SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission file number 1-12902
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FRONTIER ADJUSTERS OF AMERICA, INC.
(Exact name of registrant as specified in its charter)
ARIZONA 86-0477573
(State of other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
45 East Monterey Way 85012
Phoenix, Arizona (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (602) 264-1061
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock $.01 Par Value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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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 .
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was $15,663,031 as of July 31, 1995.
The number of shares outstanding of the registrant's Common Stock, $.01 par
value, as of July 31, 1995, was 4,640,898.
<PAGE>
PART I
1. Item 1 - Business
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The Company
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Frontier Adjusters of America, Inc., an Arizona corporation (together with its
subsidiaries, the "Company"), licenses and franchises independent insurance
adjusters (the independent insurance adjusters licensed or franchised by the
Company are hereinafter referred to as the "Adjusters") throughout the United
States, Puerto Rico, Canada, and London, England, and provides support services
to the Adjusters. The Adjusters are engaged by insurance carriers and
self-insured companies to adjust claims made against them by claimants and/or,
in the case of insurance carriers, by policyholders. In addition, certain of the
Adjusters offer risk management services to their clients. As of June 30, 1995,
the Company had license or franchise agreements with 390 owner-operator
Adjusters operating 405 offices, with 590 advertised locations in 50 states, the
District of Columbia, Canada and London, England. In addition to licensing and
franchising Adjusters, the Company owns and operates independent insurance
adjusting businesses in Arizona.
General
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For its fiscal year ended June 30, 1995, the Company's licensing and franchising
activities accounted for approximately 91% of gross revenues and the Company's
Company-owned adjusting businesses accounted for approximately 9% of gross
revenues. For the fiscal years ended June 30, 1994 and June 30, 1993, the
Company's licensing and franchising activities accounted for approximately 92%
and 89%, respectively, of gross revenues and the Company's Company-owned
adjusting businesses accounted for approximately 8% and 11%, respectively, of
gross revenues. The revenues derived from the Company's operations, as well as
the gross billings by Adjusters (upon which the Company's revenues from
licensing and franchising activities are based), are set forth in the following
table.
Fiscal Year Ended June 30,
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1993 1994 1995
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Gross Billlings by Asjusters $37,870,000 $39,710,000 $42,690,000
(approximate)
Revenues from Licensing and
Franchising Activities 3,979,794 4,205,245 4,783,941
Revenues from Company-owned
Adjusting Businesses 507,297 385,025 456,884
For its fiscal year ended June 30, 1995, the Company's licensing and franchising
activities accounted for approximately $1,740,000 in income from operations and
the Company's Company-owned adjusting businesses accounted for approximately
$29,000 in losses from operations. For the fiscal years ended June 30, 1994 and
June 30, 1993, the Company's licensing and franchising activities accounted for
approximately $1,846,000 and $1,540,000, respectively, in income from
operations, the Company's Company-owned adjusting businesses accounted for
approximately $107,000 and $12,000 in losses, respectively, from operations.
Claims Adjusting
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A claims adjuster conducts the business of providing claims adjustment services
to insurance companies and to self-insured clients. The major elements of claims
adjusting consist of the following:
1. Investigation - the development of information necessary to
determine the cause and origin of the loss.
2. Evaluation - the determination of the extent and value of damage
incurred and the coverage, liability and compensability relating to
the parties involved.
3. Disposition - the resolution of the claim, whether by payment,
negotiation and settlement, by denial or by other resolution.
4. Management - the coordination of all parties involved in the claim
process and the supervision of the claims process including risk
management related services.
Insurance companies, which represent the major source of revenue to adjusters,
customarily manage their own claims management function, and require defined
services from the adjusters, such as field investigation and settlement
services. Self-insured clients typically require a range of risk management
services including claims adjustment, claims management, statistical reporting
and loss control, among other services. Insurance companies usually make claims
adjusting assignments on a claim by claim basis. Selfinsured clients typically
retain adjusting firms like the Company and the Adjusters to handle all of their
claims such as workers compensation, general liability claims and other claims.
Neither the Company nor any of the Adjusters engages in public adjusting, which
consists of representing individual insureds in coverage disputes against
insurance companies.
Risk Management related services are part of the claims adjusting services
provided by the Company and the Adjusters. They consist primarily of providing
services to in-house risk managers of self-insureds whose internal resources do
not include expertise in claims adjusting or other aspects of claims management.
Risk management services, which also are often referred to in the industry as
"third party administration" include administering claims, working with
self-insurers to decide whether certain claims need external investigation,
coordinating the efforts of the field investigation with internal claims review
activities, generating necessary statistical reports and paying losses. The
insurance companies responsible for the excess coverage of the self-insured
clients often play a significant role in the selection and retention of risk
management or third party administrators and related services.
Licensing and Franchising
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The major part of the Company's revenues are derived under its license and
franchise agreements (the "Agreements") with the Adjusters. Pursuant to the
terms of the Agreements, an Adjuster is authorized to use, within a designated
geographic area, the Company's service mark in providing adjusting and risk
management-related services. The Company receives a 10% or 15% royalty fee on
all of the Adjusters' collections depending upon the Agreement with the
Adjuster. An Adjuster is provided with a computerized central collection and
rebilling service and national advertising referral by the Company.
The Company does not advertise for or solicit potential licensees or
franchisees. Instead, the Company believes that through the financial
flexibility it offers and the established and dependable services it provides to
Adjusters, the Company is capable of attracting qualified licensees and
franchisees.
The philosophy of the Company is to enter into Agreements with licensees and
franchisees who are highly qualified and capable of adjusting all types of
claims. The Company estimates that the average length of time during which its
Adjusters have been providing insurance adjusting services, on a company-wide
basis, is approximately 20 years.
Before entering into an Agreement with a prospective licensee or franchisee, the
Company reviews the prospective licensee's or franchisee's background in order
to determine that he or she is qualified and capable of rendering professional
insurance adjusting services. In evaluating a potential licensee or franchisee,
the Company considers the length of time the potential licensee or franchisee
has been involved in insurance adjusting and such other factors as his or her
(i) experience and the types of claims that he or she is capable of adjusting;
(ii) ability to act independently without supervision by the Company; (iii)
prior and current associations in the insurance adjusting business and (iv)
reputation in the insurance adjusting business and in the community in which he
or she will provide insurance adjusting services.
Operation of Independent Adjusters
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Each Adjuster maintains an office within a designated geographic area defined in
his or her Agreement. The Agreements require, among other things, Adjusters to
devote at least 80% of their time during any 45 day period to the conduct of the
defined business. The Agreements are subject to termination by the Company upon
Adjusters failure to meet minimum gross billings. The Adjusters retain the right
to make independent decisions regarding the management and operation of their
businesses, subject to the terms of the license or franchise agreements.
The Company has a national advertising program in major trade journals. The
advertising is designed to promote its operations and to generate new accounts
for its licensees and franchisees. Adjusters receive claims both from local
referrals developed by the Adjuster and from referrals by the Company. The
latter referrals are generally obtained through advertising efforts of the
Company. In addition, Adjusters are permitted, but not required, to advertise
within their designated geographic area.
Upon providing services to a client, the Adjuster prepares a bill to the client
for the Adjuster's services or, sometimes in the case of an appraisal, a flat
fee. The form of invoice, which is supplied by the Company, indicates that
remittance is to be made directly to the Company's address. Upon receipt of
payment from the client, the Company withholds a royalty fee equal to either 10%
or 15% of the gross amount of the collection, together with any reimbursements
due to the Company for liability and errors and omissions insurance premiums the
Company may have paid on behalf of the Adjuster and repayments for any credits,
loans or advances the Company may have made to the Adjuster. The Company handles
rebills. The Company's arrangements with Adjusters located in Canada differ from
the foregoing in that those Adjusters' clients send their remittance to the
Company's franchisee in Regina, Saskatchewan, Canada, who then deposits the
amount remitted into Frontier's bank account.
If a particular geographic area produces claims greater than the Adjuster in
that area is capable of servicing, the Adjuster may, at the request of the
Company, relinquish to a prospective licensee or franchisee a portion of the
designated area covered by his or her Agreement. As a result of these
arrangements, the Company redirects to the relinquishing Adjuster 5% of
collections derived from services provided by the new Adjuster. In fiscal 1995,
the Company retained 10.6% of the Adjusters' collection as royalty fees from
this arrangement.
To assist new Adjusters in meeting their business and personal expenses during
their initial period as Adjusters, the Company may advance them funds against
future billings. The average semi-monthly loan is approximately $1,750. The
number of Adjusters to whom semi-monthly advances are made typically varies
between 15 and 30. The Company believes that these arrangements provide new
Adjusters assistance in making the transition from being employees of other
adjusting firms to becoming the owners of their own businesses and, therefore,
enable the Company to attract highly qualified individuals as Adjusters.
In addition to advancing funds to new Adjusters, the Company frequently lends
money to Adjusters who have been with the Company for a longer period. These
loans may either be loans that are repaid on a weekly basis out of their
collections, or advances against accounts receivable. The Company requires that
advances against receivables be repaid in full within 45 days.
The Company does not charge interest on any loans or advances made to Adjusters.
During the past four fiscal years, the Company has loaned or advanced an average
aggregate of $276,000 per month and has received reimbursement of an average of
$257,000 per month. The Company currently has approximately $1,204,000 in
outstanding loans or advances. During the past four fiscal years, the Company
has written off an average of $115,500 per year due to bad debts related to
these arrangements.
License and Franchise Agreements
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The current forms of license and franchise agreements used by the Company are
largely identical except that the form of license agreement refers to the
Adjuster as a licensee and the form of the franchise agreement refers to the
Adjuster as a franchisee. The difference between licensees and franchisees is
primarily historical and dates back to the period when the Company's
arrangements with Adjusters did not constitute a "franchise" under the United
States Federal Trade Commission's rules. If the arrangement was subject to state
franchise laws, the Adjuster was referred to as a franchisee; if not, the
Adjuster was referred to as a licensee. The Company currently distinguishes
between licensees and franchisees in the same manner.
The franchise and other laws of certain states limit or prohibit the
enforceability of covenants not to compete and require or prohibit other types
of provisions contained in franchise agreements. Accordingly, certain of the
provisions contained in the Agreement, including, among others, the covenant not
to compete, may not be enforceable under certain circumstances.
The forms of Agreement currently in effect between the Company and the Adjusters
do not necessarily contain all of the terms in the manner disclosed below. For
example, the risk management provisions, the indemnity provisions, certain of
the termination provisions and the minimum gross billings provisions discussed
below may have been excluded or revised in the forms of Agreement currently in
effect.
Pursuant to the Agreement, the Adjuster is entitled, and obligated, to use the
Frontier service mark in connection with the conduct of the Adjuster's claims
adjusting business and risk management-related services. The current form of
Agreements provide that the Adjuster may participate in the risk management
business. If the Adjuster declines to participate in the risk management
business, the Adjuster is required to consent to the handling of such matters in
the Adjuster's territory by other Adjusters or the Company.
The Agreement provides that each Adjuster is an independent contractor.
Accordingly, each Adjuster has virtually complete control over all matters
involving discretion and judgement in the operation of the Adjuster's business.
However, before instituting any legal action against any client, the Adjuster
must obtain the Company's consent. In addition, the Company has the
discretionary right to investigate, settle and satisfy any claims of any clients
of the Adjuster.
The Agreement requires the Adjuster to devote at least 80% of its time during
any 45 day period to the operation of the business and prohibits the Adjuster
from accepting any employment for compensation from any person. The Agreement
sets forth a minimum performance standard. The current form of Agreement
provides that if at any time after the first three months of the Agreement, the
Adjuster's gross billings are less than $4,000 for any three-month period, then
either party will have the right to terminate the Agreement.
Pursuant to the Agreement, the Adjuster is required to pay to the Company a
royalty fee equal to 10% or 15% of the Adjuster's collections. The Adjuster is
required to prepare initial billings to its clients and to send a copy of each
invoice to the Company. Each invoice states that the payment is to be made to
the Company's address. After the Company deducts its royalty fee from the
Adjuster's collections, the Company remits the balance to the Adjuster on a
weekly basis. The Company's arrangements with Adjusters located in Canada differ
from the foregoing in that those Adjusters' clients send their remittance to the
Company's franchisee in Regina, Saskatchewan, Canada, who then deposits the
amount remitted into Frontier's bank account. In addition to deducting its
royalty fee, the Company also deducts from the amounts remitted to the Adjuster
the Adjuster's general liability and errors and omissions insurance premiums and
the periodic repayment of credits, loans and advances.
If a particular geographic area produces claims greater than the Adjuster in the
area is capable of servicing, the Adjuster may, at the request of the Company,
relinquish a prospective licensee or franchisee a portion of the designated area
covered by his or her Agreement. In such case, the relinquishing Adjuster will
receive 5% of collections derived from services provided by the new Adjuster.
The Adjuster is required to reimburse the Company for the premiums and other
costs and expenses necessary to keep in force a general liability and errors and
omissions insurance policy. The Agreement also requires the Adjuster to hold the
Company harmless from, and to indemnify the Company for, any acts of the
Adjuster. This indemnification includes paying the errors and omissions
deductible or any other amounts that the Company is obligated to pay on an
errors and omissions claim arising out of a transaction handled by the Adjuster.
The Agreement contains a covenant not to compete. This clause provides that
during the term of the Agreement the Adjuster will not participate nor accept
employment with any business that is engaged in services that could be or are in
competition with the Company. In addition, the Agreement provides that upon a
termination of the Agreement, for any reason, the Adjuster may not, within the
two year period after termination, compete with the Company or any of the other
Adjusters within the territory assigned to the Adjuster or within a 100-mile
radius of that territory.
The Agreement provides that an Adjuster may not sell or transfer its interest in
the license or franchise without first receiving the consent of the Company,
which consent may not be unreasonably withheld. In addition, the Company has a
right of first refusal to purchase the Adjuster's interest in the license or
franchise in connection with any intended transfer to a third party.
The term of the Agreement is generally ten years, with a ten-year renewal option
exercisable by the Adjuster. The form of the renewal agreement will generally be
the form of the Agreement being used by the Company at the time of renewal.
The Adjuster may terminate the Agreement upon 30 days' prior written notice to
the Company. The Company may terminate the Agreement upon the occurrence of,
among other things, any of the following: the voluntary abandonment of the
business by the Adjuster, the conviction of the Adjuster for certain offenses,
the failure of the Adjuster to cure a default under the Agreement and any action
that materially impairs the goodwill associated with the Company's service mark,
and the failure to meet performance goals. In addition, the Company may
terminate the Agreement for good cause, which includes, among other things, the
bankruptcy or insolvency of the Adjuster, a lack of response on the telephone
and a failure to pick up the mail by the Adjuster for a period of 12 days. Other
actions by the Adjuster that would entitle the Company to terminate the
Agreement are: the Adjuster's failure to provide the Company with copies of
invoices for services performed by the Adjuster; the failure to instruct a
customer to make payments to the Company; and the failure to keep and maintain a
telephone listing and service.
Company-owned Insurance Adjusting Business
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In addition to its operations as a licensor and franchisor, the Company conducts
independent insurance adjusting operations in Arizona.
Item 2 - Properties
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The Company owns the office building and property located at 45 East Monterey
Way, Phoenix, Arizona, where it conducts its licensing and franchising
operations and its Phoenix claims adjusting and risk management-related services
business. The office building currently contains approximately 13,000 square
feet of office space.
The Company also owns a parcel of real property across the street from the
Company's principal executive office, which is utilized for employee parking.
Item 3 - Legal Proceedings
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A Declaratory Action was filed in May 1994 against the Company in the Superior
Court of Los Angeles, California, regarding the interpretation of certain
sections of the Company's license agreement with the plaintiff, a licensee. In
June 1994, the Company removed the case to the U.S. District Court and raised
certain counter claims for violation of the Company's license agreement. The
Company terminated the licensee's agreement effective January 1, 1995.
Subsequent to the termination, the plaintiff amended his complaint to include
wrongful termination. On May 1, 1995, the U.S. District Court granted the
Company's motion for Summary Judgement regarding all outstanding claims by the
plaintiff. On June 19, 1995, the Court granted the Company's Summary Judgement
motion regarding its claims against the former licensee including $204,144 in
unpaid license fees and a yet to be determined amount for court costs. The
Company does not believe that it is subject to any lawsuits or litigation or
threatened lawsuits or litigation that will have a material adverse effect on
the Company or its business.
Item 4 - Submission of Matter to a Vote of Security Holders
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No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
Item 5 - Market for the Registrant's Common Stock and Related
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Security Holders Matters
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The Company's Common Stock is listed on the American Stock Exchange (AMEX) under
the symbol "FAJ". The Company's stock began trading on AMEX, March 24, 1994.
Prior to being listed on AMEX, the Company's common stock was quoted on the
National Association of Securities Dealers' Automated Quotations National Market
System ("NASDAQ-NMS"). The following table sets forth the range of high and low
prices, and the trading volume, during each quarterly period within the
Company's two most recent fiscal years.
Price (1) Volume
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High Low
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Fiscal Year Ended June 30, 1994
First Quarter $3.125 $2.375 489,755
Second Quarter $3.625 $2.9375 634,200
Third Quarter $3.75 $3.00 600,803
Fourth Quarter $3.375 $2.5625 123,900
Fiscal Year Ended June 30, 1995
First Quarter $3.0625 $2.50 99,800
Second Quarter $3.125 $2.375 125,500
Third Quarter $2.875 $2.375 74,500
Fourth Quarter $3.125 $2.50 108,900
(1) Through March 23, 1994 represents high and low bid quotations on NASDAQ-NMS.
The bid quotations set above represent quotations by dealers, do not reflect
applicable markups, markdowns or commissions, and do not necessarily represent
actual transactions.
The following shows per share cash dividends declared for each quarter during
the Company's two most recent fiscal years.
Cash Dividends Declared
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Fiscal Year Ended June 30, 1994
First Quarter ....................................... $.025
Second Quarter ...................................... $.025
Third Quarter ....................................... $.025
Fourth Quarter ...................................... $.035
Fiscal Year Ended June 30, 1995
First Quarter ....................................... $.0275
Second Quarter ...................................... $.0275
Thirst Quarter ...................................... $.03
Fourth Quarter ...................................... $.03
As of August 2, 1995, there were 281 shareholders of record (approximately 900
including beneficial owners) of the Company's Common Stock.
Item 6 - Selected Financial Data
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<TABLE>
<CAPTION>
Year Ended June 30
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1991 1992 1993 1994 1995
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<S> <C> <C> <C> <C> <C>
Income Statement Data
Operating Revenues $4,529,051 $4,273,806 $4,487,091 $4,590,270 $5,240,825
Net Income 979,078 793,437 909,053 1,018,160 1,026,848
Earnings Per Common Share .23 .17 .19 .22 .22
Weighted Average Number of
Shares Used in Per Share
Data 4,266,390 4,617,955 4,780,980 4,730,597 4,662,679
Cash Dividends Per Share .065 .075 .0875 .11 .115
Balance Sheet Data
Working Capital $1,646,148 $2,281,789 $2,571,073 $2,749,531 $2,946,748
Total Assets 3,648,082 5,268,996 5,981,298 6,491,066 6,597,050
Long-Term Debt -- -- -- -- 84,655
Property and Equipment, Net 1,171,216 1,635,991 1,549,227 1,460,601 1,484,545
Stockholders' Equity 3,268,060 4,621,613 5,250,138 5,487,999 5,838,651
Book Value Per Share .77 .98 1.10 1.17 1.26
Retained Earnings 2,188,082 2,627,719 3,053,848 3,552,194 4,042,588
Total Shares Outstanding 4,266,390 4,711,114 4,782,010 4,690,898 4,640,898
</TABLE>
Item 7 - Management's Discussion and Analysis of Financial
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Condition and Results of Operations
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FINANCIAL CONDITION
The Company continues to finance its growth from funds generated by its current
operations. The Company is also investing additional sums and increasing its
cash dividends.
In 1995 the Company's continuing operations generated $537,831 in cash and this
together with cash they had previously generated was used to pay $536,454 in
cash dividends and acquire 50,000 shares of its common stock at a cost of
$136,377. Additionally, the Company acquired approximately $129,000 in equipment
and certain rights from two licensees for $92,000 in cash and monthly payments
of $2,500 until August 1, 1999.
The Company intends to complete its authorized plan to purchase 100,000 shares
of its common stock. As of June 30, 1995 the Company had purchased 91,112 of the
authorized shares at a cost of $278,492. The Company intends to acquire the
balance of 8,888 shares as market conditions permit. Based upon the market price
of $2.38 on July 31, 1995 this would represent a cost of approximately $21,000.
In addition to its authorized plan to acquire 100,000 shares, the Company
acquired 50,000 shares at a cost of $136,377 in December 1994.
Effective with its September 10, 1994 dividend, the Company increased its cash
dividend to eleven cents per share annually from ten cents per share. The
Company followed up this increase in January 1995 by increasing the dividend to
twelve cents per share annually effective with its March 10, 1995 dividend. The
combined increases represent a 20% increase in the annual dividend rate.
The Company anticipates that during fiscal 1996 it will generate sufficient cash
to fund its operations, dividend payments and equipment purchases. The Company
anticipates that its expenditures for equipment and furnishings will be
approximately $150,000 to $200,000 during fiscal 1996.
The Company has always maintained a solid financial position. This policy is
evidenced by the Company's ratio of current assets to current liabilities of
5.37 to 1 as of June 30, 1995 and 3.74 to 1 as of June 30, 1994.
RESULTS OF OPERATIONS 1995 COMPARED TO 1994
REVENUES
The Company's revenues increased to $5,241,000 from $4,590,000 in fiscal 1994,
compared to the prior fiscal year, a 14.2% increase.
The increase consists of a $72,000 increase in adjusting revenues and a $579,000
increase in continuing licensee and franchisee fees. Continuing licensee and
franchisee fees increased to $4,784,000 from $4,205,000 an increase of 14% from
the prior fiscal year. This increase reflects the fact that the Company
continues to benefit from an increase in claims, as insurers and self-insureds
use the Company's licensees and franchisees to handle claims and the increase in
Company licensees and franchisees.
The Company-owned offices' revenues increased $71,859 from the prior year. This
increase is partially due to an increase in the number of claims being assigned
to the offices as a result of a change in staff.
The Company's revenues are affected by many matters such as the work loads of
other companies and claims presented by their clients. Therefore, it is
impossible to project the Company's future revenues. The Company, however, has
seen growth in the franchisee and licensee's fees paid, the most significant of
which are from offices established in the preceding fiscal year. Approximately
$374,000 of the $579,000 increase in continuing licensee and franchisee fees in
fiscal year 1995 as compared to fiscal 1994 is the result of growth in the
number of licensees and franchisees. The balance of the increase or $204,000 is
the result of the judgement rendered on June 19, 1995 in the Company's lawsuit
with a former licensee for unpaid licensee fees. Management believes that the
Company will continue to realize growth in continuing licensing and franchising
fees in the future as it adds qualified licensees and franchisees.
COMPENSATION AND FRINGE BENEFITS
The most significant of the Company's expenses are those related to the
compensation of its employees. The Company's compensation expense increased
$110,000 in fiscal 1995 when compared to fiscal 1994. This represents a 7%
increase in overall cost due to the inflation and merit raises given to
employees as well as an additional employee hired to handle the increased work
load.
EXPENSES OTHER THAN COMPENSATION AND FRINGE BENEFITS
The Company's expenses other than compensation and fringe benefits increased
$549,000 from fiscal 1994 to fiscal 1995. The most significant items affecting
these expenses were a $624,000 increase in legal fees, a $140,000 decrease in
expenses related to the Company's London operations and a $50,000 advertising
item that was not incurred in the current year. The $624,000 increase in legal
fees is a result of the lawsuit filed by the now former licensee for which the
Company received a Summary Judgement in it's favor on June 19, 1995. The
$140,000 reduction in expenses related to the London franchise is a result of
the expiration of the Company's agreement to subsidize the franchisee effective
June 30, 1994. The $50,000 advertising item that was not incurred during 1995,
is normally incurred in the fourth quarter of the fiscal year, however, the
publisher of the Frontier Directory modified his scheduled printing date and the
expenditure will be incurred in the second quarter of fiscal year ended June 30,
1996. No other item of expense had a significant affect on the increase in
expenses other than compensation and fringe benefits.
OTHER INCOME
The Company's other income increased $67,000 or 62% from fiscal 1994 to fiscal
1995. The most significant items related to this increase were a $36,000
increase in interest income, an $8,000 dividend income related to the Company's
investments and a $19,000 gain on the sale of fixed assets. These increases were
largely the result of increased interest rates as well as increase in funds for
investment generated by its current operations.
INCOME TAXES
Income taxes were 38.8% of the Company's income before taxes for the current
fiscal year, an increase from 37.1% in fiscal 1994. The Company's income taxes
have not been significantly affected by any changes in the federal or state tax
laws. However, the Company could be affected by change in federal or state
income tax rates at any time.
NET INCOME
The Company's net income increased $9,000 from $1,018,000 in fiscal 1994 to
$1,027,000 in the current fiscal year, an increase of .9%.
RESULTS OF OPERATIONS 1994 COMPARED TO 1993
REVENUES
The Company's revenues increased to $4,590,000 from $4,487,000 in fiscal 1993,
compared to the prior fiscal year, a 2% increase.
The increase consists of a $122,000 decline in adjusting revenues and a $225,000
increase in continuing licensee and franchisee fees. Continuing licensee and
franchisee fees increased to $4,205,000 in fiscal 1995 from $3,980,000 in fiscal
1994, an increase of 6%. This increase reflects the fact that the Company
continues to benefit from an increase in claims, as insurers and self-insureds
use the Company's licensees and franchisees to handle claims and the increase in
Company licensees and franchisees.
The Company-owned offices' revenues declined $122,000 from fiscal 1994 to fiscal
1995. This decline is a result of fewer claims being assigned by insurance
companies to the Company-owned offices as well as fewer self-insured claims
being processed.
The Company's revenues are affected by natural and man caused events as well as
other companies' work loads. Therefore, it is not possible to project the
Company's future revenues. The Company has, however, seen growth in the fees
paid to it by its licensees and franchisees, the most significant of which are
from offices established in the preceding fiscal year. Management believes that
the Company will continue to realize growth in licensing and franchising fees in
the future as it adds qualified licensees and franchisees.
COMPENSATION AND FRINGE BENEFITS
The most significant of the Company's expenses are those related to the
compensation of its employees. The Company's compensation expense increased
$75,000 in fiscal 1994 when compared to fiscal 1993. This represents a 5%
increase in overall cost due to the inflation and merit raises given to
employees.
EXPENSES OTHER THAN COMPENSATION AND FRINGE BENEFITS
The Company's expenses other than compensation and fringe benefits declined
$123,000 from fiscal 1993 to fiscal 1994. The most significant item that
affected these expenses was a $108,000 reduction in expenses related to its
London franchisee. This is a result of the Company's effort to limit and reduce
its annual expense related to London. The Company also has reduced its other
expenses by being more selective in its advertising to obtain the most exposure
for the least cost thereby reducing advertising costs by $44,000. No other item
of expense had a significant affect on the decrease in expenses other than
compensation and fringe benefits.
OTHER INCOME
The Company's other income increased $26,000 from fiscal 1993 to fiscal 1994 or
31%. The most significant items related to this increase were a $23,000 increase
in interest income and $6,000 in dividend income related to the Company's
investments. These increases were the result of increased interest rates as well
as the increase in funds for investment generated by its current operations.
INCOME TAXES
Income taxes were 37.1% of the Company's income before taxes for the current
fiscal year, an increase from 37% in fiscal 1993.
NET INCOME
The Company's net income increased $109,000 from $909,000 in fiscal 1993 to
$1,018,000 in the current fiscal year, an increase of 12%. This is the first
time the Company's net income has exceeded $1,000,000 and is a milestone in the
Company's continued growth.
Item 8 - Financial Statements and Supplementary Data
- ----------------------------------------------------
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Frontier Adjusters of America, Inc.
Phoenix, Arizona
We have audited the accompanying consolidated balance sheets of Frontier
Adjusters of America, Inc. and Subsidiaries as of June 30, 1995 and 1994, and
the related consolidated statements of income, cash flows, and stockholders'
equity for each of the three years in the period ended June 30, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Frontier Adjusters
of America, Inc. and Subsidiaries as of June 30, 1995 and 1994, and the results
of their operations and their cash flows for each of the three years in the
period ended June 30, 1995, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The financial statement Schedules I, V,
VI and X for the years ended June 30, 1995, 1994 and 1993 included in pages 35
through 40 of this form 10-K are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of the basic
financial statements. These schedules have been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data required to be
set forth herein in relation to the basic financial data taken as a whole.
