UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended January 31, 2008 or
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _______
Commission file number 1-4604
HEICO CORPORATION
(Exact name of registrant as specified in its charter)
Florida 65-0341002
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3000 Taft Street, Hollywood, Florida 33021
(Address of principal executive offices) (Zip Code)
(954) 987-4000
(Registrant's telephone number, including area code)
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 whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See definition of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [x] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [ ]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes [ ] No [x]
The number of shares outstanding of each of the registrant's classes of
common stock as of March 5, 2008:
Common Stock, $.01 par value 10,569,391 shares
Class A Common Stock, $.01 par value 15,686,282 shares
HEICO CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
Page
----
Part I. Financial Information:
Item 1. Condensed Consolidated Balance Sheets (unaudited)
as of January 31, 2008 and October 31, 2007 .....................2
Condensed Consolidated Statements of Operations (unaudited)
for the three months ended January 31, 2008 and 2007 ............3
Condensed Consolidated Statements of Cash Flows (unaudited)
for the three months ended January 31, 2008 and 2007.............4
Notes to Condensed Consolidated Financial Statements (unaudited)...5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................17
Item 3. Quantitative and Qualitative Disclosures About Market Risk .......27
Item 4. Controls and Procedures ..........................................28
Part II. Other Information:
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.......29
Item 6. Exhibits..........................................................29
Signature...................................................................30
1
PART I. Item 1. FINANCIAL INFORMATION
HEICO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED
January 31, 2008 October 31, 2007
------------------ ------------------
ASSETS
Current assets:
Cash and cash equivalents $12,595,000 $4,947,000
Accounts receivable, net 74,518,000 82,399,000
Inventories, net 117,866,000 115,770,000
Prepaid expenses and other current assets 6,800,000 4,557,000
Deferred income taxes 14,321,000 10,135,000
------------ ------------
Total current assets 226,100,000 217,808,000
Property, plant and equipment, net 56,512,000 55,554,000
Goodwill 313,146,000 310,502,000
Intangible assets, net 34,475,000 35,333,000
Other assets 18,114,000 12,105,000
------------ ------------
Total assets $648,347,000 $631,302,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $2,193,000 $2,187,000
Trade accounts payable 23,813,000 28,161,000
Accrued expenses and other current liabilities 38,939,000 53,878,000
Income taxes payable -- 3,112,000
------------ ------------
Total current liabilities 64,945,000 87,338,000
Long-term debt, net of current maturities 64,666,000 53,765,000
Deferred income taxes 36,184,000 35,296,000
Other non-current liabilities 21,270,000 10,364,000
------------ ------------
Total liabilities 187,065,000 186,763,000
------------ ------------
Minority interests in consolidated subsidiaries (Note 11) 76,029,000 72,938,000
------------ ------------
Commitments and contingencies (Note 11)
Shareholders' equity:
Preferred Stock, $.01 par value per share; 10,000,000 shares
authorized; 300,000 shares designated as Series B Junior
Participating Preferred Stock and 300,000 shares designated
as Series C Junior Participating Preferred Stock; none issued -- --
Common Stock, $.01 par value per share; 30,000,000 shares authorized;
10,565,891 and 10,538,691 shares issued and outstanding, respectively 106,000 105,000
Class A Common Stock, $.01 par value per share; 30,000,000 shares
authorized; 15,679,472 and 15,612,862 shares issued and
outstanding, respectively 157,000 156,000
Capital in excess of par value 227,850,000 220,658,000
Accumulated other comprehensive income 1,374,000 3,050,000
Retained earnings 155,766,000 147,632,000
------------ ------------
Total shareholders' equity 385,253,000 371,601,000
------------ ------------
Total liabilities and shareholders' equity $648,347,000 $631,302,000
============ ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
HEICO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
Three months ended January 31,
--------------------------------
2008 2007
------------ ------------
Net sales $134,287,000 $113,684,000
------------ ------------
Operating costs and expenses:
Cost of sales 87,458,000 76,196,000
Selling, general, and administrative expenses 23,599,000 20,348,000
------------ ------------
Total operating costs and expenses 111,057,000 96,544,000
------------ ------------
Operating income 23,230,000 17,140,000
Interest expense (862,000) (849,000)
Interest and other (expense) income (116,000) 184,000
------------ ------------
Income before income taxes and minority interests 22,252,000 16,475,000
Income tax expense 7,580,000 4,988,000
------------ ------------
Income before minority interests 14,672,000 11,487,000
Minority interests' share of income 4,586,000 3,566,000
------------ ------------
Net income $10,086,000 $7,921,000
============ ============
Net income per share:
Basic $.39 $.31
Diluted $.37 $.30
Weighted average number of common shares outstanding:
Basic 26,184,631 25,482,633
Diluted 27,209,157 26,811,861
Cash dividends per share $0.05 $0.04
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
HEICO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
Three months ended January 31,
------------------------------------
2008 2007
------------ ------------
Operating Activities:
Net income $10,086,000 $7,921,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,539,000 2,945,000
Deferred income tax provision 856,000 (1,502,000)
Minority interests' share of income 4,586,000 3,566,000
Tax benefit from stock option exercises 6,285,000 6,885,000
Excess tax benefit from stock option exercises (4,350,000) (5,271,000)
Stock option compensation expense 85,000 258,000
Changes in assets and liabilities, net of acquisitions:
Decrease (increase) in accounts receivable 9,436,000 (1,329,000)
Increase in inventories (777,000) (2,131,000)
Increase in prepaid expenses and other current assets (1,211,000) (2,185,000)
Decrease in trade accounts payable (5,288,000) (944,000)
Decrease in accrued expenses and other current liabilities (8,920,000) (3,529,000)
Decrease in income taxes payable (4,581,000) (1,579,000)
Other 98,000 (4,000)
------------ -----------
Net cash provided by operating activities 9,844,000 3,101,000
------------ -----------
Investing Activities:
Acquisitions and related costs, net of cash acquired (12,190,000) (8,385,000)
Capital expenditures (2,812,000) (2,666,000)
Other 78,000 72,000
------------ -----------
Net cash used in investing activities (14,924,000) (10,979,000)
------------ -----------
Financing Activities:
Borrowings on revolving credit facility 22,000,000 7,000,000
Payments on revolving credit facility (11,000,000) (2,000,000)
Cash dividends paid (1,312,000) (1,022,000)
Proceeds from stock option exercises 824,000 664,000
Excess tax benefit from stock option exercises 4,350,000 5,271,000
Distributions to minority interest owners (2,000,000) (1,164,000)
Other (20,000) (39,000)
------------ -----------
Net cash provided by financing activities 12,842,000 8,710,000
------------ -----------
Effect of exchange rate changes on cash (114,000) 12,000
------------ -----------
Net increase in cash and cash equivalents 7,648,000 844,000
Cash and cash equivalents at beginning of year 4,947,000 4,999,000
------------ -----------
Cash and cash equivalents at end of period $12,595,000 $5,843,000
============ ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
HEICO CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
HEICO Corporation and its subsidiaries ("HEICO" or the "Company") have been
prepared in conformity with accounting principles generally accepted in the
United States of America for interim financial information and in accordance
with the instructions to Form 10-Q. Therefore, the condensed consolidated
financial statements do not include all information and footnotes normally
included in annual consolidated financial statements and should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended October
31, 2007. The October 31, 2007 Condensed Consolidated Balance Sheet has been
derived from the Company's audited consolidated financial statements. In the
opinion of management, the unaudited condensed consolidated financial statements
contain all adjustments (consisting principally of normal recurring accruals)
necessary for a fair presentation of the condensed consolidated balance sheets,
statements of operations, and statements of cash flows for such interim periods
presented. The results of operations for the three months ended January 31, 2008
are not necessarily indicative of the results which may be expected for the
entire fiscal year.
Income Taxes
Effective November 1, 2007, the Company adopted Financial Accounting
Standards Board ("FASB") Interpretation No. 48 ("FIN 48"), "Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109," and
began evaluating tax positions utilizing a two-step process. The first step is
to determine whether it is more-likely-than-not that a tax position will be
sustained upon examination based on the technical merits of the position. The
second step is to measure the benefit to be recorded from tax positions that
meet the more-likely-than-not recognition threshold by determining the largest
amount of tax benefit that is greater than 50 percent likely of being realized
upon ultimate settlement and recognizing that amount in the financial
statements.
As a result of adopting the provisions of FIN 48, the Company recognized a
cumulative effect adjustment that decreased retained earnings as of the
beginning of fiscal 2008 by $639,000. Further, effective with the adoption of
FIN 48, the Company's policy is to recognize interest and penalties related to
income tax matters as a component of income tax expense. Interest and penalties,
which were not significant in fiscal 2007, were previously recorded in interest
expense and in selling, general, and administrative expenses, respectively, in
the Company's consolidated statements of operations.
Further information regarding income taxes can be found in Note 6, Income
Taxes.
5
New Accounting Pronouncements
In September 2006, the FASB issued Statement of Financial Accounting
Standards ("SFAS") SFAS No. 157, "Fair Value Measurements," which provides
enhanced guidance for using fair value to measure assets and liabilities. SFAS
No. 157 provides a common definition of fair value and establishes a framework
to make the measurement of fair value in accordance with generally accepted
accounting principles more consistent and comparable. SFAS No. 157 also requires
expanded disclosures to provide information about the extent to which fair value
is used to measure assets and liabilities, the methods and assumptions used to
measure fair value, and the effect of fair value measures on earnings. SFAS No.
157 is effective for fiscal years beginning after November 15, 2007, or in
fiscal 2009 for HEICO. The Company is currently in the process of evaluating the
effect, if any, the adoption of SFAS No. 157 will have on its results of
operations, financial position, and cash flows.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities - Including an Amendment of FASB
Statement No. 115." SFAS No. 159 permits entities to choose to measure certain
financial assets and liabilities at fair value and report unrealized gains and
losses on items for which the fair value option has been elected in earnings.
SFAS No. 159 is effective for fiscal years beginning after November 15, 2007, or
in fiscal 2009 for HEICO. The Company has not yet determined if it will elect to
apply any of the provisions of SFAS No. 159 and is currently evaluating the
effect, if any, the adoption of SFAS No. 159 will have on its results of
operations, financial position, and cash flows.
In December 2007, the FASB issued SFAS No. 141(R), "Business Combinations."
SFAS No. 141(R) establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, the goodwill acquired, and any noncontrolling
interest in the acquiree. This Statement also establishes disclosure
requirements to enable the evaluation of the nature and financial effect of the
business combination. SFAS No. 141(R) is effective for fiscal years beginning
after December 15, 2008, or in fiscal 2010 for HEICO. The Company is in the
process of evaluating the effect that the adoption of SFAS No. 141(R) will have
on its results of operations, financial position, and cash flows.
In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements - an amendment of ARB No. 51." SFAS No. 160
establishes accounting and reporting standards pertaining to ownership interests
in subsidiaries held by parties other than the parent, the amount of net income
attributable to the parent and to the noncontrolling interest, changes in a
parent's ownership interest, and the valuation of any retained noncontrolling
equity investment when a subsidiary is deconsolidated. This Statement also
establishes disclosure requirements that clearly identify and distinguish
between the interests of the parent and the interests of the noncontrolling
owners. SFAS No. 160 is effective for fiscal years beginning on or after
December 15, 2008, or in fiscal 2010 for HEICO. The Company is in the process of
evaluating the effect that the adoption of SFAS No. 160 will have on its results
of operations, financial position, and cash flows.
6
2. ACQUISITIONS
In November 2007, the Company, through an 80%-owned subsidiary of HEICO
Aerospace Holdings Corp. ("HEICO Aerospace"), acquired all of the stock of a
European company. Subject to meeting certain earnings objectives during the
first three years following the acquisition, the Company may be obligated to pay
additional consideration of up to approximately $.5 million in aggregate. The
acquired company provides commercial airlines, regional operators, asset
management companies, and Maintenance, Repair and Overhaul providers with high
quality and cost effective niche accessory component exchange services. The
purchase price, which was not significant to the Company's condensed
consolidated financial statements, was principally paid in cash using proceeds
from the Company's revolving credit facility.
In January 2008, the Company, through HEICO Aerospace, acquired certain
assets and assumed certain liabilities of a U.S. company that designs and
manufactures FAA-approved aircraft and engine parts primarily for the commercial
aviation market. The Company has since combined the operations of the acquired
entity within other subsidiaries of HEICO Aerospace. The purchase price, which
was not significant to the Company's condensed consolidated financial
statements, was principally paid in cash using proceeds from the Company's
revolving credit facility.
During the first quarter of fiscal 2008, the Company, through HEICO
Aerospace, paid $7.0 million of additional purchase consideration pursuant to
the terms of the purchase agreement associated with a prior year acquisition.
This amount was accrued as of October 31, 2007 based on the subsidiary's
earnings relative to target. (See Note 11, Commitments and Contingencies, for
additional information on contingent purchase consideration associated with
certain of the Company's acquisitions.)
The fiscal 2008 acquisitions described above were accounted for using the
purchase method of accounting. The allocation of the purchase price of the
fiscal 2008 and certain fiscal 2007 acquisitions to the tangible and
identifiable intangible assets acquired and liabilities assumed in these
condensed consolidated financial statements is preliminary until the Company
obtains final information regarding their fair values.
The operating results of each of the Company's fiscal 2008 acquisitions as
noted above and the fiscal 2007 acquisitions were included in the Company's
results of operations from their effective acquisition date. Had the
acquisitions taken place as of the beginning of fiscal 2007, net sales on a pro
forma basis for the first quarter of fiscal 2007 would have been approximately
$120 million and net sales on a pro forma basis for the first quarter of fiscal
2008 would not have been materially different from the reported amounts. The pro
forma net income and net income per share (basic and diluted) for the first
quarter of fiscal 2007 and first quarter of fiscal 2008 assuming these
acquisitions had taken place as of the beginning of fiscal 2007 would not have
been materially different than the reported amounts.
7
3. SELECTED FINANCIAL STATEMENT INFORMATION
Accounts Receivable
January 31, 2008 October 31, 2007
------------------ ------------------
Accounts receivable $76,225,000 $84,111,000
Less: Allowance for doubtful accounts (1,707,000) (1,712,000)
----------- -----------
Accounts receivable, net $74,518,000 $82,399,000
=========== ===========
Costs and Estimated Earnings on Uncompleted Percentage-of-Completion Contracts
January 31, 2008 October 31, 2007
------------------ ------------------
Costs incurred on uncompleted contracts $21,337,000 $21,832,000
Estimated earnings 11,966,000 13,111,000
----------- -----------
33,303,000 34,943,000
Less: Billings to date (26,863,000) (25,661,000)
----------- -----------
$6,440,000 $9,282,000
=========== ===========
Included in accompanying Condensed Consolidated
Balance Sheets under the following captions:
Accounts receivable, net (costs and estimated
earnings in excess of billings) $7,165,000 $9,300,000
Accrued expenses and other current liabilities
(billings in excess of costs and estimated earnings) (725,000) (18,000)
----------- -----------
$6,440,000 $9,282,000
=========== ===========
Changes in estimates did not have a material effect on net income or diluted
net income per share in the three months ended January 31, 2008 and 2007.
Inventories
January 31, 2008 October 31, 2007
------------------ ------------------
Finished products $64,193,000 $61,592,000
Work in process 15,784,000 15,406,000
Materials, parts, assemblies and supplies 37,889,000 38,772,000
------------ ------------
Inventories, net $117,866,000 $115,770,000
============ ============
Inventories related to long-term contracts were not significant as of
January 31, 2008 and October 31, 2007.
8
Property, Plant and Equipment
January 31, 2008 October 31, 2007
---------------- ----------------
Land $3,656,000 $3,656,000
Buildings and improvements 32,824,000 30,732,000
Machinery, equipment and tooling 67,189,000 65,242,000
Construction in progress 5,583,000 6,339,000
----------- -----------
109,252,000 105,969,000
Less: Accumulated depreciation and amortization (52,740,000) (50,415,000)
----------- -----------
Property, plant and equipment, net $56,512,000 $55,554,000
=========== ===========
Accrued Customer Rebates and Credits
The aggregate amount of accrued customer rebates and credits included within
the caption accrued expenses and other current liabilities in the accompanying
Condensed Consolidated Balance Sheets totals $12,454,000 and $10,452,000 as of
January 31, 2008 and October 31, 2007, respectively. These amounts generally
relate to discounts negotiated with customers as part of sales contracts and are
usually tied to sales volume thresholds. The Company accrues customer rebates
and credits as a reduction from net sales as the revenue is recognized based on
the estimated level of discount rate expected to be earned by each customer over
the life of the contract period (generally one year). Accrued customer rebates
and credits are monitored by management and discount levels are updated at least
quarterly. The total customer rebates and credits deducted from net sales for
the three months ended January 31, 2008 and 2007 equals $2,438,000 and
$2,539,000, respectively.
4. GOODWILL AND OTHER INTANGIBLE ASSETS
The Company has two operating segments: the Flight Support Group ("FSG") and
the Electronic Technologies Group ("ETG"). Changes in the carrying amount of
goodwill by operating segment for the three months ended January 31, 2008 are as
follows:
Segment
--------------------------------- Consolidated
FSG ETG Totals
------------ ------------ ------------
Balances as of October 31, 2007 $169,689,000 $140,813,000 $310,502,000
Goodwill acquired 3,412,000 --- 3,412,000
Foreign currency translation adjustments (32,000) (725,000) (757,000)
Adjustments to goodwill (26,000) 15,000 (11,000)
------------ ------------ ------------
Balances as of January 31, 2008 $173,043,000 $140,103,000 $313,146,000
============ ============ ============
The goodwill acquired is a result of the acquisitions described in Note 2,
Acquisitions. The foreign currency translation adjustment principally reflects
an unrealized translation loss on the goodwill recognized in connection the
acquisition of a Canadian-based subsidiary. Foreign currency translation
adjustments are included in other comprehensive income in the Company's
Condensed Consolidated Balance Sheets (see Note 7, Shareholders' Equity and
Comprehensive Income). Adjustments to goodwill were not material in the first
quarter of 2008.
Identifiable intangible assets consist of:
As of January 31, 2008 As of October 31, 2007
------------------------------------------ ------------------------------------------
Gross Net Gross Net
Carrying Accumulated Carrying Carrying Accumulated Carrying
Amount Amortization Amount Amount Amortization Amount
----------- ------------ ----------- ----------- ------------ -----------
Amortizing Assets:
- ------------------
Customer relationships $20,263,000 ($5,876,000) $14,387,000 $19,784,000 ($4,912,000) $14,872,000
Intellectual property 5,985,000 (1,287,000) 4,698,000 6,204,000 (1,066,000) 5,138,000
Licenses 1,000,000 (418,000) 582,000 1,000,000 (400,000) 600,000
Non-compete agreements 1,111,000 (652,000) 459,000 937,000 (628,000) 309,000
Patents 571,000 (148,000) 423,000 560,000 (132,000) 428,000
----------- ----------- ----------- ----------- ----------- -----------
28,930,000 (8,381,000) 20,549,000 28,485,000 (7,138,000) 21,347,000
Non-Amortizing Assets:
- ----------------------
Trade names 13,926,000 --- 13,926,000 13,986,000 --- 13,986,000
----------- ----------- ----------- ----------- ----------- -----------
$42,856,000 ($8,381,000) $34,475,000 $42,471,000 ($7,138,000) $35,333,000
=========== =========== =========== =========== =========== ===========
9
The Company recognized additional amounts for customer relationships and
non-compete agreements with a weighted average amortization period of
approximately six years and four years, respectively, as well as an additional
amount for trade names in connection with acquisitions made during the first
quarter of fiscal 2008 (see Note 2, Acquisitions). In addition, foreign currency
translation adjustments on certain intangible assets recognized as part of the
acquisition of a Canadian-based subsidiary had the effect of reducing the gross
carrying amount of such assets. These increases and decreases to the gross
carrying amount of intangible assets in the first quarter of fiscal 2008 were
not material.
Amortization expense of other intangible assets for the three months ended
January 31, 2008 was $1,257,000. Amortization expense of other intangible assets
for the fiscal year ending October 31, 2008 is estimated to be $5,012,000.
Amortization expense for each of the next five fiscal years is estimated to be
$4,421,000 in fiscal 2009, $3,871,000 in fiscal 2010, $3,185,000 in fiscal 2011,
$2,446,000 in fiscal 2012, and $949,000 in fiscal 2013.
5. SHORT-TERM AND LONG-TERM DEBT
As of January 31, 2008, no borrowings were outstanding under the $5.0
million short-term line of credit that one of the Company's subsidiaries has
with a bank.
Long-term debt consists of:
January 31, 2008 October 31, 2007
---------------- ----------------
Borrowings under revolving credit facility $64,000,000 $53,000,000
Industrial Development Revenue Refunding
Bonds - Series 1988 1,980,000 1,980,000
Notes payable, capital leases and equipment loans 879,000 972,000
----------- -----------
66,859,000 55,952,000
Less: Current maturities of long-term debt (2,193,000) (2,187,000)
----------- -----------
$64,666,000 $53,765,000
=========== ===========
As of January 31, 2008 and October 31, 2007, the weighted average interest
rate on borrowings under the Company's revolving credit facility, which matures
in August 2010, was 4.8% and 5.8%, respectively. The revolving credit facility
contains both financial and non-financial covenants. As of January 31, 2008,
the Company was in compliance with all such covenants.
The interest rates on the Series 1988 industrial development revenue bonds
were 2.3% and 3.3% as of January 31, 2008 and October 31, 2007, respectively.
The bonds are payable in April 2008.
10
6. INCOME TAXES
As discussed in Note 1, Summary of Significant Accounting Policies - Income
Taxes, the Company adopted the provisions of FIN 48 effective November 1, 2007.
As a result, the Company increased its liabilities related to uncertain tax
positions by $4,622,000 and accounted for this change as a $3,889,000 increase
to deferred tax assets, a $639,000 decrease to retained earnings (the cumulative
effect of adopting FIN 48), and a $94,000 decrease to deferred tax liabilities.
Upon adoption, the Company also reclassified $2,680,000 in unrecognized tax
benefits from income taxes payable to long-term income tax liabilities since the
Company does not anticipate payment or receipt of cash within one year.
Long-term income tax liabilities are classified within other non-current
liabilities in the Company's Condensed Consolidated Balance Sheets.
As of November 1, 2007, the Company's liability for gross unrecognized tax
benefits related to uncertain tax positions was $7,396,000, of which $2,948,000
would decrease the Company's income tax expense and effective income tax rate if
the tax benefits were recognized. The remaining liability was for tax positions
for which the uncertainty was only related to the timing of such tax benefits.
The amounts recorded for interest and penalties as of the date of adoption were
not significant.
The Company files income tax returns in the United States ("U.S.") federal
jurisdiction and in multiple state jurisdictions. The Company is also subject to
income taxes in certain jurisdictions outside the U.S., none of which are
individually material to the accompanying unaudited condensed consolidated
financial statements. Generally, the Company is no longer subject to U.S.
federal or state examinations by tax authorities for fiscal years prior to 2001.
The Company's U.S. federal filings and state of California filings for fiscal
years 2001 through 2005 are currently under examination by the Internal Revenue
Service and California Franchise Tax Board, respectively, who are reviewing the
income tax credit claimed by the Company for qualified research and development
activities incurred during those years. The Company does not expect these
reviews to be completed within one year and, accordingly, reclassified
$2,621,000 of income tax refunds from income taxes payable to long-term income
tax assets. Long-term income tax assets are classified within other assets in
the Company's Condensed Consolidated Balance Sheets.
During the first quarter of fiscal 2008, there were no material changes in
the liability for unrecognized tax positions resulting from tax positions taken
during the current or a prior year, settlements with taxing authorities or a
lapse of applicable statutes of limitations. The Company does not expect the
total amount of unrecognized tax benefits to materially change in the next
twelve months.
In December 2006, Section 41 of the Internal Revenue Code, "Credit for
Increasing Research Activities," was retroactively extended for two years to
cover the period from January 1, 2006 to December 31, 2007. As a result, in the
first quarter of 2007, the Company recognized an income tax credit for qualified
research and development activities for the full fiscal 2006 year. The tax
credit, net of expenses, increased net income by approximately $.3 million for
the three months ended January 31, 2007.
11
7. SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
Changes in consolidated shareholders' equity and comprehensive income for
the three months ended January 31, 2008 are as follows:
Accumulated
Class A Capital in Other
Common Common Excess of Comprehensive Retained Comprehensive
Stock Stock Par Value Income Earnings Income
--------- ------- ----------- ------------- ------------- -------------
Balances as of October 31, 2007 $105,000 $156,000 $220,658,000 $3,050,000 $147,632,000
Net income -- -- -- -- 10,086,000 $10,086,000
Foreign currency
translation adjustments -- -- -- (1,677,000) -- (1,677,000)
-----------
Comprehensive income -- -- -- -- -- $8,409,000
===========
Cash dividends ($.05 per share) -- -- -- -- (1,312,000)
Cumulative effect of
adopting FIN 48 (Note 6) -- -- -- -- (639,000)
Tax benefit from stock
option exercises -- -- 6,285,000 -- --
Proceeds from
stock option exercises 1,000 1,000 822,000 -- --
Stock option
compensation expense -- -- 85,000 -- --
Other -- -- -- 1,000 (1,000)
-------- -------- ------------ ---------- ------------
Balances as
of January 31, 2008 $106,000 $157,000 $227,850,000 $1,374,000 $155,766,000
======== ======== ============ ========== ============
8. RESEARCH AND DEVELOPMENT EXPENSES
Cost of sales for the three months ended January 31, 2008 and 2007 includes
approximately $4.2 million and $4.0 million, respectively, of new product
research and development expenses. The expenses are net of reimbursements
pursuant to research and development cooperation and joint venture agreements,
which were not significant.
9. NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted net
income per share for the three months ended January 31:
Three months ended January 31,
------------------------------
2008 2007
------------- -------------
Numerator:
Net income $10,086,000 $7,921,000
=========== ==========
Denominator:
Weighted average common shares outstanding-basic 26,184,631 25,482,633
Effect of dilutive stock options 1,024,526 1,329,228
---------- ----------
Weighted average common shares outstanding-diluted 27,209,157 26,811,861
=========== ==========
Net income per share-basic $0.39 $0.31
Net income per share-diluted $0.37 $0.30
Anti-dilutive stock options excluded -- --
12
10. OPERATING SEGMENTS
Information on the Company's two operating segments, the Flight Support
Group ("FSG"), consisting of HEICO Aerospace Holdings Corp. and its
subsidiaries, and the Electronic Technologies Group ("ETG"), consisting of HEICO
Electronic Technologies Corp. and its subsidiaries, for the three months ended
January 31, 2008 and 2007, respectively, is as follows:
Other,
Segment Primarily
----------------------------- Corporate and Consolidated
FSG ETG Intersegment Totals
------------ ----------- ------------- -------------
For the three months ended January 31, 2008:
- --------------------------------------------
Net sales $102,349,000 $31,938,000 $-- $134,287,000
Depreciation and amortization 2,107,000 1,350,000 82,000 3,539,000
Operating income 18,946,000 7,177,000 (2,893,000) 23,230,000
Capital expenditures 2,168,000 441,000 203,000 2,812,000
For the three months ended January 31, 2007:
- --------------------------------------------
Net sales $88,075,000 $25,609,000 $-- $113,684,000
Depreciation and amortization 2,015,000 847,000 83,000 2,945,000
Operating income 14,425,000 5,764,000 (3,049,000) 17,140,000
Capital expenditures 2,339,000 315,000 12,000 2,666,000
Total assets by operating segment as of January 31, 2008 and October 31,
2007 are as follows:
Segment Other,
----------------------------- Primarily Consolidated
FSG ETG Corporate Totals
------------ ------------ ------------- -------------
Total assets as of January 31, 2008 $387,208,000 $226,185,000 $34,954,000 $648,347,000
Total assets as of October 31, 2007 379,433,000 230,448,000 21,421,000 631,302,000
11. COMMITMENTS AND CONTINGENCIES
Guarantees
The Company has arranged for standby letters of credit aggregating $1.4
million to meet the security requirement of its insurance company for potential
workers' compensation claims, which are supported by the Company's revolving
credit facility. In addition, the Company's industrial development revenue bonds
are secured by a $2.0 million letter of credit expiring April 2008 and a
mortgage on the related properties pledged as collateral.
13
Product Warranty
Changes in the Company's product warranty liability for the three months
ended January 31, 2008 and 2007, respectively, are as follows:
Three months ended January 31,
------------------------------
2008 2007
---------- --------
Balances as of beginning of fiscal year $1,181,000 $534,000
Acquired warranty liabilities -- --
Accruals for warranties 172,000 158,000
Warranty claims settled (223,000) (200,000)
---------- --------
Balances as of January 31 $1,130,000 $492,000
========== ========
Acquisitions
Pursuant to the agreement related to the acquisition of a 90% interest in a
subsidiary by the FSG in fiscal 2001, the Company has the right to purchase the
remaining 10% of the equity interests in fiscal 2011, or sooner under certain
conditions, and the minority holder has the right to cause the Company to
purchase the same equity interest in the same period.
As part of the agreement to acquire an 80% interest in a subsidiary by the
ETG in fiscal 2004, the Company has the right to purchase the minority interests
beginning at approximately the tenth anniversary of the acquisition, or sooner
under certain conditions, and the minority holders have the right to cause the
Company to purchase their interests commencing on approximately the fifth
anniversary of the acquisition, or sooner under certain conditions.
As part of the agreement to acquire an 85% interest in a subsidiary by the
ETG in fiscal 2005, the minority holders have the right to cause the Company to
purchase their interests over a four-year period starting around the second
anniversary of the acquisition, or sooner under certain conditions. In fiscal
2007, some of the minority interest holders exercised their option to cause the
Company to purchase their aggregate 3% interest over the four-year period ending
in fiscal 2010. Accordingly, the Company increased its ownership interest in the
subsidiary by .75% during fiscal 2007 and will increase its ownership interest
by an additional .75% (or from 85.75% to 86.50%) effective the second quarter of
fiscal 2008. The purchase price of this additional minority interest is not
significant.
As part of the agreement to acquire a 51% interest in a subsidiary by the
FSG in fiscal 2006, the Company has the right to purchase 28% of the equity
interests of the subsidiary over a four-year period beginning approximately
after the second anniversary of the acquisition, or sooner under certain
conditions, and the minority holders have the right to cause the Company to
purchase the same equity interest over the same period. Further, the Company has
the right to purchase the remaining 21% of the equity interests of the
subsidiary over a three-year period beginning approximately after the fourth
anniversary of the acquisition, or sooner under certain conditions, and the
minority holders have the right to cause the Company to purchase the same equity
interest over the same period. During the first quarter of fiscal 2008, the
minority interest holders exercised their option to cause the Company to
purchase their aggregate 28% interest
14
over the four-year period beginning in the second quarter of fiscal 2008.
Accordingly, the Company will increase its ownership interest in the subsidiary
by 7% (or one-fourth of such minority interest holders' aggregate interest) to
58% effective in the second quarter of fiscal 2008. The purchase price of this
additional minority interest is $4.1 million.
As part of the agreement to acquire an 80% interest in a subsidiary by the
FSG in fiscal 2006, the Company has the right to purchase the minority interests
beginning at approximately the eighth anniversary of the acquisition, or sooner
under certain conditions, and the minority interest holders have the right to
cause the Company to purchase the same equity interest over the same period.
The above referenced rights of the minority interest holders to cause the
Company to purchase their equity interests ("Put Rights") may be exercised on
varying dates beginning in fiscal 2008 through fiscal 2017. The Put Rights, all
of which relate either to common shares or membership interests in limited
liability companies, provide that the cash consideration to be paid for the
minority interests ("Redemption Amount") be at a formula that management
intended to reasonably approximate fair value, as defined in the applicable
agreements based on a multiple of future earnings over a measurement period.
Assuming the subsidiaries perform over the future measurement periods at the
same earnings levels they performed in the comparable historical measurement
periods and assuming all Put Rights are exercised, the aggregate Redemption
Amount that the Company would be required to pay is approximately $49 million.
The actual Redemption Amount will likely be different. Upon exercise of any Put
Right, the Company's ownership interest in the subsidiary would increase and
minority interest expense would decrease. The Put Rights are embedded in the
shares owned by the minority interest holders and are not freestanding.
Consistent with Accounting Research Bulletin No. 51., "Consolidated Financial
Statements," minority interests have been recorded on the Company's consolidated
balance sheets at historical cost plus an allocation of subsidiary earnings
based on ownership interests, less dividends paid to the minority interest
holders. As described in Note 1, in December 2007, the FASB issued SFAS No. 160
that will change the current accounting and financial reporting for
non-controlling (minority) interests. SFAS No. 160 will be effective for fiscal
years beginning after December 15, 2008. The Company will adopt SFAS No. 160 on
November 1, 2009. SFAS No. 160 will require that non-controlling (minority)
interests be reported in the consolidated statement of financial position within
equity. It also will require that any increases, or decreases in ownership
interests in a subsidiary that do not result in a loss of control be accounted
for as equity transactions and as a result any difference between the amount by
which the non-controlling (minority) interest is adjusted and the fair value of
the consideration paid or received, if any, would be recognized directly in
equity attributable to the controlling interest. The Company is not yet in a
position to assess the full impact and related disclosure of adopting SFAS No.
160 on its minority interest liabilities and related Put Rights.
As part of the agreement to purchase a subsidiary by the ETG in fiscal 2005,
the Company may be obligated to pay additional purchase consideration currently
estimated to total up to $2.3 million should the subsidiary meet certain product
line-related earnings objectives during the fourth and fifth years following the
acquisition. The additional purchase consideration will be accrued when the
earnings objectives are met.
As part of the agreement to acquire a subsidiary by the ETG in fiscal 2006,
the Company may be obligated to pay additional purchase consideration up to
$17.8 million and $19.2 million, respectively, based on the subsidiary's fiscal
2008 and 2009 respective earnings relative to target. The additional purchase
consideration will be accrued when the earnings objectives are met and will be
paid in the following fiscal year.
As part of the agreement to acquire a subsidiary by the ETG in fiscal 2007,
the Company may be obligated to pay additional purchase consideration up to
$73.0 million in aggregate should the subsidiary meet certain earnings
objectives during the first five years following the acquisition. The additional
purchase consideration will be accrued when the earnings objectives are met.
As part of the agreement to acquire a subsidiary by the FSG in fiscal 2008,
the Company may be obligated to pay additional consideration of up to
approximately $.5 million in aggregate during the first three years following
the acquisition should the subsidiary meet certain earnings objectives.
15
Litigation
The Company is involved in various legal actions arising in the normal
course of business. Based upon the Company's and its legal counsel's
evaluations of any claims or assessments, management is of the opinion that the
outcome of these matters will not have a material adverse effect on the
Company's results of operations, financial position, or cash flows.
16
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
This discussion of our financial condition and results of operations should
be read in conjunction with our condensed consolidated financial statements and
notes thereto included herein. The preparation of consolidated financial
statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ materially from those estimates if
different assumptions were used or different events ultimately transpire.
The Company's critical accounting policies, some of which require
management to make judgments about matters that are inherently uncertain, are
described in Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," under the heading "Critical Accounting
Policies" in the Company's Annual Report on Form 10-K for the year ended October
31, 2007.
The Company has two operating segments: the Flight Support Group ("FSG"),
consisting of HEICO Aerospace Holdings Corp. ("HEICO Aerospace") and its
subsidiaries, and the Electronic Technologies Group ("ETG"), consisting of HEICO
Electronic Technologies Corp. ("HEICO Electronic") and its subsidiaries.
17
Results of Operations
The following table sets forth the results of the Company's operations, net
sales and operating income by segment and the percentage of net sales
represented by the respective items in the Company's Condensed Consolidated
Statements of Operations.
Three months ended January 31,
------------------------------
2008 2007
------------ ------------
Net sales $134,287,000 $113,684,000
------------ ------------
Cost of sales 87,458,000 76,196,000
Selling, general, and administrative expenses 23,599,000 20,348,000
------------ ------------
Total operating costs and expenses 111,057,000 96,544,000
------------ ------------
Operating income $23,230,000 $17,140,000
============ ============
Net sales by segment:
Flight Support Group $102,349,000 $88,075,000
Electronic Technologies Group 31,938,000 25,609,000
Intersegment sales -- --
------------ ------------
$134,287,000 $113,684,000
============ ============
Operating income by segment:
Flight Support Group $18,946,000 $14,425,000
Electronic Technologies Group 7,177,000 5,764,000
Other, primarily corporate (2,893,000) (3,049,000)
------------ ------------
$23,230,000 $17,140,000
============ ============
Net sales 100.0% 100.0%
Gross profit 34.9% 33.0%
Selling, general and administrative expenses 17.6% 17.9%
Operating income 17.3% 15.1%
Interest expense 0.6% 0.7%
Interest and other (expense) income (0.1%) 0.2%
Income tax expense 5.6% 4.4%
Minority interests' share of income 3.4% 3.1%
Net income 7.5% 7.0%
18
Comparison of First Quarter of Fiscal 2008 to First Quarter of Fiscal 2007
Net Sales
Net sales for the first quarter of fiscal 2008 increased by 18.1% to $134.3
million, as compared to net sales of $113.7 million for the first quarter of
fiscal 2007. The increase in net sales reflects an increase of $14.3 million (a
16.2% increase) to $102.3 million in net sales within the FSG and an increase of
$6.3 million (a 24.7% increase) to $31.9 million in net sales within the ETG.
The FSG's net sales increase reflects organic growth of approximately 12% as
well as the impact on net sales from prior year and fiscal 2008 acquisitions.
The organic growth reflects higher sales of new products and services and
continued increased demand for the FSG's aftermarket replacement parts and its
repair and overhaul services. The ETG's net sales increase reflects organic
growth of approximately 14% reflecting increased demand for certain products as
well as the impact on net sales from prior year acquisitions.
Gross Profit and Operating Expenses
The Company's gross profit margin increased to 34.9% for the first quarter
of fiscal 2008 as compared to 33.0% for the first quarter of fiscal 2007,
reflecting higher gross profit margins within both FSG and ETG. The higher gross
profit margins within the FSG and ETG principally reflect a more favorable
product mix. Consolidated cost of sales for the first quarter of fiscal 2008 and
2007 includes approximately $4.2 million and $4.0 million, respectively, of new
product research and development expenses.
SG&A expenses were $23.6 million and $20.3 million for the first quarter of
fiscal 2008 and fiscal 2007, respectively. The increase in SG&A expenses was
mainly due to higher operating costs, principally personnel related, associated
with the growth in net sales discussed above, including the acquired businesses.
As a percentage of net sales, SG&A expenses decreased to 17.6% for the first
quarter of fiscal 2008 down slightly from 17.9% for the first quarter of fiscal
2007.
Operating Income
Operating income for the first quarter of fiscal 2008 increased by 35.5% to
$23.2 million, compared to operating income of $17.1 million for the first
quarter of fiscal 2007. The increase in operating income reflects an increase of
$4.5 million (a 31.3% increase) to $18.9 million in operating income of the FSG
in the first quarter of fiscal 2008 from $14.4 million for the first quarter of
fiscal 2007, a $1.4 million increase (a 24.5% increase) in operating income of
the ETG from $5.8 million for the first quarter of fiscal 2007 to $7.2 million
for the first quarter of fiscal 2008.
As a percentage of net sales, consolidated operating income increased to
17.3% for the first quarter of fiscal 2008 compared to 15.1% for the first
quarter of fiscal 2007. The consolidated operating income as a percentage of net
sales reflects an increase in the FSG's operating income as a percentage of net
sales from 16.4% in the first quarter of fiscal 2007 to 18.5% in the first
quarter of fiscal 2008. The increase in operating income as a percentage of net
sales for the FSG
19
principally reflects the increase in net sales as well as the increased gross
profit margins discussed previously. The ETG's operating income as a percentage
of net sales was 22.5% in both the first quarter of fiscal 2008 and 2007. Based
on current economic conditions and backlogs, the Company expects ETG's operating
margins to be approximately 25% to 27% for the full fiscal 2008 year.
Interest Expense
Interest expense in the first quarter of fiscal 2008 was comparable to the
first quarter of fiscal 2007.
Interest and Other (Expense) Income
Interest and other (expense) income in the first quarter of fiscal 2008 and
2007 were not material.
Income Tax Expense
The Company's effective tax rate for the first quarter of fiscal 2008
increased to 34.1% from 30.3% for the first quarter of fiscal 2007. The increase
is principally due to an income tax credit for qualified research and
development activities recognized for the full fiscal 2006 year during the first
quarter of fiscal 2007. The fiscal 2006 tax credit was recorded pursuant to the
December 2006 retroactive extension for the two year period covering January 1,
2006 to December 31, 2007 of Section 41, "Credit for Increasing Research
Activities," of the Internal Revenue Code.
Minority Interests' Share of Income
Minority interests' share of income of consolidated subsidiaries relates to
the 20% minority interest held in HEICO Aerospace, the minority interests held
in certain subsidiaries of HEICO Aerospace including the 49% minority interest
held in Seal Dynamics LLC ("Seal LLC"), and the minority interests held in
certain subsidiaries of HEICO Electronic. The increase in the minority
interests' share of income for the first quarter of fiscal 2008 compared to the
first quarter of fiscal 2007 is primarily attributable to the higher earnings of
the FSG and Seal LLC.
Net Income
The Company's net income was $10.1 million, or $0.37 per diluted share, for
the first quarter of fiscal 2008 compared to $7.9 million, or $0.30 per diluted
share, for the first quarter of fiscal 2007 reflecting the increased operating
income referenced above, partially offset by the increased minority interests'
share of income of certain consolidated subsidiaries and higher effective tax
rate.
20
Outlook
The Company reported increased consolidated net sales and operating income
in the first three months of fiscal 2008 reflecting both strong organic growth
and growth through acquisitions. Consolidated operating margins for the first
quarter of fiscal 2008 versus the first quarter of fiscal 2007 reflects higher
operating margins in the FSG and comparable operating margins for the ETG when
compared to the first quarter of fiscal 2007. The Company expects continued
improvements in its sales during the remainder of the year. Based on current
market conditions, the Company continues to target growth in fiscal 2008 net
sales and earnings over fiscal 2007.
Liquidity and Capital Resources
The Company generates cash primarily from its operating activities and
financing activities, including borrowings under short-term and long-term credit
agreements.
Principal uses of cash by the Company include acquisitions, payments of
principal and interest on debt, capital expenditures, cash dividends and
increases in working capital.
The Company believes that its net cash provided by operating activities and
available borrowings under its revolving credit facility will be sufficient to
fund cash requirements for the foreseeable future.
Operating Activities
Net cash provided by operating activities was $9.8 million for the first
three months of fiscal 2008, consisting primarily of net income of $10.1
million, a tax benefit on stock option exercises of $6.3 million, minority
interests' share of income of consolidated subsidiaries of $4.6 million,
depreciation and amortization of $3.5 million, a deferred income tax provision
of $.9 million and stock option compensation expense of $.1 million, partially
offset by an increase in net operating assets of $11.3 million and the
presentation of $4.4 million of excess tax benefit from stock option exercises
as a financing activity. The increase in net operating assets principally
results from payments of accrued expenses and other current liabilities since
October 31, 2007.
Net cash provided by operating activities increased to $9.8 million for the
first three months of fiscal 2008 from $3.1 million for the first three months
of fiscal 2007 principally due to higher income before minority interests and
the timing of receivable collections, partially offset by the payment of the
aforementioned accrued expenses and other current liabilities.
Investing Activities
Net cash used in investing activities during the first three months of
fiscal 2008 related primarily to acquisitions and related costs of $12.2 million
and capital expenditures totaling $2.8 million. Acquisitions and related costs
principally reflect the payment of $7.0 million of additional purchase
consideration related to a subsidiary previously acquired, which was accrued as
of October 31, 2007 based on the subsidiary's earnings relative to target and
two fiscal 2008
21
acquisitions. Further details on the fiscal 2008 acquisitions may be found in
Note 2, Acquisitions, of the Notes to Condensed Consolidated Financial
Statements.
Financing Activities
Net cash provided by financing activities during the first three months of
fiscal 2008 primarily related to borrowings of $22.0 million on the Company's
revolving credit facility principally used to fund the aforementioned additional
purchase consideration and fiscal 2008 acquisitions, the presentation of $4.4
million of excess tax benefit from stock option exercises as a financing
activity and proceeds from stock option exercises of $.8 million, partially
offset by repayments of $11.0 million on the Company's revolving credit
facility, distributions to minority interest owners of $2.0 million, and the
payment of $1.3 million in cash dividends on the Company's common stock.
Contractual Obligations
There have not been any material changes to the amounts presented in table
of contractual obligations that was included in the Company's Annual Report on
Form 10-K for the year ended October 31, 2007.
As discussed in "New Accounting Pronouncements" below and Note 6, Income
Taxes, of the Notes to Condensed Consolidated Financial Statements, the Company
adopted the provisions of FIN 48 during the first quarter of fiscal 2008. As of
January 31, 2008, the Company's liability for unrecognized tax benefits was
$7,388,000. At this time, it is uncertain if or when such amount may be settled
with taxing authorities.
As discussed in "Off-Balance Sheet Arrangements" below, the Company may be
obligated to pay additional contingent purchase consideration based on future
earnings of certain acquired businesses. The maximum amount of such contingent
consideration that the Company could be required to pay aggregates approximates
$113 million payable over the future periods beginning in fiscal 2009 through
fiscal 2013.
Off-Balance Sheet Arrangements
The Company has arranged for standby letters of credit aggregating $1.4
million to meet the security requirement of its insurance company for potential
workers' compensation claims, which are supported by the Company's revolving
credit facility. In addition, the Company's industrial development revenue bonds
are secured by a $2.0 million letter of credit expiring April 2008 and a
mortgage on the related properties pledged as collateral.
Pursuant to the agreement related to the acquisition of a 90% interest in a
subsidiary by the FSG in fiscal 2001, the Company has the right to purchase the
remaining 10% of the equity interests in fiscal 2011, or sooner under certain
conditions, and the minority holder has the right to cause the Company to
purchase the same equity interest in the same period.
As part of the agreement to acquire an 80% interest in a subsidiary by the
ETG in fiscal 2004, the Company has the right to purchase the minority interests
beginning at approximately the tenth anniversary of the acquisition, or sooner
under certain conditions, and the minority holders have the right to cause the
Company to purchase their interests commencing on approximately the fifth
anniversary of the acquisition, or sooner under certain conditions.
22
As part of the agreement to acquire an 85% interest in a subsidiary by the
ETG in fiscal 2005, the minority holders have the right to cause the Company to
purchase their interests over a four-year period starting around the second
anniversary of the acquisition, or sooner under certain conditions. In fiscal
2007, some of the minority interest holders exercised their option to cause the
Company to purchase their aggregate 3% interest over the four-year period ending
in fiscal 2010. Accordingly, the Company increased its ownership interest in the
subsidiary by .75% during fiscal 2007 and will increase its ownership interest
by an additional .75% (or from 85.75% to 86.50%) effective the second quarter of
fiscal 2008. The purchase price of this additional minority interest is not
significant.
As part of the agreement to acquire a 51% interest in a subsidiary by the
FSG in fiscal 2006, the Company has the right to purchase 28% of the equity
interests of the subsidiary over a four-year period beginning approximately
after the second anniversary of the acquisition, or sooner under certain
conditions, and the minority holders have the right to cause the Company to
purchase the same equity interest over the same period. Further, the Company has
the right to purchase the remaining 21% of the equity interests of the
subsidiary over a three-year period beginning approximately after the fourth
anniversary of the acquisition, or sooner under certain conditions, and the
minority holders have the right to cause the Company to purchase the same equity
interest over the same period. During the first quarter of fiscal 2008, the
minority interest holders exercised their option to cause the Company to
purchase their aggregate 28% interest over the four-year period beginning in the
second quarter of fiscal 2008. Accordingly, the Company will increase its
ownership interest in the subsidiary by 7% (or one-fourth of such minority
interest holders' aggregate interest) to 58% effective in the second quarter of
fiscal 2008. The purchase price of this additional minority interest is $4.1
million.
As part of the agreement to acquire an 80% interest in a subsidiary by the
FSG in fiscal 2006, the Company has the right to purchase the minority interests
beginning at approximately the eighth anniversary of the acquisition, or sooner
under certain conditions, and the minority interest holders have the right to
cause the Company to purchase the same equity interest over the same period.
The above referenced rights of the minority interest holders to cause the
Company to purchase their equity interests ("Put Rights") may be exercised on
varying dates beginning in fiscal 2008 through fiscal 2017. The Put Rights, all
of which relate either to common shares or membership interests in limited
liability companies, provide that the cash consideration to be paid for the
minority interests ("Redemption Amount") be at a formula that management
intended to reasonably approximate fair value, as defined in the applicable
agreements based on a multiple of future earnings over a measurement period.
Assuming the subsidiaries perform over the future measurement periods at the
same earnings levels they performed in the comparable historical measurement
periods and assuming all Put Rights are exercised, the aggregate Redemption
Amount that the Company would be required to pay is approximately $49 million.
The actual Redemption Amount will likely be different. Upon exercise of any Put
Right, the Company's ownership interest in the subsidiary would increase and
minority interest expense would decrease. The Put Rights are embedded in the
shares owned by the minority interest holders and are not freestanding.
Consistent with Accounting Research Bulletin No. 51., "Consolidated Financial
Statements," minority interests have been recorded on the Company's consolidated
balance sheets at historical cost plus an allocation of subsidiary earnings
based on ownership interests, less dividends paid to the minority interest
holders. As described in Note 1, in December 2007, the FASB issued SFAS No. 160
that will change the current accounting and financial reporting for
non-controlling (minority) interests. SFAS No. 160 will be effective for fiscal
years beginning after December 15, 2008. The Company will adopt SFAS No. 160 on
November 1, 2009. SFAS No. 160 will require that non-controlling (minority)
interests be reported in the consolidated statement of financial position within
equity. It also will require that any increases, or decreases in ownership
interests in a subsidiary that do not result in a loss of control be accounted
for as equity transactions and as a result any difference between the amount by
which the non-controlling (minority) interest is adjusted and the fair value of
the consideration paid or received, if any, would be recognized directly in
equity attributable to the controlling interest. The Company is not yet in a
position to assess the full impact and related disclosure of adopting SFAS No.
160 on its minority interest liabilities and related Put Rights.
As part of the agreement to purchase a subsidiary by the ETG in fiscal 2005,
the Company may be obligated to pay additional purchase consideration currently
estimated to total up to $2.3
23
million should the subsidiary meet certain product line-related earnings
objectives during the fourth and fifth years following the acquisition. The
additional purchase consideration will be accrued when the earnings objectives
are met.
As part of the agreement to acquire a subsidiary by the ETG in fiscal 2006,
the Company may be obligated to pay additional purchase consideration up to
$17.8 million and $19.2 million, respectively, based on the subsidiary's fiscal
2008 and 2009 respective earnings relative to target. The additional purchase
consideration will be accrued when the earnings objectives are met and will be
paid in the following fiscal year.
As part of the agreement to acquire a subsidiary by the ETG in fiscal 2007,
the Company may be obligated to pay additional purchase consideration up to
$73.0 million in aggregate should the subsidiary meet certain earnings
objectives during the first five years following the acquisition. The
additional purchase consideration will be accrued when the earnings objectives
are met.
As part of the agreement to acquire a subsidiary by the FSG in fiscal 2008,
the Company may be obligated to pay additional consideration of up to
approximately $.5 million in aggregate during the first three years following
the acquisition should the subsidiary meet certain earnings objectives.
New Accounting Pronouncements
Effective November 1, 2007, the Company adopted Financial Accounting
Standards Board ("FASB") Interpretation No. 48 ("FIN 48"), "Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109," and
began evaluating tax positions utilizing a two-step process. The first step is
to determine whether it is more-likely-than-not that a tax position will be
sustained upon examination based on the technical merits of the position. The
second step is to measure the benefit to be recorded from tax positions that
meet the more-likely-than-not recognition threshold by determining the largest
amount of tax benefit that is greater than 50 percent likely of being realized
upon ultimate settlement and recognizing that amount in the financial
statements.
