<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-22056
RURAL/METRO CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE
(State or other jurisdiction
of incorporation or organization)
86-0746929
(I.R.S. Employer
Identification No.)
8401 EAST INDIAN SCHOOL ROAD
SCOTTSDALE, ARIZONA
85251
(Address of principal executive offices)
(Zip Code)
(602) 994-3886
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
At November 9, 1998 there were 14,462,377 shares of Common Stock outstanding,
exclusive of treasury shares held by the Registrant.
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<PAGE> 2
RURAL/METRO CORPORATION
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
Page
Part I. Financial Statements
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
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<PAGE> 3
RURAL/METRO CORPORATION
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, 1998 June 30, 1998
------------------ -------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 6,658 $ 6,511
Accounts receivable, net 164,261 154,603
Inventories 13,438 13,128
Prepaid expenses and other 17,997 16,402
--------- ---------
Total current assets 202,354 190,644
PROPERTY AND EQUIPMENT, net 93,258 92,545
INTANGIBLE ASSETS, net 240,513 235,456
OTHER ASSETS 17,780 16,807
--------- ---------
$ 553,905 $ 535,452
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 13,754 $ 13,435
Accrued liabilities 52,132 44,406
Current portion of long-term debt 6,578 8,565
--------- ---------
Total current liabilities 72,464 66,406
LONG-TERM DEBT, net of current portion 254,255 243,831
NON-REFUNDABLE SUBSCRIPTION INCOME 13,847 13,682
DEFERRED INCOME TAXES 20,281 23,282
OTHER LIABILITIES 2,000 2,298
--------- ---------
Total liabilities 362,847 349,499
--------- ---------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 8,228 8,180
--------- ---------
STOCKHOLDERS' EQUITY
Common stock 147 144
Additional paid-in capital 136,009 134,078
Retained earnings 48,201 45,139
Deferred compensation (22) (349)
Cumulative translation adjustment (266) --
Treasury stock (1,239) (1,239)
--------- ---------
Total stockholders' equity 182,830 177,773
--------- ---------
$ 553,905 $ 535,452
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
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<PAGE> 4
RURAL/METRO CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three months ended September 30,
--------------------------------
1998 1997
---- ----
<S> <C> <C>
REVENUE
Ambulance services $116,265 $ 77,598
Fire protection services 12,643 11,212
Other 9,887 8,963
-------- --------
Total revenue 138,795 97,773
-------- --------
OPERATING EXPENSES
Payroll and employee benefits 73,898 52,235
Provision for doubtful accounts 19,897 13,214
Depreciation 5,876 4,101
Amortization of intangibles 2,397 1,464
Other operating expenses 23,720 16,413
Restructuring charge 2,500 --
-------- --------
Total expenses 128,288 87,427
-------- --------
OPERATING INCOME 10,507 10,346
Interest expense, net 5,142 2,451
Other 48 --
-------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES 5,317 7,895
PROVISION FOR INCOME TAXES 2,255 3,237
-------- --------
NET INCOME $ 3,062 $ 4,658
======== ========
BASIC EARNINGS PER SHARE $ 0.21 $ 0.36
======== ========
DILUTED EARNINGS PER SHARE $ 0.21 $ 0.35
======== ========
AVERAGE NUMBER OF SHARES
OUTSTANDING - BASIC 14,270 12,910
AVERAGE NUMBER OF SHARES
OUTSTANDING - DILUTED 14,520 13,405
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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<PAGE> 5
RURAL/METRO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three months ended September 30,
--------------------------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,062 $ 4,658
Adjustments to reconcile net income to cash
provided by operations --
Depreciation and amortization 8,273 5,565
Amortization of deferred compensation 58 174
Amortization of gain on sale of real estate (26) (26)
Provision for doubtful accounts 19,897 13,640
Undistributed earnings of minority shareholder 48 --
Amortization of discount on Senior Notes 6 --
Change in assets and liabilities,
net of effect of businesses acquired --
Increase in accounts receivable (29,555) (25,536)
Increase in inventories (310) (453)
(Increase) decrease in prepaid expenses and other (1,701) 730
Increase in accounts payable 145 1,660
Increase in accrued liabilities and other 7,822 5,693
Increase in nonrefundable subscription income 166 237
Decrease in deferred income taxes (3,223) (656)
-------- --------
Net cash provided by operating activities 4,662 5,686
-------- --------
CASH FLOW FROM FINANCING ACTIVITIES
Borrowings on revolving credit facility, net 9,500 14,000
Repayment of debt and capital lease obligations (1,940) (6,549)
Issuance of common stock and treasury stock -- 75
-------- --------
Net cash provided by financing activities 7,560 7,526
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES
Cash paid for businesses acquired (4,678) (3,152)
Capital expenditures (6,174) (7,514)
Increase in other assets (957) (2,760)
-------- --------
Net cash used in investing activities (11,809) (13,426)
-------- --------
EFFECT OF CURRENCY EXCHANGE RATE CHANGE (266) --
-------- --------
INCREASE (DECREASE) IN CASH 147 (214)
CASH, beginning of period 6,511 3,398
-------- --------
CASH, end of period $ 6,658 $ 3,184
======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH
FINANCING ACTIVITIES
Fair market value of stock issued to employee benefit plan $ 1,933 $ --
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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<PAGE> 6
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q. Accordingly, they do
not include all information and footnotes required by generally accepted
accounting principles for complete financial statements.
(1) INTERIM RESULTS
In the opinion of management, the consolidated financial statements for
the three month periods ended September 30, 1998 and 1997 include all
adjustments, consisting only of normal recurring adjustments necessary
for a fair statement of the consolidated financial position and results
of operations.
The results of operations for the three month periods ended September
30, 1998 and 1997 are not necessarily indicative of the results of
operations for a full fiscal year. For further information, refer to
the consolidated financial statements and footnotes thereto included
in the Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1998.
(2) ACQUISITIONS
During the three months ended September 30, 1998, the Company purchased
all of the issued and outstanding stock of two companies that provide
urgent home medical attention and ambulance transport services in
Argentina and the assets of an ambulance service provider operating in
Pennsylvania (the 1999 Acquisitions).
The acquisitions were accounted for as purchases in accordance with
Accounting Principles Board (APB) Opinion No. 16 and, accordingly, the
purchased assets and assumed liabilities were recorded at their
estimated fair values at each respective acquisition date.
The aggregate purchase price consisted of the following:
<TABLE>
(in thousands)
<S> <C>
Cash $4,678
Notes payable to sellers 872
Assumption of liabilities 2,230
-------
$7,780
======
</TABLE>
The unaudited pro forma combined condensed statement of income for the
fiscal year ended June 30, 1998 gives effect to the 1999 acquisitions
and the acquisitions completed by the Company during the year ended
June 30, 1998 as if each had been consummated on July 1, 1997. The
unaudited pro forma combined condensed statement of income for the
three months ended September 30, 1998 gives effect to the 1999
Acquisitions as if each had been consummated on July 1, 1998.
The pro forma combined condensed financial statements do not purport to
represent what the Company's actual results of operations or financial
position would have been had such transactions in fact occurred on such
dates. The pro forma combined condensed statements of income also do
not purport to project the results of operations of the Company for the
current year or for any future period.
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<PAGE> 7
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
JUNE 30, 1998 SEPTEMBER 30, 1998
----------------------------- ------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PROFORMA PROFORMA
HISTORICAL COMBINED HISTORICAL COMBINED
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Revenue $ 475,558 $ 538,622 $ 138,795 $ 139,125
Net income $ 7,505 $ 9,768 $ 3,062 $ 3,087
Earnings per share - basic $ 0.55 $ 0.70 $ 0.21 $ 0.22
Earnings per share - diluted $ 0.54 $ 0.67 $ 0.21 $ 0.21
</TABLE>
Pro forma adjustments include adjustments to: (i) reflect amortization
of the cost in excess of the fair value of net assets acquired; (ii)
adjust payroll and related expenses for the effect of certain former
owners of the acquired businesses not being employed by the Company and
to reflect the difference between the actual compensation paid to
officers of the businesses acquired and the lower level of aggregate
compensation such individuals would have received under the terms of
employment agreements executed between the Company and such
individuals; (iii) adjust other operating expenses to reflect the
reduction of expenses related to certain real estate and buildings not
acquired and sellers' costs incurred in connection with the sale of
their respective businesses; (iv) adjust interest expense to reflect
interest expense related to debt issued in connection with the
acquisitions; and (v) adjust income taxes to reflect the tax effect of
the adjustments and the tax effect of treating all of the acquisitions
as if they had C corporation status.
(3) CREDIT AGREEMENTS AND BORROWINGS
In March 1998, the Company issued $150.0 million of 7-7/8% Senior Notes
due 2008 (the Notes) effected under Rule 144A under the Securities Act
of 1933 as amended (Securities Act). The net proceeds of the offering,
sold through private placement transactions, was used to repay certain
indebtedness. Interest under the Notes is payable semi-annually
September 15 and March 15, and the Notes are not callable until March
2003 subject to the terms of the Note Agreement. The Company incurred
expenses related to the offering of approximately $5.3 million and will
amortize such costs over the life of the Notes. The Company recorded a
$258,000 discount on the Notes and will amortize such discount over the
life of the Notes. Unamortized discount at September 30, 1998 was
$244,000 and such amount is recorded as an offset to long-term debt in
the accompanying consolidated financial statements. In April 1998, the
Company filed a registration statement under the Securities Act
relating to an exchange offer for the Notes. Such registration became
effective on May 14, 1998. The Notes are general unsecured obligations
of the Company and are unconditionally guaranteed on a joint and
several basis by substantially all of the Company's domestic
wholly-owned current and future subsidiaries. The Notes contain certain
covenants which, among other things, limit the Company's ability to
incur certain indebtedness, sell assets, or enter into certain mergers
or consolidations.
The financial statements presented below include the separate or
combined financial position, results of operations and cash flows for
the three months ended September 30, 1998 of Rural/Metro Corporation
(Parent) and the guarantor subsidiaries (Guarantors) and the
subsidiaries which are not guarantors (Non-guarantors). Consolidating
financial statements for the three months ended September 30, 1997 have
not been presented as such presentation is considered to be
insignificant since most of the Non-guarantors did not exist in that
period. The Company has not presented separate financial statements and
related disclosures for each of the Guarantor subsidiaries because
management believes such information is inconsequential to the note
holders.
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<PAGE> 8
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATING BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Parent Guarantors Non-Guarantors Eliminating Consolidated
------ ---------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ -- $ 3,052 $ 3,606 $ -- $ 6,658
Accounts receivable, net -- 149,193 15,068 -- 164,261
Inventories -- 12,425 1,013 -- 13,438
Prepaid expenses and other 531 15,704 1,762 -- 17,997
--------- --------- --------- --------- ---------
Total current assets 531 180,374 21,449 -- 202,354
PROPERTY AND EQUIPMENT, net -- 86,935 6,323 -- 93,258
INTANGIBLE ASSETS, net -- 166,426 74,087 -- 240,513
DUE TO (FROM) AFFILIATES 288,182 (245,626) (42,556) -- --
OTHER ASSETS 4,527 10,576 2,677 -- 17,780
INVESTMENT IN SUBSIDIARIES 135,725 -- -- (135,725) --
--------- --------- --------- --------- ---------
$ 428,965 $ 198,685 $ 61,980 $(135,725) $ 553,905
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ -- $ 6,732 $ 7,022 $ -- $ 13,754
Accrued liabilities 879 36,375 14,878 -- 52,132
Current portion of long-term debt -- 6,010 568 -- 6,578
--------- --------- --------- --------- ---------
Total current liabilities 879 49,117 22,468 -- 72,464
LONG-TERM DEBT, net of current portion 245,256 7,358 1,641 -- 254,255
NON-REFUNDABLE SUBSCRIPTION INCOME -- 13,688 159 -- 13,847
DEFERRED INCOME TAXES -- 20,043 238 -- 20,281
OTHER LIABILITIES -- 2,000 -- -- 2,000
--------- --------- --------- --------- ---------
Total liabilities 246,135 92,206 24,506 -- 362,847
--------- --------- --------- --------- ---------
MINORITY INTEREST -- -- -- 8,228 8,228
STOCKHOLDERS' EQUITY
Common stock 147 82 17 (99) 147
Additional paid-in capital 136,009 54,622 34,942 (89,564) 136,009
Retained earnings 48,201 51,775 2,781 (54,556) 48,201
Deferred compensation (22) -- -- -- (22)
Cumulative translation adjustment (266) -- (266) 266 (266)
Treasury stock (1,239) -- -- -- (1,239)
--------- --------- --------- --------- ---------
Total stockholders' equity 182,830 106,479 37,474 (143,953) 182,830
--------- --------- --------- --------- ---------
$ 428,965 $ 198,685 $ 61,980 $(135,725) $ 553,905
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
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<PAGE> 9
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATING STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Parent Guarantors Non-Guarantors Eliminating Consolidated
------ ---------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
REVENUE
Ambulance services $ -- $ 93,306 $ 22,959 $ -- $116,265
Fire protection services -- 12,387 256 -- 12,643
Other -- 9,791 96 -- 9,887
-------- -------- -------- -------- --------
Total revenue -- 115,484 23,311 -- 138,795
-------- -------- -------- -------- --------
OPERATING EXPENSES
Payroll and employee benefits -- 60,090 13,808 -- 73,898
Provision for doubtful accounts -- 18,163 1,734 -- 19,897
Depreciation -- 5,442 434 -- 5,876
Amortization of intangibles 128 1,718 551 -- 2,397
Other operating expenses -- 19,166 4,554 -- 23,720
Restructuring charge -- 2,500 -- -- 2,500
-------- -------- -------- -------- --------
Total expenses 128 107,079 21,081 -- 128,288
-------- -------- -------- -------- --------
OPERATING INCOME (LOSS) (128) 8,405 2,230 -- 10,507
Interest expense, net 4,654 85 403 -- 5,142
Other -- -- -- 48 48
-------- -------- -------- -------- --------
INCOME (LOSS) BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES (4,782) 8,320 1,827 (48) 5,317
PROVISION (BENEFIT) FOR INCOME TAXES (2,008) 3,423 840 -- 2,255
-------- -------- -------- -------- --------
(2,774) 4,897 987 (48) 3,062
INCOME FROM WHOLLY-OWNED SUBSIDIARIES 5,836 -- -- (5,836) --
-------- -------- -------- -------- --------
NET INCOME $ 3,062 $ 4,897 $ 987 $ (5,884) $ 3,062
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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<PAGE> 10
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Parent Guarantors Non-Guarantors Eliminating Consolidated
------ ---------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 3,062 $ 4,897 $ 987 $ (5,884) $ 3,062
Adjustments to reconcile net income to cash
provided by (used in) operations --
Depreciation and amortization 128 7,160 985 -- 8,273
Amortization of deferred compensation 58 -- -- -- 58
Amortization of gain on sale of real estate -- (26) -- -- (26)
Provision for doubtful accounts -- 18,163 1,734 -- 19,897
Undistributed earnings of minority shareholder -- -- -- 48 48
Amortization of discount on Senior Notes 6 -- -- -- 6
Change in assets and liabilities,
net of effect of businesses acquired --
Increase in accounts receivable -- (27,683) (1,872) -- (29,555)
Increase in inventories -- (276) (34) -- (310)
Increase in prepaid expenses and other -- (1,226) (475) -- (1,701)
(Increase) decrease in due to/from affiliates (9,828) (1,286) 1,115 9,999 --
Increase (decrease) in accounts payable -- (2,096) 2,241 -- 145
Increase (decrease) in accrued liabilities and other (2,660) 11,955 (1,473) -- 7,822
Increase (decrease) in non-refundable subscription income -- 84 82 -- 166
Decrease in deferred income taxes -- (3,001) (222) -- (3,223)
-------- -------- -------- -------- --------
Net cash provided by (used in) operating activities (9,234) 6,665 3,068 4,163 4,662
-------- -------- -------- -------- --------
CASH FLOW FROM FINANCING ACTIVITIES
Borrowings on revolving credit facility, net 9,500 -- -- -- 9,500
Repayment of debt and capital lease obligations -- (1,745) (195) -- (1,940)
Issuance of common stock -- -- 4,429 (4,429) --
-------- -------- -------- -------- --------
Net cash provided by (used in) financing activities 9,500 (1,745) 4,234 (4,429) 7,560
-------- -------- -------- -------- --------
CASH FLOW FROM INVESTING ACTIVITIES
Cash paid for businesses acquired -- (250) (4,428) -- (4,678)
Capital expenditures -- (5,245) (929) -- (6,174)
Increase in other assets -- 710 (1,667) -- (957)
-------- -------- -------- -------- --------
Net cash used in investing activities -- (4,785) (7,024) -- (11,809)
-------- -------- -------- -------- --------
EFFECT OF CURRENCY EXCHANGE RATE CHANGE (266) -- (266) 266 (266)
-------- -------- -------- -------- --------
INCREASE IN CASH -- 135 12 -- 147
CASH, beginning of period -- 2,917 3,594 -- 6,511
-------- -------- -------- -------- --------
CASH, end of period $ -- $ 3,052 $ 3,606 $ -- $ 6,658
======== ======== ======== ======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH
FINANCING ACTIVITIES
Fair market value of stock issued to employee benefit plan $ 1,933 $ -- $ -- $ -- $ 1,933
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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<PAGE> 11
ITEM 2-- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT RESULTS
Except for the historical information contained herein, this Report contains
forward looking statements that involve risks and uncertainties regarding the
value of the Company's common stock, accounts receivable collection, working
capital and cash flow that could cause actual results to differ materially. The
health care industry in general and the ambulance industry in particular are in
a state of significant change. This makes the Company susceptible to various
factors that may affect future results such as the following: no assurance of
successful integration and operation of acquired service providers; growth
strategy and difficulty in maintaining growth; risks of leverage; dependence on
certain business relationships; risks related to intangible assets; dependence
on government and third-party payors; risks related to fee-for-service
contracts; possible adverse changes in reimbursement rates; impact of rate
structures; possible negative effects of prospective health care reform and
competitive market forces. This Report should be read in conjunction with the
Company's Report on Form 10-K for the fiscal year ended June 30, 1998.
