before the first day of the first Plan year beginning on or after January 1, 1994, the OBRA'93 Compensation limit is $150,000. 1.19 Contribution Percentage: The ratio (expressed as a percentage) of the Participant's Contribution Percentage Amounts to the Participant's CODA Compensation for the Plan Year, whether or not the Eligible Employee was a Participant for the entire Plan Year. 1.20 Contribution Percentage Amounts shall mean the sum of the: (A) Matching 401(k) Contributions; (B) Matching Thrift Contributions; (C) Qualified Matching Contributions (to the extent not taken into account for purposes of the ADP Test); (D) Employee Thrift Contributions; and (E) Participant Voluntary Nondeductible Contributions, as applicable, made on behalf of the Participant for the Plan Year. Such Contribution Percentage Amounts shall not include Matching 401(k) Contributions that are forfeited either to correct Excess Aggregate Contributions or because the contributions to which they relate are Excess Elective Deferrals, Excess Contributions or Excess Aggregate Contributions. The Employer may include Qualified Nonelective Contributions in the Contribution Percentage Amounts, as specified in the Adoption Agreement. Elective Deferrals may also be used in the Contribution Percentage Amounts so long as the ADP Test is met before the Elective Deferrals are used in the ACP Test and continues to be met following the exclusion of those Elective Deferrals that are used to meet the ACP Test, as specified in the Adoption Agreement. An Eligible Participant who does not direct an Elective Deferral or an Employee Thrift Contribution shall be treated as an Eligible Participant on behalf of whom no such contributions are made. 1.21 Defined Benefit Plan: A plan of the type defined in Code Section 414(j) maintained by the Employer or Affiliate, as applicable. 1.22 Defined Contribution Plan: A plan of the type defined in Code Section 414(i) maintained by the Employer or Affiliate, as applicable. 1.23 Disability: Disability as defined in the Adoption Agreement. The permanence and degree of such impairment shall be supported by medical evidence. 1.24 Early Retirement: An actively employed Participant is eligible for Early Retirement upon satisfying the requirements set forth in the Adoption Agreement. 1.25 Early Retirement Date: The Participant's Benefit Commencement Date following his or her termination of Employment on or after satisfying the requirements for Early Retirement and prior to Normal Retirement Age. 1.26 Earned Income: The "net earnings from self-employment" within the meaning of Code Section 401(c)(2) of a Self-Employed Individual from the trade or business with respect to which the Plan is established, but only if the personal services of the Self-Employed Individual are a material income-producing factor in that trade or business. Net earnings will be determined without regard to items not included in gross income and the deductions properly allocable to or chargeable against such items and are to be reduced by contributions by the Employer or Affiliate to a Qualified Plan to the extent deductible under Code Section 404. Where this Plan refers to Earned Income in the context of a trade or business other than that with respect to which the Plan is adopted, the term Earned Income means such net earnings as would be Earned Income as defined above if that trade or business was the trade or business with respect to which the Plan is adopted. Net earnings shall be determined with regard to the deduction allowed to the Employer by Code Section 164(f) for taxable years beginning after December 31, 1989. 1.27 Elective Deferrals: Contributions made to the Plan during the Plan Year by the Employer, at the election of the Participant, in lieu of cash compensation and shall include contributions that are made pursuant to a 401(k) Election. A Participant's Elective Deferral in any taxable year is the sum of all Employer and Affiliate contributions pursuant to an election to defer under any qualified cash or deferred arrangement, any simplified employee pension plan or deferred arrangement as described in Code Section 402(h)(1)(B), any eligible deferred compensation plan under Code Section 457, any plan as described under Code Section 501(c)(18), and any Employer contributions made on behalf of a Participant for the purchase of an annuity under Code Section 403(b) pursuant to a salary reduction agreement. Such contributions are nonforfeitable when made and are not distributable under the terms of the Plan to Participants or their Beneficiaries earlier than the earlier of: (A) termination from Employment, death or Disability of the Participant; (B) termination of the Plan without establishment of another Defined Contribution Plan by the Employer or an Affiliate; (C) disposition by the Employer or Affiliate to an unrelated corporation of substantially all of its assets used in a trade or business if such unrelated corporation continues to maintain this Plan after the disposition but only with respect to Employees who continue employment with the acquiring unrelated entity. The sale of 85% of the assets used in a trade or business will be deemed a sale of "substantially all" the assets used in a trade or business; (D) sale by the Employer or Affiliate to an unrelated entity of its interest in an Affiliate if such unrelated entity continues to maintain the Plan but only with respect to Employees who continue employment with such unrelated entity; or (E) the events specified in Part B, Article VIII of the Adoption Agreement. Elective Deferrals shall not include any deferrals properly distributed as an "Excess Amount" pursuant to Section 3.9.2. 1.28 Elective Deferrals Account: The Account established for a Participant pursuant to Section 3.8.1. 1.29 Eligible Employee: Those Employees specified in the Adoption Agreement. 1.30 Eligible Participant: An Eligible Employee who has met the eligibility requirements set forth in the Adoption Agreement whether or not he or she makes Elective Deferrals and/or Employee Thrift Contributions. 1.31 Employee: A Self-Employed Individual, or any individual who is employed by the Employer in the trade or business with respect to which the Plan is adopted and any individual who is employed by an Affiliate. Each Leased Employee shall also be treated as an Employee of the recipient Employer. The preceding sentence shall not apply, however, to any Leased Employee who is (A) covered by a money purchase pension plan maintained by the "leasing organization" referred to in Section 1.54 which provides, with respect to such Leased Employee, a nonintegrated Employer contribution rate of at least 10% of Limitation Compensation, but including amounts contributed pursuant to a salary reduction agreement which are excluded from the Employee's gross income under Code Section 402(a)(8), Code Section 402(h) or Code Section 403(b), immediate participation, and full and immediate vesting and (B) such Leased Employees do not constitute more than 20% of the Employer's and Affiliates' nonhighly compensated workforce. For purposes of the Plan, all Employees will be treated as employed by a single employer. 1.32 Employee Thrift Contributions: Employee nondeductible contributions which are required to be eligible for a Matching Thrift Contribution. Employee Thrift Contributions do not include Participant Voluntary Nondeductible Contributions. 1.33 Employee Thrift Contributions Account: The Account established for a Participant pursuant to Section 3.8.3. 1.34 Employer: The sole proprietorship, partnership or corporation that adopts the Plan by executing the Adoption Agreement. For all purposes relating to eligibility, participation, contributions, vesting and allocations, Employer includes all Participating Affiliates. 1.35 Employer Account: The Participant's Matching 401(k) Contributions Account, Matching Thrift Contributions Account, Employer Contributions Account, Qualified Matching Contributions Account and Qualified Nonelective Contributions Account, as the case may be. 1.36 Employer Contributions: Any contributions made by the Employer for the Plan Year on behalf of a Participant in accordance with Section 3.1 of the Plan. 1.37 Employer Contributions Account: The Account established for a Participant pursuant to Section 3.8.2. 1.38 Employment: An Employee's employment or self-employment with the Employer, Affiliate or a "leasing organization" referred to in Section 1.54 or, to the extent required under Code Section 414(a)(2) or as otherwise specified by the Administrator on a uniform and nondiscriminatory basis, any predecessor of any of them. If any of them maintains a plan of a "predecessor employer" (within the meaning of Code Section 414(a)(1)) employment or self-employment with the "predecessor employer" will be treated as Employment. Additionally, if the trade or business conducted by a Self-Employed Individual becomes incorporated, all employment with that trade or business or with any Affiliate shall be treated as Employment with the Employer. 1.39 Entry Date: The date on which an Eligible Employee becomes a Participant, as specified in the Adoption Agreement. 1.40 ERISA: The Employee Retirement Income Security Act of 1974, as amended from time to time. Reference to a specific provision of ERISA shall include such provision and any applicable regulation pertaining thereto. 1.41 Excess Aggregate Contributions: With respect to any Plan Year, the excess of: (A) The aggregate Contribution Percentage Amounts, taken into account in computing the numerator of the Contribution Percentage actually made on behalf of Highly Compensated Employees for such Plan Year, over (B) The maximum Contribution Percentage Amounts permitted by the ACP Test (determined by reducing contributions made on behalf of Highly Compensated Employees in the order of their Contribution Percentages beginning with the highest of such percentages) Such determination shall be made after first determining Excess Elective Deferrals and then determining Excess Contributions. 1.42 Excess Contributions: With respect to any Plan Year, the aggregate amount of Elective Deferrals, Qualified Nonelective Contributions and Qualified Matching Contributions, if applicable, actually paid over to the Trust Fund on behalf of Highly Compensated Employees for such Plan Year, over the maximum amount of such contributions permitted by the ADP Test (determined by reducing contributions made on behalf of Highly Compensated Employees in order of the Actual Deferral Percentages, beginning with the highest of such percentages). 1.43 Excess Elective Deferrals: The amount of Elective Deferrals for a Participant's taxable year that are includible in the gross income of the Participant to the extent that such Elective Deferrals exceed the Code Section 402(g) dollar limitation and which the Participant allocates to this Plan pursuant to the procedure set forth in Section 3.4.2. Excess Elective Deferrals shall be treated as an Annual Addition pursuant to Section 3.9, unless such amounts are distributed no later than the first April 15th following the close of the Participant's taxable year. 1.44 Family Member: An individual described in Code Section 414(q)(6)(B). 1.45 401(k) Contributions Accounts: The Participant's Elective Deferral Account, Qualified Nonelective Contributions Account, and/or Qualified Matching Contributions Account, as the case may be. 1.46 401(k) Election: The election by a Participant to make Elective Deferrals in accordance with Section 3.4.1. 1.47 Fully Vested Separation: Termination of Employment, by reason other than death, of a Participant whose vested percentage in each Employer Account is 100%. 1.48 Group Trust: A Trust Fund consisting of assets of any Plan maintained and established by the Employer or an Affiliate pursuant to Section 10.14. 1.49 Highly Compensated Employee: The term Highly Compensated Employee includes highly compensated active Employees and highly compensated former employees. (A) A highly compensated active Employee includes any Employee who performs service for the Employer or Affiliate during the Plan Year and who, during the look-back year (the twelve-month period immediately preceding the Plan Year): (i) received Compensation from the Employer or Affiliate in excess of $75,000 (as adjusted by the Adjustment Factor); (ii) received Compensation from the Employer or Affiliate in excess of $50,000 (as adjusted by the Adjustment Factor) and was a member of the top-paid group for such year; or (iii) was an officer of the Employer or Affiliate and received Compensation during such year that is greater than 50% of the Defined Benefit Dollar Limitation. (B) The term Highly Compensated Employee also includes: (i) Employees who are both described in the preceding sentence if the term "Plan Year" is substituted for the term "look-back year" and the Employee is one of the 100 Employees who received the most Compensation from the Employer or Affiliate during the Plan Year; and (ii) Employees who are 5% owners at any time during the look-back year or Plan Year. (C) If no officer has received Compensation that is greater than 50% of the Defined Benefit Dollar Limitation in effect during either the Plan Year or look-back year, the highest paid officer of such year shall be treated as a Highly Compensated Employee. (D) A highly compensated former employee includes any Employee who terminated Employment (or was deemed to have terminated) prior to the Plan Year, performs no service for the Employer or Affiliate during the Plan Year, and was a highly compensated active employee for either the separation year or any Plan Year ending on or after the Employee's 55th birthday. (E) If an Employee is, during a Plan Year or look-back year, a Family Member of either (i) a 5% owner who is an active or former Employee or (ii) a Highly Compensated Employee who is one of the ten most highly compensated employees ranked on the basis of Compensation paid by the Employer or Affiliate during such year, then the Family Member and the 5% owner or top-ten Highly Compensated Employee shall be aggregated. In such case, the Family Member and 5% owner or top-ten Highly Compensated Employee shall be treated as a single Employee receiving Compensation and plan contributions or benefits equal to the sum of such Compensation and contributions or benefits of the Family Member and 5% owner or top-ten Highly Compensated Employee. For purposes of this section, Family Member includes the Spouse, lineal ascendants and descendants of the Employee or former employee and the spouses of such lineal ascendants and descendants. (F) The determination of who is a Highly Compensated Employee, including the determinations of the number and identity of Employees in the top-paid group; the top 100 Employees; the number of Employees treated as officers; and the Compensation that is considered will be made in accordance with Code Section 414(q). 1.50 Hour of Service: If the Employer elects in the Adoption Agreement the hourly record method, an Hour of Service shall include: (A) Each hour for which an Employee is paid, or entitled to payment, by the Employer or an Affiliate for the performance of duties for the Employer or an Affiliate. These hours will be credited to the Employee for each Plan Year in which the duties are performed, or with respect to eligibility under Article II, the applicable computation period under the definition of Year of Service in which the duties are performed; (B) Each hour for which an Employee is paid, or entitled to payment, by the Employer or an Affiliate due to a period of time during which no duties are performed (irrespective of whether Employment has terminated) due to vacation, holiday, illness, incapacity (including Disability), layoff, jury duty, military duty, or leave of absence. No more than 501 Hours of Service will be credited under this paragraph for any single continuous period (whether or not such period occurs in a single computation period). Hours under this paragraph will be calculated and credited pursuant to section 2530.200b-2 of the Department of Labor Regulations which are incorporated herein by this reference; and (C) Each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Employer or an Affiliate. The same Hours of Service will not be credited both under subparagraph (A) or subparagraph (B), as the case may be, and under this subparagraph (C). These hours will be credited to the Employee for the Year of Service or other computation period to which the award or agreement pertains rather than the Year of Service or other computation period in which the award, agreement or payment is made. If the Employer elects in the Adoption Agreement the elapsed time method, an Hour of Service is an hour for which an Employee is paid, or entitled to payment, for the performance of duties for the Employer or an Affiliate. With respect to both the hourly record method and the elapsed time method, in addition to service with an Affiliate, Hours of Service will also be credited for any individual considered an Employee for purposes of this Plan under Code Section 414(n). 1.51 Immediately Distributable: A Participant's Account is Immediately Distributable if any part of such Account could be distributed to the Participant or Participant's Surviving Spouse before the Participant attains (or would have attained if not deceased) the later of Normal Retirement Age or age 62. 1.52 Investment Manager: Any person appointed by the Trustee or, with respect to Participant-Directed Assets, by the Participant or Beneficiary having the power to direct the investment of such assets, to serve as such in accordance with Section 10.8. 1.53 Key Employee: Any Employee or former Employee (and the beneficiaries of such Employee) who at any time during the "determination period" was (A) an officer of the Employer or Affiliate, having an annual Compensation greater than 50% of the Defined Benefit Dollar Limitation for any Plan Year within the "determination period"; (B) an owner (or considered an owner under Code Section 318) of one of the ten largest interests in the Employer or Affiliate if such individual's Compensation exceeds 100% of the dollar limitation under Code Section 415(c)(1)(A); (C) a "5% owner" (as defined in Code Section 416(i)) of the Employer or Affiliate; or (D) a "1% owner" (as defined in Code Section 416(i)) of the Employer or Affiliate who has an annual Compensation of more than $150,000. Annual Compensation means compensation as defined in Code Section 415(c)(3), but including amounts contributed by the Employer pursuant to a salary reduction agreement which are excludible from the Employee's gross income under Code Section 125, Code Section 402(a)(8), Code Section 402(h) or Code Section 403(b). The "determination period" is the Plan Year containing the "determination date" and the four preceding Plan Years. The "determination date" for the first Plan Year is the last day of that Plan Year, and for any subsequent Plan Year is the last day of the preceding Plan Year. The determination of who is a Key Employee will be made in accordance with Code Section 416(i). 1.54 Leased Employee: Any individual (other than an Employee of the recipient Employer or Affiliate) who, pursuant to an agreement between the Employer or Affiliate and any other person (the "leasing organization") has performed services for the Employer (or for the Employer or Affiliate and "related persons" determined in accordance with Code Section 414(n)(6)) on a substantially full-time basis for a period of at least one year, which services are of a type historically performed, in the business field of the recipient Employer or Affiliate, by employees. Contributions or benefits provided a Leased Employee by the leasing organization which are attributable to services performed for the recipient Employer or Affiliate shall be treated as provided by the recipient Employer. 1.55 Limitation Year: The Limitation Year as specified in the Adoption Agreement. All Qualified Plans maintained by the Employer must use the same Limitation Year. If the Limitation Year is amended to a different 12-consecutive month period, the new Limitation Year must begin on a date within the Limitation Year in which the amendment is made. 1.56 Master or Prototype Plan: A plan the form of which is the subject of a favorable opinion letter from the Internal Revenue Service. 1.57 Matching 401(k) Contribution: Any contribution made by the Employer to this and/or any other Defined Contribution Plan for the Plan Year, by reason of the Participant's 401(k) Election, and allocated to a Participant's Matching 401(k) Contributions Account or to a comparable account in another Defined Contribution Plan. Matching 401(k) Contributions are subject to the distribution provisions applicable to Employer Accounts in the Plan. 1.58 Matching 401(k) Contributions Account: The Account established for a Participant pursuant to Section 3.8.4. 1.59 Matching Thrift Contributions: Any contribution made by the Employer for the Plan Year by reason of Employee Thrift Contributions. Matching Thrift Contributions shall be subject to the distribution provisions applicable to Employer Accounts in the Plan. 1.60 Matching Thrift Contributions Account: The Account established for a Participant pursuant to Section 3.8.5. 1.61 Net Profits: The current and accumulated profits of the Employer from the trade or business of the Employer with respect to which the Plan is established, as determined by the Employer before deductions for federal, state and local taxes on income and before contributions under the Plan or any other Qualified Plan. 1.62 Nonhighly Compensated Employee: An Employee of the Employer who is neither a Highly Compensated Employee nor a Family Member. 1.63 Nonvested Separation: Termination of Employment of a Participant whose vested percentage in each Employer Account is 0%. 1.64 Normal Retirement Age: The age specified in the Adoption Agreement. Notwithstanding the Employer's election in the Adoption Agreement, if, for Plan Years beginning before January 1, 1988, Normal Retirement Age was determined with reference to the anniversary of the participation commencement date (more than 5 but not to exceed 10 years), the anniversary date for Participants who first commenced participation under the Plan before the first Plan Year beginning on or after January 1, 1988, shall be the earlier of (A) the tenth anniversary of the date the Participant commenced participation in the Plan (or such anniversary as had been elected by the Employer, if less than 10) or (B) the fifth anniversary of the first day of the first Plan Year beginning on or after January 1, 1988. 1.65 Owner-Employee: An individual who is a sole proprietor, if the Employer is a sole proprietorship, or if the Employer is a partnership, a partner owning more than 10% of either the capital interest or the profits interest in the Employer; provided that where this Plan refers to an Owner-Employee in the context of a trade or business other than the trade or business with respect to which the Plan is adopted, the term Owner-Employee means a person who would be an Owner-Employer as defined above if that other trade or business was the Employer. 1.66 Partially Vested Separation: Termination of Employment of a Participant whose vested percentage in any Employer Account is less than 100% but greater than 0%. 1.67 Participant: An Employee who has commenced, but not terminated, participation in the Plan as provided in Article II. 1.68 Participant Contributions Account: The Participant's Participant Voluntary Nondeductible Contributions Account and/or Employee Thrift Contributions Account, as the case may be. 1.69 Participant-Directed Assets: The assets of an Account which are invested, as described in Section 10.5.1, according to the direction of the Participant or the Participant's Beneficiary, as the case may be, in either individually selected investments or in commingled funds or in shares of regulated investment companies. 1.70 Participant Voluntary Nondeductible Contributions: Any voluntary nondeductible contributions made in cash by a Participant to this Plan other than Employee Thrift Contributions. 1.71 Participant Voluntary Nondeductible Contributions Account: The Account established for a Participant pursuant to Section 3.8.6. 1.72 Participating Affiliate: Any Affiliate or any other employer designated as such by the Employer, and, by duly authorized action, that has adopted the Plan with the consent of the Employer and has not withdrawn therefrom. 1.73 Period of Severance: For purposes of the hourly records method, a Period of Severance is a period equal to the number of consecutive Plan Years or, with respect to eligibility, the applicable computation period under the definition of Year of Service, in which an Employee has 500 Hours of Service or less. The Period of Severance shall be determined on the basis of Hours of Service and shall commence with the first Plan Year in which the Employee has 500 Hours of Service or less. With respect to any period of absence during which a Period of Severance does not commence, the Participant shall be credited with the Hours of Service (up to a maximum of 501 Hours of Service in a Plan Year) which would otherwise have been credited to him or her but for such absence, or if such Hours of Service cannot be determined, 8 Hours of Service for each day of absence. For purposes of the elapsed time method, a Period of Severance is a continuous period of at least 12-consecutive months during which an individual's Employment is not continuing, beginning on the date an Employee retires, quits or is discharged or, if earlier, the first 12-month anniversary of the date that the individual is otherwise first absent from service (with or without pay) for any other reason, and ending on the date the individual again performs an Hour of Service. Anything in the definition thereof to the contrary notwithstanding, a Period of Severance shall not commence if the Participant is: (A) On an authorized leave of absence in accordance with standard personnel policies applied in a nondiscriminatory manner to all Employees similarly situated and returns to active Employment by the Employer or Affiliate immediately upon the expiration of such leave of absence; (B) On a military leave while such Employee's re-employment rights are protected by law and returns to active Employment within ninety days after his or her discharge or release (or such longer period as may be prescribed by law); or (C) Absent from work by reason of (i) the pregnancy of the Employee, (ii) the birth of a child of the Employee, or (iii) the placement of a child with the Employment in connection with the adoption of such child by such Employee, or (iv) the care of such child for a period beginning immediately following such birth or placement. In determining when such a Participant's Period of Severance begins, the Participant will be credited with (i) for purposes of the elapsed time method, the 12-consecutive month period beginning on the first anniversary of the first date of such absence; or (ii) for purposes of the hourly records method, the Hours of Service he or she would normally have had but for such absence, or if such Hours cannot be determined, eight Hours of Service for each day of such absence; provided, however, that such Hours of Service shall not exceed 501 and shall be credited only in the year in which such absence began if such crediting would prevent the Participant from incurring a Period of Severance in that year, or in any other case, shall be credited in the immediately following year. 1.74 Plan: The plan established by the Employer in the form of this Prototype Plan and the applicable Adoption Agreement executed by the Employer. The Plan shall have the name specified in the Adoption Agreement. 1.75 Plan Year: Each 12-consecutive month period ending on the date specified in the Adoption Agreement, during any part of which the Plan is in effect. 1.76 Prototype Plan: The Merrill Lynch Special Prototype Defined Contribution Plan set forth in this document, as amended or restated from time to time. 1.77 Qualified Joint and Survivor Annuity: An immediate annuity for the life of Participant with a survivor annuity continuing after the Participant's death to the Participant's Surviving Spouse for the Surviving Spouse's life in an amount equal to 50% of the amount of the annuity payable during the joint lives of the Participant and such Surviving Spouse and which is the actuarial equivalent of a single life annuity which could be provided for the Participant under an Annuity Contract purchased with the aggregate vested Account Balances of the Participant's Accounts at the Benefit Commencement Date. 1.78 Qualified Matching Contributions: Matching Contributions which, pursuant to the election made by the Employer, and in accordance with Code Section 401(m), are nonforfeitable when made and subject to the limitation on distribution set forth in the definition of Qualified Nonelective Contributions. 1.79 Qualified Matching Contributions Account: The Account established for a Participant pursuant to Section 3.8.7. 1.80 Qualified Nonelective Contributions: Contributions (other than Matching 401(k) Contributions, Qualified Matching 401(k) Contributions or Elective Deferrals), if any, made by the Employer which the Participant may not elect to receive in cash until distributed from the Plan, which are nonforfeitable when made, and which are not distributable under the terms of the Plan to Participants or their Beneficiaries earlier than the earlier of: (A) termination of Employment, death, or Disability of the Participant; (B) attainment of the age 59-1/2 by the Participant; (C) termination of the Plan without establishment of another Defined Contribution Plan by the Employer or an Affiliate; (D) disposition by the Employer or Participating Affiliate to an unrelated corporation of substantially all of its assets used in a trade or business if such unrelated corporation continues to maintain this Plan after the disposition but only with respect to Employees who continue employment with the acquiring unrelated entity. The sale of 85% of the assets used in a trade or business will be deemed a sale of "substantially all" the assets used in a trade or business; (E) sale by the Employer to an unrelated entity of its interest in an Affiliate if such unrelated entity continues to maintain the Plan but only with respect to Employees who continue employment with such unrelated entity; and (F) effective for Plan Years beginning before January 1, 1989, upon the hardship of the Participant. 