As a result of adopting the provisions of FIN 48, the Company recognized a
cumulative effect adjustment that decreased retained earnings as of the
beginning of fiscal 2008 by $639,000. Further, effective with the adoption of
FIN 48, the Company's policy is to recognize interest and penalties related to
income tax matters as a component of income tax expense. Interest and penalties,
which were not significant in fiscal 2007, were previously recorded in interest
expense and in selling, general, and administrative expenses, respectively, in
the Company's consolidated statements of operations.
Further information regarding income taxes can be found in Note 6, Income
Taxes, of the Notes to Condensed Consolidated Financial Statements.
In September 2006, the FASB issued Statement of Financial Accounting
Standards ("SFAS") SFAS No. 157, "Fair Value Measurements," which provides
enhanced guidance for using fair value to measure assets and liabilities. SFAS
No. 157 provides a common definition of fair value
24
and establishes a framework to make the measurement of fair value in accordance
with generally accepted accounting principles more consistent and comparable.
SFAS No. 157 also requires expanded disclosures to provide information about the
extent to which fair value is used to measure assets and liabilities, the
methods and assumptions used to measure fair value, and the effect of fair value
measures on earnings. SFAS No. 157 is effective for fiscal years beginning after
November 15, 2007, or in fiscal 2009 for HEICO. The Company is currently in the
process of evaluating the effect, if any, the adoption of SFAS No. 157 will have
on its results of operations, financial position, and cash flows.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities - Including an Amendment of FASB
Statement No. 115." SFAS No. 159 permits entities to choose to measure certain
financial assets and liabilities at fair value and report unrealized gains and
losses on items for which the fair value option has been elected in earnings.
SFAS No. 159 is effective for fiscal years beginning after November 15, 2007, or
in fiscal 2009 for HEICO. The Company has not yet determined if it will elect to
apply any of the provisions of SFAS No. 159 and is currently evaluating the
effect, if any, the adoption of SFAS No. 159 will have on its results of
operations, financial position, and cash flows.
In December 2007, the FASB issued SFAS No. 141(R), "Business Combinations."
SFAS No. 141(R) establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, the goodwill acquired, and any noncontrolling
interest in the acquiree. This Statement also establishes disclosure
requirements to enable the evaluation of the nature and financial effect of the
business combination. SFAS No. 141(R) is effective for fiscal years beginning
after December 15, 2008, or in fiscal 2010 for HEICO. The Company is in the
process of evaluating the effect that the adoption of SFAS No. 141(R) will have
on its results of operations, financial position, and cash flows.
In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements an amendment of ARB No. 51." SFAS No. 160
establishes accounting and reporting standards pertaining to ownership interests
in subsidiaries held by parties other than the parent, the amount of net income
attributable to the parent and to the noncontrolling interest, changes in a
parent's ownership interest, and the valuation of any retained noncontrolling
equity investment when a subsidiary is deconsolidated. This Statement also
establishes disclosure requirements that clearly identify and distinguish
between the interests of the parent and the interests of the noncontrolling
owners. SFAS No. 160 is effective for fiscal years beginning on or after
December 15, 2008, or in fiscal 2010 for HEICO. The Company is in the process of
evaluating the effect that the adoption of SFAS No. 160 will have on its results
of operations, financial position, and cash flows.
Forward-Looking Statements
Certain statements in this Report constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. All
statements contained herein that are not clearly historical in nature may be
forward-looking and the words "believe," "expect," "estimate" and similar
expressions are generally intended to identify forward looking statements.
25
Any forward-looking statements contained herein, in press releases, written
statements or other documents filed with the Securities and Exchange Commission
or in communications and discussions with investors and analysts in the normal
course of business through meetings, phone calls, and conference calls,
concerning our operations, economic performance, and financial condition are
subject to known and unknown risks, uncertainties, and contingencies. We have
based these forward-looking statements on our current expectations and
projections about future events. All forward-looking statements involve risks
and uncertainties, many of which are beyond our control, which may cause actual
results, performance, or achievements to differ materially from anticipated
results, performance, or achievements. Also, forward-looking statements are
based upon management's estimates of fair values and of future costs, using
currently available information. Therefore, actual results may differ materially
from those expressed in or implied by those statements. Factors that could cause
such differences, but are not limited to: lower demand for commercial air travel
or airline fleet changes, which could cause lower demand for our goods and
services; product specification costs and requirements, which could cause an
increase to our costs to complete contracts; governmental and regulatory
demands, export policies and restrictions, reductions in defense, space or
homeland security spending by U.S. and/or foreign customers, or competition from
existing and new competitors, which could reduce our sales; HEICO's ability to
introduce new products and product pricing levels, which could reduce our sales
or sales growth; HEICO's ability to make acquisitions and achieve operating
synergies from acquired businesses, customer credit risk, interest rates, and
economic conditions within and outside of the aviation, defense, space, and
electronics industries, which could negatively impact our costs and revenues;
and HEICO's ability to maintain effective internal controls, which could
adversely affect our business and the market price of our common stock. We
undertake no obligation to publicly update or revise any forward-looking
statement, whether as a result of new information, future events, or otherwise.
26
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Substantially all of the Company's borrowings bear interest at floating
interest rates. Based on the Company's aggregate outstanding variable rate debt
balance as of January 31, 2008, a hypothetical 10% increase in interest rates
would increase the Company's interest expense by approximately $312,000 on an
annual basis.
The Company is also exposed to foreign currency exchange rate fluctuations
on the United States dollar value of its foreign currency denominated
transactions, which are principally in Canadian dollar and British pound
sterling. A hypothetical 10% weakening in the exchange rate of the Canadian
dollar or British pound sterling to the United States dollar as of January 31,
2008 would not have a material effect on the Company's results of operations,
financial position, or cash flows.
27
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company's Chief Executive Officer and its Chief Financial Officer
conducted an evaluation of the effectiveness of the Company's disclosure
controls and procedures as of the end of the period covered by this quarterly
report. Based upon that evaluation, the Company's Chief Executive Officer and
its Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective as of the end of the period covered by this quarterly
report.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company's internal control over financial
reporting identified in connection with the evaluation referred to above that
occurred during the Company's most recent fiscal quarter that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
28
PART II. OTHER INFORMATION
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The Company did not incur any unregistered sales of its equity securities or
repurchase any of its equity securities during the first three months of fiscal
2008.
Item 6. EXHIBITS
Exhibit Description
------- -----------
10.1 HEICO Savings and Investment Plan, as amended and restated
effective January 1, 2007. *
31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive
Officer. *
31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial
Officer. *
32.1 Section 1350 Certification of Chief Executive Officer. **
32.2 Section 1350 Certification of Chief Financial Officer. **
* Filed herewith.
** Furnished herewith.
29
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HEICO CORPORATION
Date: March 10, 2008 By: /s/ THOMAS S. IRWIN
-------------------------------
Thomas S. Irwin
Executive Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
30
EXHIBIT INDEX
Exhibit Description
- ------- -----------
10.1 HEICO Savings and Investment Plan, as amended and restated effective
January 1, 2007.
31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
32.1 Section 1350 Certification of Chief Executive Officer.
32.2 Section 1350 Certification of Chief Financial Officer.
Exhibit 10.1
HEICO SAVINGS AND INVESTMENT PLAN
TABLE OF CONTENTS
-----------------
PAGE
----
Article 1 INTRODUCTION .................................................................. 1
Article 2 DEFINITIONS.................................................................... 1
Article 3 ELIGIBILITY AND PARTICIPATION ................................................. 9
3.01 Participation in the Plan. .................................................. 9
3.02 Rollover Contributions.......................................................10
3.03 Acquisitions ................................................................10
Article 4 CONTRIBUTIONS .................................................................10
4.01 Elective Deferral Contributions..............................................10
4.02 Elections Regarding Elective Deferral Contributions. ........................12
4.03 Catch-Up Contributions. .....................................................12
4.04 Employer Contributions. .....................................................13
4.05 After-Tax Contributions......................................................14
4.06 Rollover Contributions.......................................................14
4.07 Form and Timing of Contributions. ...........................................14
4.08 Nondeductible Contributions and Contributions Made by Mistake of Fact .......14
4.09 Forfeitures. ................................................................15
4.10 Investment Funds ............................................................15
4.11 Investment of Contributions..................................................15
Article 5 MAXIMUM BENEFITS ..............................................................16
5.01 Limitation on Annual Additions...............................................16
5.02 Increase in Limitations on Annual Additions .................................18
Article 6 ACCOUNTS AND ALLOCATIONS.......................................................18
6.01 Participant Accounts.........................................................18
6.02 Value of Account as of Valuation Date........................................19
6.03 Allocation of Adjustments....................................................19
Article 7 SPECIAL DISCRIMINATION RULES...................................................20
7.01 Average Actual Deferral Percentage Limitation................................20
7.02 Average Actual Contribution Percentage Limitation............................24
Article 8 VESTING .......................................................................28
8.01 Vested Percentage of Accounts................................................28
8.02 Amount Subject to Distribution Upon Termination of Employment................28
8.03 Forfeitures. ................................................................28
Article 9 IN-SERVICE WITHDRAWALS.........................................................30
9.01 Hardship Withdrawals.........................................................30
9.02 Suspension of Contributions Due to Hardship Withdrawal.......................31
Article 10 PAYMENTS TO PARTICIPANTS AND THEIR BENEFICIARIES..............................32
10.01 Definitions..................................................................32
10.02 Commencement of Distribution ................................................32
10.03 Forms of Payments............................................................33
10.04 Prior Employer Accounts. ....................................................33
10.05 Valuation Upon Distribution .................................................34
i
10.06 Payments When a Loan is Outstanding..........................................34
10.07 Minimum Distribution Requirements............................................34
10.08 Qualified Domestic Relations Orders..........................................38
10.09 Payment to Minors and Incapacitated Persons..................................38
10.10 Notices to Participants......................................................39
10.11 Eligible Rollover Distributions. ............................................39
10.12 Age 59 1/2 Withdrawals.......................................................40
Article 11 LOANS ........................................................................40
11.01 Availability of Loans........................................................40
11.02 Amount of Loans..............................................................40
11.03 Conditions of the Loan.......................................................40
11.04 Loan Policy .................................................................41
Article 12 LEVERAGED EMPLOYEE STOCK OWNERSHIP PLAN PROVISIONS............................41
12.01 Effect of Article............................................................41
12.02 Definitions..................................................................41
12.03 Purpose and Nature of the Leveraged ESOP. ...................................42
12.04 Requirements as to Exempt Loans .............................................42
12.05 Use of Exempt Loan Proceeds. ................................................44
12.06 Allocations and Accounting. .................................................44
12.07 Use of Cash Dividends on Common Stock. ......................................45
12.08 Pass-Through of Dividends on Company Stock...................................46
12.09 Common Stock Cash Dividends..................................................46
12.10 Diversification Election.....................................................47
12.11 Voting and Tendering of Company Stock........................................48
Article 13 TOP-HEAVY PROVISIONS .........................................................48
13.01 Top-Heavy....................................................................48
13.02 Modification of Top-Heavy Rules .............................................50
Article 14 PLAN ADMINISTRATION...........................................................52
14.01 Committee....................................................................52
14.02 Powers of the Committee......................................................52
14.03 Indemnification of Members of the Committee .................................53
14.04 Liabilities for which Members of the Committee are Indemnified ..............53
14.05 Company's Right to Settle Claims ............................................53
14.06 Fiduciary Liability Insurance ...............................................53
14.07 Designation of Members of the Committee as Named Fiduciaries.................53
14.08 Procedures for Allocating or Delegating Fiduciary Responsibilities ..........53
14.09 Filing of Claim..............................................................54
14.10 Time for Initial Decision....................................................54
14.11 Notice of Denial.............................................................54
14.12 Manner of Reconsideration ...................................................54
14.13 Time for Reconsideration.....................................................54
14.14 Notice of Adverse Decision on Reconsideration................................54
14.15 Expenses of the Committee....................................................54
14.16 Conduct of Committee Business................................................55
14.17 Agent for Service of Process.................................................55
ii
Article 15 AMENDMENT AND TERMINATION.....................................................55
15.01 Right to Amend...............................................................55
15.02 Termination and Discontinuance of Contributions..............................55
15.03 Supplements..................................................................56
15.04 Merger of the Plan...........................................................56
Article 16 PARTICIPATING EMPLOYERS.......................................................56
16.01 Participation by Participating Employers.....................................56
16.02 Withdrawal of Participating Employers .......................................56
16.03 Requirements of Participating Employers......................................57
16.04 Transfers Between Participating Employers ...................................57
16.05 Participating Employer Contributions.........................................57
Article 17 MISCELLANEOUS ................................................................57
17.01 Laws of Florida to Apply ....................................................57
17.02 Protected Benefits ..........................................................57
17.03 Credit for Qualified Military Service .......................................58
17.04 No Rights under the Plan except as Set Forth Herein .........................58
17.05 Undefined Terms..............................................................58
17.06 Number and Gender ...........................................................58
APPENDIX A PARTICIPATING EMPLOYERS IN THE HEICO SAVINGS AND INVESTMENT PLAN .......59
APPENDIX B PRIOR EMPLOYER ACCOUNTS.................................................60
APPENDIX C SPECIAL RULES FOR PARTICIPANTS WITH PRIOR EMPLOYER ACCOUNTS.............61
iii
HEICO SAVINGS AND INVESTMENT PLAN
ARTICLE 1
INTRODUCTION
------------
HEICO Corporation ("HEICO") adopted the HEICO Savings and Investment Plan (the
"Plan") effective January 1, 1985 for the benefit of employees of HEICO and
participating affiliated companies. The Plan is hereby amended and restated in
its entirety effective January 1, 2007 (except for those sections of the Plan
that have an alternate effective date).
The Plan is intended to be an employee stock ownership plan within the meaning
of Code Section 4975(e)(7) which is designed to invest primarily in Common Stock
and a stock bonus plan within the meaning of Treasury Regulation Section
1.401-1(b)(1)(iii) that is qualified under Code Section 401(a). The purposes of
the Plan are (i) to encourage Employee savings by establishing a formal plan
under which Employee contributions are supplemented by Employer contributions to
create a flexible and competitive total compensation program for Employees, and
(ii) to allow Employees the option to defer a portion of their compensation on a
pre-tax basis.
ARTICLE 2
DEFINITIONS
-----------
The following terms when used herein shall have the designated meaning
unless a different meaning is plainly required by the context in which the term
is used:
2.01 "Accounts" shall mean the Account established and maintained by the
Committee or Trustee for each Participant or his Beneficiary to which shall be
allocated each Participant's interest in the Trust, and all dividends, income,
gains and losses attributable thereto. Each Account shall be comprised of the
sub-accounts described in Section 6.01.
2.02 "Actual Deferral Percentage" shall mean the ratio, expressed as a
percentage, of Elective Deferral Contributions on behalf of a Participant for
the Plan Year to the Participant's Compensation for the Plan Year. The Actual
Deferral Percentage of each Participant shall be rounded to the nearest 100th of
1% of such Participant's Compensation. The Actual Deferral Percentage of a
Participant who makes no Elective Deferral Contributions during a Plan Year is
zero.
2.03 "Adjustment" shall mean, for a Valuation Date, the aggregate
earnings, realized or unrealized appreciation, losses, expenses, and realized or
unrealized depreciation of the Investment Fund since the immediately preceding
Valuation Date.
2.04 "Affiliate" shall mean the Company and any corporation which is a
member of a controlled group of corporations (as defined in Code Section 414(b))
which includes the Company; any trade or business (whether or not incorporated)
which is under common control (as defined in Code Section 414(c)) with the
Company; any organization (whether or not incorporated) which is a member of an
affiliated service group (as defined in Code Section 414(m)) which includes the
Company; and any other entity required to be aggregated with the Company
pursuant to regulations under Code Section 414(o).
1
2.05 "Authorized Leave of Absence" shall mean that period during which
the Participant is absent without Compensation and for which the Committee, in
its sole discretion, has determined him to be on a "Leave of Absence" instead of
having terminated his Employment. However, such discretion of the Committee
shall be exercised in a nondiscriminatory manner. In all events, a Leave of
Absence by reason of service in the armed forces of the United States shall end
no later than the time at which a Participant's re-employment rights as a member
of the armed forces cease to be protected by law; and a Leave of Absence for any
other reason shall end after six (6) months, except that if the Participant
resumes employment with the Employer prior thereto, the Leave of Absence shall
end on such date of resumption of employment. The date that the Leave of Absence
ends shall be deemed the Termination Date if the Participant does not resume
employment with the Employer. In determining a Year of Service for Accrual of
Benefits, all such Leaves of Absence shall be considered periods when the
Employee is a Participant.
2.06 "Average Actual Deferral Percentage" shall mean the average,
expressed as a percentage, of the Actual Deferral Percentages of the
Participants. The Average Actual Deferral Percentage of the Participants shall
be rounded to the nearest 100th of 1%. If two or more plans maintained by the
Employer or its Affiliates are treated as one plan for purposes of the
nondiscrimination requirements of Code Section 401(a)(4) or the coverage
requirements of Code Section 410(b) (other than for purposes of the average
benefits test), all Elective Deferral Contributions that are made pursuant to
those plans shall be treated as having been made pursuant to one plan.
2.07 "Actual Contribution Percentage" shall mean the ratio, expressed as a
percentage, of the sum of the after-tax contributions and Employer Contributions
under the Plan on behalf of a Participant for the Plan Year to the Participant's
Compensation for the Plan Year. The Actual Contribution Percentage of each
Participant shall be rounded to the nearest 100th of such Participant's
Compensation.
2.08 "Average Actual Contribution Percentage" shall mean the average,
expressed as percentage, of the Contribution Percentages of the Participants.
The Average Actual Contribution Percentage of the Participants shall be rounded
to the nearest 100th of 1%. If two or more plans maintained by the Employer or
its Affiliates are treated as one plan for purposes of the nondiscrimination
requirements of Code Section 401(a)(4) or the coverage requirements of Code
Section 410(b) (other than for purposes of the average benefits test), all
Employer Matching Contributions that are made pursuant to those plans shall be
treated as having been made pursuant to one plan.
2.09 "Beneficiary" shall mean any person, including a contingent
beneficiary or beneficiaries, designated by a Participant to receive benefits
payable in the event of the death of a Participant; except that the Beneficiary
of a Participant who is married shall be the Participant's spouse, unless such
spouse consents in writing to the Participant's designation of a Beneficiary
other than such spouse. Such written consent must be on a form acceptable to the
Committee, delivered to the Committee, signed by the consenting spouse and
notarized. Such consent shall not be required if it is established to the
satisfaction of the Committee that there is no spouse or the spouse cannot be
located. If no Beneficiary is designated or a designation is revoked, or if a
designated Beneficiary shall not survive to receive payments due hereunder, all
or a part of the Participant's Accounts which have not been distributed shall be
payable to the surviving spouse of the Participant or, if there is not such
surviving spouse, to the Participant's estate. The foregoing provisions shall
not preclude the designation of the Beneficiary's estate or other conditional
Beneficiaries in the event the first
2
designated Beneficiary does not survive to receive full payment. A Participant
may change his Beneficiary at any time by similar written designation. Any
designation of a Beneficiary shall take effect upon receipt of written notice to
the Committee.
2.10 "Board" shall mean the Board of Directors of HEICO Corporation.
2.11 "Code" shall mean the Internal Revenue Code of 1986, as it may be
amended from time to time. A reference to a specific provision of the Code shall
include such provision and any applicable Treasury Regulation pertaining
thereto.
2.12 "Committee" shall mean the Committee appointed by the Board of
Directors under Article 14 to administer the Plan.
2.13 "Common Stock" shall mean HEICO Corporation Common Stock that meets
the requirements of Code Section 409(l).
2.14 "Company" shall mean HEICO Corporation or any successor to the HEICO
Corporation by merger, consolidation, or purchase of substantially all of its
assets.
2.15 "Compensation" shall mean the total base salary or wages, including
overtime pay, paid by an Employer to an Employee during the Plan Year under
consideration, excluding commissions, bonuses, incentive compensation, any
amount paid in lieu of vacation days and all other items of extraordinary
compensation reportable as taxable wages. Compensation also includes any
elective deferrals under a cash-or-deferred arrangement or cafeteria plan that
are not includible in gross income by reason of Code Section 125 or 402(e)(3),
but does not include any other amounts contributed pursuant to, or received
under, this Plan or any other defined contribution plan. Notwithstanding the
foregoing, no amount may be taken into account as Compensation to the extent
that it exceeds the maximum amount permitted by Code Section 401(a)(17).
Notwithstanding the above, Compensation shall include any amount which is
contributed by an Employer pursuant to a salary reduction agreement and which is
not includible in the gross income of the Employee under Code Sections 125,
132(f), 402(e), 402(h) or 403(b).
Notwithstanding the above, the annual Compensation of each participant taken
into account in determining allocations for any Plan Year beginning after
December 31, 2006, shall not exceed $225,000, as adjusted for cost-of-living
increases in accordance with Code Section 401(a)(17)(B). Annual Compensation
means Compensation during the plan year or such other consecutive 12-month
period over which compensation is otherwise determined under the plan (the
determination period). The cost-of-living adjustment in effect for a calendar
year applies to annual compensation for the determination period that begins
with or within such calendar year.
Notwithstanding the above, Compensation for purposes of Section 2.02,
Section 2.07, Article 4 and Article 7 for the Plan Year in which an Employee
first becomes a Participant shall be determined based on the Employee's
Compensation for the portion of the Plan Year in which the Employee is eligible
to participate in the Plan. Notwithstanding the preceding sentence,
Compensation for purposes of Section 5.01 and Section 5.02 (Limit on Annual
Additions) shall be based on the amount actually paid or made available to the
Participant during the Plan Year.
3
2.16 "Early Retirement Date" shall mean the later of (a) an Employee's
55th birthday or (b) the date on which he completes 10 Years of Service.
2.17 "Elective Deferral Contribution" shall mean any Employer
contributions made to the Plan at the election of the Participant, in lieu of
cash compensation, and shall include contributions made pursuant to a salary
reduction agreement or other deferral mechanism. Elective Deferral Contributions
shall be in whole percentages only. Elective Deferral Contributions shall not
include any amount properly distributed as excess annual additions.
2.18 "Elective Deferral Contribution Account" shall mean the portion of a
Participant's Account attributable to Elective Deferral Contributions, and the
total of the Adjustments that have been credited to or deducted from a
Participant's Account with respect to Elective Deferral Contributions.
2.19 "Eligible Employee" shall mean, except for those Employees identified
in the following sentence, all Employees employed by an Employer. The following
Employees shall not be considered Eligible Employees:
(a) Any Employee included in a collective bargaining unit for which
a labor organization is recognized as collective bargaining
agent unless such Employee has been designated by the Committee
as an "Eligible Employee" for the purposes of this Plan;
(b) Any Employee who is employed by an Affiliate that is not an
Participating Employer;
(c) Any Employee who is a nonresident alien and who does not receive
earned income form the Employer that constitutes income from
sources within the United States; or
(d) Employees who are, according to the Employer's records,
characterized as temporary, seasonal or occasional employees
shall not be Eligible Employees.
2.20 "Employee" shall mean any person employed by an Employer, including a
leased employee within the meaning of Code Section 414(n) and an individual who
is treated as an employee pursuant to regulations issued under Code Section
414(o). An "Employee" also includes any person who would be an Employee but who
is on an Authorized Leave of Absence.
2.21 "Employer" shall mean the Company and any Affiliate that has been
approved by the Board to participate in the Plan and which shall have taken all
action deemed necessary by the Board to participate. All references in the Plan
to the term "Participating Employer" shall mean the Employer and vice versa. All
Employers, groups of employees designated as participating in the Plan by such
Employers (if not all employees), and the effective date of a company's
designation as an Employer shall be specified in Appendix A.
2.22 "Employer Contributions" shall mean Employer Matching Contributions
and Equity Builder Contributions. All references in the Plan to "Employer
Account(s)" shall mean the Account(s) to which Employer Contributions are
allocated thereto.
4
2.23 "Employer Matching Contributions" shall have the meaning as defined
in Section 4.04(a).
2.24 "Employer Matching Contributions Account" shall mean the portion of a
Participant's Account attributable to Employer Matching Contributions, and the
total of the Adjustments that have been credited to or deducted from a
Participant's Account with respect to Employer Matching Contributions.
2.25 "Employment" shall mean the active service of an Employee with the
Employer or an Affiliate.
2.26 "Entry Date" shall mean the January 1 and July 1 of the Plan Year.
2.27 "ERISA" shall mean Public Law 93-406, the Employee Retirement Income
Security Act of 1974, as it may be amended from time to time.
2.28 "Equity Builder Contributions" shall mean contributions that are made
by an Employer on behalf of a Participant that is designated as an Equity
Builder Contribution, pursuant to Section 4.04(b), and is not take into account
under the tests described in Article 7.
2.29 "Equity Builder Contributions Account" shall mean the portion of a
Participant's Account attributable to Equity Builder Contributions, and the
total of the Adjustment that have been credited to or deducted from a
Participant's Account with respect to such Equity Builder Contributions.
2.30 "Excess Aggregate Contributions" shall mean the amount described in
Section 7.02(e).
2.31 "Excess Contributions" shall mean the amount described in Section
7.01(e).
2.32 "Excess Deferral Amount" shall mean the amount described in Section
4.01(d).
2.33 "Highly Compensated Employee" shall mean:
(a) Any Employee who (1) was a five (5) percent owner at any time
during the Plan Year or the preceding Plan Year, or (2) for the
preceding Plan Year received compensation in excess of $100,000
for any Plan Year beginning after December 31, 2006 (adjusted
at the same time and in the same manner as under Code Section
415(d)).
(b) A former Employer if the former Employee separated from service
from an Employer and all Affiliates (or is deemed to have
separated from service from the Employer and all Affiliates)
prior to the determination year, performed no services for an
Employer during the determination year, and was a highly
compensated active employee during the separation year or any
determination year ending on or after the date the Employee
attains age 55.
(c) The determination of who is a Highly Compensated Employee
hereunder, including the determination as to the number and
identity of employees in the top paid group, and the
compensation considered shall be made in accordance
5
with the provisions of Code Section 414(q) and the regulations
issued thereunder.