INTRODUCTION
The Company derives its revenue primarily from fees charged for ambulance and
fire protection services. The Company provides ambulance services in response to
emergency medical calls ("911" emergency ambulance services) and non-emergency
transport services (general transport services) to patients on both a
fee-for-service basis and non-refundable subscription fee basis. Per transport
revenue depends on various factors, including the mix of rates between existing
markets and new markets and the mix of activity between "911" emergency
ambulance services and general transport services as well as other competitive
factors. Fire protection services are provided either under contracts with
municipalities or fire districts or on a non-refundable subscription fee basis
to individual homeowners or commercial property owners.
Domestic ambulance service fees are recorded net of Medicare, Medicaid and other
reimbursement limitations and are recognized when services are provided.
Payments received from third-party payors represent a substantial portion of the
Company's ambulance service fee receipts. The Company established an allowance
for doubtful accounts based on credit risk applicable to certain types of
payors, historical trends and other relevant information. Provision for doubtful
accounts is made for the expected difference between ambulance services fees
charged and amounts actually collected. The Company's provision for doubtful
accounts generally is higher with respect to collections to be derived directly
from patients than for collections to be derived from third-party payors and
generally is higher for "911" emergency ambulance services than for general
ambulance transport services.
Because of the nature of the Company's ambulance services, it is necessary to
respond to a number of calls, primarily "911" emergency ambulance service calls,
which may not result in transports. Results of operations are discussed below on
the basis of actual transports since transports are more directly related to
revenue. Expenses associated with calls that do not result in transports are
included in operating expenses. The percentage of calls not resulting in
transports varies substantially depending upon the mix of general transport and
"911" emergency ambulance service calls in the Company's markets and is
generally higher in markets in which the calls are primarily "911" emergency
ambulance service calls. Rates in the Company's markets take into account the
anticipated number of calls that may not result in transports. The Company does
not separately account for expenses associated with calls that do not result in
transports. Revenue generated under the Company's capitated service arrangements
in Argentina and contractual agreements in Canada is included in ambulance
services revenue.
Revenue generated under fire protection service contracts is recognized over the
term of the related contract. Subscription fees received in advance are deferred
and recognized over the term of the subscription agreement, which is generally
one year.
Other revenue consists primarily of fees associated with alternative
transportation, dispatch, fleet, billing and home health care services and is
recognized when the services are provided.
Other operating expenses consist primarily of rent and related occupancy
expenses, maintenance and repairs, insurance, fuel and supplies, travel and
professional fees.
-11-
<PAGE> 12
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1997
REVENUE
Total revenue increased $41.0 million, or 41.9%, from $97.8 million for the
three months ended September 30, 1997 to $138.8 million for the three months
ended September 30, 1998. Approximately $33.3 million of this increase resulted
from the acquisition of ambulance service providers during the last three
quarters of fiscal 1998 and the first quarter of fiscal 1999. Ambulance service
revenue in markets served by the Company in both of the three month periods
ended September 30, 1997 and 1998 increased by approximately 7.8%. Fire
protection services revenue increased by $1.4 million, or 12.5%, from $11.2
million for the three months ended September 30, 1997 to $12.6 million for the
three months ended September 30, 1998. Other revenue increased by $0.9 million,
or 10.0%, in the three months ended September 30, 1998.
Total ambulance transports increased by 66,000, or 25.1%, from 263,000 for the
three months ended September 30, 1997 to 329,000 for the three months ended
September 30, 1998. The acquisition of ambulance service companies during the
last three quarters of fiscal 1998 and the first quarter of fiscal 1999
accounted for 63,000 of these additional transports.
Fire protection services revenue increased due to rate increases for fire
protection services and greater utilization of the Company's services under
fee-for-service arrangements.
Other revenue increased primarily because of an increase in alternative
transportation services revenue resulting from acquisitions completed during the
last three quarters of fiscal 1998 and the first quarter of fiscal 1999.
OPERATING EXPENSES
Payroll and employee benefit expenses increased $21.7 million, or 41.6%, from
$52.2 million for the three months ended September 30, 1997 to $73.9 million for
the three months ended September 30, 1998. This increase was primarily due to
the acquisition of ten ambulance service providers during the last three
quarters of fiscal 1998 and the first quarter of fiscal 1999. Payroll and
employee benefits expense decreased from 53.4% of total revenue for the three
months ended September 30, 1997 to 53.2% of total revenue for the three months
ended September 30, 1998.
Provision for doubtful accounts increased $6.7 million, or 50.8%, from $13.2
million for the three months ended September 30, 1997 to $19.9 million for the
three months ended September 30, 1998. Provision for doubtful accounts increased
from 13.5% of total revenue for the three months ended September 30, 1997 to
14.3% of total revenue for the three months ended September 30, 1998 and
increased from 16.8% of domestic ambulance service revenue for the three months
ended September 30, 1997 to 19.2% of domestic ambulance service revenue for the
three months ended September 30, 1998. The increase in the provision for
doubtful accounts resulted from increased revenue from both acquisitions and
internal growth. As identified in the Company's fiscal 1998 third quarter Form
10-Q, the Company began experiencing delays in payments from certain third party
payors and a general industry trend toward a lengthening payment cycle. During
the third and fourth quarters of fiscal 1998, the Company and its management
assessed the impact this more difficult medical reimbursement environment was
having on the timing and collectability of the Company's accounts receivable. At
the conclusion of management's assessment process and considering the results of
recent collection efforts as well as other factors, in the fourth quarter of
fiscal 1998 management determined that these adverse changes had increased the
level of effort and reasonable cost associated with obtaining reimbursement and
collection of certain accounts receivable to such an extent that an additional
provision for doubtful accounts of $17.9 million was recorded at that time. In
addition, management believes that future write-offs of accounts receivable will
exceed historical levels, thus necessitating a higher provision for doubtful
accounts
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<PAGE> 13
and greater levels of expenditures to collect the accounts receivable. This more
difficult reimbursement environment has further complicated the process of
integrating new billing offices into the Company's regional billing centers and
has affected the Company's billing and collection procedures. Net accounts
receivable on non-integrated collection systems currently represent 13.8% of
total net accounts receivable at September 30, 1998. The Company anticipates the
remaining three non-integrated billing centers will be integrated during 1999.
Depreciation increased $1.8 million, or 43.9%, from $4.1 million for the three
months ended September 30, 1997 to $5.9 million for the three months ended
September 30, 1998, primarily as a result of increased property and equipment
from recent acquisition activity. Depreciation was 4.2% of total revenue for the
three months ended September 30, 1997 and 1998.
Amortization of intangibles increased by $0.9 million, or 60.0%, from $1.5
million for the three months ended September 30, 1997 to $2.4 million for the
three months ended September 30, 1998. This increase is primarily a result of
increased intangible assets caused by recent acquisition activity. Amortization
of intangibles increased from 1.5% of total revenue for the three months ended
September 30, 1997 to 1.7% of total revenue for the three months ended September
30, 1998.
Other operating expenses increased approximately $7.3 million, or 44.5%, from
$16.4 million for the three months ended September 30, 1997 to $23.7 million for
the three months ended September 30, 1998, primarily due to increased expenses
associated with the operation of the ten ambulance service providers acquired
during the last three quarters of fiscal 1998 and the first quarter of fiscal
1999. Other operating expenses increased from 16.8% of total revenue for the
three months ended September 30, 1997 to 17.1% of total revenue for the three
months ended September 30, 1998.
During the three months ended September 30, 1998, the Company recorded a
non-recurring pre-tax charge of $2.5 million for severance payments related to
certain members of senior management who have left or have announced their
intentions to leave the Company during the first quarter of fiscal 1999.
Management expects those severance payments will be substantially completed
during fiscal 2000.
Interest expense increased by $2.6 million from $2.5 million for the three
months ended September 30, 1997 to $5.1 million for the three months ended
September 30, 1998. This increase was caused by higher debt balances and higher
interest rates than historically incurred, primarily because of the issuance of
$150.0 million of 77/8% Senior Notes due 2008, during the third quarter of
fiscal 1998.
The Company's effective tax rate increased from 41.0% for the three months ended
September 30, 1997 to 42.0% for the three months ended September 30, 1998,
primarily the result of the effect of nondeductible goodwill amortization
applied against earnings.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its cash requirements principally through
cash flow from operating activities, term and revolving indebtedness, capital
equipment lease financing, issuance of senior notes, the sale of common stock
through an initial public offering in July 1993 and subsequent public stock
offerings in May 1994 and April 1996, and the exercise of stock options.
At September 30, 1998, the Company had working capital of $129.9 million,
including cash of $6.7 million, compared to working capital of $124.2 million,
including cash of $6.5 million at June 30, 1998.
During the three months ended September 30, 1998, the Company's cash flow
provided by operations was $4.7 million resulting primarily from an increase in
accrued and other liabilities of $7.8 million offset by a
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<PAGE> 14
decrease in deferred income taxes of $3.2 million. Cash flow provided by
operations was $5.7 million for the three months ended September 30, 1997.
Cash provided by financing activities was $7.6 million for the three months
ended September 30, 1998 primarily due to borrowings on the revolving credit
facility offset by repayments on other debt and capital lease obligations.
Cash used in investing activities was $11.8 million for the three months ended
September 30, 1998 primarily because of cash paid for businesses acquired,
capital expenditures and increases in other assets.
The Company's gross accounts receivable as of September 30, 1998 and June 30,
1998 was $229.9 million and $224.2 million, respectively. The Company's accounts
receivable, net of the allowance for doubtful accounts, was $164.3 million and
$154.6 million as of such dates, respectively. The Company believes that the
increase in accounts receivable is related significantly to acquisition activity
and to recent revenue growth. The Company also attributes the increase in
accounts receivable and the increased age of receivables to certain factors,
including delays in payments from certain third-party payors, particularly in
certain of the Company's regional billing areas and a general industry trend
towards a lengthening payment cycle of accounts receivable due from third-party
payors. In addition, the Company believes certain transitional aspects of the
integration of acquired companies into the Company's centralized billing and
collection function has resulted in increases in the amount and age of accounts
receivable during the transition period.
The Company's $200.0 million revolving credit facility is priced at prime rate,
Federal Funds Rate plus 0.5%, or a LIBOR-based rate. The LIBOR-based rates range
from LIBOR plus 0.875% to LIBOR plus 1.7%. At September 30, 1998 the interest
rate was 7.31% on the revolving credit facility. Interest rates and availability
under the revolving credit facility depend upon the Company meeting certain
financial covenants, including total debt leverage ratios, total debt to
capitalization ratios and fixed charge ratios. Approximately $95.5 million was
outstanding on the revolving credit facility at September 30, 1998. Subsequent
to September 30, 1998, the Company's revolving credit facility was amended to
adjust a financial covenant which restricts the Company's ratio of debt
(including outstanding letters of credit) to capitalization to .625 from .60.
Including the effect of this amendment, availability on the facility was
approximately $40 million at November 9, 1998.
In February 1998, the Company entered into a $5.0 million capital equipment
lease line of credit. The lease line of credit matures at varying dates through
July 2003. The lease line of credit is priced at the higher of LIBOR plus 1.7%
or commercial paper rate plus 1.7%. At September 30, 1998 the interest rate was
7.4% on the lease line of credit. Approximately $2.7 million was outstanding on
this line of credit at September 30, 1998.
In March 1998 the Company issued $150.0 million of 77/8% Senior Notes due 2008
(the Notes) effected under Rule 144A under the Securities Act of 1933, as
amended ("Securities Act"). The net proceeds of the offering, sold through
private placement transactions, was used to repay the Term Loan and a portion of
the balances owed on the revolving credit facility. Interest under the Notes is
payable semi-annually on September 15 and March 15, and the Notes are not
callable until March 2003 subject to the terms of the Indenture. The Company
incurred expenses related to the offering of approximately $5.3 million and will
amortize such costs over the life of the Notes. The Company recorded a $258,000
discount on the Notes and will amortize such discount over the life of the
Notes. Unamortized discount at September 30, 1998 was $244,000 and such amount
is recorded as an offset to long-term debt in the consolidated financial
statements. In April 1998 the Company filed a registration statement under the
Securities Act relating to an exchange offer for the Notes. The registration
became effective on May 14, 1998. The Notes are general unsecured obligations of
the Company and are unconditionally guaranteed on a joint and several basis by
substantially all of the Company's domestic wholly-owned current and future
subsidiaries. See Note 3 of Notes to the Company's Consolidated Financial
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<PAGE> 15
Statements. The Notes contain certain covenants that, among other things, limit
the Company's ability to incur certain indebtedness, sell assets, or enter into
certain mergers or consolidations.
During the three months ended September 30, 1998 the Company purchased all the
issued and outstanding stock of two companies that provide urgent home medical
care and ambulance transport services in Argentina and substantially all of the
assets of an ambulance service provider operating in Pennsylvania. The combined
purchase price of the operations was $7.8 million. The Company paid cash of $4.7
million, issued notes payable to sellers of $0.9 million and assumed $2.2
million of liabilities. The Company funded the cash portion of the acquisitions
primarily from the Company's revolving credit facility.