1.81 Qualified Nonelective Contributions Account: The Account established for a Participant pursuant to Section 3.8.7. 1.82 Qualified Plan: A Defined Benefit Plan or Defined Contribution Plan. 1.83 Qualifying Employer Securities: Employer securities, as that term is defined in ERISA Section 407(d)(5). 1.84 Rollover Contribution: A contribution described in Section 3.4. 1.85 Rollover Contributions Account: The Account established for a Participant pursuant to Section 3.8.9. 1.86 Self-Employed Individual: An individual who has Earned Income for the Plan Year involved from the trade or business for which the Plan is established, or who would have had such Earned Income but for the fact that the trade or business with respect to which the Plan is established had no Net Profits for that Plan Year. 1.87 Social Security Retirement Age: Age 65 in the case of a Participant attaining age 62 before January 1, 2000 (i.e., born before January 1, 1938), age 66 for a Participant attaining age 62 after December 31, 1999, and before January 1, 2017 (i.e., born after December 31, 1937, but before January 1, 1955), and age 67 for a Participant attaining age 62 after December 31, 2016 (i.e., born after December 31, 1954). 1.88 Sponsor: The mass submitter, Merrill Lynch, Pierce, Fenner & Smith Incorporated and any successor thereto, and any other qualifying sponsoring organization who sponsors with the consent of the mass submitter, the Prototype Plan and makes the Prototype Plan available for adoption by Employers. 1.89 Spouse: The person married to a Participant, provided that a former spouse will be treated as the Spouse to the extent provided under a "qualified domestic relations order" (or a "domestic relations order" treated as such) as referred to in Section 12.6. 1.90 Surviving Spouse: The person married to a Participant on the earliest of: (A) the date of the Participant's death; (B) the Participant's Benefit Commencement Date; or (C) the date on which an Annuity Contract is purchased for the Participant providing benefits under the Plan; Anything contained herein to the contrary notwithstanding, a former spouse will be treated as the Surviving Spouse to the extent provided under a "qualified domestic relations order" (or a "domestic relations order" treated as such) as referred to in Section 12.6. 1.91 Taxable Wage Base: The maximum amount of earnings which may be considered "wages" for the Plan Year involved under Code Section 3121(a)(1). 1.92 Transferred Account: The Account established for a Participant pursuant to Section 3.8.10. 1.93 Trust: The trust established under the Plan to which Plan contributions are made and in which Plan assets are held. 1.94 Trust Fund: The assets of the Trust held by or in the name of the Trustee. 1.95 Trustee: The person appointed as Trustee pursuant to Article X and any successor Trustee. 1.96 Valuation Date: The last business day of each Plan Year, the date specified in the Adoption Agreement or determined pursuant to Section 10.6, if applicable, and each other date as may be determined by the Administrator. 1.97 Vesting Service: The Years of Service credited to a Participant under Article IV for purposes of determining the Participant's vested percentage in any Employer Account established for the Participant. 1.98 Years of Service: If the Employer elects the hourly records method in the Adoption Agreement, an Employee shall be credited with one Year of Service for each Plan Year in which he or she has 1,000 Hours of Service. Solely for purposes of eligibility to participate, an Employee shall be credited with a Year of Service on the last day of the 12-consecutive month period which begins on the first day on which he or she has an Hour of Service, if he or she has at least 1,000 Hours of Service in that period. If an Employee fails to be credited with a Year of Service on such date, he or she shall be credited with a Year of Service on the last day of each succeeding 12-consecutive month period. If the Employer elects the elapsed time method in the Adoption Agreement, the Employee's Years of Service shall be a span of service equal to the sum of: (A) the period commencing on the date the Employee first performs an Hour of Service and ending on the date he or she quits, retires, is discharged, dies, or if earlier, the 12-month anniversary of the date on which the Employee was otherwise first absent from service (with or without pay) for any other reason; and (B) (i) if the Employee quits, retires, or is discharged, the period commencing on the date the Employee terminated his or her Employment and ending on the first date on which he or she again performs an Hour of Service, if such date is within 12 months of the date on which he or she last performed an Hour of Service; or (ii) if the Employee is absent from work for any other reason and, within 12 months of the first day of such absence, the Employee quits, retires or is discharged, the period commencing on the first day of such absence and ending on the first day he or she again performs an Hour of Service if such day is within 12 months of the date his or her absence began. With respect to both the elapsed time method and the hourly record method, service with a predecessor employer, determined in the manner in which the rules of this Plan would have credited such service had the Participant earned such service under the terms of this Plan, may be included in Years of Service, as specified in the Adoption Agreement. ARTICLE II PARTICIPATION 2.1 Admission as a Participant 2.1.1 An Eligible Employee shall become a Participant on the Entry Date coincident with or next following the date on which he or she meets the eligibility requirements specified in the Adoption Agreement; provided, however that (A) an Eligible Employee who has met the eligibility requirements as of the first day of the Plan Year in which the Plan is adopted as a new Plan shall become a Participant as of such date; (B) an Eligible Employee who had met the eligibility requirements of a plan that is restated and/or amended to become this Plan shall become a Participant as of the date this Plan is adopted; and (C) if selected in the Adoption Agreement, an Eligible Employee shall become a Participant on the effective date of the Plan providing he or she is an Eligible Employee on such date. 2.1.2 An Employee who did not become a Participant on the Entry Date coincident with or next following the day on which he or she met the eligibility requirements because he or she was not then an Eligible Employee shall become a Participant on the first day on which he or she again becomes an Eligible Employee unless determined otherwise in accordance with Section 2.3.1 of the Plan. 2.1.3 If the Plan includes a CODA or thrift feature, in addition to the participation requirements set forth in Section 2.1.1, an Eligible Employee shall become a Participant upon filing his or her 401(k) Election or election to make Employee Thrift Contributions with the Administrator. An election shall not be required if the Employer has elected to make contributions to an Employer Account and/or Qualified Nonelective Contributions with respect to all Eligible Participants. 2.1.4 An individual who has ceased to be a Participant and who again becomes an Eligible Employee shall become a Participant immediately upon reemployment as an Eligible Employee unless determined otherwise in accordance with Section 2.3.1 of the Plan. 2.2 Rollover Membership and Trust to Trust Transfer An Eligible Employee who makes a Rollover Contribution or a trust to trust transfer shall become a Participant as of the date of such contribution or transfer even if he or she had not previously become a Participant. Such an Eligible Employee shall be a Participant only for the purposes of such Rollover Contribution or transfer and shall not be eligible to share in contributions made by the Employer until he or she has become a Participant in accordance with Section 2.1. 2.3 Crediting of Service for Eligibility Purposes 2.3.1 For purposes of eligibility to participate, an Eligible Employee or Participant without any vested interest in any Employer Account and without an Elective Deferrals Account who terminates Employment shall lose credit for his or her Years of Service prior to such termination of Employment if his or her Period of Severance equals or exceeds five years or, if greater, the aggregate number of Years of Service. 2.3.2. For purposes of eligibility to participate, a Participant who has a vested interest in any Employer Account and who terminates Employment shall retain credit for his or her Years of Service prior to such termination of Employment without regard to the length of his or her Period of Severance. In the event such Participant returns to Employment, he or she shall participate immediately. 2.3.3 A former Eligible Employee who was not a Participant who again becomes an Eligible Employee with no Years of Service to his or her credit shall be treated as a new Employee. 2.4 Termination of Participation A Participant shall cease to be a Participant: (A) upon his or her death; (B) upon the payment to him or her of all nonforfeitable benefits due to him or her under the Plan, whether directly or by the purchase of an Annuity Contract; or (C) upon his or her Nonvested Separation. 2.5 Limitation for Owner-Employee 2.5.1 If the Plan provides contributions or benefits for one or more Owner-Employees who control the trade or business for which this Plan is established and who also control as an Owner-Employee or as Owner-Employees one or more other trades or businesses, this Plan and the plan established for each such other trade or business must, when looked at as a single plan, satisfy the requirements of Code Sections 401(a) and (d) with respect to the employees of this and all of such other trades or businesses. 2.5.2 If the Plan provides contributions or benefits for one or more Owner-Employees who control as an Owner-Employee or as Owner-Employees one or more other trades or businesses, the employees of the other trades or businesses must be included in a plan which satisfies the requirements of Code Sections 401(a) and (d) and which provides contributions and benefits for the employees of such other trades or businesses not less favorable than the contributions and benefits provided for Owner-Employees under this Plan. 2.5.3 If an individual is covered as an Owner-Employee under the plans of two or more trades or businesses which are not controlled and the individual controls a trade or business, then the contributions or benefits of the employees under the plan of the trades or businesses which are controlled must be as favorable as those provided for such individual under the most favorable plan of the trade or business which is not controlled. 2.5.4 For purposes of the preceding three subsections, an Owner-Employee, or two or more Owner-Employees, will be considered to control a trade or business if the Owner-Employee, or two or more Owner-Employees together: (A) own the entire interest in an unincorporated trade or business, or (B) in the case of a partnership, own more than 50% of either the capital interest or the profits interest in the partnership. For purposes of the preceding sentence, an Owner-Employee, or two or more Owner-Employees, shall be treated as owning any interest in a partnership which is owned, directly or indirectly, by a partnership which such Owner-Employee, or such two or more Owner-Employees, are considered to control within the meaning of the preceding sentence. 2.6 Corrections with Regard to Participation 2.6.1 If in any Plan Year an Eligible Employee who should be included as a Participant in the Plan is erroneously omitted and discovery of such omission is not made until after a contribution by the Employer for the year has been made, the Employer shall make a subsequent contribution with respect to the omitted Eligible Employee in the amount which would have contributed with respect to such Eligible Employee had he or she not been omitted. Such contribution shall be made whether or not it is deductible in whole or in part in any taxable year under applicable provisions of the Code. It shall be the responsibility of the Employer and Administrator to take any and all actions as required by this Section 2.6.1. 2.6.2 If in any Plan Year any person who should not have been included as a Participant in the Plan is erroneously included and discovery of such incorrect inclusion is not made until after a contribution for the year has been made, the amount contributed on behalf of such ineligible person shall constitute a forfeiture for the Plan Year in which the discovery is made. It shall be the responsibility of the Employer and Administrator to take any and all actions as required by this Section 2.6.2. 2.7 Provision of Information Each Employee shall execute such forms as may reasonably be required by the Administrator, and shall make available to the Administrator any information the Administrator may reasonably request in this regard. By virtue of his or her participation in this Plan, an Employee agrees, on his or her own behalf and on behalf of all persons who may have or claim any right by reason of the Employee's participation in the Plan, to be bound by all provisions of the Plan. ARTICLE III CONTRIBUTIONS AND ACCOUNT ALLOCATIONS 3.1 Employer Contributions and Allocations 3.1.1 If the Plan is a profit-sharing plan, the Employer will contribute cash and/or Qualifying Employer Securities to the Trust Fund, in such amount, if any, as specified in the Adoption Agreement and with respect to Qualifying Employer Securities as is consistent with Sections 10.4.2 and 10.4.3. If the Plan is a profit-sharing plan, Net Profits may be necessary for an Employer to make contributions, as specified in the Adoption Agreement. Employer Contributions for a Plan Year will be allocated no later than the last day of the Plan Year to the Employer Contributions Account of Participants eligible for an allocation in the manner specified in the Adoption Agreement. A not-for-profit corporation may adopt a profit-sharing plan as an incentive plan; provided, however, that such a plan may not contain a CODA feature unless otherwise permitted by law. 3.1.2 If the Plan is a money purchase pension plan, the Employer will contribute cash to the Trust Fund in an amount equal to that percentage of the Compensation of each Participant eligible for an allocation of Employer contributions for that Plan Year as specified in the Adoption Agreement. Employer Contributions for the Plan Year will be allocated as of the last day of the Plan Year to the Employer Contributions Accounts of Participants eligible for an allocation and entitled to share in such contributions in the manner specified in the Adoption Agreement. 3.1.3 If the Plan is a target benefit plan, the Employer will contribute cash to the Trust Fund in an amount specified in the Adoption Agreement. The amount contributed with respect to the targeted benefit of each Participant eligible for an allocation for that Plan Year will be allocated as of the last day of the Plan Year to the Participant's Employer Contributions Account in the manner specified in the Adoption Agreement. 3.1.4 If the Employer elects in the Adoption Agreement to make contributions on behalf of a Participant whose Employment terminated due to Disability, "Compensation" shall mean, with respect to such Participant, the Compensation he or she would have received for the entire calendar year in which the Disability occurred if he or she had been paid for such year at the rate at which he or she was being paid immediately prior to such Disability. Employer Contributions may be taken into account only if the Participant is a Nonhighly Compensated Employee and contributions made on his or her behalf are nonforfeitable. 3.1.5 If an Employer has adopted more than one Adoption Agreement, or has adopted a plan pursuant to the Merrill Lynch Special Prototype Defined Benefit Plan and Trust, only one Adoption Agreement may be integrated with Social Security. 3.1.6 For purposes of the Plan, contributions provided by the "leasing organization" referred to in Section 1.37 of a Leased Employee which are attributable to services performed for the Employer shall be treated as provided by the Employer. 3.2 Participant Voluntary Nondeductible Contributions 3.2.1 If elected by the Employer in the Adoption Agreement, each Participant while actively employed may make Participant Voluntary Nondeductible Contributions in cash in a dollar amount or a percentage of Compensation which does not, when included in the Contribution Percentage Amount, exceed the limitations set forth in Code Section 401(m). 3.2.2 Participant Voluntary Nondeductible Contributions shall be made in accordance with rules and procedures adopted by the Administrator. 3.3 Rollover Contributions and Trust to Trust Transfers 3.3.1 Any Eligible Employee or Participant may make a Rollover Contribution under the Plan. A Rollover Contribution shall be in cash or in other property acceptable to the Trustee and shall be a contribution attributable to (a) a "qualified total distribution" (as defined in Code Section 402(a)(5)), distributed to the contributing Employee under Code Section 402(a)(5) from a Qualified Plan or distributed to the Employee under Code Section 403(a)(4) from an "employee annuity" or referred to in that section, or (b) a payout or distribution to the Employee referred to in Code Section 408(d)(3) from an "individual retirement account" or an "individual retirement annuity" described, respectively, in Code Section 408(a) or Section 408(b) consisting exclusively of amounts attributable to "qualified total distributions" (as defined in Code Section 402(a)(5)) from a Qualified Plan. The Plan shall not accept a Rollover Contribution attributable to any accumulated deductible employee contributions as defined by Code Section 72(o)(5)(B). The Trustee may condition acceptance of a Rollover Contribution upon receipt of such documents as it may require. In the event that an Employee makes a contribution pursuant to this Section 3.3 intended to be a Rollover Contribution but which did not qualify as a Rollover Contribution, the Trustee shall distribute to the Employee as soon as practicable after that conclusion is reached the entire Account balance in his or her Rollover Contributions Account deriving from such contributions determined as of the valuation date coincident with or immediately preceding such discovery. 3.3.2 Any Eligible Employee or Participant may direct the Administrator to direct the Trustee to accept a transfer to the Trust Fund from another trust established pursuant to another Qualified Plan of all or any part of the assets held in such other trust. The Plan shall not accept a direct transfer attributable to accumulated deductible employee contributions as defined by Code Section 72(o)(5)(B). The Trustee may condition acceptance of such a trust to trust transfer upon receipt of such documents as it may require. 3.4 Section 401(k) Contributions and Account Allocations 3.4.1 Elective Deferrals (A) Amount of Elective Deferrals Subject to the limitations contained in Section 3.4.2, the Employer will contribute cash to the Trust Fund in an amount equal to: (i) as specified on the Participant's 401(k) Election form, the specific dollar amount, or the deferral percentage multiplied by each such Participant's Compensation; or (ii) a bonus contribution made pursuant to Section 3.4.1(C). (B) The amount elected by a Participant pursuant to a 401(k) Election shall be determined within the limits specified in the Adoption Agreement. The 401(k) Election shall be made on a form provided by the Administrator but no election shall be effective prior to approval by the Administrator. The Administrator may reduce the amount of any 401(k) Election, or make such other modifications as necessary, so that the Plan complies with the provisions of the Code. A Participant's 401(k) Election shall remain in effect until modified or terminated. Modification or termination of a 401(k) Election shall be made at such time as specified in the Adoption Agreement. (C) If elected by the Employer in the Adoption Agreement, an Eligible Employee may make a 401(k) Election to have an amount withheld up to the amount of any bonus payable for such Plan Year and direct the Employer to contribute the amount so withheld to his or her Elective Deferrals Account. 3.4.2 Limitation on Elective Deferrals (A) Maximum Amount of Elective Deferrals and Distribution of Excess Elective Deferrals (i) No Participant shall be permitted to have Elective Deferrals made under this Plan, or any other Qualified Plan maintained by the Employer, during any Plan Year in excess of the dollar limitation contained in Code Section 402(g) in effect at the beginning of the Participant's taxable year. (ii) Notwithstanding any other provision of the Plan, Excess Elective Deferrals made to this Plan or assigned to this Plan, plus any income and minus any loss allocable thereto, shall be distributed no later than April 15, 1988, and each April 15 thereafter, to Participants to whose accounts Excess Elective Deferrals were designated for the preceding Plan Year and who claim Excess Elective Deferrals for such taxable year. Excess Elective Deferrals shall be treated as Annual Additions. (iii) Claims. A Participant may designate to this Plan any amount of his or her Elective Deferrals as Excess Elective Deferrals during his or her taxable year. A Participant's claim shall be in writing, shall be submitted to the Administrator no later than March 1, shall specify the Participant's Excess Elective Deferral for the preceding Plan Year, and shall be accompanied by the Participant's written statement that if such amounts are not distributed, such Excess Elective Deferral, when added to amounts deferred under other plans or arrangements described in Code Section 401(k), Code Section 408(k), Code Section 403(b) or Code Section 457, exceeds the limit imposed on the Participant by Code Section 402(g) for the year in which the deferral occurred. A Participant is deemed to notify the Administrator of any Excess Elective Deferrals that arise by taking into account only those Elective Deferrals made to this Plan and any other plans of the Employer or an Affiliate. (iv) Determination of Income or Loss. Excess Elective Deferrals shall be adjusted for income or loss up to the date of distribution. The income or loss allocable to Participant's Excess Elective Deferrals is the sum of: (1) the income or loss allocable to the Participant's Elective Deferrals Account for the Participant's taxable year multiplied by a fraction, the numerator of which is the Participant's Excess Elective Deferrals for the Participant's taxable year and the denominator of which is the Account Balance of the Participant's Elective Deferrals Account without regard to any income or loss occurring during such taxable year; and (2) ten percent of the amount determined under (1) multiplied by the number of whole calendar months between the end of the Participant's taxable year and the date of distribution, counting the month of distribution if distribution occurs after the 15th of such month. Anything in the preceding paragraph of this Section 3.4.2(A)(iv) to the contrary notwithstanding, any reasonable method for computing the income or loss allocable to Excess Elective Deferrals may be used, provided that such method is used consistently for all Participants and for all corrective distributions under the Plan, and is used by the Plan for allocating income or loss to Participants' Accounts. Income or loss allocable to the period between the end of the taxable year and the date of distribution may be disregarded in determining income or loss. (B) ADP Test The Average Actual Deferral Percentage for Highly Compensated Employees for each Plan Year and the Average Actual Deferral Percentage for Nonhighly Compensated Employees for the same Plan Year must satisfy one of the following tests: (i) The Average Actual Deferral Percentage for Eligible Participants who are Highly Compensated Employees for the Plan Year shall not exceed the Average Actual Deferral Percentage for Eligible Participants who are Nonhighly Compensated Employees for the Plan Year multiplied by 1.25; or (ii) The Average Actual Deferral Percentage for Eligible Participants who are Highly Compensated Employees for the Plan Year shall not exceed the Average Actual Deferral Percentage for Eligible Participants who are Nonhighly Compensated Employees for the Plan Year multiplied by 2.0; provided that the Average Actual Deferral Percentage for Eligible Participants who are Highly Compensated Employees does not exceed the Average Actual Deferral Percentage for Participants who are Nonhighly Compensated Employees by more than two percentage points. (C) Special Actual Deferral Percentage Rules (i) The Actual Deferral Percentage for any Eligible Participant who is a Highly Compensated Employee for the Plan Year and who is eligible to have Elective Deferrals and Qualified Matching Contributions or Qualified Nonelective Contributions, or both, if treated as Elective Deferrals for purposes of the ADP Test, allocated to his or her accounts under two or more plans or arrangements described in Code Section 401(k) that are maintained by the Employer shall be determined as if all such Elective Deferrals, Qualified Matching Contributions and Qualified Nonelective Contributions were made under a single arrangement. If a Highly Compensated Employee participates in two or more cash or deferred arrangements that have different plan years, all cash or deferred arrangements ending with or within the same calendar year shall be treated as a single arrangement. (ii) In the event that this Plan satisfies the requirements of Code Section 401(k), Code Section 401(a)(4) or Code Section 410(b) only if aggregated with one or more other qualified plans, or if one or more other qualified plans satisfy the requirements of such Code Sections only if aggregated with this Plan, then this Section shall be applied by determining the Actual Deferral Percentage of Employees as if all such qualified plans were a single qualified plan. For Plan Years beginning after December 31, 1989, plans may be aggregated in order to satisfy Code Section 401(k) only if they have the same plan year. (iii) For purposes of determining the Actual Deferral Percentage of an Eligible Participant who is a 5% owner or one of the ten most highly paid Highly Compensated Employees, the Elective Deferrals (and Qualified Matching Contributions or Qualified Nonelective Contributions, or both, if treated as Elective Deferrals for purposes of one of the tests referred to in Section 3.4.2(B)) and CODA Compensation of such Participant shall include the Elective Deferrals (and, if applicable, Qualified Matching Contributions, Qualified Nonelective Contributions) and CODA Compensation for the Plan Year of Family Members. Family Members with respect to such Highly Compensated Employees shall be disregarded as separate employees in determining the Actual Deferral Percentage both for Eligible Participants who are Nonhighly Compensated Employees and for Eligible Participants who are Highly Compensated Employees. (iv) For purposes of determining the ADP Test, Elective Deferrals, Qualified Matching Contributions, and Qualified Nonelective must be made before the last day of the 12-month period immediately following the Plan Year to which such contributions relate. (v) The Employer shall maintain records sufficient to demonstrate satisfaction of the ADP Test and the amount of Qualified Nonelective Contributions and/or Qualified Matching Contribution used in such test. (vi) The determination and treatment of the Elective Deferrals, Qualified Matching Contributions, and Qualified Nonelective Contributions, used in the ADP Test shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury. (D) Distribution of Excess Contributions (i) In General. Notwithstanding any other provision of the Plan except Section 3.4.2(E), Excess Contributions, plus any income and minus any loss allocable thereto, shall be distributed no later than the last day of each Plan Year beginning after December 31, 1987, to Participants to whose Accounts Elective Deferrals, Qualified Matching Contributions, and Qualified Nonelective Contributions were allocated for the preceding Plan Year.