(d) For purposes of this Section 2.33, the following terms shall
have the following meanings:
(1) Compensation shall mean all compensation within the
meaning of Code Section 414(s), including elective
amounts that are not includible in the gross income of
the Employee under Code Section 125, 132(f)(4),
402(e)(3), 402(h), or 403(b).
(2) 5 Percent Owner shall mean any Employee who owns or is
deemed to own (within the meaning of Code Section 318),
more than five percent (5%) of the value of outstanding
stock of the Employer or stock possessing more than five
percent (5%) of the total combined voting power of the
Employer.
2.34 "Hour of Service" shall mean:
(a) Each hour for which an Employee is paid, or entitled to
payment, for performance of duties for performance of duties
for an Employer or Employers.
(b) Each hour for which an Employee is paid, or entitled to
payment, by an Employer or Employers, on account of a period of
time during which no duties are performed (irrespective of
whether the employment relationship is terminated) due to
vacation, holiday, illness, incapacity, layoff, jury duty,
military duty, or leave of absence; provided that in no event,
shall an Employee receive credit for more than 501 Hours of
Service for any single continuous period of non-working time.
(c) Each hour for which an Employee is absent from work by reason
of (1) the pregnancy of the Employee, (2) the birth of a child
of the Employee, (3) the placement of a child with the Employee
in connection with the adoption of the child by the Employee,
or (4) the caring for a child referred to in Sections (1)
through (3) immediately following birth or placement. Hours
credited under this Section shall be credited at the rate of
eight (8) hours per day, but shall not, in the aggregate,
exceed the number of hours required to prevent the Employee
from incurring a One-Year Break in Service (a maximum of 501
hours) during the first computation period in which a One-Year
Break in Service would otherwise occur; provided, however, that
this rule shall apply only during the Plan Year in which the
absence from work begins and the immediately following Plan
Year.
(d) Each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by an Employer or
Employers. These hours shall be credited to the Employee for the
computation period or period to which the award or agreement
pertains, rather than the computation period in which the award,
agreement, or payment is made.
6
(e) In lieu of the foregoing, an Employee who is not compensated on
an hourly basis (such as salary and commission employees) shall
be credited with 40 Hours of Service for each week (or 8 Hours
of Service for each day) in which such Employee would be
credited with Hours of Service in hourly pay. However, this
method of computing Hours of Service may not be used for any
Employee whose Hours of Service is required to be counted and
recorded by an federal law, such as the Fair Labor Standards
act. Any such method must yield an equivalency of at least
1,000 hours per computation.
(f) The following rules shall apply in determining whether an
Employee completes an "Hour of Service:
(1) The same hours shall not be credited under Sections (a)
or (b) above, as the case may be, and Sections (c) above.
(2) The rules relating to determining hours of service for
reasons other than the performance of duties and for
crediting hours of service to particular periods of
employment shall be those rules stated in Department of
Labor regulations Title 29, Chapter XXV, subchapter C,
part 2530, Sections 200b-2(b) and 200(b)-2(c),
respectively.
2.35 "Investment Fund" shall mean the separate funds under the Trust Fund
that are distinguished by their investment objectives.
2.36 "Investment Manager" shall mean the term "Investment Manager" as
defined in Section 3(38) of ERISA.
2.37 "Non-Highly Compensated Employee" shall mean an Employee of the
Employer who is not a Highly Compensated Employee.
2.38 "Normal Retirement Age" shall mean the date a Participant attains age
sixty-five (65).
2.39 "One Year Break in Service" shall mean, with respect to any Employee
or Participant, any Computation Period during which he is not credited with 500
Hours of Service.
2.40 "Participant" shall mean an Employee who becomes eligible to
participate in the Plan as provided in Article 3. Notwithstanding the foregoing,
for purposes of Article 7, a Participant shall mean any Eligible Employee who
(a) is eligible to receive an allocation of an Employer Matching Contribution,
even if no Employer Matching Contribution is allocated due to the Eligible
Employee's failure to make a required Elective Deferral Contribution, (b) is
eligible to make an Elective Deferral Contribution, including an Eligible
Employee whose right to make Elective Deferral Contributions has been suspended
because of an election not to participate or a hardship distribution, and (c) is
unable to receive an Employer Matching Contribution or make an Elective Deferral
Contribution because his Compensation is less than a stated amount.
2.41 "PAYSOP Account" shall mean the portion of a Participant's Account
attributable to contributions formerly made to the Plan under the provisions of
the Code relating to PAYSOP plans. Effective January 1, 2002, the PAYSOP
Account merged with and into the Equity Builder Account.
7
2.42 "Plan" shall mean the HEICO Savings and Investment Plan.
2.43 "Plan Year" shall mean the calendar year.
2.44 "Rollover Contributions"shall mean any distribution as provided for
in Code Section 402(c)(4), or any other provision of the Code which may permit
rollovers to the Plan from time to time, from an eligible retirement plan as
that term is defined in Code Section 402(c)(8).
2.45 "Rollover Contribution Account" shall mean the portion of a
Participant's Account attributable to Rollover Contributions, and the total of
the Adjustments which have been credited to or deducted from a Participant's
Account with respect to Rollover Contributions.
2.46 "Termination of Employment" or "Termination Date" shall mean the date
on which the earliest of the following events occurs: (a) a Participant's
retirement, (b) a Participant's termination of employment as a result of Total
and Permanent Disability, (c) a Participant's death, or (d) a Participant's
termination of employment for any other reason. Transfer of employment among
Affiliates will not be considered a termination of employment with any Employer.
2.47 "Total and Permanent Disability" or "Disability" shall mean a
physical or mental condition of a Participant resulting from bodily injury,
disease, or mental disorder which renders such Participant incapable of
continuing any gainful occupation and which constitutes total disability under
the federal Social Security Acts.
2.48 "Trust Agreement" shall mean the agreement and any amendments thereto
entered into between the Company and the Trustee to establish the Trust Fund and
specify the duties of the Trustee and the Company.
2.49 "Trust Fund" or "Trust" shall mean the cash and other properties held
and administered by the Trustee pursuant to the Trust Agreement to carry out the
provisions of the Plan.
2.50 "Trustee" shall mean the designated trustee acting at any time under
the Trust Agreement.
2.51 "Qualified" as used in "qualified plan" or "qualified trust" shall
mean a plan and trust which are entitled to the tax benefits provided
respectively by Code Sections 401 and 501 and by related provisions of the Code.
2.52 "Valuation Date" shall mean the last day of each calendar quarter and
any other date as of which the value of Plan assets is determined.
2.53 "Year of Service" shall mean any Computation Period during which an
Employee is credited with at least 1,000 Hours of Service.
(a) For purposes of applying the vesting rules a Year of Service
shall mean any Computation Period a Participant is credited
with 1,000 Hours of Service with an Employer or Affiliate. An
Employee will receive credit for a Year of Service as of the
end of the Computation Period if the Employee completes the
required Hours of Service during such period, even if the
Employee is not employed for the entire period.
8
(b) For all periods prior to January 1, 2004, the term "Computation
Period" for purpose of this Section 2.53 shall mean the
12-month period commencing on the date an Employee is first
credited with an Hour of Service and each subsequent 12-month
period commencing on the anniversary of such date; provided,
however, that with respect to each Participant's Computation
Period that commences after January 1, 2003, then such
Computation Period shall end on December 31, 2003 (the "Short
Computation Period"). In the event that a Participant shall not
have worked at least 1,000 Hours of Service during the Short
Computation Period, that Participant shall be deemed to have
worked at least 1,000 Hours of Service for that Short
Computation Period for purposes of applying the vesting rules
under this Plan so long as that Participant continues to be
employed with the Employer as of December 31, 2003. For all
periods on or after January 1, 2004, the "Computation Period"
shall mean the Plan Year.
(c) In the case of a Participant who has five (5) consecutive One
Year Breaks in Service, all Years of Service after such period
of break will be disregarded for the purpose of vesting in the
portion of the Participant's Employer Accounts that was
credited before such period of break.
(d) If a Participant has five (5) consecutive One Year Breaks in
Service and had no vested interest in his Employer Accounts
prior to the period of break, all Years of Service credited
before the period of break shall be permanently disregarded for
all purposes under the Plan.
ARTICLE 3
ELIGIBILITY AND PARTICIPATION
-----------------------------
3.01 Participation in the Plan.
--------------------------
(a) An Eligible Employee shall become a Participant in (and
thereupon be permitted to make Elective Deferral Contributions)
the Plan on the Entry Date coincident with or next following
the later of (1) the date the Employee is credited with One
Hour of Service, or (2) the date the Employee becomes an
Eligible Employee, if he was not an Eligible Employee.
(b) Prior to becoming a Participant, each Eligible Employee shall
be provided an opportunity to designate the percentage of his
Compensation to be contributed to the Plan under Section 4.01.
Any such designation shall become effective as of the date such
Employee becomes a Participant in accordance with Section
3.01(a) above, provided the designation is made in the manner
authorized by the Committee.
(c) A Participant who has a Termination Date or who ceases to be an
Eligible Employee but does not have a Termination Date, then
such Participant shall continue to be known as a "Participant",
but shall not be eligible to make Elective Deferral
Contributions and shall not be eligible to receive Employer
Contributions.
9
(d) If an Employee's termination of Employment occurs after becoming
a Participant and having a vested balance in his Account, such
Employee shall become a Participant again on his date of rehire.
3.02 Rollover Contributions. An Eligible Employee who has not otherwise
become a Participant may make a Rollover Contribution to the Plan before he is
otherwise eligible to Participate in the Plan. Such an Employee becomes a
Participant if he makes a Rollover Contribution. However, until his Entry Date,
such an Employee will not be eligible to make Elective Deferral Contributions or
receive an allocation of Employer Contributions.
3.03 Acquisitions. If a group of persons becomes employed by an Employer
(or any of its subsidiaries or divisions) as a result of an acquisition of
another employer, the Committee shall determine the applicable Entry Date or
special entry date for such acquired employees, and any other terms and
conditions which apply to participation in this Plan. Except to the extent
required by law or provided for by the Committee, employees of an acquired
business shall be treated as having first accrued an Hour of Service as of the
date of the Employer's acquisition of such business.
ARTICLE 4
CONTRIBUTIONS
-------------
4.01 Elective Deferral Contributions.
--------------------------------
(a) An arrangement under which Participants may make elective
deferrals, such as Elective Deferral Contributions under this
Plan is referred to as a cash or deferred arrangement ("CODA").
Under such an arrangement, elective deferrals cannot relate to
Compensation that is currently available prior to the adoption
or effective date of the CODA. In addition, except for
occasional, bona fide administrative considerations,
contributions made pursuant to such an election cannot precede
the earlier of (1) the performance of services relating to the
contribution, and (2) when the Compensation that is subject to
the election would be currently available to the Participant in
the absence of an election to defer prior to the adoption or
effective date of the CODA.
(b) Each Employer shall contribute to the Trust, on behalf of each
Participant, Elective Deferral Contributions as specified in a
salary reduction agreement between the Participant and such
Employer; provided, however, that such contribution for a
Participant shall not exceed the limitations set forth in Code
Section 402(g), or any successor thereto, for each Plan Year
(including any other elective deferrals within the meaning of
Code Section 402(g)(3) in the case of all other plans,
contracts, or arrangements of the Employer).
Notwithstanding the foregoing, with respect to each Eligible
Employee who is hired by an Employer on or after January 1,
2006, such Eligible Employee shall be deemed to make an
election to contribute to the Trust, and the Employer shall so
contribute, an Elective Deferral Contribution in an amount
equal to three percent (3%) of the Eligible Employee's
Compensation for the Plan Year, unless the Eligible Employee
elects a greater or lesser percentage (including zero) in a
salary reduction agreement entered into between the Eligible
Employee and the Employer with respect to such Plan Year. Each
10
such Eligible Employee shall have an effective opportunity to
receive notice of availability of such election, as well as a
salary reduction agreement form, and the Eligible Employee
shall have a reasonable period to make a salary reduction
election change before the date on which the deemed election
shall take place. In addition, each Eligible Employee who is
automatically enrolled in this Plan pursuant to this Section
4.01(b) shall be provided with a ninety (90) day period
(commencing from the first day on which his or her
participation begins) to elect out of the Plan and withdraw the
contributions made on his or her behalf and the earnings
thereon.
(c) Notwithstanding any other provision of the Plan, Excess
Deferral Amounts and income allocable thereto shall be
distributed no later than the April 15th immediately following
the end of the applicable Plan Year. A distribution pursuant to
this Section 4.01(c) of Excess Deferral Amounts and income,
gains and losses allocable thereto shall be made without regard
to any consent otherwise required under Section 10.02(c) or any
other provision of the Plan. A distribution pursuant to this
Section 4.01(c) of Excess Deferral Amounts and income, gains
and losses allocable thereto shall not be treated as a
distribution for purposes of determining whether a distribution
required by Section 10.07 is satisfied. Any distribution under
this Section 4.01(c) of less than the entire Excess Deferral
Amount and income, gains and losses allocable thereto shall be
treated as a pro rata distribution of Excess Deferral Amounts
and income, gains and losses allocable thereto. In no case may
an Employee receive from the Plan as a corrective distribution
for a taxable year under this Section 4.01(c) an amount in
excess of the individual's total Elective Deferral
Contributions under the Plan for the taxable year.
(d) "Excess Deferral Amount" shall mean those Elective Deferral
Contributions that are includable in a Participant's gross
income under Code Section 402(g) to the extent such
Participant's Elective Deferral Contributions for a taxable
year exceed the dollar limitation under Code Section 402(g). If
an Excess Deferral Amount is not distributed by the first April
15 following the close of the Participant's taxable year, such
amount shall be treated as an annual addition under the Plan.
(e) The Participant's notice made pursuant to Section 4.01(c) shall
be in writing; shall be submitted to the Committee no later
than March 1 with respect to the preceding calendar year; shall
specify the Participant's Excess Deferral Amount for the
preceding calendar year; and shall be accompanied by the
Participant's written statement that if such amounts are not
distributed, such Excess Deferral Amount, when added to amounts
deferred under other plans or arrangements described in Code
Sections 401(k), 408(k), or 403(b), exceeds the limit imposed
on the Participant by Code Section 402(g) for the calendar year
in which the deferral occurred. A Participant is deemed to
notify the Committee of any Excess Deferral Amount that arises
by taking into account only those Elective Deferral
Contributions made to this Plan and any other plans of this
Employer or an Affiliate.
11
(f) The Excess Deferral Amount shall be adjusted for income or
loss. The income or loss allocable to the Excess Deferral
Amount is equal to the allocable income or loss for the taxable
year of the individual as follows:
The income or loss allocable to the Excess Deferral Amount for
the taxable year of the individual is equal to the income or
loss for the taxable year of the individual allocable to the
Participant's Elective Deferral Contributions multiplied by a
fraction, the numerator of which is such Participant's Excess
Deferral Amount for the taxable year, and the denominator of
which is equal to the sum of the Participant's Elective
Deferral Account as of the beginning of the taxable year, plus
the Participant's Elective Deferral Contributions for the
taxable year.
(g) The Excess Deferral Amount, which may be distributed under
Section 4.01(c) with respect to an Employee for a taxable year,
shall be reduced by any Excess Contributions previously
distributed with respect to such Employee for the Plan Year
beginning with or within such taxable year. In the event of a
reduction under this Section 4.01(g), the amount of Excess
Contributions included in the gross income of the Employee and
reported by the Employer as a distribution of Excess
Contributions shall be reduced by the amount of the reduction
under this Section 4.01(g).
4.02 Elections Regarding Elective Deferral Contributions.
----------------------------------------------------
(a) A Participant may elect to change his Elective Deferral
Contribution amount as often as four times a year by filing a
completed election form with the Committee. Any change a
Participant makes will be effective as of March 31, June 30,
September 30 or December 31 provided that the Participant files
his election form at least 15 days before such March 31, June
30, September 30 or December 31.
(b) A Participant may suspend further Elective Deferral
Contributions to the Plan at any time, provided the request for
such suspension is received by the Committee at least 15 days
from the first pay period for which the suspension applies.
Any Participant who suspends further Elective Deferral
Contributions may reinstate such Elective Deferral
Contributions at the beginning of the next calendar quarter by
providing notice to the Committee at least 15 days prior to the
beginning of the calendar quarter to which the reinstatement
will apply.
4.03 Catch-Up Contributions.
-----------------------
(a) Eligibility. Effective for Plan Years beginning on or after
January 1, 2005, all Employees who are eligible to make
Elective Deferral Contributions under this Plan and who are
projected to have attained age 50 before the close of the Plan
Year shall be eligible to make Catch-Up Contributions in
accordance with, and subject to the limitations of, Code
Section 414(v).
12
(b) Election. In order to have Catch-Up Contributions made on his
or her behalf for a Plan Year, a Participant shall direct that
such Catch-Up Contributions be made pursuant to a procedure
prescribed by the Committee whereby such Participant's annual
Compensation shall be reduced by a specified amount not to
exceed the limitations of Code Section 414(v), and whereby the
Employer agrees to contribute an identical amount on the
Participant's behalf to the Plan on a pre-tax basis under this
Section 4.03.
(c) Application. Such Catch-Up Contributions shall not be taken
into account for purposes of the limitation set forth in
Section 5.02 hereof as well as the provisions of the Plan
implementing the required limitations of Code Sections 402(g)
and 415. The Plan shall not be treated as failing to satisfy
the provisions of the Plan implementing the requirements of
Code Sections 401(k)(3), 401(k)(11), 401(k)(12), 410(b), or
416, as applicable, by reason of the making of such Catch-Up
Contributions.
(d) Classification; No Matching Contributions. For purposes of this
Plan, except as provided in this Section 4.03, Catch-Up
Contributions shall be considered Elective Deferral
Contributions and shall be allocated to a Participant's
Elective Deferral Account. Notwithstanding the foregoing,
Catch-Up Contributions shall not be considered Elective
Deferral Contributions for purposes of allocating Employer
Matching Contributions as provided in Section 4.04(a) of this
Plan.
4.04 Employer Contributions.
-----------------------
(a) Employer Matching Contributions. Each Employer shall contribute
Employer Matching Contributions as provided for in this Section
4.04(a). Employer Matching Contributions shall accrue on a
payroll by payroll basis although shall be contributed to the
Plan at the end of each calendar quarter on behalf of any
Participant for whom an Employer makes Elective Deferral
Contributions for the payroll periods during that calendar
quarter. A Participant's Employer Matching Contributions is a
percentage of his Elective Deferral Contributions, as fixed by
the Board of Directors from time to time at its sole
discretion. The Employer Matching Contribution percentage may
vary (1) among Participants employed by different Employers; or
(2) with the Participant's rate of deferral, but must be
uniform for Participants with equal rates of Elective Deferral
Contributions and may not increase as the rate of Elective
Deferral Contribution increases.
(b) Equity Builder Contributions. Each Employer may contribute
Equity Builder Contributions as provided for in this Section
4.04(b). Each Participant's share of Equity Builder
Contributions for a Plan Year is determined by multiplying (1)
the total Equity Builder Contributions to be allocated among
all Participants' Accounts by (2) the Participant's
Compensation for the Plan Year and dividing the result by (3)
the Compensation paid for the Plan Year to all Participants
eligible for an allocation. Only Compensation paid by Employers
on account of service while a Participant is taken into
account. A Participant's share of Equity
13
Builder Contributions shall be in an amount as fixed by the
Board of Directors from time to time at its sole discretion.
(c) Eligibility to Receive Equity Builder Contributions. Equity
Builder Contributions, if any, shall be allocated to the
Employer Accounts of Participants who are credited with 1,000
Hours of Service during the Plan Year with an Employer and is
employed on the last day of such Plan Year.
4.05 After-Tax Contributions. Participants shall not be permitted to make
after-tax contributions to the Plan.
4.06 Rollover Contributions. An Eligible Employee may make a Rollover
Contribution to this Plan, provided, however, that the trust from which the
funds are to be transferred must permit the transfer to be made, and provided,
further, the Committee consents to such transfer and is reasonably satisfied
that such transfer will not jeopardize the tax exempt status of this Plan or
Trust. Rollover Contributions shall be made by delivery to the Trustee for
deposit in the Trust. All Rollover Contributions must be in cash or property
satisfactory to the Trustee, whose decision in this regard shall be final. The
Trustee will not accept rollovers of accumulated deductible employee
contributions from a simplified employee pension plan. Upon approval by the
Committee and the Trustee, the amount transferred shall be deposited in the
Trust and shall be credited to the Participant's Rollover Account. A Rollover
Contribution will not be matched by Employer Contributions, and is not subject
to the restrictions provided in Section 4.01 or the limitations described in
Article 5 and Article 7.
4.07 Form and Timing of Contributions.
---------------------------------
(a) Elective Deferral Contributions shall be deducted by the
Employer from the Participant's Compensation and paid to the
Trustee as promptly as possible after the end of each regular
pay period but in no event later than 15 days after the end of
the month in which such Elective Deferral Contributions are
retained by the Employer.
(b) All Employer Contributions for the purpose of paying or
prepaying principal, interest or fees on Plan Indebtedness
related to Financed Stock, as defined in Article 12, must be
made in cash. All other Employer Contributions may be made in
cash, Company Stock or other property, in the contributing
Employer's discretion. All Employer Contributions, whether in
cash, Company Stock, or other property, are contingent upon
acceptance by the Trustee and a determination that the
contributions will not jeopardize the qualified status of this
Plan.
(c) All Employer Contributions shall be paid to the Trustee on or
before the time required by law for filing the Employer's
federal income tax return (including extensions) for its
taxable year in or with which the Plan Year with respect to
which the contribution is made ends.
4.08 Nondeductible Contributions and Contributions Made by Mistake of
Fact. Any contribution or portion of a contribution to the Plan that (a) is
determined to be nondeductible under Code Section 404 or (b) is made as a result
of a mistake of fact may be reclaimed by the appropriate
14
Employer within one year after the date of the disallowance of the deduction or
the making of the mistaken contribution.
4.09 Forfeitures.
(a) As of each December 31st, any amounts which became Forfeitures
since the last December 31st shall be made available to (1)
reinstate previously forfeited Account balances of
Participants, if any, in accordance with Section 8.03, (2) pay
administrative expenses of the Plan, and/or (3) reduce Employer
Matching Contributions and/or Equity Builder Contributions that
Employers would otherwise make on behalf of their current
Participants that Plan Year, or Participants in the next Plan
Year and each succeeding Plan Year.
(b) The term "Forfeiture" shall mean the amount of a Participant's
nonvested Account balance which is forfeited as provided for in
Article 8, or any excess Employer Matching Contributions
forfeited in accordance with Article 7. The portion of a
Participant's Accounts that are not distributable to him by
reason of the provisions Article 7 or Article 8 shall be
credited to a Forfeiture Account. The value of the Forfeiture
Account shall be the market value as determined on each
Valuation Date.
(c) Elective Deferral Contributions are to be taken into account in
determining a Participant's vested benefits under the Plan.
Thus, for example, the Plan shall take Elective Deferral
Contributions into account in determining whether a Participant
has a nonforfeitable right to contributions under the Plan for
purposes of forfeitures, and for applying provisions permitting
the repayment of distributions to have forfeited amounts
restored, and the provisions of Code Sections 410(a)(5)(D)(iii)
and 411(a)(6)(D)(iii) permitting a plan to disregard certain
service completed prior to breaks-in-service (sometimes
referred to as "the rule of parity").
4.10 Investment Funds. The Trustee will establish a Company Stock Fund for
the investment of Plan assets in Common Stock. The Committee may direct the
Trustee to establish other Investment Funds within the Trust and to permit
Participants to direct the allocation of their Account balances among these
Investment Funds in accordance with rules prescribed by the Committee. The
Committee may alter the available Investment Funds or the procedures for
allocating Account balances among them at any time.
4.11 Investment of Contributions. Contributions made by a Participant
pursuant to Sections 4.01 and 4.06 shall be remitted to the Trustee for
investment in the Investment Fund selected by each Participant in accordance
with rules prescribed by the Committee. Such contributions shall not be invested
in Company Stock. If an investment election is not made by the Participant,
funds will be invested in a default investment fund designated by the Committee.
Contributions, other than Elective Deferral Contributions, made by the Employer
on behalf of a Participant shall be invested in the Company Stock Fund.
15
ARTICLE 5
MAXIMUM BENEFITS
----------------
5.01 Limitation on Annual Additions.
-------------------------------
(a) Notwithstanding any other provisions of the Plan, for Plan
Years beginning January 1, 2007, the sum of the Annual
Additions to a Participant's Accounts, when combined with
Annual Additions to the Participant's account under all other
qualified plans maintained by the Employer, for any Plan Year
shall not exceed the lesser of $45,000, or 100% of such
Participant's compensation (as such term is defined in Code
Section 415(c)(3)). The term Annual Additions to a
Participant's Accounts for any Plan Year means the sum of:
(1) such Participant's allocable share of the Employer
Contributions for the Plan Year;
(2) such Participant's Elective Deferral Contributions for
the Plan Year;
(3) forfeitures allocated to such Participant's account; and
(4) amounts described in Code Sections 415(l)(1) and
419A(d)(2).
The 100% limitation shall not apply to (1) any contribution for
medical benefits (within the meaning of Code Section
419A(f)(2)) after separation from service which is otherwise
treated as an Annual Addition, (2) any amount otherwise treated
as an Annual Addition under Code Section 415(l)(1), or (3) any
amount treated as a Rollover Contribution. Elective Deferral
Contributions, and Employer Contributions do not fail to be
Annual Additions merely because such contributions are Excess
Deferral Amounts, Excess Contributions or Excess Aggregate
Contributions or merely because such Excess Deferral Amounts,
Excess Contributions and Excess Aggregate Contributions are
corrected through distribution.
(b) If it is determined that, but for the limitations contained in
Section 5.01(a), the Annual Additions to a Participant's
Accounts for any Plan Year would be in excess of the
limitations contained herein, such Annual Additions shall be
reduced to the extent necessary to bring such Annual Additions
within the limitations contained in Section 5.01(a) in the
following order:
(1) First, if the Participant's Annual Additions exceed the
maximum permissible amount as a result of (i) a
reasonable error in estimating the Participant's
Compensation, (ii) a reasonable error in estimating the
amount of Elective Deferral Contributions that the
Participant could make under Code Section 415, or (iii)
other facts and circumstances that the Internal Revenue
finds justifiable, the Committee may direct the Trustee
to return to the Participant his Elective Deferral
Contributions for such Plan year to the extent necessary
to reduce the excess amount. Such returned Elective
16
Deferral Contributions shall be ignored in performing
the discrimination tests of Article 7.