The Company expects that existing working capital, together with cash flow from
operations and additional borrowing capacity, will be sufficient to meet its
operating and capital needs for existing operations for the twelve months
subsequent to September 30, 1998. The Company's business growth occurs primarily
through new business contracts and acquisitions. The Company intends to finance
any contracts or acquisitions that it consummates through the use of cash from
operations, credit facilities, seller notes payable and the issuance of common
stock. In addition, the Company may seek to raise additional capital through
public or private debt or equity financings. The availability of these capital
sources will depend upon prevailing market conditions, interest rates, the
financial condition of the Company and the market price of the Company's common
stock. The market price of the Company's common stock will also impact the
ability of the Company to complete acquisitions. The Company may be unwilling to
utilize or potential acquired companies or their owners may be unwilling to
accept the Company's common stock in connection with acquisitions during periods
when the Company's common stock experiences substantial declines in market
price. The pace of acquisitions utilizing the Company's common stock may decline
unless and until the Company's common stock increases in price.
EFFECTS OF INFLATION AND FOREIGN CURRENCY EXCHANGE FLUCTUATIONS
The results of operations of the Company for the periods discussed have not been
affected significantly by inflation or foreign currency fluctuations. The
Company's revenue from international operations is denominated primarily in the
currency of the country in which it is operating. At September 30, 1998 the
Company recorded a $266,000 equity adjustment (decrease) from foreign currency
translation, which resulted from the weakening of the Canadian dollar and the
effect it had on the Company's investment in its Canadian operations. Although
the Company has not incurred any material exchange gains or losses to date,
there can be no assurance that fluctuations in the currency exchange rates in
the future will not have an adverse effect on the Company's business, financial
condition, cash flows and results of operations. The Company does not currently
engage in foreign currency hedging transactions. However, as the Company
continues to expand its international operations, exposure to gains and losses
on foreign currency transactions may increase. The Company may choose to limit
such exposure by entering into forward exchange contracts or engaging in similar
hedging strategies.
YEAR 2000 COMPLIANCE
The Company has implemented a Year 2000 compliance program designed to ensure
that the Company's medical equipment, ambulance and fire dispatch systems, and
computer systems and applications will function properly beyond 1999. The
Company's assessment of this equipment and systems, both internally developed
and purchased from third-party vendors, is nearly complete. The Company will
continue to monitor new medical equipment, ambulance and fire dispatch systems,
and computer systems and applications that the Company adds in its operations
for year 2000 compliance. The results of the assessments completed to date have
indicated that the Company's medical equipment, ambulance and fire dispatch
systems, and computer systems and applications are either year 2000 compliant,
can be upgraded, or in the case of certain ambulance and fire dispatch systems,
will be replaced in order to obtain compliance. If the Company's medical
equipment, ambulance and fire dispatch systems, and computer systems and
applications are not year 2000 compliant in a timely manner, the Company's
operations could be adversely affected and the Company may incur unanticipated
expenses to remedy any problems not addressed by these compliance efforts.
The Company also depends upon the ability of telephone systems to be year 2000
compliant in order for the Company to receive incoming calls for service to its
ambulance and fire dispatch systems. The failure of
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<PAGE> 16
telephone service providers to adequately provide service could impact the
Company's ability to dispatch ambulance and fire protection services in a timely
manner. The failure of third-party payors, such as private insurers, managed
care providers, health care organizations, preferred provider organizations, and
federal and state government agencies that administer Medicare and/or Medicaid,
to adequately address their year 2000 issues could impact their ability to
reimburse the Company for services provided or otherwise adversely affect the
Company's business, financial condition, cash flows and results of operations.
To date, the Company has not completed its contingency plans in the event that
its medical equipment, ambulance and fire dispatch systems, computer systems and
applications, telephone systems, systems of third-party payors, or any other
components of its business operations fail to operate in compliance with the
year 2000 date change. The Company expects to develop contingency plans by the
end of fiscal 1999.
The cost of the Company's year 2000 compliance program has not had and is not
expected to have a material impact on the Company's results of operations,
financial condition or liquidity. There can be no assurance, however, that the
Company will not experience material adverse consequences in the event that the
Company's year 2000 compliance program is not successful or that its vendors or
third-party payors are not able to resolve their year 2000 compliance issues in
a timely manner.
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<PAGE> 17
RURAL/METRO CORPORATION AND SUBSIDIARIES
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
The Company, Warren S. Rustand, former Chairman of the Board and Chief
Executive Officer of the Company, James H. Bolin, Vice Chairman of the
Board, and Robert E. Ramsey, Jr., Executive Vice President and
Director, have been named as defendants in two purported class action
lawsuits: Haskell v. Rural/Metro Corporation, et al., Civil Action No.
C-328448 filed on August 25, 1998 in Pima County, Arizona Superior
Court and Ruble v. Rural/Metro Corporation, et al., CIV 98-413-TUC-JMR
filed on September 2, 1998 in United States District Court for the
District of Arizona. Reference is made to the Company's most recently
filed Form 10-K for the fiscal year ended June 30, 1998 regarding these
legal proceedings instituted during this quarter.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.5 Amended and Restated 1992 Stock Option Plan
of Registrant, as amended through October
15, 1998
10.6 Form of Stock option Agreement pursuant to
the Amended and Restated 1992 Stock Option
Plan of Registrant
10.18(a) Amended and Restated Employee Stock
Ownership Plan and Trust of the Registrant,
effective July 1, 1997
27 Financial Data Schedules
(b) Reports on Form 8-K
None
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<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RURAL/METRO CORPORATION
Date: November 10, 1998 By /s/ Dean P. Hoffman
-----------------------------------
Dean P. Hoffman, Vice President,
Financial Services
and Principal Accounting Officer
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<PAGE> 19
Exhibit Index
-------------
Exhibit
No. Description
------- -----------
10.5 Amended and Restated 1992 Stock Option Plan of Registrant, as
amended through October 15, 1998
10.6 Form of Stock option Agreement pursuant to the Amended and Restated
1992 Stock Option Plan of Registrant
10.18(a) Amended and Restated Employee Stock Ownership Plan and Trust of the
Registrant, effective July 1, 1997
27 Financial Data Schedules
<PAGE> 1
EXHIBIT 10.5
RURAL/METRO CORPORATION
1992 STOCK OPTION PLAN
(AS AMENDED THROUGH OCTOBER 1998)
ARTICLE I
GENERAL
1.1 PURPOSE OF PLAN; TERM
(a) BACKGROUND. On November 6, 1992, the predecessor to
Rural/Metro Corporation, a Delaware corporation (the "Company"), adopted the
Rural/Metro Corporation Senior Management Stock Option Plan (the "Original
Plan"). Thereafter, the Original Plan was amended and restated (the "Amended and
Restated Plan") and the stockholders approved the Amended and Restated Plan. The
Amended and Restated Plan was subsequently assumed by the Company upon a merger
with the predecessor. On September 21, 1994, the Company's Board of Directors
(the "Board") adopted an Amended and Restated 1992 Stock Option Plan (as amended
through August 1994) whereby an Automatic Grant Program was added, additional
shares of Stock were authorized to be issued under the Plan, and certain other
technical changes were made. The Amended and Restated 1992 Stock Option Plan (as
amended through August 1994) was approved by the stockholders of the Company on
December 8, 1994 and shall be referred to herein as the "Revised 1994 Plan." On
October 17, 1995, the Board adopted an Amended and Restated 1992 Stock Option
Plan (as amended through October 1995) (referred to herein as the "Revised 1995
Plan") whereby the Automatic Grant Program was amended, additional shares of
stock were authorized to be issued under the Plan, and certain other technical
changes were made. The Revised 1995 Plan was approved by the stockholders of the
Company on December 8, 1995. On September 6, 1996, the Board adopted a newly
Amended and Restated 1992 Stock Option Plan (the "Revised 1996 Plan") whereby
certain technical changes were made. The Revised 1996 Plan was approved by the
stockholders of the Company on November 21, 1996. On September 12, 1997, the
Board adopted an Amended and Restated 1992 Stock Option Plan (as amended through
September 1997) (the "Revised 1997 Plan") whereby additional shares of stock
were authorized to be issued under the Plan. The Revised 1997 Plan was approved
by the stockholders of the Company on November 21, 1997. On August 21, 1998, the
Board adopted an Amended and Restated 1992 Stock Option Plan (as amended through
October 1998) whereby certain technical amendments were made to become effective
on October 15, 1998. This Amended and Restated Stock Option Plan shall be known
as the Rural/Metro Corporation 1992 Stock Option Plan (the "Plan"). Any Options
or Awards outstanding prior to the adoption by the Board of the Revised 1997
Plan shall remain valid and unchanged.
(b) DEFINED TERMS. All initially capitalized terms used hereby
shall have the meaning set forth in Article V hereto.
(c) GENERAL PURPOSE. The Plan shall be divided into two
programs: the Discretionary Grant Program and the Automatic Grant Program.
(i) DISCRETIONARY GRANT PROGRAM. The purpose of the
Discretionary Grant Program is to further the interests of the Company and its
stockholders by encouraging key
<PAGE> 2
persons associated with the Company (or Parent or Subsidiary Corporations) to
acquire shares of the Company's Stock, thereby acquiring a proprietary interest
in its business and an increased personal interest in its continued success and
progress. Such purpose shall be accomplished by providing for the discretionary
granting of options to acquire the Company's Stock ("Discretionary Options"),
the direct granting of the Company's Stock ("Stock Awards"), the granting of
stock appreciation rights ("SARs"), or the granting of other cash awards ("Cash
Awards") (Stock Awards, SARs and Cash Awards shall be collectively referred to
herein as "Awards").
(ii) AUTOMATIC GRANT PROGRAM. The purpose of the Automatic
Grant Program is to promote the interests of the Company by providing
non-employee members of the Board the opportunity to acquire a proprietary
interest, or otherwise increase their proprietary interest, in the Company and
to thereby have an increased personal interest in its continued success and
progress. Such purpose shall be accomplished by providing for the automatic
grant of options to acquire the Company's Stock ("Automatic Options").
(d) CHARACTER OF OPTIONS. Discretionary Options granted under
this Plan to employees of the Company (or Parent or Subsidiary Corporations)
that are intended to qualify as "incentive stock options" as defined in Code
section 422 ("Incentive Stock Options") will be specified in the applicable
stock option agreement. All other Options granted under this Plan will be
nonqualified options.
(e) RULE 16b-3 PLAN. With respect to persons subject to
Section 16 of the Securities Exchange Act of 1934, as amended ("1934 Act"), the
Plan is intended to comply with all applicable conditions of Rule 16b-3 (and all
subsequent revisions thereof) promulgated under the 1934 Act. To the extent any
provision of the Plan or action by a Plan Administrator fails to so comply, it
shall be deemed null and void, to the extent permitted by law and deemed
advisable by such Plan Administrator. In addition, the Board may amend the Plan
from time to time as it deems necessary in order to meet the requirements of any
amendments to Rule 16b-3 without the consent of the stockholders of the Company.
(f) DURATION OF PLAN. The term of the Plan is 10 years
commencing on the date of adoption of the Original Plan by the Board as
specified in Section 1.1(a) hereof. No Option or Award shall be granted under
the Plan unless granted within 10 years of the adoption of the Plan by the
Board, but Options or Awards outstanding on that date shall not be terminated or
otherwise affected by virtue of the Plan's expiration.
1.2 STOCK AND MAXIMUM NUMBER OF SHARES SUBJECT TO PLAN.
(a) DESCRIPTION OF STOCK AND MAXIMUM SHARES ALLOCATED. The
stock subject to the provisions of the Plan and issuable upon the grant of
Stock Awards or upon the exercise of SARs or Options granted under the Plan is
shares of the Company's common stock, $.01 par value per share (the "Stock"),
which may be either unissued or treasury shares, as the Board may from time to
time determine. Subject to adjustment as provided in Section 4.1 hereof, the
aggregate number of shares of Stock covered by the Plan and issuable thereunder
shall be 6,000,000 shares of Stock, which includes 65,750 shares of Stock
previously authorized under the Company's 1989 Stock Option Plan. Upon the
adoption of the Revised 1995 Plan by
2
<PAGE> 3
the Company's stockholders, the Company's 1989 Stock Option Plan was terminated
such that no more options may be granted under that plan.
(b) CALCULATION OF AVAILABLE SHARES. For purposes of
calculating the maximum number of shares of Stock which may be issued under the
Plan: (i) the shares issued (including the shares, if any, withheld for tax
withholding requirements) upon exercise of an Option shall be counted and (ii)
the shares issued (including the shares, if any, withheld for tax withholding
requirements) as a result of a grant of a Stock Award or an exercise of an SAR
shall be counted.
(c) RESTORATION OF UNPURCHASED SHARES. If an Option or SAR
expires or terminates for any reason prior to its exercise in full and before
the term of the Plan expires, the shares of Stock subject to, but not issued
under, such Option or SAR shall, without further action or by or on behalf of
the Company, again be available under the Plan.
1.3 APPROVAL; AMENDMENTS.
(a) APPROVAL BY STOCKHOLDERS. The Revised 1997 Plan shall be
submitted to the stockholders of the Company for their approval at a regular or
special meeting to be held within 12 months after the adoption of the Revised
1997 Plan by the Board. Stockholder approval shall be evidenced by the
affirmative vote of the holders of a majority of the shares of the Company's
Common Stock present in person or by proxy and voting at the meeting. The date
such stockholder approval has been obtained shall be referred to herein as the
"Effective Date."
(b) COMMENCEMENT OF PROGRAMS. The Automatic Grant Program
herein, shall commence immediately. The Discretionary Grant Program, as revised
herein, shall commence immediately subject to the terms set forth in Section
1.1(a).
(c) AMENDMENTS TO PLAN. The Board may, without action on the
part of the Company's stockholders, make such amendments to, changes in and
additions to the Plan as it may, from time to time, deem necessary or
appropriate and in the best interests of the Company; provided, the Board may
not, without the consent of the applicable Optionholder, take any action which
disqualifies any Discretionary Option previously granted under the Plan for
treatment as an Incentive Stock Option or which adversely affects or impairs the
rights of the Optionholder of any Discretionary Option outstanding under the
Plan, and further provided that, except as provided in Article IV hereof, the
Board may not, without the approval of the Company's stockholders, (i) increase
the aggregate number of shares of Stock subject to the Plan, (ii) reduce the
exercise price at which Discretionary Options may be granted or the exercise
price at which any outstanding Discretionary Option may be exercised, (iii)
extend the term of the Plan, (iv) change the class of persons eligible to
receive Discretionary Options or Awards under the Plan, or (v) materially
increase the benefits accruing to participants under the Plan. Notwithstanding
the foregoing, Discretionary Options or Awards may be granted under this Plan to
purchase shares of Stock in excess of the number of shares then available for
issuance under the Plan if (A) an amendment to increase the maximum number of
shares issuable under the Plan is adopted by the Board prior to the initial
grant of any such Option or Award and within one year thereafter such amendment
is approved by the Company's stockholders and (B) each such Discretionary
3
<PAGE> 4
Option or Award granted is not to become exercisable or vested, in whole or in
part, at any time prior to the obtaining of such stockholder approval.