McGLADREY & PULLEN, LLP
Phoenix, Arizona
August 3, 1995
<PAGE>
CONSOLIDATED BALANCE SHEETS
Frontier Adjusters of America, Inc. and Subsidiaries
June 30, 1995 1994
- -------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 358,960 $ 804,780
Short-term investments (Note 8) 1,255,627 1,275,223
Current portion of advances to
licensees and franchisees (Note 4) 706,739 731,717
Receivables net (Note 3) 925,667 647,806
Unbilled adjusting fees 14,225 11,850
Prepaid expenses 258,165 227,057
Deferred income taxes (Note 11) 101,109 54,105
--------------------------
TOTAL CURRENT ASSETS 3,620,492 3,752,538
--------------------------
PROPERTY AND EQUIPMENT, at cost, less
accumulated depreciation and
amortization (Note 6) 1,484,545 1,460,601
--------------------------
OTHER ASSETS
Investments (Note 8) 764,090 742,224
Advances to licensees and franchisees,
net of current portion (Note 4) 302,000 325,000
Licenses and franchises, net of
accumulated amortization of $63,284
in 1995 and $19,750 in 1994 214,628 40,250
Cost of subsidiary in excess of net
identifiable assets acquired, net of
accumulated amortization of $172,196
in 1995 and $169,885 in 1994 41,621 43,932
Receivable from licensee (Note 5) 50,762 54,290
Other 118,912 72,171
--------------------------
1,492,013 1,277,867
--------------------------
TOTAL ASSETS $ 6,597,050 $ 6,491,006
==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 12,669 $ 46,546
Accrued expenses 297,973 130,565
Income taxes payable 64,720 30,073
Licensees' and franchisees' remittance
payable 221,620 719,355
Current portion of long term liability
(Note 9) 22,951 --
Other 53,811 76,468
--------------------------
TOTAL CURRENT LIABILITIES 673,744 1,003,007
--------------------------
LONG TERM LIABILITY (Note 9) 84,655 --
--------------------------
COMMITMENTS (Note 15) -- --
STOCKHOLDERS' EQUITY
Common stock, authorized 100,000,000
shares, par value $.01, issued 4,782,010
shares 47,820 47,820
Additional contributed capital 2,148,470 2,148,470
Retained earnings 4,042,588 3,552,194
--------------------------
6,238,878 5,748,484
Add (deduct):
Treasury stock 141,112 shares in 1995:
91,112 shares in 1994 (414,869) (278,492)
Other 14,642 18,007
--------------------------
TOTAL STOCKHOLDERS' EQUITY 5,838,651 5,487,999
--------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,597,050 $ 6,491,006
==========================
The accompanying notes are an integral part of these statements.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
Frontier Adjusters of America, Inc. and Subsidiaries
Years Ended June 30, 1995 1994 1993
- -------------------------------------------------------------------------------
REVENUES
Continuing licensee and franchisee
fees (Note 10) $4,783,941 $4,205,245 $3,979,794
Adjusting fees 456,884 385,025 507,297
--------------------------------------
5,240,825 4,590,270 4,487,091
--------------------------------------
COST AND EXPENSES
Compensation and fringe benefits 1,635,289 1,525,217 1,450,019
Office 308,783 266,030 289,923
Advertising and promotion 360,878 384,868 428,761
Depreciation and amortization 136,428 113,945 123,300
Provision for doubtful accounts 169,640 148,017 155,192
Other (Note 12 and 13) 1,127,138 641,434 679,704
--------------------------------------
3,738,156 3,079,511 3,126,899
--------------------------------------
INCOME FROM OPERATIONS 1,502,669 1,510,759 1,360,192
--------------------------------------
OTHER INCOME
Interest income 134,136 98,150 74,484
Disposition of investments -- 1,700 --
Gain on disposition of equipment 19,416 525 67
Other 22,867 8,706 8,416
--------------------------------------
TOTAL OTHER INCOME 176,419 109,081 82,967
--------------------------------------
INCOME BEFORE INCOME TAXES 1,679,088 1,619,840 1,443,159
INCOME TAXES (Note 11) 652,240 601,680 534,106
--------------------------------------
NET INCOME $1,026,848 $1,018,160 $ 909,053
======================================
Earnings per common share $ .22 $ .22 $ .19
======================================
Weighted average number of shares
of common stock outstanding 4,662,679 4,730,597 4,780,980
======================================
The accompanying notes are an integral part of these statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Frontier Adjusters of America, Inc. and Subsidiaries
Years Ended June 30, 1995 1994 1993
- -------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 1,026,848 $ 1,018,160 $ 909,053
-----------------------------------------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 136,428 113,945 123,300
Gain on sale of investments -- (1,700) --
Gain on disposition of equipment (19,416) (525) (67)
Allowance for doubtful accounts 168,222 (3,000) (205)
Deferred income taxes (47,004) (11,120) (4,704)
Change in assets and liabilities
(Increase) decrease in:
Receivables (282,028) (81,112) 85,442
Unbilled adjusting fees (2,375) 2,325 2,825
Prepaid expenses (31,108) 20,219 (48,663)
Other (59,522) 139,750 (31,492)
Increase (decrease) in:
Accounts payable (33,877) 30,758 (1,726)
Accrued expense 167,408 12,186 (149,511)
Income taxes payable 34,647 (18,088) 105,765
Licensees' & franchisees'
remittance payable (497,735) 233,387 193,241
Other (22,657) 13,604 (6,388)
-----------------------------------------
Total adjustment (489,017) 450,629 267,817
-----------------------------------------
NET CASH PROVIDED
BY OPERATING ACTIVITIES 537,831 1,468,789 1,176,870
-----------------------------------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Capital expenditures (127,195) (12,083) (96,307)
Investments purchased (3,968,431) (3,543,038) (3,333,541)
Collection on receivable from
licensee 3,154 16,622 4,322
Proceeds from disposition of
equipment -- 600 16,281
Proceeds from maturity of
investments 4,000,000 3,106,824 3,000,000
License acquisition (92,000) -- --
Payments on license acquisition (18,306) -- --
Advances to licensees and
franchisees (3,358,235) (2,772,088) (3,950,434)
Collections of advances to
licensees & franchisees 3,241,491 2,672,815 3,681,819
-----------------------------------------
NET CASH USED IN INVESTING
ACTIVITIES (319,522) (530,348) (677,860)
-----------------------------------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Cash dividends (536,454) (519,814) (418,166)
Proceeds from issuance of
common stock (net) -- -- 214,062
Common stock repurchased (136,377) (278,492) (76,424)
-----------------------------------------
NET CASH USED IN
FINANCING ACTIVITIES (672,831) (798,306) (280,528)
EFFECT OF EXCHANGE RATE CHANGES
ON CASH 8,702 18,007 --
-----------------------------------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (445,820) 158,142 218,482
CASH AND CASH EQUIVALENTS AT
BEGINNING OF THE PERIOD 804,780 646,638 428,156
-----------------------------------------
CASH AND CASH EQUIVALENTS AT
END OF THE PERIOD $ 358,960 $ 804,780 $ 646,638
=========================================
The accompanying notes are an integral part of these statements.
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Frontier Adjusters of America, Inc. and Subsidiaries
<CAPTION>
Years Ended June 30, 1995, 1994 and 1993
- -----------------------------------------------------------------------------------------------------------------------------------
Numbers of Par Value Additional Cumulative Unrealized
Shares of Common Contributed Retained Treasury Translation loss on
Issued Stock Capital Earnings Stock Adjustments Investments
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1992 4,711,114 $ 47,111 $ 1,946,783 $ 2,627,719 $ -- $ -- $ --
Cash dividends -
$.0875 per share -- -- -- (418,166) -- -- --
Stock options exercised
(Note 14) 96,296 963 213,099 -- -- -- --
Shares acquired and retired (25,400) (254) (11,412) (64,758) -- -- --
Net income -- -- -- 909,053 -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1993 4,782,010 47,820 2,148,470 3,053,848 -- -- --
Cash dividends -
$.11 per share -- -- -- (519,814) -- -- --
Net income -- -- -- 1,018,160 -- -- --
Treasury stock purchase
91,112 shares -- -- -- -- (278,492) -- --
Foreign currency translation -- -- -- -- -- 18,007 --
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1994 4,782,010 47,820 2,148,470 3,552,194 (278,492) 18,007 --
Cash dividends -
$.115 per share -- -- -- (536,454) -- -- --
Net income -- -- -- 1,026,848 -- -- --
Treasury stock purchase
50,000 shares -- -- -- -- (136,377) -- --
Foreign currency translation -- -- -- -- -- 8,702 --
Unrealized loss -- -- -- -- -- -- (12,067)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1995 4,782,010 $ 47,820 $ 2,148,470 $ 4,042,588 $ (414,869) $ 26,709 $ (12,067)
===================================================================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation -- These financial statements include the accounts
of Frontier Adjusters of America, Inc. (Company) and its subsidiaries, all of
which are wholly-owned. Intercompany accounts and transactions have been
eliminated.
Business -- The Company's operations consist of the licensing and franchising of
independent adjusters throughout the United States, Puerto Rico, Canada and
London, England and the operation of an independent adjusting business in
Arizona and a risk management division out of its Phoenix, Arizona office. The
Company grants credit to its licensees and franchisees, all of whom operate
within the insurance industry. Revenues from claims adjusted by employees of the
Company are recognized as the services are performed; revenues from claims
adjusted by independent licensees and franchisees are recognized when they
become due under the terms of the license and franchise agreements (Note ).
Included in the revenues are collections received from one customer which
provided the Company with approximately $1,044,000 or 21.8%, $968,000 or 23% and
$774,000 or 19.5% of the continuing licensee and franchisee fees during the
years ended June 30, 1995, 1994 and 1993 respectively. Outstanding licensee and
franchisee fees receivable related to this customer were approximately $95,000
at June 30, 1995 and $93,000 at June 30, 1994.
Consolidated statements of cash flow -- Short term investments which have
original maturities of 90 days or less are considered cash equivalents.
Depreciation and amortization -- Depreciation is computed using straight-line
and accelerated methods over estimated useful lives, which range from three to
ten years for all property and equipment except the building. The building is
depreciated using the straight-line method over 30 years. The cost of a
subsidiary in excess of net tangible assets acquired is being amortized over 40
years.
Licenses and franchises -- Licenses and franchises are amortized on the
straight-line basis over the period of the contract.
Income taxes -- Deferred income taxes result from temporary differences between
book and tax bases of assets and liabilities. The principal sources of these
differences are different depreciation rates for property and equipment, the
difference between the book provision for doubtful accounts and the specific
charge-off method used for income tax purposes, and the recognition of gain on
sale of the Company's Tucson operations.
Investments in debt and marketable equity securities and accounting change --
The Company has investments in debt and marketable equity securities. Debt
securities consist primarily of obligations of the U.S. and state governments.
Marketable equity securities consist of mutual funds and preferred stocks that
are traded or listed on national exchanges.
The Company adopted the provisions of FASB Statement No. 115, Accounting for
Certain Investments in Debt and Equity Securities, as of July 1, 1994. Statement
115 requires that management determine the appropriate classification of
securities at the date of adoption, and thereafter at the date individual
investment securities are acquired, and that the appropriateness of such
classification be reassessed at each balance sheet date. Since the Company does
not buy investment securities in anticipation of short-term fluctuations in
market price, none of its investments are considered trading securities. The
Company purchases local government debt securities with the intent on holding
them to maturity. All other securities are considered available-for-sale
securities in accordance with Statement 115. Held to maturity securities are
carried at amortized cost. Available-for-sale securities are stated at fair
value, and unrealized holding gains and losses, net of the related deferred tax
effect, are reported as a separate component of stockholders' equity.
Prior to the adoption of Statement 115, the Company stated its debt securities
at the lower of amortized cost or fair value. Under both the newly adopted
accounting standard and the Company's former accounting practices, premiums and
discounts on investments in debt securities are amortized over their contractual
lives. The method of amortization results in a constant effective yield on those
securities (the interest method). Interest on debt securities is recognized in
income as earned, and dividends on marketable equity losses, including losses
from declines in value of specific securities determined by management to be
other-than-temporary, are included in income. Realized gains and losses are
determined on the basis of the specific securities sold.
Note 7 to the financial statements provides further information about the effect
of adopting Statement 115.
Earnings per common share -- Earnings per common share are based on the weighted
average number of shares outstanding during the year. The effect of stock
options (Note 14) as common stock equivalents is less than 3% dilutive and,
therefore, is not included in the computation.
Foreign currency translation -- The functional currency of the Company's foreign
operations is the applicable local currency. The foreign currencies are
translated to U.S. dollars using applicable exchange rates. The gains or losses
resulting from such translations are included in Stockholders' Equity.
Reclassification -- Certain items on the financial statements for the years
ended June 30, 1994 and 1993 have been reclassified, with no effect on net
income, to be consistent with the classifications adopted for the year ended
June 30, 1995.
NOTE 2: SUPPLEMENTAL CASH FLOW INFORMATION
1995 1994 1993
----------------------------------------
Cash paid during the year:
Interest $ 6,745 $ 458 $ --
Income taxes $668,427 $ 631,141 $ 435,149
NOTE 3: RECEIVABLES
Receivables consist of:
1995 1994
--------------------------
Accounts receivable trade $ 51,955 $ 38,472
Licensee and franchisee
fees receivable 722,122 470,636
Errors and omissions insurance
premium advanced 138,544 112,563
Other 40,546 50,135
--------------------------
Total receivables 953,167 671,806
Less allowance for doubtful accounts 27,500 24,000
--------------------------
$ 925,667 $ 647,806
==========================
NOTE 4: LONG-TERM RECEIVABLES
Long-term receivables consist of advances to licensees and franchisees which are
repayable in the amount equal to a percentage of the monthly licensee and
franchisee revenue. Estimated current and long-term maturities are as follows:
1995 1994
--------------------------
Advances to licensees and franchisees $1,204,239 $1,148,717
Less allowance for doubtful advances 195,000 92,000
--------------------------
1,008,739 1,056,717
Less current portion 706,739 823,717
--------------------------
Long term portion $ 302,000 $ 325,000
==========================
NOTE 5: RECEIVABLE FROM LICENSEE
The Company sold its Tucson operation and related personal property in December,
1990 for $160,000. The Licensee has agreed to pay the Company 10% (in addition
to the contractual license fee) of his gross collections until the balance is
paid. This receivable is secured by the license rights. The balance is as
follows:
1995 1994
--------------------------
Balance Due $ 80,552 $ 87,083
Imputed Interest 11.25% 22,926 26,303
--------------------------
57,626 60,780
Current Portion 6,864 6,490
--------------------------
$ 50,762 $ 54,290
==========================
The current portion of the receivable from Licensee is included in current
receivables.
On August 1, 1995, the Company entered into an agreement with its Tucson
licensee to acquire the Tucson operation. The agreed purchase price was $116,081
including the $57,626 outstanding receivable.
NOTE 6: PROPERTY AND EQUIPMENT
Property and equipment consist of:
1995 1994
--------------------------
Building and improvements $1,127,852 $1,121,926
Computers and software 300,380 282,726
Furniture and fixtures 251,933 237,795
Automobiles 88,802 66,335
--------------------------
1,768,967 1,708,782
Less accumulated depreciation and amortization 784,565 748,324
--------------------------
984,402 960,458
Land 500,143 500,143
--------------------------
$1,484,545 $1,460,601
==========================
NOTE 7: ACCOUNTING CHANGE
As discussed in Note 1, the Company adopted FASB Statement 115 as of July 1,
1994. In accordance with Statement 115, the 1994 comparative financial
statements have not been restated for the change in accounting principle. The
July 1, 1994 cumulative effect of adopting Statement 115 decreased the balance
of stockholders' equity by $8,181 to recognize the net unrealized holding loss
of securities at that date.
NOTE 8: INVESTMENTS IN DEBT AND MARKETABLE EQUITY SECURITIES
The following is a summary of the Company's investment in debt and marketable
equity securities as of June 30, 1995 and 1994:
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
-------------------------------------------------
1995
-------------------------------------------------
U.S. government securities $ 981,197 $ -- $ -- $ 981,197
Local government securities 726,918 11,794 23,994 714,718
-------------------------------------------------
Total debt securities 1,708,115 11,794 23,994 1,695,915
Equity securities 286,496 10,967 23,033 274,430
-------------------------------------------------
$1,994,611 $ 22,761 $ 47,027 $1,970,345
=================================================
1994
-------------------------------------------------
U.S. government securities $ 998,449 $ -- $ -- $ 998,449
Local government securities 742,224 8,204 58,424 692,004
-------------------------------------------------
Total debt securities 1,740,673 8,204 58,424 1,690,453
Equity securities 276,774 -- 13,285 263,489
-------------------------------------------------
$2,017,447 $ 8,204 $ 71,709 $1,953,942
=================================================
The Company's investment in local government securities is concentrated in Salt
River Project Agricultural Improvement and Power District Municipal Bonds which
mature between 2006 and 2031.
NOTE 9: LONG TERM DEBT
On August 1, 1994, the Company acquired, from a licensee, certain rights under
his license agreement. Those rights were acquired for $25,000 cash and sixty
monthly payments of $2,500. The balance is as follows:
1995
----------
Balance Due $ 125,000
Imputed interest @ 7.25 17,394
----------
107,606
Less Current Portion 22,951
----------
Long Term Portion $ 84,655
==========
Interest paid on outstanding debt amounted to $6,694. Aggregate payments for the
next five years are as follows:
Year Ending June 30,
1996 $ 22,951
1997 24,672
1998 26,521
1999 28,509
2000 4,953
---------
$ 107,606
=========
NOTE 10: LICENSING AND FRANCHISING
The Company has entered into 437 license and franchise agreements with 390
entities, operating 590 offices with advertised locations, as of June 30, 1995,
whereby the Company grants exclusive ten year licenses or franchises for the
right to use the name "Frontier Adjusters" in a particular area. There is no
initial license or franchise fee. The Company performs advertising, collection
and remittance services, and provides the licensees and franchisees with
supplies. As compensation for the above, the Company receives a fee based on a
percentage of the licensees' or franchisees' gross billings. Gross billings by
licensees and franchisees for the years ended June 30, 1995, 1994 and 1993 were
approximately $42,690,000, $39,710,000 and $37,870,000, respectively.
The Company's main line of business is providing services to the insurance
industry. The revenue and cost components along with identifiable assets and
number of advertised locations are as follows:
Licensing Corporate
and and
Franchising Adjusting Other Consolidated
--------------------------------------------------------
1995
- ----
Revenues $ 4,783,941 $ 456,884 $ -- $ 5,240,825
Costs and expenses 3,043,680 485,739 208,737 3,738,156
--------------------------------------------------------
Income (loss) from
operations $ 1,740,261 $ (28,855) $ (208,737) $ 1,502,669
========================================================
Identifiable assets $ 3,638,623 $ 457,380 $ 2,501,047 $ 6,597,050
========================================================
Number of advertised
locations
Beginning of year 569 4 -- 573
Opened 47 -- -- 47
Closed (9) -- -- (9)
Ownership changes (17) 17 -- --
--------------------------------------------------------
590 21 -- 611
========================================================
1994
- ----
Revenues $ 4,205,245 $ 385,025 $ -- $ 4,590,270
Cost and expenses 2,359,352 492,512 227,647 3,079,511
--------------------------------------------------------
Income (loss) from
operations $ 1,845,893 $ (107,487) $ (227,647) $ 1,510,759
========================================================
Identifiable assets $ 3,831,994 $ 262,838 $ 2,396,174 $ 6,491,006
========================================================
Number of advertised
locations
Beginning of year 541 4 -- 545
Opened 41 -- -- 41
Closed (13) -- -- (13)
--------------------------------------------------------
569 4 -- 573
========================================================
1993
- ----
Revenues $ 3,979,794 $ 507,297 $ -- $ 4,487,091
Costs and expenses 2,440,099 518,956 167,844 3,126,899
--------------------------------------------------------
Income (loss) from
operations $ 1,539,695 $ (11,659) $ (167,844) $ 1,360,192
========================================================
Identifiable assets $ 3,469,374 $ 405,476 $ 2,106,448 $ 5,981,298
========================================================
Number of advertised
locations
Beginning of year 517 3 -- 520
Opened 45 -- -- 45
Closed (20) -- -- (20)
Ownership changes (1) 1 -- --
--------------------------------------------------------
541 4 -- 545
========================================================
NOTE 11: INCOME TAXES
The components of the provision for income taxes are as follows:
1995 1994 1993
-------------------------------------------
Federal
Current $ 544,580 $ 499,307 $ 455,810
Deferred (36,491) (9,195) (3,544)
State
Current $ 154,664 113,492 83,000
Deferred (10,513) (1,924) (1,160)
-------------------------------------------
Income taxes $ 652,240 $ 601,680 $ 534,106
===========================================
A reconciliation of the statutory Federal income tax rate to the Company's
effective tax rate follows:
1995 1994 1993
-------------------------------------------
Statutory rate 35.0% 35.0% 34.0%
Increase (decrease)
resulting from:
State income taxes, net 5.7 4.5 3.7
Non-deductible items 1.1 .7 .4
Non-taxable revenues (1.0) (.9) (.5)
Other (1.9) (2.2) (.6)
-------------------------------------------
Effective rate 38.9% 37.1% 37.0%
===========================================
Net deferred tax assets consist of the following components at June 30, 1995 and
1994:
1995 1994
--------------------------
Deferred tax assets
Allowance for doubtful accounts $ 87,104 $ 43,797
Property and equipment 21,301 22,983
Other 12,735 8,105
Deferred tax liabilities
Installment sale (20,031) (20,780)
--------------------------
$ 101,109 $ 54,105
==========================
The deferred tax amounts mentioned above have been classified as current assets
in the accompanying balance sheets as of June 30, 1995 and 1994.
NOTE 12: RELATED PARTY TRANSACTIONS
A director/officer of the Company is a partner in a law firm that renders legal
services to the Company. The Company paid the law firm approximately $88,500 in
fiscal 1995, $84,600 in fiscal 1994 and $82,200 in fiscal 1993 for legal
services and reimbursement of expenses.
NOTE 13: PROFIT SHARING PLAN
On June 14, 1984, the Company adopted a Profit Sharing Plan (Plan) covering
substantially all employees of the Company who have completed one year of
service and have reached age 20. The Plan provides for contributions at the
discretion of management not to exceed the amount permitted under the Internal
Revenue Code as a deductible expense. Participants' benefits vest at the rate of
20% per year. Contributions to the Plan are made to trust accounts for
investment at the discretion of the individual participants. Profit sharing
expense was $160,717, $165,980 and $155,504 for the years ended June 30, 1995,
1994 and 1993 respectively.
NOTE 14: STOCK OPTIONS
On October 9, 1987, the shareholders approved an Incentive Stock Option Plan
(Plan) which provides for the granting of options to acquire up to 300,000
shares of common stock to certain officers and key employees of the Company at
no less than 100% of the fair market value of the stock on the date of the
grant. Options under the Plan are intended to be Incentive Stock Options (ISOs)
pursuant to Section 422A of the Internal Revenue Code. Such options may have a
maximum term of ten years and are exercisable one year after they are granted.
Options become exercisable in varying amounts beginning one year after grant.
Information regarding these option plans are as follows:
Number of Shares
--------------------------------------------
1995 1994 1993
--------------------------------------------
Outstanding July 1 113,130 -- 96,296
Granted 86,870 113,130 --
Exercised -- -- (96,296)
--------------------------------------------
Outstanding June 30 200,000 113,130 --
============================================
Options were granted in fiscal 1995 at an average of $2.625 per share. Options
were exercised in fiscal 1993 at an average of $2.223 per share. Options were
outstanding at June 30, 1995 and 1994 at average prices per share of $3.1401 and
$3.5357, respectively. At June 30, 1995, there are no remaining options
available for issuance under the Plan.
NOTE 15: COMMITMENTS
The Company entered into five-year employment agreements with three key
executive officers which expire June 30, 2000. In addition to a base salary, the
agreements provide for bonuses based upon the Company's pre-tax earnings and
annual cost of living increases. Two of the key executive officers were covered
by employment agreements which expired June 30, 1995. Total compensation under
those employment agreements was $452,497, $435,711 and $412,144 for the years
ended June 30, 1995, 1994 and 1993, respectively. The aggregate commitment for
future salaries at June 30, 1995, excluding bonuses and cost of living
increases, is $2,375,000 as follows:
Year ended June 30,
------------------
1996 $475,000
1997 475,000
1998 475,000
1999 475,000
2000 475,000
The Company has entered into an agreement with a customer to share a suite in
the America West Arena in Phoenix, Arizona for client development purposes. The
agreement provides that the Company is responsible for 50% of the costs and
expenses of the suite. The Company's commitment began in June, 1992. The
Company's minimum required payments are as follows:
Year ended June 30, Amount
------------------------------------
1996 $ 35,096
1997 36,500
1998 37,960
1999 39,477
----------
$ 149,033
==========
<PAGE>
FRONTIER ADJUSTERS OF AMERICA, INC.
AND SUBSIDIARIES
SUPPLEMENTARY DATA
------------------
Selected Quarterly Financial Data
(Information for all periods shown below is unaudited)
1995
-------------------------------------------------
Three Months Ended
-------------------------------------------------
Sept. 30 Dec. 31 Mar. 31 June 30
---------- ---------- ---------- ----------
Revenues $1,270,785 $1,257,356 $1,232,935 $1,479,749
Income from operations 400,164 415,959 198,670 487,876
Income before income taxes 440,483 482,236 242,891 513,478
Net income 267,530 292,947 146,708 319,663
Net income per share .06 .06 .03 .07
Weighted average shares
outstanding 4,690,898 4,677,311 4,640,898 4,640,898
1994
-------------------------------------------------
Three Months Ended
-------------------------------------------------
Sept. 30 Dec. 31 Mar. 31 June 30
---------- ---------- ---------- ----------
Revenues $1,155,528 $1,118,361 $1,146,805 $1,169,576
Income from operations 423,888 414,824 344,927 327,120
Income before income taxes 454,474 444,191 358,630 362,545
Net income 277,762 272,037 233,510 234,851
Net income per share .06 .06 .05 .05
Weighted average shares
outstanding 4,763,280 4,719,310 4,719,310 4,708,249
1993
-------------------------------------------------
Three Months Ended
-------------------------------------------------
Sept. 30 Dec. 31 Mar. 31 June 30
---------- ---------- ---------- ----------
Revenues $1,125,701 $1,059,913 $1,131,167 $1,170,310
Income from operations 381,184 343,126 346,672 289,210
Income before income taxes 404,070 361,307 361,099 316,683
Net income 247,927 221,276 220,973 218,877
Net income per share .05 .05 .05 .04
Weighted average shares
outstanding 4,726,210 4,803,606 4,805,140 4,789,082
Item 9 - Changes in and Disagreements With Accountants on
- ---------------------------------------------------------
Accounting and Financial Disclosures
------------------------------------
Not applicable.
PART III
Item 10 - Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Served as Director
Since Year Listed
Name/Title Business Experience Age Below (1)
- ---------- ------------------- --- ------------------
<S> <C> <C> <C>
George M. Hill Mr. Hill has been associated with the 87 1978
Director, Company in an advisory capacity for
Vice President, more than 25 years, has been a Vice
Assistant President of the Company since 1985
Secretary and has been the Assistant Secretary of
the Company since 1990. He has been
a senior partner in the Phoenix law firm
of Hill & Savoy for over 30 years. Mr.
Hill is a Director and Secretary of
National Car Rental, Phoenix, Denver
and Colorado Springs, and Director and
Vice President of Precise Metal Products
Co., Phoenix and Salt Lake City.
Louis T. Mastos Mr. Mastos has been the President of 74 1978
Director Louis T. Mastos & Associates, Inc.,
a managing general agency located in Reno,
Nevada, since 1971. He is past President of
the American Association of Managing General
Agents. He was the Insurance Commissioner of
the State of Nevada from 1965 to 1971.
William J. Rocke Mr. Rocke is the founder of the Company 71 1975
Director, Chairman of and has served as an Executive Officer of the
the Board, Chief the Company and its predecessor entities since
Executive Officer 1957. Mr. Rocke has been in the insurance
adjusting business since 1952. He has a law
degree from the University of Denver and is a
member of the Colorado Bar Association.
The employment agreement between Mr.
Rocke and the Company provides that Mr.
Rocke will be the Chief Executive Officer
of the Company through June 30, 2000.
Mr. Rocke is the father of James S. Rocke.
Jean E. Ryberg Mrs. Ryberg has been employed by the 63 1975
Company and its predecessors since 1962.
She has held several positions with the
Company and has been the President of
the Company since 1993. She also manages the
Company's insurance adjusting operations in
Phoenix, Arizona. The employment agreement
between Mrs. Ryberg and the Company provides
that Mrs. Ryberg will be an executive
officer of the Company through June 30,
2000.
Merlin J. Schumann Mr. Schumann has been a certified public 51 1984
Director accountant with the firm of Murray &
Murray, P.C., located in Phoenix,
Arizona, for over 20 years. Since
December, 1990, Mr. Schumann has also
held the position of General Securities
Representative with H. D. Vest Investment
Securities, Inc., a stock brokerage and
investment counseling firm located in
Irving, Texas.
William W. Strawther, Jr. Mr. Strawther was the President and 69 1978
Director, Vice Chairman principal shareholder of Continental
of the Board American Securities, Inc., located in
Phoenix, Arizona from 1970 through 1982. He
is a former member of the National Board of
Governors of the National Association of
Securities Dealers, Inc. He has been an
independent business consultant since 1982.
R. Scott Younker Mr. Younker has been a licensee of 59 1992
Director the Company in Prescott, Arizona since 1979.
He has been engaged in the insurance
adjusting business for 32 years.
James S. Rocke Mr. Rocke has been employed by the 27 1993
Director, Company since 1982 and currently is
Secretary/Treasurer an adjuster in the Company's Phoenix
office. Mr. Rocke was elected
secretary/treasurer of the Company in
1993. Mr. Rocke graduated from
Arizona State University in 1991
with a B.S. degree in Finance. Mr.
Rocke is the son of William J. Rocke.
Patric R. Greer Mr. Greer is a certified public 40 1994
Director, Controller accountant and has been with the
Company as the Controller since 1985.
Mr. Greer was appointed a Director of
the Company in October 1994. Mr.
Greer graduated from Northern Arizona
University with a degree in accounting.
An employment agreement between
Mr. Greer and the Company provides
that Mr. Greer will be Controller of the
Company through June 30, 2000.
(1) Term will continue through October 13, 1995.
</TABLE>
Item 11 - Executive Compensation
- --------------------------------
The following table sets forth certain information concerning the compensation
paid by the Company during its year ended June 30, 1994 to each executive
officer whose aggregate compensation exceeded $100,000.
Annual Compensation
----------------------------------------------------
a b c d e i
- --------------------------- ---- ---------- -------- ------------ ------------
Other Annual All Other
Compensation Compensation
Name and Principal Position Year Salary ($) Bonus ($) ($) (2) ($) (3)
- --------------------------------------------------------------------------------
William J. Rocke, CEO, 1995 206,636 50,000 -- 23,670
Chairman, Director 1994 196,796 50,000 -- 32,250
1993 187,425 46,210 -- 33,750
Jean E. Ryberg, 1995 145,861 50,000 -- 29,168
President, Director 1994 138,915 50,000 -- 32,250
1993 132,300 46,210 -- 33,064
(1) Columns f, g and h have been omitted as there has been no long term
compensation awarded to, earned by or paid to any of the named executives
in any fiscal year covered by these columns.
(2) No perquisites were received by any person named above greater than the
lesser of $50,000 or 10% of salary plus bonus.
(3) "All Other Compensation" includes (i) directors fees of $3,000 in fiscal
1995, $2,250 in fiscal 1994 and $3,750 in fiscal 1993 for both Mr. Rocke
and Mrs. Ryberg; (ii) profit sharing contributions of $20,670 for the year
ended June 30, 1995 and $30,000 each year for the years ended June 30, 1994
and 1993 for Mr. Rocke and $26,168, $30,000 and $29,314 for Mrs. Ryberg for
the years ended June 30, 1995, 1994 and 1993, respectively.
Option/SAR Exercises and Holdings
- ---------------------------------
The following table is a summary of all Company stock options granted to the
Named Executives during 1995. Individual grants are listed separately for each
Named Executive. In addition, this table shows the potential gain that could be
realized if the fair market value of the Company's common shares were to
appreciate at either a 5% or 10% annual rate over the period of the option term
(5 years for Mr. Rocke and 10 years of Mrs. Ryberg).
<TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<CAPTION>
Individual Grants
---------------------------------------------
% of Total Potential Realizable
Options/SARs Value at
Number of Granted Assumed Annual Rates of Stock
Securities to All Exercise Price Appreciation for Options Term
Underlying Employees or Base Expiration -----------------------------------
Name Options/SARs in fiscal 1995 Price ($/SH) Date 5% 10%
- ------------------- ------------ --------------- ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
William J. Rocke 21,718 25.00 $2.75 1/20/00 16,501 36,462
Jean E. Ryberg 21,718 25.00 $2.50 1/20/05 34,146 86,532
</TABLE>
The following table shows Company stock options that were exercised during
fiscal 1995 and the number of shares and value of grants outstanding as of June
30, 1995 for each Named Executive.