(1) Excess Contributions of Participants who are subject to the Family Member aggregation rules shall be allocated among the Family Members in proportion to the Elective Deferrals (and amounts treated as Elective Deferrals) of each Family Member that is combined to determine the combined Actual Deferral Percentage. Excess Contributions shall be treated as Annual Additions. (ii) Determination of Income or Loss. Excess Contributions shall be adjusted for any income or loss up to the date of distribution. The income or loss allocable to Excess Contributions is the sum of: (1) the income or loss allocable to the Participant's Elective Deferrals Account (and, if applicable, the Qualified Nonelective Contributions Account or the Qualified Matching Contributions Account or both) for the Plan Year multiplied by a fraction, the numerator of which is such Participant's Excess Contributions for the year and the denominator of which is the Account Balances of Participant's Elective Deferrals Account, Qualified Nonelective Contributions Account and Qualified Matching Contributions Account if any of such contributions are included in the ADP Test, without regard to any income or loss occurring during such Plan Year; and - --------------------------- (1)Distribution of Excess Contributions on or before the last day of the Plan Year after the Plan Year in which such excess amounts arose is required under Code Section 401(k)(8) if the Plan is to maintain its tax-qualified status. However, if such excess amounts, plus any income and minus any loss allocable thereto, are distributed more than 2-1/2 months after the last day of the Plan Year in which such excess amounts arose, then Code Section 4979 imposes a 10% excise tax on the employer maintaining the plan with respect to such amounts. (2) 10% of the amount determined under (1) multiplied by the number of whole calendar months between the end of the Plan Year and the date of distribution, counting the month of distribution if distribution occurs after the 15th of such month. Anything in the preceding paragraph of this Section 3.4.2(D)(ii) to the contrary notwithstanding, any reasonable method for computing the income or loss allocable to Excess Contributions may be used, provided that such method is used consistently for all Participants and for all corrective distributions under the Plan for the Plan Year, and is used by the Plan for allocating income or loss to Participant's Accounts. Income or loss allocable to the period between the end of the Plan Year and the date of distribution may be disregarded in determining income or loss. (iii) Accounting for Excess Contributions. Amounts distributed under this Section 3.4.2(D) shall first be distributed from the Participant's Elective Deferrals Account and Qualified Matching Contributions Account in proportion to the Participant's Elective Deferrals and Qualified Matching Contributions (to the extent used in the ADP Test) for the Plan Year. Excess Contributions shall be distributed from the Participant's Qualified Nonelective Contributions Account only to the extent that such Excess Contributions exceed the balance in the Participant's Elective Deferrals Account and Qualified Matching Contributions Account. (E) In lieu of distributing Excess Contributions pursuant to the preceding Section 3.4.2(D), and as specified in the Adoption Agreement, the Employer may make special Qualified Nonelective Contributions on behalf of Nonhighly Compensated Employees that are sufficient to satisfy the ADP Test. (F) In lieu of distributing Excess Contributions, the Participant may treat his or her Excess Contributions as an amount distributed and then re-contributed by such Participant. Recharacterized amounts are 100% nonforfeitable and subject to the same distribution requirements as Elective Deferrals. Amounts may not be recharacterized by a Highly Compensated Employee to the extent that such amount in combination with other amounts made to the Participant's Participant Contributions Account would exceed any stated limit on such contributions, as specified in the Adoption Agreement. If Excess Contributions are recharacterized, they must be so no later than two and one half months after the last day of the Plan Year in which such Excess Contributions arose and they are deemed to occur no earlier than the date the last Highly Compensated Employee is informed in writing of the amount recharacterized and the consequences thereof. Recharacterized amounts are taxable to the Participant for the tax year in which he or she would have received such contributions in cash. (G) Under no circumstances may Elective Deferrals, Qualified Matching Contributions and Qualified Nonelective Contributions be contributed and allocated to the Trust later than the last day of the 12-month period immediately following the Plan Year to which such contributions relate. 3.5 Matching 401(k) Contributions 3.5.1 Amount of Matching Contributions Subject to the limitations contained in Sections 3.9 and 3.5.2, for each Plan Year the Employer will contribute in cash and/or Qualifying Employer Securities, Matching 401(k) Contributions to the Trust Fund in an amount, if any, calculated by reference to the Participants' Elective Deferrals as specified in the Adoption Agreement. 3.5.2 Limitation on Contribution Percentage (A) ACP Test The Average Contribution Percentage for Eligible Participants who are Highly Compensated Employees for the Plan Year and the Average Contributions Percentage for Eligible Participants who are Nonhighly Compensated Employees for the same Plan Year must satisfy one of the following tests: (i) the Average Contribution Percentage for Eligible Participants who are Highly Compensated Employees for the Plan Year shall not exceed the Average Contribution Percentage for Eligible Participants who are Nonhighly Compensated Employees for the same Plan Year multiplied by 1.25; or (ii) the Average Contribution Percentage for Eligible Participants who are Highly Compensated Employees shall not exceed the Average Contribution Percentage for Eligible Participants who are Nonhighly Compensated Employees by more than two percentage points or such lesser amount as the Secretary of the Treasury shall prescribe to prevent the multiple use of this alternative limitation with respect to any Highly Compensated Employee. (B) Special Average Contribution Percentage Rules (i) For purposes of this Section 3.5.2, the Contribution Percentage for any Eligible Participant who is a Highly Compensated Employee for the Plan Year and who is eligible to have Matching 401(k) Contributions or Matching Thrift Contributions, as the case may be (other than Qualified Matching Contributions), allocated to his or her account under two or more qualified plans described in Code Section 401(a), or arrangements described in Code Section 401(k) shall be determined as if the total of such Contribution Percentage Amounts was made under each plan. If a Highly Compensated Employee participates in 2 or more cash or deferred arrangements that have different plan years, all cash or deferred arrangements ending with or within the same calendar year shall be treated as a single arrangement. (ii) In the event that this Plan satisfies the requirements of Code Section 410(b) only if aggregated with one or more other plans, or if one or more other plans satisfy the requirements of Code Section 410(b) only if aggregated with this Plan, then this Section 3.5.2 shall be applied by determining the Contribution Percentages of Employees as if all such plans were a single plan. For Plan Years beginning after December 31, 1989, plans may be aggregated in order to satisfy Code Section 401(m) only if they have the same plan year. (iii) For purposes of determining the Contribution Percentage of an Eligible Participant who is a 5% owner or one of the 10 most highly-paid Highly Compensated Employees, the Contribution Percentage Amounts and the CODA Compensation of such Participant shall include the Contribution Percentage Amounts and CODA Compensation for the Plan Year of Family Members. Family Members with respect to Highly Compensated Employees shall be disregarded as separate employees in determining the Contribution Percentage both for Participants who are Nonhighly Compensated Employees and for Participants who are Highly Compensated Employees. (iv) For purposes of determining the ACP Test, Matching 401(k) Contributions, Matching Thrift Contributions and Qualified Nonelective Contributions will be considered made for a Plan Year if made no later than the end of the 12-month period beginning on the day after the close of the Plan Year. (v) The Employer shall maintain records sufficient to demonstrate satisfaction of the ACP Test and the amount of Qualified Nonelective Contributions or Qualified Matching Contributions, or both, used in such test. (C) Multiple Use If one or more Highly Compensated Employees participate in both a cash or deferred arrangement and a plan subject to the ACP Test and the sum of the Actual Deferral Percentage and the Actual Contribution Percentage of those Highly Compensated Employees exceeds the "aggregate limit", then the Actual Contribution Percentage of those Highly Compensated Employees will be reduced, beginning with such Highly Compensated Employee whose Actual Contribution Percentage is the highest, so that the limit is not exceeded. The amount by which each Highly Compensated Employee's Contribution Percentage is reduced shall be treated as an Excess Aggregate Contribution. The Actual Deferral Percentage and Actual Contribution Percentage of the Highly Compensated Employees are determined after any corrections required to meet the ADP Test and the ACP Test. Multiple use does not occur if either the Average Deferral Percentage or Actual Contribution Percentage of the Highly Compensated Employees does not exceed 1.25 multiplied by the Actual Deferral Percentage and the Actual Contribution Percentage of the Nonhighly Compensated Employees. (i) The "aggregate limit" is the sum of (1) 125% of the greater of the Actual Deferral Percentage for Participants who are Nonhighly Compensated Employees for the Plan Year or the Actual Deferral Percentage for Participants who are Nonhighly Compensated Employees for the Plan Year beginning with or within the Plan Year and (2) the lesser of 200% or two plus the lesser of such Actual Deferral Percentage or Actual Contribution Percentage. "Lesser" is substituted for "greater" in "(1)," above, and "greater" is substituted for "lesser" after "two plus the" in "(2)" if it would result in a larger aggregate limit. (D)Forfeiture of Excess Aggregate Contributions (i) In General. Notwithstanding any other provision of this Plan, Excess Aggregate Contributions, plus any income and minus any loss allocable thereto, shall be forfeited and applied to reduce subsequent Matching 401(k) Contributions or Matching Thrift Contributions, as the case may be. No forfeitures arising under this Section 3.6.2(D) shall be allocated to the account of any Highly Compensated Employee. If not forfeitable, Excess Aggregate Contributions shall be distributed no later than the last day of each Plan Year beginning after December 31, 1987, to Participants to whose Accounts such Excess Aggregate Contributions were allocated for the preceding Plan Year. Excess Aggregate Contributions of Participants who are subject to the Family Member aggregation rules shall be allocated among the Family Members in proportion to the amounts constituting Contribution Percentage Amounts of each Family Member that is combined to determine the combined Actual Contribution Percentage. Excess Aggregate Contributions shall be treated as Annual Additions. Anything above to the contrary notwithstanding, any forfeiture or distribution under this Section 3.5.2(D)(i) shall occur only if sufficient Employee Thrift Contributions and/or Participant Voluntary Nondeductible Contributions, as the case may be, are not distributed from the qualified plan holding such Employee Thrift Contributions and/or Participant Voluntary Nondeductible Contributions, as the case may be.(2) (ii) Determination of Income or Loss. Excess Aggregate Contributions shall be adjusted for any income or loss up to the date of distribution. The income or loss allocable to Excess Aggregate Contributions is the sum of: (1) the income or loss allocable to the Participant's Matching 401(k) Contribution Account or Matching Thrift Contribution Account (if any, and if all amounts therein are not used in the ADP Test) and, if applicable, Qualified Nonelective Contribution Account and Elective Deferrals Account for the Plan Year multiplied by a fraction, the numerator of which is such Participant's Excess Aggregate Contributions for the year and the denominator of which is the Participant's Account Balance(s) attributable to Contribution Percentage Amounts without regard to any income or loss occurring during such Plan Year; and (2) 10% of the amount determined under (1) multiplied by the number of whole calendar months between the end of the Plan Year and the date of distribution, counting the month of distribution if distribution occurs after the 15th of such month. Anything in the preceding paragraph of this Section 3.5.2(D)(ii) to the contrary notwithstanding, any reasonable method for computing the income or loss allocable to Excess Aggregate Contributions may be used, provided that such method is used consistently for all Participants and for all corrective distributions under the Plan for the Plan Year, and is used by the Plan for allocating income or loss to Participants' Accounts. Income or loss allocable to the period between the end of the Plan Year and the date of distribution may be disregarded in determining income or loss. (iii) The determination of the Excess Aggregate Contributions shall be made after first determining the Excess Elective Deferrals, and then determining the Excess Contributions. 3.5.3 For purposes of determining the ACP Test, Qualified Nonelective Contributions, Matching 401(k) Contributions and Matching Thrift Contributions will be considered made for a Plan Year if paid to the Trustee no later than the end of the 12-month period beginning on the day after the close of the Plan Year. 3.6 Thrift Contributions 3.6.1 Employee Thrift Contributions. If elected by the Employer in the Adoption Agreement to provide for Employee Thrift Contributions, the Employer will contribute cash to the Trust Fund in an amount equal to (A) the Employee Thrift Contribution percentage of each Participant on his or her Employee Thrift Contribution election form multiplied by each such Participant's Compensation or (B) the specific dollar amount set forth on the Participant's election form. The amount elected by a Participant pursuant to a Participant's Employee Thrift Contribution election shall be determined within the limits specified in the Adoption Agreement. Such election shall be made on a form provided by the Administrator but no election shall be effective prior to approval by the Administrator. The Administrator may reduce the amount of any Employee Thrift Contribution, or make such other modifications as necessary, so that the Plan complies with the provisions of the Code. A Participant's election shall remain in effect until modified or terminated at such times as specified in the Adoption Agreement. 3.6.2 Matching Thrift Contributions. Subject to the limitations contained in Sections 3.9 and 3.5.2, for each Plan Year the Employer will contribute in cash and/or Qualifying Employer Securities, Matching Thrift Contributions to the Trust Fund in an amount, if any, calculated by reference to the Participants' Employee Thrift Contributions, as specified in the Adoption Agreement. Matching Thrift Contributions made by the Employer will be allocated to the Matching Thrift Contributions Account of those Participants who have contributed Employee Thrift Contributions to the Plan, as specified in the Adoption Agreement. ______________________ (2) Distribution or forfeiture of Excess Aggregate Contributions on or before the last day of the Plan Year after the Plan Year in which such excess amounts arose is required under Code Section 401(m)(6) if the Plan is to maintain its tax-qualified status. However, if such excess amounts, plus any income and minus any loss allocable thereto, are distributed more than 2-1/2 months after the last day of the Plan Year in which such excess amounts arose, then Code Section 4979 imposes a 10% excise tax on the employer maintaining the plan with respect to such amounts. 3.7 Treatment of Forfeitures 3.7.1 If the Employer has elected in the Adoption Agreement to reallocate forfeitures for a Plan Year among Participants, then such forfeitures, if any, shall be allocated as of the last day of the Plan Year to the Employer Accounts of those Participants who are eligible to share in the allocation of contributions to that particular Employer Account (whether or not a contribution was made for that Plan Year) for that Plan Year in that particular Employer Account category with respect to which such forfeitures are attributable. If the Plan is a Target Benefit Plan, forfeitures may only be used to reduce Employer Contributions, in accordance with Section 3.7.2. 3.7.2 If the Employer has elected in the Adoption Agreement to use forfeiture to reduce contributions, then forfeitures shall be applied in the succeeding Plan Year to reduce Employer Contributions in that particular Employer Account category to which such forfeitures were attributable. 3.8 Establishing of Accounts 3.8.1 An Elective Deferrals Account shall be established for each Eligible Participant who makes a 401(k) Election to which the Administrator shall credit, or cause to be credited, Elective Deferrals allocable to each such Participant, plus earnings or losses thereon. 3.8.2 An Employer Contributions Account shall be established for each Participant to which the Administrator shall credit or cause to be credited Employer contributions pursuant to Section 3.1, and forfeitures attributable to such contributions, if any, plus earnings or losses thereon. 3.8.3 An Employee Thrift Contributions Account shall be established for each Participant who makes Employee Thrift Contributions to the Plan, to which the Administrator shall credit, or cause to be credited, all amounts allocable to each such Participant, plus earnings or losses thereon. 3.8.4 A Matching 401(k) Contributions Account shall be established for each Participant for whom Matching 401(k) Contributions are made, to which the Administrator shall credit, or cause to be credited, all such amounts allocable to each such Participant, plus earnings or losses thereon. 3.8.5 A Matching Thrift Contributions Account shall be established for each Participant for whom Matching Thrift Contributions are made, to which the Administrator shall credit, or cause to be credited, all amounts allocable to each such Participant, plus earnings or losses thereon. 3.8.6 A Participant Voluntary Nondeductible Contributions Account shall be established for each Participant who makes Participant Voluntary Nondeductible Contributions to the Plan, plus earnings or losses thereon. 3.8.7 A Qualified Matching Contributions Account shall be established for each Eligible Participant for whom Qualified Matching Contributions are made, to which the Administrator shall credit, or cause to be credited, all amounts allocable to each such Participant, plus earnings or losses thereon. 3.8.8 A Qualified Nonelective Contributions Account shall be established for each Participant for whom Qualified Nonelective Contributions are made, to which the Administrator shall credit, or cause to be credited, all amounts allocable to each such Participant, plus earnings or losses thereon. 3.8.9 A Rollover Contributions Account shall be established for each Participant who contributes to the Plan pursuant to Section 3.3 to which the Administrator shall credit, or cause to be credited, Rollover Contributions made by the Participant, plus earnings or losses thereon. 3.8.10 A Transferred Contributions Account shall be established for each Participant for whom assets are transferred from another Qualified Plan, to which the Administrator shall credit, or cause to be credited, transferred assets, plus earnings or losses thereon. 3.9 Limitation on Amount of Allocations 3.9.1 As used in this Section 3.9, each of the following terms shall have the meaning for that term set forth in this Section 3.9.1: (A) Annual Additions means, for each Participant, the sum of the following amounts credited to the Participant's Accounts for the Limitation Year: (I) Employer Contributions within the meaning of IRS regulation 1.415-6(b); (ii) Employee Contributions; (iii) forfeitures; (iv) allocation under a simplified employee pension; and (v) any Excess Amount applied under a Defined Contribution Plan in the Limitation Year to reduce Employer Contributions will also be considered as part of the Annual Additions for such Limitation Year. Amounts allocated after March 31, 1984, to an "individual medical benefit account" as defined in Code Section 415(1)(2) ("Individual Medical Benefit Account") which is part of a pension or annuity plan maintained by the Employer or Affiliate are treated as Annual Additions to a Defined Contribution Plan. Also, amounts derived from contributions paid or accrued after December 31, 1985, in taxable years ending after that date, which are attributable to post-retirement medical benefits allocated to the separate account of a "key employee" as defined in Code Section 419A(d)(3) under a "welfare benefit fund" as defined in Code Section 419(e) ("Welfare Benefit Fund") maintained by the Employer or Affiliate, are treated as Annual Additions to a Defined Contribution Plan. (B) Defined Benefit Dollar Limitation means $90,000 multiplied by the Adjustment Factor or such other limitation set forth in Code Section 415(b)(1) as in effect for the Limitation Year. (C) Defined Benefit Fraction means a fraction, the numerator of which is the sum of the Projected Annual Benefits of the Participant involved under all Defined Benefit Plans (whether or not terminated) maintained by the Employer or Affiliate, and the denominator of which is the lesser of 125% of the Defined Benefit Dollar Limitation determined for the Limitation Year or 140% of the Participant's Highest Average Limitation Compensation, including any adjustments under Code Section 415(b). Notwithstanding the above, if the Participant was a Participant as of the first day of the first Limitation Year beginning after December 31, 1986, in one or more Defined Benefit Plans maintained by the Employer or Affiliate which were in existence on May 5, 1986, the denominator of this fraction will not be less than 125% of the sum of the annual benefits under such Plans which the Participant had accrued as of the close of the last Limitation Year beginning before January 1, 1987, disregarding any changes in the terms and conditions of the plans after May 5, 1986. The preceding sentence applies only if the Defined Benefit Plans individually and in the aggregate satisfied the requirements of Code Section 415 for all Limitation Years beginning before January 1, 1987. (D) Defined Contribution Dollar Limitation means $30,000 or if greater, one-fourth of the Defined Benefit Dollar Limitation as in effect for the Limitation Year. (E) Defined Contribution Fraction means a fraction, the numerator of which is the sum of the Annual Additions to the Participant's Account or Accounts under all the Defined Contribution Plans (whether or not terminated) maintained by the Employer or Affiliate for the current and all prior Limitation Years (including the Annual Additions attributable to the Participant's nondeductible contributions to all Defined Benefit Plans, whether or not terminated, maintained by the Employer or Affiliate and the Annual Additions attributable to all Welfare Benefit Funds, Individual Medical Benefit Accounts, and simplified employee pensions maintained by the Employer or Affiliate), and the denominator of which is the sum of the "maximum aggregate amounts" (as defined in the following sentence) for the current and all prior Limitation Years of service with the Employer or Affiliate (regardless of whether a Defined Contribution Plan was maintained by the Employer or Affiliate). The "maximum aggregate amount" in any Limitation Year is the lesser of (i) 125% of the Defined Benefit Dollar Limitation in effect under Code Section 415(c)(1)(A) or (ii) 35% of the Participant's Compensation for such year. If the Employee was a Participant as of the first day of the first Limitation Year beginning after December 31, 1986, in one or more Defined Contribution Plans maintained by the Employer or Affiliate in existence on May 5, 1986, the numerator of this fraction will be adjusted if the sum of this fraction and the Defined Benefit Fraction would otherwise exceed 1.0 under the terms of this Plan. Under the adjustment, an amount equal to the product of (A) the excess of the sum of the fractions over 1.0 times (B) the denominator of this fraction will be permanently subtracted from the numerator of this fraction. The adjustment is calculated using the fractions as they would be computed as of the later of the end of the last Limitation Year beginning before January 1, 1987, and disregarding any changes in the terms and conditions of the Plans made after May 6, 1986, but using the Code Section 415 limitation applicable to the first Limitation Year beginning on or after January 1, 1987. The Annual Addition for any Limitation Year beginning before January 1, 1987, shall not be recomputed to treat all Participant contributions as Annual Additions. (F) Excess Amounts means the excess of the Participant's Annual Additions for the Limitation Year involved over the Maximum Permissible Amount for that Limitation Year. (G) Highest Average Limitation Compensation means the average Compensation as defined in Code Section 415(c)(3) of the Participant involved for that period of three consecutive Years of Service with the Employer or Affiliate (or if the Participant has less than three such Years of Service, the actual number thereof) that produces the highest average. (H) Limitation Compensation means Compensation, as defined in either (i), (ii) or (iii) below, as specified in the Adoption Agreement: (i) Code Section 415 Safe-Harbor Compensation For an Employee other than a Self-Employed Individual, the Employee's earned income, wages, salaries, and fees for professional services and other amounts received (without regard to whether or not an amount is paid in cash) for personal services actually rendered in the course of Employment (including, but not limited to, commissions paid salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, bonuses, fringe benefits, and reimbursements or other expense allowances under a nonaccountable plan (as described in Reg. 1.62-2(c)) and excluding the following: (1) Employer contributions to a plan of deferred compensation which are not includible in the Employee's gross income for the taxable year in which contributed, or contributions under a "simplified employee pension" plan (within the meaning of Code Section 408(k)) to the extent such contributions are deductible by the Employee, or any distributions from a plan of deferred compensation; (2) amounts realized from the exercise of a non-qualified stock option, or when restricted stock (or other property) held by the Employee either becomes freely "transferable" or is no longer subject to a "substantial risk of forfeiture" (both quoted terms within the meaning of Code Section 83(a)); (3) amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; and (4) other amounts which received special tax benefits, or contributions made (whether or not under a salary reduction agreement) towards the purchase of an annuity described in Code Section 403(b) (whether or not the amounts are actually excludable from the gross income of the Employee); or For Limitation Years beginning after December 31, 1991, Limitation Compensation shall include only that compensation which is actually paid or made available during the Limitation Year. (ii) Information required to be reported under Sections 6041 and 6051. ("Wages, Tips and other Compensation Box" Form W-2) Limitation Compensation is defined as wages as defined in Code Section 3401(a) and all other payments of compensation to an Employee by the Employer (in the course of the Employer's trade or business) for which the Employer is required to furnish the Employee a written statement under Sections 6041(d) and 6051(a)(3) of the Code. Compensation must be determined without regard to any rules under Section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Section 3401(a)(2)). (iii) Code Section 3401(a) wages Limitation Compensation is defined as wages within the meaning of Code Section 3401(a) for the purposes of income tax withholding at the source but determined without regard to any rules that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code Section 3401(a)(2)). Without regard to the definition of Limitation Compensation elected by the Employer, for a Self-Employed Individual, Limitation Compensation means his or her Earned Income, provided that if the Self-Employed Individual is not a Participant for an entire Plan Year, his or her Limitation Compensation for that Plan Year shall be his or her Earned Income for that Plan Year multiplied by a fraction the numerator of which is the number of days he or she is a Participant during the Plan Year and the denominator of which is the number of days in the Plan Year. Additionally, Limitation Compensation for a Participant in a Defined Contribution Plan who is permanently and totally disabled (as defined in Code Section 22(e)) is the compensation such Participant would have received for the Limitation Year if the Participant had been paid at the rate of compensation paid immediately before becoming disabled; such imputed compensation may be taken into account only if the Participant is not a Highly Compensated Employee and contributions made on behalf of such Participant are nonforfeitable when made. (I) Maximum Permissible Amount means the maximum Annual Addition which may be contributed or allocated to a Participant's Account under the Plan for any Limitation Year. The maximum Annual Addition shall not exceed the lesser of: (a) the Defined Contribution Dollar Limitation, or (b) 25% of the Participant's Compensation for the Limitation Year. The Compensation limitation referred to in (b) shall not apply to any contribution for medical benefits (within the meaning of Code Sections 401(h) or 419A(f)(2)) which is otherwise treated as an Annual Addition under Code Section 415(l)(1) or 419A(d)(2). If a short Limitation Year is created because of an amendment changing the Limitation Year to a different 12-consecutive month period, the Maximum Permissible Amount will not exceed the Defined Contribution Dollar Limitation multiplied by the following fraction: Number of months in the short Limitation Year --------------------------------------------- 12 (J) Projected Annual Benefit means the annual retirement benefit (adjusted to an actuarially equivalent straight life annuity if such benefit is expressed in a form other than a straight life annuity or Qualified Joint and Survivor Annuity) to which the Participant would be entitled under the terms of a Defined Benefit Plan assuming: (i) the Participant continues in employment with the Employer or Affiliate until the Participant's "normal retirement age" under the Plan within the meaning of Code Section 411(a)(8) (or the Participant's current age, if later); and (ii) the Participant's Limitation Compensation for the current Limitation Year and all other relevant factors used to determine benefits under the Plan will remain constant for all future Limitation Years. 