(2) Second, any excess annual additions still remaining
after the return of Elective Deferral Contributions
shall be reallocated as determined by the Committee
among the Participants whose Accounts have not exceeded
the limit in the same proportion that the Compensation
of each such Participant bears to the Compensation of
all such Participants. If such reallocation would result
in an addition to another Participant's Account, which
exceeds the permitted limit, that excess shall likewise
be reallocated among the Participants, whose Accounts do
not exceed the limit. However, if the allocation or
reallocation of the excess amounts pursuant to these
provisions causes the limitations of Code Section 415 to
be exceeded with respect to each Participant for the
limitation year, then any such excess shall be held
unallocated in a 415 Suspense Account. If the 415
Suspense Account is in existence at any time during the
limitation year, other than the limitation year
described in the preceding sentence, all amounts in the
415 Suspense Account shall be allocated and reallocated
to Participant's Accounts (subject to the limitations of
Code Section 415) before any Contributions which would
constitute annual additions may be made to the Plan for
that limitation year.
(3) If a Participant is covered under another qualified
defined contribution plan maintained by an Employer
during any limitation year, the annual additions which
may be credited to a Participant's Account under this
Plan for any such limitation year shall not exceed the
maximum permissible amount reduced by the annual
additions credited to a Participant's account under all
such plans for the same limitation year. If a
Participant's annual additions under this Plan and 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 (and for
this purpose, Employer Contributions shall be deemed to
be allocated after Elective Deferral Contributions). In
an excess amount is allocated to a Participant on an
allocation date of this Plan which coincides with an
allocation date of another plan, the excess amount
attributed to this Plan will be the product of
(i) The total excess amount 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 the qualified defined contribution plans
maintained by the Employer.
Any excess amount attributed to this Plan will be
disposed in the manner described in this Section 5.01.
17
(c) For purposes of this Article, Employer shall mean the employer
that adopts this Plan, and all members of a controlled group of
corporations (as defined in Code Section 414(b) as modified by
Code Section 415(h)), all commonly controlled trades or
businesses (as defined in Code Section 414(c) as modified by
Code Section 415(h), or affiliated service groups (as defined
in Code Section 414(m)) of which the adopting Employer is a
part, and any other entity required to be aggregated with the
Employer pursuant to regulations under Code Section 414(o).
5.02 Increase in Limitations on Annual Additions. Notwithstanding anything
contained in Section 5.01 to the contrary, effective for Plan Years beginning
January 1, 2007, the Annual Addition that may be contributed or allocated to a
Participant's Account under the Plan for any limitation year shall not exceed
the lesser of:
(a) $45,000, as adjusted for increases in the cost-of-living under
Code Section 415(d), or
(b) 100 percent of the Participant's compensation, within the
meaning of Code Section 415(c)(3), for the limitation year. The
compensation limit referred to in (b) shall not apply to any
contribution for medical benefits after separation from service
(within the meaning of Code Section 401(h) or 419(f)(2)) that
is otherwise treated as an Annual Addition.
ARTICLE 6
ACCOUNTS AND ALLOCATIONS
------------------------
6.01 Participant Accounts.
---------------------
(a) A separate Account shall be maintained for each Participant, or
Beneficiary, so long as he has an interest in the Trust Fund.
(b) Sub-Accounts. Each Account shall be divided (as appropriate)
into the following parts and sub-parts:
(1) The Elective Deferral Contributions Account, which shall
reflect Elective Deferral Contributions contributed to
this Plan and any Adjustments thereto.
(2) The Matching Contributions Account, which shall reflect
Employer Matching Contributions contributed to this Plan
and any Adjustments thereto.
(3) The Equity Builder Contributions Account, which shall
reflect Equity Builder Contributions contributed to this
Plan and any Adjustments thereto.
(4) The Prior Employer Account, as defined in Appendix B,
which shall reflect assets transferred to this Plan
directly from a trustee of another Qualified plan to the
Trustee of this Plan (and Adjustments thereto).
18
(5) The Rollover Account, which shall reflect the value of
all investments derived from the Participant's Rollover
Contributions under this Plan and any Adjustments
thereto.
In addition, the Committee may divide such sub-accounts into
such additional sub-portions as the Committee deems to be
necessary or advisable under the circumstances or to establish
other accounts or sub-accounts as needed.
6.02 Value of Account as of Valuation Date. As of each Valuation Date,
each Participant's Account shall equal:
(a) His total Account as determined on the immediately preceding
Valuation Date, plus
(b) His Elective Deferral Contributions added to his Account since
the immediately preceding Valuation Date, plus
(c) His Employer Contributions added to his Account since the
immediately preceding Valuation Date, plus
(d) His Rollover Contributions which were added to his Account since
the immediately preceding Valuation Date, minus
(e) His Distributions, if any, since the immediately preceding
Valuation Date, plus or minus
(f) His allocable share of Adjustments.
6.03 Allocation of Adjustments. On each Valuation Date during the Plan
Year (and prior to the allocation of Employer Contributions), the Committee
shall establish new Account balances that shall reflect each Account's
Adjustment since the preceding Valuation Date. In determining such new Account
balances, the Committee shall (a) credit the portion of each Participant's
Account invested in each of the Investment Funds with interest in a manner
consistent with the method used to credit interest by the institution in which
the Investment Funds are invested or (b) adjust the portion of each
Participant's Account based on the actual investment return experience by the
applicable fund. For purpose of such Adjustment, all assets of the Trust Fund
shall be valued at their fair market value as of each Valuation Date.
19
ARTICLE 7
SPECIAL DISCRIMINATION RULES
----------------------------
7.01 Average Actual Deferral Percentage Limitation.
----------------------------------------------
(a) The Average Actual Deferral Percentage for all Participants who
are Highly Compensated Employees may not exceed the greater of:
(1) the Average Actual Deferral Percentage for all
Participants who are Non-Highly Compensated Employees
for the current Plan Year multiplied by 1.25; or
(2) the Average Actual Deferral Percentage for all
Participants who are Non-Highly Compensated Employees
for the current Plan Year multiplied by two, but not
more than two percentage points in excess of the Average
Actual Deferral Percentage of Participants who are
Non-Highly Compensated Employees.
This method of testing is referred to as the "Current Year
Testing Method," and is effective for Plan Years beginning on
or after January 1, 2004, unless otherwise provided in the Plan.
(b) Should neither limitation (1) or (2) in Section 7.01(a) be met
with respect to a Plan Year, the Committee, subject to
applicable law and regulations, shall cause Excess
Contributions and income allocable thereto to be distributed in
accordance with Section 7.01(e) no later than 2 1/2 months (6
months, effective January 1, 2008, in the case of an Excess
Contribution made to an eligible automatic contribution
arrangement (as defined in Code Section 414(w)(3)) following
the end of any Plan Year to Participants on whose behalf such
Excess Contributions were made for the current Plan Year.
(c) Distributions of Excess Contributions must be adjusted for
income (gain or loss) through the end of the Plan Year for
which the contribution was made and, with respect to all Plan
Years beginning prior to January 1, 2008, for income for the
period between the end of the Plan Year and the date of the
distribution (the "gap period"). The Committee has the
discretion to determine and allocate income using any of the
methods set forth below:
(1) The Committee may use any reasonable method for
computing the income allocable to Excess Contributions,
provided that the method does not violate Code Section
401(a)(4), 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
to Participant's Accounts. A Plan will not fail to use
a reasonable method for computing the income allocable
to Excess Contributions merely because the income
allocable to Excess Contributions is determined on a
date that is no more than seven (7) days before the
distribution.
20
(2) The Committee may allocate income to Excess Contributions for
the Plan Year by multiplying the income for the Plan Year
allocable to the Elective Deferral Contributions and other
amounts taken into account under the Average Actual Deferral
Percentage test (including contributions made for the Plan
Year), by a fraction, the numerator of which is the Excess
Contributions for the Participant for the Plan Year, and the
denominator of which is the sum of the:
(i) Account balance attributable to Elective Deferral
Contributions and other amounts taken into account under
the Average Actual Deferral Percentage test as of the
beginning of the Plan Year, and
(ii) Any additional amount of such contributions made for the
Plan Year.
(3) The Committee may use the safe harbor method in this paragraph
to determine income on Excess Contributions for the gap period.
Under this safe harbor method, income on Excess Contributions
for the gap period is equal to ten percent (10%) of the income
allocable to Excess Contributions for the Plan Year that would
be determined under paragraph (2) above, multiplied by the
number of calendar months that have elapsed since the end of
the Plan Year. For purposes of calculating the number of
calendar months that have elapsed under the safe harbor method,
a corrective distribution that is made on or before the
fifteenth (15th) day of a month is treated as made on the last
day of the preceding month and a distribution made after the
fifteenth day of a month is treated as made on the last day of
the month.
(4) The Committee may determine the income for the aggregate of the
Plan Year and the gap period, by applying the alternative
method provided by paragraph (2) above to this aggregate
period. This is accomplished by (i) substituting the income for
the Plan Year and the gap period, for the income for the Plan
Year, and (ii) substituting the amounts taken into account
under the Average Actual Deferral Percentage test for the Plan
Year and the gap period, for the amounts taken into account
under the Average Actual Deferral Percentage test for the Plan
Year in determining the fraction that is multiplied by that
income.
A distribution of Excess Contributions and income, gains and losses
allocable thereto shall be made without regard to any consent
otherwise required under Section 10.02(c) or any other provision of
the Plan. A distribution pursuant to Section 7.01(b) of Excess
Contributions and income, gains and losses allocable thereto shall
not be treated as a distribution for purposes of determining whether
the distribution required by Section 10.07 is satisfied. Any
distribution under Section 7.01(b) of less than the entire Excess
Contribution and income, gains and losses allocable thereto shall be
21
treated as a pro rata distribution of Excess Contributions and
income, gains and losses allocable thereto. In no event shall
Excess Contributions for a Plan Year remain unallocated or be
allocated to a suspense account for allocation to one or more
employees in any future Plan Year.
(d) The Actual Deferral Percentage for any Participant who is a
Highly Compensated Employee for the Plan Year and who is
eligible to have Elective Deferral Contributions (as defined in
Treasury Regulation Section 1.401(k)-6) allocated to such
Participant's Account under two (2) or more cash or deferred
arrangements described in Code Section 401(k) that are
maintained by the same Employer or an Affiliate, shall be
determined as if all such Elective Deferral Contributions were
made under a single arrangement. If a Highly Compensated
Employee participates in two or more cash or deferred
arrangements of the Employer that have different Plan Years,
then all Elective Deferral Contributions made during the Plan
Year being tested under all such cash or deferred arrangements
shall be aggregated, without regard to the plan years of the
other plans.
(e) Elective Deferral Contributions exceeding the limitations of
Section 7.01(a) ("Excess Contributions") and any income or loss
allocable to such Excess Contribution shall be designated by
the Committee as Excess Contributions and shall be distributed
to Highly Compensated Employees whose Accounts were credited
with Excess Contributions in the current Plan Year. To
determine the aggregate amount of Excess Contributions to be
distributed, the Committee shall first determine the aggregate
dollar amount of the distribution as follows:
(1) Determine the dollar amount by which the Elective
Deferral Contributions of the Highly Compensated
Employee(s) with the highest Actual Deferral Percentage
must be reduced to equal the second highest Actual
Deferral Percentage(s) under the Plan; then
(2) Determine the dollar amount by which the Elective
Deferral Contributions for the two (or more) Highly
Compensated Employees with the highest Actual Deferral
Percentage(s) under the Plan must be reduced to equal
the third highest Actual Deferral Percentage(s) under
the Plan; then
(3) Repeat the steps described in (1) and (2) above with
respect to the third and successive highest Actual
Deferral Percentage levels under the Plan until the
Average Actual Deferral Percentage does not exceed the
amount allowable under Section 7.01(a); then
(4) Add the dollar amounts determined in each of steps (1),
(2), and (3) above.
22
The aggregate dollar amount of Excess Contributions determined
under steps (1) through (4) above shall be distributed as
follows:
(1) First, to those Highly Compensated Employee(s) with the
highest amount of Elective Deferral Contributions until
each such Participant's Elective Deferral Contributions
equals the second highest Elective Deferral
Contributions under the Plan;
(2) Second, to the two (or more) Highly Compensated
Employees with the next highest dollar amount of
Elective Deferral Contributions under the Plan, until
each such Participant's Elective Deferral Contributions
equals the third highest amount of Elective Deferral
Contributions under the Plan; and
(3) Then, the steps described in (1) and (2) above shall be
repeated with respect to the third and successive Highly
Compensated Employees with the highest amount of
Elective Deferral Contributions until all Excess
Contributions have been distributed.
(f) The income, gain or loss allocable to distributed Excess
Contributions for the Plan Year for purposes of Section 4.01(c)
is determined by multiplying the income for the Plan Year
allocable to Elective Deferral Contributions by a fraction. The
numerator of the fraction is the Excess Contribution
distributed to the Participant for the Plan Year. The
denominator of the fraction is the total Account Balance of the
Participant attributable to Elective Deferral Contributions as
of the end of the Plan Year, reduced by the gain allocable to
such total amount for the Plan Year and increased by the loss
allocable to such total amount for the Plan Year.
(g) The determination of the amount of aggregate Excess
Contributions to be distributed under Section 4.01(c) with
respect to an Employee for a taxable year shall be reduced by
any Excess Contributions previously distributed with respect to
such Participant for the Plan Year beginning with or within
such taxable year.
(h) To the extent administratively possible, the Committee shall
distribute all Excess Contributions and any income or loss
allocable thereto prior to 2 1/2 months (6 months, effective
January 1, 2008, in the case of an Excess Contribution made to
an eligible automatic contribution arrangement (as defined in
Code Section 414(w)(3)) following the end of the Plan Year in
which the Excess Contributions arose. In any event, however,
the Excess Contributions and any income or loss allocable
thereto shall be distributed prior to the end of the Plan Year
following the Plan Year in which the Excess Contributions arose.
(i) Notwithstanding anything contained herein to the contrary, the
Employer may, in determining whether the Plan satisfies this
Section 7.01, exclude from consideration all Participants
(other than Highly Compensated Employees)
23
who have not attained age 21 and is credited with one Year of
Service, as described in Code Section 410(a)(1)(A).
(j) Except as otherwise provided in this Section 7.01, the Plan may
use the current year testing method or prior year testing
method for the Average Actual Deferral Percentage test for a
Plan Year without regard to whether the current year testing
method or prior year testing method is used for the Average
Actual Contribution Percentage test for that Plan Year.
However, if different testing methods are used, then the Plan
cannot use:
(1) The recharacterization method of Treasury Regulation
Section 1.401(k)-2(b)(3) to correct excess contributions
for a Plan Year; or
(2) The rules of Treasury Regulation Section
1.401(m)-2(a)(6)(ii) to take Elective Deferral
Contributions into account under the Average Actual
Contribution Percentage test (rather than the Average
Actual Deferral Percentage test).
7.02 Average Actual Contribution Percentage Limitation.
--------------------------------------------------
(a) The Average Actual Contribution Percentage for Participants who
are Highly Compensated Employees may not exceed the greater of:
(1) the Average Actual Contribution Percentage for all
Participants who are Non-Highly Compensated Employees
for the current Plan Year multiplied by 1.25; or
(2) the Average Actual Contribution Percentage for all
Participants who are Non-Highly Compensated Employees
for the current Plan Year multiplied by two, but not
more than two percentage points in excess of the Average
Actual Contribution Percentage of Participants who are
Non-Highly Compensated Employees.
This method of testing is referred to as the "Current Year
Testing Method," and is effective for Plan Years beginning on or
after January 1, 2004, unless otherwise provided in the Plan.
(b) An Employer Matching Contribution with respect to an Elective
Deferral Contribution for a Plan Year is not taken into account
under the Average Actual Contribution Percentage test for a
Non-Highly Compensated Employee to the extent it exceeds the
greatest of:
(1) five percent (5%) of the Non-Highly Compensated
Employee's Code Section 414(s) compensation for the Plan
Year;
(2) the Non-Highly Compensated Employee's Elective Deferral
Contributions for the Plan Year; and
24
(3) the product of two (2) times the Plan's "representative
matching rate" and the Non-Highly Compensated Employee's
Elective Deferral Contributions for the Plan Year.
For purposes of this Section 7.02(b), the Plan's
"representative matching rate" is the lowest "matching rate"
for any eligible Non-Highly Compensated Employee among a group
of Non-Highly Compensated Employees that consists of half of
all eligible Non-Highly Compensated Employees in the Plan for
the Plan Year who make Elective Deferral Contributions for the
Plan Year (or, if greater, the lowest "matching rate" for all
eligible Non-Highly Compensated Employees in the Plan who are
employed by the Employer on the last day of the Plan Year and
who make Elective Deferral Contributions for the Plan Year).
For purposes of this Section 7.02(b), the "matching rate" for a
Participant generally is the Employer Matching Contributions
made for such Participant divided by the Participant's Elective
Deferral Contributions for the Plan Year. If the matching rate
is not the same for all levels of Elective Deferral
Contributions for a Participant, then the Participant's
"matching rate" is determined assuming that a Participant's
Elective Deferral Contributions are equal to six percent (6%)
of Code Section 414(s) compensation.
(c) Excess Aggregate Contributions and income allocable thereto
shall be forfeited, if otherwise forfeitable under the terms of
this Plan, or if not forfeitable, shall be distributed no later
than 2 1/2 months (6 months, effective January 1, 2008, in the
case of an Excess Aggregate Contribution made to an eligible
automatic contribution arrangement (as defined in Code Section
414(w)(3)) after the first day of each Plan Year as set forth
below. Distributions of Excess Aggregate Contributions must be
adjusted for income (gain or loss) through the end of the Plan
Year for which the contribution was made and, with respect to
all Plan Years beginning prior to January 1, 2008, for income
for the period between the end of the Plan Year and the date of
the distribution (the "gap period"). For the purpose of this
Section, "income" shall be determined and allocated in
accordance with the provisions of Section 7.01(c) of this Plan,
except that such Section shall be applied by substituting
"Excess Contributions" with "Excess Aggregate Contributions"
and by substituting amounts taken into account under the
Average Actual Contribution Percentage test for amounts taken
into account under the Average Actual Deferral Percentage test.
A distribution of Excess Aggregate Contributions and income,
gains and losses allocable thereto shall be made without regard
to any consent otherwise required under Section 10.02(c) or any
other provision of the Plan. A distribution pursuant to this
Section 7.02(c) of Excess Aggregate Contributions and income,
gains and losses allocable thereto shall not be treated as a
distribution for purposes of determining whether the
distribution required by Section 10.10 is satisfied.
(d) The Average Actual Contribution Percentage for any Participant
who is a Highly Compensated Employee for the Plan Year and who
is eligible to receive Employer Matching Contributions
allocated to his or her account
25
under two (2) or more plans described in Code Section 401(a),
or arrangements described in Code Section 401(k) that are
maintained by the same Employer, shall be determined as if the
total of such contributions was made under each plan and
arrangement. If a Highly Compensated Employee participates in
two (2) or more such plans or arrangements that have different
plan years, then all matching contributions made during the
Plan Year being tested under all such plans and arrangements
shall be aggregated, without regard to the plan years of the
other plans. In the event 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 7.02 shall be applied by
determining the Actual Contribution Percentage of Participants
as if all such plans were a single plan.
(e) For purposes of this Plan, "Excess Aggregate Contributions"
shall mean, with respect to a Plan Year, the excess of the
aggregate amount of the Employer Contributions actually made on
behalf of Highly Compensated Employees for such Plan Year, over
the maximum amount of such contributions permitted under the
limitations of Section 7.02(a). To determine the aggregate
amount of Excess Aggregate Contributions to be distributed, the
Committee shall first determine the aggregate dollar amount of
the distribution as follows:
(1) Determine the dollar amount by which the Excess
Aggregate Contributions of the Highly Compensated
Employee(s) with the highest Actual Contribution
Percentage must be reduced to equal the second highest
Actual Contribution Percentage (s) under the Plan; then
(2) Determine the dollar amount by which the Excess
Aggregate Contributions for the two (or more) Highly
Compensated Employees with the highest Actual
Contribution Percentage (s) under the Plan must be
reduced to equal the third highest Actual Contribution
Percentage (s) under the Plan; then
(3) Repeat the steps described in (1) and (2) above with
respect to the third and successive highest Actual
Contribution Percentage levels under the Plan until the
Average Actual Contribution Percentage does not exceed
the amount allowable under Section 7.02(a); then
(4) Add the dollar amounts determined in each of steps (1),
(2), and (3) above.
The aggregate dollar amount of Excess Aggregate Contributions
determined under steps (1) through (4) above shall be
distributed as follows:
(1) First, to those Highly Compensated Employee(s) with the
highest amount of Excess Aggregate Contributions until
the sum of each such Participant's Employer Matching
Contributions equals the sum of the
26
second highest Employer Matching Contributions under the
Plan; then
(2) Second, to the two (or more) Highly Compensated
Employees with the next highest dollar amount of Excess
Aggregate Contributions under the Plan, until the sum of
each such Participant's Employer Matching Contributions
equals the sum of the third highest Employer Matching
Contributions under the Plan; and
(3) Then, the steps described in (1) and (2) above shall be
repeated with respect to the third and successive Highly
Compensated Employees with the highest amount of Excess
Aggregate Contributions until all Excess Aggregate
Contributions have been distributed.
(f) The income, gain or loss allocable to distributed Excess
Aggregate Contributions for the Plan Year is determined by
multiplying the income for the Plan Year allocable to Employer
Matching Contributions by a fraction. The numerator of the
fraction is the Excess Aggregate Contributions made on behalf
of the Participant for the Plan Year. The denominator of the
fraction is the total Account Balance of the Participant
attributable to Employer Matching Contributions as of the end
of the Plan Year, reduced by the gain allocable to such total
amount for the Plan Year and increased by the loss allocable to
such total amount for the Plan Year.
(g) The determination and correction of Excess Aggregation
Contributions of a Highly Compensated Employee shall be
calculated in accordance with Treasury Regulation Sections
1.401(m)-1(e)(4)(iii) and 1.401(m)-1(f)(13)(iii).
(h) Excess Aggregate Contributions shall be forfeited if otherwise
forfeitable under the terms of the Plan (or if not forfeitable,
distributed) from the Company Account of the Participant in
proportion to the Employer Matching Contributions for the Plan
Year.
(i) Amounts forfeited by Highly Compensated Employees under this
Section 7.02 shall be treated as Annual Additions and applied
to reduce subsequent Employer Contributions to the Plan.
(j) Notwithstanding the foregoing, no forfeitures arising under
this Section 7.02 shall be allocated to the Account of any
Highly Compensated Employee.
(k) Except as otherwise provided in this Section 7.02, the Plan may
use the current year testing method or prior year testing
method for the Average Actual Contribution Percentage test for
a Plan Year without regard to whether the current year testing
method or prior year testing method is used for the Average
Actual Deferral Percentage test for that Plan Year. However, if
different testing methods are used, then the Plan cannot use:
(1) The recharacterization method of Treasury Regulation
Section 1.401(k)-2(b)(3) to correct excess contributions
for a Plan Year; or
27
(2) The rules of Treasury Regulation Section
1.401(m)-2(a)(6)(ii) to take Elective Deferral
Contributions into account under the Average Actual
Contribution Percentage test (rather than the Average
Actual Deferral Percentage test).
ARTICLE 8
VESTING
-------
8.01 Vested Percentage of Accounts. Except as provided for in Section
12.09(d), a Participant shall be vested in the following percentages of his
Accounts:
(a) 100% of his Elective Deferral Contribution Account, Rollover
Account and Prior Employer Accounts, if any, plus
(b) a percentage of his Employer Accounts, which shall vest in
accordance with the following schedule:
Years of Service Vested Percentage
---------------- -----------------
less than 2 0%
2 but less than 3 20%
3 but less than 4 40%
4 but less than 5 60%
5 but less than 6 80%
6 or more 100%
(c) Notwithstanding the above, a Participant's shall become fully
(100%) vested upon (1) his Early Retirement Date or Normal
Retirement Date, if he is then an Employee, (2) his death, if
he was an Employee immediately before his death, or (3) the
determination that he is unable to continue his previous
employment on account of Disability.
8.02 Amount Subject to Distribution Upon Termination of Employment. Upon
Termination of Employment, a Participant may request a distribution
of the vested percentage of his Accounts as described in Section
8.01 hereof. Such distribution shall be distributed in accordance
with Article 10. The portion of a Participant's Employer Account
that is not vested shall be forfeited in accordance with Section
8.03.
8.03 Forfeitures.
------------
(a) When a Participant has a Termination of Employment but does not
receive a distribution of his vested Employer Account prior to
incurring five consecutive One Year Break in Service, the
Employer Account shall continue to be credited with investment
gains and losses until distribution of the vested percentage of
the Employer Account commences. Upon incurring five
consecutive One Year Breaks in Service, the Participant's
non-vested Account balance shall be forfeited.
28
(b) If a Participant has a Termination of Employment and receives a
distribution of his entire vested Employer Account prior to
incurring five consecutive One Year Breaks in Service, the
non-vested portion of the Employer Account, will be forfeited.
(c) When a Participant forfeits the non-vested portion of his
Employer Account, to the extent possible, the Account must
first be forfeited from assets other than Common Stock
allocated to such Participant's Employer Account before making
a Forfeiture from the Participant's Common Stock allocated to
such Participant's Employer Account (or any other Account of a
Participant holding Employer Common Stock), and then from the
Common Stock allocated to such Participant's Employer Account
(or any other Account of a Participant holding Common Stock),
provided that any Financed Stock allocated to such
Participant's Employer Account shall be forfeited last. If the
Participant has an interest in more than one class of
qualifying employer securities which have been allocated to a
Participant's Employer Account (and any other Account holding
employer securities), to the extent possible, all qualifying
employer securities must be forfeited the same proportion of
each class of qualifying employer securities held in the
Participant's Employer Account (and any other Account holding
qualifying employer securities).