ARTICLE II
DISCRETIONARY GRANT PROGRAM
2.1 PARTICIPANTS; ADMINISTRATION.
(a) ELIGIBILITY AND PARTICIPATION. Discretionary Options and
Awards may be granted only to persons ("Eligible Persons") who at the time of
grant are (i) key personnel (including officers and directors) of the Company or
Parent or Subsidiary Corporations, or (ii) consultants or independent
contractors who provide valuable services to the Company or Parent or Subsidiary
Corporations; provided that (1) Incentive Stock Options may only be granted to
key personnel of the Company (and its Parent or Subsidiary Corporations) who are
also employees of the Company (or its Parent or Subsidiary Corporations), and
(2) the maximum number of shares of stock with respect to which Options or
Awards may be granted to any employee during the term of the Plan shall not
exceed 25 percent of the shares of stock covered by the Plan. A Plan
Administrator shall have full authority to determine which Eligible Persons in
its administered group are to receive Discretionary Option grants under the
Plan, the number of shares to be covered by each such grant, whether or not the
granted Discretionary Option is to be an Incentive Stock Option, the time or
times at which each such Discretionary Option is to become exercisable, and the
maximum term for which the Discretionary Option is to be outstanding. A Plan
Administrator shall also have full authority to determine which Eligible Persons
in such group are to receive Awards under the Discretionary Grant Program and
the conditions relating to such Award.
(b) GENERAL ADMINISTRATION. The Eligible Persons under the
Discretionary Grant Program shall be divided into two groups and there shall be
a separate administrator for each group. One group will be comprised of Eligible
Persons that are Affiliates. For purposes of this Plan, the term "Affiliates"
shall mean all "officers" (as that term is defined in Rule 16a-1(f) promulgated
under the 1934 Act) and directors of the Company and all persons who own ten
percent or more of the Company's issued and outstanding equity securities.
Initially, the power to administer the Discretionary Grant Program with respect
to Eligible Persons that are Affiliates shall be vested with the Board. At any
time, however, the Board may vest the power to administer the Discretionary
Grant Program with respect to Persons that are Affiliates exclusively with a
committee (the "Senior Committee") comprised of two or more Non-Employee
Directors which are appointed by the Board. The Senior Committee, in its sole
discretion, may require approval of the Board for specific grants of
Discretionary Options or Awards under the Discretionary Grant Program. The
administration of all Eligible Persons that are not Affiliates
("Non-Affiliates") shall be vested exclusively with the Board. The Board,
however, may at any time appoint a committee (the "Employee Committee") of two
or more persons who are members of the Board and delegate to such Employee
Committee the power to administer the Discretionary Grant Program with respect
to the Non-Affiliates. In addition, the Board may establish an additional
committee or committees of persons who are members of the Board and delegate to
such other committee or committees the power to administer all or a portion of
the Discretionary Grant program with respect to all or a portion of the Eligible
Persons. Members of the Senior Committee, Employee Committee or any other
committee
4
<PAGE> 5
allowed hereunder shall serve for such period of time as the Board may determine
and shall be subject to removal by the Board at any time. The Board may at any
time terminate all or a portion of the functions of the Senior Committee, the
Employee Committee, or any other committee allowed hereunder and reassume all or
a portion of powers and authority previously delegated to such committee. The
Board in its discretion may also require the members of the Senior Committee,
the Employee Committee or any other committee allowed hereunder to be "outside
directors" as that term is defined in any applicable regulations promulgated
under Code section 162(m).
(c) PLAN ADMINISTRATORS. The Board, the Employee Committee,
Senior Committee, and/or any other committee allowed hereunder, whichever is
applicable, shall be each referred to herein as a "Plan Administrator." Each
Plan Administrator shall have the authority and discretion, with respect to its
administered group, to select which Eligible Persons shall participate in the
Discretionary Grant Program, to grant Discretionary Options or Awards under the
Discretionary Grant Program, to establish such rules and regulations as they may
deem appropriate with respect to the proper administration of the Discretionary
Grant Program and to make such determinations under, and issue such
interpretations of, the Discretionary Grant Program and any outstanding
Discretionary Option or Award as they may deem necessary or advisable. Unless
otherwise required by law or specified by the Board with respect to any
committee, decisions among the members of a Plan Administrator shall be by
majority vote. Decisions of a Plan Administrator shall be final and binding on
all parties who have an interest in the Discretionary Grant Program or any
outstanding Discretionary Option or Award.
(d) GUIDELINES FOR PARTICIPATION. In designating and selecting
Eligible Persons for participation in the Discretionary Grant Program, a Plan
Administrator shall consult with and give consideration to the recommendations
and criticisms submitted by appropriate managerial and executive officers of the
Company. A Plan Administrator also shall take into account the duties and
responsibilities of the Eligible Persons, their past, present and potential
contributions to the success of the Company and such other factors as a Plan
Administrator shall deem relevant in connection with accomplishing the purpose
of the Plan.
2.2 TERMS AND CONDITIONS OF OPTIONS
(a) ALLOTMENT OF SHARES. A Plan Administrator shall determine
the number of shares of Stock to be optioned from time to time and the number of
shares to be optioned to any Eligible Person (the "Optioned Shares"). The grant
of a Discretionary Option to a person shall neither entitle such person to, nor
disqualify such person from, participation in any other grant of Options or
Stock Awards under this Plan or any other stock option plan of the Company.
(b) EXERCISE PRICE. Upon the grant of any Discretionary
Option, a Plan Administrator shall specify the option price per share. If the
Discretionary Option is intended to qualify as an Incentive Stock Option under
the Code, the option price per share may not be less than 100 percent of the
fair market value per share of the stock on the date the Discretionary Option is
granted (110 percent if the Discretionary Option is granted to a stockholder who
at the time the Discretionary Option is granted owns or is deemed to own stock
possessing more than 10 percent of the total combined voting power of all
classes of stock of the Company or of any
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Parent or Subsidiary Corporation). The determination of the fair market value of
the Stock shall be made in accordance with the valuation provisions of Section
4.5 hereof.
(c) INDIVIDUAL STOCK OPTION AGREEMENTS. Discretionary Options
granted under the Plan shall be evidenced by option agreements in such form and
content as a Plan Administrator from time to time approves, which agreements
shall substantially comply with and be subject to the terms of the Plan,
including the terms and conditions of this Section 2.2. As determined by a Plan
Administrator, each option agreement shall state (i) the total number of shares
to which it pertains, (ii) the exercise price for the shares covered by the
Option, (iii) the time at which the Options vest and become exercisable and (iv)
the Option's scheduled expiration date. The option agreements may contain such
other provisions or conditions as a Plan Administrator deems necessary or
appropriate to effectuate the sense and purpose of the Plan, including covenants
by the Optionholder not to compete and remedies for the Company in the event of
the breach of any such covenant.
(d) OPTION PERIOD. No Discretionary Option granted under the
Plan that is intended to be an Incentive Stock Option shall be exercisable for a
period in excess of 10 years from the date of its grant (five years if the
Discretionary Option is granted to a stockholder who at the time the
Discretionary Option is granted owns or is deemed to own stock possessing more
than 10 percent of the total combined voting power of all classes of stock of
the Company or of any Parent or Subsidiary Corporation), subject to earlier
termination in the event of termination of employment, retirement or death of
the Optionholder. A Discretionary Option may be exercised in full or in part at
any time or from time to time during the term of the Discretionary Option or
provide for its exercise in stated installments at stated times during the
Option's term.
(e) VESTING; LIMITATIONS. The time at which the Optioned
Shares vest with respect to an Optionholder shall be in the discretion of that
Optionholder's Plan Administrator. Notwithstanding the foregoing, to the extent
a Discretionary Option is intended to qualify as an Incentive Stock Option, the
aggregate fair market value (determined as of the respective date or dates of
grant) of the Stock for which one or more Options granted to any person under
this Plan (or any other option plan of the Company or any Parent or Subsidiary
Corporation) may for the first time become exercisable as Incentive Stock
Options during any one calendar year shall not exceed the sum of $100,000
(referred to herein as the "$100,000 Limitation"). To the extent that any person
holds two or more Options which become exercisable for the first time in the
same calendar year, the foregoing limitation on the exercisability as an
Incentive Stock Option shall be applied on the basis of the order in which such
Options are granted.
(f) NO FRACTIONAL SHARES. Options shall be exercisable only
for whole shares; no fractional shares will be issuable upon exercise of any
Discretionary Option granted under the Plan.
(g) METHOD OF EXERCISE. In order to exercise a Discretionary
Option with respect to any vested Optioned Shares, an Optionholder (or in the
case of an exercise after an Optionholder's death, such Optionholder's executor,
administrator, heir or legatee, as the case may be) must take the following
action:
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(i) execute and deliver to the Company a written
notice of exercise signed in writing by the person exercising the Discretionary
Option specifying the number of shares of Stock with respect to which the
Discretionary Option is being exercised;
(ii) pay the aggregate Option Price in one of the
alternate forms as set forth in Section 2.2(h) below; and
(iii) furnish appropriate documentation that the
person or persons exercising the Discretionary Option (if other than the
Optionholder) has the right to exercise such Option.
As soon as practicable after the Exercise Date, the Company shall mail or
deliver to or on behalf of the Optionholder (or any other person or persons
exercising this Discretionary Option in accordance herewith) a certificate or
certificates representing the Stock for which the Discretionary Option has been
exercised in accordance with the provisions of this Plan. In no event may any
Discretionary Option be exercised for any fractional shares.
(h) PAYMENT OF OPTION PRICE. The aggregate Option Price shall
be payable in one of the alternative forms specified below:
(i) Full payment in cash or check made payable to
the Company's order; or
(ii) Full payment in shares of Stock held for the
requisite period necessary to avoid a charge to the Company's reported earnings
and valued at fair market value on the Exercise Date (as determined in
accordance with Section 4.5 hereof); or
(iii) If a cashless exercise program has been
implemented by the Board, full payment through a sale and remittance procedure
pursuant to which the Optionholder (A) shall provide irrevocable written
instructions to a designated brokerage firm to effect the immediate sale of the
Optioned Shares to be purchased and remit to the Company, out of the sale
proceeds available on the settlement date, sufficient funds to cover the
aggregate exercise price payable for the Optioned Shares to be purchased, and
(B) shall concurrently provide written directives to the Company to deliver the
certificates for the Optioned Shares to be purchased directly to such brokerage
firm in order to complete the sale transaction.
(i) REPURCHASE RIGHT. The Plan Administrator may, in
its sole discretion, set forth other terms and conditions upon which the Company
(or its assigns) shall have the right to repurchase shares of Stock acquired by
an Optionholder pursuant to a Discretionary Option. Any repurchase right of the
Company shall be exercisable by the Company (or its assignees) upon such terms
and conditions as the Plan Administrator may specify in the Stock Repurchase
Agreement evidencing such right. The Plan Administrator may also in its
discretion establish as a term and condition of one or more Discretionary
Options granted under the Plan that the Company shall have a right of first
refusal with respect to any proposed sale or other disposition by the
Optionholder of any shares of Stock issued upon the exercise of such
Discretionary Options. Any such right of first refusal shall be exercisable by
the Company (or its assigns) in accordance with the terms and conditions set
forth in the Stock Repurchase Agreement.
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(j) TERMINATION OF INCENTIVE STOCK OPTIONS.
(i) TERMINATION OF SERVICE. If any Optionholder
ceases to be in Service to the Company for a reason other than death, such
Optionholder (or such Optionholder's successors in the case of the
Optionholder's death) may, within three months after the date of termination of
such Service, but in no event after the Incentive Stock Option's stated
expiration date, exercise some or all of the Incentive Stock Options that the
Optionholder was entitled to exercise on the date the Optionholder's Service
terminated; provided, that if Optionholder is discharged for cause, then the
Incentive Stock Option shall thereafter be void for all purposes. "Cause" shall
be limited to a termination of Service based upon a finding by the Plan
Administrator that the Optionholder (a) has been convicted of a felony involving
dishonesty, fraud, theft or embezzlement; (b) has repeatedly failed or refused,
after written notice from the Company, in a material respect to follow
reasonable policies or directives established by the Company; (c) has willfully
and persistently failed, after written notice from the Company, to attend to
material duties or obligations imposed upon him; (d) has performed an act or
failed to act, which, if he were prosecuted and convicted, would constitute a
felony involving $1,000 or more of money or property of the Company; or (e) has
misrepresented or concealed a material fact for purposes of securing employment
with the Company. Notwithstanding the foregoing, if any Optionholder ceases to
be in Service to the Company by reason of permanent disability within the
meaning of section 22(e)(3) of the Code (as determined by the applicable Plan
Administrator), the Optionholder shall have 12 months after the date of
termination of Service, but in no event after the stated expiration date of the
Optionholder's Incentive Stock Options, to exercise Incentive Stock Options that
the Optionholder was entitled to exercise on the date the Optionholder's Service
terminated as a result of disability.
(ii) DEATH OF OPTIONHOLDER. If an Optionholder dies
while in the Company's Service, the Optionholder's vested Incentive Stock
Options on the date of death shall be exercisable within three months of such
death or until the stated expiration date of the Optionholder's Incentive Stock
Option, whichever occurs first, by the person or persons ("successors") to whom
the Optionholder's rights pass under a will or by the laws of descent and
distribution. As soon as practicable after receipt by the Company of the notice
of exercise and of payment in full of the Option Price as specified in Sections
2.2(g) and (h) hereof, a certificate or certificates representing the Optioned
Shares shall be registered in the name or names specified by the successors in
the written notice of exercise and shall be delivered to the successors.
(k) TERMINATION OF NONQUALIFIED OPTIONS. Any Options that are
not Incentive Stock Options and that are outstanding at the time an Optionholder
dies while in Service to the Company or otherwise ceases to be in Service to the
Company shall, unless otherwise determined by the Plan Administrator, terminate
upon the first to occur of (i) three months after the date of termination of
Service if the Optionholder ceases to be in the Service of the Company for any
reason other than permanent disability; and (ii) twelve months after the date of
termination of Service if the Optionholder ceases to be in the Service of the
Company by reason of the Optionholder's permanent disability within the meaning
of Section 22(e)(3) of the Code (as determined by the Plan Administrator),
provided that no Option shall be exercisable after the Option's stated
expiration date, and provided further, that if the Optionholder is discharged
for Cause (as defined in Section 2.2(j)(i)), then the Option will thereafter be
void for all purposes.
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(l) OTHER PLAN PROVISIONS STILL APPLICABLE. If a Discretionary
Option is exercised upon the termination of Service or death of an Optionholder
under this Section 2.2, the other provisions of the Plan shall still be
applicable to such exercise, including the requirement that the Optionholder or
its successor may be required to enter into a Stock Repurchase Agreement.
(m) DEFINITION OF "SERVICE". For purposes of this Plan, unless
it is evidenced otherwise in the option agreement with the Optionholder, the
Optionholder shall be deemed to be in "Service" to the Company so long as such
individual renders continuous services on a periodic basis to the Company (or to
any Parent or Subsidiary Corporation) in the capacity of an employee, director,
or an independent consultant or advisor. In the discretion of a Plan
Administrator, an Optionholder shall be considered to be rendering continuous
services to the Company even if the type of services change, e.g., from employee
to independent consultant. The Optionholder shall be considered to be an
employee for so long as such individual remains in the employ of the Company or
one or more of its Parent or Subsidiary Corporations.
2.3 TERMS AND CONDITIONS OF STOCK AWARDS
(a) ELIGIBILITY. All Eligible Persons shall be eligible to
receive Stock Awards. The Plan Administrator of each administered group shall
determine the number of shares of Stock to be awarded from time to time to any
Eligible Person in such group. The grant of a Stock Award to a person shall
neither entitle such person to, nor disqualify such person from participation
in, any other grant of options or awards by the Company, whether under this Plan
or under any other stock option or award plan of the Company.