3.9.2 The provisions of this subsection 3.9.2 apply with respect to a Participant who does not participate in, and has never participated in, another Qualified Plan, a Welfare Benefit Fund or an Individual Medical Benefit Account or a simplified employee pension, as defined in Code Section 401(k), maintained by the Employer or an Affiliate, which provides an Annual Addition as defined in Section 3.9.1(A) of the Plan, other than this Plan: (A) The amount of Annual Additions which may be credited to the Participant's Account for any Limitation Year will not exceed the lesser of the Maximum Permissible Amount or any other limitation contained in this Plan. If the Employer Contribution that would otherwise be contributed or allocated to the Participant's Account would cause the Annual Additions on behalf of the Participant for the Limitation Year to exceed the Maximum Permissible Amount with respect to that Participant for the Limitation Year, the amount contributed or allocated will be reduced so that the Annual Additions on behalf of the Participant for the Limitation Year will equal such Maximum Permissible Amount. (B) Prior to determining the Participant's actual Limitation Compensation for a Limitation Year, the Employer may determine the Maximum Permissible Amount for the Participant for the Limitation Year on the basis of a reasonable estimation of the Participant's Compensation for that Limitation Year. Such estimated Compensation shall be uniformly determined for all Participants similarly situated. (C) As soon as is administratively feasible after the end of a Limitation Year, the Maximum Permissible Amount for the Limitation Year will be determined on the basis of the Participant's actual compensation for the Limitation Year. (D) If pursuant to Section 3.9.2(C) or as a result of the allocation of forfeitures, there is an Excess Amount with respect to the Participant for a Limitation Year, the Excess Amount shall be disposed of as follows: (i) First, any contribution to the Participant's Elective Deferrals Account, Participant Voluntary Nondeductible Contributions Account or Employee Thrift Contributions Account, if applicable, and any earnings allocable thereto will be distributed to the Participant to the extent that the return thereof would reduce the Excess Amount in such Participant's Accounts; (ii) If after the application of Section 3.9.2(D)(i) an Excess Amount still exists, and the Participant is covered by the Plan at the end of the Limitation Year, the remaining Excess Amount in the Participant's Account will be used to reduce Employer contributions (including allocation of any forfeitures) under this Plan for such Participant in the next Limitation Year, and in each succeeding Limitation Year, if necessary. (iii) If after the application of Section 3.9.2(D)(i) an Excess Amount still exists, and the Participant is not covered by the Plan at the end of the Limitation Year, the Excess Amount will be held unallocated in a suspense account. The suspense account will be applied to reduce future Employer contributions under this Plan for all remaining Participants in the next Limitation Year, and in each succeeding Limitation Year, if necessary; provided, however, that if all or any part of the Excess Amount held in a suspense account is attributable to a Participant's Elective Deferrals, such Excess Amount shall be held unallocated in a suspense account to be used for such Participant in the next Limitation Year and each succeeding Limitation Year as an Elective Deferral if such Participant is covered by the Plan in the next and each succeeding Limitation Year, if necessary. (iv) If a suspense account is in existence at any time during a Limitation Year pursuant to Section 3.9.2(D)(iii), the suspense account will not participate in the allocation of the Trust Fund's investment gains or losses to or from any other Account. If a suspense account is in existence at any time during a particular Limitation Year, all amounts in the suspense account must be allocated and reallocated to Participants' Accounts before any Employer or Participant contributions may be made to the Plan for the Limitation Year. Excess Amounts, other than those Excess Amounts referred to in Section 3.9.2(D)(i), may not be distributed to Participants or Former Participants. 3.9.3 The provisions of this subsection 3.9.3 apply with respect to a Participant who, in addition to this Plan, is covered or has been covered under one or more Defined Contribution Plans which are Master or Prototype Plans, Welfare Benefit Funds an Individual Medical Benefit Account or a simplified employee pension maintained by the Employer or an Affiliate, which provides an Annual Addition as described in Section 3.9.1(A) of the Plan during any Limitation Year: (A) The Annual Additions which may be credited to a Participant's Accounts under this Plan for any such Limitation Year will not exceed the Maximum Permissible Amount reduced by the Annual Additions credited to the Participant's account or accounts under any other plans and Welfare Benefit Fund, Individual Medical Benefit Account or simplified employee pension for the same Limitation Year. If the Annual Additions with respect to the Participant under any one or more other such Defined Contribution Plans or Welfare Benefit Funds, Individual Medical Benefit Account or simplified employee pension maintained by the Employer are less than the Maximum Permissible Amount and the Employer Contribution that would otherwise be contributed or allocated to a Participant's Account under this Plan would cause the Annual Additions for the Limitation Year to exceed this limitation, the amount contributed or allocated shall be reduced so that the Annual Additions under all such plans and funds for the Limitation Year will equal the Maximum Permissible Amount. If the Annual Additions with respect to the Participant under such other Defined Contribution Plans and Welfare Benefit Funds, Individual Medical Benefit Account or simplified employee pension in the aggregate are equal to or greater than the Maximum Permissible Amount, no amount will be contributed or allocated to any of the Participant's Account under this Plan for the Limitation Year. (B) Prior to determining the Participant's actual compensation for a Limitation Year, the Maximum Permissible Amount for a Participant may be determined in the manner described in Section 3.9.2(B). (C) As soon as is administratively feasible after the end of a Limitation Year, the Maximum Permissible Amount for the Limitation Year will be determined on the basis of the Participant's actual Limitation Compensation for the Limitation Year. (D) If, pursuant to subsection 3.9.3(C) above, or as a result of the allocation of forfeitures, a Participant's Annual Additions under this Plan and the Participant's Annual Additions under such other plans would result in an Excess Amount for a Limitation Year, the Excess Amount will be deemed to consist of the Annual Additions last allocated, except that Annual Additions attributable to simplified employee pension will be deemed to have been allocated first, followed by Annual Additions to a Welfare Benefit Fund or Individual Medical Benefit Account regardless of the actual allocation date. (E) If an Excess Amount was allocated to a Participant on an allocation date of this Plan which coincides with an allocation date of another such plan, the Excess Amount attributed to this Plan will be the product of: (i) the total Excess Amount allocated as of such date, times (ii) the ratio of (A) the Annual Additions allocated to the Participant for the Limitation Year as of such date under this Plan to (B) the total Annual Additions allocated to the Participant for the Limitation Year as of such date under this Plan and all of the other plans referred to in the first sentence of this Section 3.9.3. (F) Any Excess Amount attributed to this Plan will be disposed in the manner described in Section 3.9.2(D). 3.9.4 If a Participant is covered under one or more Defined Contribution Plans, other than this Plan, maintained by the Employer or an Affiliate which are not Master or Prototype Plans, or Welfare Benefit Funds or an Individual Medical Benefit Account maintained by the Employer, Annual Additions which may be credited to the Participant's Account under this Plan for any Limitation Year shall be limited in accordance with the provisions of subsections 3.9.3(A) - (F) above as though each such other plan was a Master or Prototype Plan. 3.9.5 If the Employer maintains, or at any time maintained, a Defined Benefit Plan covering any Participant in this Plan, the sum of the Participant's Defined Benefit Fraction and Defined Contribution Fraction will not exceed 1.0 in any Limitation Year. If such sum would otherwise exceed 1.0 and if such Defined Benefit Plan does not provide for a reduction in benefits thereunder, Annual Additions which may be credited to a Participant's Account under this Plan for any Limitation Year shall be limited in accordance with the provisions of Section 3.9.2. 3.9.6 If required pursuant to Section 4.4.4, "100%" shall be substituted for "125%" wherever the latter percentage appears in this Section 3.9. 3.10 Return of Employer Contributions Under Special Circumstances Notwithstanding any provision of this Plan to the contrary, upon timely written demand by the Employer or the Administrator to the Trustee: (A) Any contribution by the Employer to the Plan under a mistake of fact shall be returned to the Employer by the Trustee within one year after the payment of the contribution. (B) Any contribution made by the Employer incident to the determination by the Commissioner of Internal Revenue that the Plan is initially a Qualified Plan shall be returned to the Employer by the Trustee within one year after notification from the Internal Revenue Service that the Plan is not initially a Qualified Plan but only if the application for the qualification is made by the time prescribed by law for filing the Employer's return for the taxable year in which the Plan is adopted, or such later date as the Secretary of the Treasury may prescribe. (C) In the event the deduction of a contribution made by the Employer is disallowed under Code Section 404, such contribution (to the extent disallowed) must be returned to the Employer within one year of the disallowance of the deduction. ARTICLE IV VESTING 4.1 Determination of Vesting 4.1.1 A Participant shall at all times have a vested percentage of 100% in the Account Balance of each of his or her Participant Contributions Accounts, 401(k) Contributions Accounts, Rollover Contributions Account and Transferred Account. 4.1.2 A Participant shall have a vested percentage of 100% in his or her Account Balance of each of his or her Employer Accounts if he or she terminates Employment due to the attainment of Normal Retirement Age, Early Retirement specified in the Adoption Agreement, if elected by the Employer in the Adoption Agreement, or upon Disability or death. 4.1.3 The vested percentage of a Participant in the Account Balance of each of his or her Employer Accounts not vested pursuant to Section 4.1.1 or 4.1.2 shall be determined in accordance with the vesting rule or schedule specified in the Adoption Agreement. 4.2 Rules for Crediting Vesting Service 4.2.1 Subject to Section 4.2.2, Years of Service shall be credited for purposes of determining a Participant's Vesting Service as specified in the Adoption Agreement. If the Employer maintains the plan of a predecessor employer, service with such predecessor employer shall be treated as service with the Employer for purposes of Vesting Service. 4.2.2 An Employee who terminates Employment with no vested percentage in an Employer Account shall, if he or she returns to Employment, have no credit for Vesting Service prior to such termination of Employment if his or her Period of Severance equals or exceeds five years. 4.2.3 Vesting Service of an Employee following a Period of Severance of five years or more shall not be counted for the purpose of computing his or her vested percentage in his or her Employer Accounts derived from contributions accrued prior to the Period of Severance. If applicable, separate records shall be maintained reflecting the Participant's vested rights in his or her Account Balance attributable to service prior to the Period of Severance and reflecting the Participant's vested percentage in his or her Account Balance attributable to service after the Period of Severance. Vesting Service prior to and following an Employee's Period of Severance shall be counted for purposes of computing his or her vested percentage in an Employer Account derived from contributions made after the Period of Severance. 4.3 Employer Accounts Forfeitures 4.3.1 Subject to Section 5.6, upon the Nonvested Separation of a Participant, the nonvested portion of each Employer Account of such Participant will be forfeited as of the date of termination of Employment. Upon the Partially Vested Separation of a Participant, the nonvested portion of each Employer Account of such Participant will be forfeited as of the date of termination of Employment; provided, however, that such Participant receives a distribution in accordance with Section 5.6. If a Participant does not receive a distribution following his or her termination of Employment, the nonvested portion of each Employer Account of the Participant shall be forfeited following a Period of Severance of five years. 4.3.2 If the Employer elects in the Adoption Agreement to reallocate forfeitures, forfeitures for a Plan Year shall be allocated in accordance with Section 3.7.1. If the Employer elects in the Adoption Agreement to use forfeitures to reduce Employer contributions, forfeitures shall be applied in accordance with Section 3.7.2. 4.4 Top-Heavy Provisions 4.4.1 As used in this Section 4.4, each of the following terms shall have the meanings for that term set forth in this Section 4.4.1: (A) Determination Date means, for any Plan Year subsequent to the first Plan Year, the last day of the preceding Plan year. For the first Plan Year of the Plan, the last day of that year. (B) Permissive Aggregation Group means the Required Aggregation Group of plans plus any other plan or plans of the Employer or Affiliate which, when considered as a group with the Required Aggregation Group, would continue to satisfy the requirements of Code Sections 401(a)(4) and 410. (C) Required Aggregation Group means (i) each Qualified Plan of the Employer or Affiliate in which at least one Key Employee participates or participated at any time during the determination period (regardless of whether the Plan has terminated), and (ii) any other qualified plan of the Employer or Affiliate which enables a plan described in (i) to meet the requirements of Code Sections 401(a)(4) or 410. (D) Super Top-Heavy means, for any Plan Year beginning after December 31, 1983, the Plan if any Top-Heavy Ratio as determined under the definition of Top-Heavy Plan exceeds 90%. (E) Top-Heavy Plan means, for any Plan Year beginning after December 31, 1983, the Plan if any of the following conditions exists: (i) If the Top-Heavy Ratio for the Plan exceeds 60% and the Plan is not part of any Required Aggregation Group or Permissive Aggregation Group of Plans. (ii) If the Plan is a part of a Required Aggregation Group of plans but not part of a Permissive Aggregation Group and the Top-Heavy Ratio for the group of plans exceeds 60%. (iii) If the Plan is a part of a Required Aggregation Group and part of a Permissive Aggregation Group of plans and the Top-Heavy Ratio for the Permissive Aggregation Group exceeds 60%. (F) Top-Heavy Ratio means (i) If the Employer or Affiliate maintains one or more Defined Contribution Plans (including any Simplified Employee Pension Plan) and the Employer or Affiliate has never maintained any Defined Benefit Plan which during the five-year period ending on the Determination Date has or has had accrued benefits, the Top-Heavy Ratio for this Plan alone or for the Required or Permissive Aggregation Group as appropriate is a fraction, the numerator of which is the sum of the Account Balances of all Key Employees as of the Determination Date (including any part of any Account Balance distributed in the five-year period ending on the Determination Date), and the denominator of which is the sum of all Account Balances (including any part of any Account Balance distributed in the five-year period ending on the Determination Date), both computed in accordance with Code Section 416. Both the numerator and denominator of the Top-Heavy Ratio are increased to reflect any contribution not actually made as of the Determination Date, but which is required to be taken into account on that date under Code Section 416. (ii) If the Employer or an Affiliate maintains one or more Defined Contribution Plans (including any Simplified Employee Pension Plan) and the Employer or an Affiliate maintains or has maintained one or more Defined Benefit Plans which during the five-year period ending on the Determination Date has or has had any accrued benefits, the Top-Heavy Ratio for any Required or Permissive Aggregation Group as appropriate is a fraction, the numerator of which is the sum of Account Balances under the aggregated Defined Contribution Plans for all Key Employees, determined in accordance with (i) above, and the present value of accrued benefits under the aggregated Defined Benefit Plans for all Key Employees as of the Determination Date, and the denominator of which is the sum of the Account Balances under the aggregated Defined Contribution Plans for all Participants, determined in accordance with (i) above, and the present value of accrued benefits under the Defined Benefit Plans for all Participants as of the Determination Date, all determined in accordance with Code Section 416. The accrued benefit under a Defined Benefit Plan in both the numerator and denominator of the Top-Heavy Ratio are increased for any distribution of an accrued benefit made in the five-year period ending on the Determination Date. (iii) For purposes of (i) and (ii) above, the value of Account Balances and the present value of accrued benefits will be determined as of the most recent Valuation Date that falls within or ends with the 12-month period ending on the Determination Date, except as provided in Code Section 416 for the first and second Plan Years of a Defined Benefit Plan. The Account Balances and accrued benefits of a Participant (1) who is not a Key Employee but who was a Key Employee in a prior year, or (2) who has not been credited with at least one Hour of Service with the Employer or an Affiliate at any time during the five-year period ending on the Determination Date, will be disregarded. The calculation of the Top-Heavy Ratio, and the extent to which distributions, rollovers, and transfers are taken into account will be made in accordance with Code Section 416. Elective Deferrals will not be taken into account for purposes of computing the Top-Heavy Ratio. When aggregating plans the value of Account Balances and accrued benefits will be calculated with reference to the Determination Dates that fall within the same calendar year. The accrued benefit of a Participant who is not a Key Employee shall be determined under (A) the method, if any, that uniformly applies for accrual purposes under all Defined Benefit Plans or (B) if there is no such method, as if such benefit accrued not more rapidly than the slowest accrual rate permitted under the fractional rule of Code Section 411(b)(1)(C). 4.4.2 If the Plan is determined to be a Top-Heavy Plan or a Super Top-Heavy Plan as of any Determination Date after December 31, 1983, then the Top-Heavy vesting schedule specified in the Adoption Agreement, beginning with the first Plan Year commencing after such Determination Date, shall apply only for those Plan Years in which the Plan continues to be a Top-Heavy Plan or Super Top-Heavy Plan, as the case may be 4.4.3 (A) Except as provided in Sections 4.4.3(C) and (D), for any Plan Year in which the Plan is a Top-Heavy Plan, contributions and forfeitures allocated to the Employer Contributions Account of any Participant who is not a Key Employee in respect of that Plan Year shall not be less than the lesser of: (i) 3% of such Participant's Limitation Compensation, or (ii) if the Employer has no Defined Benefit Plan which designates this Plan to satisfy Code Section 401, the largest percentage of contributions and forfeitures, as a percentage of the Key Employee's Limitation Compensation, allocated to the Employer Contributions Account of any Key Employee for that year. The minimum allocation is determined without regard to any Social Security contribution. This minimum allocation shall be made even though, under other Plan provisions, the Participant would not otherwise be entitled to receive an allocation, or would have received a lesser allocation for the Plan Year because of (a) the Participant's failure to complete a Year of Service, (b) the Participant's failure to make mandatory Participant contributions to the Plan or (c) compensation less than a stated amount. (B) For purposes of computing the minimum allocation, a Participant's Limitation Compensation will be applied. (C) The provision in (A) above shall not apply to any Participant who was not employed by the Employer or an Affiliate on the last day of the Plan Year. (D) If the Employer or an Affiliate has executed Adoption Agreements covering Participants by a plan which is a profit-sharing plan and by another plan which is a money purchase pension plan or a target benefit plan, the minimum allocation specified in the preceding Section 4.4.3(A) shall be provided by the money purchase pension plan or by the target benefit plan, as the case may be. If a Participant is covered under this Plan and a Defined Benefit Plan maintained pursuant to Adoption Agreements offered by the Sponsor, the minimum allocation specified in the preceding Section 4.4.3(A) shall not be applicable and the Participant shall receive the minimum benefit specified in the Defined Benefit Plan. (E) With respect to any profit-sharing or money purchase pension plan which becomes Top-Heavy and is integrated with Social Security, prior to making the allocations specified in the Adoption Agreement, anything contained therein to the contrary notwithstanding, there shall be an allocation of the Employer Contribution to each eligible Participant's Employer Contribution Account in the ratio that each such Participant's Limitation Compensation for the Plan Year bears to the Limitation Compensation of all such Participants for the Plan Year, but not in excess of 3% of such Limitation Compensation. 4.4.4 If the Plan becomes a Top-Heavy Plan, then the maximum benefit which can be provided under Section 3.9 shall continue to be determined by applying "125%" wherever it appears in that Section and by substituting "4%" for "3%" wherever that appears in Section 4.4.3. However, if the Plan becomes a Super Top-Heavy Plan, the maximum benefit which can be provided under Section 3.9 shall be determined by substituting "100%" for "125%" wherever the latter percentage appears and the 3% minimum contribution provided for in Section 4.4.4 shall remain unchanged. 4.4.5 Beginning with the Plan Year in which this Plan is Top-Heavy, one of the minimum Top-Heavy vesting schedules as specified in the Adoption Agreement will apply. The minimum vesting schedule applies to all benefits within the meaning of Code Section 411(a)(7) except those attributable to Employee contributions, including benefits accrued before the effective date of Code Section 416 and benefits accrued before the Plan became Top-Heavy. However, this Section 4.4 does not apply to the Account Balances of any Employee who does not have an Hour of Service after the Plan has initially become Top-Heavy and such Employee's vesting in his or her Employer Contributions Account will be determined without regard to this Section 4.4. The minimum allocation pursuant to Section 4.4.3 (to the extent required to be nonforfeitable under Code Section 416(b)) may not be forfeited under Code Section 411(a)(3)(B) or Code Section 411(a)(3)(D). ARTICLE V AMOUNT AND DISTRIBUTION OF BENEFITS, WITHDRAWALS AND LOANS 5.1 Distribution Upon Termination of Employment 5.1.1 Subject to Section 5.1.2, a Participant's Benefit Commencement Date shall be as soon as practicable following his or her Fully Vested Separation, Partially Vested Separation or Nonvested Separation, if applicable, and in accordance with Section 5.6. If the Plan includes a CODA feature, each 401(k) Contributions Account of a Participant shall be payable in accordance with the events specified in Section 1.27 of the Plan. 5.1.2 If specified in the Adoption Agreement, a Participant's Benefit Commencement Date shall be deferred until the earliest of his or her Normal Retirement Age, Disability, or if elected by the Employer in the Adoption Agreement, Early Retirement. If a Participant terminates Employment after satisfying any service requirement for Early Retirement specified in the Adoption Agreement, he or she shall be entitled to elect to receive a distribution of his or her vested Employer Accounts upon satisfaction of any age requirement for Early Retirement. 5.2 Amount of Benefits Upon a Fully Vested Separation A Participant's benefits upon his or her Fully Vested Separation for any reason other than Disability shall be the Account Balance of all of his or her Accounts determined in accordance with Section 10.6.2. 5.3 Amount of Benefits Upon a Partially Vested Separation A Participant's benefits upon his or her Partially Vested Separation for any reason other than Disability shall be: (A) the Account Balance of his or her Employer Accounts determined in accordance with Section 10.6.2 multiplied by his or her vested percentage determined pursuant to Section 4.1.3, or, if applicable, Section 4.4.2, plus (B) the Account Balance of his or her other Accounts determined in accordance with Section 10.6.2. 5.4 Amount of Benefits Upon a Nonvested Separation A Participant's benefits upon his or her Nonvested Separation shall be the Account Balance of his or her Accounts other than Employer Accounts, if any, determined in accordance with Section 10.6.2. 5.5 Amount of Benefits Upon a Separation Due to Disability If a Participant terminates Employment due to a Disability, his or her benefit shall be the Account Balance of all of his or her Accounts determined as a Fully Vested Separation in accordance with Section 5.2 and Section 10.6.2. The Benefit Commencement Date of any such Participant on whose behalf contributions are being made pursuant to Section 3.1.4 shall be as soon as practicable after the date such contributions cease. 5.6 Distribution and Restoration 5.6.1 If, upon a Participant's termination of Employment, the vested Account Balance of his or her Accounts as of the applicable Valuation Date is equal to or less than $3,500, such Participant will receive a distribution of his or her entire vested benefit and the nonvested portion will be treated as forfeiture. If the value of a Participant's vested Account is zero, the Participant shall be deemed to have received a distribution of such vested Account. 5.6.2 If, upon a Participant's termination of Employment, the vested Account Balance of his or her Accounts as of the applicable Valuation Date exceeds $3,500, the Participant may elect, in accordance with Article VI, to receive a distribution of the entire vested portion of such Accounts and the nonvested portion, if any, will be treated as a forfeiture. 5.6.3 If the vested Account Balance of a Participant's Accounts as of the applicable Valuation Date has an aggregate value exceeding (or at the time of any prior distribution exceeded) $3,500, and the Participant's benefit is Immediately Distributable, the Participant and the Participant's Spouse (or where either the Participant or the Spouse has died, the survivor) must consent to any distribution of such benefit. The consent of the Participant and the Participant's Spouse shall be obtained in writing within the 90-day period ending on the Participant's Benefit Commencement Date; provided, however, that if the Plan is a profit-sharing plan and Section 6.1.2 applies, the consent of the Participant's Spouse will not be required. The Administrator shall notify the Participant and the Participant's Spouse of the right to defer any distribution until the Participant's benefit is no longer Immediately Distributable. Such notification shall include a general description of the material features, and an explanation of the relative values of, the optional forms of benefit available under the Plan in a manner that would satisfy the notice requirements of Code Section 417(a)(3), and shall be provided no less than 30 days and no more than 90 days prior to the Benefit Commencement Date. 5.6.4 Notwithstanding the foregoing, only the Participant need consent to the commencement of a distribution in the form of a Qualified Joint and Survivor Annuity while the Participant's benefit is Immediately Distributable. Neither the consent of the Participant nor the Participant's Spouse shall be required to the extent that a distribution is required to satisfy Code Section 401(a)(9) or Code Section 415. 5.6.5 For purposes of determining the applicability of the foregoing consent requirements to distributions made before the first day of the first Plan Year beginning after December 31, 1988, the Participant's vested benefit shall not include amounts attributable to accumulated deductible Participant contributions within the meaning of Code Section 72(o)(5)(B). 5.6.6 If a Participant, who after termination of Employment received a distribution and forfeited any portion of an Employer Account or is deemed to have received a distribution in accordance with Section 5.6.1, resumes Employment, he or she shall have the right, while an Employee, to repay the full amount previously distributed from such Employer Account. Such repayment must occur before the earlier of (i) the date on which he or she would have incurred a Period of Severance of five years commencing after the distribution or (ii) five years after the first date on which the Participant is subsequently reemployed. If the Participant makes a repayment, the Account Balance of his or her relevant Employer Account shall be restored to its value as of the date of distribution. The restored amount shall be derived from forfeitures during the Plan Year and, if such forfeitures are not sufficient, from a contribution by the Employer made as of that date (determined without reference to Net Profits). If an Employee who had a Nonvested Separation and was deemed to receive a distribution resumes Employment before a Period of Severance of five years, his or her Employer Account will be restored, upon reemployment, to the amount on the date of such deemed distribution. 