<TABLE>
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1995 AND YEAR-END OPTION/SAR VALUES
<CAPTION>
Number of Securities Value of Unexercised,
Underlying Unexercised In-The-Money Options/SARs
Shares Options/SARs at 6/30/95 (#) at 6/30/95 ($)
Acquired Value --------------------------- ----------------------------
Name on Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ----------------------- ---------------- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
William J. Rocke -- -- 26,936 21,718 -- --
Jean E. Ryberg -- -- 29,629 21,718 -- 4,072
</TABLE>
(a) stock ofunexercised, in-the-money Company options based on a fair market
value of the Company's common $2.6875 per share as of June 30, 1995.
Directors Compensation
- ----------------------
Each director, including employees of the Company, are paid $750 per Board
meeting attended. During fiscal 1995, each director, except for Mr. Greer,
received $3,000 for attendance at Board meetings. Mr. Greer was appointed to the
Board of Directors on October 9, 1994 and received $2,250 for attendance at
Board meetings during fiscal 1995.
Employment Agreements
- ---------------------
The Company has entered into employment agreements with Mr. Rocke and Mrs.
Ryberg, each for five-year terms, effective July 1, 1995 and expiring June 30,
2000.
Mr. Rocke's agreement provides for an annual salary of $225,000 with annual
cost of living increases based upon the U.S. Department of Labor's cost of
living index, plus a bonus of three percent (3%) of the Company's income before
taxes and bonuses and 5% of the increase in the Company's income before taxes
and bonuses from the prior year.
Mrs. Ryberg's agreement provides for an annual salary of $160,000 with
annual cost of living increases based upon the U.S. Department of Labor's cost
of living index, plus a bonus of three percent (3%) of the Company's income
before taxes and bonuses and 5% of the increase in the Company's income before
taxes and bonuses from the prior year.
Item 12 - Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
Name and Address Amount of Beneficial Ownership
- --------------------------- ------------------------------
Common Stock $.01 Par Value
------------------------------
Number of Shares (1) Percent (2)
-------------------- -----------
William W. Strawther, Jr. and
Marjorie A. Strawther,
his wife (3) 442,138 9.52%
7108 North 15th Street
Phoenix, Arizona 85020
William J. Rocke and Garnet Rocke, his wife (4) 440,550 9.44%
P. O. Box 7641
Phoenix, Arizona 85011
George M. Hill (5) 173,390 3.74%
Jean E. Ryberg (6) 138,871 2.97%
Louis T. Mastos and Eva B. Mastos, his wife (7) 208,703 4.50%
Merlin J. Schumann and Donna L. Schumann,
his wife 20,114 *
James S. Rocke (8) 440,086 9.42%
R. Scott Younker and Sandra L. Younker, his wife 93,469 2.01%
Patric R. Greer and Nancy S. Greer, his wife (9) 44,599 *
All officers and directors as a group
(nine persons) (10) 1,711,920 36.00%
- -----------------------------------------
*Less than 1%
(1) The number of shares shown in the table, including the notes thereto, have
been rounded to the nearest whole share. Includes, when applicable, shares
owned of record by such person's minor children and spouse and by other
related individuals and entitiies over whose shares of Common Stock such
person has custody, voting control or power of disposition. Also includes
shares of Common Stock that the identified person had the right to acquire
within 60 days of August 1, 1995 by the exercise of stock options.
(2) The percentages shown include the shares of Common Stock which the person
will have the right to acquire within 60 days of August 1, 1995. In
calculating the percentage of ownership, all shares of Common Stock which
the identified person will have the right to acquire within 60 days of
August 1, 1995 upon the exercise of stock options are deemed to be
outstanding for the purpose of computing the percentage of the shares of
Common Stock owned by any other person.
(3) Held as trustees under Trust Agreement, dated June 7, 1989, establishing
the William W. Strawther, Jr. and Marjorie A. Strawther Living Trust, of
which Mr. and Mrs. Strawther are beneficiaries. Excludes an aggregate of
200,000 shares beneficially owned by Mr. and Mrs. Strawther's son, in which
shares Mr. and Mrs. Strawther disclaim any beneficial interest.
(4) Includes 290,000 shares held by Old Frontier Investment, Inc., of Arizona,
of which Mr. Rocke holds 51% of the outstanding stock. Includes 26,936
shares subject to a currently exercisable stock option at $3.7125 per
share.
(5) Excludes 50,000 shares held by Nell S. Hill, Mr. Hill's wife, and 112,243
shares held by Mr. Hill's children and grandchildren, in which shares he
disclaims any beneficial interest.
(6) Includes 29,629 shares subject to a currently exercisable stock option at
$3.375 per share.
(7) Includes 180,180 shares which are held in a trust under an agreement dated
February 10, 1981, in which Mr. and Mrs. Mastos hold equal beneficial
interests, and 25,523 shares which are held by the Louis T. Mastos &
Associates, Profit Sharing Plan, of which he is a trustee and the majority
beneficial owner.
(8) Includes 290,000 shares held by Old Frontier Investment, Inc. of Arizona of
which Mr. Rocke holds 49% of the outstanding stock. Includes 26,936 shares
subject to a currently exercisable stock option at $3.7125 per share.
(9) Includes 29,629 shares subject to a currently exercisable stock option at
$3.375 per share.
(10) Excludes all duplicate reporting of holdings.
To the best of knowledge of the Company, no person or groups of persons, other
than officers and directors, beneficially own more than five percent of the
Frontier Adjusters of America, Inc. Common Stock (based upon present records of
the transfer agent).
Based solely on a review of the copies of such forms received by the Company
during the fiscal year ended June 30, 1995, and written representations that no
other reports were required, the Company believes that each person who, at any
time during such fiscal year, was a director, officer or beneficial owner of
more than 10% of the Company's Common Stock complied with all Section 16(a)
filing requirements during such fiscal year, except that (i) each of William J.
Rocke, Jean E. Ryberg, James S. Rocke and Patric R. Greer filed late reports on
Form 5 covering one grant of stock options to each person pursuant to the
Company's 1987 Incentive Stock Option Plan and (ii) R. Scott Younker filed late
one report on Form 5 covering one transaction.
Item 13 - Certain Relationships and Related Transactions
- --------------------------------------------------------
Old Frontier Investment, Inc. of Arizona, of which William J. Rocke and
Garnet Rocke, his wife, are owners of 51% of the issued and outstanding stock of
said corporation and James S. Rocke owns the remaining 49%, has entered into a
license agreement with the Company pursuant to which it operates, under standard
terms and conditions, an insurance adjusting business located in Scottsdale,
Arizona, and is paid a 5% royalty on gross revenues derived from services
provided by others in certain other Arizona towns. The Company paid that
corporation $20,255 during fiscal year 1995 in connection with such 5% royalty
agreement.
George M. Hill, Vice President and Director of the Company, is a senior
partner in the law firm which acts as General Counsel to the Company. During the
fiscal year 1995, the Company paid such firm $88,544 for services rendered and
disbursements. Such fees will continue to accrue, pursuant to a retainer
agreement, at the rate of $6,650 per month effective September 1, 1995.
The Company paid its Vice Chairman, William W. Strawther, Jr., $20,000
during fiscal year 1995 for business and financial consulting services.
The Company believes that the cost to the Company for all of the foregoing
were and are competitive with charges for similar services and facilities
available from third parties.
PART IV
Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K
- -------------------------------------------------------------------------
(a) (1) Financial Statements
The following Financial Statements are included in Part II, Item 8:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets - June 30, 1995 and 1994
Consolidated Statements of Income for the Years Ended June 30,
1995, 1994 and 1993
Consolidated Statements of Stockholders' Equity for the Years Ended
June 30, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the Years Ended June 30,
1995, 1994 and 1993
Notes to Consolidated Financial Statements - June 30, 1995, 1994
and 1993
(a) (2) Financial Statement Schedules
Schedule
Number
I Marketable Securities and Other Security Investments June 30,
1995 and 1994
V Property and Equipment for the Years Ended June 30, 1995,
1994 and 1993
VI Accumulated Depreciation and Amortization of Property and
Equipment for the Years Ended June 30, 1995, 1994 and 1993
X Supplementary Income Statement Information for the Years
Ended June 30, 1995, 1994 and 1993
Schedules I through XIV not listed above have been omitted
because they are not applicable or the required information
is included in the consolidated financial statements or notes
thereto.
(a) (3) Exhibits filed with this report.
EXHIBIT LIST
Exhibit No. Description of Exhibit
- ----------- ----------------------
3(a) Articles of Incorporation of Frontier
Adjusters of America, Inc.*
3(b) By-Laws of Frontier Adjusters of America,
Inc.**
10(a) Frontier Adjusters of America, Inc. Incentive
Stock Option Plan*
10(b) Profit Sharing Plan, as amended
10(c) Employment Agreement, dated August 10, 1995
between the Registrant and William J. Rocke
10(d) Employment Agreement, dated August 10, 1995
between the Registrant and Jean E. Ryberg
10(e) Incentive Stock Option Plan, dated October
10, 1987*
10(f) Form of Franchise Agreement between the
Registrant and franchisees*
10(g) Form of License Agreement between the
Registrant and licensees*
10(h) Agreement, dated June 1, 1990, between the
Registrant and Scottsdale Insurance Company*
10(i) Form of Software Purchase Agreement and Order
Form*
10(j) Software Products License Agreements between
the Registrant and MAI Systems, Inc.
(formerly, MAI Basic Four, Inc.), each dated
September 29, 1989*
21 List of Subsidiaries of Frontier Adjusters of
America, Inc.
24 Consent of McGladrey & Pullen
*Incorporated by reference to the Registrant's Form S-2 filed July 9, 1991
**Incorporated by reference to the Registrant's Form 10-K for the year ended
June 30, 1993
(b) The Company filed no reports on Form 8-K with the Securities and
Exchange Commission during the last quarter of the fiscal year June
30, 1995
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
FRONTIER ADJUSTERS OF AMERICA, INC.
/s/ William J. Rocke /s/ Jean E. Ryberg
- ----------------------------------- -----------------------------------
William J. Rocke (Chief Executive Jean E. Ryberg, (President)
Officer, Chairman of the Board,
Principal Financial Officer)
August 21, 1995 August 21, 1995
- ----------------------------------- -----------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates included:
/s/ George M. Hill August 21, 1995
- ----------------------------------- -----------------------------------
George M. Hill, Director
/s/ James S. Rocke August 21, 1995
- ----------------------------------- -----------------------------------
James S. Rocke, Secretary/
Treasurer, Director
/s/ William J. Rocke August 21, 1995
- ----------------------------------- -----------------------------------
William J. Rocke, Director
/s/ Jean E. Ryberg August 21, 1995
- ----------------------------------- -----------------------------------
Jean E. Ryberg, Director
/s/ Merlin J. Schumann August 21, 1995
- ----------------------------------- -----------------------------------
Merlin J. Schumann, Director
- ----------------------------------- -----------------------------------
William W. Strawther, Jr., Director
- ----------------------------------- -----------------------------------
Lou Mastos, Director
- ----------------------------------- -----------------------------------
R. Scott Younker, Director
/s/ Patric R. Greer August 21, 1995
- ----------------------------------- -----------------------------------
Patric R. Greer, Controller
<PAGE>
FRONTIER ADJUSTERS OF AMERICA, INC. AND SUBSIDIARIES
SCHEDULE I
MARKETABLE SECURITIES AND OTHER SECURITY INVESTMENTS
For Years Ended
June 30, 1995 and 1994
<TABLE>
<CAPTION>
Amount at
Number of Which
Units - Carried
Principal Market on Balance
Description Amount Cost Value (1) Sheet
- ----------------------------------------------------------------------------------------------------------------------
1995
- ----
<S> <C> <C> <C> <C>
U.S. Treasury Bill 10-26-95 $1,000,000 $ 970,975 $ 981,197 $ 981,197
WRT Energy Corporation
9% Convertible Preferred Stock 3,000 75,006 63,000 63,000
Fidelity Equity-Income II Fund 687.554 14,095 14,726 14,726
Janus Fund 646.522 13,560 14,444 14,444
Brandywine Fund, Inc. 1,022.949 26,714 32,364 32,364
T. Rowe Price New Asia 5,200.204 54,992 48,742 48,742
Warburg Pincus - International
Equity Fund 2,538.977 51,765 46,988 46,988
Harbor Fund - International Growth 4,699.248 50,364 54,166 54,166
----------- ----------- -----------
Total Short-Term Investments $1,257,471 $1,255,627 $1,255,627
========== ========== ==========
Salt River Project Agricultural
Improvement & Power District
01/01/19 7.25% $ 50,000 $ 50,000 $ 55,579 $ 50,000
City of Chandler, Arizona - General
Obligation Bond 07/01/05 6.75% $ 25,000 24,604 27,319 24,604
Pima County IDA Tucson S-A
04/01/06 6.875% $ 25,000 24,844 25,745 24,844
Salt River Project Agricultural
Improvement & Power District
01/01/25 5.0% $ 50,000 46,249 41,434 46,249
Salt River Project Agricultural
Improvement & Power District
01/01/19 5.25% $ 100,000 96,102 91,164 96,102
Salt River Project Agricultural
Improvement & Power District
01/01/19 6.25% $ 100,000 100,680 99,462 100,680
Salt River Project Agricultural
Improvement & Power District
01/01/19 5.75% $ 100,000 100,002 98,703 100,002
Salt River Project Agricultural
Improvement & Power District
01/01/25 5.5% $ 50,000 50,003 46,013 50,003
Salt River Project Agricultural
Improvement & Power District
01/01/28 5.5% $ 100,000 99,525 91,791 99,525
Salt River Project Agricultural
Improvement & Power District
01/01/31 6.00% $ 100,000 $ 99,377 $ 99,854 $ 99,377
Salt River Project Agricultural
Improvement & Power District
01/01/20 5.75% 40,000 35,532 37,654 35,532
----------- ----------- ----------- -----------
726,918 714,718 726,918
Citi-Central Plains Partnership II,
a California Limited Partnership 5 86,450 37,171 37,172
----------- ----------- -----------
Total Long-Term Investments $ 813,368 $ 751,889 $ 764,090
========== ========== ==========
(1) Market value of the Citi-Central Plains Partnership II is at its
estimated fair value as determined by the Company's Board of Directors in
good faith.
1994
- ----
U. S. Treasury Bill 07-14-94 $1,000,000 $ 989,914 $ 998,449 $ 998,449
WRT Energy Corporation
9% Convertible Preferred Stock 3,000 75,006 71,625 75,006
Fidelity Equity-Income II Fund 687.554 13,143 12,720 13,143
Janus Fund 646.522 13,305 12,064 13,305
Brandywine Fund, Inc. 1,022.949 25,228 23,978 25,228
T. Rowe Price New Asia 5,200.204 50,000 46,438 50,000
Warburg Pincus - International
Equity Fund 2,538.977 50,092 49,155 50,092
Harbor Fund - International Growth 4,699.248 50,000 47,509 50,000
----------- ----------- -----------
Total Short-Term Investments $1,266,688 $1,261,938 $1,275,223
========== ========== ==========
Salt River Project Agricultural
Improvement & Power District
01/01/19 7.25% $ 50,000 $ 50,000 $ 55,005 $ 50,000
City of Chandler, Arizona General
Obligation Bond 07/01/05 6.75% $ 25,000 24,496 27,017 24,496
Pima County IDA Tucson S-A
04/01/06 6.875% $ 25,000 24,811 25,489 24,811
Salt River Project Agricultural
Improvement & Power District
01/01/25 5.0% $ 50,000 46,125 39,958 46,125
Salt River Project Agricultural
Improvement & Power District
01/01/19 5.25% $ 100,000 $ 95,943 $ 84,444 $ 95,943
Salt River Project Agricultural
Improvement & Power District
01/01/19 6.25% $ 100,000 100,709 96,759 100,709
Salt River Project Agricultural
Improvement & Power District
01/01/19 5.75% $ 100,000 100,002 90,601 100,002
Salt River Project Agricultural
Improvement & Power District
01/01/25 5.5% $ 50,000 50,003 42,122 50,003
Salt River Project Agricultural
Improvement & Power District
01/01/28 5.5% $ 100,000 99,510 86,267 99,510
Salt River Project Agricultural
Improvement & Power District
01/01/31 6.00% $ 100,000 99,329 93,046 99,329
----------- ----------- -----------
Citi-Central Plains Partnership II,
a California Limited Partnership 5 86,450 51,296 51,296
----------- ----------- -----------
Total Long-Term Investments $ 777,378 $ 692,004 $ 742,224
========== ========== ==========
(1) Market value of the Citi-Central Plains Partnership II is at its
estimated fair value as determined by the Company's Board of Directors in
good faith.
</TABLE>
<PAGE>
FRONTIER ADJUSTERS OF AMERICA, INC. AND SUBSIDIARIES
SCHEDULE V
PROPERTY AND EQUIPMENT
For Years Ended
June 30, 1995, 1994 and 1993
Balance
Beginning Additions Retirement at End
Classification of Period at Costs (1) or Sales or Period
- -------------- ----------- ------------ ---------- ----------
1995
- ----
Computer $ 282,726 $ 18,829 $ (1,175) $ 300,380
Furniture and Fixtures 237,795 14,638 (500) 251,933
Building and Improvements 1,121,926 5,926 -- 1,127,933
Land (2) 500,143 -- -- 500,143
Automobiles 66,335 88,802 (66,335) 88,802
----------- ----------- -------- -----------
$ 2,208,925 $ 128,195 $ 68,010 $ 2,269,110
=========== =========== ======== ===========
1994
- ----
Computer $ 303,831 $ 5,280 $(26,385) $ 282,726
Furniture and Fixtures 236,670 1,125 -- 237,795
Building and Improvements 1,118,291 5,678 (2,043) 1,121,926
Land (2) 500,143 -- -- 500,143
Automobiles 66,335 -- -- 66,335
----------- ----------- -------- -----------
$ 2,225,270 $ 12,083 $(28,428) $ 2,208,925
=========== =========== ======== ===========
1993
- ----
Computer $ 304,159 $ 3,533 $ (3,861) $ 303,831
Furniture and Fixtures 236,445 4,818 (4,593) 236,670
Building and Improvements 1,095,861 25,456 (3,026) 1,118,291
Land 500,143 -- -- 500,143
Automobiles 66,335 -- -- 66,335
----------- ----------- -------- -----------
$ 2,202,943 $ 33,807 $(11,480) $ 2,225,270
=========== =========== ======== ===========
(1) Additions in 1994, 1993 and 1992 represent the purchase of computer
equipment, furniture and fixtures, automobiles, and building improvements.
<PAGE>
FRONTIER ADJUSTERS OF AMERICA, INC. AND SUBSIDIARIES
SCHEDULE VI
ACCUMULATED DEPRECIATION AND AMORTIZATION OF
PROPERTY AND EQUIPMENT
For Years Ended
June 30, 1995, 1994 and 1993
Additions
Balance at Charged to Balance
Beginning Costs and Retirements at End
Classification of Period Expenses (1) or Sales or Period
- -------------- ----------- ------------ ------------ ----------
1995
- ----
Computer $ 268,375 $ 13,013 $ (1,176) $ 280,212
Furniture and Fixtures 199,754 14,973 (500) 214,227
Building and Improvements 235,972 39,354 -- 275,326
Automobiles 44,223 20,328 (49,751) 14,800
---------- ---------- ---------- ----------
$ 748,234 $ 87,668 $ (51,427) $ 784,565
========== ========== ========== ==========
1994
- ----
Computer $ 275,218 $ 19,468 $ (26,311) $ 268,375
Furniture and Fixtures 177,534 22,220 -- 199,754
Building and Improvements 195,652 42,362 (2,042) 235,972
Automobiles 27,639 16,584 -- 44,223
---------- ---------- ---------- ----------
$ 676,043 $ 100,634 $ (28,353) $ 748,324
========== ========== ========== ==========
1993
- ----
Computer $ 253,165 $ 22,928 $ (875) $ 275,218
Furniture and Fixtures 149,579 31,319 (3,364) 177,534
Building and Improvements 153,153 45,526 (3,027) 195,652
Automobiles 11,055 16,584 -- 27,639
---------- ---------- ---------- ----------
$ 566,952 $ 116,357 $ (7,266) $ 676,043
========== ========== ========== ==========
1995 1994 1993(1)
-------- -------- --------
Depreciation per above $ 87,668 $100,634 $116,357
Amortization of intangible assets 48,760 13,311 6,943
-------- -------- --------
Total depreciation and amortization
charged to expense $136,428 $113,945 $123,300
======== ======== ========
(2) Depreciation is computed using straight-line and accelerated methods over
estimated useful lives, which range from 3 to 10 years for all assets
except the building. The building is depreciated using the straight-line
method over 30 years.
<PAGE>
FRONTIER ADJUSTERS OF AMERICA, INC. AND SUBSIDIARIES
SCHEDULE X
SUPPLEMENTARY INCOME STATEMENT INFORMATION
For Years Ended
June 30, 1995, 1994 and 1993
Charged to Costs
Item and Expenses
------------------------ ----------------
5. Advertising Costs
1995 $360,878
1994 $384,868
1993 $428,761
FRONTIER ADJUSTERS, INC.
PROFIT SHARING PLAN
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
ARTICLE II
TOP HEAVY AND ADMINISTRATION
2.1 TOP HEAVY PLAN REQUIREMENTS 17
2.2 DETERMINATION OF TOP HEAVY STATUS 17
2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER 21
2.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY 22
2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES 22
2.6 POWERS AND DUTIES OF THE ADMINISTRATOR 23
2.7 RECORDS AND REPORTS 24
2.8 APPOINTMENT OF ADVISERS 24
2.9 INFORMATION FROM EMPLOYER 24
2.10 PAYMENT OF EXPENSES 25
2.11 MAJORITY ACTIONS 25
2.12 CLAIMS PROCEDURE 25
2.13 CLAIMS REVIEW PROCEDURE 25
ARTICLE III
ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY 26
3.2 APPLICATION FOR PARTICIPATION 27
3.3 EFFECTIVE DATE OF PARTICIPATION 27
3.4 DETERMINATION OF ELIGIBILITY 27
3.5 TERMINATION OF ELIGIBILITY 27
3.6 OMISSION OF ELIGIBLE EMPLOYEE 28
3.7 INCLUSION OF INELIGIBLE EMPLOYEE 28
3.8 ELECTION NOT TO PARTICIPATE 28
ARTICLE IV
CONTRIBUTION AND ALLOCATION
4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION 29
4.2 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION 29
4.3 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS 29
4.4 MAXIMUM ANNUAL ADDITIONS 35
4.5 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS 40
4.6 TRANSFERS FROM QUALIFIED PLANS 41
4.7 DIRECTED INVESTMENT ACCOUNT 43
ARTICLE V
VALUATIONS
5.1 VALUATION OF THE TRUST FUND 44
5.2 METHOD OF VALUATION 44
ARTICLE VI
DETERMINATION AND DISTRIBUTION OF BENEFITS
6.1 DETERMINATION OF BENEFITS UPON RETIREMENT 45
6.2 DETERMINATION OF BENEFITS UPON DEATH 45
6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY 46
6.4 DETERMINATION OF BENEFITS UPON TERMINATION 47
6.5 DISTRIBUTION OF BENEFITS 52
6.6 DISTRIBUTION OF BENEFITS UPON DEATH 58
6.7 TIME OF SEGREGATION OR DISTRIBUTION 63
6.8 DISTRIBUTION FOR MINOR BENEFICIARY 63
6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN 63
6.10 ADVANCE DISTRIBUTION FOR HARDSHIP 64
6.11 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION 65
ARTICLE VII
TRUSTEE
7.1 BASIC RESPONSIBILITIES OF THE TRUSTEE 65
7.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE 66
7.3 OTHER POWERS OF THE TRUSTEE 67
7.4 DUTIES OF THE TRUSTEE REGARDING PAYMENTS 70
7.5 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES 70
7.6 ANNUAL REPORT OF THE TRUSTEE 70
7.7 AUDIT 71
7.8 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE 72
7.9 TRANSFER OF INTEREST 73
7.10 DIRECT ROLLOVER 73
7.11 EMPLOYER SECURITIES AND REAL PROPERTY 75
ARTICLE VIII
AMENDMENT, TERMINATION AND MERGERS
8.1 AMENDMENT 75
8.2 TERMINATION 76
8.3 MERGER OR CONSOLIDATION 76
ARTICLE IX
MISCELLANEOUS
9.1 PARTICIPANT'S RIGHTS 77
9.2 ALIENATION 77
9.3 CONSTRUCTION OF PLAN 78
9.4 GENDER AND NUMBER 78
9.5 LEGAL ACTION 78
9.6 PROHIBITION AGAINST DIVERSION OF FUNDS 78
9.7 BONDING 79
9.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE 79
9.9 INSURER'S PROTECTIVE CLAUSE 79
9.10 RECEIPT AND RELEASE FOR PAYMENTS 80
9.11 ACTION BY THE EMPLOYER 80
9.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY 80
9.13 HEADINGS 81
9.14 APPROVAL BY INTERNAL REVENUE SERVICE 81
9.15 UNIFORMITY 82
<PAGE>
FRONTIER ADJUSTERS, INC.
PROFIT SHARING PLAN
THIS AGREEMENT, hereby made and entered into this 17th day of
June, 1994, by and between Frontier Adjusters, Inc. (herein referred to as the
"Employer") and Patric R. Greer, William J. Rocke, George M. Hill, Jean E.
Ryberg and James S. Rocke (herein referred to as the "Trustee").
W I T N E S S E T H:
WHEREAS, the Employer heretofore established a Profit Sharing
Plan and Trust effective July 1, 1983, (hereinafter called the "Effective Date")
known as Frontier Adjusters, Inc. Profit Sharing Plan (herein referred to as the
"Plan") in recognition of the contribution made to its successful operation by
its employees and for the exclusive benefit of its eligible employees; and
WHEREAS, under the terms of the Plan, the Employer has the
ability to amend the Plan, provided the Trustee joins in such amendment if the
provisions of the Plan affecting the Trustee are amended;
WHEREAS, the Employer desires to conform the Plan to all of
the requirements of the Tax Reform Act of 1986 and subsequent legislation;
NOW, THEREFORE, effective July 1, 1989, except as otherwise
provided, the Employer and the Trustee in accordance with the provisions of the
Plan pertaining to amendments thereof, hereby amend the Plan in its entirety and
restate the Plan to provide as follows:
ARTICLE I
DEFINITIONS
1.1 "Act" means the Employee Retirement Income Security Act of 1974, as
it may be amended from time to time.
1.2 "Administrator" means the person or entity designated by the
Employer pursuant to Section 2.4 to administer the Plan on behalf of the
Employer.
1.3 "Affiliated Employer" means any corporation which is a member of a
controlled group of corporations (as defined in Code Section 414(b)) which
includes the Employer; any trade or business (whether or not incorporated) which
is under common control (as defined in Code Section 414(c)) with the Employer;
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
Employer; and any other entity required to be aggregated with the Employer
pursuant to
1.4 "Aggregate Account" means, with respect to each Participant, the
value of all accounts maintained on behalf of a Participant, whether
attributable to Employer or Employee contributions, subject to the provisions of
Section 2.2.
1.5 "Anniversary Date" means June 30th.
1.6 "Beneficiary" means the person to whom the share of a deceased
Participant's total account is payable, subject to the restrictions of Sections
6.2 and 6.6.
1.7 "Code" means the Internal Revenue Code of i986, as amended or
replaced from time to time.
1.8 "Compensation" with respect to any Participant means such
Participant's wages as defined in Code Section 3401(a) and all other payments of
compensation by the Employer (in the course of the Employer's trade or business)
for a Plan Year for which the Employer is required to furnish the Participant a
written statement under Code Sections 6041(d), 6051(a)(3) and 6052. Compensation
must be determined without regard to any rules under Code Section 3401(a) that
limit the remuneration included in wages based on the nature or location of the
employment or the services performed (such as the exception for agricultural
labor in Code Section 3401(a)(2)).
For purposes of this Section, the determination of
Compensation shall be made by:
(a) excluding amounts which are contributed by the
Employer pursuant to a salary reduction agreement and which
are not includible in the gross income of the Participant
under Code Sections 125, 402(e)(3), 402(h), 403(b) or 457, and
Employee contributions described in Code Section 414(h)(2)
that are treated as Employer contributions.
For a Participant's initial year of participation,
Compensation shall be recognized for the entire Plan Year.
Compensation in excess of $200,000 shall be disregarded. Such amount shall be
adjusted at the same time and in such manner as permitted under Code Section
415(d), except that the dollar increase in effect on January 1 of any calendar
year shall be effective for the Plan Year beginning with or within such calendar
year and the first adjustment to the $200,000 limitation shall be effective on
January 1, 1990. For any short Plan Year the Compensation limit shall be an
amount equal to the Compensation limit for the calendar year in which the Plan
Year begins multiplied by the ratio obtained by dividing the number of full
months in the short Plan Year by twelve (12). In applying this limitation, the
family group of a Highly Compensated Participant who is subject to the Family
Member aggregation rules of Code Section 414(q)(6) because such Participant is
either a "five percent owner" of the Employer or one of the ten (10) Highly
Compensated Employees paid the greatest "415 Compensation" during the year,
shall be treated as a single Participant, except that for this purpose Family
Members shall include only the affected Participant's spouse and any lineal
descendants who have not attained age nineteen (19) before the close of the
year. If, as a result of the application of such rules the adjusted $200,000
limitation is exceeded, then the limitation shall be prorated among the affected
Family Members in proportion to each such Family Member's Compensation prior to
the application of this limitation, or the limitation shall be adjusted in
accordance with any other method permitted by Regulation. However, for purposes
of Section 4.3(b), the preceding sentence shall not apply in determining the
portion of the Compensation of a Participant which is below Excess Compensation.
In addition to other applicable limitations set forth in the
Plan, and notwithstanding any other provision of the Plan to the contrary, for
Plan Years beginning on or after January 1, 1994, the annual Compensation of
each Employee taken into account under the Plan shall not exceed the OBRA '93
annual compensation limit. The OBRA '93 annual compensation limit is $150,000,
as adjusted by the Commissioner for increases in the cost of living in
accordance with Code Section 401(a)(17)(B). The cost of living adjustment in
effect for a calendar year applies to any period, not exceeding 12 months, over
which Compensation is determined (determination period) beginning in such
calendar year. If a determination period consists of fewer than 12 months, the
OBRA '93 annual compensation limit will be multiplied by a fraction, the
numerator of which is the number of months in the determination period, and the
denominator of which is 12.
For Plan Years beginning on or after January 1, 1994, any
reference in this Plan to the limitation under Code Section 401(a)(17) shall
mean the OBRA '93 annual compensation limit set forth in this provision.
If Compensation for any prior determination period is taken
into account in determining an Employee's benefits accruing in the current Plan
Year, the Compensation for that prior determination period is subject to the
OBRA '93 annual compensation limit in effect for that prior determination
period. For this purpose, for determination periods beginning before the first
day of the first Plan Year beginning on or after January 1, 1994, the OBRA '93
annual compensation limit is $150,000.