(b) AWARD FOR SERVICES RENDERED. Stock Awards shall be granted
in recognition of an Eligible Person's services to the Company. The grantee of
any such Stock Award shall not be required to pay any consideration to the
Company upon receipt of such Stock Award, except as may be required to satisfy
any applicable Delaware corporate law, employment tax, and/or income tax
withholding requirements.
(c) CONDITIONS TO AWARD. All Stock Awards shall be subject to
such terms, conditions, restrictions, or limitations as the applicable Plan
Administrator deems appropriate, including, by way of illustration but not by
way of limitation, restrictions on transferability, requirements of continued
employment, individual performance or the financial performance of the Company,
or payment by the recipient of any applicable employment or withholding taxes.
Such Plan Administrator may modify or accelerate the termination of the
restrictions applicable to any Stock Award under the circumstances as it deems
appropriate.
(d) AWARD AGREEMENTS. A Plan Administrator may require as a
condition to a Stock Award that the recipient of such Stock Award enter into an
award agreement in such form and content as that Plan Administrator from time to
time approves.
2.4 TERMS AND CONDITIONS OF SARS
(a) ELIGIBILITY. All Eligible Persons shall be eligible to
receive SARs. The Plan Administrator of each administered group shall determine
the SARs to be awarded from time to time to any Eligible Person in such group.
The grant of a SAR to a person shall neither
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entitle such person to, nor disqualify such person from participation in, any
other grant of options or awards by the Company, whether under this Plan or
under any other stock option or award plan of the Company.
(b) AWARD OF SARS. Concurrently with or subsequent to the
grant of any Discretionary Option to purchase one or more shares of Stock, a
Plan Administrator may award to the Optionholder with respect to each share of
Stock underlying the Option, a related SAR permitting the Optionholder to be
paid the appreciation on the Stock underlying the Discretionary Option in lieu
of exercising the Option. In addition, a Plan Administrator may award to any
Eligible Person an SAR permitting the Eligible Person to be paid the
appreciation on a designated number of shares of the Stock, whether or not such
Shares are actually issued.
(c) CONDITIONS TO SAR. All SARs shall be subject to such
terms, conditions, restrictions or limitations as the applicable Plan
Administrator deems appropriate, including, by way of illustration but not by
way of limitation, restrictions on transferability, requirements of continued
employment, individual performance, financial performance of the Company, or
payment by the recipient of any applicable employment or withholding taxes. Such
Plan Administrator may modify or accelerate the termination of the restrictions
applicable to any SAR under the circumstances as it deems appropriate.
(d) SAR AGREEMENTS. A Plan Administrator may require as a
condition to the grant of a SAR that the recipient of such SAR enter into a SAR
agreement in such form and content as that Plan Administrator from time to time
approves.
(e) EXERCISE. An Eligible Person who has been granted a SAR
may exercise such SAR subject to the conditions specified by the Plan
Administrator in the SAR agreement.
(f) AMOUNT OF PAYMENT. The amount of payment to which the
grantee of a SAR shall be entitled upon the exercise of each SAR shall be equal
to the amount, if any, by which the fair market value of the specified shares of
Stock on the exercise date exceeds the fair market value of the specified shares
of Stock on the date the Discretionary Option related to the SAR was granted or
became effective, or, if the SAR is not related to any Option, on the date the
SAR was granted or became effective.
(g) FORM OF PAYMENT. The SAR may be paid in either cash or
Stock, as determined in the discretion of the applicable Plan Administrator and
set forth in the SAR agreement. If the payment is in Stock, the number of shares
to be paid to the participant shall be determined by dividing the amount of the
payment determined pursuant to Section 2.4(f) by the fair market value of a
share of Stock on the exercise date of such SAR. As soon as practical after
exercise, the Company shall deliver to the SAR grantee a certificate or
certificates for such shares of Stock.
(h) TERMINATION OF EMPLOYMENT; DEATH. Section 2.2(j),
applicable to Incentive Stock Options, and Section 2.2(k), applicable to
nonqualified options, shall apply equally to the tandem SARs and if not issued
in tandem, Section 2.2(k) shall apply to the SARs.
2.5 OTHER CASH AWARDS
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(a) IN GENERAL. The Plan Administrator of each administered
group shall have the discretion to make other awards of cash to Eligible Persons
in such group ("Cash Awards"). Such Cash Awards may relate to existing Options
or to the appreciation in the value of the Stock or other Company securities.
(b) CONDITIONS TO AWARD. All Cash Awards shall be subject to
such terms, conditions, restrictions or limitations as the applicable Plan
Administrator deems appropriate, and such Plan Administrator may require as a
condition to such Cash Award that the recipient of such Cash Award enter into an
award agreement in such form and content as the Plan Administrator from time to
time approves.
ARTICLE III
AUTOMATIC GRANT PROGRAM
3.1 ELIGIBLE PERSONS UNDER THE AUTOMATIC GRANT PROGRAM. The persons
eligible to participate in the Automatic Grant Program shall be limited to Board
members who are not employed by the Company, whether or not such persons qualify
as Non-Employee directors as defined herein ("Eligible Directors"). Persons who
are eligible under the Automatic Grant Program may also be eligible to receive
Discretionary Options or Awards under the Discretionary Grant Program or option
grants or direct stock issuances under other plans of the Company.
3.2 TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS.
(a) AMOUNT AND DATE OF GRANT. During the term of this Plan,
Automatic Grants shall be made to each Eligible Director ("Optionholder") as
follows:
(i) ANNUAL GRANTS. Each year on the Annual Grant Date
an Automatic Option to acquire 2,500 shares of Stock shall be granted to each
Eligible Director (except that an Automatic Option to acquire 5,000 shares of
Stock shall be granted to the Chairman of the Board, assuming the Chairman of
the Board is an Eligible Director) for so long as there are shares of Stock
available under Section 1.2 hereof. The "Annual Grant Date" shall be the date of
the Company's annual stockholders meeting. Notwithstanding the foregoing, (i)
any Eligible Director whose term ended on the Annual Grant Date and who was not
re-elected on that date shall not be eligible to receive any automatic option
grants on that Annual Grant Date, and (ii) any Eligible Director that was
granted an Automatic Option under Section 3.2(a)(ii) hereof within 30 days of an
Annual Grant Date shall be ineligible to receive an Automatic Option grant
pursuant to this Section 3.2(a)(i) on such Annual Grant Date.
(ii) INITIAL NEW DIRECTOR GRANTS. On the Initial
Grant Date, every new member of the Board who is an Eligible Director and has
not previously received an Automatic Option grant under this Section 3.2(a)(ii)
shall be granted an Automatic Option to acquire 10,000 shares of Stock for so
long as there are shares of Stock available under Section 1.2 hereof. The
"Initial Grant Date" shall be the date that an Eligible Director is first
appointed or elected to the Board.
(iii) FORMULA GRANT. Each year on the Formula Grant
Date, an Automatic Option to acquire shares of Stock shall be granted to each
Eligible Director for so
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long as there are shares of Stock available under Section 1.2 hereof. Each year,
the number of shares of Stock that may be acquired under the Automatic Option
granted pursuant to this Section 3.2(a)(iii) shall be an amount equal to 1,000
shares of Stock for each $.05 EPS Increase, subject to a maximum of 5,000 shares
of Stock to each Eligible Director. For purposes of the foregoing, "EPS
Increase" means the amount by which the earnings per share, as reported in the
audited financial statements of the Company for the most recent fiscal year
exceeds the earnings per share for the Company, as calculated under its audited
financial statements, for the previous fiscal year. The "Formula Grant Date"
shall be the later of the last day of the second calendar month occurring after
the close of any fiscal year or the seventh day after the earnings of the
Company have been publicly announced for any such fiscal year. Any Eligible
Director that was granted an Automatic Option under Section 3.2(a)(ii) hereof
within 30 days of a Formula Grant Date shall be ineligible to receive an
Automatic Option pursuant to this Section 3.2(a)(iii) on such Formula Grant
Date.
(b) EXERCISE PRICE. The exercise price per share of Stock
subject to each Automatic Option Grant shall be equal to 100 percent of the fair
market value per share of the Stock on the date the Automatic Option was granted
as determined in accordance with the valuation provisions of Section 4.5 hereof
(the "Option Price").
(c) VESTING. Each Automatic Option Grant (other than the
Formula Grant) shall become exercisable and vest one day before the next
succeeding stockholders' meeting that occurs after the applicable grant date
unless the next succeeding annual meeting occurs less than six months after the
applicable grant date, in which case the Automatic Grant shall become
exercisable and vest on the first anniversary of the applicable grant date. Each
Automatic Option Grant that is a Formula Grant shall become exercisable and vest
on the first anniversary of the applicable grant date. Each Automatic Option
shall only vest and become exercisable if the Optionholder has not ceased
serving as a Board member as of such vesting date.
(d) METHOD OF EXERCISE. In order to exercise an Automatic
Option with respect to any vested Optioned Shares, an Optionholder (or in the
case of an exercise after an Optionholder's death, such Optionholder's executor,
administrator, heir or legatee, as the case may be) must take the following
action:
(i) execute and deliver to the Company a written
notice of exercise signed in writing by the person exercising the Automatic
Option specifying the number of shares of Stock with respect to which the
Automatic Option is being exercised;
(ii) pay the aggregate Option Price in one of the
alternate forms as set forth in Section 3.2(e) below; and
(iii) furnish appropriate documentation that the
person or persons exercising the Automatic Option (if other than the
Optionholder) has the right to exercise such Option.
As soon as practicable after the Exercise Date, the Company shall mail or
deliver to or on behalf of the Optionholder (or any other person or persons
exercising the Automatic Option in accordance herewith) a certificate or
certificates representing the Stock for which the Automatic
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Option has been exercised in accordance with the provisions of this Plan. In no
event may any Automatic Option be exercised for any fractional shares.
(e) PAYMENT OF OPTION PRICE. The aggregate Option Price shall
be payable in one of the alternative forms specified below:
(i) full payment in cash or check made payable to the
Company's order; or
(ii) full payment in shares of Stock held for the
requisite period necessary to avoid a charge to the Company's reported earnings
and valued at fair market value on the Exercise Date (as determined in
accordance with Section 4.5 hereof); or
(iii) if a cashless exercise program has been
implemented by the Board, full payment through a sale and remittance procedure
pursuant to which the Optionholder (A) shall provide irrevocable written
instructions to a designated brokerage firm to effect the immediate sale of the
Optioned Shares to be purchased and remit to the Company, out of the sale
proceeds available on the settlement date, sufficient funds to cover the
aggregate exercise price payable for the Optioned Shares to be purchased and (B)
shall concurrently provide written directives to the Company to deliver the
certificates for the Optioned Shares to be purchased directly to such brokerage
firm in order to complete the sale transaction.
(f) TERM OF OPTION. Each Automatic Option shall expire on the
tenth anniversary of the date on which an Automatic Option Grant was made
("Expiration Date"). Except as provided in Article IV hereof, should an
Optionholder's service as a Board member cease prior to the Expiration Date for
any reason while an Automatic Option remains outstanding and unexercised, then
the Automatic Option term shall immediately end and the Automatic Option shall
cease to be outstanding in accordance with the following provisions:
(i) The Automatic Option shall immediately terminate
and cease to be outstanding for any Optioned Shares of Stock which were not
vested at the time of Optionholder's cessation of Board service.
(ii) Should an Optionholder cease, for any reason
other than death, to serve as a member of the Board, then the Optionholder shall
have a six month period measured from the date of such cessation of Board
service in which to exercise the Automatic Options which vested prior to the
time of such cessation of Board service. In no event, however, may any Automatic
Option be exercised after the Expiration Date of such Automatic Option.
(iii) Should an Optionholder die while serving as a
Board member or within six months after cessation of Board service, then the
personal representative of the Optionholder's estate (or the person or persons
to whom the Automatic Option is transferred pursuant to the Optionholder's will
or in accordance with the laws of descent and distribution) shall have a one
year period measured from the date of the Optionholder's cessation of Board
service in which to exercise the Automatic Options which vested prior to the
time of such cessation of Board service. In no event, however, may any Automatic
Option be exercised after the Expiration Date of such Automatic Option.
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ARTICLE IV
MISCELLANEOUS
4.1 CAPITAL ADJUSTMENTS. The aggregate number of shares of Stock
subject to the Plan, the number of shares covered by outstanding Options and
Awards and the price per share stated in such Options and Awards, and the number
of Automatic Options to be granted pursuant to the Automatic Program, shall be
proportionately adjusted for any increase or decrease in the number of
outstanding shares of Stock of the Company resulting from a subdivision or
consolidation of shares or any other capital adjustment or the payment of a
stock dividend or any other increase or decrease in the number of such shares
effected without the Company's receipt of consideration therefor in money,
services or property.
4.2 MERGERS, ETC. If the Company is the surviving corporation in any
merger or consolidation (not including a Corporate Transaction), any Option or
Award granted under the Plan shall pertain to and apply to the securities to
which a holder of the number of shares of Stock subject to the Option or Award
would have been entitled prior to the merger or consolidation. Except as
provided in Section 4.3 hereof, a dissolution or liquidation of the Company
shall cause every Option or Award outstanding hereunder to terminate.
4.3 CORPORATE TRANSACTION. In the event of stockholder approval of a
Corporate Transaction, (a) all unvested Automatic Options shall automatically
accelerate and immediately vest so that each outstanding Automatic Option shall,
one week prior to the specified effective date for the Corporate Transaction,
become fully exercisable for all of the Optioned Shares and (b) the Plan
Administrator shall have the discretion and authority, exercisable at any time,
to provide for the automatic acceleration of one or more of the outstanding
Discretionary Options or Awards granted by it under the Plan. Upon the
consummation of the Corporate Transaction, all Options shall, to the extent not
previously exercised, terminate and cease to be outstanding.
4.4 CHANGE IN CONTROL.
(a) AUTOMATIC GRANT PROGRAM. In the event of a Change in
Control, all unvested Automatic Options shall automatically accelerate and
immediately vest so that each outstanding Automatic Option shall, immediately
prior to the effective date of such Change in Control, become fully exercisable
for all of the Optioned Shares. Thereafter, each Automatic Option shall remain
exercisable until the Expiration Date of such Automatic Option.
(b) DISCRETIONARY GRANT PROGRAM. In the event of a Change in
Control, a Plan Administrator shall have the discretion and authority,
exercisable at any time, whether before or after the Change in Control, to
provide for the automatic acceleration of one or more outstanding Discretionary
Options or Awards granted by it under the Plan upon the occurrence of such
Change in Control. A Plan Administrator may also impose limitations upon the
automatic acceleration of such Options or Awards to the extent it deems
appropriate. Any Options or Awards accelerated upon a Change in Control will
remain fully exercisable until the expiration or sooner termination of the
Option term.
(c) INCENTIVE STOCK OPTION LIMITS. The exercisability of any
Discretionary Options which are intended to qualify as Incentive Stock Options
and which are accelerated by
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the Plan Administrator in connection with a pending Corporation Transaction or
Change in Control shall, except as otherwise provided in the discretion of the
Plan Administrator and the Optionholder, remain subject to the $100,000
Limitation and vest as quickly as possible without violating the $100,000
Limitation.