5.7 Withdrawals During Employment 5.7.1 If the Plan is a profit-sharing plan, and if the Employer has elected in the Adoption Agreement to permit withdrawals during Employment, prior to termination of Employment, each Participant upon attainment of age 59-1/2 may elect to withdraw, as of the Valuation Date next following the receipt of an election by the Administrator, and upon such notice as the Administrator may require, all or any part of the vested Account Balance of all of his or her Accounts, as of such Valuation Date. 5.7.2 Notwithstanding Section 5.7.1, prior to termination of Employment, each Participant with a Rollover Contributions Account and/or a Participant Voluntary Nondeductible Contributions Account may elect to withdraw, as of the Valuation Date next following the receipt of an election by the Administrator, and upon such notice as the Administrator may require, all or any of such Account, as of such Valuation Date. 5.7.3 The Administrator may establish from time to time rules and procedures with respect to any withdrawals including the order of Accounts from which such withdrawals shall be made. 5.7.4 No forfeitures shall occur as a result of a withdrawal pursuant to this Section 5.7. 5.7.5 If a Participant is married at the time of such election, the Participant's Spouse must consent to such a withdrawal in the same manner as provided in Section 6.2.4; provided, however, that if the Plan is a profit-sharing plan and Section 6.1.2 applies, the consent of the Participant's Spouse will not be required. 5.8 Loans 5.8.1 If the Employer has elected in the Adoption Agreement to make loans available, a Participant may submit an application to the Administrator to borrow from any Account maintained for the Participant (on such terms and conditions as the Administrator shall prescribe) an amount which when added to the outstanding balance of all other loans to the Participant would not exceed the lesser of (a) $50,000 reduced by the excess (if any) of the highest outstanding balance of loans during the one year period ending on the day before the loan is made, over the outstanding balance of loans from the Plan on the date the loan is made, or (b) 50% of the vested portion of his or her Account from which the borrowing is to be made as of the Valuation Date next following the receipt of his or her loan application by the Administrator and the expiration of such notice period as the Administrator may require. For this purpose, all loans from Qualified Plans of the Employer or an Affiliate shall be aggregated, and an assignment or pledge of any portion of the Participant's interest in the Plan, and a loan, pledge or assignment with respect to any insurance contract purchased under the Plan, will be treated as a loan under this Section 5.8.1. 5.8.2 If approved, each such loan shall comply with the following conditions: (A) it shall be evidenced by a negotiable promissory note; (B) the rate of interest payable on the unpaid balance of such loan shall be a reasonable rate determined by the Administrator; (C) the Participant must obtain the consent of his or her Spouse, if any, within the 90-day period before the time an Account is used as security for the loan; provided, however, that if the Plan is a profit-sharing plan that meets the requirements in Section 6.1.2 of the Plan, the consent of the Participant's Spouse will not be required. A new consent is required if an Account is used for any increase in the amount of security. The consent shall comply with the requirements of Section 6.2.4, but shall be deemed to meet any requirements contained in section 6.2.4 relating to the consent of any subsequent Spouse. A new consent shall be required if an Account is used for renegotiation, extension, renewal, or other revision of the loan; (D) the loan, by its terms, must require repayment (principal and interest) be amortized in level payments, not less frequently than quarterly, over a period not extending beyond five years from the date of the loan; provided, however, that if the proceeds of the loan are used to acquire a dwelling unit which within a reasonable time (determined at the time the loan is made) will be used as the principal residence of the Participant, the repayment schedule may be for a term in excess of five years; and (E) the loan shall be adequately secured and may be secured by no more than 50% of the Participant's vested interest in the Account Balance of his or her Accounts. 5.8.3 If a Participant or Beneficiary requests and is granted a loan, and the loan is made from Participant-Directed Assets, principal and interest payments with respect to the loan shall be credited solely to the Account of the borrowing Participant from which the loan was made. Any loss caused by nonpayment or other default on a Participant's loan obligations shall be charged solely to that Account. Any other loan shall be treated as an investment of the Trust Fund and interest and principal payments on account thereof shall be credited to the Trust Fund. The Administrator shall determine the order of Accounts from which a loan may be made. 5.8.4 Anything herein to the contrary notwithstanding: (A) in the event of a default, foreclosure on the promissory note will not occur until a distributable event occurs under this Article V; (B) no loan will be made to any Owner-Employee or to any "shareholder-employee" of the Employer or a Participating Affiliate or with respect to any amounts attributable to a Rollover Contribution or a trust to trust transfer and relating to prior participation by such an individual in a Qualified Plan. For this purpose, a "shareholder-employee" means an employee or officer of an electing small business, i.e., an "S corporation" as defined in Code Section 1361, who owns (or is considered as owning within the meaning of Code Section 318(a)(1)) on any day during the taxable year of such corporation, more than 5% of the outstanding stock of the corporation; and (C) loans shall not be made available to Highly Compensated Employees in an amount greater than the amount made available to other Employees. 5.8.5 If a valid spousal consent has been obtained in accordance with Section 5.8.2(C), then, notwithstanding any other provision of this Plan, the portion of the Participant's vested Account used as a security interest held by the Plan by reason of a loan outstanding to the Participant shall be taken into account for purposes of determining the amount of the Participant's benefit payable at the time of death or distribution; but only if the reduction is used as repayment of the loan. If less than 100% of the Participant's vested benefit (determined without regard to the preceding sentence) is payable to the Surviving Spouse, then the Participant's benefit shall be adjusted by first reducing the Participant's vested benefit by the amount of the security used as repayment of the loan, and then determining the benefit payable to the Surviving Spouse. 5.9 Hardship Distributions 5.9.1 Effective January 1, 1989, if available and elected by the Employer in the Adoption Agreement, a Participant may request a distribution due to hardship from the vested portion of his or her Accounts, (other than from his or her Qualified Nonelective Contributions Account, Qualified Matching Contributions Account or earnings accrued after December 31, 1988, on the Participant's Elective Deferrals) only if the distribution is made both due to an immediate and heavy financial need of the Participant and is necessary to satisfy such financial need. 5.9.2 A hardship distribution shall be permitted only if the distribution is due to: (A) expenses incurred or necessary for medical care described in Code Section 213(d) incurred by the Participant, the Participant's Spouse, or any dependents of the Participant (as defined in Code Section 152); (B) purchase (excluding mortgage payments) of a principal residence for the Participant; (C) payment of tuition and related educational fees for the next 12 months of post-secondary education for the Participant, his or her Spouse, children or dependents; (D) the need to prevent the eviction of the Participant from his or her principal residence or foreclosure on the mortgage of the Participant's principal residence; or (E) any other condition or event which the Commissioner of the Internal Revenue Service determines is a deemed immediate and financial need. 5.9.3 A distribution will be considered necessary to satisfy an immediate and heavy financial need of a Participant if all of the following requirements are satisfied: (A) the distribution will not be in excess of the amount of the immediate and heavy financial need of the Participant (including amounts necessary to pay any Federal, state or local income taxes or penalties reasonably anticipated to result from the distribution); (B) the Participant obtains all distributions, other than hardship distributions, and all nontaxable loans currently available under all plans maintained by the Employer or an Affiliate; (C) the Participant's Elective Deferrals, Employee Thrift Contributions and Participant Voluntary Nondeductible Contributions will be suspended for at least 12 months after receipt of the hardship distribution in this Plan and in all other plans maintained by the Employer or an Affiliate; and (D) the Participant may not make Elective Deferrals for the Participant's taxable year immediately following the taxable year of the hardship distribution in excess of the applicable limit under Code Section 402(g) for such next taxable year less the amount of such Participant's Elective Deferrals for the taxable year of the distribution in this Plan and in all other plans maintained by the Employer or an Affiliate. 5.9.4 If the distribution is made from any Account other than a 401(k) Contributions Account, a distribution due to hardship may be made without application of Section 5.9.3(B), 5.9.3(C), or 5.9.3(D). 5.10 Limitation on Commencement of Benefits 5.10.1 Anything in this Article V to the contrary notwithstanding, a Participant's Benefit Commencement Date shall in no event be later than the 60th day after the close of the Plan Year in which the latest of the following events occur: (A) the attainment by the Participant of his or her Normal Retirement Age; (B) the tenth anniversary of the year in which the Participant commenced participation in the Plan; or (C) the Participant's termination of Employment. Notwithstanding the foregoing, the failure of a Participant and Spouse to consent to a distribution while a benefit is Immediately Distributable, shall be deemed to be an election to defer commencement of payment of any benefit sufficient to satisfy this Section. 5.10.2 If it is not possible to distribute a Participant's Accounts because the Administrator has been unable to locate the Participant after making reasonable efforts to do so, then a distribution of the Participant's Accounts shall be made when the Participant can be located. 5.11 Distribution Requirements 5.11.1 Subject to the Joint and Survivor Annuity rules set forth in Article VI, the requirements of this Article shall apply to any distribution of a Participant's interest and will take precedence over any inconsistent provisions of this Plan. Unless otherwise specified, the provisions of this article apply to calendar years beginning after December 31, 1984. As used in this Section 5.11, each of the following terms shall have the meaning for that term set forth in this Section 5.11.1: (A) Applicable Life Expectancy. The life expectancy (or joint and last survivor expectancy) calculated using the attained age of the Participant (or designated Beneficiary) as of the Participant's (or designated Beneficiary's) birthday in the applicable calendar year reduced by one for each calendar year which has elapsed since the date Life Expectancy was first calculated. If Life Expectancy is being recalculated, the Applicable Life Expectancy shall be the Life Expectancy as so recalculated. The applicable calendar year shall be the first distribution calendar year, and if Life Expectancy is being recalculated such succeeding calendar year. (B) Designated Beneficiary. The individual who is designated as the Beneficiary under the Plan in accordance with Code Section 401(a)(9). In the event that a Participant names a trust to be a designated Beneficiary, such designation shall provide that, as of the later of the date on which the trust is named as a Beneficiary or the Participant's Required Beginning Date, and as of all subsequent periods during which the trust is named as a Beneficiary, the following requirements are met: (i) the trust is a valid trust under state law, or would be but for the fact that there is no corpus; (ii) the trust is irrevocable; (iii) the Beneficiaries of the trust who are Beneficiaries with respect to the trust's interest in the Participant's benefits are identifiable from the trust instrument within the meaning of Code Section 401(a)(9); and (iv) a copy of the trust is provided to the Plan. (C) Distribution Calendar Year. A calendar year for which a minimum distribution is required. For distributions beginning before the Participant's death, the first Distribution Calendar Year is the calendar year immediately preceding the calendar year which contains the Participant's Required Beginning Date. For distributions beginning after the Participant's death, the first Distribution Calendar Year is the calendar year in which distributions are required to begin pursuant to Section 7.2. (D) Life Expectancy. Life Expectancy and joint and last survivor expectancy are computed by use of the expected return multiples in Tables V and VI of section 1.72-9 of the regulations issued under the Code. Unless otherwise elected by the Participant (or Spouse, in the case of distributions described in Section 7.2) by the time distributions are required to begin, Life Expectancies shall not be recalculated annually. Such election shall be irrevocable as to the Participant or Spouse and shall apply to all subsequent years. The Life Expectancy of a nonspouse Beneficiary may not be recalculated. (E) Required Beginning Date. (I) General rule. The Required Beginning Date of a Participant is the first day of April of the calendar year following the calendar year in which the Participant attains age 70-1/2. (Ii) Transitional rule. The Required Beginning Date of a Participant who attains age 70-1/2 before January 1, 1988, shall be determined in accordance with (1) or (2) below: (1) Non-5% owners. The Required Beginning Date of a Participant who is not a "5% owner" as defined in (iii) below is the first day of April of the calendar year following the calendar year in which the later of retirement or attainment of age 70-1/2 occurs. (2) 5% owners. The Required Beginning Date of a Participant who is a 5% owner during any year beginning after December 31, 1979, is the first day of April following the later of: (a) the calendar year in which the Participant attains age 70-1/2; or (b) the earlier of the calendar year with or within which ends the Plan Year in which the Participant becomes a 5% owner, or the calendar year in which the Participant retires. The Required Beginning Date of a Participant who is not a 5% owner who attains age 70-1/2 during 1988 and who has not retired as of January 1, 1989, is April 1, 1990. (iii) 5% owner. A Participant is treated as a 5% owner for purposes of this Section 5.11 if such Participant is a 5% owner as defined in Code Section 416(i) (determined in accordance with section 416 but without regard to whether the plan is top-heavy) at any time during the Plan Year ending with or within the calendar year in which such owner attains age 66-1/2 or any subsequent Plan Year. (iv) Once distributions have begun to a 5% owner under this Section 5.11, they must continue to be distributed, even if the Participant ceases to be a 5% owner in a subsequent year. 5.11.2 All distributions required under this Section 5.11 shall be determined and made in accordance with the Income Tax Regulations under Code Section 401(a)(9), including the minimum distribution incidental benefit requirement of section 1.401(a)(9)-2 of the regulations issued under the Code. The entire interest of a Participant must be distributed or begin to be distributed no later than the Participant's Required Beginning Date. 5.11.3 Limits on Distribution Periods. As of the first Distribution Calendar Year, distributions, if not made in a lump sum, may only be made over one of the following periods (or a combination thereof): (A) the life of the Participant; (B) the life of the Participant and a Designated Beneficiary; (C) a period certain not extending beyond the Life Expectancy of the Participant; or (D) a period certain not extending beyond the joint and last survivor expectancy of the Participant and a Designated Beneficiary. For calendar years beginning before January 1, 1989, if the Participant's Spouse is not the Designated Beneficiary, the method of distribution selected must assure that at least 50% of the present value of the amount available for distribution is paid within the Life Expectancy of the Participant. 5.11.4 Determination of Amount to be Distributed Each Year. (A) If the Participant's interest is to be paid in the form of annuity distributions under the Plan (whether directly or in the form of an annuity purchased from an insurance company), payments under the annuity shall satisfy the following requirements: (I) the annuity distributions must be paid in periodic payments made at intervals not longer than one year; (ii) the distribution period must be over a life (or lives) or over a period certain not longer than a Life Expectancy (or joint life and last survivor expectancy) described in Code Section 401(a)(9)(A)(ii) or Code Section 401(a)(9)(B)(iii), whichever is applicable; (iii) the Life Expectancy (or joint life and last survivor expectancy) for purposes of determining the period certain shall be determined without recalculation of Life Expectancy; (iv) once payments have begun over a period certain, the period certain may not be lengthened even if the period certain is shorter than the maximum permitted; (v) payments must either be nonincreasing or increase only as follows: (1) with any percentage increase in a specified and generally recognized cost-of-living index; (2) to the extent of the reduction to the amount of the Participant's payments to provide for a survivor benefit upon death, but only if the Beneficiary whose life was being used to determine the distribution period described in Section 5.11.4(A)(iii) dies and the payments continue otherwise in accordance with that section over the life of the Participant; (3) to provide cash refunds of Employee contributions upon the Participant's death; or (4) because of an increase in benefits under the Plan. (vi) If the annuity is a life annuity (or a life annuity with a period certain not exceeding 20 years), the amount which must be distributed on or before the Participant's Required Beginning Date (or, in the case of distributions after the death of the Participant, the date distributions are required to begin pursuant to Section 7.2) shall be the payment which is required for one payment interval. The second payment need not be made until the end of the next payment interval even if that payment interval ends in the next calendar year. Payment intervals are the periods for which payments are received, e.g., bimonthly, monthly, semi-annually, or annually. If the annuity is a period certain annuity without a life contingency (or is a life annuity with a period certain exceeding 20 years) periodic payments for each distribution calendar year shall be combined and treated as an annual amount. The amount which must be distributed by the Participant's Required Beginning Date (or, in the case of distributions after the death of the Participant, the date distributions are required to begin pursuant to Section 7.2) is the annual amount for the first Distribution Calendar Year. The annual amount for other Distribution Calendar Years, including the annual amount for the calendar year in which the Participant's Required Beginning Date (or the date distributions are required to begin pursuant to Section 7.2) occurs, must be distributed on or before December 31 of the calendar year for which the distribution is required. (B) Annuities purchased after December 31, 1988, are subject to the following additional conditions: (i) Unless the Participant's Spouse is the Designated Beneficiary, if the Participant's interest is being distributed in the form of a period certain annuity without a life contingency, the period certain as of the beginning of the first Distribution Calendar Year may not exceed the applicable period determined using the table set forth in Q&A A-5 of section 1.401(a)(9)-2 of the regulations issued under the Code. (ii) If the Participant's interest is being distributed in the form of a joint and survivor annuity for the joint lives of the Participant and a nonspouse Beneficiary, annuity payments to be made on or after the Participant's Required Beginning Date to the Designated Beneficiary after the Participant's death must not at any time exceed the applicable percentage of the annuity payment for such period that would have been payable to the Participant using the table set forth in Q&A A-6 of section 1.401(a)(9)-2 of the regulations under the Code. (C) Transitional Rule. If payments under an annuity which complies with Section 5.11.4(A) begin prior to January 1, 1989, the minimum distribution requirements in effect as of July 27, 1987, shall apply to distributions from this Plan, regardless of whether the annuity form of payment is irrevocable. This transitional rule also applies to deferred annuity contracts distributed to or owned by the Participant prior to January 1, 1989, unless additional contributions are made under the Plan by the Employer or Affiliate with respect to such contract. (D) If the form of distribution is an annuity made in accordance with Section 5.11.4, any additional benefits accruing to the Participant after his or her Required Beginning Date shall be distributed as a separate and identifiable component of the annuity beginning with the first payment interval ending in the calendar year immediately following the calendar year in which such amount accrues. (E) Any part of the Participant's interest which is in the form of an individual account shall be distributed in a manner satisfying the requirements of Code Section 401(a)(9). 5.11.5 Transitional Rule: Section 242 Election. Notwithstanding the other requirements of this Article and subject to the Joint and Survivor Annuity rules set forth in Article VI, distribution on behalf of any Employee, including a 5% owner, may be made in accordance with all of the following requirements (regardless of when such distribution commences): (A) the distribution by the trust is one which would not have disqualified such trust under Code Section 401(a)(9) as in effect prior to amendment by the Deficit Reduction Act of 1984; (B) the distribution is in accordance with a method of distribution designated by the Employee whose interest in the trust is being distributed or, if the Employee is deceased, by a Beneficiary of such Employee; (C) such designation was in writing, was signed by the Employee or the Beneficiary, and was made before January 1, 1984; (D) the Employee had accrued a benefit under the Plan as of December 31, 1983; and (E) the method of distribution designated by the Employee or the Beneficiary specifies the time at which distribution will commence, the period over which distributions will be made, and in the case of any distribution upon the Employee's death, the Beneficiaries of the Employee listed in order of priority. A distribution upon death will not be covered by this transitional rule unless the information in the designation contains the required information described above with respect to the distributions to be made upon the death of the Employee. For any distribution which commences before January 1, 1984, but continues after December 31, 1983, the Employee, or the Beneficiary, to whom such distribution is being made, will be presumed to have designated the method of distribution under which the distribution is being made if the method of distribution was specified in writing and the distribution satisfies the requirements in subsections 5.11.5(A) and (E). If a designation is revoked any subsequent distribution must satisfy the requirements of Code Section 401(a)(9). If a designation is revoked subsequent to the date distributions are required to begin, the trust must distribute by the end of the calendar year following the calendar year in which the revocation occurs the total amount not yet distributed to satisfy Code Section 401(a)(9) but for the Section 242(b)(2) election. For calendar years beginning after December 31, 1988, such distributions must meet the minimum distribution incidental benefit requirements in section 1.401(a)(9)-2 of the regulations issued under the Code. Any changes in the designation will be considered to be a revocation of the designation. However, the mere substitution or addition of another Beneficiary (one not named in the designation) under the designation will not be considered to be a revocation of the designation, so long as such substitution or addition does not alter the period over which distributions are to be made under the designation, directly or indirectly (for example, by altering the relevant measuring life). In the case in which an amount is transferred or rolled over from one plan to another plan, the rules in Q&A J-2 and Q&A J-3 of section 1.401(a)(9)-1 of the regulations issued under the Code. ARTICLE VI FORMS OF PAYMENT OF RETIREMENT BENEFITS 6.1 Methods of Distribution 6.1.1 If the Plan is a money purchase pension plan or a target benefit plan, a Participant's benefit shall be payable in the normal form of a Qualified Joint and Survivor Annuity if the Participant is married on his or her Benefit Commencement Date and in the normal form of an immediate annuity for the life of the Participant if the Participant is not married on that date. A Participant who terminated Employment on or after satisfying the requirements for Early Retirement may elect to have his or her Qualified Joint and Survivor Annuity distributed upon attainment of such Early Retirement. If the Plan is a profit-sharing plan that satisfies the requirements set forth in Section 6.1.2, a Participant's Accounts shall only be payable in the normal form of a lump-sum distribution in accordance with Section 6.1.1(B) below. A Participant in a money purchase pension plan, a target benefit plan, or a profit-sharing plan that does not satisfy the requirements set forth in Section 6.1.2, may at any time after attaining age 35 and prior to his or her Benefit Commencement Date elect, in accordance with Section 6.2, any of the following optional forms of payment instead of the normal form: (A) An Annuity Contract payable as: (i) a single life annuity; (ii) a joint and 50% survivor annuity with a contingent annuitant; (iii) a joint and 100% survivor annuity with a contingent annuitant; (iv) an annuity for the life of the Participant with 120 monthly payments certain; (B) A lump-sum distribution in cash or in kind, or part in cash and part in kind; or (C) In installments payable in cash or in kind, or part in cash and part in kind over a period not in excess of that required to comply with Section 5.11.4. Anything in this Section 6.1.1 to the contrary notwithstanding, if the value of a Participant's vested Account as of the applicable Valuation Date is $3,500 or less, his or her benefit shall be paid in the form of a lump-sum distribution and no optional form of benefit payment shall be available. 6.1.2 If the Plan is a profit-sharing plan then:(A) the Participant cannot elect payments in the form of a Life annuity (this Section 6.1.2 shall not apply if a life annuity form is an optional form preserved under Code Section 411(d)(6)); (B) on the death of the Participant, the Participant's benefits will be paid to his or her Surviving Spouse, if any, or, if his or her Surviving Spouse has already consented in a manner conforming to an election under Section 6.2.4, then to the Participant's Beneficiary; and(C) the normal form of benefit shall be a lump-sum and Sections 6.2.1, 6.2.2 and 6.2.4 shall not be applied by the Administrator. A Participant in such a profit-sharing plan may also elect to receive his or her benefit in the form of installments in accordance with Section 6.1.1(C) of the Plan. This Section 6.1.2 shall not apply, however, with respect to the Participant if it is determined that the Plan is a direct or indirect transferee of a defined benefit plan, a money purchase pension plan (including a target benefit plan) or a stock bonus or profit-sharing plan which is subject to the survivor annuity requirements of Code Sections 401(a)(11) and 417. In addition, this Section 6.1.2 shall not apply unless the Participant's Surviving Spouse, if any, is the Beneficiary of (i) the proceeds of any insurance on the Participant's life purchased by Employer contributions or (ii) forfeitures allocated to the Participant's Employer Account or unless the Participant's Surviving Spouse has consented to the Participant's designation of another Beneficiary as referred to in subsection (C) of this Section 6.1.2. 