If, as a result of such rules, the maximum "annual addition"
limit of Section 4.4(a) would be exceeded for one or more of the affected Family
Members, the prorated Compensation of all affected Family Members shall be
adjusted to avoid or reduce any excess. The prorated Compensation of any
affected Family Member whose allocation would exceed the limit shall be adjusted
downward to the level needed to provide an allocation equal to such limit. The
prorated Compensation of affected Family Members not affected by such limit
shall then be adjusted upward on a pro rata basis not to exceed each such
affected Family Member's Compensation as determined prior to application of the
Family Member rule. The resulting allocation shall not exceed such individual's
maximum "annual addition" limit. If, after these adjustments, an "excess amount"
still results, such "excess amount" shall be disposed of in the manner described
in Section 4.5(a) pro rata among all affected Family Members.
If, in connection with the adoption of this amendment and
restatement, the definition of Compensation has been modified, then, for Plan
Years prior to the Plan Year which includes the adoption date of this amendment
and restatement, Compensation means compensation determined pursuant to the Plan
then in effect.
For Plan Years beginning prior to January 1, 1989, the
$200,000 limit (without regard to Family Member aggregation) shall apply only
for Top Heavy Plan Years and shall not be adjusted.
1.9 "Contract" or "Policy" means any life insurance policy, retirement
income or annuity policy, or annuity contract (group or individual) issued
pursuant to the terms of the Plan.
1.10 "Early Retirement Date." This Plan does not provide for a
retirement date prior to Normal Retirement Date.
1.11 "Eligible Employee" means any Employee.
Employees who are Leased Employees within the meaning of Code
Sections 414(n)(2) and 414(o)(2) shall not be eligible to participate in this
Plan.
Employees whose employment is governed by the terms of a
collective bargaining agreement between Employee representatives (within the
meaning of Code Section 7701(a)(46)) and the Employer under which retirement
benefits were the subject of good faith bargaining between the parties will not
be eligible to participate in this Plan unless such agreement expressly provides
for coverage in this Plan or two percent or more of the Employees of the
Employer who are covered pursuant to that agreement are professionals as defined
in Regulation 1.410(b)-9.
Employees who are nonresident aliens (within the meaning of
Code Section 7701(b)(1)(B)) and who receive no earned income (within the meaning
of Code Section 911(d)(2)) from the Employer which constitutes income from
sources within the United States (within the meaning of Code Section 861(a)(3))
shall not be eligible to participate in this Plan.
Employees of Affiliated Employers shall not be eligible to
participate in this Plan unless such Affiliated Employers have specifically
adopted this Plan in writing.
1.12 "Employee" means any person who is employed by the Employer or
Affiliated Employer, but excludes any person who is an independent contractor.
Employee shall include Leased Employees within the meaning of Code Sections
414(n)(2) and 414(o)(2) unless such Leased Employees are covered by a plan
described in Code Section 414(n)(5) and such Leased Employees do not constitute
more than 20% of the recipient's non-highly compensated work force.
1.13 "Employer" means Frontier Adjusters, Inc. and any successor which
shall maintain this Plan; and any predecessor which has maintained this Plan.
The Employer is a corporation, with principal offices in the State of Arizona.
1.14 "Excess Compensation" with respect to any Participant means the
Participant's Compensation which is in excess of the Taxable Wage Base. For any
short year, the Taxable Wage Base shall be reduced by a fraction, the numerator
of which is the number of full months in the short year and the denominator of
which is twelve (12).
1.15 "Family Member" means, with respect to an affected Participant,
such Participant's spouse and such Participant's lineal descendants and
ascendants and their spouses, all as described in Code Section 414(q)(6)(B).
1.16 "Fiduciary" means any person who (a) exercises any discretionary
authority or discretionary control respecting management of the Plan or
exercises any authority or control respecting management or disposition of its
assets, (b) renders investment advice for a fee or other compensation, direct or
indirect, with respect to any monies or other property of the Plan or has any
authority or responsibility to do so, or (c) has any discretionary authority or
discretionary responsibility in the administration of the Plan, including, but
not limited to, the Trustee, the Employer and its representative body, and the
Administrator.
1.17 "Fiscal Year" means the Employer's accounting year of 12 months
commencing on July 1st of each year and ending the following June 30th.
1.18 "Forfeiture" means that portion of a Participant's Account that is
not Vested, and occurs on the earlier of:
(a) the distribution of the entire Vested portion
of a Terminated Participant's Account, or
(b) the last day of the Plan Year in which the
Participant incurs five (5) consecutive l-Year Breaks in
Service.
Furthermore, for purposes of paragraph (a) above, in the case
of a Terminated Participant whose Vested benefit is zero, such Terminated
Participant shall be deemed to have received a distribution of his Vested
benefit upon his termination of employment. Restoration of such amounts shall
occur pursuant to Section 6.4(g)(2). In addition, the term Forfeiture shall also
include amounts deemed to be Forfeitures pursuant to any other provision of this
Plan.
1.19 "Former Participant" means a person who has been a Participant,
but who has ceased to be a Participant for any reason.
1.20 "415 Compensation" with respect to any Participant means such
Participant's wages as defined in Code Section 3401(a) and all other payments of
compensation by the Employer (in the course of the Employer's trade or business)
for a Plan Year for which the Employer is required to furnish the Participant a
written statement under Code Sections 6041(d), 6051(a)(3) and 6052. "415
Compensation" must be determined without regard to any rules under Code Section
3401(a) that limit the remuneration included in wages based on the nature or
location of the employment or the services performed (such as the exception for
agricultural labor in Code Section 3401(a)(2)).
If, in connection with the adoption of this amendment and
restatement, the definition of "415 Compensation" has been modified, then, for
Plan Years prior to the Plan Year which includes the adoption date of this
amendment and restatement, "415 Compensation" means compensation determined
pursuant to the Plan then in effect.
1.21 "Highly Compensated Employee" means an Employee described in Code
Section 414(q) and the Regulations thereunder, and generally means an Employee
who performed services for the Employer during the "determination year" and is
in one or more of the following groups:
(a) Employees who at any time during the
"determination year" or "look-back year" were "five percent
owners" as defined in Section 1.26(c).
(b) Employees who received "415 Compensation"
during the "look-back year" from the Employer in excess of
$75,000.
(c) Employees who received "415 Compensation"
during the "look-back year" from the Employer in excess of
550,000 and were in the Top Paid Group of Employees for the
Plan Year.
(d) Employees who during the "look-back year" were
officers of the Employer (as that term is defined within the
meaning of the Regulations under Code Section 416) and
received "415 Compensation" during the "look-back year" from
the Employer greater than 50 percent of the limit in effect
under Code Section 415(b)(1)(A) for any such Plan Year. The
number of officers shall be limited to the lesser of (i) 50
employees; or (ii) the greater of 3 employees or 10 percent of
all employees. For the purpose of determining the number of
officers, Employees described in Section 1.47(a), (b), (c) and
(d) shall be excluded, but such Employees shall still be
considered for the purpose of identifying the particular
Employees who are officers. If the Employer does not have at
least one officer whose annual "415 Compensation" is in excess
of 50 percent of the Code Section 415(b)(1)(A) limit, then the
highest paid officer of the Employer will be treated as a
Highly Compensated Employee.
(e) Employees who are in the group consisting of
the 100 Employees paid the greatest "415 Compensation" during
the "determination year" and are also described in (b), (c) or
(d) above when these paragraphs are modified to substitute
"determination year" for "look-back year."
The "determination year" shall be the Plan Year for which
testing is being performed, and the "look-back year" shall be the immediately
preceding twelve-month period.
For purposes of this Section, the determination of "415
Compensation" shall be made by including amounts which are contributed by the
Employer pursuant to a salary reduction agreement and which are not includible
in the gross income of the Participant under Code Sections 125, 402(e)(3),
402(h), 403(b) or 457, and Employee contributions described in Code Section
414(h)(2) that are treated as Employer contributions. Additionally, the dollar
threshold amounts specified in (b) and (c) above shall be adjusted at such time
and in such manner as is provided in Regulations. In the case of such an
adjustment, the dollar limits which shall be applied are those for the calendar
year in which the "determination year" or "look-back year" begins.
In determining who is a Highly Compensated Employee, Employees
who are non-resident aliens and who received no earned income (within the
meaning of Code Section 911(d)(2)) from the Employer constituting United States
source income within the meaning of Code Section 861(a)(3) shall not be treated
as Employees. Additionally, all Affiliated Employers shall be taken into account
as a single employer and Leased Employees within the meaning of Code Sections
414(n)(2) and 414(o)(2) shall be considered Employees unless such Leased
Employees are covered by a plan described in Code Section 414(n)(5) and are not
covered in any qualified plan maintained by the Employer. The exclusion of
Leased Employees for this purpose shall be applied on a uniform and consistent
basis for all of the Employer's retirement plans. Highly Compensated Former
Employees shall be treated as Highly Compensated Employees without regard to
whether they performed services during the "determination year."
1.22 "Highly Compensated Former Employee" means a former Employee who
had a separation year prior to the "determination year" and was a Highly
Compensated Employee in the year of separation from service or in any
"determination year" after attaining age 55. Notwithstanding the foregoing, an
Employee who separated from service prior to 1987 will be treated as a Highly
Compensated Former Employee only if during the separation year (or year
preceding the separation year) or any year after the Employee attains age 55 (or
the last year ending before the Employee's 55th birthday), the Employee either
received "415 Compensation" in excess of $50,000 or was a "five percent owner."
For purposes of this Section, "determination year," "415 Compensation" and "five
percent owner" shall be determined in accordance with Section 1.21. Highly
Compensated Former Employees shall be treated as Highly Compensated Employees.
The method set forth in this Section for determining who is a "Highly
Compensated Former Employee" shall be applied on a uniform and consistent basis
for all purposes for which the Code Section 414(q) definition is applicable.
1.23 "Highly Compensated Participant" means any Highly Compensated
Employee who is eligible to participate in the Plan.
1.24 "Hour of Service" means (1) each hour for which an Employee is
directly or indirectly compensated or entitled to compensation by the Employer
for the performance of duties during the applicable computation period; (2) each
hour for which an Employee is directly or indirectly compensated or entitled to
compensation by the Employer (irrespective of whether the employment
relationship has terminated) for reasons other than performance of duties (such
as vacation, holidays, sickness, jury duty, disability, lay-off, military duty
or leave of absence) during the applicable computation period; (3) each hour for
which back pay is awarded or agreed to by the Employer without regard to
mitigation of damages. These hours will be credited to the Employee for the
computation period or periods to which the award or agreement pertains rather
than the computation period in which the award, agreement or payment is made.
The same Hours of Service shall not be credited both under (1) or (2), as the
case may be, and under (3).
Notwithstanding the above, (i) no more than 501 Hours of
Service are required to be credited to an Employee on account of any single
continuous period during which the Employee performs no duties (whether or not
such period occurs in a single computation period); (ii) an hour for which an
Employee is directly or indirectly paid, or entitled to payment, on account of a
period during which no duties are performed is not required to be credited to
the Employee if such payment is made or due under a plan maintained solely for
the purpose of complying with applicable worker's compensation, or unemployment
compensation or disability insurance laws; and (iii) Hours of Service are not
required to be credited for a payment which solely reimburses an Employee for
medical or medically related expenses incurred by the Employee.
For purposes of this Section, a payment shall be deemed to be
made by or due from the Employer regardless of whether such payment is made by
or due from the Employer directly, or indirectly through, among others, a trust
fund, or insurer, to which the Employer contributes or pays premiums and
regardless of whether contributions made or due to the trust fund, insurer, or
other entity are for the benefit of particular Employees or are on behalf of a
group of Employees in the aggregate.
An Hour of Service must be counted for the purpose of
determining a Year of Service, a year of participation for purposes of accrued
benefits, a l-Year Break in Service, and employment commencement date (or
reemployment commencement date). In addition, Hours of Service will be credited
for employment with other Affiliated Employers. The provisions of Department of
Labor regulations 2530.200b-2(b) and (c) are incorporated herein by reference.
1.25 "Investment Manager" means an entity that (a) has the power to
manage, acquire, or dispose of Plan assets and (b) acknowledges fiduciary
responsibility to the Plan in writing. Such entity must be a person, firm, or
corporation registered as an investment adviser under the Investment Advisers
Act of 1940, a bank, or an insurance company.
1.26 "Key Employee" means an Employee as defined in Code Section 416(i)
and the Regulations thereunder. Generally, any Employee or former Employee (as
well as each of his Beneficiaries) is considered a Key Employee if he, at any
time during the Plan Year that contains the "Determination Date" or any of the
preceding four (4) Plan Years, has been included in one of the following
categories:
(a) an officer of the Employer (as that term is
defined within the meaning of the Regulations under Code
Section 416) having annual "415 Compensation" greater than 50
percent of the amount in effect under Code Section
415(b)(1)(A) for any such Plan Year.
(b) one of the ten employees having annual "415
Compensation" from the Employer for a Plan Year greater than
the dollar limitation in effect under Code Section
415(c)(1)(A) for the calendar year in which such Plan Year
ends and owning (or considered as owning within the meaning of
Code Section 318) both more than one-half percent interest and
the largest interests in the Employer.
(c) a "five percent owner" of the Employer. "Five
percent owner" means any person who owns (or is considered as
owning within the meaning of Code Section 318) more than five
percent (5%) of the outstanding stock of the Employer or stock
possessing more than five percent (5%) of the total combined
voting power of all stock of the Employer or, in the case of
an unincorporated business, any person who owns more than five
percent (5%) of the capital or profits interest in the
Employer. In determining percentage ownership hereunder,
employers that would otherwise be aggregated under Code
Sections 414(b), (c), (m) and (o) shall be treated as separate
employers.
(d) a "one percent owner" of the Employer having an
annual "415 Compensation" from the Employer of more than
$150,000. "One percent owner" means any person who owns (or is
considered as owning within the meaning of Code Section 318)
more than one percent (1%) of the outstanding stock of the
Employer or stock possessing more than one percent (1%) of the
total combined voting power of all stock of the Employer or,
in the case of an unincorporated business, any person who owns
more than one percent (1%) of the capital or profits interest
in the Employer. In determining percentage ownership
hereunder, employers that would otherwise be aggregated under
Code Sections 414(b), (c), (m) and (o) shall be treated as
separate employers. However, in determining whether an
individual has "415 Compensation" of more than $150,000, "415
Compensation" from each employer required to be aggregated
under Code Sections 414(b), (c), (m) and (o) shall be taken
into account.
For purposes of this Section, the determination of "415
Compensation" shall be made by including amounts which are contributed by the
Employer pursuant to a salary reduction agreement and which are not includible
in the gross income of the Participant under Code Sections 125, 402(e)(3),
402(h), 403(b) or 457, and Employee contributions described in Code Section
414(h)(2) that are treated as Employer contributions.
1.27 "Late Retirement Date" means the first day of the month coinciding
with or next following a Participant's actual Retirement Date after having
reached his Normal Retirement Date.
1.28 "Leased Employee" means any person (other than an Employee of the
recipient) who pursuant to an agreement between the recipient and any other
person ("leasing organization") has performed services for the recipient (or for
the recipient and related persons determined in accordance with Code Section
414(n)(6)) on a substantially full time basis for a period of at least one year,
and such services are of a type historically performed by employees in the
business field of the recipient employer. Contributions or benefits provided a
Leased Employee by the leasing organization which are attributable to services
performed for the recipient employer shall be treated as provided by the
recipient employer. A Leased Employee shall not be considered an Employee of the
recipient:
(a) if such employee is covered by a money purchase
pension plan providing:
(1) a non-integrated employer contribution rate of
at least 10% of compensation, as defined in Code
Section 415(c)(3), but including amounts which are
contributed by the Employer pursuant to a salary
reduction agreement and which are not includible in
the gross income of the Participant under Code
Sections 125, 402(e)(3), 402(h), 403(b) or 457, and
Employee contributions described in Code Section
414(h)(2) that are treated as Employer
contributions.
(2) immediate participation; and
(3) full and immediate vesting; and
(b) if Leased Employees do not constitute more than
20% of the recipient's non-highly compensated work force.
1.29 "Non-Highly Compensated Participant" means any Participant who is
neither a Highly Compensated Employee nor a Family Member.
1.30 "Non-Key Employee" means any Employee or former Employee (and his
Beneficiaries) who is not a Key Employee.
1.31 "Normal Retirement Age" means the Participant's 65th birthday. A
Participant shall become fully Vested in his Participant's Account upon
attaining his Normal Retirement Age.
1.32 "Normal Retirement Date" means the first day of the month
coinciding with or next following the Participant's Normal Retirement Age.
1.33 "l-Year Break in Service" means the applicable computation period
during which an Employee has not completed more than 500 Hours of Service with
the Employer. Further, solely for the purpose of determining whether a
Participant has incurred a l-Year Break in Service, Hours of Service shall be
recognized for "authorized leaves of absence" and "maternity and paternity
leaves of absence." Years of Service and l-Year Breaks in Service shall be
measured on the same computation period.
"Authorized leave of absence" means an unpaid, temporary
cessation from active employment with the Employer pursuant to an established
nondiscriminatory policy, whether occasioned by illness, military service, or
any other reason.
A "maternity or paternity leave of absence" means, for Plan
Years beginning after December 31, 1984, an absence from work for any period by
reason of the Employee's pregnancy, birth of the Employee's child, placement of
a child with the Employee in connection with the adoption of such child, or any
absence for the purpose of caring for such child for a period immediately
following such birth or placement. For this purpose, Hours of Service shall be
credited for the computation period in which the absence from work begins, only
if credit therefore is necessary to prevent the Employee from incurring a l-Year
Break in Service, or, in any other case, in the immediately following
computation period. The Hours of Service credited for a "maternity or paternity
leave of absence" shall be those which would normally have been credited but for
such absence, or, in any case in which the Administrator is unable to determine
such hours normally credited, eight (8) Hours of Service per day. The total
Hours of Service required to be credited for a "maternity or paternity leave of
absence" shall not exceed 501.
1.34 "Participant" means any Eligible Employee who participates in the
Plan as provided in Sections 3.2 and 3.3, and has not for any reason become
ineligible to participate further in the Plan.
1.35 "Participant's Account" means the account established and
maintained by the Administrator for each Participant with respect to his total
interest in the Plan and Trust resulting from the Employer's contributions.
1.36 "Plan" means this instrument, including all amendments thereto.
1.37 "Plan Year" means the Plan's accounting year of twelve (12) months
commencing on July 1st of each year and ending the following June 30th.
1.38 "Pre-Retirement Survivor Annuity" is an immediate annuity for the
life of the Participant's spouse the payments under which must be equal to the
amount of benefit which can be purchased with the accounts of a Participant used
to provide the death benefit under the Plan.
1.39 "Regulation" means the Income Tax Regulations as promulgated by
the Secretary of the Treasury or his delegate, and as amended from time to time.
1.40 "Retired Participant" means a person who has been a Participant,
but who has become entitled to retirement benefits under the Plan.
1.41 "Retirement Date" means the date as of which a Participant retires
for reasons other than Total and Permanent Disability, whether such retirement
occurs on a Participant's Normal Retirement Date or Late Retirement Date (see
Section 6.1).
1.42 "Super Top Heavy Plan" means a plan described in Section 2.2(b).
1.43 "Taxable Wage Base" means, with respect to any Plan Year, the
contribution and benefit base in effect under Section 230 of the Social Security
Act at the beginning of the Plan Year.
1.44 "Terminated Participant" means a person who has been a
Participant, but whose employment has been terminated other than by death, Total
and Permanent Disability or retirement.
1.45 "Top Heavy Plan" means a plan described in Section 2.2(a).
1.46 "Top Heavy Plan Year" means a Plan Year commencing after December
31, 1983 during which the Plan is a Top Heavy Plan.
1.47 "Top Paid Group" means the top 20 percent of Employees who
performed services for the Employer during the applicable year, ranked according
to the amount of "415 Compensation" (determined for this purpose in accordance
with Section 1.21) received from the Employer during such year. All Affiliated
Employers shall be taken into account as a single employer, and Leased Employees
within the meaning of Code Sections 414(n)(2) and 414(o)(2) shall be considered
Employees unless such Leased Employees are covered by a plan described in Code
Section 414(n)(5) and are not covered in any qualified plan maintained by the
Employer. Employees who are non-resident aliens and who received no earned
income (within the meaning of Code Section 911(d)(2)) from the Employer
constituting United States source income within the meaning of Code Section
861(a)(3) shall not be treated as Employees. Additionally, for the purpose of
determining the number of active Employees in any year, the following additional
Employees shall also be excluded; however, such Employees shall still be
considered for the purpose of identifying the particular Employees in the Top
Paid Group:
(a) Employees with less than six (6) months of
service
(b) Employees who normally work less than 17 1/2
hours per week;
(c) Employees who normally work less than six (6)
months during a year; and
(d) Employees who have not yet attained age 21.
In addition, if 90 percent or more of the Employees of the
Employer are covered under agreements the Secretary of Labor finds to be
collective bargaining agreements between Employee representatives and the
Employer, and the Plan covers only Employees who are not covered under such
agreements, then Employees covered by such agreements shall be excluded from
both the total number of active Employees as well as from the identification of
particular Employees in the Top Paid Group.
The foregoing exclusions set forth in this Section shall be
applied on a uniform and consistent basis for all purposes for which the Code
Section 414(q) definition is applicable.
1.48 "Total and Permanent Disability" means a physical or mental
condition of a Participant resulting from bodily injury, disease, or mental
disorder which renders him incapable of continuing his usual and customary
employment with the Employer. The disability of a Participant shall be
determined by a licensed physician chosen by the Administrator. The
determination shall be applied uniformly to all Participants.
1.49 "Trustee" means the person or entity named as trustee herein or in
any separate trust forming a part of this Plan, and any successors.
1.50 "Trust Fund" means the assets of the Plan and Trust as the same
shall exist from time to time.
1.51 "Vested" means the nonforfeitable portion of any account
maintained on behalf of a Participant.
1.52 "Year of Service" means the computation period of twelve (12)
consecutive months, herein set forth, during which an Employee has at least 1000
Hours of Service.
For purposes of eligibility for participation, the initial
computation period shall begin with the date on which the Employee first
performs an Hour of Service. The participation computation period beginning
after a l-Year Break in Service shall be measured from the date on which an
Employee again performs an Hour of Service. The participation computation period
shall shift to the Plan Year which includes the anniversary of the date on which
the Employee first performed an Hour of Service. An Employee who is credited
with the required Hours of Service in both the initial computation period (or
the computation period beginning after a l-Year Break in Service) and the Plan
Year which includes the anniversary of the date on which the Employee first
performed an Hour of Service, shall be credited with two (2) Years of Service
for purposes of eligibility to participate.
For vesting purposes, the computation period shall be the Plan
Year, including periods prior to the Effective Date of the Plan.
For all other purposes, the computation period shall be the
Plan Year.
Notwithstanding the foregoing, for any short Plan Year, the
determination of whether an Employee has completed a Year of Service shall be
made in accordance with Department of Labor regulation 2530.203-2(c). However,
in determining whether an Employee has completed a Year of Service for benefit
accrual purposes in the short Plan Year, the number of the Hours of Service
required shall be proportionately reduced based on the number of full months in
the short Plan Year.
Years of Service with any Affiliated Employer shall be
recognized.
ARTICLE II
TOP HEAVY AND ADMINISTRATION
2.1 TOP HEAVY PLAN REQUIREMENTS
For any Top Heavy Plan Year, the Plan shall provide the
special vesting requirements of Code Section 416(b) pursuant to Section 6.4 of
the Plan and the special minimum allocation requirements of Code Section 416(c)
pursuant to Section 4.3 of the Plan.
2.2 DETERMINATION OF TOP HEAVY STATUS
(a) This Plan shall be a Top Heavy Plan for any
Plan Year commencing after December 31, 1983 in which, as of
the Determination Date, (1) the Present Value of Accrued
Benefits of Key Employees and (2) the sum of the Aggregate
Accounts of Key Employees under this Plan and all plans of an
Aggregation Group, exceeds sixty percent (60%) of the Present
Value of Accrued Benefits and the Aggregate Accounts of all
Key and Non-Key Employees under this Plan and all plans of an
Aggregation Group.
If any Participant is a Non-Key Employee
for any Plan Year, but such Participant was a Key Employee for
any prior Plan Year, such Participant's Present Value of
Accrued Benefit and/or Aggregate Account balance shall not be
taken into account for purposes of determining whether this
Plan is a Top Heavy or Super Top Heavy Plan (or whether any
Aggregation Group which includes this Plan is a Top Heavy
Group). In addition, for Plan Years beginning after December
31, 1984, if a Participant or Former Participant has not
performed any services for any Employer maintaining the Plan
at any time during the five year period ending on the
Determination Date, any accrued benefit for such Participant
or Former Participant shall not be taken into account for the
purposes of determining whether this Plan is a Top Heavy or
Super Top Heavy Plan.
(b) This Plan shall be a Super Top Heavy Plan for
any Plan Year commencing after December 31, 1983 in which, as
of the Determination Date, (1) the Present Value of Accrued
Benefits of Key Employees and (2) the sum of the Aggregate
Accounts of Key Employees under this Plan and all plans of an
Aggregation Group, exceeds ninety percent (90%) of the Present
Value of Accrued Benefits and the Aggregate Accounts of all
Key and Non-Key Employees under this Plan and all plans of an
Aggregation Group.
(c) Aggregate Account: A Participant's Aggregate
Account as of the Determination Date is the sum of:
(1) his Participant's Account balance as of the
most recent valuation occurring within a twelve
(12) month period ending on the Determination Date.
(2) an adjustment for any contributions due as of
the Determination Date. Such adjustment shall be
the amount of any contributions actually made after
the valuation date but due on or before the
Determination Date, except for the first Plan Year
when such adjustment shall also reflect the amount
of any contributions made after the Determination
Date that are allocated as of a date in that first
Plan Year.
(3) any Plan distributions made within the Plan
Year that includes the Determination Date or within
the four (4) preceding Plan Years. However, in the
case of distributions made after the valuation date
and prior to the Determination Date, such
distributions are not included as distributions for
top heavy purposes to the extent that such
distributions are already included in the
Participant's Aggregate Account balance as of the
valuation date. Notwithstanding anything herein to
the contrary, all distributions, including
distributions made prior to January 1, 1984, and
distributions under a terminated plan which if it
had not been terminated would have been required to
be included in an Aggregation Group, will be
counted. Further, distributions from the Plan
(including the cash value of life insurance
policies) of a Participant's account balance
because of death shall be treated as a distribution
for the purposes of this paragraph.
(4) any Employee contributions, whether voluntary
or mandatory. However, amounts attributable to tax
deductible qualified voluntary employee
contributions shall not be considered to be a part
of the Participant's Aggregate Account balance.
(5) with respect to unrelated rollovers and
plan-to-plan transfers (ones which are both
initiated by the Employee and made from a plan
maintained by one employer to a plan maintained by
another employer), if this Plan provides the
rollovers or plan-to-plan transfers, it shall
always consider such rollovers or plan-to-plan
transfers as a distribution for the purposes of
this Section. If this Plan is the plan accepting
such rollovers or plan-to-plan transfers, it shall
not consider such rollovers or plan-to-plan
transfers as part of the Participant's Aggregate
Account balance. However, rollovers or plan-to-plan
transfers accepted prior to January 1, 1984 shall
be considered as part of the Participant's
Aggregate Account balance.
(6) with respect to related rollovers and
plan-to-plan transfers (ones either not initiated
by the Employee or made to a plan maintained by the
same employer), if this Plan provides the rollover
or plan-to-plan transfer, it shall not be counted
as a distribution for purposes of this Section. If
this Plan is the plan accepting such rollover or
plan-to-plan transfer, it shall consider such
rollover or plan-to-plan transfer as part of the
Participant's Aggregate Account balance,
irrespective of the date on which such rollover or
plan-to-plan transfer is accepted.
(7) For the purposes of determining whether two
employers are to be treated as the same employer in
(5) and (6) above, all employers aggregated under
Code Section 414(b), (c), (m) and (o) are treated
as the same employer.
(d) "Aggregation Group" means either a Required
Aggregation Group or a Permissive Aggregation Group as
hereinafter determined.
(1) Required Aggregation Group: In determining a
Required Aggregation Group hereunder, each plan of
the Employer in which a Key Employee is a
participant in the Plan Year containing the
Determination Date or any of the four preceding
Plan Years, 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, will be required to be
aggregated. Such group shall be known as a Required
Aggregation Group.
In the case of a Required Aggregation Group, each
plan in the group will be considered a Top Heavy
Plan if the Required Aggregation Group is a Top
Heavy Group. No plan in the Required Aggregation
Group will be considered a Top Heavy Plan if the
Required Aggregation Group is not a Top Heavy
Group.
(2) Permissive Aggregation Group: The Employer may
also include any other plan not required to be
included in the Required Aggregation Group,
provided the resulting group, taken as a whole,
would continue to satisfy the provisions of Code
Sections 401(a)(4) and 410. Such group shall be
known as a Permissive Aggregation Group.
In the case of a Permissive Aggregation Group, only
a plan that is part of the Required Aggregation
Group will be considered a Top Heavy Plan if the
Permissive Aggregation Group is a Top Heavy Group.
No plan in the Permissive Aggregation Group will be
considered a Top Heavy Plan if the Permissive
Aggregation Group is not a Top Heavy Group.
(3) only those plans of the Employer in which the
Determination Dates fall within the same calendar
year shall be aggregated in order to determine
whether such plans are Top Heavy Plans.
(4) An Aggregation Group shall include any
terminated plan of the Employer if it was
maintained within the last five (5) years ending on
the Determination Date.
(e) "Determination Date" means (a) the last day of
the preceding Plan Year, or (b) in the case of the first Plan
Year, the last day of such Plan Year.
(f) Present Value of Accrued Benefit: In the case
of a defined benefit plan, the Present Value of Accrued
Benefit for a Participant other than a Key Employee, shall be
as determined using the single accrual method used for all
plans of the Employer and Affiliated Employers, or if no such
single method exists, using a method which results in benefits
accruing not more rapidly than the slowest accrual rate
permitted under Code Section 411(b)(1)(C). The determination
of the Present Value of Accrued Benefit shall be determined as
of the most recent valuation date that falls within or ends
with the 12-month period ending on the Determination Date
except as provided in Code Section 416 and the Regulations
thereunder for the first and second plan years of a defined
benefit plan.
(g) "Top Heavy Group" means an Aggregation Group in
which, as of the Determination Date, the sum of:
(1) the Present Value of Accrued Benefits of Key
Employees under all defined benefit plans included
in the group, and
(2) the Aggregate Accounts of Key Employees under
all defined contribution plans included in the
group, exceeds sixty percent (60%) of a similar sum
determined for all Participants.
2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER
(a) The Employer shall be empowered to appoint and
remove the Trustee and the Administrator 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.