(d) A Participant is eligible to have a previous Forfeiture
restored, if (1) he previously incurred a Forfeiture under this
Article, (2) he again becomes an Employee before he has five
(5) consecutive One Year Breaks in Service, and (3) he repays
any distribution that he previously received, in the manner
specified in Section 8.03(f).
(e) Any repayment in accordance with (d) above must be made no
later than the earlier of (1) the end of the Plan Year in which
the individual incurs a five (5) consecutive One Year Breaks in
Service, counting from the Plan Year beginning immediately
after distribution or deemed distribution that resulted in his
Forfeiture or (2) the fifth (5th) anniversary of his
reemployment.
(f) In order to exercise his right of repayment, the Participant
must repay to the Trust, without interest (1) an amount equal
to any cash he received as part of the distribution that
resulted in his Forfeiture, plus (2) all Company Stock that was
then distributed to him. Cash or other property may not be
restored to the Trust in lieu of Company Stock, but the shares
restored need not be the same ones that were originally
distributed. A Participant who had no vested interest in his
Accounts at the time of his Forfeiture is automatically deemed
to have complied with the terms of this Section as of the date
on which he becomes eligible to make a repayment.
(g) If a Participant complies with the conditions of the applicable
provisions of this Section 8.03, his Accounts will be credited
with both the cash and Company Stock that he has repaid and the
interest in his Accounts that he had previously forfeited,
unadjusted for any income, expenses, gains or losses since the
time of forfeiture. This restoration is to be made, first, out
of
29
Forfeitures arising in the Plan Year of repayment, and, second,
out of employer contributions and shares of Company Stock
released from the Unallocated Stock Account in the Plan Year of
repayment. The Participant's Employer is required to make any
contributions necessary to make a complete restoration.
ARTICLE 9
IN-SERVICE WITHDRAWALS
----------------------
9.01 Hardship Withdrawals. A Participant may apply in writing to the
Committee for a hardship withdrawal of part or all of his Elective Deferral
Contributions Account (other than earnings credited to his Elective Deferral
Contribution Account on or after January 1, 1989). The Committee, in its
discretion, and in accordance with the provisions of this Section 9.01, shall
determine whether a withdrawal of part or all of such account is necessary to
alleviate the hardship. For purposes of Section 9.01(a), a distribution is on
account of hardship only if the distribution both is made on account of an
immediate and heavy financial need of the participant as determined in
accordance with Section 9.01(a) below, and is necessary to satisfy such
financial need as determined in accordance with Section 9.01(b) below. The
determination by the Committee of the existence of an immediate and heavy
financial need and of the amount necessary to meet the need shall be made in a
non-discriminatory and consistent manner. The determination of hardship by the
Committee shall be final and binding.
(a) A distribution will be deemed to be made on account of an
immediate and heavy financial need of the participant only if
the distribution is on account of the financial needs described
in this Section 9.01(a), in which case the Committee may
reasonably rely upon the participant's representation that the
financial need is on account of:
(1) Expenses for (or necessary to obtain) medical care that
would be deductible under Code Section 213(d)
(determined without regard to whether the expenses
exceed 7.5% of adjusted gross income);
(2) Costs directly related to the purchase of a principal
residence for the Participant (excluding mortgage
payments);
(3) Payment of tuition, related educational fees, and room
and board expenses, for up to the next twelve (12)
months of post-secondary education for the Participant,
the Participant's spouse, children, or dependents (as
defined in Code Section 152, and, for taxable years
beginning on or after January 1, 2005, without regard to
Code Sections 152(b)(1), (b)(2), and (d)(1)(B));
(4) Payments necessary to prevent the eviction of the
Participant from the Participant's principal residence
or foreclosure on the mortgage on that residence;
(5) Payments for burial or funeral expenses for the
Participant's deceased parent, spouse, children or
dependents (as defined in Code Section
30
152, and, for taxable years beginning on or after
January 1, 2005, without regard to Code Section
152(d)(1)(B)); or
(6) Expenses for the repair of damage to the Employee's
principal residence that would qualify for the casualty
deduction under Code Section 165 (determined without
regard to whether the loss exceeds 10% of adjusted gross
income.
A financial need shall not fail to qualify as immediate and
heavy merely because such need was reasonably foreseeable or
voluntarily incurred by the Participant. There shall be no
reduction in the maximum amount of Elective Deferral
Contributions that a Participant may make pursuant to Code
Section 402(g) solely because of a hardship distribution made
by this Plan or any other plan of the Employer.
(b) A distribution will be deemed to be necessary to satisfy an
immediate and heavy financial need of a Participant if all of
the following requirements are satisfied:
(1) the distribution is not in excess of the amount of the
immediate and heavy financial need of the Participant,
including any amounts necessary to satisfy applicable
federal, state and local income taxes, excise taxes and
penalty taxes which may be reasonably anticipated to
result from the distribution;
(2) the Participant has obtained all distributions
(including distributions currently available to the
Participant as provided for in Section 12.09), other
than hardship distributions, and all non-taxable loans
currently available under all plans maintained by the
Employer, and
(3) the Participant does not make a contribution to this
Plan or to any other plan of deferred compensation
contrary to the provisions of Section 9.02.
9.02 Suspension of Contributions Due to Hardship Withdrawal. If a
Participant receives a hardship withdrawal, such Participant shall not be
permitted to make:
(a) Elective Deferrals for the 12 month period following the
date of receipt of the hardship withdrawal; and
(b) Contributions to any other qualified or nonqualified
plan of deferred compensation maintained by the Employer
including, but not limited to, stock option plans and
stock purchase plans for the 12-month period following
the date of receipt of the hardship withdrawal.
31
ARTICLE 10
PAYMENTS TO PARTICIPANTS AND THEIR BENEFICIARIES
------------------------------------------------
10.01 Definitions.
------------
(a) "Designated Beneficiary" shall mean the individual who is
designated as the beneficiary under Section 2.09 of the Plan
and is the designated beneficiary under Code Section 401(a)(9)
and Treasury Regulation Section 1.401(a)(9)-l, Q&A-4.
(b) "Distribution Calendar Year" shall mean 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
under Section 10.07(b)(2). The required minimum distribution
for the Participant's first distribution calendar year will be
made on or before the Participant's required beginning date.
The required minimum distribution for other distribution
calendar years, including the required minimum distribution for
the distribution calendar year in which the Participant's
required beginning date occurs, will be made on or before
December 31 of that distribution calendar year.
(c) "Life Expectancy" shall mean life expectancy as computed by use
of the Single Life Table in Treasury Regulation Section
1.401(a)(9)-9.
(d) "Participant's Account Balance" shall mean the account balance
as of the last Valuation Date in the calendar year immediately
preceding the Distribution Calendar Year (valuation calendar
year) increased by the amount of any contributions made and
allocated or forfeitures allocated to the account balance as of
dates in the valuation calendar year after the valuation date
and decreased by distributions made in the valuation calendar
year after the valuation date. The account balance for the
valuation calendar year includes any amounts rolled over or
transferred to the Plan either in the valuation calendar year
or in the distribution calendar year if distributed or
transferred in the valuation calendar year.
10.02 Commencement of Distribution. The Participant's Account shall be
distributed at the earliest of the following dates:
(a) Termination of Employment. If a Participant has a Termination
Date other than on account of death, the Participant's Account
shall be distributed as soon as administratively feasible
following the Participant's Termination Date and receipt by the
Committee of the Participant's request for a distribution.
(b) Death. If a Participant has a Termination Date on account of
death, the Participant's Account shall be distributed within
ninety (90) days after the
32
Participant's death unless the particular facts and
circumstances require a longer wait.
(c) Consent of Participant. A Participant's consent to a
distribution of his Account shall be subject to the following:
(1) If the value of a Participant's vested Accounts to be
distributed is less than or equal to $1,000, computed on
the Participant's Termination Date, the Participant's
vested Account balance shall be distributed in a lump
sum payment as soon as administratively feasible after
his Termination Date.
(2) If the value of a Participant's vested Accounts as of
his Termination Date is greater than $1,000, the
Participant's consent to a distribution shall be
required; provided that, notwithstanding the lack of
consent, distribution shall be made no later than the
date established under Section 10.07 for mandatory
distributions.
(3) Notwithstanding the above, the value of a Participant's
nonforfeitable Account balance shall be determined
without regard to that portion of the Account balance
that is attributable to Rollover Contributions (and
earnings allocable thereto) within the meaning of
sections 402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii),
and 457(e)(16) of the Code. If the value of the
Participant's vested Accounts as so determined is $1,000
or less, the Plan shall immediately distribute the
Participant's entire vested Account balance.
(d) Retirement After Age 65. Notwithstanding any other provision of
the Plan, unless the Participant otherwise elects, the payment
of benefits under this Plan shall begin not later than the 60th
day after the latest of the close of the Plan Year in which
occurs (1) the Participant's Normal Retirement Age or (2) the
Participant's Termination Date.
10.03 Forms of Payments. Except as provided for in Section 10.04, a
Participant may elect to receive a distribution in the form of a single lump sum
payment of his entire vested Account. However, with respect to his Accounts
invested in the Company Stock Fund, a Participant may elect a distribution in
the form of cash, or full shares of Common Stock and cash in lieu of fractional
shares.
10.04 Prior Employer Accounts.
------------------------
(a) If a Participant has a Termination Date, payments to
Participants attributable to Prior Employer Accounts whose
employment is terminated by reason of Retirement, death or
Disability shall be made in accordance with Section 10.04(b)
and Appendix C. Except as provided for in Section 10.02(c), the
Participant shall elect the method of payment from those
described in Section 10.04(b). However, any such election may
be amended by the Committee, taking into account the election,
if any, made by the Participant or the Participant's
Beneficiary, to comply with the requirements of Section 10.07.
33
(b) A Participant may elect the following methods of payment for
his Prior Employer Accounts: (1) a lump sum to be paid as soon
as is administratively practicable after termination of
employment; or (2) in monthly, quarterly, semi-annual or annual
cash installments over a period certain that does not extend
beyond the Participant's life, or beyond the lives of the
Participant and a designated Beneficiary (or beyond the life
expectancy of the Participant or the joint and last survivor
expectancy of the Participant and a designated Beneficiary), in
which event the lump sum value of the benefit will either be
segregated and separately invested by the Trustee, or it will
be invested in a nontransferable annuity providing for
installment payments.
(c) Notwithstanding the above, a Participant's Prior Employer
Account shall be distributed in the form of a single lump sum
payment of the Participant's entire vested Prior Employer
Account. No distribution shall be made in the form of an
annuity or cash installment.
10.05 Valuation Upon Distribution. Valuation for purposes of payment to a
Participant or his Beneficiary shall be made shall be determined as of the
Valuation Date coincident with or next following his Termination Date. If
Company Stock is distributed in the form of cash, the Participant shall receive
cash equal to the amount of the "fair market value" of the Company Stock as of
the Valuation Date coincident with or immediately following his application for
a distribution.
10.06 Payments When a Loan is Outstanding. Payments to Participants who
have borrowed from their Accounts pursuant to Article 11 will also be governed
by Section 11.03(b).
10.07 Minimum Distribution Requirements.
----------------------------------
(a) General Rules
-------------
(1) Requirements of Treasury Regulations Incorporated. All
distributions required under this Section 10.07 will be
determined and made in accordance with the Treasury
Regulations under Code Section 401(a)(9).
(2) TEFRA Section 242(b)(2) Elections. Notwithstanding the
other provisions of this Section 10.07, distributions
may be made under a designation made before January 1,
1984, in accordance with Section 242(b)(2) of the Tax
Equity and Fiscal Responsibility Act (TEFRA) and the
provisions of the Plan that relate to Section 242(b)(2)
of TEFRA.
(b) Time and Manner of Distribution.
--------------------------------
(1) Required Beginning Date. The Participant's entire
interest will be distributed, or begin to be
distributed, to the Participant no later than the
Participant's required beginning date. For purposes of
this Section:
34
(i) The term "required beginning date" of a Participant is
the later of the first day of April of the calendar year
following: (A) the calendar year in which the
Participant attains age 70 1/2, or (B) the calendar year
in which the Participant retires if the Participant is
not a 5-percent owner of the Employer.
(ii) The "required beginning date" for a Participant who is a
5-percent Owner (as defined in Code Section 401(a)(9))
shall not be later than April 1 of the calendar year
following the calendar year in which the participant
attains age 70 1/2.
(iii) Once distributions have begun to a 5-percent owner under
this Section, they must continue to be distributed, even
if the Participant ceases to be a 5-percent owner in a
subsequent year.
(2) Death of Participant Before Distributions Begin. If the
Participant dies before distributions begin, the Participant's
entire interest will be distributed, or begin to be
distributed, no later than as follows:
(i) If the Participant's surviving spouse is the
Participant's sole designated beneficiary, then
distributions to the surviving spouse will begin by
December 31 of the calendar year immediately following
the calendar year in which the Participant died, or by
December 31 of the calendar year in which the
Participant would have attained age 70 1/2, if later.
(ii) If the Participant's surviving spouse is not the
Participant's sole designated beneficiary, then
distributions to the designated beneficiary will begin
by December 31 of the calendar year immediately
following the calendar year in which the Participant
died.
(iii) If there is no designated beneficiary as of September 30
of the year following the year of the Participant's
death, the Participant's entire interest will be
distributed by December 31 of the calendar year
containing the fifth anniversary of the Participant's
death.
(iv) If the Participant's surviving spouse is the
Participant's sole designated beneficiary and the
surviving spouse dies after the Participant but before
distributions to the surviving spouse begin, this
Section 10.07(b)(2), other than Section 10.07(b)(2)(i),
will apply as if the surviving spouse was the
Participant.
For purposes of this Section 10.07(b) and Section 10.07(d) unless
Section 10.07(b)(2)(iv) applies, distributions are considered to
begin on the Participant's required beginning date. If Section
10.07(b)(2)(iv) applies,
35
distributions are considered to begin on the date distributions
are required to begin to the surviving spouse under Section
10.07(b)(2)(i). If distributions under an annuity purchased
from an insurance company irrevocably commence to the
Participant before the Participant's required beginning date
(or to the Participant's surviving spouse before the date
distributions are required to begin to the surviving spouse
under Section 10.07(b)(2)(i)), the date distributions are
considered to begin is the date distributions actually commence.
(3) Forms of Distribution. Unless the Participant's
interest is distributed in the form of an annuity
purchased from an insurance company or in a single sum
on or before the required beginning date, as of the
first distribution calendar year distributions will be
made in accordance with Sections 10.07(c) and 10.07(d)
of the Plan. If the Participant's interest is
distributed in the form of an annuity purchased from an
insurance company, distributions thereunder will be made
in accordance with the requirements of Code Section
401(a)(9) and the Treasury Regulations.
(c) Required Minimum Distributions During Participant's Lifetime.
-------------------------------------------------------------
(1) Amount of Required Minimum Distribution for Each
Distribution Calendar Year. During the Participant's
lifetime, the minimum amount that will be distributed
for each distribution calendar year is the lesser of:
(i) the quotient obtained by dividing the
Participant's account balance by the distribution
period in the Uniform Lifetime Table set forth in
Section 1.401(a)(9)-9 of the Treasury Regulations,
using the Participant's age as of the
Participant's birthday in the distribution
calendar year; or
(ii) if the Participant's sole designated beneficiary
for the distribution calendar year is the
Participant's spouse, the quotient obtained by
dividing the Participant's account balance by the
number in the Joint and Last Survivor Table set
forth in Section 1.401(a)(9)-9 of the Treasury
Regulations, using the Participant's and spouse's
attained ages as of the Participant's and spouse's
birthdays in the distribution calendar year.
(2) Lifetime Required Minimum Distributions Continue Through
Year of Participant's Death. Required minimum
distributions will be determined under this Section
10.07(c) beginning with the first distribution calendar
year and up to and including the distribution calendar
year that includes the Participant's date of death.
36
(d) Required Minimum Distributions After Participant's Death.
---------------------------------------------------------
(1) Death On or After Date Distributions Begin.
-------------------------------------------
(i) Participant Survived by Designated Beneficiary. If
the Participant dies on or after the date
distributions begin and there is a designated
beneficiary, the minimum amount that will be
distributed for each distribution calendar year
after the year of the Participant's death is the
quotient obtained by dividing the Participant's
account balance by the longer of the remaining
life expectancy of the Participant or the
remaining life expectancy of the Participant's
designated beneficiary, determined as follows:
(A) The Participant's remaining life expectancy
is calculated using the age of the
Participant in the year of death, reduced by
one for each subsequent year.
(B) If the Participant's surviving spouse is the
Participant's sole designated beneficiary,
the remaining life expectancy of the
surviving spouse is calculated for each
distribution calendar year after the year of
the Participant's death using the surviving
spouse's age as of the spouse's birthday in
that year. For distribution calendar years
after the year of the surviving spouse's
death, the remaining life expectancy of the
surviving spouse is calculated using the age
of the surviving spouse as of the spouse's
birthday in the calendar year of the spouse's
death, reduced by one for each subsequent
calendar year.
(C) If the Participant's surviving spouse is not
the Participant's sole designated
beneficiary, the designated beneficiary's
remaining life expectancy is calculated using
the age of the beneficiary in the year
following the year of the Participant's
death, reduced by one for each subsequent
year.
(ii) No Designated Beneficiary. If the Participant dies
on or after the date distributions begin and there
is no designated beneficiary as of September 30 of
the year after the year of the Participant's
death, the minimum amount that will be distributed
for each distribution calendar year after the year
of the Participant's death is the quotient
obtained by dividing the Participant's account
balance by the Participant's remaining life
expectancy calculated using the age of the
Participant in the year of death, reduced by one
for each subsequent year.
37
(e) Death Before Date Distributions Begin.
--------------------------------------
(1) Participant Survived by Designated Beneficiary. If the
Participant dies before the date distributions begin and
there is a designated beneficiary, the minimum amount
that will be distributed for each distribution calendar
year after the year of the Participant's death is the
quotient obtained by dividing the Participant's account
balance by the remaining life expectancy of the
Participant's designated beneficiary, determined as
provided in Section 10.07(d)(1).
(2) No Designated Beneficiary. If the Participant dies
before the date distributions begin and there is no
designated beneficiary as of September 30 of the year
following the year of the Participant's death,
distribution of the Participant's entire interest will
be completed by December 31 of the calendar year
containing the fifth anniversary of the Participant's
death.
(3) Death of Surviving Spouse Before Distributions to
Surviving Spouse Are Required to Begin. If the
Participant dies before the date distributions begin,
the Participant's surviving spouse is the Participant's
sole designated beneficiary, and the surviving spouse
dies before distributions are required to begin to the
surviving spouse under Section 10.07(b)(2), this Section
10.07(e)(3) will apply as if the surviving spouse were
the Participant.
(f) Notwithstanding the foregoing provisions of this Section 10.07,
if the value of a Participant's vested Accounts to be
distributed is less than or equal to $1,000, computed on the
Participant's Termination of Employment, the Participant's
vested Account balance shall be distributed in a lump sum
payment as soon as practicable after his Termination of
Employment.
10.08 Qualified Domestic Relations Orders. Notwithstanding any other
provisions of this Article 10, any Account of a Participant may be apportioned
between the Participant and an alternate payee (as defined in Code Section
414(p)(8)) either through separate Accounts or by providing the alternate payee
a percentage of the Participant's Account. The Committee shall notify the
affected Participant and each alternate payee of the order and determine that
the order is a qualified domestic relations order as defined in Code Section
414(p)(1)(A).
10.09 Payment to Minors and Incapacitated Persons. In the event that any
amount is payable to a minor or to any person who, in the judgment of the
Committee, is incapable of making proper disposition thereof, such payment shall
be made for the benefit of such minor or such person in any of the following
ways as the Committee, in its sole discretion, shall determine:
(a) By payment to the legal representative of such minor or such
person;
(b) By payment directly to such minor or such person;
(c) By payment in discharge of bills incurred by or for the benefit
of such minor or such person. The Trustee shall make such
payments as directed by the
38
Committee without the necessary intervention of any guardian or
like fiduciary and without any obligation to require bond or to
see the further application of such payment. Any payment so
made shall be in complete discharge of the Plan's obligation to
the Participant and his Beneficiaries.
10.10 Notices to Participants. The Committee shall distribute or cause to
be distributed to each Participant who has requested a withdrawal or
distribution a notice, containing the information described in Code Section
402(f). Such notice shall be provided within a reasonable time, not in excess of
90 days, prior to the date of such withdrawal or distribution. Such notice shall
clearly inform the Participant that the Participant has a right to a period of
at least 30 days after receiving the notice to consider the decision of whether
or not to elect a distribution or withdrawal (or, if applicable, a particular
distribution option). Distribution or withdrawal shall not be made within such
30-day period, unless the Participant affirmatively elects otherwise. A
Participant shall be permitted to revoke his election at any time prior to the
annuity starting date, or, if later, the end of the seven-day period beginning
on the date the above described notice was provided.
10.11 Eligible Rollover Distributions.
--------------------------------
(a) A Participant may elect, at a time and in the manner prescribed
by Committee, to have any portion of an eligible rollover
distribution paid directly to an eligible retirement plan
specified by the Participant in a direct rollover. An eligible
rollover distribution shall be a distribution of all or any
portion of the balance to the credit of a Participant, except
that an eligible rollover distribution shall not include any
distribution which is part of a series of installment payments
over a 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
includable in gross income (determined without regard to the
exclusion for net unrealized appreciation with respect to
employer securities). An eligible individual retirement plan is
an individual retirement account as described in Code Section
408(a), an individual retirement annuity as described in Code
Section 408(b), or a qualified trust described in Code Section
401 which accepts the Participant's eligible rollover
distribution. This Section shall also apply to distributions to
the surviving spouse of a deceased Participant, or to the
alternate payee of a Participant under a Qualified Domestic
Relations Order, provided that, in the case of a distribution
to a surviving spouse, eligible retirement plan shall include
only an individual retirement account or an individual
retirement annuity.
(b) Notwithstanding the above, an eligible retirement plan shall
also mean an annuity contract described in Code Section 403(b)
and an eligible plan under Code Section 457(b) which is
maintained by a state, political subdivision of a state, or any
agency or instrumentality of a state or political subdivision
of a state and which agrees to separately account for amounts
transferred into such plan from this plan. The definition of
eligible retirement plan shall also apply in the case of a
distribution to a surviving spouse, or to a spouse or former
spouse who is the alternate payee under a qualified domestic
relation order, as defined in Code Section 414(p).
39
(c) For purposes of this Section 10.11, any amount that is
distributed on account of hardship shall not be an eligible
rollover distribution and the distributee may not elect to have
any portion of such a distribution paid directly to an eligible
retirement plan.
10.12 Age 59 1/2 Withdrawals. A Participant who has attained age 59 1/2 may
withdraw any portion of any Account in which he is fully (100%) vested, as of
any Valuation Date giving written notice to the Committee, in such form as the
Committee may require, at least fifteen (15) days before the date as of which
the withdrawal is to be made. A Participant may make no more than two
withdrawals under this Section 10.12 in any Plan Year. The amount he elects to
withdraw will be distributed to him as soon as administratively feasible after
the appropriate Valuation Date.
ARTICLE 11
LOANS
-----
11.01 Availability of Loans. Loans shall be permitted to Participants
under this Plan, as established by the policy of the Committee. Any such loan
shall be subject to such conditions and limitations (including such loan
guidelines as may, from time to time, be established by the Committee) as the
Committee deems necessary for administrative convenience and to preserve the
tax-qualified status of the Plan. Notwithstanding the foregoing, except to the
extent otherwise required under the Code or ERISA, loans shall not be permitted
under this Plan to (a) any Beneficiary or (b) any Participant after the
Participant has terminated employment with the Employer and its Affiliates.
11.02 Amount of Loans. Subject to the limitations contained in this
Article 11, any Participant may borrow from his Accounts an amount not exceeding
the lesser of the following:
(a) 50% of the combined current value of the Participant's Elective
Deferral Account, Rollover Account and vested Company Account,
determined on the date of such Participant's request for a
loan, reduced by the outstanding balance of all other loans
from the Plan, or
(b) the vested portion of his Accounts up to $50,000, reduced by
the greater of (1) the highest outstanding balance of loans
from the Plan during the one-year period ending on the day
before the date on which such loan is made, or (2) the
outstanding balance of loans from the Plan on the date on which
such loan is made.
11.03 Conditions of the Loan. The loan shall be subject to the following
conditions:
(a) The interest rate on all loans shall be commercially reasonable
at the time the Committee approves the loan. All loans shall be
evidenced by a note and shall be adequately secured as to
principal and interest. No more than 50% of the Participant's
vested portion of his Accounts valued immediately after the
origination of each loan shall serve as security for his
outstanding loan, provided, however, that the terms of any loan
may be adjusted at any time, in the sole and absolute
discretion of the Committee to ensure that there is
40
adequate security for the loan. No loan may have a term in
excess of five years, except for a loan obtained to acquire a
principal residence which may not have a term in excess of
fifteen years.
(b) The Committee shall be responsible for the collection of all
loans. Upon default of any loan, the entire unpaid balance
shall, if the immediate distribution of the Participant's
Account is to be made, be offset against that portion of the
Participant's Account which serve as security for his loan,
upon his first becoming entitled to received a distribution in
accordance with the relevant portion of Article 10 of the Plan,
whether or not the Participant elects to have his payments
commence at that time.
11.04 Loan Policy. The Committee is authorized and directed to administer
the loan program in accordance with the regulations and rulings of the Internal
Revenue Service and the Department of Labor. The Committee may establish such
additional guidelines and rules as it deems necessary. Such guidelines and rules
shall be set forth in the loan policy and the terms specified in such loan
policy are hereby incorporated by reference in the Plan. The Committee may amend
or modify the loan policy as it deems necessary to carry out the provisions of
this Article 11.
ARTICLE 12
LEVERAGED EMPLOYEE STOCK
OWNERSHIP PLAN PROVISIONS
-------------------------
12.01 Effect of Article. Notwithstanding anything to the contrary
contained in the Plan, the provisions of this Article 12 shall control the
interpretation and administration of the Plan where applicable.