4.5 CALCULATION OF FAIR MARKET VALUE OF STOCK. The fair market value of
a share of Stock on any relevant date shall be determined in accordance with the
following provisions:
(i) If the Stock is not at the time listed or
admitted to trading on any stock exchange but is traded in the over-the-counter
market, the fair market value shall be the mean between the highest bid and
lowest asked prices (or, if such information is available, the closing selling
price) per share of Stock on the date in question in the over-the-counter
market, as such prices are reported by the National Association of Securities
Dealers through its Nasdaq system or any successor system. If there are no
reported bid and asked prices (or closing selling price) for the Stock on the
date in question, then the mean between the highest bid price and lowest asked
price (or the closing selling price) on the last preceding date for which such
quotations exist shall be determinative of fair market value.
(ii) If the Stock is at the time listed or admitted
to trading on any stock exchange, then the fair market value shall be the
closing selling price per share of Stock on the date in question on the stock
exchange determined by the Board to be the primary market for the Stock, as such
price is officially quoted in the composite tape of transactions on such
exchange. If there is no reported sale of Stock on such exchange on the date in
question, then the fair market value shall be the closing selling price on the
exchange on the last preceding date for which such quotation exists.
(iii) If the Stock at the time is neither listed nor
admitted to trading on any stock exchange nor traded in the over-the-counter
market, then the fair market value shall be determined by the Board after taking
into account such factors as the Board shall deem appropriate, including one or
more independent professional appraisals.
4.6 USE OF PROCEEDS. The proceeds received by the Company from the sale
of Stock pursuant to the exercise of Options or Awards hereunder, if any, shall
be used for general corporate purposes.
4.7 CANCELLATION OF OPTIONS. Each Plan Administrator shall have the
authority to effect, at any time and from time to time, with the consent of the
affected Optionholders, the cancellation of any or all outstanding Discretionary
Options granted under the Plan by that Plan Administrator and to grant in
substitution therefore new Discretionary Options under the Plan covering the
same or different numbers of shares of Stock as long as such new Discretionary
Options have an exercise price per share of Stock no less than the minimum
exercise price as set forth in Section 2.2(b) hereof on the new grant date.
4.8 REGULATORY APPROVALS. The implementation of the Plan, the granting
of any Option or Award hereunder, and the issuance of Stock upon the exercise of
any such Option or Award shall be subject to the procurement by the Company of
all approvals and permits required
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<PAGE> 16
by regulatory authorities having jurisdiction over the Plan, the Options or
Awards granted under it and the Stock issued pursuant to it.
4.9 INDEMNIFICATION. In addition to such other rights of
indemnification as they may have, the members of a Plan Administrator shall be
indemnified and held harmless by the Company, to the extent permitted under
applicable law, for, from and against all costs and expenses reasonably incurred
by them in connection with any action, suit, legal proceeding to which any
member thereof may be a party by reason of any action taken, failure to act
under or in connection with the Plan or any rights granted thereunder and
against all amounts paid by them in settlement thereof or paid by them in
satisfaction of a judgment of any such action, suit or proceeding, except a
judgment based upon a finding of bad faith.
4.10 PLAN NOT EXCLUSIVE. This Plan is not intended to be the exclusive
means by which the Company may issue options or warrants to acquire its Stock,
stock awards or any other type of award. To the extent permitted by applicable
law, any such other option, warrants or awards may be issued by the Company
other than pursuant to this Plan without stockholder approval.
4.11 COMPANY RIGHTS. The grants of Options shall in no way affect the
right of the Company to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
4.12 PRIVILEGE OF STOCK OWNERSHIP. An Optionholder shall not have any
of the rights of a stockholder with respect to Optioned Shares until such
individual shall have exercised the Option and paid the Option Price for the
Optioned Shares. No adjustment will be made for dividends or other rights for
which the record date is prior to the date of such exercise and full payment for
such Optioned Shares.
4.13 ASSIGNMENT. The right to acquire Stock or other assets under the
Plan may not be assigned, encumbered or otherwise transferred by any
Optionholder except as specifically provided herein. Except as may be
specifically allowed by the Board or Plan Administrator and set forth in the
documents evidencing a Discretionary Option or Award, no Option or Award granted
under the Plan or any of the rights and privileges conferred thereby shall be
assignable or transferable by an Optionholder or grantee other than by will or
the laws of descent and distribution, and such Option or Award shall be
exercisable during the Optionholder's or grantee's lifetime only by the
Optionholder or grantee. The provisions of the Plan shall inure to the benefit
of, and be binding upon, the Company and its successors or assigns, and the
Optionholders, the legal representatives of their respective estates, their
respective heirs or legatees and their permitted assignees.
4.14 SECURITIES RESTRICTIONS
(a) LEGEND ON CERTIFICATES. All certificates representing
shares of Stock issued upon exercise of Options or Awards granted under the Plan
shall be endorsed with a legend reading as follows:
16
<PAGE> 17
The shares of Common Stock evidenced by this certificate have been
issued to the registered owner in reliance upon written
representations that these shares have been purchased solely for
investment. These shares may not be sold, transferred or assigned
unless in the opinion of the Company and its legal counsel such
sale, transfer or assignment will not be in violation of the
Securities Act of 1933, as amended, and the rules and regulations
thereunder.
(b) PRIVATE OFFERING FOR INVESTMENT ONLY. The Options and
Awards are and shall be made available only to a limited number of present and
future key personnel who have knowledge of the Company's financial condition,
management and its affairs. The Plan is not intended to provide additional
capital for the Company, but to encourage ownership of Stock among the Company's
key personnel. By the act of accepting an Option or Award, each grantee agrees
(i) that, any shares of Stock acquired will be solely for investment and not
with any intention to resell or redistribute those shares and (ii) such
intention will be confirmed by an appropriate certificate at the time the Stock
is acquired if requested by the Company. The neglect or failure to execute such
a certificate, however, shall not limit or negate the foregoing agreement.
(c) REGISTRATION STATEMENT. If a Registration Statement
covering the shares of Stock issuable upon exercise of Options granted under the
Plan is filed under the Securities Act of 1933, as amended, and is declared
effective by the Securities Exchange Commission, the provisions of Sections
4.14(a) and (b) shall terminate during the period of time that such Registration
Statement, as periodically amended, remains effective.
4.15 TAX WITHHOLDING.
(a) GENERAL. The Company's obligation to deliver Stock upon
the exercise of Options under the Plan shall be subject to the satisfaction of
all applicable federal, state and local income tax withholding requirements.
(b) SHARES TO PAY FOR WITHHOLDING. The Board may, in its
discretion and in accordance with the provisions of this Section 4.15(b) and
such supplemental rules as it may from time to time adopt, provide any or all
Optionholders with the right to use shares of Stock in satisfaction of all or
part of the federal, state and local income tax liabilities incurred by such
Optionholders in connection with the exercise of their Options ("Taxes"). Such
right may be provided to any such Optionholder in either or both of the
following formats:
(i) STOCK WITHHOLDING. The Optionholder of an Option
may be provided with the election, which may be subject to approval by the Plan
Administrator, to have the Company withhold, from the Stock otherwise issuable
upon the exercise of such Option, a portion of those shares of Stock with an
aggregate fair market value equal to the percentage (not to exceed 100 percent)
of the applicable Taxes designated by the Optionholder.
(ii) STOCK DELIVERY. The Board may, in its
discretion, provide the Optionholder with the election to deliver to the
Company, at the time the Option is exercised,
17
<PAGE> 18
one or more shares of Stock previously acquired by such individual (other than
pursuant to the transaction triggering the Taxes) with an aggregate fair market
value equal to the percentage (not to exceed 100 percent) of the taxes incurred
in connection with such Option exercise designated by the Optionholder.
4.16 GOVERNING LAW. The Plan shall be governed by and all questions
hereunder shall be determined in accordance with the laws of the State of
Arizona.
ARTICLE V
DEFINITIONS
The following capitalized terms used in this Plan shall have the meaning
described below:
"AFFILIATES" shall mean all "executive officers" (as that term is defined
in Rule 16a-1(f) promulgated under the 1934 Act) and directors of the Company
and all persons who own ten percent or more of the Company's issued and
outstanding Stock.
"ANNUAL GRANT DATE" shall mean the date of the Company's annual
stockholder meeting.
"AUTOMATIC GRANT PROGRAM" shall mean that program set forth in Article III
of this Agreement pursuant to which Eligible Directors, as defined herein, are
automatically granted Options upon certain events.
"AUTOMATIC OPTION GRANT" shall mean those automatic option grants made on
the Annual Grant Date, on the Initial Grant Date, and on the Formula Grant Date.
"AUTOMATIC OPTIONS" shall mean those Options granted pursuant to the
Automatic Grant Program.
"AWARD" shall mean a Stock Award, SAR or Cash Award.
"BOARD" shall mean the Board of Directors of the Company.
"CASH AWARD" shall mean an award to be paid in cash and granted under
Section 2.5 hereunder.
"CHANGE IN CONTROL" shall mean and include the following transactions
or situation:
(i) A sale, transfer, or other disposition by the Company
through a single transaction or a series of transactions of securities of the
Company representing 30 percent or more of the combined voting power of the
Company's then outstanding securities to any "Unrelated Person" or "Unrelated
Persons" acting in concert with one another. For purposes of this definition,
the term "Person" shall mean and include any individual, partnership, joint
venture, association, trust corporation, or other entity (including a "group" as
referred to in Section 13(d)(3) of the 1934 Act. For purposes of this
definition, the term "Unrelated Person" shall mean and include any Person other
than the Company, a wholly-owned subsidiary of the Company, or an employee
benefit plan of the Company.
18
<PAGE> 19
(ii) A sale, transfer, or other disposition through a single
transaction or a series of transactions of all or substantially all of the
assets of the Company to an Unrelated Person or Unrelated Persons acting in
concert with one another.
(iii) A change in the ownership of the Company through a
single transaction or a series of transactions such that any unrelated Person or
Unrelated Persons acting in concert with one another become the "Beneficial
Owner," directly or indirectly, of securities of the Company representing at
least 30 percent of the combined voting power of the Company's then outstanding
securities. For purposes of this Section, the term "Beneficial Owner" shall have
the same meaning as given to that term in Rule 13d-3 promulgated under the 1934
Act, provided that any pledgee of voting securities shall not be deemed to be
the Beneficial Owner thereof prior to its acquisition of voting rights with
respect to such securities.
(iv) Any consolidation or merger of the Company with or into
an Unrelated Person, unless immediately after the consolidation or merger the
holders of the common stock of the Company immediately prior to the
consolidation or merger are the Beneficial Owners of securities of the surviving
corporation representing at least 50 percent of the combined voting power of the
surviving corporation's then outstanding securities.
(v) During any period of two years, individuals who, at the
beginning of such period, constituted the Board of Directors of the Company
cease, for any reason, to constitute at least a majority thereof, unless the
election or nomination for election of each new director was approved by the
vote of at least two-thirds of the directors then still in office who were
directors at the beginning of such period.
(vi) Change in control of the Company of a nature that would
be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the 1934 Act, or any successor regulation of
similar import, regardless of whether the Company is subject to such reporting
requirement.
Notwithstanding any provision hereof to the contrary, the filing of a proceeding
for the reorganization of the Company under Chapter 11 of the General Bankruptcy
Code or any successor or other statute of similar import shall not be deemed to
be a Change of Control for purposes of this Plan.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMPANY" shall mean Rural/Metro Corporation, a Delaware corporation.
"CORPORATE TRANSACTION" shall mean (a) a merger or consolidation in which
the Company is not the surviving entity, except for a transaction the principal
purposes of which is to change the state in which the Company is incorporated;
(b) the sale, transfer of or other disposition of all or substantially all of
the assets of the Company and complete liquidation or dissolution of the
Company, or (c) any reverse merger in which the Company is the surviving entity
but in which the securities possessing more than 50 percent of the total
combined voting power of the Company's outstanding securities are transferred to
a person or persons different from those who held such securities immediately
prior to such merger.
19
<PAGE> 20
"DISCRETIONARY GRANT PROGRAM" shall mean the program described in Article
II of this Plan pursuant to which certain Eligible Directors are granted Options
or Awards in the discretion of the Plan Administrator.
"DISCRETIONARY OPTIONS" shall mean options granted under the Discretionary
Grant Program.
"EFFECTIVE DATE" shall mean the date that the Plan has been approved by
the stockholders as required by Section 1.3(a) hereof.
"ELIGIBLE DIRECTOR" shall mean, with respect to the Automatic Grant
Program, those Board members who are not employed by the Company, whether or not
such members are Non-Employee Directors as defined herein.
"ELIGIBLE PERSONS" shall mean (a) with respect to the Discretionary Grant
Program, those persons who, at the time that the Discretionary Option or Award
is granted, are (i) key personnel (including officers and directors) of the
Company or Parent or Subsidiary Corporations, or (ii) consultants or independent
contractors who provide valuable services to the Company or Parent or Subsidiary
Corporations; and (b) with respect to the Automatic Grant Program, the Eligible
Directors.
"EMPLOYEE COMMITTEE" shall mean that committee appointed by the Board to
administer the Plan with respect to the Non-Affiliates and comprised of two or
more persons who are members of the Board.
"EPS INCREASE" shall have the meaning set forth in Section 3.2(a)(iii)
hereof.
"EXERCISE DATE" shall be the date on which written notice of the exercise
of an Option is delivered to the Company in accordance with the requirements of
the Plan.
"EXPIRATION DATE" shall be the 10-year anniversary of the date on which an
Automatic Option Grant was made.
"FORMULA GRANT DATE" shall have the meaning as set forth in Section
3.2(a)(iii) hereof.
"INCENTIVE STOCK OPTION" shall mean a Discretionary Option that is
intended to qualify as an "incentive stock option" under Code section 422.
"INITIAL GRANT DATE" shall mean the date that an Eligible Director is
first appointed or elected to the Board.
"NON-AFFILIATES" shall mean all persons who are not Affiliates.
"NON-EMPLOYEE DIRECTORS" shall mean those Directors who satisfy the
definition of "Non-Employee Director" under Rule 16b-3(b)(3)(i) promulgated
under the 1934 Act.
"$100,000 LIMITATION" shall mean the limitation pursuant to which the
aggregate fair market value (determined as of the respective date or dates of
grant) of the Stock for which one
20
<PAGE> 21
or more Options granted to any person under this Plan (or any other option plan
of the Company or any Parent or Subsidiary Corporation) may for the first time
be exercisable as Incentive Stock Options during any one calendar year shall not
exceed the sum of $100,000.
"OPTIONHOLDER" shall mean an Eligible Person or Eligible Director to whom
Options have been granted.
"OPTIONED SHARES" shall be those shares of Stock to be optioned from time
to time to any Eligible Director.
"OPTION PRICE" shall mean (i) with respect to Discretionary Options, the
exercise price per share as specified by the Plan Administrator pursuant to
Section 2.2(b) hereof, and (ii) with respect to Automatic Options, the exercise
price per share as specified by Section 3.2(b) hereof.
"OPTIONS" shall mean options to acquire Stock granted under the Plan.
"PARENT CORPORATION" shall mean any corporation in the unbroken chain of
corporations ending with the employer corporation, where, at each link of the
chain, the corporation and the link above owns at least 50 percent of the
combined total voting power of all classes of the stock in the corporation in
the link below.
"PLAN" shall mean this stock option plan for Rural/Metro Corporation.
"PLAN ADMINISTRATOR" shall mean (a) either the Board, the Senior
Committee, or any other committee, whichever is applicable, with respect to the
administration of the Discretionary Grant Program as it relates to Affiliates
and (b) either the Board, the Employee Committee, or any other committee,
whichever is applicable, with respect to the administration of the Discretionary
Grant Program as it relates to Non-Affiliates and with respect to the Automatic
Grant Program.