(b) The Employer shall establish a "funding policy
and method," i.e., it shall determine whether the Plan has a
short run need for liquidity (e.g., to pay benefits) or
whether liquidity is a long run goal and investment growth
(and stability of same) is a more current need, or shall
appoint a qualified person to do so. The Employer or its
delegate shall communicate such needs and goals to the
Trustee, who shall coordinate such Plan needs with its
investment policy. The communication of such a "funding policy
and method" shall not, however, constitute a directive to the
Trustee as to investment of the Trust Funds. Such "funding
policy and method" shall be consistent with the objectives of
this Plan and with the requirements of Title I of the Act.
(c) The Employer shall periodically review the
performance of any Fiduciary or other person to whom duties
have been delegated or allocated by it under the provisions of
this Plan or pursuant to procedures established hereunder.
This requirement may be satisfied by formal periodic review by
the Employer or by a qualified person specifically designated
by the Employer, through day-to-day conduct and evaluation, or
through other appropriate ways.
2.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY
The Employer shall appoint one or more Administrators. Any
person, including, but not limited to, the Employees of the Employer, shall be
eligible to serve as an Administrator. Any person so appointed shall signify his
acceptance by filing written acceptance with the Employer. An Administrator may
resign by delivering his written resignation to the Employer or be removed by
the Employer by delivery of written notice of removal, to take effect at a date
specified therein, or upon delivery to the Administrator if no date is
specified.
The Employer, upon the resignation or removal of an
Administrator, shall promptly designate in writing a successor to this position.
If the Employer does not appoint an Administrator, the Employer will function as
the Administrator.
2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES
If more than one person is appointed as Administrator, the
responsibilities of each Administrator may be specified by the Employer and
accepted in writing by each Administrator. In the event that no such delegation
is made by the Employer, the Administrators may allocate the responsibilities
among themselves, in which event the Administrators shall notify the Employer
and the Trustee in writing of such action and specify the responsibilities of
each Administrator. The Trustee thereafter shall accept and rely upon any
documents executed by the appropriate Administrator until such time as the
Employer or the Administrators file with the Trustee a written revocation of
such designation.
2.6 POWERS AND DUTIES OF THE ADMINISTRATOR
The primary responsibility of the Administrator is to
administer the Plan for the exclusive benefit of the Participants and their
Beneficiaries, subject to the specific terms of the Plan. The Administrator
shall administer the Plan in accordance with its terms and shall have the power
and discretion to construe the terms of the Plan and to determine all questions
arising in connection with the administration, interpretation, and application
of the Plan. Any such determination by the Administrator shall be conclusive and
binding upon all persons. The Administrator may establish procedures, correct
any defect, supply any information, or reconcile any inconsistency in such
manner and to such extent as shall be deemed necessary or advisable to carry out
the purpose of the Plan provided, however, that any procedure, discretionary
act, interpretation or construction shall be done in a nondiscriminatory manner
based upon uniform principles consistently applied and shall be consistent with
the intent that the Plan shall continue to be deemed a qualified plan under the
terms of Code Section 401(a), and shall comply with the terms of the Act and all
regulations issued pursuant thereto. The Administrator shall have all powers
necessary or appropriate to accomplish his duties under this Plan.
The Administrator shall be charged with the duties of the
general administration of the Plan, including, but not limited to, the
following:
(a) the discretion to determine all questions
relating to the eligibility of Employees to participate or
remain a Participant hereunder and to receive benefits under
the Plan
(b) to compute, certify, and direct the Trustee
with respect to the amount and the kind of benefits to which
any Participant shall be entitled hereunder
(c) to authorize and direct the Trustee with
respect to all nondiscretionary or otherwise directed
disbursements from the Trust
(d) to maintain all necessary records for the
administration of the Plan
(e) to interpret the provisions of the Plan and to
make and publish such rules for regulation of the Plan as are
consistent with the terms hereof
(f) to determine the size and type of any Contract
to be purchased from any insurer, and to designate the insurer
from which such Contract shall be purchased
(g) to compute and certify to the Employer and to
the Trustee from time to time the sums of money necessary or
desirable to be contributed to the Plan
(h) to consult with the Employer and the Trustee
regarding the short and long-term liquidity needs of the Plan
in order that the Trustee can exercise any investment
discretion in a manner designed to accomplish specific
objectives
(i) to prepare and distribute to Employees a
procedure for notifying Participants and Beneficiaries of
their rights to elect joint and survivor annuities and
Pre-Retirement Survivor Annuities as required by the Act and
Regulations thereunder
(j) to assist any Participant regarding his rights,
benefits, or elections available under the Plan.
2.7 RECORDS AND REPORTS
The Administrator shall keep a record of all actions taken and
shall keep all other books of account, records, and other data that may be
necessary for proper administration of the Plan and shall be responsible for
supplying all information and reports to the Internal Revenue Service,
Department of Labor, Participants, Beneficiaries and others as required by law.
2.8 APPOINTMENT OF ADVISERS
The Administrator, or the Trustee with the consent of the
Administrator, may appoint counsel, specialists, advisers, and other persons as
the Administrator or the Trustee deems necessary or desirable in connection with
the administration of this Plan.
2.9 INFORMATION FROM EMPLOYER
To enable the Administrator to perform his functions, the
Employer shall supply full and timely information to the Administrator on all
matters relating to the Compensation of all Participants, their Hours of
Service, their Years of Service, their retirement, death, disability, or
termination of employment, and such other pertinent facts as the Administrator
may require and the Administrator shall advise the Trustee of such of the
foregoing facts as may be pertinent to the Trustee's duties under the Plan. The
Administrator may rely upon such information as is supplied by the Employer and
shall have no duty or responsibility to verify such information.
2.10 PAYMENT OF EXPENSES
All expenses of administration may be paid out of the Trust
Fund unless paid by the Employer. Such expenses shall include any expenses
incident to the functioning of the Administrator, including, but not limited to,
fees of accountants, counsel, and other specialists and their agents, and other
costs of administering the Plan. Until paid, the expenses shall constitute a
liability of the Trust Fund. However, the Employer may reimburse the Trust Fund
for any administration expense incurred.
2.11 MAJORITY ACTIONS
Except where there has been an allocation and delegation of
administrative authority pursuant to Section 2.5, if there shall be more than
one Administrator, they shall act by a majority of their number, but may
authorize one or more of them to sign all papers on their behalf.
2.12 CLAIMS PROCEDURE
Claims for benefits under the Plan may be filed in writing
with the Administrator. Written notice of the disposition of a claim shall be
furnished to the claimant within 90 days after the application is filed. In the
event the claim is denied, the reasons for the denial shall be specifically set
forth in the notice in language calculated to be understood by the claimant,
pertinent provisions of the Plan shall be cited, and, where appropriate, an
explanation as to how the claimant can perfect the claim will be provided. In
addition, the claimant shall be furnished with an explanation of the Plan's
claims review procedure.
2.13 CLAIMS REVIEW PROCEDURE
Any Employee, former Employee, or Beneficiary of either, who
has been denied a benefit by a decision of the Administrator pursuant to Section
2.12 shall be entitled to request the Administrator to give further
consideration to his claim by filing with the Administrator (on a form which may
be obtained from the Administrator) a request for a hearing. Such request,
together with a written statement of the reasons why the claimant believes his
claim should be allowed, shall be filed with the Administrator no later than 60
days after receipt of the written notification provided for in Section 2.12. The
Administrator shall then conduct a hearing within the next 60 days, at which the
claimant may be represented by an attorney or any other representative of his
choosing and at which the claimant shall have an opportunity to submit written
and oral evidence and arguments in support of his claim. At the hearing (or
prior thereto upon 5 business days written notice to the Administrator) the
claimant or his representative shall have an opportunity to review all documents
in the possession of the Administrator which are pertinent to the claim at issue
and its disallowance. Either the claimant or the Administrator may cause a court
reporter to attend the hearing and record the proceedings. In such event, a
complete written transcript of the proceedings shall be furnished to both
parties by the court reporter. The full expense of any such court reporter and
such transcripts shall be borne by the party causing the court reporter to
attend the hearing. A final decision as to the allowance of the claim shall be
made by the Administrator within 60 days of receipt of the appeal (unless there
has been an extension of 60 days due to special circumstances, provided the
delay and the special circumstances occasioning it are communicated to the
claimant within the 60 day period). Such communication shall be written in a
manner calculated to be understood by the claimant and shall include specific
reasons for the decision and specific references to the pertinent Plan
provisions on which the decision is based.
ARTICLE III
ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY
Any Eligible Employee who has completed one (1) Year of
Service and has attained age 20 shall be eligible to participate hereunder as of
the date he has satisfied such requirements. However, any Employee who was a
Participant in the Plan prior to the effective date of this amendment and
restatement shall continue to participate in the Plan. The Employer shall give
each prospective Eligible Employee written notice of his eligibility to
participate in the Plan prior to the close of the Plan Year in which he first
becomes an Eligible Employee.
3.2 APPLICATION FOR PARTICIPATION
In order to become a Participant hereunder, each Eligible
Employee shall make application to the Employer for participation in the Plan
and agree to the terms hereof. Upon the acceptance of any benefits under this
Plan, such Employee shall automatically be deemed to have made application and
shall be bound by the terms and conditions of the Plan and all amendments
hereto.
3.3 EFFECTIVE DATE OF PARTICIPATION
An Eligible Employee shall become a Participant effective as
of the earlier of the first day of the Plan Year or the first day of the seventh
month of such Plan Year coinciding with or next following the date such Employee
met the eligibility requirements of Section 3.1, provided said Employee was
still employed as of such date (or if not employed on such date, as of the date
of rehire if a l-Year Break in Service has not occurred).
In the event an Employee who is not a member of an eligible
class of Employees becomes a member of an eligible class, such Employee will
participate immediately if such Employee has satisfied the minimum age and
service requirements and would have otherwise previously become a Participant.
3.4 DETERMINATION OF ELIGIBILITY
The Administrator shall determine the eligibility of each
Employee for participation in the Plan based upon information furnished by the
Employer. Such determination shall be conclusive and binding upon all persons,
as long as the same is made pursuant to the Plan and the Act. Such determination
shall be subject to review per Section 2.13.
3.i TERMINATION OF ELIGIBILITY
(a) In the event a Participant shall go from a
classification of an Eligible Employee to an ineligible
Employee, such Former Participant shall continue to vest in
his interest in the Plan for each Year of Service completed
while a noneligible Employee, until such time as his
Participant's Account shall be forfeited or distributed
pursuant to the terms of the Plan. Additionally, his interest
in the Plan shall continue to share in the earnings of the
Trust Fund.
(b) In the event a Participant is no longer a
member of an eligible class of Employees and becomes
ineligible to participate but has not incurred a l-Year Break
in Service, such Employee will participate immediately upon
returning to an eligible class of Employees. If such
Participant incurs a l-Year Break in Service, eligibility will
be determined under the break in service rules of the Plan.
3.6 OMISSION OF ELIGIBLE EMPLOYEE
If, in any Plan Year, any Employee who should be included as a
Participant in the Plan is erroneously omitted and discovery of such omission is
not made until after a contribution by his Employer for the year has been made,
the Employer shall make a subsequent contribution with respect to the omitted
Employee in the amount which the said Employer would have contributed with
respect to him had he not been omitted. Such contribution shall be made
regardless of whether or not it is deductible in whole or in part in any taxable
year under applicable provisions of the Code.
3.7 INCLUSION OF INELIGIBLE EMPLOYEE
If, in any Plan Year, any person who should not have been
included as a Participant in the Plan is erroneously included and discovery of
such incorrect inclusion is not made until after a contribution for the year has
been made, the Employer shall not be entitled to recover the contribution made
with respect to the ineligible person regardless of whether or not a deduction
is allowable with respect to such contribution. In such event, the amount
contributed with respect to the ineligible person shall constitute a Forfeiture
for the Plan Year in which the discovery is made.
3.8 ELECTION NOT TO PARTICIPATE
An Employee may, subject to the approval of the Employer,
elect voluntarily not to participate in the Plan. The election not to
participate must be communicated to the Employer, in writing, at least thirty
(30) days before the beginning of a Plan Year.
ARTICLE IV
CONTRIBUTION AND ALLOCATION
4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION
(a) For each Plan Year, the Employer shall
contribute to the Plan such amount as shall be determined by
the Employer.
(b) Notwithstanding the foregoing, however, the
Employer's contribution for any Plan Year shall not exceed the
maximum amount allowable as a deduction to the Employer under
the provisions of Code Section 404. All contributions by the
Employer shall be made in cash or in such property as is
acceptable to the Trustee.
(c) Except, however, to the extent necessary to
provide the top heavy minimum allocations, the Employer shall
make a contribution even if it exceeds the amount which is
deductible under Code Section 404.
4.2 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION
The Employer shall pay to the Trustee its contribution to the
Plan for each Plan Year within the time prescribed by law, including extensions
of time, for the filing of the Employer's federal income tax return for the
Fiscal Year.
4.3 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS
(a) The Administrator shall establish and maintain
an account in the name of each Participant to which the
Administrator shall credit as of each Anniversary Date all
amounts allocated to each such Participant as set forth herein.
(b) The Employer shall provide the Administrator
with all information required by the Administrator to make a
proper allocation of the Employer's contributions for each
Plan Year. Within a reasonable period of time after the date
of receipt by the Administrator of such information, the
Administrator shall allocate such contribution as follows:
(1) An amount equal to 3% multiplied by each
Participant's Compensation for the Plan Year shall
be allocated to each Participant's Account. If the
Employer does not contribute such amount for all
Participants, the amount shall be allocated to each
Participant's Account in the same proportion that
his total Compensation for the Plan Year bears to
the total Compensation of all Participants for such
year.
(2) The balance of the Employer's contribution over
the amount allocated under subparagraph (1) hereof
shall be allocated to each Participant's Account in
a dollar amount equal to 3% multiplied by a
Participant's Excess Compensation. If the Employer
does not contribute such amount for all
Participants, each Participant will be allocated a
share of the contribution in the same proportion
that his Excess Compensation bears to the total
Excess Compensation of all Participants for that
year.
(3) The balance of the Employer's contribution over
the amount allocated under subparagraph (2) hereof
shall be allocated to each Participant's Account in
a dollar amount equal to 2.7% multiplied by the sum
of each Participant's total Compensation plus
Excess Compensation. If the Employer does not
contribute such amount for all Participants, each
Participant will be allocated a share of the
contribution in the same proportion that his total
Compensation plus his total Excess Compensation for
the Plan Year bears to the total Compensation plus
the total Excess Compensation of all Participants
for that year.
(4) The balance of the Employer's contributions
over the amount allocated above, if any, shall be
allocated to each Participant's Account in the same
proportion that his total Compensation for the Plan
Year bears to the total Compensation of all
Participants for such year.
(c) As of each Anniversary Date any amounts which
became Forfeitures since the last Anniversary Date shall first
be made available to reinstate previously forfeited account
balances of Former Participants, if any, in accordance with
Section 6.4(g)(2). The remaining Forfeitures, if any, shall be
added to the Employer's contribution made pursuant to Section
4.1 and allocated among the Participants' Accounts in the same
manner as the Employer's contribution for the current year.
Provided, however, that in the event the allocation of
Forfeitures provided herein shall cause the "annual addition"
(as defined in Section 4.4) to any Participant's Account to
exceed the amount allowable by the Code, the excess shall be
reallocated in accordance with Section 4.5.
(d) Participants shall be eligible to share in the
allocation of contributions and Forfeitures for a Plan Year in
accordance with the following:
(1) Only Participants who have completed a Year of
Service during the Plan Year and are actively
employed on the last day of the Plan Year shall be
eligible to share in the allocation of
contributions and Forfeitures for that Plan Year.
(2) Participants who are not actively employed on
the last day of the Plan Year due to Retirement
(Normal or Late), Total and Permanent Disability or
death shall share in the allocation of
contributions and Forfeitures for that Plan Year
only if otherwise eligible in accordance with this
Section.
(3) For any Top Heavy Plan Year, Non-Key Employees
not otherwise eligible to share in the allocation
of contributions and Forfeitures as provided above,
shall receive the minimum allocation provided for
in Section 4.3(g) if eligible pursuant to the
provisions of Section 4.3(i).
(e) As of each Anniversary Date or other valuation
date, before the current valuation period allocation of
Employer contributions and Forfeitures, any earnings or losses
(net appreciation or net depreciation) of the Trust Fund shall
be allocated in the same proportion that each Participant's
and Former Participant's nonsegregated accounts bear to the
total of all Participants' and Former Participants'
nonsegregated accounts as of such date.
Participants' transfers from other qualified plans
deposited in the general Trust Fund shall share in any
earnings and losses (net appreciation or net depreciation) of
the Trust Fund in the same manner provided above. Each
segregated account maintained on behalf of a Participant shall
be credited or charged with its separate earnings and losses.
(f) Participants' accounts shall be debited for any
insurance or annuity premiums paid, if any, and credited with
any dividends received on insurance contracts.
(g) Minimum Allocations Required for Top Heavy Plan
Years: Notwithstanding the foregoing, for any Top Heavy Plan
Year, the sum of the Employer's contributions and Forfeitures
allocated to the Participant's Account of each Non-Key
Employee shall be equal to at least three percent (3%) of such
Non-Key Employee's "415 Compensation" (reduced by
contributions and forfeitures, if any, allocated to each
Non-Key Employee in any defined contribution plan included
with this plan in a Required Aggregation Group). However, if
(1) the sum of the Employer's contributions and Forfeitures
allocated to the Participant's Account of each Key Employee
for such Top Heavy Plan Year is less than three percent (3%)
of each Key Employee's "415 Compensation" and (2) this Plan is
not required to be included in an Aggregation Group to enable
a defined benefit plan to meet the requirements of Code
Section 401(a)(4) or 410, the sum of the Employer's
contributions and Forfeitures allocated to the Participant's
Account of each Non-Key Employee shall be equal to the largest
percentage allocated to the Participant's Account of any Key
Employee.
However, no such minimum allocation shall be
required in this Plan for any Non-Key Employee who
participates in another defined contribution plan subject to
Code Section 412 providing such benefits included with this
Plan in a Required Aggregation Group.
(h) For purposes of the minimum allocations set
forth above, the percentage allocated to the Participant's
Account of any Key Employee shall be equal to the ratio of the
sum of the Employer's contributions and Forfeitures allocated
on behalf of such Key Employee divided by the "415
Compensation" for such Key Employee.
(i) For any Top Heavy Plan Year, the minimum
allocations set forth above shall be allocated to the
Participant's Account of all Non-Key Employees who are
Participants and who are employed by the Employer on the last
day of the Plan Year, including Non-Key Employees who have (1)
failed to complete a Year of Service (2) declined to make
mandatory contributions (if required) to the Plan; and (3)
been excluded from participation because of their level of
Compensation.
(j) For the purposes of this Section, "415
Compensation" shall be limited to $200,000. Such amount shall
be adjusted at the same time and in the same manner as
permitted under Code Section 415(d), except that the dollar
increase in effect on January 1 of any calendar year shall be
effective for the Plan Year beginning with or within such
calendar year and the first adjustment to the $200,000
limitation shall be effective on January 1, 1990. For any
short Plan Year the "415 Compensation" limit shall be an
amount equal to the "415 Compensation" limit for the calendar
year in which the Plan Year begins multiplied by the ratio
obtained by dividing the number of full months in the short
Plan Year by twelve (12). However, for Plan Years beginning
prior to January 1, 1989, the $200,000 limit shall apply only
for Top Heavy Plan Years and shall not be adjusted.
In addition to other applicable limitations set
forth in the Plan, and notwithstanding any other provision of
the Plan to the contrary, for Plan Years beginning on or after
January 1, 1994, the annual Compensation of each Employee
taken into account under the Plan shall not exceed the OBRA
'93 annual compensation limit. The OBRA '93 annual
compensation limit is $150,000, as adjusted by the
Commissioner for increases in the cost of living in accordance
with Code Section 401(a)(17)(B). The cost of living adjustment
in effect for a calendar year applies to any period, not
exceeding 12 months, over which Compensation is determined
(determination period) beginning in such calendar year. If a
determination period consists of fewer than 12 months, the
OBRA '93 annual compensation limit will be multiplied by a
fraction, the numerator of which is the number of months in
the determination period, and the denominator of which is 12.
For Plan Years beginning on or after January 1,
1994, any reference in this Plan to the limitation under Code
Section 401(a)(17) shall mean the OBRA '93 annual compensation
limit set forth in this provision.
If Compensation for any prior determination period
is taken into account in determining an Employee's benefits
accruing in the current Plan Year, the Compensation for that
prior determination period is subject to the OBRA '93 annual
compensation limit in effect for that prior determination
period. For this purpose, for determination periods beginning
before the first day of the first Plan Year beginning on or
after January 1, 1994, the OBRA '93 annual compensation limit
is $150,000.
(k) If a Former Participant is reemployed after
five (5) consecutive l-Year Breaks in Service, then separate
accounts shall be maintained as follows:
(1) one account for nonforfeitable benefits
attributable to pre-break service and
(2) one account representing his status in the Plan
attributable to post-break service.
(l) Notwithstanding anything to the contrary, for
Plan Years beginning after December 31, 1989, if this is a
Plan that would otherwise fail to meet the requirements of
Code Sections 401(a)(26), 410(b)(1) or 410(b)(2)(A)(i) and the
Regulations thereunder because Employer contributions would
not be allocated to a sufficient number or percentage of
Participants for a Plan Year, then the following rules shall
apply:
(1) The group of Participants eligible to share in
the Employer's contribution and Forfeitures for the
Plan Year shall be expanded to include the minimum
number of Participants who would not otherwise be
eligible as are necessary to satisfy the applicable
test specified above. The specific Participants who
shall become eligible under the terms of this
paragraph shall be those who are actively employed
on the last day of the Plan Year and, when compared
to similarly situated Participants, have completed
the greatest number of Hours of Service in the Plan
Year.
(2) If after application of paragraph (1) above,
the applicable test is still not satisfied, then
the group of Participants eligible to share in the
Employer's contribution and Forfeitures for the
Plan Year shall be further expanded to include the
minimum number of Participants who are not actively
employed on the last day of the Plan Year as are
necessary to satisfy the applicable test. The
specific Participants who shall become eligible to
share shall be those Participants, when compared to
similarly situated Participants, who have completed
the greatest number of Hours of Service in the Plan
Year before terminating employment.
(3) Nothing in this Section shall permit the
reduction of a Participant's accrued benefit.
Therefore any amounts that have previously been
allocated to Participants may not be reallocated to
satisfy these requirements. In such event, the
Employer shall make an additional contribution
equal to the amount such affected Participants
would have received had they been included in the
allocations, even if it exceeds the amount which
would be deductible under Code Section 404. Any
adjustment to the allocations pursuant to this
paragraph shall be considered a retroactive
amendment adopted by the last day of the Plan Year.
(4) Notwithstanding the foregoing, for any Top
Heavy Plan Year beginning after December 31, 1992,
if the plan would fail to satisfy Code Section
410(b) if the coverage tests were applied by
treating those Participants whose only allocation
would otherwise be provided under the top heavy
formula as if they were not currently benefiting
under the Plan, then, for purposes of this Section
4.3(1), such Participants shall be treated as not
benefiting and shall therefore be eligible to be
included in the expanded class of Participants who
will share in the allocation provided under the
Plan's non top heavy formula.
4.4 MAXIMUM ANNUAL ADDITIONS
(a) Notwithstanding the foregoing, the maximum
"annual additions" credited to a Participant's accounts for
any "limitation year" shall equal the lesser of: (1) $30,000
(or, if greater, one-fourth of the dollar limitation in effect
under Code Section 415(b)(1)(A)) or (2) twenty-five percent
(25%) of the Participant's "415 Compensation" for such
"limitation year." For any short "limitation year," the dollar
limitation in (1) above shall be reduced by a fraction, the
numerator of which is the number of full months in the short
"limitation year" and the denominator of which is twelve (12).
(b) For purposes of applying the limitations of
Code Section 415, "annual additions" means the sum credited to
a Participant's accounts for any limitation year" of (1)
Employer contributions, (2) Employee contributions for
"limitation years" beginning after December 31, 1986, (3)
forfeitures, (4) amounts allocated, after March 31, 1984, to
an individual medical account, as defined in Code Section
415(1)(2) which is part of a pension or annuity plan
maintained by the Employer and (5) amounts derived from
contributions paid or accrued after December 31, 1985, in
taxable years ending after such date, which are attributable
to post-retirement medical benefits allocated to the separate
account of a key employee (as defined in Code Section
419A(d)(3)) under a welfare benefit plan (as defined in Code
Section 419(e)) maintained by the Employer. Except, however,
the "415 Compensation" percentage limitation referred to in
paragraph (a)(2) above 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," or (2) any amount
otherwise treated as an "annual addition" under Code Section
415(1)(1).
(c) For purposes of applying the limitations of
Code Section 415, the transfer of funds from one qualified
plan to another is not an "annual addition." In addition, the
following are not Employee contributions for the purposes of
Section 4.4(b)(2): (1) rollover contributions (as defined in
Code Sections 402(a)(5), 403(a)(4), 403(b)(8) and 408(d)(3));
(2) repayments of loans made to a Participant from the Plan
(3) repayments of distributions received by an Employee
pursuant to Code Section 411(a)(7)(B) (cash-outs); (4)
repayments of distributions received by an Employee pursuant
to Code Section 411(a)(3)(D) (mandatory contributions) and (5)
Employee contributions to a simplified employee pension
excludable from gross income under Code Section 408(k)(6).
(d) For purposes of applying the limitations of
Code Section 415, the "limitation year" shall be the Plan
Year.
(e) The dollar limitation under Code Section
415(b)(1)(A) stated in paragraph (a)(l) above shall be
adjusted annually as provided in Code Section 415(d) pursuant
to the Regulations. The adjusted limitation is effective as of
January 1st of each calendar year and is applicable to
"limitation years" ending with or within that calendar year.
(f) For the purpose of this Section, all qualified
defined benefit plans (whether terminated or not) ever
maintained by the Employer shall be treated as one defined
benefit plan, and all qualified defined contribution plans
(whether terminated or not) ever maintained by the Employer
shall be treated as one defined contribution plan.
(g) For the purpose of this Section, if the
Employer is a member of a controlled group of corporations,
trades or businesses under common control (as defined by Code
Section 1563(a) or Code Section 414(b) and (c) as modified by
Code Section 415(h)), is a member of an affiliated service
group (as defined by Code Section 414(m)), or is a member of a
group of entities required to be aggregated pursuant to
Regulations under Code Section 414(o), all Employees of such
Employers shall be considered to be employed by a single
Employer.
(h) For the purpose of this Section, if this Plan
is a Code Section 413(c) plan, all Employers of a Participant
who maintain this Plan will be considered to be a single
Employer.
(i)(l) If a Participant participates in more than
one defined contribution plan maintained by the Employer which
have different Anniversary Dates, the maximum "annual
additions" under this Plan shall equal the maximum "annual
additions" for the "limitation year" minus any "annual
additions" previously credited to such Participant's accounts
during the "limitation year."
(2) If a Participant participates in both a defined
contribution plan subject to Code Section 412 and a
defined contribution plan not subject to Code
Section 412 maintained by the Employer which have
the same Anniversary Date, "annual additions" will
be credited to the Participant's accounts under the
defined contribution plan subject to Code Section
412 prior to crediting "annual additions" to the
Participant's accounts under the defined
contribution plan not subject to Code Section 412.
(3) If a Participant participates in more than one
defined contribution plan not subject to Code
Section 412 maintained by the Employer which have
the same Anniversary Date, the maximum "annual
additions" under this Plan shall equal the product
of (A) the maximum "annual additions" for the
"limitation year" minus any "annual additions"
previously credited under subparagraphs (1) or (2)
above, multiplied by (B) a fraction (i) the
numerator of which is the "annual additions" which
would be credited to such Participant's accounts
under this Plan without regard to the limitations
of Code Section 415 and (ii) the denominator of
which is such "annual additions" for all plans
described in this subparagraph.
(j) If an Employee is (or has been) a Participant
in one or more defined benefit plans and one or more defined
contribution plans maintained by the Employer, the sum of the
defined benefit plan fraction and the defined contribution
plan fraction for any "limitation year" may not exceed 1.0.
(k) The defined benefit plan fraction for any
"limitation year" is a fraction, the numerator of which is the
sum of the Participant's projected annual benefits under all
the defined benefit plans (whether or not terminated)
maintained by the Employer, and the denominator of which is
the lesser of 125 percent of the dollar limitation determined
for the "limitation year" under Code Sections 415(b) and (d)
or 140 percent of the highest average compensation, including
any adjustments under Code Section 415(b).
Notwithstanding the above, if the Participant was a
Participant as of the first day of the first "limitation year"
beginning after December 31, 1986, in one or more defined
benefit plans maintained by the Employer which were in
existence on May 6, 1986, the denominator of this fraction
will not be less than 125 percent of the sum of the annual
benefits under such plans which the Participant had accrued as
of the close of the last "limitation year" beginning before
January 1, 1987, disregarding any changes in the terms and
conditions of the plan after May 5, 1986. The preceding
sentence applies only if the defined benefit plans
individually and in the aggregate satisfied the requirements
of Code Section 415 for all "limitation years" beginning
before January 1, 1987.
(1) The defined contribution plan fraction for any
"limitation year" is a fraction, the numerator of which is the
sum of the annual additions to the Participant's Account under
all the defined contribution plans (whether or not terminated)
maintained by the Employer for the current and all prior
"limitation years" (including the annual additions
attributable to the Participant's nondeductible Employee
contributions to all defined benefit plans, whether or not
terminated, maintained by the Employer, and the annual
additions attributable to all welfare benefit funds, as
defined in Code Section 419(e), and individual medical
accounts, as defined in Code Section 415(1)(2), maintained by
the Employer), and the denominator of which is the sum of the
maximum aggregate amounts for the current and all prior
limitation years" of service with the Employer (regardless of
whether a defined contribution plan was maintained by the
Employer). The maximum aggregate amount in any "limitation
year" is the lesser of 125 percent of the dollar limitation
determined under Code Sections 415(b) and (d) in effect under
Code Section 415(c)(1)(A) or 35 percent of the Participant's
Compensation for such year.
If the Employee was a Participant as of the end of
the first day of the first "limitation year" beginning after
December 31, 1986, in one or more defined contribution plans
maintained by the Employer which were in existence on May 6,
1986, the numerator of this fraction will be adjusted if the
sum of this fraction and the defined benefit fraction would
otherwise exceed 1.0 under the terms of this Plan. Under the
adjustment, an amount equal to the product of (1) the excess
of the sum of the fractions over 1.0 times (2) the denominator
of this fraction, will be permanently subtracted from the
numerator of this fraction. The adjustment is calculated using
the fractions as they would be computed as of the end of the
last "limitation year" beginning before January 1, 1987, and
disregarding any changes in the terms and conditions of the
Plan made after May 5, 1986, but using the Code Section 415
limitation applicable to the first "limitation year" beginning
on or after January 1, 1987. The annual addition for any
"limitation year" beginning before January 1, 1987 shall not
be recomputed to treat all Employee contributions as annual
additions.