12.02 Definitions. The following terms when used in this Article 12 shall
have the designated meaning unless a different meaning is plainly required by
the context in which the term is used:
(a) "Disqualified Person" shall mean a person defined in Code
Section 4975(e)(2) and shall mean a party in interest as
defined in ERISA Section 3(14).
(b) "Exempt Loan" shall mean any loan made to the Leveraged ESOP,
by a Disqualified Person or guaranteed by a Disqualified
Person, pursuant to the provisions of Section 12.04.
(c) "Financed Stock" shall mean Common Stock acquired with the
proceeds of an Exempt Loan.
(d) "Indebtedness" shall mean the principal amount of any
indebtedness incurred by the Plan in connection with the
acquisition of Financed Stock.
(e) "Interest" shall mean interest payable by the Plan with respect
to Indebtedness.
41
(f) "Leveraged ESOP" shall mean the portion of the Plan described in
this Article 12.
(g) "Release Date" shall mean each date specified in Section
12.05(c) for the release of shares of Common Stock from the
Stock Suspense Account for allocation to Participants' Employer
Accounts.
(h) "Stock Suspense Account" shall mean an account credited with the
Financed Stock prior to the release there from in accordance
with Section 12.05(d).
(i) "Unallocated Financed Stock" shall mean shares of Financed
Stock that remain in the Stock Suspense Account prior to the
release of such shares from the Stock Suspense Account and the
allocation of such shares to Participants' Employer Accounts.
12.03 Purpose and Nature of the Leveraged ESOP.
-----------------------------------------
(a) The primary purpose of the Leveraged ESOP is to enable
Participants to share in the growth and prosperity of HEICO
Corporation and its Affiliates by enabling Participants to
acquire stock ownership interests in the form of Common Stock.
Accordingly, the Leveraged ESOP is an employee stock ownership
plan within the meaning of Code Section 4975(e)(7) which is
designed to invest primarily in Common Stock. The Leveraged
ESOP may engage in loans (or other extensions of credit) to
finance its acquisition of Common Stock, including such loans
(or extensions of credit) from or secured primarily by a
guarantee of the Company or an Affiliated Company or the
expectation that the Company and its Affiliated Companies will
make contributions to the Leveraged ESOP in amounts sufficient
to enable the Leveraged ESOP to amortize such loans (or
extensions of credit).
(b) The Leveraged ESOP is intended to be and shall be a stock bonus
plan within the meaning of Treasury Regulation Section
1.401-1(b)(1)(iii) that is qualified under Code Section 401(a).
It is designed to meet the requirements for an employee stock
ownership plan within the meaning of Code Section 4975(e)(7)
and ERISA Section 407(d)(6) and regulations thereunder and may
enter into one or more Exempt Loans pursuant to this Article
12. Separate accounting shall be maintained with respect to the
Leveraged ESOP, any Exempt Loan and Financed Stock acquired
with the proceeds of such Exempt Loan.
(c) The terms of any Exempt Loan shall comply with all the
requirements necessary to constitute an "exempt loan" within
the meaning of Treasury Regulation Section 54.4975-7(b).
12.04 Requirements as to Exempt Loans. No loan shall be entered into on
behalf of the Leveraged ESOP which is a loan made or guaranteed by a
Disqualified Person unless the Committee determines that all of the requirements
of this Section including each of the following requirements are met:
42
(a) the terms shall be as favorable to the Plan as the terms of a
comparable loan from arms-length negotiations between
independent parties;
(b) the interest rate shall be no more than a reasonable interest
rate considering all relevant factors including the amount and
duration of the loan, the security and guarantee involved, the
credit standing of the Plan and the guarantor of the loan, and
the interest rate prevailing for comparable loans;
(c) the loan shall be without recourse against the Plan;
(d) the loan must be for a specific term under which the number of
years to maturity is definitely ascertainable at all times;
(e) the loan may not be payable at the demand of any person except
in the case of default;
(f) the only assets of the Plan that may be given as collateral on
the loan are Common Stock acquired with the proceeds of the
Exempt Loan or Common Stock used as collateral on a prior
Exempt Loan repaid with the proceeds of the Exempt Loan;
(g) no person entitled to payment under the loan shall have any
right to assets of the Plan other than collateral given for the
loan, contributions made to the Plan to enable it to meet its
obligations under the loan, and earnings attributable to such
collateral and such contributions;
(h) the value of Plan assets transferred in satisfaction of the loan
upon an event of default shall not exceed the amount of the
default;
(i) if the lender is a Disqualified Person, Plan assets may only be
transferred upon default only upon and to the extent of the
failure of the Plan to meet the payment schedule of the loan;
(j) upon payment of any portion of the balance due on the loan, the
assets pledged as collateral for such portion shall be released
from encumbrance;
(k) the loan shall be repaid only from proceeds of an Exempt Loan,
amounts contributed to the Plan by the Company or its
Affiliated Companies to enable the Plan to repay such loan,
earnings on such contributions, and earnings on Financed Stock
acquired with the proceeds of such loan (including dividends
and proceeds of sale of such Financed Stock, so long as such
use of proceeds complies with applicable requirements of the
Code and regulations thereunder); and
(l) the loan must be primarily for the benefit of Participants and
their beneficiaries.
43
12.05 Use of Exempt Loan Proceeds.
----------------------------
(a) The proceeds of any Exempt Loan shall be used within a
reasonable time after receipt thereof to acquire Common Stock,
to repay such loan, or to repay a prior Exempt Loan as
determined by the Committee in its sole discretion. Except as
required by law, Common Stock acquired with the proceeds of an
Exempt Loan may not at that time or at any time thereafter be
subject to any put, call, option, buy-sell or other similar
arrangement.
(b) All shares of Common Stock acquired by the Trustee with the
proceeds of an Exempt Loan shall be allocated to a separate
Stock Suspense Account within the Trust and be held therein
until allocated to the Employer Accounts of Participants
pursuant to the provisions of Section (d) below.
(c) As of the last day of any Plan Year (each date being referred
to as a "Release Date"), there shall be released from the Stock
Suspense Account and allocated to Participants' Company
Accounts in accordance with the provisions of Section 12.06(c)
below a number of shares of Financed Stock, as determined in a
reasonable and nondiscriminatory manner by the Committee and
subject to the provisions of Sections (d) and (e) below.
(d) If the conditions of this Section 12.05(d) are satisfied, the
percentage of Financed Stock to be released on each Release
Date equals the Indebtedness repaid during the current Plan
Year divided by the Indebtedness originally incurred.
(1) The formula set forth in this Section 12.05(d) may be
used if (i) the Board elects its use no later than the
time when stock acquired under a particular Loan
Agreement is first released, (ii) the term of the Loan
Agreement does not exceed ten (10) years, and (iii) the
Loan Agreement provides for the repayment of
Indebtedness on a basis that results in the amortization
of Indebtedness no less rapidly than under standard
amortization tables.
(e) If the formula set forth in Section 12.05(d) is not used, the
percentage of shares of Financed Stock so released from the
Stock Suspense Account, as of each Release Date shall not be
less than the total number of shares of Financed Stock in the
Stock Suspense Account immediately prior to the first day of
such Plan Year multiplied by a fraction, the numerator of which
is equal to the total dollar amount of Indebtedness and
Interest actually paid by the Trustee with respect to such Plan
Year to amortize the Exempt Loan and the denominator of which
is the sum of the numerator plus the total dollar amount of
Indebtedness and Interest due for all future periods of such
Exempt Loan after the end of such Plan Year.
12.06 Allocations and Accounting.
---------------------------
(a) The provisions of this Section 12.06 shall govern the
allocation of Employer Contributions that are used to make
payments on an Exempt Loan.
44
(b) Any Financed Stock acquired by the Leveraged ESOP shall be
allocated initially to the Stock Suspense Account. Each
Participant's Employer Account shall reflect such Participant's
interest in the Leveraged ESOP.
(1) Each Participant's Employer Account shall be credited
with its allocated share of Common Stock released from
the Stock Suspense Account pursuant to Sections 12.05(d)
and 12.05(e). Each Participant's Employer Account will
be credited with its allocable share of cash dividends
on Common Stock allocated to such Participant's Employer
Account and proceeds from the sale of such shares of
Common Stock.
(2) Each Participant's Employer Account shall be debited for
Common Stock distributed to said Participant from such
Employer Account pursuant to applicable Plan provisions,
or for its allocable share of Common Stock sold by the
Trustee or otherwise removed from such Employer Account
in accordance with any applicable provisions of the
Plan. Each Participant's Employer Account shall be
debited for cash payments which are distributed to said
Participant from such Account pursuant to applicable
Plan provisions.
(c) All Common Stock released from the Stock Suspense Account as of
any Release Date are allocated among the Participants' Employer
Matching Contribution Account, to the extent that Employer
Matching Contributions made on their behalf were utilized to
pay Interest or repay Indebtedness. Common Stock not so
allocated is allocated to the Equity Builder Contributions
Account of active Participants in accordance with the
provisions of Section 4.04(b).
(d) As of each Release Date in each Plan Year, the Financed Stock
that is released from the Stock Suspense Account, if any,
pursuant to the provisions of Sections 12.05(d) and 12.05(e)
shall be allocated to the Employer Accounts of Participants.
Each Participant's allocable share of Financed Stock shall be
calculated by multiplying the aggregate number of shares of
Financed Stock released on such Release Date by a fraction, the
numerator of which is the Contribution made for such Plan Year
by the Employer on behalf of such Participant pursuant to
Section 4.04, and the denominator of which is the aggregate
contribution to be made by the Employer on behalf of all
Participants pursuant to Section 4.04 for such Plan Year.
12.07 Use of Cash Dividends on Common Stock.
--------------------------------------
(a) All dividends received with respect to Financed Stock are used
to pay Interest or repay Indebtedness. If, however, dividends
that would otherwise be allocated to Participants' Accounts or
distributed to them in accordance with Section 12.08 are used
to pay Interest or repay Indebtedness, Company Stock equal in
value to the dividends so applied must be allocated to each
Participant's Equity Builder Account, in addition to any other
allocations under this Plan.
45
(b) Except as otherwise provided for in Section 12.09, after a loan
has been repaid, dividends on stock acquired with the proceeds
of the loan are distributed or allocated in accordance with
Section 12.08. The refinancing of a loan through a new loan
transaction is not deemed to be repayment for purposes of this
Section 12.07.
12.08 Pass-Through of Dividends on Company Stock. Effective for Plan Years
beginning before January 1, 2002, and except as otherwise provided for in
Section 12.07, all dividends received with respect to Company Stock held by the
Plan must, in the discretion of the Committee, either be (a) distributed to
Participants no later than 90 days after the end of the Plan Year in which they
are received, or (b) allocated to Participants' Equity Builder Accounts; or (c)
allocated to Participants' Matching Contribution Accounts. This distribution or
allocation shall equal in amount the value of dividends received by the Trust
with respect to that number of shares of Common Stock which represents such
Participant's proportional interest in the Company Stock Fund.
12.09 Common Stock Cash Dividends.
----------------------------
(a) Cash Dividends Paid on or after November 1, 2002.
-------------------------------------------------
(1) Notwithstanding any other provision of Article 12 to the
contrary, each Participant may elect to:
(i) receive a distribution in cash equal to the value
of any cash dividends paid by the Company on or
after November 1, 2002 and received by the Trust
with respect to shares of Common Stock allocated
to his Employer Accounts at the close of business
on the ex-dividend date established for the
payment of such cash dividends; or
(ii) reinvest in the Company Stock Fund any cash
dividends paid by the Company on or after November
1, 2002 and received by the Trust with respect to
shares of Common Stock allocated to his Employer
Accounts at the close of business on the
ex-dividend date established for the payment of
such cash dividends.
(2) Any distribution pursuant to Section 12.09(a)(1)(i)
shall be made as soon as is administratively feasible
following the receipt of the cash dividends by the
Trust, but in no event later than 90 days after the
close of the Plan Year in which such cash dividends were
paid by the Company.
(3) If a Participant fails to make an election pursuant to
Section 12.09(a)(1)(i), he shall be deemed to have made
an election pursuant to Section 12.09(a)(1)(ii).
(b) Dividends Paid From November 1, 2001 to October 31, 2002. A
Participant may make an election, as provided for in Section
12.09(a)(1), with
46
respect to any cash dividends paid by the Company to the Trust
during the Company's tax year ending October 31, 2002.
(c) Elections. The Committee shall specify the manner in which
Participants will be required to make their elections subject
to the following conditions:
(1) The Committee shall provide no less than annually each
Participant an opportunity to make an election.
(2) A Participant's election shall take effect immediately
following receipt by the Committee and shall remain in
effect until an election to the contrary is filed by
such Participant.
(3) A Participant's election shall become irrevocable the
latter of (i) that date on which the cash dividends
attributable to such election are paid to the Trust, or
(ii) the date established by the Committee for revoking
such an election.
(4) The rules established by the Committee for making an
election shall be applied in a uniform and
nondiscriminatory manner.
(d) Vesting. Notwithstanding anything in the Plan to the contrary,
a Participant shall become fully vested in all cash dividends
received by the Trust for which an election pursuant to Section
12.09(a)(1) is offered.
12.10 Diversification Election.
-------------------------
(a) (1) With respect to any shares of Common Stock allocated
to a Participant's Employer Account after December
31, 2006, the Participant shall be entitled to elect
to direct the Plan to divest any such shares and to
reinvest an equivalent amount in other Investment
Funds which satisfy the requirements of Section
12.10(c) hereof.
(2) With respect to any shares of Common Stock allocated
to a Participant's Employer Account prior to January
1, 2007, then the divestment rule set forth in
Section 12.10(a)(1) only applies to the percentage of
shares of Common Stock as follows:
Plan Year Percentage
--------- ----------
2007 33.3%
2008 66.7%
2009 100.0%
provided, however, this three year phase-in rule does
not apply to a Participant who has attained age 55 and
who has completed at least 3 Years of Service as of
January 1, 2006, as those Participants can divest up to
100% as of January 1, 2007.
47
(b) Except as otherwise determined by the Committee as may be
necessary and appropriate, a Participant's election to divest
pursuant to Section 12.10(a) as to a Plan Year may be made at
any time by filing a written election with the Committee. The
Committee shall direct the Trustee in writing to liquidate,
including a specific direction as to the manner in which to
liquidate, the shares of Common Stock as to which a Participant
has made a transfer election and to transfer such cash proceeds
to the other Investment Fund or Funds elected as soon as
administratively feasible after such transfer election has been
made.
(c) For purposes of this Section 12.10, other Investment Funds must
include not less than three (3) Investment Funds, other than
Company Stock, to which the Participant may direct the proceeds
of divestment of Company Stock required by this Section 12.10,
each of which options is diversified and has materially
different risk and return characteristics.
12.11 Voting and Tendering of Company Stock. The Trustee shall vote each
share of Common Stock held under the Plan. Each Participant shall be entitled to
direct the Trustee as to the manner in which the voting rights attributable to
the shares of Common Stock allocated to his Employer Accounts as of the relevant
record date are to be exercised. The Trustee shall vote all shares of Common
Stock as to which it receives timely voting instructions solely in accordance
with such instructions, provided that the Trustee may vote the shares as it
determines is reasonably necessary to fulfill its fiduciary duties under ERISA.
If a Participant does not, with respect to any matter, give instructions
concerning the voting of stock allocated to his Employer Accounts, the Trustee
shall vote that Participant's Employer Accounts Common Stock in the same
proportions as Common Stock for which instructions have been received, subject
to its fiduciary duties under ERISA.
Except as otherwise required by the fiduciary standards of ERISA Section
404, the Trustee shall vote Common Stock held in the Stock Suspense Account in
the same proportions as Common Stock that has been allocated to Participants'
Employer Accounts.
ARTICLE 13
TOP-HEAVY PROVISIONS
--------------------
13.01 Top-Heavy. The following provisions shall become effective in any
Plan Year in which the Plan is determined to be a Top-Heavy Plan.
(a) The following terms when used in this Article 13 shall have the
designated meaning unless a different meaning is plainly
required by the context in which the term is used:
(1) "Key Employee" shall mean any individual who meets the
criteria of a Key Employee as defined in Code Section
416(i)(1).
(2) "Determination Date" shall mean, with respect to any Plan
Year, the last day of the immediately preceding Plan
Year.
48
(3) "Permissive Aggregation Group" means any grouping of
plans of the Employer which includes the Required
Aggregation Group, plus any other plans of the Employer
that allow, when aggregated, the resulting group of
plans to meet the requirements of Code Sections
401(a)(4) and 410.
(4) "Required Aggregation Group" means each plan of the
Employer in which a Key Employee is a participant, and
each other plan of the Employer which enables any plan
in which a Key Employee participates to meet the
requirements of Code Sections 401(a)(4) or 410.
(5) "Non-Key Employee" shall mean any individual who is not a
Key Employee.
(b) The Plan will be considered a Top-Heavy Plan for the Plan Year,
if, as of the last Determination Date:
(1) the aggregate of the Accounts of Participants who are
Key Employees exceeds 60% of the aggregate of the
accounts of all Participants (the "60% Test"), or
(2) the Plan is part of a Required Aggregation Group and the
Required Aggregation Group meets the requirements of
Section 13.01(b)(1).
However, and notwithstanding the results of the 60% Test, the
Plan shall not be considered a Top-Heavy Plan for any Plan Year
in which the Plan is a part of a Required or Permissive
Aggregation Group which is not top-heavy. Distributions made
with respect to Employees within the five-year period ending on
the Determination Date shall be included for purposes of making
the 60% Test. If any employee has not performed services for
the Employer at any time during the five-year period ending on
the Determination Date, any Account of such employee shall not
be taken into account for purposes of the foregoing
determination. If any Employee is a Non-Key Employee for any
Plan Year, but was a Key Employee for any prior Plan Year, the
Non-Key Employee's Account shall not be taken into account for
purposes of the foregoing determination for any Plan Year
following the last Plan Year for which the Employee was treated
as a Key Employee.
Solely for the purpose of determining if the Plan, or any other
plan included in a required aggregation group of which this
Plan is a part, is top-heavy (within the meaning of Code
Section 416(g)) the accounts of an Employee other than a Key
Employee shall be determined under (1) the method, if any, that
uniformly applies for accrual purposes under all plans
maintained by the Employer, or (2) if there is no such method,
as if such benefit accrued not more rapidly than the slowest
accrual rate permitted under the fractional accrual rate of
Code Section 411(b)(1)(C). Rollover Contributions or transfers
initiated by the Employee and made from another qualified plan
within the meaning of Code Section 401(a) maintained by an
employer (other
49
than the Employer or an Affiliated Company), shall not be taken
into account with respect to this Plan for purposes of
determining whether this Plan is top-heavy (or whether any
aggregation group which includes this Plan is top-heavy).
(c) The minimum annual contribution for a Non-Key Employee shall be
equal to the lesser of:
(1) 3% of his compensation (within the meaning of Code
Section 415), or
(2) the percentage at which contributions are made (or
required to be made) under the Plan, including Elective
Deferral Contributions, for the plan year for the Key
Employee for whom such percentage is the highest.
Each Participant who is a Non-Key Employee and who is also a
Participant in a defined benefit plan maintain by the Employer
shall receive a minimum benefit accrual under the defined
benefit plan to the extent provided therein, and, to the extent
that the minimum benefits provided thereunder are not
sufficient to satisfy the requirements of Code Section 416,
shall receive a minimum contribution under this Plan. The
minimum contribution under this Plan shall in no event be
greater than that which is necessary, when combined with the
benefits provided to the Participant under the defined benefit
plan (including the minimum benefit provisions therein), to
satisfy the requirements of Code Section 416.
(d) If the Plan is top-heavy for any Plan Year, a Participant's
Account shall be vested in accordance with the following table.
However, in no event shall the vested percentage of any
Participant Account be less than that provided in Section 8.01
of the Plan if the Plan were not top-heavy for such Plan Year.
Years of Service Vested Percentage
---------------- -----------------
less than 2 0%
2 but less than 3 20%
3 but less than 4 40%
4 but less than 5 60%
5 but less than 6 80%
6 or more 100%
(e) If the Plan becomes a Top-Heavy Plan and subsequently ceases to
be such, the vesting schedule in Section 13.01(d) shall
continue to apply in determining the deferred vested benefit of
any Participant who had a least three years of vesting service
as of December 31 in the last Plan Year of top-heaviness. For
other Participants, said schedule shall apply only to their
Account balances as of such December 31.
50
13.02 Modification of Top-Heavy Rules. Notwithstanding anything contained
in this Plan to the contrary, for purposes of determining whether the
plan is a top-heavy plan under Code Section 416(g), and whether the
plan satisfies the minimum benefits requirements of Code Section 416
(c) for such years the following shall apply:
(a) Determination of top-heavy status.
----------------------------------
(1) Key employee. Key employee means any employee or former
employee (including any deceased employee) who at any
time during the plan year that includes the
determination date was an officer of the employer having
annual compensation greater than $130,000 (as adjusted
under Code Section 416(i)(1) for plan years beginning
after December 31, 2006), a 5-percent owner of the
employer, or a 1-percent owner of the employer having
annual compensation of more than $150,000. For this
purpose, annual compensation means compensation within
the meaning of Code Section 415(c)(3). The determination
of who is a key employee will be made in accordance with
Code Section 416(i)(1) and the applicable regulations
and other guidance of general applicability issued
thereunder.
(2) Determination of present values and amounts. This
Section 13.02(a)(2) shall apply for purposes of
determining the present values of accrued benefits and
the amounts of account balances of employees as of the
determination date.
(3) Distributions during year ending on the determination
date. The present values of accrued benefits and the
amounts of account balances of an employee as of the
determination date shall be increased by the
distributions made with respect to the employee under
the plan and any plan aggregated with the plan under
Code Section 416(g)(2) during the 1-year period ending
on the determination date. The preceding sentence shall
also apply to distributions under a terminated plan
which, had it not been terminated, would have been
aggregated with the plan under Code Section
416(g)(2)(A)(i). In the case of a distribution made for
a reason other than separation from service, death, or
disability, this provision shall be applied by
substituting "5-year period" for "1-year period."
(4) Employees not performing services during year ending on
the determination date. The accrued benefits and
accounts of any individual who has not performed
services for the employer during the 1-year period
ending on the determination date shall not be taken into
account.
(b) Minimum benefits.
-----------------
(1) Matching contributions. Employer Matching Contributions
shall be taken into account for purposes of satisfying
the minimum
51
contribution requirements of Code Section 416(c)(2) and
the plan. The preceding sentence shall apply with
respect to Matching Contributions under the plan or, if
the plan provides that the minimum contribution
requirement shall be met in another plan, such other
plan. Employer Matching Contributions that are used to
satisfy the minimum contribution requirements shall be
treated as matching contributions for purposes of the
actual contribution percentage test and other
requirements of Code Section 401(m).
(2) Contributions under other plans. The employer may
provide in the adoption agreement that the minimum
benefit requirement shall be met in another plan
(including another plan that consists solely of a cash
or deferred arrangement which meets the requirements of
Code Section 401(k)(12) and matching contributions with
respect to which the requirements of Code Section
401(m)(11) are met.
ARTICLE 14
PLAN ADMINISTRATION
-------------------
14.01 Committee. The day-to-day operations of the Plan are administered by
one or more persons appointed by the Board of Directors, who are referred to in
this Plan as the "Committee". The Board may remove any member of the Committee
at any time with or without cause. The Board will fill vacancies in the
Committee as soon as is reasonably possible after the vacancy occurs. Until a
new appointment is made, the remaining member or members of the Committee have
full authority to act. The Board is responsible for transmitting to the Trustee
the names and authorized signatures of the members of the Committee and, as
changes take place in membership, the names and signatures of new members. Any
member of the Committee may resign by delivering his written resignation to the
Board, the Trustee and the Committee. Any such resignation becomes effective
upon its receipt by the Board or on such other date as is agreed to by the Board
and the resigning member. The Committee acts by a majority of its members at the
time in office, and such action may be taken either by vote at a meeting or by
consent in writing without a meeting. The Committee may adopt such rules and
appoint such subcommittees as it deems desirable for the conduct of its affairs
and the administration of the Plan.
14.02 Powers of the Committee. In carrying out its duties with respect to
the general administration of the Plan, the Committee has, in addition to any
other powers conferred by the Plan or by law, the following powers:
(a) to determine all questions relating to eligibility to
participate in the Plan;
(b) to compute and certify to the Trustee the amount and kind of
distributions payable to Participants and their Beneficiaries;
(c) to maintain all records necessary for the administration of the
Plan except for those maintained by the Company or Trustee;
(d) to interpret the provisions of the Plan and to make and publish
such rules for the administration of the Plan not inconsistent
with the terms thereof;
52
(e) to establish and modify the method of accounting for the Plan or
the Trust;
(f) to employ counsel, accountants and other consultants to aid in
exercising its powers and carrying out its duties hereunder;
(g) to appoint, at the direction of the Company, an Investment
Manager (as defined in ERISA Section 3(38)), who shall have
responsibility for investment of the Trust Fund; and
(h) to perform any other acts necessary and proper for the
administration of the Plan, except such acts that are to be
performed by the Company or the Trustee.
14.03 Indemnification of Members of the Committee. The Company agrees to
indemnify and hold harmless each member of the Committee against any and all
expenses and liabilities arising out of his action or failure to act in such
capacity, excepting only expenses and liabilities arising out of his own willful
misconduct or gross negligence. This right of indemnification is in addition to
any other rights to which any member of the Committee may be entitled.
14.04 Liabilities for which Members of the Committee are Indemnified.
Liabilities and expenses against which a member of the Committee is indemnified
hereunder include, without limitation, the amount of any settlement or judgment,
costs, counsel fees and related charges reasonably incurred in connection with a
claim asserted or a proceeding brought against him or her or the settlement
thereof.
14.05 Company's Right to Settle Claims. The Company may, at its own
expense, settle any claim asserted or proceeding brought against any member of
the Committee when such settlement appears to be in the best interests of the
Company.
14.06 Fiduciary Liability Insurance. If the Company obtains fiduciary
liability insurance to protect the Committee, the provisions of this Section
14.06 will apply only to the extent that such insurance coverage is not
sufficient.