6.1.3 The following transitional rules shall apply for those Participants entitled to but not receiving benefits as of August 23, 1984: (A) Any living Participant not receiving benefits on August 23, 1984, who would otherwise not receive the benefits prescribed by Section 6.1 must be given the opportunity to elect to have Section 6.1 apply if such Participant is credited with at least one Hour of Service under this Plan or a predecessor plan in a Plan Year beginning on or after January 1, 1976, and such Participant had at least 10 Years of Service when he or she terminated from Employment. (B) Any living Participant not receiving benefits on August 23, 1984, who was credited with at least one Hour of Service under this Plan or a predecessor plan on or after September 2, l974, and who is not otherwise credited with an Hour of Service in a Plan Year beginning on or after January 1, 1976, must be given the opportunity to have his or her benefits paid in accordance with this Section 6.1.3(D). (C) The respective opportunities to elect (as described in these Sections 6.1.3(A) and (B)) must be afforded to the appropriate Participants during the period commencing on August 23, 1984, and ending on such Participant's Benefit Commencement Date. (D) Any Participant who has elected pursuant to this Section 6.1.3(B) and any Participant who does not elect under this Section 6.1.3(A) or who meets the requirements of this Section 6.1.3(A) except that such Participant does not have at least ten Years of Service when he or she terminates from Employment, shall have his or her benefits distributed in accordance with all of the following requirements if benefits would have been payable in the form of a single life annuity: (1) Automatic Qualified Joint and Survivor Annuity If benefits in the form of a single life annuity become payable to a married Participant who: (a) begins to receive payments on or after Normal Retirement Age; or (b) dies on or after Normal Retirement Age while in active Employment; or (c) begins to receive payments on or after the "Qualified Early Retirement Age", as that term is defined in Section 6.1.3(D)(3)(a); or (d) terminates from Employment on or after attaining Normal Retirement Age (or Qualified Early Retirement Age) and after satisfying the eligibility requirement for the payment of benefits under the Plan and thereafter dies before his or her Benefit Commencement Date; then such benefits will be received in the form of a Qualified Joint and Survivor Annuity, unless the Participant has elected otherwise during the election period which begins at least six months before the Participant attains Qualified Early Retirement Age and ends no earlier than 90 days before his or her Benefit Commencement Date. Any election hereunder will be in writing and may be changed by the Participant at any time. (2) Election of early survivor annuity A Participant who is employed after attaining the Qualified Early Retirement Age will be given the opportunity to elect, beginning on the later of (1) the 90th day before he or she attains his or her Qualified Early Retirement Age, or (2) the date on which participation begins, and ending on the date he or she terminates Employment, to have a survivor annuity payable on death. If the Participant elects the survivor annuity, payments under such annuity must not be less than the payments which would have been made to the Spouse under the Qualified Joint and Survivor Annuity if the Participant had retired on the day before his or her death. Any election under this provision will be in writing and may be changed by the Participant at any time. (3) Qualified Early Retirement Age (a) For purposes of this section 6.1.3, Qualified Early Retirement Age is the latest of: (i) the earliest date, under the Plan, on which the Participant may elect to receive retirement benefits, ()ii) the first day of the 120th month beginning before the Participant reaches Normal Retirement Age, or (iii) the date the Participant begins participation. (b) Qualified Joint and Survivor Annuity is an annuity for the life of the Participant with a survivor annuity for the life of the Spouse as described in Section 1.77. 6.2 Election of Optional Forms 6.2.1 By notice to the Administrator at any time prior to a Participant's date of death and beginning on the first day of the Plan Year in which the Participant attains age 35, the Participant may elect, in writing, not to receive the normal form of benefit payment otherwise applicable and to receive instead an optional form of benefit payment provided for in Section 6.1.1. If the Participant separates from Employment prior to the first day of the Plan Year in which the Participant attains age 35, the Participant may make such election beginning on the date he or she separates from Employment. This Section 6.2.1 shall not be applicable if Section 6.1.2 applies to a Participant. 6.2.2 Within a reasonable period, but in any event no less than 30 and no more than 90 days prior to each Participant's Benefit Commencement Date, the Administrator shall provide to each Participant a written explanation of the terms and conditions of a Qualified Joint and Survivor Annuity. Such written explanation shall consist of: (A) the terms and conditions of the Qualified Joint and Survivor Annuity; (B) the Participant's right to make, and the effect of, an election to waive the Qualified Joint and Survivor Annuity; (C) the rights of the Participant's Spouse under Section 6.2.4; (D) the right to make, and the effect of, a revocation of a previous election to waive the Qualified Joint and Survivor Annuity; and (E) the relative values of the various optional forms of benefit under the Plan. The Administrator may, on a uniform and nondiscriminatory basis, provide for such other notices, information or election periods or take such other action as the Administrator considers necessary or appropriate to implement the provisions of this Section 6.2.2. 6.2.3 A Participant may revoke his or her election to take an optional form of benefit, and elect a different form of benefit, at any time prior to the Participant's Benefit Commencement Date. 6.2.4 The election of an optional benefit by a Participant after December 31, 1984, must also be a waiver of a Qualified Joint and Survivor Annuity by the Participant. Any waiver of a Qualified Joint and Survivor Annuity shall not be effective unless (A) the Participant's Spouse consents in writing; (B) the election designates a specific alternate Beneficiary, including any class of Beneficiaries or any contingent Beneficiaries which may not be changed without spousal consent (or the Spouse expressly permits designations by the Participant without any further spousal consent); (C) the Spouse's consent to the waiver is witnessed by a Plan representative or notary public; and (D) the Spouse's consent acknowledges the effect of the election. Additionally, a Participant's waiver of the Qualified Joint and Survivor Annuity will not be effective unless the election designates a form of benefit payment which may not be changed without spousal consent or the Spouse expressly permits designations without any further spousal consent. Notwithstanding this consent requirement, if the Participant establishes to the satisfaction of a Plan representative that such written consent may not be obtained because there is no Spouse or the Spouse cannot be located, the election will be deemed effective. Any consent necessary under this provision will not be valid with respect to any other Spouse. A consent that permits designations by the Participant without any requirement of further consent by such Spouse must acknowledge that the Spouse has the right to limit consent to a specific Beneficiary, and a specific form of benefit, where applicable, and that the Spouse voluntarily elects to relinquish either or both of such rights. Additionally, a revocation of a prior waiver may be made by a Participant without the consent of the Spouse at any time before his or her Benefit Commencement Date. The number of revocations shall not be limited. Any new waiver will require a new consent by the electing Participant's Spouse. No consent obtained under this provision shall be valid unless the Participant has received notice as provided in this Section. 6.2.5 The election of an optional form of benefit which contemplates the payment of an annuity shall not be given effect if any person who would receive benefits under the annuity dies before the Benefit Commencement Date. 6.3 Change in Form of Benefit Payments Any former Employee whose payments are being deferred or who is receiving installment payments may request acceleration or other modification of the form of benefit distribution, subject to Code Section 401(a)(9), provided that any necessary consent to such change required pursuant to Section 6.2.4 is obtained from the Employee's Spouse. This Section 6.3 shall not apply to any Employee who becomes a Participant on or after January 1, 1989 or to Plans adopted after that date. 6.4 Direct Rollovers 6.4.1 The provisions of this Section 6.4 apply only to distributions made on or after January 1, 1993. 6.4.2 Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Distributee's election under this Section 6.4, a Distributee may elect, at the time and in the manner prescribed by the Administrator, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover. 6.4.3 Definitions - All terms used in this Section 6.4 shall have the meaning set forth below: (A) Eligible Rollover Distribution: An Eligible Rollover Distribution is any distribution of all or any portion of the balance to the credit of the Distributee, except, that an Eligible Rollover Distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee's designated beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Code Section 401(a)(9); and the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). (B) Eligible Retirement Plan: An Eligible Retirement Plan is an individual retirement account described in Code Section 408(a), an individual retirement annuity described in Code Section 408(b), an annuity plan described in Code Section 403(a), or a qualified trust described in Code Section 401(a) that accepts the Distributee's Eligible Rollover Distribution. However, in the case of an Eligible Rollover Distribution to the Surviving Spouse, an Eligible Retirement Plan is an individual retirement account or individual retirement annuity. (C) Distributee: A Distributee includes an Employee or former Employee. In addition, the Employee's or former Employee's Surviving Spouse and the Employee's or former Employee's Spouse or former Spouse who is the alternate payee under a qualified domestic relations order, as defined in Code Section 414(p), are Distributees with regard to the interest of the Spouse or former Spouse. (D) Direct Rollover: A Direct Rollover is a payment by the Plan to the Eligible Retirement Plan specified by the Distributee. ARTICLE VII Death Benefits 7.1 Payment of Account Balances 7.1.1 The benefits payable to the Beneficiary of a Participant who dies while an Employee shall be the Account Balance of all of his or her Accounts including, if applicable, the proceeds of any life insurance contract in effect on the Participant's life in accordance with Section 7.3. The benefits payable to the Beneficiary of a Participant who dies after terminating Employment shall be the vested Account Balance of all of his or her Accounts. Except as otherwise provided in this Article VII, a Beneficiary may request that he or she be paid his or her benefits as soon as practicable after the Participant's death. 7.1.2 If a Participant dies before distribution of his or her entire interest in the Plan has been completed, the remaining interest shall, subject to Section 7.2.5, be distributed to the Participant's Beneficiary in the form, at the time and from among the methods specified in Section 6.1.1 as elected by the Beneficiary in writing filed with the Administrator. If an election is not received by the Administrator within 90 days following the date the Administrator is notified of the Participant's death, the distribution shall be made, if to a Surviving Spouse, in accordance with Section 7.2.5(B), and, if to some other Beneficiary, to the Beneficiary in a lump-sum. 7.1.3 The value of the benefits payable to a Beneficiary shall be determined in accordance with Section 10.6.2. If the value of such death benefit is $3,500 or less, distribution of such benefit shall be made in a lump-sum as soon as practicable following the death of the Participant. 7.2 Beneficiaries 7.2.1 The Administrator shall provide each Participant, within the period described in Section 7.2.1(A) for such Participant, a written explanation of the death benefit in such terms and in such a manner as would be comparable to the explanation provided for meeting the requirements applicable to a Qualified Joint and Survivor Annuity. This Section 7.2.1 shall not be applicable if Section 6.1.2 applies to a Participant. (A) The period for providing a written explanation of the death benefit for a Participant ends on the latest of the following to occur: (i) the period beginning with the first day of the Plan Year in which the Participant attains age 32 and ending with the close of the Plan Year preceding the Plan Year in which the Participant attains age 35; (ii) a reasonable period ending after the Employee becomes a Participant; or (iii) a reasonable period ending after Code Section 417 first applies to the Participant. Notwithstanding the foregoing, notice must be provided within a reasonable period ending after termination of Employment in case of a Participant who terminates Employment before attaining age 35 and who has a vested interest in his or her Account. (B) For purposes of the preceding paragraph, a reasonable period ending after the enumerated events described in (ii) and (iii) is the end of the two-year period beginning one year prior to the date the applicable event occurs and ending one year after that date. A Participant who has a vested interest in his or her Account and who terminates Employment before the Plan in which age 35 is attained, shall be provided such notice within the two-year period beginning one year prior to and ending one year after termination. If such a Participant returns to Employment, the applicable period for such Participant shall be redetermined. 7.2.2 A Participant shall designate one or more Beneficiaries to whom amounts due after his or her death, other than under the Qualified Joint and Survivor Annuity, shall be paid. In the event a Participant fails to make a proper designation or in the event that no designated Beneficiary survives the Participant, the Participant's Beneficiary shall be the Participant's Surviving Spouse, or if the Participant has no Surviving Spouse, the legal representative of the Participant's estate, as an asset of that estate. A Participant's Beneficiary shall not have any right to benefits under the Plan unless he or she shall survive the Participant. 7.2.3 Any designation of a Beneficiary incorporated into an Annuity Contract or insurance contract shall be governed by the terms of such Annuity Contract or insurance contract. Any other designation of a Beneficiary must be filed with the Administrator, in a time and manner designated by such Administrator, in order to be effective. Any such designation of a Beneficiary may be revoked by filing a later designation or an instrument of revocation with the Administrator, in a time and manner designated by the Administrator. 7.2.4 Effective after December 31, 1984, a married Participant whose designation of a Beneficiary is someone other than his or her Spouse, including a Beneficiary referred to in the first sentence of Section 7.2.3, or the change of any such Beneficiary to a new Beneficiary other than the Participant's Spouse, shall not be valid unless made in writing and consented to by the Participant's Spouse in such terms and in such a manner as would be comparable to the consent provided for a waiver of the Qualified Joint and Survivor Annuity. The Spouse's consent to such designation must be made in the manner described in Section 6.2.4. 7.2.5 Notwithstanding any other provision of the Plan to the contrary: (A) If the Participant dies after his or her Benefit Commencement Date, but before distribution of his or her benefit has been completed, the remaining portion of such benefit may continue in the form and over the period in which the distributions were being made, but in any event must continue to be made at least as rapidly as under the method of distribution being used prior to the Participant's death. (B) If the Participant dies leaving a Surviving Spouse before his or her Benefit Commencement Date, the Participant's benefit shall be payable to the Participant's Surviving Spouse in the form of an annuity for the life of the Surviving Spouse. The preceding sentence shall not apply if, within 90 days following the date the Administrator is notified of the Participant's death, his or her Surviving Spouse elects, by written notice to the Administrator, any other form of benefit payment specified in Section 6.1.1, or the such Surviving Spouse has already consented in a manner described in Section 6.2.4 to a distribution to an alternate Beneficiary designated by the Participant. If the Plan is a profit-sharing plan which meets the requirements of Section 6.1.2., the Surviving Spouse shall receive his or her distribution in the form of a lump-sum unless she or he elects within 90 days following the date the Administrator is notified of the Participant's death, any other form of benefit payment specified in Section 6.1.1, or the Participant's Surviving Spouse has already consented in a manner described in Section 6.2.4 to a distribution to an alternate Beneficiary designated by the Participant. If the Participant's benefit is $3,500 or less, distribution shall be made in the form of a lump-sum comprised of the assets in the Account immediately prior to the distribution if the Account consists of Participant-Directed Assets. If the Account does not consist of Participant-Directed Assets, the distribution shall be in cash. If the Participant's benefit is distributable in the form of an annuity for the life of the Surviving Spouse, the Surviving Spouse may elect to have such annuity distributed immediately. (C) If the Participant dies before his or her Benefit Commencement Date, the distribution of the Participant's entire interest shall be completed by December 31 of the calendar year containing the fifth anniversary of the Participant's death except to the extent that an election is made by the designated Beneficiary involved to receive distributions in accordance with (i) or (ii) of this subsection (C) below: (i) if any portion of the Participant's interest is payable to a designated Beneficiary who is an individual, distributions may be made in substantially equal installments over the life or Life Expectancy, as defined in Section 5.11.1(D), of the designated Beneficiary commencing on or before December 31 of the calendar year immediately following the calendar year of the Participant's death; (ii) if the designated Beneficiary is the Participant's Surviving Spouse, the date distributions are required to begin in accordance with (i) of this subsection (C) shall not be earlier than the later of December 31 of the calendar year in which the Participant died and December 31 of the calendar year in which the Participant would have attained age 65; and (iii) if the Surviving Spouse dies before payments begin subsequent distributions shall be made as if the Surviving Spouse had been the Participant. (D) For purposes of this Section 7.2.5, distribution of a Participant's interest is considered to begin on the Participant's Required Beginning Date, as defined in Section 5.11.1(E). If distribution in the form of an annuity irrevocably commences to the Participant before such Required Beginning Date, the date distribution is considered to begin is the date distribution actually commences. (E) For purposes of this Section 7.2.5, any amount paid to a child of the Participant will be treated as if it had been paid to the Participant's Surviving Spouse if the amount becomes payable to such Surviving Spouse when the child reaches the age of majority. (F) If the Participant has not made an election pursuant to this Section 7.2.5 by the time of his or her death, the Participant's designated Beneficiary must elect the method of distribution no later than the earlier of (i) December 31 of the calendar year in which distributions would be required to begin under this Section or (ii) December 31 of the calendar year which contains the fifth anniversary of the date of death of the Participant. If the Participant has no designated Beneficiary, or if the designated Beneficiary does not elect a method of distribution, distribution of the Participant's entire interest must be completed by December 31 of the calendar year containing the fifth anniversary of the Participant's death. 7.3 Life Insurance 7.3.1 With the consent of the Administrator and upon such notice as the Administrator may require, a Participant may direct that a portion of his or her Account be used to pay premiums on life insurance on the Participant's life; provided, however, that (a) the aggregate premiums paid on ordinary life insurance must be less than 50% of the aggregate contributions allocated to the Participant's Employer Accounts, (b) the aggregate premiums paid on term life insurance contracts, universal life insurance contracts and all other life insurance contracts which are not ordinary life insurance may not exceed 25% of the aggregate contributions allocated to the Participant's Employer Account, and (c) the sum of one-half of the premiums paid on ordinary life insurance and the total of all other life insurance premiums may not exceed 25% of the aggregate contributions allocated to the Employer Account of the Participant. For purposes of these limitations, ordinary life insurance contracts are contracts with both non-decreasing death benefits and non-increasing premiums. 7.3.2 The Trustee shall be the owner of each life insurance contract purchased under this Section 7.3 and the proceeds of each such contract shall be payable to the Trustee, provided that all benefits, rights and privileges under each contract on the life of a Participant which are available while the Participant is living shall be exercised by the Trustee only upon and in accordance with the written instructions of the Participant. The proceeds of all such insurance on the life of a Participant shall be paid over by the Trustee to the Participant's Beneficiary in accordance with this Article VII. Under no circumstances shall the Trustee retain any part of the proceeds. 7.3.3 Any dividends or credits earned on a life insurance contract shall be applied when received in reduction of any premiums thereon, or, if no premiums are due, applied to increase the proceeds of the insurance contract. 7.3.4 If a Participant is found by the Administrator to be insurable only at a substandard premium rate, the policy shall provide a reduced death benefit using the same premium as would be required if the Participant were a standard risk, the amount of the death benefit being determined in accordance with the amount of the rating. 7.3.5 The cash surrender value of an insurance contract to the extent deriving from Employer or Participant contributions, if any, shall be included, respectively, in the Account Balance of the Account from which the premiums were paid. Any death benefits under an insurance contract payable before the Participant's termination of Employment will be paid to the Trustee for addition to the relevant Account of the Participant for distribution in accordance with Section 7.1. 7.3.6 Any other provisions herein to the contrary notwithstanding, the purchase of life insurance for any Participant shall be subject to such minimum premium requirements as the Trustee may determine from time to time. 7.3.7 Premiums on life insurance contracts on a Participant's life shall be paid by the Trustee, unless directed otherwise by the Participant, first from cash in the Participant's Employer Accounts to the extent thereof, and then from cash in the Participant's Participant Contributions Accounts, if any, to the extent thereof. If there is insufficient cash in either Account to pay premiums due, the Trustee shall notify the Participant of this fact. If the Participant does not thereafter instruct the Trustee to sell sufficient assets in an Account of the Participant to pay premiums due on a timely basis, the Trustee shall not be obligated to take any further action with respect to any life insurance contract on the Participant's life, whether as regards continuing insurance on a paid-up basis, effecting a reduction of the insurance in force, or otherwise, except at the direction of the Participant. 7.3.8 Prior to such time as a Participant becomes entitled to receive a distribution of any benefits under this Plan for any reason other than the Participant's death, the Trustee shall, pursuant to the written direction of the Participant delivered to the Administrator within such period of time as is acceptable to the Administrator, either convert all life insurance contracts on the Participant's life into cash or an annuity to provide current or future retirement income to the Participant or distribute the contracts to the Participant as a part of a benefit distribution; provided, however, that: (A) the contracts shall not be distributed unless, if the Participant is married at the time the distribution of the contracts is to be made, and the Plan is a money purchase pension plan, a target benefit plan or a profit-sharing plan to which Section 6.1.2 does not apply, the Participant's Spouse at that time consents to a distribution in the manner prescribed by Section 6.2.4; and (B) if the cash value of any contracts at the time they become distributable to a Participant exceeds a Participant's vested interest in his or her Employer Accounts at that time, the Participant shall be entitled to receive a distribution of such contracts only if the Participant promptly pays such excess in cash to the Trust Fund. Life insurance contracts on a Participant's life shall not continue to be maintained under the Plan following the Participant's termination of Employment or after Employer contributions have ceased. If a Participant on whose life an insurance contract is held does not make a timely and proper direction regarding the contract under this Section 7.3.8, the Participant shall be deemed to have directed that the contract be converted into cash to be distributed in the manner in which the Participant's benefit is to be distributed. 7.3.9 Anything contained herein to the contrary notwithstanding, in the event of any conflict between the terms of the Plan and the terms of any insurance contract purchased under this Section 7.3, the provisions of the Plan shall control. ARTICLE VIII FIDUCIARIES 8.1 Named Fiduciaries 8.1.1 The Administrator shall be a "named fiduciary" of the Plan, as that term is defined in ERISA Section 402(a)(2), with authority to control and manage the operation and administration of the Plan, other than authority to manage and control Plan assets. The Administrator shall also be the "administrator" and "plan administrator" with respect to the Plan, as those terms are defined in ERISA Section 3(16)(A) and in Code Section 414(g), respectively. 8.1.2 The Trustee, or Investment Committee if appointed by the Employer, shall be a "named fiduciary" of the Plan, as that term is defined in ERISA Section 402(a)(2), with authority to manage and control all Trust Fund assets and to select an Investment Manager or Investment Managers. If Merrill Lynch Trust Company is the Trustee, it shall be a nondiscretionary trustee; an Investment Committee shall be appointed and shall be the Employer, who may also remove such Investment Committee; and the Investment Committee shall be the "named fiduciary" with respect to Trust Fund assets. Anything in this Section 8.1.2. to the contrary notwithstanding, with respect to Participant-Directed Assets, the Participant or Beneficiary having the power to direct the investment of such assets shall be the "named fiduciary" with respect thereto. 8.1.3 The Trustee, or Investment Committee if appointed by the Employer, shall have the power to make and deal with any investment of the Trust Fund permitted in Section 10.4, except Participant-Directed Assets or assets for which an Investment Manager has such power, in any manner which it deems advisable and shall also: (A) establish and carry out a funding policy and method consistent with the objectives of the Plan and the requirements of ERISA; (B) have the power to select Annuity Contracts, if applicable; (C) have the power to determine, if applicable, what investments specified in Section 10.4, including, without limitation, Qualified Employer Securities and regulated investment company shares, are available as Participant-Directed Assets; and (D) have all the rights, powers, duties and obligations granted or imposed upon it elsewhere in the Plan. 8.2 Employment of Advisers A "named fiduciary", with respect to the Plan (as defined in ERISA Section 402(a)(2)) and any "fiduciary" (as defined in ERISA Section 3(4)) appointed by such a "named fiduciary", may employ one or more persons to render advice with regard to any responsibility of such "named fiduciary" or "fiduciary" under the Plan. 8.3 Multiple Fiduciary Capacities Any "named fiduciary" with respect to the Plan (as defined in ERISA Section 402(a)(2)) and any other "fiduciary" (as defined in ERISA Section 3(4)) with respect to the Plan may serve in more than one fiduciary capacity. 8.4 Indemnification To the extent not prohibited by state or federal law, the Employer agrees to, and shall indemnify and save harmless, as the case may be, each Administrator (if a person other than the Employer), Trustee, Investment Committee and/or any Employee, officer or director of the Employer, or an Affiliate, from all claims for liability, loss, damage or expense (including payment of reasonable expenses in connection with the defense against any such claim) which result from any exercise or failure to exercise any of the indemnified person's responsibilities with respect to the Plan, other than by reason of gross negligence. 8.5 Payment of Expenses 8.5.1 All Plan expenses, including without limitation, expenses and fees (including fees for legal services rendered and fees to the Trustee) of the Sponsor, Administrator, Investment Manager, Trustee, and any insurance company, shall be charged against and withdrawn from the Trust Fund; provided, however, the Employer may pay any of such expenses or reimburse the Trust Fund for any payment. 8.5.2 All transactional costs or charges imposed or incurred (if any) for Participant-Directed Assets shall be charged to the Account of the directing Participant or Beneficiary. Transactional costs and charges shall include, but shall not be limited to, charges for the acquisition or sale or exchange of Participant-Directed Assets, brokerage commissions, service charges and professional fees. 8.5.3 Any taxes which may be imposed upon the Trust Fund or the income therefrom shall be deducted from and charged against the Trust Fund. ARTICLE IX PLAN ADMINISTRATION 9.1 The Administrator 9.1.1 The Employer may appoint one or more persons as Administrator, who may also be removed by the Employer. If any individual is appointed as Administrator, and the individual is an Employee, the individual will be considered to have resigned as Administrator if he or she terminates Employment and at least one other person continues to serve as Administrator. Employees shall receive no compensation for their services rendered to or as Administrator. 