(m) Notwithstanding the foregoing, for any
"limitation year" in which the Plan is a Top Heavy Plan, 100
percent shall be substituted for 125 percent in Sections
4.4(k) and 4.4(1) unless the extra minimum allocation is being
provided pursuant to Section 4.3. However, for any "limitation
year" in which the Plan is a Super Top Heavy Plan, 100 percent
shall be substituted for 125 percent in any event.
(n) Notwithstanding anything contained in this
Section to the contrary, the limitations, adjustments and
other requirements prescribed in this Section shall at all
times comply with the provisions of Code Section 415 and the
Regulations thereunder, the terms of which are specifically
incorporated herein by reference.
4.5 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS
(a) If, as a result of the allocation of
Forfeitures, a reasonable error in estimating a Participant's
Compensation, a reasonable error in determining the amount of
elective deferrals (within the meaning of Code Section
402(g)(3)) that may be made with respect to any Participant
under the limits of Section 4.4 or other facts and
circumstances to which Regulation 1.415-6(b)(6) shall be
applicable, the "annual additions" under this Plan would cause
the maximum "annual additions" to be exceeded for any
Participant, the Administrator shall (1) distribute any
elective deferrals (within the meaning of Code Section
402(g)(3)) or return any voluntary Employee contributions
credited for the "limitation year" to the extent that the
return would reduce the "excess amount" in the Participant's
accounts (2) hold any "excess amount" remaining after the
return of any elective deferrals or voluntary Employee
contributions in a "Section 415 suspense account" (3) allocate
and reallocate the "Section 415 suspense account" in the next
"limitation year" (and succeeding "limitation years" if
necessary) to all Participants in the Plan before any Employer
or Employee contributions which would constitute "annual
additions" are made to the Plan for such "limitation year" (4)
reduce Employer contributions to the Plan for such "limitation
year" by the amount of the "Section 415 suspense account"
allocated and reallocated during such "limitation year."
(b) For purposes of this Article, "excess amount"
for any Participant for a "limitation year" shall mean the
excess, if any, of (1) the "annual additions" which would be
credited to his account under the terms of the Plan without
regard to the limitations of Code Section 415 over (2) the
maximum "annual additions" determined pursuant to Section 4.4.
(c) For purposes of this Section, "Section 415
suspense account" shall mean an unallocated account equal to
the sum of "excess amounts" for all Participants in the Plan
during the "limitation year." The "Section 415 suspense
account" shall not share in any earnings or losses of the
Trust Fund.
(d) The Plan may not distribute "excess amounts,"
other than voluntary Employee contributions, to Participants
or Former Participants.
4.6 TRANSFERS FROM QUALIFIED PLANS
(a) With the consent of the Administrator, amounts
may be transferred from other qualified plans by Employees,
provided that the trust from which such funds are transferred
permits the transfer to be made and the transfer will not
jeopardize the tax exempt status of the Plan or Trust or
create adverse tax consequences for the Employer. The amounts
transferred shall be set up in a separate account herein
referred to as a "Participant's Rollover Account." Such
account shall be fully Vested at all times and shall not be
subject to Forfeiture for any reason.
(b) Amounts in a Participant's Rollover Account
shall be held by the Trustee pursuant to the provisions of
this Plan and may not be withdrawn by, or distributed to the
Participant, in whole or in part, except as provided in
paragraphs (c) and (d) of this Section.
(c) Except as permitted by Regulations (including
Regulation 1.411(d)-4), amounts attributable to elective
contributions (as defined in Regulation 1.401(k)-l(g)(3)),
including amounts treated as elective contributions, which are
transferred from another qualified plan in a plan-to-plan
transfer shall be subject to the distribution limitations
provided for in Regulation 1.401(k)-l(d).
(d) At Normal Retirement Date, or such other date
when the Participant or his Beneficiary shall be entitled to
receive benefits, the fair market value of the Participant's
Rollover Account shall be used to provide additional benefits
to the Participant or his Beneficiary. Any distributions of
amounts held in a Participant's Rollover Account shall be made
in a manner which is consistent with and satisfies the
provisions of Section 6.5, including, but not limited to, all
notice and consent requirements of Code Sections 417 and
411(a)(11) and the Regulations thereunder. Furthermore, such
amounts shall be considered as part of a Participant's benefit
in determining whether an involuntary cash-out of benefits
without Participant consent may be made.
(e) The Administrator may direct that employee
transfers made after a valuation date be segregated into a
separate account for each Participant in a federally insured
savings account, certificate of deposit in a bank or savings
and loan association, money market certificate, or other short
term debt security acceptable to the Trustee until such time
as the allocations pursuant to this Plan have been made, at
which time they may remain segregated or be invested as part
of the general Trust Fund, to be determined by the
Administrator.
(f) All amounts allocated to a Participant's
Rollover Account may be treated as a Directed Investment
Account pursuant to Section 4.7.
(g) For purposes of this Section, the term
"qualified plan" shall mean any tax qualified plan under Code
Section 401(a). The term "amounts transferred from other
qualified plans" shall mean: (i) amounts transferred to this
Plan directly from another qualified plan (ii) distributions
from another qualified plan which are eligible rollover
distributions and which are either transferred by the Employee
to this Plan within sixty (60) days following his receipt
thereof or are transferred pursuant to a direct rollover (iii)
amounts transferred to this Plan from a conduit individual
retirement account provided that the conduit individual
retirement account has no assets other than assets which (A)
were previously distributed to the Employee by another
qualified plan as a lump-sum distribution (B) were eligible
for tax-free rollover to a qualified plan and (C) were
deposited in such conduit individual retirement account within
sixty (60) days of receipt thereof and other than earnings on
said assets and (iv) amounts distributed to the Employee from
a conduit individual retirement account meeting the
requirements of clause (iii) above, and transferred by the
Employee to this Plan within sixty (60) days of his receipt
thereof from such conduit individual retirement account.
(h) Prior to accepting any transfers to which this
Section applies, the Administrator may require the Employee to
establish that the amounts to be transferred to this Plan meet
the requirements of this Section and may also require the
Employee to provide an opinion of counsel satisfactory to the
Employer that the amounts to be transferred meet the
requirements of this Section.
(i) Notwithstanding anything herein to the contrary,
a transfer directly to this Plan from another qualified plan
(or a transaction having the effect of such a transfer) shall
only be permitted if it will not result in the elimination or
reduction of any "Section 411(d)(6) protected benefit" as
described in Section 8.1.
4.7 DIRECTED INVESTMENT ACCOUNT
(a) The Administrator, in his sole discretion, may
determine that all Participants be permitted to direct the
Trustee as to the investment of all or a portion of the
interest in any one or more of their individual account
balances. If such authorization is given, Participants may,
subject to a procedure established by the Administrator and
applied in a uniform nondiscriminatory manner, direct the
Trustee in writing to invest any portion of their account in
specific assets, specific funds or other investments permitted
under the Plan and the directed investment procedure. That
portion of the account of any Participant so directing will
thereupon be considered a Directed Investment Account, which
shall not share in Trust Fund earnings.
(b) A separate Directed Investment Account shall be
established for each Participant who has directed an
investment. Transfers between the Participant's regular
account and his Directed Investment Account shall be charged
and credited as the case may be to each account. The Directed
Investment Account shall not share in Trust Fund earnings, but
it shall be charged or credited as appropriate with the net
earnings, gains, losses and expenses as well as any
appreciation or depreciation in market value during each Plan
Year attributable to such account.
ARTICLE V
VALUATIONS
5.1 VALUATION OF THE TRUST FUND
The Administrator shall direct the Trustee, as of each
Anniversary Date, and at such other date or dates deemed necessary by the
Administrator, herein called "valuation date," to determine the net worth of the
assets comprising the Trust Fund as it exists on the "valuation date." In
determining such net worth, the Trustee shall value the assets comprising the
Trust Fund at their fair market value as of the "valuation date" and shall
deduct all expenses for which the Trustee has not yet obtained reimbursement
from the Employer or the Trust Fund.
5.2 METHOD OF VALUATION
In determining the fair market value of securities held in the
Trust Fund which are listed on a registered stock exchange, the Administrator
shall direct the Trustee to value the same at the prices they were last traded
on such exchange preceding the close of business on the "valuation date." If
such securities were not traded on the "valuation date," or if the exchange on
which they are traded was not open for business on the "valuation date," then
the securities shall be valued at the prices at which they were last traded
prior to the "valuation date." Any unlisted security held in the Trust Fund
shall be valued at its bid price next preceding the close of business on the
"valuation date," which bid price shall be obtained from a registered broker or
an investment banker. In determining the fair market value of assets other than
securities for which trading or bid prices can be obtained, the Trustee may
appraise such assets itself, or in its discretion, employ one or more appraisers
for that purpose and rely on the values established by such appraiser or
appraisers.
ARTICLE VI
DETERMINATION AND DISTRIBUTION OF BENEFITS
6.1 DETERMINATION OF BENEFITS UPON RETIREMENT
Every Participant may terminate his employment with the
Employer and retire for the purposes hereof on his Normal Retirement Date.
However, a Participant may postpone the termination of his employment with the
Employer to a later date, in which event the participation of such Participant
in the Plan, including the right to receive allocations pursuant to Section 4.3,
shall continue until his Late Retirement Date. Upon a Participant's Retirement
Date or attainment of his Normal Retirement Date without termination of
employment with the Employer, or as soon thereafter as is practicable, the
Trustee shall distribute all amounts credited to such Participant's Account in
accordance with Section 6.5.
6.2 DETERMINATION OF BENEFITS UPON DEATH
(a) Upon the death of a Participant before his
Retirement Date or other termination of his employment, all
amounts credited to such Participant's Account shall become
fully Vested. The Administrator shall direct the Trustee, in
accordance with the provisions of Sections 6.6 and 6.7, to
distribute the value of the deceased Participant's accounts to
the Participant's Beneficiary.
(b) Upon the death of a Former Participant, the
Administrator shall direct the Trustee, in accordance with the
provisions of Sections 6.6 and 6.7, to distribute any remaining
Vested amounts credited to the accounts of a deceased Former
Participant to such Former Participant's Beneficiary.
(c) The Administrator may require such proper proof
of death and such evidence of the right of any person to
receive payment of the value of the account of a deceased
Participant or Former Participant as the Administrator may deem
desirable. The Administrator's determination of death and of
the right of any person to receive payment shall be conclusive.
(d) Unless otherwise elected in the manner
prescribed in Section 6.6, the Beneficiary of the death
benefit shall be the Participant's spouse, who shall receive
such benefit in the form of a Pre-Retirement Survivor Annuity
pursuant to Section 6.6. Except, however, the Participant may
designate a Beneficiary other than his spouse if:
(1) the Participant and his spouse have validly
waived the Pre-Retirement Survivor Annuity in the
manner prescribed in Section 6.6, and the spouse has
waived his or her right to be the Participant's
Beneficiary, or
(2) the Participant is legally separated or has been
abandoned (within the meaning of local law) and the
Participant has a court order to such effect (and
there is no "qualified domestic relations order" as
defined in Code Section 414(p) which provides
otherwise), or
(3) the Participant has no spouse, or
(4) the spouse cannot be located.
In such event, the designation of a
Beneficiary shall be made on a form satisfactory to the
Administrator. A Participant may at any time revoke his
designation of a Beneficiary or change his Beneficiary by
filing written notice of such revocation or change with the
Administrator. However, the Participant's spouse must again
consent in writing to any change in Beneficiary unless the
original consent acknowledged that the spouse had the right to
limit consent only to a specific Beneficiary and that the
spouse voluntarily elected to relinquish such right. In the
event no valid designation of Beneficiary exists at the time of
the Participant's death, the death benefit shall be payable to
his estate.
6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY
In the event of a Participant's Total and Permanent Disability
prior to his Retirement Date or other termination of his employment, all amounts
credited to such Participant's Account shall become fully Vested. In the event
of a Participant's Total and Permanent Disability, the Trustee, in accordance
with the provisions of Sections 6.5 and 6.7, shall distribute to such
Participant all amounts credited to such Participant's Account as though he had
retired.
6.4 DETERMINATION OF BENEFITS UPON TERMINATION
(a) On or before the Anniversary Date coinciding
with or subsequent to the termination of a Participant's
employment for any reason other than death, Total and
Permanent Disability or retirement, the Administrator may
direct the Trustee to segregate the amount of the Vested
portion of such Terminated Participant's Account and invest
the aggregate amount thereof in a separate, federally insured
savings account, certificate of deposit, common or collective
trust fund of a bank or a deferred annuity. In the event the
Vested portion of a Participant's Account is not segregated,
the amount shall remain in a separate account for the
Terminated Participant and share in allocations pursuant to
Section 4.3 until such time as a distribution is made to the
Terminated Participant.
In the event that the amount of the Vested
portion of the Terminated Participant's Account equals or
exceeds the fair market value of any insurance Contracts, the
Trustee, when so directed by the Administrator and agreed to
by the Terminated Participant, shall assign, transfer, and set
over to such Terminated Participant all Contracts on his life
in such form or with such endorsements so that the settlement
options and forms of payment are consistent with the
provisions of Section 6.5. In the event that the Terminated
Participant's Vested portion does not at least equal the fair
market value of the Contracts, if any, the Terminated
Participant may pay over to the Trustee the sum needed to make
the distribution equal to the value of the Contracts being
assigned or transferred, or the Trustee, pursuant to the
Participant's election, may borrow the cash value of the
Contracts from the insurer so that the value of the Contracts
is equal to the Vested portion of the Terminated Participant's
Account and then assign the Contracts to the Terminated
Participant.
Distribution of the funds due to a Terminated
Participant shall be made on the occurrence of an event which
would result in the distribution had the Terminated
Participant remained in the employ of the Employer (upon the
Participant's death, Total and Permanent Disability or Normal
Retirement). However, at the election of the Participant, the
Administrator shall direct the Trustee to cause the entire
Vested portion of the Terminated Participant's Account to be
payable to such Terminated Participant. Any distribution under
this paragraph shall be made in a manner which is consistent
with and satisfies the provisions of Section 6.5, including,
but not limited to, all notice and consent requirements of
Code Sections 417 and 411(a)(11) and the Regulations
thereunder.
If the value of a Terminated Participant's
Vested benefit derived from Employer and Employee
contributions does not exceed $3,500 and has never exceeded
$3,500 at the time of any prior distribution, the
Administrator shall direct the Trustee to cause the entire
Vested benefit to be paid to such Participant in a single lump
sum.
For purposes of this Section 6.4, if the
value of a Terminated Participant's Vested benefit is zero,
the Terminated Participant shall be deemed to have received a
distribution of such Vested benefit.
(b) The Vested portion of any Participant's Account
shall be a percentage of the total amount credited to his
Participant's Account determined on the basis of the
Participant's number of Years of Service according to the
following schedule:
Vesting Schedule
Years of Service Percentage
1 20 %
2 40 %
3 60 %
4 80 %
5 100 %
(c) Notwithstanding the vesting provided for in
paragraph (b) above, for any Top Heavy Plan Year, the Vested
portion of the Participant's Account of any Participant who
has an Hour of Service after the Plan becomes top heavy shall
be a percentage of the total amount credited to his
Participant's Account determined on the basis of the
Participant's number of Years of Service according to the
following schedule:
Vesting Schedule
Years of Service Percentage
1 20 %
2 40 %
3 60 %
4 80 %
5 100 %
If in any subsequent Plan Year, the Plan ceases to
be a Top Heavy Plan, the Administrator shall revert to the
vesting schedule in effect before this Plan became a Top Heavy
Plan. Any such reversion shall be treated as a Plan amendment
pursuant to the terms of the Plan.
(d) Notwithstanding the vesting schedule above, the
Vested percentage of a Participant's Account shall not be less
than the Vested percentage attained as of the later of the
effective date or adoption date of this amendment and
restatement.
(e) Notwithstanding the vesting schedule above,
upon the complete discontinuance of the Employer's
contributions to the Plan or upon any full or partial
termination of the Plan, all amounts credited to the account
of any affected Participant shall become 100% Vested and shall
not thereafter be subject to Forfeiture.
(f) The computation of a Participant's non
forfeitable percentage of his interest in the Plan shall not
be reduced as the result of any direct or indirect amendment
to this Plan. For this purpose, the Plan shall be treated as
having been amended if the Plan provides for an automatic
change in vesting due to a change in top heavy status. In the
event that the Plan is amended to change or modify any vesting
schedule, a Participant with at least three (3) Years of
Service as of the expiration date of the election period may
elect to have his non forfeitable percentage computed under
the Plan without regard to such amendment. If a Participant
fails to make such election, then such Participant shall be
subject to the new vesting schedule. The Participant's
election period shall commence on the adoption date of the
amendment and shall end 60 days after the latest of:
(1) the adoption date of the amendment,
(2) the effective date of the amendment, or
(3) the date the Participant receives written
notice of the amendment from the Employer or
Administrator.
(g)(1) If any Former Participant shall be
reemployed by the Employer before a l-Year Break in Service
occurs, he shall continue to participate in the Plan in the
same manner as if such termination had not occurred.
(2) If any Former Participant shall be reemployed
by the Employer before five (5) consecutive l-Year
Breaks in Service, and such Former Participant had
received, or was deemed to have received, a
distribution of his entire Vested interest prior to
his reemployment, his forfeited account shall be
reinstated only if he repays the full amount
distributed to him before the earlier of five (5)
years after the first date on which the Participant
is subsequently reemployed by the Employer or the
close of the first period of five (5) consecutive
l-Year Breaks in Service commencing after the
distribution, or in the event of a deemed
distribution, upon the reemployment of such Former
Participant. In the event the Former Participant
does repay the full amount distributed to him, or
in the event of a deemed distribution, the
undistributed portion of the Participant's Account
must be restored in full, unadjusted by any gains
or losses occurring subsequent to the Anniversary
Date or other valuation date coinciding with or
preceding his termination. The source for such
reinstatement shall first be any Forfeitures
occurring during the year. If such source is
insufficient, then the Employer shall contribute an
amount which is sufficient to restore any such
forfeited Accounts provided, however, that if a
discretionary contribution is made for such year,
such contribution shall first be applied to restore
any such Accounts and the remainder shall be
allocated in accordance with Section 4.3.
(3) If any Former Participant is reemployed after a
l-Year Break in Service has occurred, Years of
Service shall include Years of Service prior to his
l-Year Break in Service subject to the following
rules:
(i) If a Former Participant has a l-Year Break
in Service, his pre-break and post-break
service shall be used for computing Years of
Service for eligibility and for vesting
purposes only after he has been employed for
one (1) Year of Service following the date of
his reemployment with the Employer
(ii) Any Former Participant who under the Plan
does not have a non forfeitable right to any
interest in the Plan resulting from Employer
contributions shall lose credits otherwise
allowable under (i) above if his consecutive
l-Year Breaks in Service equal or exceed the
greater of (A) five (5) or (B) the aggregate
number of his pre-break Years of Service
(iii) After five (5) consecutive l-Year Breaks
in Service, a Former Participant's Vested
Account balance attributable to pre-break
service shall not be increased as a result of
post-break service
(iv) If a Former Participant who has not had
his Years of Service before a l-Year Break in
Service disregarded pursuant to (ii) above
completes one (1) Year of Service for
eligibility purposes following his
reemployment with the Employer, he shall
participate in the Plan retroactively from his
date of reemployment
(v) If a Former Participant who has not had
his Years of Service before a l-Year Break in
Service disregarded pursuant to (ii) above
completes a Year of Service (a l-Year Break in
Service previously occurred, but employment
had not terminated), he shall participate in
the Plan retroactively from the first day of
the Plan Year during which he completes one
(1) Year of Service.
6.5 DISTRIBUTION OF BENEFITS
(a)(1) Unless otherwise elected as provided below,
a Participant who is married on the "annuity starting date"
and who does not die before the "annuity starting date" shall
receive the value of all of his benefits in the form of a
joint and survivor annuity. The joint and survivor annuity is
an annuity that commences immediately and shall be equal in
value to a single life annuity. Such joint and survivor
benefits following the Participant's death shall continue to
the spouse during the spouse's lifetime at a rate equal to 50%
of the rate at which such benefits were payable to the
Participant. This joint and 50% survivor annuity shall be
considered the designated qualified joint and survivor annuity
and automatic form of payment for the purposes of this Plan.
However, the Participant may elect to receive a smaller
annuity benefit with continuation of payments to the spouse at
a rate of seventy-five percent (75%) or one hundred percent
(100%) of the rate payable to a Participant during his
lifetime, which alternative joint and survivor annuity shall
be equal in value to the automatic joint and 50% survivor
annuity. An unmarried Participant shall receive the value of
his benefit in the form of a life annuity. Such unmarried
Participant, however, may elect in writing to waive the life
annuity. The election must comply with the provisions of this
Section as if it were an election to waive the joint and
survivor annuity by a married Participant, but without the
espousal consent requirement. The Participant may elect to
have any annuity provided for in this Section distributed upon
the attainment of the "earliest retirement age" under the
Plan. The "earliest retirement age" is the earliest date on
which, under the Plan, the Participant could elect to receive
retirement benefits.
(2) Any election to waive the joint and survivor
annuity must be made by the Participant in writing
during the election period and be consented to by
the Participant's spouse. If the spouse is legally
incompetent to give consent, the spouse's legal
guardian, even if such guardian is the Participant,
may give consent. Such election shall designate a
Beneficiary (or a form of benefits) that may not be
changed without espousal consent (unless the
consent of the spouse expressly permits
designations by the Participant without the
requirement of further consent by the spouse). Such
spouse's consent shall be irrevocable and must
acknowledge the effect of such election and be
witnessed by a Plan representative or a notary
public. Such consent shall not be required if it is
established to the satisfaction of the
Administrator that the required consent cannot be
obtained because there is no spouse, the spouse
cannot be located, or other circumstances that may
be prescribed by Regulations. The election made by
the Participant and consented to by his spouse may
be revoked by the Participant in writing without
the consent of the spouse at any time during the
election period. The number of revocations shall
not be limited. Any new election must comply with
the requirements of this paragraph. A former
spouse's waiver shall not be binding on a new
spouse.
(3) The election period to waive the joint and
survivor annuity shall be the 90 day period ending
on the "annuity starting date."
(4) For purposes of this Section, the "annuity
starting date" means the first day of the first
period for which an amount is paid as an annuity,
or, in the case of a benefit not payable in the
form of an annuity, the first day on which all
events have occurred which entitle the Participant
to such benefit.
(5) With regard to the election, the Administrator
shall provide to the Participant no less than 30
days and no more than 90 days before the "annuity
starting date" a written explanation of:
(i) the terms and conditions of the joint and
survivor annuity, and
(ii) the Participant's right to make, and the
effect of, an election to waive the joint and
survivor annuity, and
(iii) the right of the Participant's spouse to
consent to any election to waive the joint and
survivor annuity, and
(iv) the right of the Participant to revoke
such election, and the effect of such
revocation.
(b) In the event a married Participant duly elects
pursuant to paragraph (a)(2) above not to receive his benefit
in the form of a joint and survivor annuity, or if such
Participant is not married, in the form of a life annuity, the
Administrator, pursuant to the election of the Participant,
shall direct the Trustee to distribute to a Participant or his
Beneficiary any amount to which he is entitled under the Plan
in one or more of the following methods:
(1) One lump-sum payment in cash or in property
(2) Payments over a period certain in monthly,
quarterly, semiannual, or annual cash installments.
In order to provide such installment payments, the
Administrator may (A) segregate the aggregate
amount thereof in a separate, federally insured
savings account, certificate of deposit in a bank
or savings and loan association, money market
certificate or other liquid short-term security or
(B) purchase a nontransferable annuity contract for
a term certain (with no life contingencies)
providing for such payment. The period over which
such payment is to be made shall not extend beyond
the Participant's life expectancy (or the life
expectancy of the Participant and his designated
Beneficiary).
(3) Purchase of or providing an annuity. However,
such annuity may not be in any form that will
provide for payments over a period extending beyond
either the life of the Participant (or the lives of
the Participant and his designated Beneficiary) or
the life expectancy of the Participant (or the life
expectancy of the Participant and his designated
Beneficiary).
(c) The present value of a Participant's joint and
survivor annuity derived from Employer and Employee
contributions may not be paid without his written consent if
the value exceeds, or has ever exceeded, $3,500 at the time of
any prior distribution. Further, the spouse of a Participant
must consent in writing to any immediate distribution. If the
value of the Participant's benefit derived from Employer and
Employee contributions does not exceed $3,500 and has never
exceeded $3,500 at the time of any prior distribution, the
Administrator may immediately distribute such benefit without
such Participant's consent. No distribution may be made under
the preceding sentence after the "annuity starting date"
unless the Participant and his spouse consent in writing to
such distribution. Any written consent required under this
paragraph must be obtained not more than 90 days before
commencement of the distribution and shall be made in a manner
consistent with Section 6.5(a)2.
(d) Any distribution to a Participant who has a
benefit which exceeds, or has ever exceeded, $3,500 at the
time of any prior distribution shall require such
Participant's consent if such distribution commences prior to
the later of his Normal Retirement Age or age 62. With regard
to this required consent:
(1) No consent shall be valid unless the
Participant has received a general description of
the material features and an explanation of the
relative values of the optional forms of benefit
available under the Plan that would satisfy the
notice requirements of Code Section 417.
(2) The Participant must be informed of his right
to defer receipt of the distribution. If a
Participant fails to consent, it shall be deemed an
election to defer the commencement of payment of
any benefit. However, any election to defer the
receipt of benefits shall not apply with respect to
distributions which are required under Section
6.5(e).
(3) Notice of the rights specified under this
paragraph shall be provided no less than 30 days
and no more than 90 days before the "annuity
starting date".
(4) Written consent of the Participant to the
distribution must not be made before the
Participant receives the notice and must not be
made more than 90 days before the "annuity starting
date".
(5) No consent shall be valid if a significant
detriment is imposed under the Plan on any
Participant who does not consent to the
distribution.
(e) Notwithstanding any provision in the Plan to
the contrary, the distribution of a Participant's benefits
made on or after January 1, 1985, whether under the Plan or
through the purchase of an annuity contract, shall be made in
accordance with the following requirements and shall otherwise
comply with Code Section 401(a)(9) and the Regulations
thereunder (including Regulation 1.401(a)(9)-2), the
provisions of which are incorporated herein by reference:
(1) A Participant's benefits shall be distributed
to him not later than April 1st of the calendar
year following the later of (i) the calendar year
in which the Participant attains age 70 1/2 or (ii)
the calendar year in which the Participant retires,
provided, however, that this clause (ii) shall not
apply in the case of a Participant who is a "five
(5) percent owner" at any time during the five (5)
Plan Year period ending in the calendar year in
which he attains age 70 1/2 or, in the case of a
Participant who becomes a "five (5) percent owner"
during any subsequent Plan Year, clause (ii) shall
no longer apply and the required beginning date
shall be the April 1st of the calendar year
following the calendar year in which such
subsequent Plan Year ends. Alternatively,
distributions to a Participant must begin no later
than the applicable April 1st as determined under
the preceding sentence and must be made over the
life of the Participant (or the lives of the
Participant and the Participant's designated
Beneficiary) or the life expectancy of the
Participant (or the life expectancies of the
Participant and his designated Beneficiary) in
accordance with Regulations. Notwithstanding the
foregoing, clause (ii) above shall not apply to any
Participant unless the Participant had attained age
70 1/2 before January 1, 1988 and was not a "five
(5) percent owner" at any time during the Plan Year
ending with or within the calendar year in which
the Participant attained age 66 1/2 or any
subsequent Plan Year.
(2) Distributions to a Participant and his
Beneficiaries shall only be made in accordance with
the incidental death benefit requirements of Code
Section 401(a)(9)(G) and the Regulations
thereunder.
Additionally, for calendar years beginning before
1989, distributions may also be made under an
alternative method which provides that the then
present value of the payments to be made over the
period of the Participant's life expectancy exceeds
fifty percent (50%) of the then present value of
the total payments to be made to the Participant
and his Beneficiaries.
(f) For purposes of this Section, the life
expectancy of a Participant and a Participant's spouse (other
than in the case of a life annuity) may, at the election of
the Participant or the Participant's spouse, be redetermined
in accordance with Regulations. The election, once made, shall
be irrevocable. If no election is made by the time
distributions must commence, then the life expectancy of the
Participant and the Participant's spouse shall not be subject
to recalculation. Life expectancy and joint and last survivor
expectancy shall be computed using the return multiples in
Tables V and VI of Regulation 1.72-9.
(g) Subject to the spouse's right of consent
afforded under the Plan, the restrictions imposed by this
Section shall not apply if a Participant has, prior to January
1, 1984, made a written designation to have his retirement
benefit paid in an alternative method acceptable under Code
Section 401(a) as in effect prior to the enactment of the Tax
Equity and Fiscal Responsibility Act of 1982.
(h) All annuity Contracts under this Plan shall be
non-transferable when distributed. Furthermore, the terms of
any annuity Contract purchased and distributed to a
Participant or spouse shall comply with all of the
requirements of the Plan.
(i) If a distribution is made at a time when a
Participant is not fully Vested in his Participant's Account
(employment has not terminated) and the Participant may
increase the Vested percentage in such account:
(1) a separate account shall be established for the
Participant's interest in the Plan as of the time
of the distribution and
(2) at any relevant time, the Participant's Vested
portion of the separate account shall be equal to
an amount ("X") determined by the formula:
X equals P(AB plus (R x D)) - (R x D)
For purposes of applying the formula: P is the
Vested percentage at the relevant time, AB is the
account balance at the relevant time, D is the
amount of distribution, and R is the ratio of the
account balance at the relevant time to the account
balance after distribution.
6.6 DISTRIBUTION OF BENEFITS UPON DEATH
(a) Unless otherwise elected as provided below, a
Vested Participant who dies before the annuity starting date
and who has a surviving spouse shall have his death benefit
paid to his surviving spouse in the form of a Pre-Retirement
Survivor Annuity. The Participant's spouse may direct that
payment of the Pre-Retirement Survivor Annuity commence within
a reasonable period after the Participant's death. If the
spouse does not so direct, payment of such benefit will
commence at the time the Participant would have attained the
later of his Normal Retirement Age or age 62. However, the
spouse may elect a later commencement date. Any distribution
to the Participant's spouse shall be subject to the rules
specified in Section 6.6(g).
(b) Any election to waive the Pre-Retirement
Survivor Annuity before the Participant's death must be made
by the Participant in writing during the election period and
shall require the spouse's irrevocable consent in the same
manner provided for in Section 6.5(a)(2). Further, the
spouse's consent must acknowledge the specific non spouse
Beneficiary. Notwithstanding the foregoing, the non spouse
Beneficiary need not be acknowledged, provided the consent of
the spouse acknowledges that the spouse has the right to limit
consent only to a specific Beneficiary and that the spouse
voluntarily elects to relinquish such right.