14.07 Designation of Members of the Committee as Named Fiduciaries. The
members of the Committee are hereby designated as "named fiduciaries", within
the meaning of Section 402(a) of ERISA, with respect to the operation and
administration of the Plan and are, except to the extent provided by Section
14.08, jointly responsible for administering the Plan in accordance with its
terms.
14.08 Procedures for Allocating or Delegating Fiduciary Responsibilities.
The Committee may establish procedures for (a) the allocation of fiduciary
responsibilities (other than "trustee responsibilities" as defined in Section
405(c) of ERISA) under the Plan among its members, and (b) the designation of
persons other than named fiduciaries to carry out fiduciary responsibilities
(other than trustee responsibilities) under the Plan.
If any fiduciary responsibility is allocated or delegated to any person, no
named fiduciary is liable for any act or omission of such person, except as
provided in Section 405(c) of ERISA.
53
The Company shall be empowered to appoint and remove the Trustee and
Committee from time to time as it deems necessary for the proper administration
of the Plan to assure that the Plan is being operated for the exclusive benefit
of the Participants and their Beneficiaries in accordance with the terms of the
Plan, the Code, and the Act.
14.09 Filing of Claim. If a dispute arises between the Committee and a
Participant or Beneficiary over the amount of benefits payable under the Plan,
the Participant or Beneficiary may file a claim for benefits by notifying the
Committee in writing of his claim. Such notification may be in any form adequate
to give reasonable notice to the Committee, must set forth the basis of the
claim and must authorize the Committee to conduct such investigations as may be
necessary to determine the validity of the claim and to take such steps as may
be necessary to facilitate the payment of any benefits to which the claimant may
be entitled under the Plan.
14.10 Time for Initial Decision. The Committee is required to decide
whether to grant a claim within 90 days after the date on which the claim is
filed, unless special circumstances require a longer period for adjudication and
the claimant is notified in writing of the reasons for an extension of time. No
extensions, however, are permitted beyond 90 days after the date on which the
claimant received notice of the extension of time from the Committee. If the
Committee fails to notify the claimant of its decision to grant or deny the
claim within the time specified by this Section, the claim will be deemed to
have been denied, and the review procedure described in Section 14.12 will
become available to the claimant.
14.11 Notice of Denial. Whenever a claim for benefits is denied, written
notice prepared in a manner calculated to be understood by the claimant, will be
provided to him, setting forth the specific reasons for the denial and
explaining the procedure for reconsideration of the decision made by the
Committee. If the denial is based upon submission of information insufficient to
support a decision, the Committee will specify the information necessary to
perfect the claim and its reasons for requiring such additional information.
14.12 Manner of Reconsideration. Any claimant whose claim is denied may,
within 60 days after his receipt of written notice of denial, request in writing
a reconsideration of its decision by the Committee. The claimant or his
representative may examine any Plan documents relevant to his claim and may
submit issues and comments in writing.
14.13 Time for Reconsideration. The Committee is required to review and
reconsider its decision within 60 days after its receipt of the claimant's
written request, unless special circumstances require a longer period for
adjudication and the claimant is notified in writing of the reasons for an
extension of time. A decision must, however, be made no later than 120 days
after the Committee's receipt of the claimant's written request. If the
Committee fails to notify the claimant of its decision within the time specified
by this Section, the claim will be deemed to have been denied on
reconsideration.
14.14 Notice of Adverse Decision on Reconsideration. The Committee's
decision to deny a claimant's request for reconsideration must be in writing,
must state specifically the reasons for the decision, must be written in a
manner calculated to be understood by the claimant and must make specific
reference to the pertinent Plan provisions upon which it is based.
14.15 Expenses of the Committee. The members of the Committee serve without
compensation for services as such. All expenses of the Committee are paid out of
the Trust Fund,
54
unless paid by the Employers. Expenses payable from the Trust include any
expenses incidental to the functioning of the Committee, including, but not
limited to, fees of legal counsel, accountants and other specialists.
14.16 Conduct of Committee Business. The Committee may select one of its
members as secretary to keep minutes of its proceedings and to have custody of
all data, records and documents pertaining to the administration of the Plan.
The Committee may authorize one or more of its members to execute any document
or documents on behalf of the Committee, in which event the Committee must
notify the Trustee in writing of such action and the name or names of those
designated. The Trustee thereafter may accept and rely conclusively upon any
direction or document executed by such member or members as representing action
by the Committee until such time as the Committee files with the Trustee a
written revocation of the designation.
14.17 Agent for Service of Process. The Committee is hereby designated as
the agent for service of process in any action brought against the Plan or
Trust.
ARTICLE 15
AMENDMENT AND TERMINATION
-------------------------
15.01 Right to Amend. The Company intends for the Plan to be permanent so
long as the Company exists; however, it reserves (through action of either the
Committee or the Board) the right to modify, alter, or amend this Plan or the
Trust Agreement, from time to time, to any extent that it may deem advisable,
including, but not limited to any amendment deemed necessary to insure the
continued qualification of the Plan under Code Sections 401(a) and 401(k) or to
insure compliance with ERISA; provided, however, that the Company shall not have
the authority to amend this Agreement in any manner which will:
(a) Permit any part of the Trust Fund (other than such part as is
required to pay taxes and administrative expenses) to be used
for or diverted to purposes other than for the exclusive
benefit of the Participant or their Beneficiaries;
(b) Cause or permit any portion of the Trust Fund to revert to or
become the property of the Employer;
(c) Change the duties, liabilities, or responsibilities of the
Trustee without its prior written consent.
15.02 Termination and Discontinuance of Contributions. The Company (through
action of either the Committee or the Board) shall have the right at any time
and for any reason to terminate this Plan (hereinafter referred to as "Plan
Termination"). Upon Plan Termination, the Committee shall direct the Trustee
with reference to the disposition of the Trust Fund, after payment of any
expenses properly chargeable against the Trust Fund. The Trustee shall
distribute all amounts held in Trust to the Participants and others entitled to
distributions based on each Participant's Account balance in the Plan. In the
event that this Plan is partially terminated, then the provisions of this
Section 15.02 shall apply, but solely with respect to the Employees
Participating Employer and shall not affect the sponsorship of the Plan by the
Company or any other Participating Employer.
In the event the Plan is terminated, partially terminated or Employer
Contributions discontinued, the Employer Account shall be fully vested in the
Participants. Any distribution after
55
termination of the Plan may be made at any time, and from time to time, in whole
or in part to the extent that no discrimination in value results, in cash, in
securities or other assets in kind, or in annuity contracts (other than life
annuity contracts), if applicable, as the Committee in its discretion may
determine, or, if there shall be no Committee, as the Company in its discretion
may determine. In making such distribution any and all determinations,
divisions, appraisals, apportionments and allotments so made shall be final and
conclusive.
15.03 Supplements. In adopting the Plan or at any time thereafter, an
Employer may adopt a Supplement that modifies or adds to the Plan. Any
Supplement shall be effective only if approved by the Board. Upon its effective
date, any Supplement shall be deemed incorporated by reference into the Plan as
adopted by such Employer.
15.04 Merger of the Plan. In the event of any merger or consolidation of
the Plan with or transfer in whole or in part of the assets and liabilities of
the Trust or another trust fund held hereunder to any other plan of deferred
compensation maintained or to be established for the benefit of some or all of
the Participants of this Plan, the assets of the Trust applicable to such
Participants shall be transferred to the other trust fund only if:
(a) Each Participant would (if either this Plan or the other plan
then terminated) receive a benefit immediately after the
merger, consolidation or transfer which is equal to or greater
than the benefit, which he would have been entitled to receive
immediately before the merger, consolidation or transfer (if
this Plan had been terminated);
(b) Resolutions of the Boards of Directors of all Employers under
this Plan and of any new or successor employer of the affected
Participants shall authorize such transfer of assets; and
(c) Such other plan is qualified under Code Section 401(a) and the
related trust is exempt from tax under Code Section 501(a).
ARTICLE 16
PARTICIPATING EMPLOYERS
-----------------------
16.01 Participation by Participating Employers. A Participating Employer
may adopt this Plan by a properly executed document evidencing such adoption,
with the consent of the Board. Each Participating Employer delegates all
fiduciary and administrative responsibilities (including the appointment and
removal of fiduciaries) allocated under the Plan to the Company, the Committee
and other fiduciaries of the Plan. Provided, however, that this delegation of
fiduciary and administrative responsibilities may be altered by agreement
between the Company and a Participating Employer.
All Participating Employers shall be listed in Appendix A to the Plan.
16.02 Withdrawal of Participating Employers. Any Participating Employer
(including a present or past Employer) may discontinue or revoke its
participation in the Plan at any time without affecting the other Employees in
the Plan by delivering to the Committee a copy of resolutions to such effect.
The Committee may, in its absolute discretion, terminate the participation in
the Plan of
56
any Participating Employer (including a present or past Affiliated Employer) at
any time such Employer fails to discharge its obligations under the Plan.
After any discontinuance of participation, the Trustee shall transfer,
deliver and assign contracts and any other Trust Fund assets allocable to the
Participants of such Participating Employer to such new Trustee as shall have
been designated by such Participating Employer, in the event that it has
established a separate qualified plan for its Employees; provided, however, that
no such transfer shall be made if the result is the elimination or reduction of
any benefits protected under Code Section 411(d)(6). If no successor trustee is
designated, the Trustee shall retain such assets for the Employees of said
Participating Employer pursuant to the provisions of the Trust. In no event
shall any part of the corpus or income of the Trust Fund as it relates to such
Participating Employer be used for or diverted to purposes other than for the
exclusive benefit of the Employees of such Participating Employer.
16.03 Requirements of Participating Employers. Each Participating Employer
shall be required to use the Trustee as provided in this Plan. The Trustee may,
but is not required to, commingle, hold and invest as one Trust Fund all
contributions made by Participating Employers, as well as all increments
thereof. However, the assets of the Plan shall, on an ongoing basis, be
available to pay benefits to all Participants and Beneficiaries under the Plan
without regard to the Employer who contributed such assets.
16.04 Transfers Between Participating Employers. If a Participant is
transferred to or from a Participating Employer, this transfer shall not affect
the Participant's rights under the Plan, and all amounts credited to such
Participant's Accounts, as well as his accumulated service for eligibility and
vesting, shall continue to his credit. An Employee transferred between
Participating Employers shall be credited with all accumulated service for
eligibility and vesting. No such transfer shall be considered a termination of
employment hereunder, and the Participating Employer to which the Employee is
transferred shall be obligated to the Employee under the Plan in the same manner
as was the Participating Employer from whom the Employee was transferred.
16.05 Participating Employer Contributions. All contributions made by a
Participating Employer, as provided for in this Plan, shall be determined
separately by each Participating Employer, and shall be allocated only among the
Participants eligible to a share of the contributions of the Employer or
Participating Employer making the contribution. On the basis of the information
furnished by each Participating Employer, the Committee shall keep separate
books and records concerning the affairs of each Participating Employer
hereunder and as to the accounts and credits of the Employees of each
Participating Employer.
ARTICLE 17
MISCELLANEOUS
-------------
17.01 Laws of Florida to Apply. Except to the extent superseded by ERISA,
all questions pertaining to the validity, construction, and operation of the
Plan shall be determined in accordance with the laws of the State of Florida.
17.02 Protected Benefits. Early retirement benefits, retirement-type
subsidies, or optional forms of benefits protected under Code Section 411(d)(6)
("Protected Benefits") shall not be reduced or eliminated with respect to
benefits accrued under such Protected Benefits unless such reduction or
57
elimination is permitted under the Code, authority issued by the Internal
Revenue Service, or judicial authority.
17.03 Credit for Qualified Military Service. Notwithstanding any provision
of this Plan to the contrary, effective as required by USERRA (i.e., December
12, 1994), contributions, benefits and service credit with respect to qualified
military service will be provided in accordance with Code Section 414(u).
17.04 No Rights under the Plan except as Set Forth Herein. Nothing in this
Plan, express or implied, is intended to confer upon or give to any person,
firm, association, or corporation, other than the parties hereto and their
successors in interest, any right, remedy, or claim under or by reason of this
Plan or any covenant, condition, or stipulation hereof, and all covenants,
conditions and stipulations in this Plan, by or on behalf of any party, are for
the sole and exclusive benefit of the parties hereto.
17.05 Undefined Terms. Unless the context clearly requires another meaning,
any term not specifically defined in this Plan is used in the sense given to it
by ERISA and the Code.
17.06 Number and Gender. When appropriate the singular as used in this Plan
shall include the plural and vice versa; and the masculine shall include the
feminine.
IN WITNESS WHEREOF, HEICO Corporation has caused this instrument, approved
as of the 30th day of January 2008, to be executed by its duly authorized
officer.
HEICO CORPORATION
By: /s/ Thomas S. Irwin
--------------------------
Title: Treasurer
58
APPENDIX A
PARTICIPATING EMPLOYERS IN THE
HEICO SAVINGS AND INVESTMENT PLAN
---------------------------------
Participating Employer EIN Effective Date
- ---------------------- --- --------------
HEICO Corporation 65-0341002 January 1, 1985
Jet Avion Corporation 59-2699611 July 1, 1985
LPI Industries Corporation 65-0054782 April 1, 1989
HEICO Aerospace Corporation 59-0791770 April 27, 1993
Aircraft Technology, Inc. 65-0233725 October 1, 1998
Radiant Power Corp. 65-0892651 February 1, 1999
McClain International, Inc. 58-0876596 October 1, 1998
Rogers-Dierks, Inc. 58-2428936 October 1, 1999
Turbine Kinetics, Inc. 65-0845883 October 1,1999
Thermal Structures, Inc. 95-3575611 August 1, 1999
Santa Barbara Infrared, Inc. 77-0111325 January 1, 2000
Northwings Accessories Corp. 65-0312802 January 1, 2000
Leader Tech, Inc. 04-2667972 April 1, 2000
Future Aviation, Inc. 65-1011336 April 1, 2001
Analog Modules, Inc. 59-2074349 May 1, 2001
Jetseal, Inc. 91-1433851 January 1, 2002
Inertial Airline Services, Inc. 34-1823836 January 1, 2002
HEICO Aerospace Parts Corp. 65-1146790 July 1, 2002
Aviation Facilities, Inc. 03-0377215 July 1, 2002
Aero Design, Inc. 62-1858631 January 1, 2003
NIACC-Avitech Technologies, Inc. 51-0453669 July 1, 2003
Sierra Microwave Technology, LLC 37-1480034 January 1, 2004
Connectronics Corp. 20-1971140 December 1, 2004
Lumina Power, Inc. 20-2350926 May 1, 2005
Engineering Design Team, Inc. 93-0964386 January 1, 2006
Arger Enterprises, Inc. 95-3296745 January 1, 2007
Prime Air, LLC 20-5545289 January 1, 2007
DEC Technologies, Inc. 26-0348155 January 1, 2008
Meridian Industrial, Inc. 26-0837681 January 1, 2008
59
APPENDIX B
PRIOR EMPLOYER ACCOUNTS
The term "Prior Employer Account" shall mean the Accounts established to hold
assets attributable to the following plans merged with or had assets transferred
to this Plan:
(1) Air Radio & Instrument Corp. Profit Sharing Plan as in existence prior to
its merger with and into this Plan as of June 30, 2000.
(2) California Manufacturing Enterprises and Affiliates 401(k) Profit Sharing
Plan as in existence prior to the transfer of assets into this Plan as of
March 15, 2000.
(3) Santa Barbara Infrared, Inc. 401(k) Profit Sharing Plan as in existence
prior to its merger with and into this Plan as of December 31, 2001.
60
APPENDIX C
SPECIAL RULES FOR PARTICIPANTS WITH PRIOR EMPLOYER ACCOUNTS
-----------------------------------------------------------
The provisions of this Appendix C shall apply only in the case of each
Participant who has a Prior Employer Account and elects an annuity as a form of
distribution from the Plan. The following provisions of this Appendix C shall
apply notwithstanding any other provision of the Plan to the contrary:
(a) If the value of a Participant's vested account balance derived from
employer and employee contributions exceeds (or at the time of any prior
distribution exceeded) $1,000, and the account balance is immediately
distributable, the Participant (or where the Participant has died, his
Beneficiary) must consent to any distribution of such account balance. The
consent of the Participant shall be obtained in writing within the 30-day period
before distribution.
Notwithstanding the foregoing, the consent of the Participant shall not be
required to the extent that a distribution is required to satisfy Code Section
401(a)(9) or Code Section 415. In addition, upon termination of the Plan, 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 account balance will, without the Participant's
consent, be distributed to the Participant.
(b) If distributions are made in installments, then the amount of the
installment to be distributed each year must be at least an amount equal to the
quotient obtained by dividing the Participant's entire interest by the life
expectancy of the Participant or the joint and last survivor expectancy of the
Participant and his designated Beneficiary. Life expectancy and joint and last
survivor expectancy are computed by the use of the return multiples contained in
Treasury Regulation Section 1.72-9, Table V and VI or, in the case of payments
under a contract issued by an insurance company, by use of the life expectancy
tables of the insurance company. For purposes of this computation, a
Participant's life expectancy may be recalculated no more frequently than
annually, but the life expectancy of a nonspouse Beneficiary may not be
recalculated. 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.
(c) If a distribution is made as a life annuity term certain, the annuity
shall provide equal monthly payments for the life of the Participant, with the
condition that if the Participant dies before he has received all the guaranteed
monthly payments, the Participant's designated Beneficiary shall receive monthly
payments in the same amount as the Participant until the total guaranteed
monthly payments have been made to the Participant and his Beneficiary combines.
Guaranteed monthly payments shall not extend beyond 20 years.
(d) Any annuity distributed from the Plan must be nontransferable. 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.
(e) The provisions of this paragraph (e) shall apply to any Participant who
elects to receive his Account Balance in the form of an annuity.
61
(1) Qualified Joint and Survivor Annuity. Unless an optional form of
benefit is selected pursuant to a qualified election within the 90-day period
ending on the annuity starting date, the Account balance of a married
Participant's who elects to receive an annuity will be paid in the form of a
Qualified Joint and Survivor Annuity and the Account balance of an unmarried
Participant who elects to receive an annuity will be paid in the form of a life
annuity.
(2) Qualified Pre-Retirement Survivor Annuity. Unless an optional form
of benefit has been selected within the election period pursuant to a qualified
election, if a Participant dies before the annuity starting date, then the
Participant's vested account balance shall be applied toward the purchase of an
annuity for the life of the surviving spouse. The surviving spouse may elect to
have such annuity distributed within a reasonable period after the Participant's
death.
(f) Definitions.
------------
(1) "Election period." The period which begins on the first day of the
Plan Year in which the Participant attains age 35 and ends on the date of the
Participant's death. If a Participant separated from service prior to the first
day of the Plan Year in which age 35 is attained, with respect to the account
balance as of the date of separation, the election period shall begin on the
date of separation.
(2) "Earliest retirement age." The earliest date on which, under the
Plan, the Participant could elect to receive retirement benefits.
(3) "Qualified election." A waiver of a Qualified Joint and Survivor
Annuity or a Qualified Pre-Retirement Survivor Annuity. Any waiver of a
Qualified Joint and Survivor Annuity or a Qualified Pre-Retirement Survivor
Annuity shall not be effected unless: (i) the Participant's spouse consents in
writing to the election; (ii) the election designates a specific beneficiary
including any class of beneficiaries or any contingent beneficiaries, which may
not be changed without spousal consent (or the souse expressly permits
designations by the Participant without any further spousal consent); (iii) the
spouse's consent acknowledges the effect of the election; and (iv) the spouse's
consent is witnessed by a Plan representative or notary public. Additionally, a
Participant's waiver of the Qualified Joint and Survivor Annuity shall no 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
by the Participant without any further spousal consent). If it is established to
the satisfaction of a Plan representative that there is no spouse or that the
spouse cannot be located, a waiver will be deemed a qualified election.
Any consent by a spouse obtained under this provision (or establishment
that the consent of a spouse may not be obtained) shall be effective only with
respect to such 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. A revocation of a prior
waiver may be made by a Participant without the consent of the spouse at any
time before the commencement of benefits. The number of revocations shall not be
limited. No consent obtained under this provision shall be valid unless the
Participant has received notice as provided in the Notice Requirements section
below.
62
(4) "Qualified Pre-Retirement Survivor Annuity." A survivor annuity for
the life of the surviving spouse of the Participant which is the actuarial
equivalent of the vested Account Balance of the Participant.
(5) "Qualified Pre-Retirement Survivor Annuity." A Survivor annuity for
the life of the surviving spouse of the Participant which is the actuarial
equivalent of the vested Account Balance of the Participant.
(6) "Spouse (surviving spouse)." The spouse or surviving spouse of the
Participant, provided that a former spouse will be treated as the spouse or
surviving spouse and a current spouse will not be treated as the spouse or
surviving spouse to the extent provided under a qualified domestic relations
order as described in Code Section 414(p).
(7) "Annuity starting date." The first day of the first period for which
an amount is paid as an annuity or any other form.
(8) "Vested account balance." The aggregate value of the Participant's
vested account balances derived from employer and employee contributions
(including rollovers), whether vested before or upon death, including the
proceeds of insurance contracts, if any, on the Participant's life. The
provisions of this Section shall apply to a Participant who is vested in amounts
attributable to employer contributions, employee contributions (or both) at the
time of death or distribution.
(g) Notice Requirements.
--------------------
(1) In the case of a Qualified Joint and Survivor Annuity, the Committee
shall no less than 30 days and no more than 90 days prior to the annuity
starting date provide each Participant a written explanation of: (i) the terms
and conditions of a Qualified Joint and Survivor Annuity; (ii) the Participant's
right to make and the effect of an election to waive the Qualified Joint and
Survivor Annuity form of benefit; (iii) the rights of Participant's spouse; and
(iv) the right to make, and the effect of, a revocation of a previous election
to waive the Qualified Joint and Survivor Annuity.
(2) In the case of a Qualified Pre-Retirement Survivor Annuity as
described in paragraph (e)(2) above, the Committee shall provide each
Participant within the applicable period for such Participant a written
explanation of the Qualified Pre-Retirement Survivor Annuity in such terms and
in such manner as would be comparable to the explanation provided for meeting
the requirements of paragraph (e)(1) applicable to a Qualified Joint and
Survivor Annuity.
The applicable period for a Participant is whichever of the
following periods ends at last: (i) the period beginning with the first day of
the Plan Year in which the Participant attains age 32 and ending with the close
to the Plan Year preceding the Plan Year in which the Participant attains age
35; (ii) a reasonable period ending after the individual becomes a Participant;
(iii) a reasonable period ending after paragraph (3) below ceases to apply to
the Participant; (iv) a reasonable period ending after this subsection first
applies to the Participant. Notwithstanding the foregoing, notice must be
provided within a reasonable period ending after separation from service in the
case of a Participant who separates from service before attaining age 35.
For purposes of applying the preceding paragraph, a reasonable
period ending after the enumerated events described in (ii), (iii) and (iv) of
the preceding paragraph is the end of the two-year period beginning one year
prior to the date the applicable event occurs, and ending one year
63
after that date. In the case of a Participant who separates from service before
the Plan Year in which age 35 is attained, notice shall be provided within the
two-year period beginning one year prior to separation and ending one year after
separation. Is such a Participant thereafter returns to employment with the
employer, the applicable period of such Participant shall be redetermined.
(3) Notwithstanding the other requirements of this paragraph (3), the
respective notices prescribed by this paragraph (3) need not be given to a
Participant if (i) the Plan "fully subsidizes" the costs of a Qualified Joint
and Survivor Annuity or Qualified Pre-Retirement Survivor Annuity, and (ii) the
Plan does not allow the Participant to waive the Qualified Joint and Survivor
Annuity or Qualified Pre-Retirement Survivor Annuity and does not allow a
married Participant to designate a nonspouse beneficiary. For purposes of this
paragraph (3), a plan fully subsidizes the costs of a benefit if no increase in
cost, or decrease in benefits to the Participant may result from the
Participant's failure to elect another benefit.
(h) Distribution After Death of Participant. In the event of the death of a
Participant after installment payments have begun, but prior to completion of
such payments, the full amount of such unpaid benefits shall continue to be paid
in the form of the previously established installments except that the
Beneficiary may request that the remaining Account Balance be paid in a lump
sum.
In the event of the death of the Participant prior to the start of any
payment of his Account Balance, distributions shall be made in the form and at
the time or times selected by the Beneficiary pursuant to this Appendix C.
64
Exhibit 31.1
RULE 13a-14(a)/15d-14(a) CERTIFICATION
I, Laurans A. Mendelson, Chief Executive Officer of HEICO Corporation, certify
that:
(1) I have reviewed this quarterly report on Form 10-Q of HEICO Corporation;
(2) Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this report;
(4) The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the
end of the period covered by this report based on such evaluation;
and
d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
(5) The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: March 10, 2008 /s/ LAURANS A. MENDELSON
------------------------
Laurans A. Mendelson
Chief Executive Officer
Exhibit 31.2
RULE 13a-14(a)/15d-14(a) CERTIFICATION
I, Thomas S. Irwin, Chief Financial Officer of HEICO Corporation, certify that:
(1) I have reviewed this quarterly report on Form 10-Q of HEICO Corporation;
(2) Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this report;
(4) The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
(5) The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: March 10, 2008 /s/ THOMAS S. IRWIN
-------------------
Thomas S. Irwin
Chief Financial Officer
Exhibit 32.1
SECTION 1350 CERTIFICATION
In connection with the Quarterly Report of HEICO Corporation (the "Company") on
Form 10-Q for the period ended January 31, 2008 as filed with the Securities and
Exchange Commission on the date hereof (the "Report") I, Laurans A. Mendelson,
Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
the Company.
Date: March 10, 2008 /s/ LAURANS A. MENDELSON
------------------------
Laurans A. Mendelson
Chief Executive Officer
Exhibit 32.2
SECTION 1350 CERTIFICATION
In connection with the Quarterly Report of HEICO Corporation (the "Company") on
Form 10-Q for the period ended January 31, 2008 as filed with the Securities and
Exchange Commission on the date hereof (the "Report") I, Thomas S. Irwin, Chief
Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
the Company.
Date: March 10, 2008 /s/ THOMAS S. IRWIN
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Thomas S. Irwin
Chief Financial Officer