"SAR" shall mean stock appreciation rights granted pursuant to Section 2.4
hereunder.
"SENIOR COMMITTEE" shall mean that committee appointed by the Board to
administer the Discretionary Grant Program with respect to the Affiliates and
comprised of two or more Non-Employee Directors.
"SERVICE" shall have the meaning set forth in Section 2.2(n) hereof.
"STOCK" shall mean shares of the Company's common stock, $.01 par value
per share, which may be unissued or treasury shares, as the Board may from time
to time determine.
"STOCK AWARDS" shall mean Stock directly granted under the Discretionary
Grant Program.
"SUBSIDIARY CORPORATION" shall mean any corporation in the unbroken chain
of corporations starting with the employer corporation, where, at each link of
the chain, the corporation and the link above owns at least 50 percent of the
combined voting power of all classes of stock in the corporation below.
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<PAGE> 22
EXECUTED as of the 21st day of August, 1998.
RURAL/METRO CORPORATION
By: /s/ John B. Furman
--------------------------------
Name: John B. Furman
--------------------------------
Its: Acting Chief Executive Officer
--------------------------------
ATTESTED BY:
/s/ Louis G. Jekel
- --------------------------------------
Secretary
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<PAGE> 1
EXHIBIT 10.6
RURAL/METRO CORPORATION
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT is made as of the Grant Date, as set
forth on the attached Exhibit A, by and between RURAL/METRO CORPORATION, a
Delaware corporation (the "Company"), and the person named as the Optionholder
(the "Optionholder") on the attached Exhibit A.
Optionholder is a key person associated with the Company, and the
Company considers it desirable and its best interest that Optionholder be given
an inducement to acquire a proprietary interest in the Company and added
incentive to advance the interest of the Company by possessing an option to
purchase the Company's Common Stock, all in accordance with the Rural/Metro
Corporation 1992 Stock Option Plan (the "Plan"), a copy of which is attached as
Exhibit B. For purposes of this Agreement, the term "Company" includes any
parent or subsidiary of the Company as defined in Section 424 of the Code.
NOW, THEREFORE, it is agreed by and between the parties as follows:
1. Grant of Option. The Company hereby grants to Optionholder, as of
the grant date (the "Grant Date") specified in the attached Exhibit A, the
right, privilege and option ("Option") to purchase shares of Stock as set forth
on the attached Exhibit A (the "Optioned Shares"), subject in all respects to
the terms, conditions and provisions of this Agreement and the Plan, which is
attached hereto as Exhibit B and incorporated by reference in this Agreement.
The Optionholder acknowledges having received and carefully reviewed a copy of
the Plan. It is set forth in Exhibit A whether or not the Option is intended to
be an Incentive Stock Option as defined in Section 422 of the Code.
2. Option Price. The option price (the "Option Price") as determined
by the Plan Administrator is set forth on the attached Exhibit A, which price
has been determined by the Plan Administrator to be not less than 100% of the
fair market value (as determined under the Plan) per share of the Stock on the
Grant Date of this Option if the Option is an Incentive Stock Option (110% if
the Option is an Incentive Stock Option and the Optionholder is a shareholder
who at the Grant Date owns stock possessing more than 10% of the combined voting
power of all classes of stock of the Company or any parent or subsidiary of the
Company).
3. Vesting of Option.
(a) Vesting Schedule. The Optionholder's ability to exercise
the Option shall vest in accordance with the vesting schedule set forth on
Exhibit A hereto.
(b) $100,000 Limitation. To the extent that the aggregate fair
market value (determined as of the Grant Date) of Common Stock with respect to
which an Incentive Stock Option is granted becomes exercisable for the first
time during any calendar year (under this Agreement and any other agreement
between the Company and Optionholder) exceeds $100,000, the portion of the
Option representing such excess value shall be treated as a Non-Qualified Stock
Option.
(c) Acceleration. The Plan Administrator may, by resolution
adopted after the Grant Date in its sole and absolute discretion, allow the
Option to be exercised on an accelerated basis.
(d) Full Vesting and Exercisability Upon Death or Disability.
The Option granted hereunder shall be fully vested and immediately exercisable
upon Optionholder's death or "disability" (as that term is defined in
Optionholder's Employment Agreement with the Company, or in
<PAGE> 2
the absence of an Employment Agreement, as defined in the Company's long-term
disability program in effect from time to time) while in the Service (as defined
in Section 6) of the Company; provided, however, that if the $100,000 limitation
relating to Incentive Stock Options (as referred to in Section 3(b)) would be
exceeded by such vesting upon death or disability, then a portion of the Option
shall be considered to be a Non-Qualified Option so that the $100,000 limitation
is not violated.
(e) Termination of Vesting. The Optionholder's rights with
respect to the portion of the Option that is not vested shall terminate upon the
termination of Optionholder's Service with the Company; provided, however, that
the Plan Administrator shall be entitled to extend the vesting period if the
Optionholder will render services to the Company as a consultant or independent
contractor.
4. Exercise of Option. The Option issued hereunder shall be
exercisable by written notice to the Company, addressed to the Company at its
principal place of business, in accordance with the terms of the Plan. Such
notice shall state the election to exercise the Option and the number of shares
with respect to which it is being exercised, and shall be signed by the
Optionholder. Such notice shall be accompanied by payment in full of the
exercise price for the number of shares being purchased. Payment may be made in
cash or by check or, if then permitted by the Plan Administrator, by tendering
duly endorsed certificates representing shares of Common Stock then owned by the
Optionholder and held for the requisite period necessary to avoid a charge to
the Company's earnings and valued at fair market value on the date of exercise.
Upon the exercise of the Option, the Company shall deliver, or cause to be
delivered, to the Optionholder a certificate or certificates representing the
shares of Common stock purchased upon such exercise as soon as practicable after
payment for those shares has been received by the Company. If the Option is
exercised pursuant to Section 10 hereof by any person other than the
Optionholder, such notice shall be accompanied by appropriate proof of the right
of such person to exercise the Option. All shares that are purchased and paid
for in full upon the exercise of the Option shall be fully paid and
non-assessable.
5. Stock Lock-up; Repurchase Right. The Optionholder hereby agrees
that, at the request of the Company, the Optionholder (or in the case of the
Optionholder's death, his or her successors as provided under the Plan) shall
agree not to sell or otherwise transfer any acquired Optioned Shares during any
stock lock-up period agreed to by the Company and any underwriter associated
with a public offering of Common Stock. Upon the proper exercise of the Option,
the Optionholder (or in the case of the Optionholder's death, his successors as
provided under Section 10) may be required to execute a stock repurchase
agreement in such form as may be required by the Plan Administrator from time to
time.
6. Termination of Option. The Option, to the extent not previously
exercised, shall terminate upon the first to occur of the date that is (a) three
months after termination of the Optionholder's Service with the Company, unless
due to disability (as defined in Section 22(e)(3) of the Code) or as otherwise
determined by the Plan Administrator or the Company's Board of Directors; (b)
one year after termination of Service due to disability or as otherwise
determined by the Plan Administrator or the Company's Board of Directors; or (c)
ten years after the Grant Date (five years after the Grant Date if the Option is
an Incentive Stock Option and the Optionholder is a shareholder who at the Grant
Date owns stock possessing more than 10% of the combined voting power of all
classes of stock of the Company or any parent or subsidiary of the Company).
Notwithstanding the foregoing, if the Optionholder's Service is terminated by
the Company for Cause (as defined in the Plan), then the Option shall thereafter
be void for all purposes. For purposes of this Agreement, unless otherwise set
forth in Exhibit A or as otherwise determined by the Plan Administrator, (i) an
Optionholder who was an employee of the Company on the Grant Date shall be
deemed to be in "Service" to the Company so long as such individual is an
employee of the Company, and (ii) if the Optionholder was a consultant or
2
<PAGE> 3
independent contractor to the Company on the Grant Date, the Optionholder shall
be deemed to be in "Service" to the Company so long as such individual renders
services to the Company in the capacity of an employee, consultant or
independent contractor.
7. No Privilege of Stock Ownership. The holder of the Option granted
hereunder shall not have any of the rights of a stockholder with respect to the
Optioned Shares until such Optionholder shall have exercised the Option, paid
the Option Price, and received a stock certificate for the purchased shares of
Common Stock.
8. Liability of the Company.
(a) If the Optioned Shares covered by this Agreement exceed,
as of the Grant Date, the number of shares of Common Stock that may without
stockholder approval be issued under the Plan, then this Option shall be void
with respect to such excess shares unless stockholder approval of an amendment
increasing the number of shares of Common Stock issuable under the Plan is
obtained in accordance with the applicable provisions of the Plan.
(b) The inability of the Company to obtain approval from any
regulatory body having authority deemed by the Company to be necessary to the
lawful issuance and sale of any Common Stock pursuant to this Agreement shall
relieve the Company of any liability with respect to the nonissuance or sale of
the Common Stock as to which such approval shall not have been obtained. The
Company, however, shall use its best efforts to obtain all such approvals.
9. No Employment or Service Contract. Nothing in this Agreement or
in the Plan shall confer upon the Optionholder any right to continue in the
service of the Company (or any parent or subsidiary corporation of the Company
employing or retaining Optionholder) for any period of time or to interfere with
or otherwise restrict in any way the rights of the Company (or any parent or
subsidiary corporation of the Company employing or retaining Optionholder) or
the Optionholder, which rights are hereby expressly reserved by each, to
terminate the service of Optionholder at any time for any reason whatsoever,
with or without cause.
10. Assignability. If this Option is an Incentive Stock Option,
neither this Option nor any rights or privileges conferred hereby shall be
assignable or transferable by the Optionholder other than by will or by the laws
of descent and distribution, and this Option shall be exercisable only by
Optionholder during the Optionholder's lifetime. If this Option is not an
Incentive Stock Option, unless the Optionholder has received written consent of
the Plan Administrator, neither this Option nor any rights or privileges
conferred hereby shall be assignable or transferable by the Optionholder other
than by will or by the laws of descent and distribution, and this Option shall
be exercisable only by Optionholder during the Optionholder's lifetime. Upon the
death of Optionholder, the rights of the successors to Optionholder shall be
limited as set forth in the Plan.
11. Binding Affect. This Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
12. Compliance With Laws and Regulations; Securities Matters.
(a) The exercise of the Option and the issuance of the Common
Stock upon such exercise shall be subject to compliance by the Company and the
Optionholder with all applicable requirements of law relating thereto and with
all applicable regulations of any stock exchange in which the shares of the
Common Stock may be listed at the time of such exercise and issuance. In
connection
3
<PAGE> 4
with the exercise of this Option, Optionholder shall execute and deliver to the
Company such representations in writing as may be requested by the Company in
order for it to comply with applicable requirements of federal and state
securities laws.
(b) The Option granted hereunder may be exercised by the
Optionholder only if (i) the shares of Common Stock which are to be issued upon
such exercise are registered under the Securities Act of 1933, as amended (the
"1933 Act") and any and all other applicable securities laws, or (ii) the
Company, upon advice of counsel, determines that the issuance of the shares of
Common Stock upon the exercise of the Option is exempt from registration
requirements.
(c) If the shares to be issued to the Optionholder upon the
exercise of the Option have not been registered under the 1933 Act and all other
applicable securities laws, those shares will be "restricted securities" within
the meaning of Rule 144 under the 1933 Act and must be held indefinitely without
any transfer, sale or other disposition unless (a) the shares are subsequently
registered under the 1933 Act and all other applicable securities laws, or (b)
the Optionholder obtains an opinion of counsel which is satisfactory to counsel
for the Company that the shares may be sold in reliance on an exemption from
registration requirements. In the event that the shares to be issued upon
exercise of the Option are "restricted securities," the certificates
representing shares of Common Stock issued upon exercise of an Option shall be
endorsed with a legend reading as follows:
The shares of Common Stock evidenced by this certificate have been
issued to the registered owner in reliance upon written
representations that these shares have been purchased solely for
investment. These shares may not be sold, transferred or assigned
unless in the opinion of the Company and its legal counsel such
sale, transfer or assignment will not be in violation of the
Securities Act of 1933, as amended, and the rules and regulations
thereunder.
13. Withholding Taxes; Other Deductions. The Company shall have the
right to deduct from any settlement of the Option, including the delivery or
vesting of shares (a) an amount sufficient to cover withholding as required by
law for any federal, state or local taxes, and (b) any amounts due from the
Optionholder to the Company or to any subsidiary or parent of the Company or to
take such other action as may be necessary to satisfy any such withholding or
other obligations, including withholding from any other cash amounts due or to
become due from the Company to the Optionholder an amount equal to such taxes or
obligations. Upon the exercise of the Option, the Company may also issue or
transfer the shares of Stock subject to such Option net of the number of shares
sufficient to satisfy the withholding or employment tax obligations.
14. Disposition of Optioned Shares. The Optionholder shall provide
written notification to the person who is then serving as Secretary of the
Company of any disposition of all or any portion of the Optioned Shares within
five days after such disposition. The Plan Administrator shall be entitled to
require the Optionholder to use a transfer agent designated by the Plan
Administrator for any disposition of all or any portion of the Optioned Shares.
15. Defined Terms. All capitalized terms herein which are not
otherwise defined herein shall have the same meaning ascribed to such terms in
the Plan.
16. Notices. Any notice required to be given or delivered to the
Company under the terms of this Agreement shall be in writing and addressed to
the Company in care of the Corporate Secretary at its principal corporate
offices. Any notice required to be given or delivered to Optionholder at
4
<PAGE> 5
the address indicated on Exhibit A. All notices shall be deemed to have been
given or delivered upon personal delivery or upon deposit in the U.S. mail,
postage prepaid and properly addressed to the party to be notified.
17. Construction. This Agreement and the Option evidenced hereby are
made and granted pursuant to the Plan and are in all respects limited by and
subject to the express terms and provisions of the Plan. All decisions of the
Plan Administrator with respect to any question or issue arising under the Plan
or this Agreement shall be conclusive and binding on all persons having an
interest in this Option.
IN WITNESS WHEREOF the parties hereto have executed this Agreement
or caused it to be executed as of the Grant Date.
RURAL/METRO CORPORATION
By:
-----------------------------------
Name: Dean P. Hoffman
Its: Vice President, Financial Services
OPTIONHOLDER
----------------------------------------
Printed Name:
---------------------------
Social Security Number:
----------------------------------------
5
<PAGE> 6
EXHIBIT A
NAME/ADDRESS OF
OPTIONHOLDER:
GRANT DATE:
OPTION PRICE
PER SHARE:
NUMBER OF OPTIONED
SHARES SUBJECT TO
INCENTIVE STOCK OPTIONS:
NUMBER OF OPTIONED
SHARES SUBJECT TO
NON-QUALIFIED STOCK
OPTIONS:
VESTING SCHEDULE: The Optionholder's ability to exercise the Option shall vest
in accordance with the following schedule so that from each of the below-listed
vesting dates to termination of the Option, the Optionholder shall be entitled
to exercise the Option to purchase the number of additional Optioned Shares
subject to an Incentive Stock Option (ISO) and/or a Non-Qualified Stock Option
(NQSO) as specified with respect to such vesting date:
VESTING DATE ISO NQSO
------------ --- ----
Grant Date
First Anniversary of Grant Date
Second Anniversary of Grant Date
Third Anniversary of Grant Date
A-1
<PAGE> 7
EXHIBIT B
1992 STOCK OPTION PLAN
B-1
<PAGE> 1
Exhibit 10.18(a)
RURAL/METRO CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
[AMENDED AND RESTATED EFFECTIVE JULY 1, 1997]
------------------------------------------------
POLESE, PIETZSCH, WILLIAMS & NOLAN, A PROFESSIONAL ASSOCIATION
2702 NORTH THIRD STREET, SUITE 3000
PHOENIX, ARIZONA 85004-4607
<PAGE> 2
RURAL/METRO CORPORATION
EMPLOYEE STOCK OWNERSHIP
PLAN AND TRUST
[AMENDED AND RESTATED EFFECTIVE JULY 1, 1997]
------------------------------------------------
POLESE, PIETZSCH, WILLIAMS & NOLAN, A PROFESSIONAL ASSOCIATION
2702 NORTH THIRD STREET, SUITE 3000
PHOENIX, ARIZONA 85004-4607
<PAGE> 3
CERTIFICATE
Steven M. Lee, Secretary of Rural/Metro Corporation, an Arizona
corporation, hereby certifies that the attached document is a complete and
accurate copy of the Rural/Metro Corporation Employee Stock Ownership Plan and
Trust, to be effective July 1, 1997.