(c) The election period to waive the Pre-Retirement
Survivor Annuity shall begin on the first day of the Plan Year
in which the Participant attains age 35 and end on the date of
the Participant's death. An earlier waiver (with espousal
consent) may be made provided a written explanation of the
Pre-Retirement Survivor Annuity is given to the Participant
and such waiver becomes invalid at the beginning of the Plan
Year in which the Participant turns age 35. In the event a
Vested Participant separates from service prior to the
beginning of the election period, the election period shall
begin on the date of such separation from service.
(d) With regard to the election, the Administrator
shall provide each Participant within the applicable period,
with respect to such Participant (and consistent with
Regulations), a written explanation of the Pre-Retirement
Survivor Annuity containing comparable information to that
required pursuant to Section 6.5(a)(5). For the purposes of
this paragraph, the term "applicable period" means, with
respect to a Participant, whichever of the following periods
ends last:
(1) The period beginning with the first day of the
Plan Year in which the Participant attains age 32
and ending with the close of the Plan Year
preceding the Plan Year in which the Participant
attains age 35
(2) A reasonable period after the individual
becomes a Participant
(3) A reasonable period ending after the Plan no
longer fully subsidizes the cost of the
Pre-Retirement Survivor Annuity with respect to the
Participant
(4) A reasonable period ending after Code Section
401(a)(11) applies to the Participant or
(5) A reasonable period after separation from
service in the case of a Participant who separates
before attaining age 35. For this purpose, the
Administrator must provide the explanation
beginning one year before the separation from
service and ending one year after such separation.
If such a Participant thereafter returns to
employment with the Employer, the applicable period
for such Participant shall be redetermined.
For purposes of applying this Section 6.6(d), a
reasonable period ending after the enumerated events described
in paragraphs (2), (3) and (4) is the end of the two year
period beginning one year prior to the date the applicable
event occurs, and ending one year after that date.
(e) If the present value of the Pre-Retirement
Survivor Annuity derived from Employer and Employee
contributions does not exceed $3,500 and has never exceeded
$3,500 at the time of any prior distribution, the
Administrator shall direct the immediate distribution of such
amount to the Participant's spouse. No distribution may be
made under the preceding sentence after the annuity starting
date unless the spouse consents in writing. If the value
exceeds, or has ever exceeded, $3,500 at the time of any prior
distribution, an immediate distribution of the entire amount
may be made to the surviving spouse, provided such surviving
spouse consents in writing to such distribution. Any written
consent required under this paragraph must be obtained not
more than 90 days before commencement of the distribution and
shall be made in a manner consistent with Section 6.5(a)(2).
(f)(1) In the event the death benefit is not paid
in the form of a Pre-Retirement Survivor Annuity, it shall be
paid to the Participant's Beneficiary by either of the
following methods, as elected by the Participant (or if no
election has been made prior to the Participant's death, by
his Beneficiary), subject to the rules specified in Section
6.6(g):
(i) One lump-sum payment in cash or in
property
(ii) Payment in monthly, quarterly,
semi-annual, or annual cash installments over
a period to be determined by the Participant
or his Beneficiary. After periodic
installments commence, the Beneficiary shall
have the right to direct the Trustee to reduce
the period over which such periodic
installments shall be made, and the Trustee
shall adjust the cash amount of such periodic
installments accordingly.
(2) In the event the death benefit payable pursuant
to Section 6.2 is payable in installments, then,
upon the death of the Participant, the
Administrator may direct the Trustee to segregate
the death benefit into a separate account, and the
Trustee shall invest such segregated account
separately, and the funds accumulated in such
account shall be used for the payment of the
installments.
(g) Notwithstanding any provision in the Plan to
the contrary, distributions upon the death of a Participant
made on or after January 1, 1985 shall be made in accordance
with the following requirements and shall otherwise comply
with Code Section 401(a)(9) and the Regulations thereunder. If
the death benefit is paid in the form of a Pre-Retirement
Survivor Annuity, then distributions to the Participant's
surviving spouse must commence on or before the later of: (1)
December 31st of the calendar year immediately following the
calendar year in which the Participant died or (2) December
31st of the calendar year in which the Participant would have
attained age 70 1/2. If it is determined pursuant to
Regulations that the distribution of a Participant's interest
has begun and the Participant dies before his entire interest
has been distributed to him, the remaining portion of such
interest shall be distributed at least as rapidly as under the
method of distribution selected pursuant to Section 6.5 as of
his date of death. If a Participant dies before he has begun
to receive any distributions of his interest under the Plan or
before distributions are deemed to have begun pursuant to
Regulations (and distributions are not to be made in the form
of a Pre-Retirement Survivor Annuity), then his death benefit
shall be distributed to his Beneficiaries by December 31st of
the calendar year in which the fifth anniversary of his date
of death occurs.
However, the 5-year distribution requirement of the
preceding paragraph shall not apply to any portion of the
deceased Participant's interest which is payable to or for the
benefit of a designated Beneficiary. In such event, such
portion may, at the election of the Participant (or the
Participant's designated Beneficiary), be distributed over the
life of such designated Beneficiary (or over a period not
extending beyond the life expectancy of such designated
Beneficiary) provided such distribution begins not later than
December 31st of the calendar year immediately following the
calendar year in which the Participant died. However, in the
event the Participant's spouse (determined as of the date of
the Participant's death) is his Beneficiary, the requirement
that distributions commence within one year of a Participant's
death shall not apply. In lieu thereof, distributions must
commence on or before the later of: (1) December 31st of the
calendar year immediately following the calendar year in which
the Participant died; or (2) December 31st of the calendar
year in which the Participant would have attained age 70 1/2.
If the surviving spouse dies before distributions to such
spouse begin, then the 5-year distribution requirement of this
Section shall apply as if the spouse was the Participant.
(h) For purposes of Section 6.6(g), the election by
a designated Beneficiary to be excepted from the 5-year
distribution requirement must be made no later than December
31st of the calendar year following the calendar year of the
Participant's death. Except, however, with respect to a
designated Beneficiary who is the Participant's surviving
spouse, the election must be made by the earlier of: (1)
December 31st of the calendar year immediately following the
calendar year in which the Participant died or, if later, the
calendar year in which the Participant would have attained age
70 1/2 or (2) December 31st of the calendar year which
contains the fifth anniversary of the date of the
Participant's death. An election by a designated Beneficiary
must be in writing and shall be irrevocable as of the last day
of the election period stated herein. In the absence of an
election by the Participant or a designated Beneficiary, the
5-year distribution requirement shall apply.
(i) For purposes of this Section, the life
expectancy of a Participant and a Participant's spouse (other
than in the case of a life annuity) may, at the election of
the Participant or the Participant's spouse, be redetermined
in accordance with Regulations. The election, once made, shall
be irrevocable. If no election is made by the time
distributions must commence, then the life expectancy of the
Participant and the Participant's spouse shall not be subject
to recalculation. Life expectancy and joint and last survivor
expectancy shall be computed using the return multiples in
Tables V and VI of Regulation 1.72-9.
(j) Subject to the spouse's right of consent
afforded under the Plan, the restrictions imposed by this
Section shall not apply if a Participant has, prior to January
1, 1984, made a written designation to have his death benefits
paid in an alternative method acceptable under Code Section
401(a) as in effect prior to the enactment of the Tax Equity
and Fiscal Responsibility Act of 1982.
6.7 TIME OF SEGREGATION OR DISTRIBUTION
Except as limited by Sections 6.5 and 6.6, whenever the
Trustee is to make a distribution or to commence a series of payments on or as
of an Anniversary Date, the distribution may be made or begun on such date or as
soon thereafter as is practicable. However, unless a Former Participant elects
in writing to defer the receipt of benefits (such election may not result in a
death benefit that is more than incidental), the payment of benefits shall begin
not later than the 60th day after the close of the Plan Year in which the latest
of the following events occurs: (a) the date on which the Participant attains
the earlier of age 65 or the Normal Retirement Age specified herein (b) the 10th
anniversary of the year in which the Participant commenced participation in the
Plan or (c) the date the Participant terminates his service with the Employer.
6.8 DISTRIBUTION FOR MINOR BENEFICIARY
In the event a distribution is to be made to a minor, then the
Administrator may direct that such distribution be paid to the legal guardian,
or if none, to a parent of such Beneficiary or a responsible adult with whom the
Beneficiary maintains his residence, or to the custodian for such Beneficiary
under the Uniform Gift to Minors Act or Gift to Minors Act, if such is permitted
by the laws of the state in which said Beneficiary resides. Such a payment to
the legal guardian, custodian or parent of a minor Beneficiary shall fully
discharge the Trustee, Employer, and Plan from further liability on account
thereof.
6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN
In the event that all, or any portion, of the distribution
payable to a Participant or his Beneficiary hereunder shall, at the later of the
Participant's attainment of age 62 or his Normal Retirement Age, remain unpaid
solely by reason of the inability of the Administrator, after sending a
registered letter, return receipt requested, to the last known address, and
after further diligent effort, to ascertain the whereabouts of such Participant
or his Beneficiary, the amount so distributable shall be treated as a Forfeiture
pursuant to the Plan. In the event a Participant or Beneficiary is located
subsequent to his benefit being reallocated, such benefit shall be restored.
6.10 ADVANCE DISTRIBUTION FOR HARDSHIP
(a) The Administrator, at the election of the
Participant, shall direct the Trustee to distribute to any
Participant in any one Plan Year up to the lesser of 100W of
his Participant's Account valued as of the last Anniversary
Date or other valuation date or the amount necessary to
satisfy the immediate and heavy financial need of the
Participant. Any distribution made pursuant to this Section
shall be deemed to be made as of the first day of the Plan
Year or, if later, the valuation date immediately preceding
the date of distribution, and the Participant's Account shall
be reduced accordingly. Withdrawal under this Section shall be
authorized if the distribution is on account of:
(1) Expenses for medical care described in Code
Section 213(of) previously incurred by the
Participant, his spouse, or any of his dependents
(as defined in Code Section 152) or necessary for
these persons to obtain medical care
(2) The costs directly related to the purchase of a
principal residence for the Participant (excluding
mortgage payments)
(3) Funeral expenses for a member of the
Participant's family
(4) Payment of tuition and related educational fees
for the next twelve (12) months of post-secondary
education for the Participant, his spouse,
children, or dependents or
(5) Payments necessary to prevent the eviction of
the Participant from his principal residence or
foreclosure on the mortgage of the Participant's
principal residence.
(b) No such distribution shall be made from the
Participant's Account until such Account has become fully
Vested.
(c) Any distribution made pursuant to this Section
shall be made in a manner which is consistent with and
satisfies the provisions of Section 6.5, including, but not
limited to, all notice and consent requirements of Code
Sections 417 and 411(a)(11) and the Regulations thereunder.
6.11 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION
All rights and benefits, including elections, provided to a
Participant in this Plan shall be subject to the rights afforded to any
"alternate payee" under a "qualified domestic relations order." Furthermore, a
distribution to an "alternate payee" shall be permitted if such distribution is
authorized by a "qualified domestic relations order," even if the affected
Participant has not separated from service and has not reached the "earliest
retirement age" under the Plan. For the purposes of this Section, "alternate
payee," "qualified domestic relations order" and "earliest retirement age" shall
have the meaning set forth under Code Section 414(p).
ARTICLE VII
TRUSTEE
7.1 BASIC RESPONSIBILITIES OF THE TRUSTEE
The Trustee shall have the following categories of
responsibilities:
(a) Consistent with the "funding policy and
methodic determined by the Employer, to invest, manage, and
control the Plan assets subject, however, to the direction of
an Investment Manager if the Trustee should appoint such
manager as to all or a portion of the assets of the Plan
(b) At the direction of the Administrator, to pay
benefits required under the Plan to be paid to Participants,
or, in the event of their death, to their Beneficiaries
(c) To maintain records of receipts and
disbursements and furnish to the Employer and/or Administrator
for each Plan Year a written annual report per Section 7.6 and
(d) If there shall be more than one Trustee, they
shall act by a majority of their number, but may authorize one
or more of them to sign papers on their behalf.
7.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE
(a) The Trustee shall invest and reinvest the Trust
Fund to keep the Trust Fund invested without distinction
between principal and income and in such securities or
property, real or personal, wherever situated, as the Trustee
shall deem advisable, including, but not limited to, stocks,
common or preferred, bonds and other evidences of indebtedness
or ownership, and real estate or any interest therein. The
Trustee shall at all times in making investments of the Trust
Fund consider, among other factors, the short and long-term
financial needs of the Plan on the basis of information
furnished by the Employer. In making such investments, the
Trustee shall not be restricted to securities or other
property of the character expressly authorized by the
applicable law for trust investments however, the Trustee
shall give due regard to any limitations imposed by the Code
or the Act so that at all times the Plan may qualify as a
qualified Profit Sharing Plan and Trust.
(b) The Trustee may employ a bank or trust company
pursuant to the terms of its usual and customary bank agency
agreement, under which the duties of such bank or trust
company shall be of a custodial, clerical and record-keeping
nature.
(c) The Trustee, at the direction of the
Administrator, shall ratably apply for, own, and pay premiums
on Contracts on the lives of the Participants. If a life
insurance policy is to be purchased for a Participant, the
aggregate premium for ordinary life insurance for each
Participant must be less than 50% of the aggregate of the
contributions and Forfeitures to the credit of the Participant
at any particular time. If term insurance is purchased with
such contributions, the aggregate premium must be less than
25% of the aggregate contributions and Forfeitures allocated
to a Participant's Account. If both term insurance and
ordinary life insurance are purchased with such contributions,
the amount expended for term insurance plus one-half of the
premium for ordinary life insurance may not in the aggregate
exceed 25% of the aggregate contributions and Forfeitures
allocated to a Participant's Account. The Trustee must convert
the entire value of the life insurance contracts at or before
retirement into cash or provide for a periodic income so that
no portion of such value may be used to continue life
insurance protection beyond retirement, or distribute the
Contracts to the Participant. In the event of any conflict
between the terms of this Plan and the terms of any insurance
Contract purchased hereunder, the Plan provisions shall
control.
7.3 OTHER POWERS OF THE TRUSTEE
The Trustee, in addition to all powers and authorities under
common law, statutory authority, including the Act, and other provisions of the
Plan, shall have the following powers and authorities, to be exercised in the
Trustee's sole discretion:
(a) To purchase, or subscribe for, any securities
or other property and to retain the same. In conjunction with
the purchase of securities, margin accounts may be opened and
maintained
(b) To sell, exchange, convey, transfer, grant
options to purchase, or otherwise dispose of any securities or
other property held by the Trustee, by private contract or at
public auction. No person dealing with the Trustee shall be
bound to see to the application of the purchase money or to
inquire into the validity, expediency, or propriety of any
such sale or other disposition, with or without advertisement
(c) To vote upon any stocks, bonds, or other
securities to give general or special proxies or powers of
attorney with or without power of substitution to exercise any
conversion privileges, subscription rights or other options,
and to make any payments incidental thereto to oppose, or to
consent to, or otherwise participate in, corporate
reorganizations or other changes affecting corporate
securities, and to delegate discretionary powers, and to pay
any assessments or charges in connection therewith and
generally to exercise any of the powers of an owner with
respect to stocks, bonds, securities, or other property
(d) To cause any securities or other property to be
registered in the Trustee's own name or in the name of one or
more of the Trustee's nominees, and to hold any investments in
bearer form, but the books and records of the Trustee shall at
all times show that all such investments are part of the Trust
Fund
(e) To borrow or raise money for the purposes of
the Plan in such amount, and upon such terms and conditions,
as the Trustee shall deem advisable and for any sum so
borrowed, to issue a promissory note as Trustee, and to secure
the repayment thereof by pledging all, or any part, of the
Trust Fund and no person lending money to the Trustee shall be
bound to see to the application of the money lent or to
inquire into the validity, expediency, or propriety of any
borrowing
(f) To keep such portion of the Trust Fund in cash
or cash balances as the Trustee may, from time to time, deem
to be in the best interests of the Plan, without liability for
interest thereon
(g) To accept and retain for such time as the
Trustee may deem advisable any securities or other property
received or acquired as Trustee hereunder, whether or not such
securities or other property would normally be purchased as
investments hereunder
(h) To make, execute, acknowledge, and deliver any
and all documents of transfer and conveyance and any and all
other instruments that may be necessary or appropriate to
carry out the powers herein granted
(i) To settle, compromise, or submit to arbitration
any claims, debts, or damages due or owing to or from the
Plan, to commence or defend suits or legal or administrative
proceedings, and to represent the Plan in all suits and legal
and administrative proceedings
(j) To employ suitable agents and counsel and to
pay their reasonable expenses and compensation, and such agent
or counsel may or may not be agent or counsel for the Employer
(k) To apply for and procure from responsible
insurance companies, to be selected by the Administrator, as
an investment of the Trust Fund such annuity, or other
Contracts (on the life of any Participant) as the
Administrator shall deem proper to exercise, at any time or
from time to time, whatever rights and privileges may be
granted under such annuity, or other Contracts to collect,
receive, and settle for the proceeds of all such annuity or
other Contracts as and when entitled to do so under the
provisions thereof
(1) To invest funds of the Trust in time deposits
or savings accounts bearing a reasonable rate of interest in
the Trustee's bank
(m) To invest in Treasury Bills and other forms of
United States government obligations
(n) To invest in shares of investment companies
registered under the Investment Company Act of 1940
(o) To sell, purchase and acquire put or call
options if the options are traded on and purchased through a
national securities exchange registered under the Securities
Exchange Act of 1934, as amended, or, if the options are not
traded on a national securities exchange, are guaranteed by a
member firm of the New York Stock Exchange
(p) To deposit monies in federally insured savings
accounts or certificates of deposit in banks or savings and
loan associations
(q) To pool all or any of the Trust Fund, from time
to time, with assets belonging to any other qualified employee
pension benefit trust created by the Employer or an affiliated
company of the Employer, and to commingle such assets and make
joint or common investments and carry joint accounts on behalf
of this Plan and such other trust or trusts, allocating
undivided shares or interests in such investments or accounts
or any pooled assets of the two or more trusts in accordance
with their respective interests
(r) To do all such acts and exercise all such
rights and privileges, although not specifically mentioned
herein, as the Trustee may deem necessary to carry out the
purposes of the Plan.
(s) Directed Investment Account. The powers granted
to the Trustee shall be exercised in the sole fiduciary
discretion of the Trustee. However, if Participants are so
empowered by the Administrator, each Participant may direct
the Trustee to separate and keep separate all or a portion of
his account and further each Participant is authorized and
empowered, in his sole and absolute discretion, to give
directions to the Trustee pursuant to the procedure
established by the Administrator and in such form as the
Trustee may require concerning the investment of the
Participant's Directed Investment Account. The Trustee shall
comply as promptly as practicable with directions given by the
Participant hereunder. The Trustee may refuse to comply with
any direction from the Participant in the event the Trustee,
in its sole and absolute discretion, deems such directions
improper by virtue of applicable law. The Trustee shall not be
responsible or liable for any loss or expense which may result
from the Trustee's refusal or failure to comply with any
directions from the Participant. Any costs and expenses
related to compliance with the Participant's directions shall
be borne by the Participant's Directed Investment Account.
7.4 DUTIES OF THE TRUSTEE REGARDING PAYMENTS
At the direction of the Administrator, the Trustee shall, from
time to time, in accordance with the terms of the Plan, make payments out of the
Trust Fund. The Trustee shall not be responsible in any way for the application
of such payments.
7.5 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES
The Trustee shall be paid such reasonable compensation as
shall from time to time be agreed upon in writing by the Employer and the
Trustee. An individual serving as Trustee who already receives full-time pay
from the Employer shall not receive compensation from the Plan. In addition, the
Trustee shall be reimbursed for any reasonable expenses, including reasonable
counsel fees incurred by it as Trustee. Such compensation and expenses shall be
paid from the Trust Fund unless paid or advanced by the Employer. All taxes of
any kind and all kinds whatsoever that may be levied or assessed under existing
or future laws upon, or in respect of, the Trust Fund or the income thereof,
shall be paid from the Trust Fund.
7.6 ANNUAL REPORT OF THE TRUSTEE
Within a reasonable period of time after the later of the
Anniversary Date or receipt of the Employer's contribution for each Plan Year,
the Trustee shall furnish to the Employer and Administrator a written statement
of account with respect to the Plan Year for which such contribution was made
setting forth:
(a) the net income, or loss, of the Trust Fund
(b) the gains, or losses, realized by the Trust
Fund upon sales or other disposition of the assets:
(c) the increase, or decrease, in the value of the
Trust Fund
(d) all payments and distributions made from the
Trust Fund and
(e) such further information as the Trustee and/or
Administrator deems appropriate. The Employer, forthwith upon
its receipt of each such statement of account, shall
acknowledge receipt thereof in writing and advise the Trustee
and/or Administrator of its approval or disapproval thereof.
Failure by the Employer to disapprove any such statement of
account within thirty (30) days after its receipt thereof
shall be deemed an approval thereof. The approval by the
Employer of any statement of account shall be binding as to
all matters embraced therein as between the Employer and the
Trustee to the same extent as if the account of the Trustee
had been settled by judgment or decree in an action for a
judicial settlement of its account in a court of competent
jurisdiction in which the Trustee, the Employer and all
persons having or claiming an interest in the Plan were
parties provided, however, that nothing herein contained shall
deprive the Trustee of its right to have its accounts
judicially settled if the Trustee so desires.
7.7 AUDIT
(a) If an audit of the Plan's records shall be
required by the Act and the regulations thereunder for any
Plan Year, the Administrator shall direct the Trustee to
engage on behalf of all Participants an independent qualified
public accountant for that purpose. Such accountant shall,
after an audit of the books and records of the Plan in
accordance with generally accepted auditing standards, within
a reasonable period after the close of the Plan Year, furnish
to the Administrator and the Trustee a report of his audit
setting forth his opinion as to whether any statements,
schedules or lists that are required by Act Section 103 or the
Secretary of Labor to be filed with the Plan's annual report,
are presented fairly in conformity with generally accepted
accounting principles applied consistently. All auditing and
accounting fees shall be an expense of and may, at the
election of the Administrator, be paid from the Trust Fund.
(b) If some or all of the information necessary to
enable the Administrator to comply with Act Section 103 is
maintained by a bank, insurance company, or similar
institution, regulated and supervised and subject to periodic
examination by a state or federal agency, it shall transmit
and certify the accuracy of that information to the
Administrator as provided in Act Section 103(b) within one
hundred twenty (120) days after the end of the Plan Year or by
such other date as may be prescribed under regulations of the
Secretary of Labor.
7.8 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE
(a) The Trustee may resign at any time by
delivering to the Employer, at least thirty (30) days before
its effective date, a written notice of his resignation.
(b) The Employer may remove the Trustee by mailing
by registered or certified mail, addressed to such Trustee at
his last known address, at least thirty (30) days before its
effective date, a written notice of his removal.
(c) Upon the death, resignation, incapacity, or
removal of any Trustee, a successor may be appointed by the
Employer and such successor, upon accepting such appointment
in writing and delivering same to the Employer, shall, without
further act, become vested with all the estate, rights,
powers, discretions, and duties of his predecessor with like
respect as if he were originally named as a Trustee herein.
Until such a successor is appointed, the remaining Trustee or
Trustees shall have full authority to act under the terms of
the Plan.
(d) The Employer may designate one or more
successors prior to the death, resignation, incapacity, or
removal of a Trustee. In the event a successor is so
designated by the Employer and accepts such designation, the
successor shall, without further act, become vested with all
the estate, rights, powers, discretions, and duties of his
predecessor with the like effect as if he were originally
named as Trustee herein immediately upon the death,
resignation, incapacity, or removal of his predecessor.
(e) Whenever any Trustee hereunder ceases to serve
as such, he shall furnish to the Employer and Administrator a
written statement of account with respect to the portion of
the Plan Year during which he served as Trustee. This
statement shall be either (i) included as part of the annual
statement of account for the Plan Year required under Section
7.6 or (ii) set forth in a special statement. Any such special
statement of account should be rendered to the Employer no
later than the due date of the annual statement of account for
the Plan Year. The procedures set forth in Section 7.6 for the
approval by the Employer of annual statements of account shall
apply to any special statement of account rendered hereunder
and approval by the Employer of any such special statement in
the manner provided in Section 7.6 shall have the same effect
upon the statement as the Employer's approval of an annual
statement of account. No successor to the Trustee shall have
any duty or responsibility to investigate the acts or
transactions of any predecessor who has rendered all
statements of account required by Section 7.6 and this
subparagraph.
7.9 TRANSFER OF INTEREST
Notwithstanding any other provision contained in this Plan,
the Trustee at the direction of the Administrator shall transfer the Vested
interest, if any, of such Participant in his account to another trust forming
part of a pension, profit sharing or stock bonus plan maintained by such
Participant's new employer and represented by said employer in writing as
meeting the requirements of Code Section 401(a), provided that the trust to
which such transfers are made permits the transfer to be made.
7.10 DIRECT ROLLOVER
(a) This Section applies to distributions made on
or after January 1, 1993. Notwithstanding any provision of the
Plan to the contrary that would otherwise limit a
distributee's election under this Section, a distributes may
elect, at the time and in the manner prescribed by the Plan
Administrator, to have any portion of an eligible rollover
distribution paid directly to an eligible retirement plan
specified by the distributes in a direct rollover.
(b) For purposes of this Section the following
definitions shall apply:
(1) An eligible rollover distribution is any
distribution of all or any portion of the balance
to the credit of the distributes, except that an
eligible rollover distribution does not include:
any distribution that is one of a series of
substantially equal periodic payments (not less
frequently than annually) made for the life (or
life expectancy) of the distributes or the joint
lives (or joint life expectancies) of the
distributes and the distributee's designated
beneficiary, or for a specified period of ten years
or more any distribution to the extent such
distribution is required under Code Section
401(a)(9) and the portion of any distribution that
is not includable in gross income (determined
without regard to the exclusion for net unrealized
appreciation with respect to employer securities).
(2) An eligible retirement plan is an individual
retirement account described in Code Section
408(a), an individual retirement annuity described
in Code Section 408(b), an annuity plan described
in Code Section 403(a), or a qualified trust
described in Code Section 401(a), that accepts the
distributee's eligible rollover distribution.
However, in the case of an eligible rollover
distribution to the surviving spouse, an eligible
retirement plan is an individual retirement account
or individual retirement annuity.
(3) A distributes includes an Employee or former
Employee. In addition, the Employee's or former
Employee's surviving spouse and the Employee's or
former Employee's spouse or former spouse who is
the alternate payee under a qualified domestic
relations order, as defined in Code Section 414(p),
are distributes with regard to the interest of the
spouse or former spouse.
(4) A direct rollover is a payment by the plan to
the eligible retirement plan specified by the
distributes.
7.11 EMPLOYER SECURITIES AND REAL PROPERTY
The Trustee shall be empowered to acquire and hold "qualifying
Employer securities" and "qualifying Employer real property," as those terms are
defined in the Act, provided, however, that the Trustee shall not be permitted
to acquire any qualifying Employer securities or qualifying Employer real
property if, immediately after the acquisition of such securities or property,
the fair market value of all qualifying Employer securities and qualifying
Employer real property held by the Trustee hereunder should amount to more than
100% of the fair market value of all the assets in the Trust Fund.
ARTICLE VIII
AMENDMENT, TERMINATION AND MERGERS
8.1 AMENDMENT
(a) The Employer shall have the right at any time
to amend the Plan, subject to the limitations of this Section.
Any such amendment shall be adopted by formal action of the
Employer's board of directors and executed by an officer
authorized to act on behalf of the Employer. However, any
amendment which affects the rights, duties or responsibilities
of the Trustee and Administrator may only be made with the
Trustee's and Administrator's written consent. Any such
amendment shall become effective as provided therein upon its
execution. The Trustee shall not be required to execute any
such amendment unless the Trust provisions contained herein
are a part of the Plan and the amendment affects the duties of
the Trustee hereunder.
(b) No amendment to the Plan shall be effective if
it authorizes or permits any part of the Trust Fund (other
than such part as is required to pay taxes and administration
expenses) to be used for or diverted to any purpose other than
for the exclusive benefit of the Participants or their
Beneficiaries or estates or causes any reduction in the amount
credited to the account of any Participant or causes or
permits any portion of the Trust Fund to revert to or become
property of the Employer.
(c) Except as permitted by Regulations, no Plan
amendment or transaction having the effect of a Plan amendment
(such as a merger, plan transfer or similar transaction) shall
be effective to the extent it eliminates or reduces any
"Section 411(d)(6) protected benefited or adds or modifies
conditions relating to "Section 411(d)(6) protected benefits"
the result of which is a further restriction on such benefit
unless such protected benefits are preserved with respect to
benefits accrued as of the later of the adoption date or
effective date of the amendment. "Section 411(d)(6) protected
benefits' are benefits described in Code Section
411(d)(6)(A), early retirement benefits and retirement-type
subsidies, and optional forms of benefit.
8.2 TERMINATION
(a) The Employer shall have the right at any time
to terminate the Plan by delivering to the Trustee and
Administrator written notice of such termination. Upon any
full or partial termination, all amounts credited to the
affected Participants' Accounts shall become 100% Vested as
provided in Section 6.4 and shall not thereafter be subject to
forfeiture, and all unallocated amounts shall be allocated to
the accounts of all Participants in accordance with the
provisions hereof.
(b) Upon the full termination of the Plan, the
Employer shall direct the distribution of the assets of the
Trust Fund to Participants in a manner which is consistent
with and satisfies the provisions of Section 6.5.
Distributions to a Participant shall be made in cash or in
property or through the purchase of irrevocable
nontransferable deferred commitments from an insurer. Except
as permitted by Regulations, the termination of the Plan shall
not result in the reduction of "Section 411(d)(6) protected
benefits" in accordance with Section 8.1(c)).
8.3 MERGER OR CONSOLIDATION
This Plan and Trust may be merged or consolidated with, or its
assets and/or liabilities may be transferred to any other plan and trust only if
the benefits which would be received by a Participant of this Plan, in the event
of a termination of the plan immediately after such transfer, merger or
consolidation, are at least equal to the benefits the Participant would have
received if the Plan had terminated immediately before the transfer, merger or
consolidation, and such transfer, merger or consolidation does not otherwise
result in the elimination or reduction of any "Section 411(d)(6) protected
benefits" in accordance with Section 8.1(c).
ARTICLE IX
MISCELLANEOUS
9.1 PARTICIPANT'S RIGHTS
This Plan shall not be deemed to constitute a contract between
the Employer and any Participant or to be a consideration or an inducement for
the employment of any Participant or Employee. Nothing contained in this Plan
shall be deemed to give any Participant or Employee the right to be retained in
the service of the Employer or to interfere with the right of the Employer to
discharge any Participant or Employee at any time regardless of the effect which
such discharge shall have upon him as a Participant of this Plan.
9.-2 ALIENATION
(a) Subject to the exceptions provided below, no
benefit which shall be payable out of the Trust Fund to any
person (including a Participant or his Beneficiary) shall be
subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, or charge, and any
attempt to anticipate, alienate, sell, transfer, assign,
pledge, encumber, or charge the same shall be void; and no
such benefit shall in any manner be liable for, or subject to,
the debts, contracts, liabilities, engagements, or torts of
any such person, nor shall it be subject to attachment or
legal process for or against such person, and the same shall
not be recognized by the Trustee, except to such extent as may
be required by law.