9.1.2 If more than one person is designated as Administrator, the Administrator shall act by a majority of its members at the time in office and such action may be taken either by a vote at a meeting or in writing without a meeting. However, if less than three members are appointed, the Administrators shall act only upon the unanimous consent of its members. An Administrator who is also a Participant shall not vote or act upon any matter relating to himself or herself, unless such person is the sole Administrator. 9.1.3 The Administrator may authorize in writing any person to execute any document or documents on the Administrator's behalf, and any interested person, upon receipt of notice of such authorization directed to it, may thereafter accept and rely upon any document executed by such authorized person until the Administrator shall deliver to such interested person a written revocation of such authorization. 9.2 Powers and Duties of the Administrator 9.2.1 The Administrator shall have the power to construe the Plan and to determine all questions of fact or interpretation that may arise thereunder, and any such construction or determination shall be conclusively binding upon all persons interested in the Plan. 9.2.2 The Administrator shall have the power to promulgate such rules and procedures, to maintain or cause to be maintained such records and to issue such forms as it shall deem necessary and proper for the administration of the Plan. 9.2.3 Subject to the terms of the Plan, the Administrator shall determine the time and manner in which all elections authorized by the Plan shall be made or revoked. 9.2.4 The Administrator shall have all the rights, powers, duties and obligations granted to or imposed upon it elsewhere in the Plan. 9.2.5 The Administrator shall exercise all of its responsibilities in a uniform and nondiscriminatory manner. 9.3 Delegation of Responsibility The Administrator may designate persons, including persons other than "named fiduciaries" (as defined in ERISA Section 402(a)(2)) to carry out the specified responsibilities of the Administrator and shall not be liable for any act or omission of a person so designated. ARTICLE X TRUSTEE AND INVESTMENT COMMITTEE 10.1 Appointment of Trustee and Investment Committee 10.1.1 The Employer shall appoint one or more persons as a Trustee who shall serve as such for all or a portion of the Trust Fund. By executing the Adoption Agreement: (i) the Employer represents that all necessary action has been taken for the appointment of the Trustee; (ii) the Trustee acknowledges that it accepts such appointment; and (iii) both the Employer and the Trustee agree to act in accordance with the Trust provisions contained in this Article X. 10.1.2 An Employee appointed as Trustee or to the Investment Committee shall receive no compensation for services rendered in such capacity and will be considered to have resigned if he or she terminates Employment and at least one other person continues to act as Trustee or as the Investment Committee, as the case may be. If Merrill Lynch Trust Company is the Trustee, the Employer shall appoint an Investment Committee and Merrill Lynch Trust Company shall be a nondiscretionary trustee. 10.1.3 If more than one person is acting as the Trustee, or as an Investment Committee, such Trustee, or Investment Committee, shall act by a majority of the persons at the time so acting and such action may be taken either by a vote at a meeting or in writing without a meeting. If less than three members are serving, the Trustee, or Investment Committee, shall act only upon the unanimous consent of those serving. The Trustee, or Investment Committee, may authorize in writing any person to execute any document or documents on its behalf, and any interested person, upon receipt of notice of such authorization directed to it, may thereafter accept and rely upon any document executed by such authorized person until the Trustee, or Investment Committee, shall deliver to such interested person a written revocation of such authorization. 10.2 The Trust Fund The Trustee shall receive such sums of money or other property acceptable to the Trustee which shall from time to time be paid or delivered to the Trustee under the Plan. The Trustee shall hold in the Trust Fund all such assets, without distinction between principal and income, together with all property purchased therewith and the proceeds thereof and the earnings and income thereon. The Trustee shall not be responsible for, or have any duty to enforce, the collection of any contributions or assets to be paid or transferred to it, or for verifying whether contributions or transfers to it are allowable under the Plan, nor shall the Trustee be responsible for the adequacy of the Trust Fund to meet or discharge liabilities under the Plan. 10.2.1 The Trustee shall receive in cash or other assets acceptable to the Trustee, so long as such assets received do not constitute a prohibited transaction, all contributions paid or delivered to it which are allocable under the Plan and to the Trust Fund and all transfers paid or delivered under the Plan to the Trust Fund from a predecessor trustee or another trust (including a trust forming part of another plan qualified under Code Section 401(a); provided, however, that the Trustee shall not be obligated to receive any such contribution or transfer unless prior thereto or coincident therewith, as the Trustee may specify, the Trustee has received such reconciliation, allocation, investment or other information concerning, or such direction, contribution or representation with respect to, the contribution or transfer or the source thereof as the Trustee may require. The Trustee shall have no duty or authority to (a) require any contributions or transfers to be made under the Plan or to the Trustee, (b) compute any amount to be contributed or transferred under the Plan to the Trustee, or (c) determine whether amounts received by the Trustee comply with the Plan. 10.2.2 The Trust Fund shall consist of all money and other property received by the Trustee pursuant to Section 10.2, increased by any income or gains on or increment in such assets and decreased by any investment loss or expense, benefit or disbursement paid pursuant to the Plan. 10.3 Relationship with Administrator 10.3.1 Neither the Trustee, nor the Investment Committee, if any, shall be responsible in any respect for the administration of the Plan. Payments of money or property from the Trust Fund shall be made by the Trustee upon direction from the Administrator or its designee. Payments by the Trustee shall be transmitted to the Administrator or its designee for delivery to the proper payees or to payee addresses supplied by the Administrator or its designee, and the Trustee's obligation to make such payments shall be satisfied upon such transmittal. The Trustee shall have no obligation to determine the identity of persons entitled to payments under the Plan or their addresses. 10.3.2 Directions from or on behalf of the Administrator or its designee shall be communicated to the Trustee or the Trustee's designee for that purpose only in a manner and in accordance with procedures acceptable to the Trustee. The Trustee's designee shall not, however, be empowered to implement any such directions except in accordance with procedures acceptable to the Trustee. The Trustee shall have no liability for following any such directions or failing to act in the absence of any such directions. The Trustee shall have no liability for the acts or omissions of any person making or failing to make any direction under the Plan or the provisions of this Article X nor any duty or obligation to review any such direction, act or omission. 10.3.3 If a dispute arises over the propriety of the Trustee making any payment from the Trust Fund, the Trustee may withhold the payment until the dispute has been resolved by a court of competent jurisdiction or settled by the parties to the dispute. The Trustee may consult legal counsel and shall be fully protected in acting upon the advice of counsel. 10.4 Investment of Assets 10.4.1 Except as provided in Section 10.4.2, investments of the Trust Fund shall be made in the following, but only if compatible with the Sponsor's administrative and operational requirement and framework: (A) shares of any regulated investment company managed in whole or in part by the Sponsor or any affiliate of the Sponsor; (B) any property purchased through the Sponsor or any affiliate of the Sponsor, whether or not productive of income or consisting of wasting assets, including, without limitation by specification, governmental, corporate or personal obligations, trust and participation certificates, leaseholds, fee titles, mortgages and other interests in realty, preferred and common stocks, convertible stocks and securities, shares of regulated investment companies, certificates of deposit, put and call options and other option contracts of any type, foreign or domestic, whether or not traded on any exchange, futures contracts and options on futures contracts traded on or subject to the rules of an exchange which has been designated as a contract market by the Commodity Futures Trading Commission, an independent U.S. government agency, contracts relating to the lending of property, evidences of indebtedness or ownership in foreign corporations or other enterprises, or indebtedness of foreign governments, group trust participations, limited or general partnership interests, insurance contracts, annuity contracts, any other evidences of indebtedness or ownership including oil, mineral or gas properties, royalty interests or rights (including equipment pertaining thereto); and (C) Qualifying Employer Securities or "qualifying employer real properties" (as that term is defined in ERISA Section 407(d) to the extent permitted in Section 10.4.3). 10.4.2 (A) Up to 25% or with the written consent of the Sponsor or its representative, an additional percentage of each Plan Year's contributions may be invested in property as specified in Section 10.4.1(B) acquired through a person other than the Sponsor or an affiliate of the Sponsor. (B) Except as permitted by Section 10.4.2 and except as may result from a Rollover Contribution or a trust to trust transfer, without the written consent of the Sponsor or its representative, property may not be acquired through a person other than the Sponsor or an affiliate of the Sponsor if following such acquisitions the value of the property so acquired would exceed 25% of the value of the Trust Fund. 10.4.3 In its sole discretion, the Investment Committee, or Trustee if there is no Investment Committee: (A) may permit the investment of up to 10% of the Trust Fund in Qualifying Employer Securities or "qualifying employer real property" (as that term is defined in ERISA Section 407(d)), to the extent such investment is compatible with the Sponsor's administrative and operational requirements and framework; and (B) may determine, subject to Section 10.4.2, that a percentage of assets in excess of 10% of the Trust Fund may be invested in Qualifying Employer Securities or "qualifying employer real property" by a profit-sharing plan. 10.4.4 This Plan will be recognized as a Prototype Plan by the Sponsor only by complying with the provisions of this Section 10.4. 10.5 Investment Direction, Participant-Directed Assets and Qualifying Employer Investments 10.5.1 The Trustee, or Investment Committee if appointed, shall manage the investment of the Trust Fund except insofar as (a) an Investment Manager has authority to manage Trust assets, or (b) Participant-Directed Assets are permitted as specified in the Adoption Agreement. Except as required by ERISA, if an Investment Committee is acting, the Trustee shall invest the Trust Fund as directed by the Investment Committee, an Investment Manager or a Participant or Beneficiary, as the case may be, and the Trustee shall have no discretionary control over, nor any other discretion regarding, the investment or reinvestment of any asset of the Trust. Participant-Directed Assets shall be invested in accordance with the direction of the Participant or, in the event of the Participant's death before an Account is fully paid out, the Participant's Beneficiary with respect to the assets involved; provided, however, that Participant-Directed Assets may not be invested in "collectibles" (as defined in Code Section 408(m)(2)). If there are Participant-Directed Assets, the investment of these assets shall be made in accordance with such rules and procedures established by the Administrator which must be consistent with the rules and procedures of the Sponsor or its affiliate, as the case may be. 10.5.2 With respect to Participant-Directed Assets, neither the Administrator, the Investment Committee nor the Trustee shall: (A) make any investments or dispose of any investments without the direction of the Participant or Beneficiary for whom the Participant-Directed Assets are maintained, except as provided in Section 8.5 so as to pay fees or expenses of the Plan; (B) be responsible for reviewing any investment direction with respect to Participant-Directed Assets or for making recommendations on acquiring, retaining or disposing of any assets or otherwise regarding any assets; (C) have any duty to determine whether any investment is an authorized or proper one; or (D) be liable for following any investment direction or for any losses, taxes or other consequences incurred as a consequence of investments selected by any Participant or Beneficiary or for holding assets uninvested until it receives proper instructions. 10.5.3 If Participant-Directed Assets are permitted, a list of the Participants and Beneficiaries and such information concerning them as the Trustee may specify shall be provided by the Employer or the Administrator to the Trustee and/or such person as are necessary for the implementation of the directions in accordance with the procedure acceptable to the Trustee. 10.5.4 It is understood that the Trustee may, from time to time, have on hand funds which are received as contributions or transfers to the Trust Fund which are awaiting investment or funds from the sale of Trust Fund assets which are awaiting reinvestment. Absent receipt by the Trustee of a direction from the proper person for the investment or reinvestment of such funds or otherwise prior to the application of funds in implementation of such a direction, the Trustee shall cause such funds to be invested in shares of such money market fund or other short term investment vehicle as the Trustee, or Investment Committee if appointed, may specify for this purpose from time to time. Any such investment fund may be sponsored, managed or distributed by the Sponsor or an affiliate of the Sponsor. 10.5.5 Directions for the investment or reinvestment of Trust assets of a type referred to in Section 10.4 from the Investment Committee, an Investment Manager or a Participant or Beneficiary, as the case may be, shall, in a manner and in accordance with procedures acceptable to the Trustee, be communicated to and implemented by, as the case may be, the Trustee, the Trustee's designee or, with the Trustee's consent and if an Investment Committee is operating, a broker/dealer designated for the purpose by the Investment Committee. Communication of any such direction to such a designee or broker/dealer shall conclusively be deemed an authorization to the designee or broker/dealer to implement the direction even though coming from a person other than the Trustee. The Trustee shall have no liability for its or any other person's following such directions or failing to act in the absence of any such directions. The Trustee shall have no liability for the acts or omissions of any person directing the investment or reinvestment of Trust Fund assets or making or failing to make any direction referred to in Section 10.5.6. 10.5.6 The voting and other rights in securities or other assets held in the Trust shall be exercised by the Trustee provided, however, that if an Investment Committee is appointed, the Trustee shall act as directed by such person who at the time has the right to direct the investment or reinvestment of the security or other asset involved. 10.5.7 With respect to any Qualifying Employer Securities allocated to an Account, each Participant shall be entitled to direct the Trustee in writing as to the manner in which Qualifying Employer Securities are to be voted. 10.5.8 With respect to any Qualifying Employer Securities allocated to an Account, each Participant shall be entitled to direct the Trustee in writing as to the manner in which to respond to a tender or exchange offer or other decisions with respect to the Qualifying Employer Securities. The Administrator shall utilize its best efforts to timely distribute or cause to be distributed to each Participant such information received from the Trustee as will be distributed to shareholders of the Employer in connection with any such tender or exchange offer or other similar matter or any vote referred to in Section 10.5.7. 10.5.9 If an Investment Committee is appointed, notwithstanding any provision hereof to the contrary, in the event the person with the right to direct a voting or other decision with respect to any security, Qualifying Employer Securities, or other asset held in the Trust does not communicate any decision on the matter to the Trustee or the Trustee's designee by the time prescribed by the Trustee or the Trustee's designee for that purpose or if the Trustee notifies the Investment Committee, if applicable, either that it does not have precise information as to the securities, Qualifying Employer Securities, or other assets involved allocated on the applicable record date to the accounts of all Participants and Beneficiaries or that time constraints make it unlikely that Participant, Beneficiary or Investment Manager direction, as the case may be, can be received on a timely basis, the decision shall be the responsibility of the Investment Committee and shall be communicated to the Trustee on a timely basis. In the event an Investment Committee with any right under the Plan to direct a voting or other decision with respect to any security, Qualifying Employer Securities, or other asset held in the Trust, does not communicate any decision on the matter to the Trustee or the Trustee's designee by the time prescribed by the Trustee for that purpose, the Trustee may, at the cost of the Employer, retain an Investment Manager with full discretion to make the decision. Except as required by ERISA, the Trustee shall (a) follow all directions above referred to in this Section and (b) shall have no duty to exercise voting or other rights relating to any such security, Qualifying Employer Security or other asset. 10.5.10 The Administrator shall establish, or cause to be established, a procedure acceptable to the Trustee for the timely dissemination to each person entitled to direct the Trustee or its designee as to a voting or other decision called for thereby or referred to therein of all proxy and other materials bearing on the decision. 10.5.11 Any person authorized to direct the investment of Trust assets may, if the Trustee and the Investment Committee, if applicable, so permit, direct the Trustee to invest such assets in a common or collective trust maintained by the Trustee for the investment of assets of qualified trusts under section 401(a) of the Code, individual retirement accounts under section 408(a) of the Code and plans or governmental units described in section 818(a)(6) of the Code. The documents governing any such common or collective trust fund maintained by the Trustee, and in which Trust assets have been invested, are hereby incorporated into this Article X by reference. 10.6 Valuation of Accounts 10.6.1 A Participant's Accounts shall be valued at fair market value on each Valuation Date. Subject to Section 10.6.2(A), as of each Valuation Date, the earnings and losses and expenses of the Trust Fund shall be allocated to each Participant Account in the ratio that such Account Balance in that category of Accounts bears to all Account Balances in that category. With respect to Participant-Directed Assets, the earnings and losses and expenses (including transactional expenses pursuant to Section 8.5.2) of such Participant-Directed Assets shall be allocated to the Account of the Participant or Beneficiary having authority to direct the investment of the assets in his or her Account. 10.6.2 The Valuation Date with respect to any distributions (including, without limitation, loan distributions and purchase of annuities) from any Account upon the occurrence of a Benefit Commencement Date or otherwise, shall be: (A) with respect to Participant-Directed Asset, the date as of which the Account distribution is made; and (B) with respect to other assets, the Valuation Date immediately preceding the Benefit Commencement Date, if applicable, or immediately preceding the proposed date of any other distribution from an Account. With respect to any contribution allocable to an Account which has not been made as of a Valuation Date determined pursuant to this Section 10.6.2, the principal amount of such contribution distributable because of the occurrence of a Benefit Commencement Date shall be distributed as soon as practicable after the date paid to the Trust Fund. 10.6.3 The assets of the Trust shall be valued at fair market value as determined by the Trustee based upon such sources of information as it may deem reliable, including, but not limited to, stock market quotations, statistical evaluation services, newspapers of general circulation, financial publications, advice from investment counselors or brokerage firms, or any combination of sources. The reasonable costs incurred in establishing values of the Trust Fund shall be a charge against the Trust Fund, unless paid by the Employer. When the Trustee is unable to arrive at a value based upon information from independent sources, it may rely upon information from the Employer, Administrator, Investment Committee, appraisers or other sources, and shall not incur any liability for inaccurate valuation based in good faith upon such information. 10.7 Insurance Contracts The Trustee, if an Investment Committee is not appointed, Investment Committee, or Participant or Beneficiary with respect to Participant-Directed Assets, may appoint one or more insurance companies to hold assets of the Plan, and may direct, subject to Section 7.3, the purchase of insurance contracts or policies from one or more insurance companies with assets of the Plan. Neither the Investment Committee, Trustee nor the Administrator shall be liable for the validity of any such contract or policy, the failure of any insurance company to make any payments or for any act or omission of an insurance company with respect to any duties delegated to any insurance company. 10.8 The Investment Manager 10.8.1 The Trustee, if an Investment Committee is not appointed, Investment Committee, or the Participant or Beneficiary with respect to Participant-Directed Assets, may, by an instrument in writing, appoint one or more Investment Managers, who may be an affiliate of the Merrill Lynch Trust Company, to direct the Trustee in the investment of all or a specified portion of the assets of the Trust in property specified in Section 10.4. Any such Investment Manager shall be directed by the Trustee, if an Investment Committee is not appointed, Investment Committee, Participant or Beneficiary, as the case may be, to act in accordance with the procedures referred to in Section 10.5.5. If appointed, the Investment Committee shall notify the Trustee in writing before the effectiveness of the appointment or removal of any Investment Manager. If there is more than one Investment Manager whose appointment is effective under the Plan at any one time, the Trustee shall, upon written instructions from the Investment Committee, Participant or Beneficiary, establish separate funds for control by each such Investment Manager. The funds shall consist of those Trust Fund assets designated by the Investment Committee, Participant or Beneficiary. 10.8.2 Each person appointed as an Investment Manager shall be: (A) an investment adviser registered under the Investment Advisers Act of 1940, (B) a bank as defined in that Act, or (C) an insurance company qualified to manage, acquire or dispose of any asset of the Plan under the laws of more than one state. 10.8.3 Each Investment Manager shall acknowledge in writing that it is a "fiduciary" (as defined in ERISA Section 3(21)) with respect to the Plan. The Trustee, or the Investment Committee if appointed, shall enter into an agreement with each Investment Manager specifying the duties and compensation of such Investment Manager and the other terms and conditions under which such Investment Manager shall be retained. Neither the Trustee nor the Investment Committee, if appointed, shall be liable for any act or omission of any Investment Manager and shall not be liable for following the advice of any Investment Manager with respect to any duties delegated to any Investment Manager. 10.8.4 The Trustee, or Investment Committee if appointed, or the Participant or Beneficiary, if applicable with respect to Participant-Directed Assets, shall have the power to determine the amount of Trust Fund assets to be invested pursuant to the direction of a designated Investment Manager and to set investment objectives and guidelines for the Investment Manager. 10.8.5 Second Trust Fund. The Employer may appoint a second trustee under the Plan with respect to assets which the Employer desires to contribute or have transferred to the Trust Fund, but which the other Trustee does not choose to accept: provided, however, that if a Merrill Lynch Trust Company is a Trustee, its consent (which consent may be evidenced by its acceptance of its appointment as Trustee) shall be required. In the event and upon the effectiveness of the acceptance of the second Trustee's appointment, the Employer shall be deemed to have created two trust funds under the Plan, each with its own Trustee, each governed separately by this Article X. Each Trustee under such an arrangement shall, however, discharge its duties and responsibilities solely with respect to those assets of the Trust delivered into its possession and except pursuant to ERISA, shall have no duties, responsibilities or obligations with respect to property of the other Trust nor any liability for the acts or omissions of the other Trustee. As a condition to its consent to the appointment of a second trustee, the Merrill Lynch Trust Company shall assure that recordkeeping, distribution and reporting procedures are established on a coordinated basis between it and the second trustee as considered necessary or appropriate with respect to the Trusts. 10.9 Powers of Trustee 10.9.1 At the direction of the person authorized to direct such action as referred to in Section 10.5.1, but limited to those assets or categories of assets acceptable to the Trustee as referred to in Section 10.4, or at its own discretion if no such person is so authorized, the Trustee, or the Trustee's designee or a broker/dealer as referred to in Section 10.5.5, is authorized and empowered: (A) To invest and reinvest the Trust Fund, together with the income therefrom, in assets specified in Section 10.4; (B)To deposit or invest all or any part of the assets of the Trust in savings accounts or certificates of deposit or other deposits in a bank or savings and loan association or other depository institution, including the Trustee or any of its affiliates, provided with respect to such deposits with the Trustee or an affiliate the deposits bear a reasonable interest rate; (C) To hold, manage, improve, repair and control all property, real or personal, forming part of the Trust Fund; to sell, convey, transfer, exchange, partition, lease for any term, even extending beyond the duration of this Trust, and otherwise dispose of the same from time to time; (D) To have, respecting securities, all the rights, powers and privileges of an owner, including the power to give proxies, pay assessments and other sums deemed by the Trustee necessary for the protection of the Trust Fund; to vote any corporate stock either in person or by proxy, with or without power of substitution, for any purpose; to participate in voting trusts, pooling agreements, foreclosures, reorganizations, consolidations, mergers and liquidations, and in connection therewith to deposit securities with or transfer title to any protective or other committee; to exercise or sell stock subscriptions or conversion rights; and, regardless of any limitation elsewhere in this instrument relative to investments by the Trustee, to accept and retain as an investment any securities or other property received through the exercise of any of the foregoing powers; (E) Subject to Section 10.5.4 hereof, to hold in cash, without liability for interest, such portion of the Trust Fund which it is directed to so hold pending investments, or payment of expenses, or the distribution of benefits; (F) To take such actions as may be necessary or desirable to protect the Trust from loss due to the default on mortgages held in the Trust including the appointment of agents or trustees in such other jurisdictions as may seem desirable, to transfer property to such agents or trustees, to grant to such agents such powers as are necessary or desirable to protect the Trust Fund, to direct such agent or trustee, or to delegate such power to direct, and to remove such agent or trustee; (G) To settle, compromise or abandon all claims and demands in favor of or against the Trust Fund; (H) To invest in any common or collective trust fund of the type referred to in Section 10.5.8 hereof maintained by the Trustee; (I) To exercise all of the further rights, powers, options and privileges granted, provided for, or vested in trustees generally under the laws of the State of New Jersey, so that the powers conferred upon the Trustee herein shall not be in limitation of any authority conferred by law, but shall be in addition thereto; (J) To borrow money from any source and to execute promissory notes, mortgages or other obligations and to pledge or mortgage any trust assets as security, subject to applicable requirements of the Code and ERISA; and (K) To maintain accounts at, execute transactions through, and lend on an adequately secured basis stocks, bonds or other securities to, any brokerage or other firm, including any firm which is an affiliate of the Trustee. 