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ValleyCrest Holding Co. and Subsidiaries Notes to Consolidated Financial Statements (continued) 11. Income Taxes (continued) In assessing the valuation of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the turnaround of deferred tax liabilities and the projection of future taxable income. The purchase price allocation for the merger resulted in net deferred tax liabilities of $83,643,000 at October 1, 2006. Management has concluded that, more likely than not, the deferred tax assets as of April 30, 2008, will be realized. At April30, 2008, the Company had approximately $6,310,000 of net operating loss carryforwards for state income tax purposes, of which $5,873,000 had been reserved. The state net operating losses will expire in various amounts beginning after 2014. 12. Employee Benefit Plans and Stock Options Employee Benefit Plans Employees of the Company participate in a 401(k) defined contribution plan (the Plan) adopted by the Company for all employees not covered by other benefit plans under collective bargaining agreements. After a specified period of service, employees become eligible to participate in the Plan and may contribute from 2% up to 50% of their compensation to the Plan, which is tax deferred. The Company at its sole discretion may contribute a matching contribution equal to a uniform percentage of each participant's contribution, the exact percentage, if any, to be determined each year by the Company. The Company contributed $1,121,000 to the Plan in fiscal 2008. Certain designated craftsmen employed by one of the Company's subsidiaries are participants in multiemployer collective bargaining agreements, which represent approximately 14% of the Company's labor force. These agreements provide defined benefit pension plans for these employees. The Company contributed approximately $2,857,000 to these agreements in 2008. Stock Options In fiscal 2008, the Company granted 3,050 options to purchase common stock to certain key employees. Fifty percent of the options vest over four years and fifty percent may vest at the end of the sixth year. The actual number of options that will vest at the end of the sixth year is dependent upon achieving certain performance levels. In accordance with FASB Statement 123(R), compensation expense relating to the options was recognized in net income using a fair �o—ti —ot Vc l! & /Cres� Landscape Maht, 164,00 NVV 127ti•i Ave. 20 Uarni, FL 33018 -1051