(b) This provision shall not apply to a "qualified
domestic relations order" defined in Code Section 414(p), and
those other domestic relations orders permitted to be so
treated by the Administrator under the provisions of the
Retirement Equity Act of 1984. The Administrator shall
establish a written procedure to determine the qualified
status of domestic relations orders and to administer
distributions under such qualified orders. Further, to the
extent provided under a "qualified domestic relations order,"
a former spouse of a Participant shall be treated as the
spouse or surviving spouse for all purposes under the Plan.
9.3 CONSTRUCTION OF PLAN
This Plan and Trust shall be construed and enforced according
to the Act and the laws of the State of Arizona, other than its laws respecting
choice of law, to the extent not preempted by the Act.
9.4 GENDER AND NUMBER
Wherever any words are used herein in the masculine, feminine
or neuter gender, they shall be construed as though they were also used in
another gender in all cases where they would so apply, and whenever any words
are used herein in the singular or plural form, they shall be construed as
though they were also used in the other form in all cases where they would so
apply.
9.5 LEGAL ACTION
In the event any claim, suit, or proceeding is brought
regarding the Trust and/or Plan established hereunder to which the Trustee or
the Administrator may be a party, and such claim, suit, or proceeding is
resolved in favor of the Trustee or Administrator, they shall be entitled to be
reimbursed from the Trust Fund for any and all costs, attorney's fees, and other
expenses pertaining thereto incurred by them for which they shall have become
liable.
9.6 PROHIBITION AGAINST DIVERSION OF FUNDS
(a) Except as provided below and otherwise
specifically permitted by law, it shall be impossible by
operation of the Plan or of the Trust, by termination of
either, by power of revocation or amendment, by the happening
of any contingency, by collateral arrangement or by any other
means, for any part of the corpus or income of any trust fund
maintained pursuant to the Plan or any funds contributed
thereto to be used for, or diverted to, purposes other than
the exclusive benefit of Participants, Retired Participants,
or their Beneficiaries.
(b) In the event the Employer shall make an
excessive contribution under a mistake of fact pursuant to Act
Section 403(c)(2)(A), the Employer may demand repayment of
such excessive contribution at any time within one (1) year
following the time of payment and the Trustees shall return
such amount to the Employer within the one (1) year period.
Earnings of the Plan attributable to the excess contributions
may not be returned to the Employer but any losses
attributable thereto must reduce the amount so returned.
9.7 BONDING
Every Fiduciary, except a bank or an insurance company, unless
exempted by the Act and regulations thereunder, shall be bonded in an amount not
less than 10% of the amount of the funds such Fiduciary handles provided,
however, that the minimum bond shall be $1,000 and the maximum bond, $500,000.
The amount of funds handled shall be determined at the beginning of each Plan
Year by the amount of funds handled by such person, group, or class to be
covered and their predecessors, if any, during the preceding Plan Year, or if
there is no preceding Plan Year, then by the amount of the funds to be handled
during the then current year. The bond shall provide protection to the Plan
against any loss by reason of acts of fraud or dishonesty by the Fiduciary alone
or in connivance with others. The surety shall be a corporate surety company (as
such term is used in Act Section 412(a)(2)), and the bond shall be in a form
approved by the Secretary of Labor. Notwithstanding anything in the Plan to the
contrary, the cost of such bonds shall be an expense of and may, at the election
of the Administrator, be paid from the Trust Fund or by the Employer.
9.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE
Neither the Employer nor the Trustee, nor their successors,
shall be responsible for the validity of any Contract issued hereunder or for
the failure on the part of the insurer to make payments provided by any such
Contract, or for the action of any person which may delay payment or render a
Contract null and void or unenforceable in whole or in part.
9.9 INSURER'S PROTECTIVE CLAUSE
Any insurer who shall issue Contracts hereunder shall not have
any responsibility for the validity of this Plan or for the tax or legal aspects
of this Plan. The insurer shall be protected and held harmless in acting in
accordance with any written direction of the Trustee, and shall have no duty to
see to the application of any funds paid to the Trustee, nor be required to
question any actions directed by the Trustee. Regardless of any provision of
this Plan, the insurer shall not be required to take or permit any action or
allow any benefit or privilege contrary to the terms of any Contract which it
issues hereunder, or the rules of the insurer.
9.10 RECEIPT AND RELEASE FOR PAYMENTS
Any payment to any Participant, his legal representative,
Beneficiary, or to any guardian or committee appointed for such Participant or
Beneficiary in accordance with the provisions of the Plan, shall, to the extent
thereof, be in full satisfaction of all claims hereunder against the Trustee and
the Employer, either of whom may require such Participant, legal representative,
Beneficiary, guardian or committee, as a condition precedent to such payment, to
execute a receipt and release thereof in such form as shall be determined by the
Trustee or Employer.
9.11 ACTION BY THE EMPLOYER
Whenever the Employer under the terms of the Plan is permitted
or required to do or perform any act or matter or thing, it shall be done and
performed by a person duly authorized by its legally constituted authority.
9.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY
The "named Fiduciaries" of this Plan are (1) the Employer, (2)
the Administrator and (3) the Trustee. The named Fiduciaries shall have only
those specific powers, duties, responsibilities, and obligations as are
specifically given them under the Plan. In general, the Employer shall have the
sole responsibility for making the contributions provided for under Section 4.1
and shall have the sole authority to appoint and remove the Trustee and the
Administrator to formulate the Plan's "funding policy and method" and to amend
or terminate, in whole or in part, the Plan. The Administrator shall have the
sole responsibility for the administration of the Plan, which responsibility is
specifically described in the Plan. The Trustee shall have the sole
responsibility of management of the assets held under the Trust, except those
assets, the management of which has been assigned to an Investment Manager, who
shall be solely responsible for the management of the assets assigned to it, all
as specifically provided in the Plan. Each named Fiduciary warrants that any
directions given, information furnished, or action taken by it shall be in
accordance with the provisions of the Plan, authorizing or providing for such
direction, information or action. Furthermore, each named Fiduciary may rely
upon any such direction, information or action of another named Fiduciary as
being proper under the Plan, and is not required under the Plan to inquire into
the propriety of any such direction, information or action. It is intended under
the Plan that each named Fiduciary shall be responsible for the proper exercise
of its own powers, duties, responsibilities and obligations under the Plan. No
named Fiduciary shall guarantee the Trust Fund in any manner against investment
loss or depreciation in asset value. Any person or group may serve in more than
one Fiduciary capacity. In the furtherance of their responsibilities hereunder,
the "named Fiduciaries" shall be empowered to interpret the Plan and Trust and
to resolve ambiguities, inconsistencies and omissions, which findings shall be
binding, final and conclusive.
9.13 HEADINGS
The headings and subheadings of this Plan have been inserted
for convenience of reference and are to be ignored in any construction of the
provisions hereof.
9.14 APPROVAL BY INTERNAL REVENUE SERVICE
(a) Notwithstanding anything herein to the
contrary, contributions to this Plan are conditioned upon the
initial qualification of the Plan under Code Section 401. If
the Plan receives an adverse determination with respect to its
initial qualification, then the Plan may return such
contributions to the Employer within one year after such
determination, provided the application for the determination
is made by the time prescribed by law for filing the
Employer's return for the taxable year in which the Plan was
adopted, or such later date as the Secretary of the Treasury
may prescribe.
(b) Notwithstanding any provisions to the contrary,
except Sections 3.6, 3.7, and 4.1(c), any contribution by the
Employer to the Trust Fund is conditioned upon the
deductibility of the contribution by the Employer under the
Code and, to the extent any such deduction is disallowed, the
Employer may, within one (1) year following the disallowance
of the deduction, demand repayment of such disallowed
contribution and the Trustee shall return such contribution
within one (1) year following the disallowance. Earnings of
the Plan attributable to the excess contribution may not be
returned to the Employer, but any losses attributable thereto
must reduce the amount so returned.
9.15 UNIFORMITY
All provisions of this Plan shall be interpreted and applied
in a uniform, nondiscriminatory manner. In the event of any conflict between the
terms of this Plan and any Contract purchased hereunder, the Plan provisions
shall control.
IN WITNESS WHEREOF, this Plan has been executed the day and
year first above written.
Frontier Adjusters, Inc.
By /s/ Jean E. Ryberg
------------------------------------
EMPLOYER - Jean E. Ryberg
/s/ Patric R. Greer
---------------------------------------
TRUSTEE - Patric R. Greer
/s/ William J. Rocke
---------------------------------------
TRUSTEE - William J. Rocke
/s/ George M. Hill
---------------------------------------
TRUSTEE - George M. Hill
/s/ Jean E. Ryberg
---------------------------------------
TRUSTEE - Jean E. Ryberg
/s/ James S. Rocke
---------------------------------------
TRUSTEE - James S. Rocke
EMPLOYMENT AGREEMENT
AGREEMENT made between WILLIAM J. ROCKE, hereinafter referred to as
ROCKE, and FRONTIER ADJUSTERS OF AMERICA, INC., an Arizona corporation, and
FRONTIER ADJUSTERS, INC., a Colorado corporation, both hereinafter referred to
as FRONTIER.
RECITALS
WHEREAS Frontier is engaged in the insurance adjusting and franchising
business and maintains its principal office and place of business at 45 East
Monterey Way, City of Phoenix, County of Maricopa, Arizona; and
WHEREAS Rocke is Chairman of the Board of and has for many years been
the Chief Executive Officer of Frontier; and
WHEREAS the parties believe it would be in the best interest of
Frontier and Rocke to enter into an employment agreement; and
WHEREAS the parties are willing and desirous of entering into this
agreement on the terms, covenants and conditions hereinafter set forth.
NOW, THEREFORE, the parties do hereby covenant and agree as follows:
SECTION ONE
EMPLOYMENT
Frontier hereby employs, engages and hires Rocke as its chief executive
officer and Rocke hereby accepts and agrees to such hiring, engagement and
employment subject to the general supervision and pursuant to the orders, advice
and direction of the respective Boards of Directors. Rocke also agrees to serve
in such other executive capacities of Frontier and its direct and indirect
subsidiaries, including Frontier Adjusters, Inc. as may be requested by the
respective Boards of Directors.
SECTION TWO
BEST EFFORTS OF EMPLOYEE
Rocke agrees that he will at all times faithfully, industriously, and
to the best of his ability, experience, and talents, perform all of the duties
that may be required of and from him pursuant to the express and implicit terms
hereof, to the reasonable satisfaction of Frontier. Such duties shall be
rendered at 45 East Monterey Way, City of Phoenix, State of Arizona, and at such
other place or places as employer shall in good faith require or as the
interest, needs, business, or opportunity of Frontier shall require.
SECTION THREE
TERM OF EMPLOYMENT
The term of this agreement shall be a period of five (5) years
commencing July 1, 1995 and terminating June 30, 2000, subject, however, to
prior termination as hereinafter provided.
SECTION FOUR
COMPENSATION OF EMPLOYEE
For each of the years involved the following annual salaries are to be
paid in semi-monthly installments:
For the Year Beginning July 1, 1995 - $225,000.
For the Year Beginning July 1, 1996 and each year thereafter the salary
shall be increased on a cumulative basis in the amount of the increase in the
United States Department of Labor All Commodities Cost of Living Index between
March 31 of 1995 and March 31 of 1996 and shall be increased annually thereafter
to the extent that the cost of living has increased in the ensuing twelve
months.
Frontier shall reimburse Rocke for all necessary expenses incurred by
Rocke while traveling or otherwise performing services pursuant to Frontier's
direction.
In addition to the foregoing payments, Frontier shall pay to Rocke a
bonus consisting of 3% of the net income before taxes and bonus and an
additional bonus of 5% of the income before taxes and bonus which is in excess
of the prior year's income before taxes and bonus. The said bonus payment shall
be paid in one or more installments and payments shall be completed no later
than seventy-five (75) days after the end of the respective fiscal years of
Frontier, all of which end on June 30.
In addition thereto, Frontier shall transfer within six months of the
date of the termination of the employment of Rocke the life insurance policy
which it now owns insuring the life of Rocke.
The term "net income before taxes" as used herein shall mean the
earnings of Frontier for the years ending June 30 during the life of this
agreement as determined by the auditors then employed by Frontier. Such
computation to be made in accordance with the generally accepted accounting
practice and shall be computed prior to the deduction of the bonus provided for
herein and prior to the deduction of any income taxes.
The compensation set forth herein shall be made with respect to all of
Rocke's employment services hereunder in any and all capacities with Frontier
and its direct or indirect subsidiaries, as provided in Section One hereof;
provided, however, that Rocke may be entitled to receive additional compensation
for his service as a director of Frontier and its subsidiaries, subject to the
discretion of the respective Boards of Directors of such corporations.
SECTION FIVE
OTHER EMPLOYMENT
Rocke shall devote all of his time, attention, knowledge and skills
solely to the business and interest of Frontier and its subsidiaries, and
Frontier shall be entitled to all of the benefits, profits or other issues
arising from or incident to all work, services, and advice of Rocke, and Rocke
shall not, during the term hereof, be interested directly or indirectly, in any
manner, as partner, officer, director, stockholder, advisor, employee or in any
other capacity in any other business similar to Frontier's business or any of
its subsidiaries' businesses or any allied trade; provided, however, that
nothing herein contained shall be deemed to prevent or limit the right of Rocke
to invest any of his surplus funds in the capital stock of other securities of
any corporation whose stock or securities are publicly owned or are regularly
traded on any public exchange, nor shall anything herein contained be deemed to
prevent Rocke from investing or limit Rocke's right to invest his surplus funds
in real estate or other assets.
SECTION SIX
RECOMMENDATIONS FOR IMPROVING OPERATIONS
Rocke shall make available to Frontier all information of which Rocke
shall have any knowledge and shall make all suggestions and recommendations that
will be of benefit to Frontier.
SECTION SEVEN
ADDITIONAL COMPENSATION
Rocke shall be entitled to participate in the employer's profit sharing
and medical maintenance plans to the extent provided by the Board of Directors,
provided, however, that the Board of Directors at all times during the term of
this agreement retain the right subject to statutory limits to increase, reduce
or terminate the amount of profit sharing or medical maintenance plans.
SECTION EIGHT
COMPLETE AGREEMENT
This contract contains the complete agreement concerning the employment
agreement between the parties and shall, as of the effective date hereof,
supersede all other agreements between the parties. The parties stipulate that
neither of them has made any representation with respect to the subject matter
of this agreement or any representations including the execution and delivery
thereof except such representations as are specifically set forth herein and
each of the parties hereto acknowledge that each party has relied on their
respective judgment and discretion in entering into this agreement.
SECTION NINE
No waiver or modification of this agreement or of any covenant,
condition, or limitation herein contained shall be valid unless in writing and
duly executed by the parties to be charged therewith and no evidence of any
waiver or modification shall be offered or received in evidence of any
proceeding, arbitration, or litigation between the parties hereto arising out of
or affecting this agreement, or the rights or obligations of the parties
hereunder, unless such waiver or modification is in writing, duly executed as
aforesaid, and the parties further agree that the provisions of this section may
not be waived except as herein set forth.
SECTION TEN
TERMINATION FOR DISABILITY
Notwithstanding anything in this agreement to the contrary, Frontier is
hereby given the option to terminate this agreement in the event that Rocke
shall, during the term hereof, become permanently disabled as the term
permanently disabled is hereinafter fixed and defined. Such option shall be
exercised by Frontier by giving notice to Rocke by registered mail, addressed to
him in care of Frontier at 45 East Monterey Way, City of Phoenix, State of
Arizona, or at such other address as Rocke shall designate in writing of
Frontier's intention to terminate this agreement on the last day of the month
during which such notice is mailed. On the giving of such notice, this agreement
shall cease on the last day of the month in which the notice is so mailed, with
the same force and effect as if such last day of the month were the date
originally herein set forth as the termination date hereof.
For the purposes of this agreement Rocke shall be deemed to have become
permanently disabled if, during any year of the term hereof, because of ill
health, physical or mental disability or for other cause beyond his control he
shall have been continuously unable or unwilling or shall have failed to perform
his duties hereunder for three hundred sixty-five (365) days, irrespective of
whether or not such days are consecutive. For the purposes hereof the term "any
year of the term hereof" is defined to mean any 12 calendar month period
commencing on July 1, 1995 and terminating on June 30, 2000, during the term of
this agreement. In the event this agreement is terminated for disability as
hereinabove defined prior to June 30, 2000, Frontier shall pay not less than
$6,000 each month for the period beginning on the date of termination which will
be one year after disability and continuing until June 30, 2000. Frontier
reserves and shall at all times during the term of this Agreement have the right
to fund all or any part of the monthly disability compensation by the
maintenance of insurance for that purpose.
SECTION ELEVEN
SEVERABILITY
All agreements and covenants contained herein are severable, and in the
event any of them, with the exception of those contained in Sections One and
Four hereof, shall be held to be invalid by any competent court, this contract
shall be interpreted as if such invalid agreements or covenants were not
contained herein.
SECTION TWELVE
ARBITRATION
Neither party shall institute any action involving the performance of
the terms and conditions of this Agreement and if controversies arise between
the parties which cannot be negotiated and settled by them, then the parties
hereto covenant and agree to submit any and all existing controversies to
arbitration concluding any threatened controversy arising between the parties
involving the performance of the terms, conditions and warranties of this
agreement, such arbitration to be carried on and conducted pursuant to the
provisions of Sections 12-1501 and 12-1518 of the Arizona Revised Statutes.
SECTION THIRTEEN
SCOTTSDALE FRANCHISE
The parties hereto acknowledge that Rocke is a licensee or franchisee
of Frontier Adjusters, Inc., by virtue of his ownership of the stock of Old
Frontier Investment, Inc., of Arizona, an Arizona corporation, and it is
specifically covenanted and agreed that the ownership of said corporation and
its conducting the franchise or license operations of Scottsdale do not
constitute a breach or violation of Section Five or other provisions of this
Agreement.
DATED at Phoenix, Arizona, this 10th day of August, 1995.
FRONTIER ADJUSTERS OF AMERICA, INC.
an Arizona corporation,
By /s/ George M. Hill
-------------------------------------
George M. Hill, Vice President
FRONTIER ADJUSTERS, INC.
a Colorado corporation,
By /s/ George M. Hill
-------------------------------------
George M. Hill, Vice President
/s/ William J. Rocke
----------------------------------------
William J. Rocke
STATE OF ARIZONA )
) ss.
County of Maricopa )
On this the 10th day of August, 1995, before me, the undersigned Notary
Public, personally appeared WILLIAM J. ROCKE, known to me to be the person whose
name is subscribed to the foregoing Employment Agreement, and acknowledged that
he executed the same for the purpose and consideration therein expressed.
IN WITNESS WHEREOF I hereunto set my hand and official seal.
/s/ Helen Wertsching
----------------------------------------
Notary Public
My commission expires:
January 14, 1997
- ----------------------
STATE OF ARIZONA )
) ss.
County of Maricopa )
On this the 10th day of August, 1995, before me, the undersigned Notary
Public, personally appeared GEORGE M. HILL, who acknowledged himself to be the
Vice President of FRONTIER ADJUSTERS OF AMERICA, INC., an Arizona corporation,
and of FRONTIER ADJUSTERS, INC., a Colorado corporation, and that he, as such
officer, being duly authorized so to do, executed the foregoing Employment
Agreement for and on behalf of the said corporations for the purpose and
consideration therein expressed.
IN WITNESS WHEREOF I hereunto set my hand and official seal.
/s/ Helen Wertsching
----------------------------------------
Notary Public
My commission expires:
January 14, 1997
- ----------------------
EMPLOYMENT AGREEMENT
AGREEMENT made between JEAN E. RYBERG, hereinafter referred to as
RYBERG, and FRONTIER ADJUSTERS OF AMERICA, INC., an Arizona corporation, and
FRONTIER ADJUSTERS, INC., a Colorado corporation, both hereinafter referred to
as FRONTIER.
RECITALS
WHEREAS Frontier is engaged in the insurance adjusting and franchising
business and maintains its principal office and place of business at 45 East
Monterey Way, City of Phoenix, County of Maricopa, Arizona; and
WHEREAS Ryberg is President of and has for many years been the
President and Executive Officer of Frontier; and
WHEREAS the parties believe it would be in the best interest of
Frontier and Ryberg to enter into an employment agreement; and
WHEREAS the parties are willing and desirous of entering into this
agreement on the terms, covenants and conditions hereinafter set forth.
NOW, THEREFORE, the parties do hereby covenant and agree as follows:
SECTION ONE
EMPLOYMENT
Frontier hereby employs, engages and hires Ryberg as its President and
Ryberg hereby accepts and agrees to such hiring, engagement and employment
subject to the general supervision and pursuant to the orders, advice and
direction of the respective Boards of Directors. Ryberg also agrees to serve in
such other executive capacities of Frontier and its direct and indirect
subsidiaries, including Frontier Adjusters, Inc. as may be requested by the
respective Boards of Directors.
SECTION TWO
BEST EFFORTS OF EMPLOYEE
Ryberg agrees that she will at all times faithfully, industriously, and
to the best of her ability, experience, and talents, perform all of the duties
that may be required of and from her pursuant to the express and implicit terms
hereof, to the reasonable satisfaction of Frontier. Such duties shall be
rendered at 45 East Monterey Way, City of Phoenix, State of Arizona, and at such
other place or places as employer shall in good faith require or as the
interest, needs, business, or opportunity of Frontier shall require.
SECTION THREE
TERM OF EMPLOYMENT
The term of this agreement shall be a period of five (5) years
commencing July 1, 1995 and terminating June 30, 2000, subject, however, to
prior termination as hereinafter provided.
SECTION FOUR
COMPENSATION OF EMPLOYEE
For each of the years involved the following annual salaries are to be
paid in semi-monthly installments:
For the Year Beginning July 1, 1995 - $160,000.
For the Year Beginning July 1, 1996 and each year thereafter the salary
shall be increased on a cumulative basis in the amount of the increase in the
United States Department of Labor All Commodities Cost of Living Index between
March 31 of 1995 and March 31 of 1996 and shall be increased annually thereafter
to the extent that the cost of living has increased in the ensuing twelve
months.
Frontier shall reimburse Ryberg for all necessary expenses incurred by
Ryberg while traveling or otherwise performing services pursuant to Frontier's
direction.
In addition to the foregoing payments, Frontier shall pay to Ryberg a
bonus consisting of 3% of the net income before taxes and bonus and an
additional bonus of 5% of the income before taxes and bonus which is in excess
of the prior year's income before taxes and bonus. The said bonus payment shall
be paid in one or more installments and payments shall be completed no later
than seventy-five (75) days after the end of the respective fiscal years of
Frontier, all of which end on June 30.
In addition thereto, Frontier shall transfer within six months of the
date of the termination of the employment of Ryberg the life insurance policy
which it now owns insuring the life of Ryberg.
The term "net income before taxes" as used herein shall mean the
earnings of Frontier for the years ending June 30 during the life of this
agreement as determined by the auditors then employed by Frontier. Such
computation to be made in accordance with the generally accepted accounting
practice and shall be computed prior to the deduction of the bonus provided for
herein and prior to the deduction of any income taxes.
The compensation set forth herein shall be made with respect to all of
Ryberg's employment services hereunder in any and all capacities with Frontier
and its direct or indirect subsidiaries, as provided in Section One hereof;
provided, however, that Ryberg may be entitled to receive additional
compensation for her service as a director of Frontier and its subsidiaries,
subject to the discretion of the respective Boards of Directors of such
corporations.
SECTION FIVE
OTHER EMPLOYMENT
Ryberg shall devote all of her time, attention, knowledge and skills
solely to the business and interest of Frontier and its subsidiaries, and
Frontier shall be entitled to all of the benefits, profits or other issues
arising from or incident to all work, services, and advice of Ryberg, and Ryberg
shall not, during the term hereof, be interested directly or indirectly, in any
manner, as partner, officer, director, stockholder, advisor, employee or in any
other capacity in any other business similar to Frontier's business or any of
its subsidiaries' businesses or any allied trade; provided, however, that
nothing herein contained shall be deemed to prevent or limit the right of Ryberg
to invest any of her surplus funds in the capital stock of other securities of
any corporation whose stock or securities are publicly owned or are regularly
traded on any public exchange, nor shall anything herein contained be deemed to
prevent Ryberg from investing or limit Ryberg's right to invest her surplus
funds in real estate or other assets.
SECTION SIX
RECOMMENDATIONS FOR IMPROVING OPERATIONS
Ryberg shall make available to Frontier all information of which Ryberg
shall have any knowledge and shall make all suggestions and recommendations that
will be of benefit to Frontier.
SECTION SEVEN
ADDITIONAL COMPENSATION
Ryberg shall be entitled to participate in the employer's profit
sharing and medical maintenance plans to the extent provided by the Board of
Directors, provided, however, that the Board of Directors at all times during
the term of this agreement retain the right subject to statutory limits to
increase, reduce or terminate the amount of profit sharing or medical
maintenance plans.
SECTION EIGHT
COMPLETE AGREEMENT
This contract contains the complete agreement concerning the employment
agreement between the parties and shall, as of the effective date hereof,
supersede all other agreements between the parties. The parties stipulate that
neither of them has made any representation with respect to the subject matter
of this agreement or any representations including the execution and delivery
thereof except such representations as are specifically set forth herein and
each of the parties hereto acknowledge that each party has relied on their
respective judgment and discretion in entering into this agreement.
SECTION NINE
No waiver or modification of this agreement or of any covenant,
condition, or limitation herein contained shall be valid unless in writing and
duly executed by the parties to be charged therewith and no evidence of any
waiver or modification shall be offered or received in evidence of any
proceeding, arbitration, or litigation between the parties hereto arising out of
or affecting this agreement, or the rights or obligations of the parties
hereunder, unless such waiver or modification is in writing, duly executed as
aforesaid, and the parties further agree that the provisions of this section may
not be waived except as herein set forth.
SECTION TEN
TERMINATION FOR DISABILITY
Notwithstanding anything in this agreement to the contrary, Frontier is
hereby given the option to terminate this agreement in the event that Ryberg
shall, during the term hereof, become permanently disabled as the term
permanently disabled is hereinafter fixed and defined. Such option shall be
exercised by Frontier by giving notice to Ryberg by registered mail, addressed
to her in care of Frontier at 45 East Monterey Way, City of Phoenix, State of
Arizona, or at such other address as Ryberg shall designate in writing of
Frontier's intention to terminate this agreement on the last day of the month
during which such notice is mailed. On the giving of such notice, this agreement
shall cease on the last day of the month in which the notice is so mailed, with
the same force and effect as if such last day of the month were the date
originally herein set forth as the termination date hereof.
For the purposes of this agreement Ryberg shall be deemed to have
become permanently disabled if, during any year of the term hereof, because of
ill health, physical or mental disability or for other cause beyond her control
she shall have been continuously unable or unwilling or shall have failed to
perform her duties hereunder for three hundred sixty-five (365) days,
irrespective of whether or not such days are consecutive. For the purposes
hereof the term "any year of the term hereof" is defined to mean any 12 calendar
month period commencing on July 1, 1995 and terminating on June 30, 2000, during
the term of this agreement. In the event this agreement is terminated for
disability as hereinabove defined prior to June 30, 2000, Frontier shall pay not
less than $4,000 each month for the period beginning on the date of termination
which will be one year after disability and continuing until June 30, 2000.
Frontier reserves and shall at all times during the term of this Agreement have
the right to fund all or any part of the monthly disability compensation by the
maintenance of insurance for that purpose.
SECTION ELEVEN
SEVERABILITY
All agreements and covenants contained herein are severable, and in the
event any of them, with the exception of those contained in Sections One and
Four hereof, shall be held to be invalid by any competent court, this contract
shall be interpreted as if such invalid agreements or covenants were not
contained herein.
SECTION TWELVE
ARBITRATION
Neither party shall institute any action involving the performance of
the terms and conditions of this Agreement and if controversies arise between
the parties which cannot be negotiated and settled by them, then the parties
hereto covenant and agree to submit any and all existing controversies to
arbitration concluding any threatened controversy arising between the parties
involving the performance of the terms, conditions and warranties of this
agreement, such arbitration to be carried on and conducted pursuant to the
provisions of Sections 12-1501 and 12-1518 of the Arizona Revised Statutes.
DATED at Phoenix, Arizona, this 10th day of August, 1995.
FRONTIER ADJUSTERS OF AMERICA, INC.
an Arizona corporation,
By /s/ George M. Hill
-------------------------------------
George M. Hill, Vice President
FRONTIER ADJUSTERS, INC.
a Colorado corporation,
By /s/ George M. Hill
-------------------------------------
George M. Hill, Vice President
/s/ Jean E. Ryberg
----------------------------------------
Jean E. Ryberg
STATE OF ARIZONA )
) ss.
County of Maricopa )
On this the 10th day of August, 1995, before me, the undersigned Notary
Public, personally appeared JEAN E. RYBERG, known to me to be the person whose
name is subscribed to the foregoing Employment Agreement, and acknowledged that
he executed the same for the purpose and consideration therein expressed.
IN WITNESS WHEREOF I hereunto set my hand and official seal.
/s/ Helen Wertsching
----------------------------------------
Notary Public
My commission expires:
January 14, 1997
- ----------------------
STATE OF ARIZONA )
) ss.
County of Maricopa )
On this the 10th day of August, 1995, before me, the undersigned Notary
Public, personally appeared GEORGE M. HILL, who acknowledged himself to be the
Vice President of FRONTIER ADJUSTERS OF AMERICA, INC., an Arizona corporation,
and of FRONTIER ADJUSTERS, INC., a Colorado corporation, and that he, as such
officer, being duly authorized so to do, executed the foregoing Employment
Agreement for and on behalf of the said corporations for the purpose and
consideration therein expressed.
IN WITNESS WHEREOF I hereunto set my hand and official seal.
/s/ Helen Wertsching
----------------------------------------
Notary Public
My commission expires:
January 14, 1997
- ----------------------
EXHIBIT 21
LIST OF SUBSIDIARIES OF
FRONTIER ADJUSTERS OF AMERICA, INC.
Name State of Incorporation Parent Company
- -------------------------------- ---------------------- -------------------
Frontier Adjusters of Arizona, Inc. Arizona Frontier Adjusters
of America, Inc.
Frontier Adjusters, Inc. Colorado Frontier Adjusters
of Arizona, Inc.
Frontier Adjusters Co., Ltd. Alberta, Canada Frontier Adjusters,
Inc.
Frontier Adjusters Corp. Puerto Rico Frontier Adjusters,
Inc.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the April 6, 1992
Registration Statement on Form S-8 of our report, dated August 3, 1995, which
appears on page 12 of the annual report on Form 10-K of Frontier Adjusters of
America, Inc. and subsidiaries for the year ended June 30, 1995.
McGLADREY & PULLEN, LLP
Phoenix, Arizona
August 3, 1995
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