10.9.2 To the extent necessary or which it deems appropriate to implement its powers under Section 10.9.1 or otherwise to fulfill any of its duties and responsibilities as trustee of the Trust Fund, the Trustee shall have the following additional powers and authority: (A) to register securities, or any other property, in its name or in the name of any nominee, including the name of any affiliate or the nominee name designated by any affiliate, with or without indication of the capacity in which property shall be held, or to hold securities in bearer form and to deposit any securities or other property in a depository or clearing corporation; (B) to designate and engage the services of, and to delegate powers and responsibilities to, such agents, representatives, advisers, counsel and accountants as the Trustee considers necessary or appropriate, any of whom may be an affiliate of the Trustee or a person who renders services to such an affiliate, and, as a part of its expenses under this Trust Agreement, to pay their reasonable expenses and compensation; (C) to make, execute and deliver, as Trustee, any and all deeds, leases, mortgages, conveyances, waivers, releases or other instruments in writing necessary or appropriate for the accomplishment of any of the powers listed in this Trust Agreement; and (D) generally to do all other acts which the Trustee deems necessary or appropriate for the protection of the Trust Fund. 10.9.3 The Trustee shall have no duties or responsibilities other than those specified in the Plan. 10.10 Accounting and Records 10.10.1 The Trustee shall maintain or cause to be maintained accurate records and accounts of all Trust transactions and assets. The records and accounts shall be available at reasonable times during normal business hours for inspection or audit by the Administrator, Investment Committee, if appointed, or any person designated for the purpose by either of them. 10.10.2 Within 90 days following the close of each fiscal year of the Plan or the effective date of the removal or resignation of the Trustee, the Trustee shall file with the Administrator a written accounting setting forth all transactions since the end of the period covered by the last previous accounting. The accounting shall include a listing of the assets of the Trust showing the value of such assets at the close of the period covered by the accounting. On direction of the Administrator, and if previously agreed to by the Trustee, the Trustee shall submit to the Administrator interim valuations, reports or other information pertaining to the Trust. The Administrator may approve the accounting by written approval delivered to the Trustee or by failure to deliver written objections to the Trustee within 60 days after receipt of the accounting. Any such approval shall be binding on the Employer, the Administrator, the Investment Committee and, to the extent permitted by ERISA, all other persons. 10.11 Judicial Settlement of Accounts The Trustee can apply to a court of competent jurisdiction at any time for judicial settlement of any matter involving the Plan including judicial settlement of the Group Trustee's account. If it does so, the Trustee must give the Administrator the opportunity to participate in the court proceedings, but the Trustee can also involve other persons. Any expenses the Trustee incurs in legal proceedings involving the Plan, including attorney's fees, are chargeable to the Trust Fund as an administrative expense. Any judgment or decree which may be entered in such a proceeding, shall, subject to the provision of ERISA, be conclusive upon all persons having or claiming to have any interest in the Trust Fund or under any Plan. 10.12 Resignation and Removal of Trustee 10.12.1 The Trustee may resign at any time upon at least 30 days' written notice to the Employer. 10.12.2 The Employer may remove the Trustee upon at least 30 days' written notice to the Trustee. 10.12.3 Upon resignation or removal of the Trustee, the Employer shall appoint a successor trustee. Upon failure of the Employer to appoint, or the failure of the effectiveness of the appointment by the Employer of, a successor trustee by the effective date of the resignation or removal, the Trustee may apply to any court of competent jurisdiction for the appointment of a successor. Promptly after receipt by the Trustee of notice of the effectiveness of the appointment of the successor trustee: (a) the Trustee shall deliver to the successor trustee such records as may be reasonably requested to enable the successor trustee to properly administer the Trust Fund and all property of the Trust after deducting therefrom such amounts as the Trustee deems necessary to provide for expenses, taxes, compensation or other amounts due to or by the Trustee not paid by the Employer prior to the delivery; and (b) except if the second Trustee is removed or resigns, the Plan will no longer be considered a prototype plan. 10.12.4 Upon resignation or removal of the Trustee, the Trustee shall have the right to a settlement of its account, which settlement shall be made, at the Trustee's option, either by an agreement of settlement between the Trustee and the Employer or by a judicial settlement in an action instituted by the Trustee. The Employer shall bear the cost of any such judicial settlement, including reasonable attorneys fees. 10.12.5 The Trustee shall not be obligated to transfer Trust assets until the Trustee is provided assurance by the Employer satisfactory to the Trustee that all fees and expenses reasonably anticipated will be paid. 10.12.6 Upon settlement of the account and transfer of the Trust Fund to the successor trustee, all rights and privileges under the Trust Agreement shall vest in the successor trustee and all responsibility and liability of the Trustee with respect to the Trust and assets thereof shall, except as otherwise required by ERISA, terminate subject only to the requirement that the Trustee execute all necessary documents to transfer the Trust assets to the successor trustee. 10.13 Group Trust 10.13.1 If elected by the Employer in the Adoption Agreement, the Trustee shall be the Trustee for this Plan and for each other qualified plan specified in the Adoption Agreement; provided, however, that such other qualified plan is in effect pursuant to an Adoption Agreement under this Prototype Plan. Any reference to Trustee and to the Trust Fund in this Plan shall mean the Trustee as the trustee of a Group Trust consisting of the assets of each such plan. The Plan and each other qualified plan specified in the Adoption Agreement shall be deemed to join in and adopt the Trust as the trust for each such plan. By executing the Adoption Agreement, the Trustee accepts designation as Trustee of this Group Trust. 10.13.2 The Trustee shall establish and maintain such accounting records for each of the Plans as shall be necessary to reflect the interest in the Group Trust applicable at any time or from time to time to each Plan. No part of the corpus or income of the Group Trust allocable to an individual Plan may be used for or diverted to any purposes other than for the exclusive benefit of Participants and their Beneficiaries entitled to benefits under that Plan. The allocable interest of a Plan in the Group Trust may not be assigned. ARTICLE XI PLAN AMENDMENT OR TERMINATION 11.1 Prototype Plan Amendment 11.1.1 The mass submitter, Merrill Lynch, Pierce, Fenner & Smith Incorporated and any successor thereto, may amend any part of the Prototype Plan. For purposes of sponsoring organization amendments, the mass submitter shall be recognized as the agent of the sponsoring organization. If the sponsoring organization does not adopt the amendments made by the mass submitter, it will no longer be identical to or a minor modifier of the mass submitter plan. 11.1.2 An Employer shall have the right at any time, by an instrument in writing, effective retroactively or otherwise, to (A) change the choice of options in the Adoption Agreement, in whole or in part; (B) add overriding language in the Adoption Agreement when such language is needed to satisfy Code Section 415 or Code Section 416 because of the required aggregation of multiple plans; and (C) add certain model amendments published by the Internal Revenue Service which specifically provide that their adoption will not cause the Plan to be treated as individually designed. No such amendment, however, shall have any of the effects specified in Section 11.2.1. If the adopting Employer amends the Plan or nonelective portions of the Adoption Agreement except as previously provided, it will no longer participate in the Prototype Plan, but will be considered to have an individually designed plan for purposes of qualification under Code Section 401(a). In the event the Employer is switching from an individually designed plan or from one prototype plan to another, a list of the Section "411(d)(6) protected benefits" that must be preserved may be attached, and such a list would not be considered an amendment to the plan. 11.1.3 This Plan will be recognized as a Prototype Plan by the Sponsor only by complying with the registration requirements as specified in the Adoption Agreement. 11.2 Plan Amendment 11.2.1 Except as provided in Section 11.2.2, no amendment pursuant to Section 11.1 shall: (A) authorize any part of the Trust Fund to be used for, or diverted to, purposes other than for the exclusive benefit of Participants or their Beneficiaries; (B) decrease the accrued benefits of any Participant or his or her Beneficiary under the Plan; An amendment which has the effect of (1) eliminating or reducing an Early Retirement benefit or a retirement-type subsidy, or (2) eliminating an optional form of benefit payment, with respect to benefits attributable to service before the amendment shall be treated as reducing accrued benefits. In the case of a retirement-type subsidy, the preceding sentence shall apply only with respect to a Participant who satisfies (either before or after the amendment) the preamendment conditions for the subsidy. In general, a retirement-type subsidy is a subsidy that continues after retirement, but does not include a qualified disability benefit, a medical benefit, a social security supplement, a death benefit (including life insurance), or a plant shutdown benefit (that does not continue after retirement age). (C) reduce the vested percentage of any Participant determined without regard to such amendment as of the later of the date such amendment is adopted or the date it becomes effective; (D) eliminate an optional form of benefit distribution with respect to benefits attributable to service before the amendment; or (E) change the vesting schedule, or in any way amend the Plan to either directly or indirectly affect the computation of a Participant's vested percentage, unless each Participant having not less than 3 years of Vesting Service is permitted to elect, within a reasonable period specified by the Administrator after the adoption of such amendment, to have his or her vested percentage computed without regard to such amendment. For Participants who do not have at least one Hour of Service in any Plan Year beginning after December 31, 1988, the preceding sentence shall be applied by substituting "5 Years of Vesting Service" for "3 Years of Vesting Service" where such language appears. The period during which the election may be made shall commence with the date the amendment is adopted and shall end on the later of: (i) 60 days after the amendment is adopted; (ii) 60 days after the amendment becomes effective; or (iii) 60 days after the Participant is issued written notice by the Administrator. 11.2.2 Anything contained in this Section 11.2 to the contrary notwithstanding, a Participant's benefit may be reduced to the extent permitted under Code Section 412(c)(8). 11.3 Right of the Employer to Terminate Plan 11.3.1 The Employer intends and expects that from year to year it will be able to and will deem it advisable to continue this Plan in effect and to make contributions as herein provided. The Employer reserves the right, however, to terminate the Plan with respect to its Employees at any time by an instrument in writing delivered to the Administrator and the Trustee, or to completely discontinue its contributions thereto at any time. 11.3.2 The Plan will also terminate: (A) if the Employer is a sole proprietorship, upon the death of the sole proprietor; (B) if the Employer is a partnership, upon termination of the partnership; (C) if the Employer is judicially declared bankrupt or insolvent; (D) upon the sale or other disposition of all or substantially all of the assets of the business; or (E) upon any other termination of the business. Any successor to or purchaser of the Employer's trade or business, after any event specified in the prior sentence, may continue the Plan, in which case the successor or purchaser will thereafter be considered the Employer for purposes of the Plan. Such a successor or purchaser shall execute an appropriate Adoption Agreement if and when requested by the Administrator. 11.3.3 Anything contained herein to the contrary notwithstanding, if the Employer fails to attain or retain qualification of the Plan under Code Section 401(a), the Plan will not participate in this Prototype Plan and will, instead, be considered an individually designed plan for purposes of such qualification. 11.4 Effect of Partial or Complete Termination or Complete Discontinuance of Contributions 11.4.1 Determination of Date of Complete or Partial Termination. The date of complete or partial termination shall be established by the Administrator in accordance with the directions of the Employer (if then in existence) in accordance with applicable law. 11.4.2 Effect of Termination. (A) As of the date of a partial termination of the Plan: (i) the accrued benefit of each affected Participant, to the extent funded, shall become nonforfeitable; (ii) no affected Participant shall be granted credit based on Hours of Service after such date; (iii) Compensation paid to affected Participants after such date shall not be taken into account; and (iv) no contributions by affected Participants shall be required or permitted. (B) As of the date of the complete termination of the Plan or of a complete discontinuance of contributions: (i) the accrued benefit of each affected Participant to the extent funded, shall become nonforfeitable; (ii) no affected Participant shall be granted credit based on Hours of Service after such date; (iii) Compensation paid after such date shall not be taken into account; (iv) no contributions by affected Participants shall be required or permitted; (v) no Eligible Employee shall become a Participant after such date; and (vi) except as may otherwise be required by applicable law, all obligations of the Employer and Participating Affiliates to fund the Plan shall terminate. (C) All other provisions of the Plan shall remain in effect unless otherwise amended. 11.4.3 Upon the complete discontinuance of profit-sharing contributions under the Plan, at the Employer's election, either the Trust Fund shall continue to be held and distributed as if the Plan had not been terminated (in which case such Plan shall continue to be subject to all requirements under Title I of ERISA, and qualification requirements under the Code) or any and all assets remaining in the Trust Fund as of the date of such termination or discontinuance, together with any earnings subsequently accruing thereon, shall be distributed by the Trustee to the Participants at the Administrator's direction. Upon the complete termination of the Plan, the Trust Fund shall be distributed to Participants within one year after the date of termination. If the Plan does not offer an annuity option (purchased from a commercial provider) and if the Employer or any Affiliate does not maintain another Defined Contribution Plan (other than an employee stock ownership plan as defined in Code Section 4975(e)(7)), the Participant's benefit may, without the Participant's consent, be distributed to the Participant. However, if any Affiliate maintains another Defined Contribution Plan (other than an employee stock ownership plan as defined in Code Section 4975(e)(7)), then the Participant's Account(s) will be transferred, without the Participant's consent, to the other plan if the Participant does not consent to an immediate distribution. Distributions shall be made in compliance with the applicable provisions, including restrictions, of Articles VI and VII. The Trust Fund shall continue in effect until all distributions therefrom are complete. Upon the completion of such distributions, the Trustee shall be relieved from all further liability with respect to all amounts so paid or distributed. 11.5 Bankruptcy In the event that the Employer shall at any time be judicially declared bankrupt or insolvent without any provisions being made for the continuation of this Plan, the Plan shall be completely terminated in accordance with this Article XI. ARTICLE XII MISCELLANEOUS PROVISIONS 12.1 Exclusive Benefit of Participants Notwithstanding anything in the Plan to the contrary, the Trust Fund shall be held for the benefit of all persons who shall be entitled to receive payments under the Plan. Subject to Section 3.10, it shall be prohibited at any time for any part of the Trust Fund (other than such part as is required to pay expenses) to be used for, or diverted to, purposes other than for the exclusive benefit of Participants or their Beneficiaries. 12.2 Plan Not a Contract of Employment The Plan is not a contract of Employment, and the terms of Employment of any Employee shall not be affected in any way by the Plan or related instruments except as specifically provided therein. 12.3 Action by Employer Any action by an Employer which is a corporation shall be taken by the board of directors of the corporation or any person or persons duly empowered to exercise the powers of the corporation with respect to the Plan. In the case of an Employer which is a partnership, action shall be taken by any general partner of the partnership, and in the case of an Employer which is a sole proprietorship, action shall be taken by the sole proprietor. 12.4 Source of Benefits Benefits under the Plan shall be paid or provided for solely from the Trust Fund, and neither the Employer, any Participating Affiliate, the Trustee, the Administrator, nor any Investment Manager or insurance company shall assume any liability under the Plan therefor. 12.5 Benefits Not Assignable Benefits provided under the Plan may not be assigned or alienated, either voluntarily or involuntarily. In the event that a Participant or Beneficiary becomes individually liable with respect to any expenses listed in Section 8.5, the provision of Section 401(a)(13) of the Code shall be applicable with respect to any claim the Plan may have against the Participant or Beneficiary individually with respect to such expenses. The preceding sentence shall also apply to the creation, assignment or recognition of a right to any benefit payable with respect to a Participant pursuant to a "domestic relations order" (as defined in Code Section 414(p)) unless such order is determined by the Administrator to be a "qualified domestic relations order" (as defined in Code Section 414(p)) or, in the case of a "domestic relations order" entered before January 1, 1985, if either payment of benefits pursuant to the order has commenced as of that date or the Administrator decides to treat such order as a "qualified domestic relations order" within the meaning of Code Section 414(p) even if it does not otherwise qualify as such. 12.6 Domestic Relations Orders Any other provision of the Plan to the contrary notwithstanding, the Administrator shall have all powers necessary with respect to the Plan for the proper operation of Code Section 414(p) with respect to "qualified domestic relations orders" (or "domestic relations orders" treated as such) referred to in Section 12.5, including, but not limited to, the power to establish all necessary or appropriate procedures, to authorize the establishment of new accounts with such assets and subject to such investment control by the Administrator as the Administrator may deem appropriate, and the Administrator may decide upon and direct appropriate distributions therefrom. 12.7 Claims Procedure In the event that a claim by a Participant, Beneficiary, or other person for benefits under the Plan is denied, the Administrator will so notify the claimant, giving the reasons for the denial. This notice will also refer to the specific provisions of the Plan on which the denial was based, will specify whether any additional information is needed from the Participant or Beneficiary and will explain the review procedure. Within 60 days after receiving the denial, the claimant may submit, directly or through a duly authorized representative, a written request for reconsideration of the application to the Administrator. Documents or records relied on by the claimant should be filed with the request. The person making the request may review relevant documents and submit issues and additional comments in writing. The Administrator will review the claim within 60 days (or 120 days if a hearing is held because special circumstances exist) and provide a written response to the appeal. The response will explain the reasons for the decision and will refer to the Plan provisions on which the decision is based. The decision of the Administrator is the final one under this claims procedure. 12.8 Records and Documents; Errors Participants and Beneficiaries must supply the Administrator with such personal history data as may be required by the Administrator in the operation of the Plan. Proof of age, when required, must be established by evidence satisfactory to the Administrator, and the records of the Employer and Participating Affiliates concerning length of service and compensation may be accepted by the Administrator as conclusive for the purposes of the Plan. Should any error in the records maintained under the Plan result in any Participant or Beneficiary receiving from the Plan more or less than he or she would have been entitled to receive had the records been correct, the Administrator, in its discretion, may correct such error and, as far as practicable, may adjust benefits in such manner that the aggregate value of the benefit under the Plan shall be the amount to which such Participant or Beneficiary was properly entitled. 12.9 Benefits Payable to Minors, Incompetents and Others In the event any benefit is payable to a minor or to a Participant or Beneficiary declared incompetent by a court having jurisdiction over such matters and a guardian, committee, conservator or other legal representative of the estate of such a person is appointed, benefits to which he or she is entitled shall be paid to the legally appointed person. The receipt by any such person to whom any such payment on behalf of any Participant or Beneficiary is made shall be a sufficient discharge therefor. 12.10 Plan Merger or Transfer of Assets 12.10.1 The merger or consolidation of the Employer with any other person, or the transfer of the assets of the Employer to any other person, or the merger of the Plan with any other plan shall not constitute a termination of the Plan if provision is made for the continuation of the Plan. 12.10.2 The Plan may not merge or consolidate with, or transfer any assets or liabilities to, any other plan, unless each Participant would (if the Plan had then terminated) receive a benefit immediately after the merger, consolidation or transfer which is equal to or greater than the benefit he or she would have been entitled to receive immediately before the merger, consolidation or transfer (if the Plan had then terminated). Any merger or consolidation shall not constitute a termination of a Plan or require the acceleration of vesting of Participants' Account Balances. 12.11 Participating Affiliates 12.11.1 With the consent of the Employer and by duly authorized action, any Affiliate may adopt the Plan. Such Affiliate shall determine the classes of its Employees who shall be Eligible Employees and the amount of its contribution to the Plan on behalf of such Employees. 12.11.2 With the consent of the Employer and by duly authorized action, a Participating Affiliate may terminate its participation in the Plan or withdraw from the Plan. Any such withdrawal shall be deemed an adoption by such Participating Affiliate of a plan and trust identical to the Plan and the Trust, except that all references to the Employer shall be deemed to refer to such Participating Affiliate. At such time and in such manner as the Employer directs, the assets of the Trust allocable to Employees of such Participating Affiliate shall be transferred to the trust deemed adopted by such Participating Affiliate. 12.11.4 A Participating Affiliate shall have no power with respect to the Plan except as specifically provided herein. 12.12 Controlling Law The Plan is intended to qualify under Code Section 401(a) and to comply with ERISA, and its terms shall be interpreted accordingly. Otherwise, to the extent not preempted by ERISA, the laws of the State of New York shall control the interpretation and performance of the terms of the Plan. 12.13 Singular and Plural and Article and Section References As used in the Plan, the singular includes the plural, and the plural includes the singular, unless qualified by the context. Titles of Articles and Sections of the Plan are for convenience of reference only and are to be disregarded in applying the provisions of the Plan. Any reference in this Prototype Plan to an Article or Section is to the Article or Section so specified of the Prototype Plan, unless otherwise indicated. EX-10.6-4 5 EX-10.6.4 Exhibit 10.6.4 November 18, 1997 Data Translation, Inc. 100 Locke Drive Marlboro, MA 01752 Attention: Alfred A. Molinari, Jr., Chairman and CEO Re: Corporate Services Agreement Dear Fred: Reference is made to the Corporate Services Agreement and related side letter, in each case dated as of December 2, 1996, between Media 100 Inc. ("Media 100") and Data Translation, Inc. ("DTI"). Section 5.1 of the Corporate Services Agreement provides that the agreement will remain in effect until the earlier of (a) the discontinuance or termination of all services to be provided thereunder in accordance with its terms and (b) December 31, 1997. Notwithstanding the foregoing, Media 100 has requested that DTI continue to provide, and subject to the terms and conditions set forth in the Corporate Services Agreement, DTI has agreed to continue to provide, the following services beyond December 31, 1997: VAX hardware, software support services; VAX Net connections, dial-in access; VAX back-ups; and environmental stress screening. The parties hereby acknowledge and agree that the foregoing services are the only services currently being provided by DTI to Media 100 pursuant to the Corporate Services Agreement, and will be the only services to be provided thereunder from and after December 31, 1997. The parties further agree that charges for VAX-related services shall remain during the extended period as agreed to on December 2, 1996, and that the charges for environmental stress screening will be a flat rate of $3,000 per month, effective as of December 1, 1997. In accordance with the foregoing, the parties hereby agree to modify Section 5.1 of the Corporate Services Agreement by changing the December 31, 1997 reference therein to September 30, 1998. Except as amended hereby, the terms and conditions of the Corporate Services Agreement, and the charges for the continuing services thereunder, remain unchanged. The parties acknowledge and agree that DTI may upgrade and/or add modules to its Manman system during the term of the Corporate Services Agreement, and that to the extent these initiatives would result in additional charges to DTI related to customization or other work necessary to the continued provision of the VAX-related services to Media 100 contemplated hereby, Media 100 will reimburse DTI for such additional charges. In this regard, DTI will notify Media 100 and obtain Media 100's written consent prior to authorizing any work giving rise to such additional charges, which consent will not be unreasonably withheld or delayed. Please sign and return one copy of this letter which will constitute our agreement with respect to the subject matter hereof. Very truly yours, MEDIA 100 INC. By: /s/ John A. Molinari ------------------------------- Name: John A. Molinari Title: President and Chief Executive Officer Agreed to and Accepted: DATA TRANSLATION, INC. By: /s/ Alfred A. Molinari, Jr. --------------------------------- Name: Alfred A. Molinari, Jr. Title: Chairman and Chief Executive Officer EX-21 6 EX-21 EXHIBIT 21 SUBSIDIARIES OF MEDIA 100 INC.
State or other jurisdiction of Subsidiary organization - ----------------------------- ------------------- Media 100 International, Inc. U.S. Virgin Islands Media 100 Investments, Inc. Massachusetts Media 100 GmbH Germany Media 100 Ltd. United Kingdom Media 100 S.A.R.L. France Media 100 S.r.l. Italy
EX-23 7 EX-23 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report set forth on page F-2 of this Form 10-K, into the Company's previously filed Registration Statements on Form S-8, File Nos. 33-00346, 33-06609, 33-50692, 33-59937 and 333-24139. ARTHUR ANDERSEN LLP Boston, Massachusetts February 27, 1998 EX-27 8 EX-27 FDS
5 The consolidated Balance Sheet on the Form 10-K for the period ended November 30, 1997 and the consolidated statement of operations as filed on Form 10-K for the period ended November 30, 1997 1,000 YEAR NOV-30-1997 DEC-01-1996 NOV-30-1997 4,042 28,892 8,100 411 696 42,062 11,728 3,624 50,759 12,916 0 0 0 82 37,761 50,759 46,660 46,660 18,238 18,238 29,425 187 0 778 161 617 0 0 0 617 $0.07 $0.07
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