DATED: November 20, 1997.
----------------------------------------
Steven M. Lee, Secretary
<PAGE> 4
IN WITNESS WHEREOF, RURAL/METRO CORPORATION, an Arizona corporation,
as Employer, has caused this Plan to be signed by its duly qualified officers.
RURAL/METRO CORPORATION, an Arizona
corporation
By
--------------------------------------
James Bolin, President
"Employer"
APPROVED AND ACCEPTED BY:
Julian F. Weltsch
James Bolin
"Trustee"
<PAGE> 5
RURAL/METRO CORPORATION
EMPLOYEE STOCK OWNERSHIP
PLAN AND TRUST
THIS AMENDED AND RESTATED PLAN AND TRUST, made effective July 1, 1997,
by RURAL/METRO CORPORATION, an Arizona corporation ("Employer").
R E C I T A L S:
1. The Employer established an employee stock ownership plan effective
July 1, 1978, as thereafter amended and restated ("Prior Plan").
2. The Employer reserved the right to amend the Prior Plan in whole or
in part.
3. The Employer now desires to amend the Prior Plan by amending and
restating it in its entirety.
4. The Employer intends that this amended and restated plan ("Plan")
and related trust continue to qualify under the provisions of Sections 401 et
seq. and 501 et seq. of the Internal Revenue Code of 1986, as amended ("Code")
and the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
THEREFORE, the Employer amends and restates the Prior Plan in its
entirety as follows:
<PAGE> 6
TABLE OF CONTENTS
Page
<TABLE>
<CAPTION>
<S> <C>
1. NAME, DESIGNATION AND PURPOSE.........................................1-1
1.01 Name of Plan. ..................................................1-1
1.02 Designation of Type of Plan......................................1-1
1.03 Purpose..........................................................1-1
2. DEFINITIONS...........................................................2-1
2.01 Accrued Benefit..................................................2-1
2.02 Advisory Committee...............................................2-1
2.03 Anniversary Date.................................................2-1
2.04 Break in Service.................................................2-1
2.05 Company Stock....................................................2-1
2.06 Company Stock Account............................................2-1
2.07 Compensation.....................................................2-1
2.08 Contract or Policy...............................................2-2
2.09 Contribution.....................................................2-2
2.10 Current Obligations..............................................2-2
2.11 Disability.......................................................2-2
2.12 Disqualified Person..............................................2-3
2.13 Early Retirement Date............................................2-4
2.14 Effective Date...................................................2-4
2.15 Employee.........................................................2-4
2.16 Employer.........................................................2-5
2.17 Exempt Loan......................................................2-5
2.18 Fiduciary........................................................2-5
2.19 Forfeiture.......................................................2-5
2.20 Highly Compensated Employee......................................2-5
2.21 Hour of Service..................................................2-6
2.22 Investment Manager...............................................2-7
2.23 Leased Employee..................................................2-7
2.24 Net Income.......................................................2-8
2.25 Normal Retirement Age and Normal Retirement Date.................2-8
2.26 Other Investments Account........................................2-8
2.27 Participant......................................................2-8
2.28 Plan.............................................................2-8
2.29 Plan Administrator...............................................2-8
2.30 Plan Year........................................................2-9
2.31 Related Employer.................................................2-9
2.32 Top Heavy Plan...................................................2-9
2.33 Trust...........................................................2-13
2.34 Trustee.........................................................2-13
2.35 Unallocated Company Stock Suspense Account......................2-13
</TABLE>
i
<PAGE> 7
<TABLE>
<CAPTION>
<S> <C>
2.36 Year of Service.................................................2-13
3. ELIGIBILITY AND PARTICIPATION.........................................3-1
3.01 Eligibility to Participate.......................................3-1
3.02 Reemployment Before Break in Service.............................3-1
3.03 Reemployment After Break in Service..............................3-2
3.04 Determination of Eligibility.....................................3-2
3.05 Exclusion of Eligible Employee...................................3-2
3.06 Inclusion of Ineligible Employee.................................3-2
3.07 Election Not to Participate......................................3-2
3.08 Participation of Owner-Employees.................................3-3
4. CONTRIBUTIONS.........................................................4-1
4.01 Employer Contributions...........................................4-1
4.02 Payments.........................................................4-1
4.03 No Responsibility for Collection or Verification.................4-1
4.04 Top Heavy Minimum Contribution...................................4-1
5. ALLOCATIONS TO ACCOUNTS...............................................5-1
5.01 Participants' Accounts...........................................5-1
5.02 Date(s) for Crediting Contributions..............................5-1
5.03 Allocation of Employer Contributions.............................5-1
5.04 Valuation and Adjustment of Accounts.............................5-3
5.05 Method of Valuation..............................................5-3
5.06 Application of Forfeitures.......................................5-3
5.07 Charging of Distributions........................................5-3
5.08 Limitations on Annual Additions and Benefits.....................5-3
5.09 Transactions Involving Company Stock............................5-12
6. VESTING, DISTRIBUTIONS AND WITHDRAWALS................................6-1
6.01 Vesting..........................................................6-1
6.02 Forfeitures......................................................6-3
6.03 Payments to Participants and Beneficiaries.......................6-3
6.04 When Payments are Made...........................................6-5
6.05 Selection of Method of Payment..................................6-12
6.06 Designation of Beneficiary......................................6-12
6.07 In-Service Distributions........................................6-13
6.08 Payments to Minors or Incompetents..............................6-14
6.09 Qualified Domestic Relations Orders.............................6-14
6.10 Eligible Rollover Distributions.................................6-14
6.11 Right of First Refusals.........................................6-15
6.12 Stock Certificate Legend........................................6-16
6.13 Put Option......................................................6-16
6.14 Nonterminable Protections and Rights............................6-18
</TABLE>
ii
<PAGE> 8
<TABLE>
<CAPTION>
<S> <C>
6.15 Dividend Payments...............................................6-18
7. LOANS.................................................................7-1
7.01 Loans to Participants............................................7-1
7.02 Loans to the Trust...............................................7-1
8. PARTICIPANT DIRECTED INVESTMENTS......................................8-1
8.01 General Rule.....................................................8-1
8.02 Directed Investment Account......................................8-1
8.03 Investment Policy................................................8-2
9. ADMINISTRATION........................................................9-1
9.01 Authority of Plan Administrator..................................9-1
9.02 Organization and Membership of Advisory Committee................9-1
9.03 Designation of Agents and Allocation of Responsibilities.........9-2
10. TRUST AND TRUSTEE....................................................10-1
10.01 Investment of Trust Fund.......................................10-1
10.02 Commingling of Trust Assets....................................10-1
10.03 Valuation of Trust Fund........................................10-1
10.04 Trustee to Hold Trust Assets...................................10-1
10.05 General Powers of Trustee......................................10-1
10.06 Directed Investment Account....................................10-4
10.07 Voting Company Stock...........................................10-4
10.08 Expenses and Compensation of Trustee...........................10-4
10.09 Distributions..................................................10-5
10.10 Limitation on Duties of Trustee................................10-5
10.11 Actions Conclusive.............................................10-5
10.12 Bond Not Required..............................................10-5
10.13 Uniform Accounting Act.........................................10-5
10.14 Multiple Trust Funds...........................................10-5
10.15 Trustee Entitled to Consultation...............................10-5
10.16 Taxes Chargeable to Accounts...................................10-6
10.17 Records and Accounts...........................................10-6
10.18 Disputes.......................................................10-6
10.19 Limitation on Liability........................................10-6
10.20 Resignation and Removal; Appointment of Successor Trustee......10-6
10.21 Multiple Trustees..............................................10-7
10.22 Actions Against Trustee........................................10-7
11. FIDUCIARY RESPONSIBILITIES AND LIABILITIES...........................11-1
11.01 Fiduciary Responsibility.......................................11-1
11.02 Fiduciaries Not Insurers.......................................11-1
11.03 Prohibited Transactions........................................11-1
</TABLE>
iii
<PAGE> 9
<TABLE>
<S> <C>
11.04 Limitation of Liability; Indemnification.......................11-2
11.05 Benefits Payable Solely from Trust Fund........................11-2
11.06 No Liability...................................................11-2
12. PARTICIPANTS' RIGHTS AND LIMITATIONS.................................12-1
12.01 Dismissal......................................................12-1
12.02 Alienation.....................................................12-1
12.03 Procedure When Trustee Is Unable to Locate Distributee.........12-1
12.04 Claims Procedure...............................................12-2
12.05 Employer and Trustee Only Necessary Parties to Litigation......12-2
12.06 Receipts and Releases..........................................12-3
13. AMENDMENT AND TERMINATION............................................13-1
13.01 Amendment of Plan..............................................13-1
13.02 Termination of the Plan........................................13-1
13.03 Consolidation, Merger, Division or Sale........................13-2
14. MISCELLANEOUS PROVISIONS.............................................14-1
14.01 Reversion of Contributions.....................................14-1
14.02 Notices........................................................14-1
14.03 Titles and Headings not to Control.............................14-1
14.04 Applicable Law.................................................14-1
14.05 Counterparts...................................................14-2
14.06 Binding upon Successors, Etc...................................14-2
14.07 Copies of Plan.................................................14-2
14.08 Gender and Number..............................................14-2
14.09 Severability...................................................14-2
14.10 No Duplication of Benefits.....................................14-2
14.11 Notice and Waiver of Notice....................................14-2
14.12 Evidence Furnished Conclusive..................................14-2
14.13 Release of Claims..............................................14-2
14.14 Multiple Copies of Plan and/or Trust Document..................14-2
14.15 Nondiscrimination..............................................14-3
15. RELATED OR OTHER EMPLOYERS...........................................15-1
15.01 Adoption by Related or Other Employers.........................15-1
15.02 Requirements for Adopting Employers............................15-1
15.03 Designation of Agent...........................................15-1
15.04 Plan Administrator's Authority.................................15-1
</TABLE>
iv
<PAGE> 10
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v
<PAGE> 11
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vi
<PAGE> 12
Table of Contents Page
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vii
<PAGE> 13
10 NAME, DESIGNATION AND PURPOSE
- ------------------------------------------------------------------------------
1.1 NAME OF PLAN. This Plan shall be known as the "Rural/Metro Corporation
Employee Stock Ownership Plan" ("Plan"). The trust established as part of this
Plan shall be known as the "Rural/Metro Corporation Employee Stock Ownership
Trust" ("Trust").
1.2 DESIGNATION OF TYPE OF PLAN. This Plan is designated as a defined
contribution plan, with a stock bonus component, for all purposes under the Code
and ERISA. This Plan includes an Employee Stock Ownership Plan as defined in
Code Section 4975(e)(7).
1.3 PURPOSE. This Plan is created for the sole purpose of enabling
Participants to accumulate funds for their retirement. In no event shall any
part of the principal or income of the Trust revert to the Employer, or be used
for or diverted to purposes other than the exclusive benefit of Participants and
their Beneficiaries, except as specifically provided in Section 14.01 of this
Plan. This Plan is intended to qualify as an employee pension benefit plan for
all purposes under the Code and ERISA.
-1
<PAGE> 14
20 DEFINITIONS
- ------------------------------------------------------------------------------
The following terms, as used in this Agreement, have the definitions set forth
in this Article 2, unless the context clearly indicates that a different meaning
is required:
2.1 ACCRUED BENEFIT. "Accrued Benefit" means the amount in a Participant's
Accounts under this or any other defined contribution plan, or the actuarially
determined accrued benefit under a defined benefit plan, as of any date, derived
from both Employer contributions and Participant contributions, if any.
2.2 ADVISORY COMMITTEE. "Advisory Committee" means the committee appointed
by the Employer pursuant to Section 9.02.
2.3 ANNIVERSARY DATE. "Anniversary Date" means the last day of each Plan
Year ending after the Effective Date.
2.4 BREAK IN SERVICE. "Break in Service" means any 12 month period defined
for purposes of a Year of Service during which an Employee does not complete at
least 200 Hours of Service.
2.5 COMPANY STOCK. "Company Stock" means common stock issued by the
Employer (or by a corporation which is a Related Employer) which is readily
tradeable on an established securities market. If there is no common stock which
meets the foregoing requirement, "Company Stock" means common stock issued by
the Employer (or a corporation which is Related Employer) having a combination
of voting power and dividend rights equal to or in excess of: (A) that class of
common stock of the Employer (or any Related Employer) having the greatest
voting power, and (B) that class of common stock of the Employer (or Related
Employer) having the greatest dividend rights. Noncallable preferred stock shall
be deemed to be "Company Stock" if such stock is convertible at any time into
stock which constitutes "Company Stock" hereunder and if such conversion is at a
conversion price which (as of the date of the acquisition by the Trust) is
reasonable. For purposes of the preceding sentence, preferred stock shall be
treated as noncallable if after the call there will be a reasonable opportunity
for a conversion which meets the requirements of the preceding sentence.
2.6 COMPANY STOCK ACCOUNT. "Company Stock Account" means the account or
subaccount of a Participant which is credited with Company Stock purchased and
paid for by the Trust or contributed to the Trust by the Employer.
2.7 COMPENSATION. "Compensation" means all of each Participant's gross cash
compensation paid to the Participant by the Employer for the Plan Year. However,
Compensation shall exclude all contributions to or benefits paid by any pension
or profit sharing plan and shall include amounts deferred under any Section
401(k) salary deferral plan or any Section 125 salary reduction plan sponsored
by the Employer. For a Participant's initial year of participation, Compensation
shall be counted for the entire Plan Year. Any Participant who is a shareholder,
officer, Owner-Employee,
-1
<PAGE> 15
or a Highly Compensated Employee may irrevocably elect, for any Plan Year, to
limit his Compensation for purposes of this Plan.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, 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 of Internal Revenue for increases
in the cost of living in accordance with Section 401(a)(17)(B) of the Code. The
cost-of-living adjustment in effect for a calendar year applies to any period,
not exceeding 12 months, over which Compensation is determined ("determination
period") beginning in such calendar year. If a determination period consists of
fewer than 12 months, the OBRA '93 annual compensation limit will be multiplied
by a fraction, the numerator of which is the number of months in the
determination period, and the denominator of which is 12. Any reference in this
Plan to the limitation under Section 401(a)(17) of the Code shall mean the OBRA
'93 annual compensation limit set forth in this provision.
In the case of a Self-Employed Individual, if any, "Compensation" means
Earned Income. "Earned Income" means net earnings derived by a person who is a
Self-Employed Person from any unincorporated trade, business, or professional
activity with respect to which the Plan is established, if the personal services
of such person are a material income-producing factor in the trade, business, or
practice. "Net Earnings" shall be computed without regard to items not included
in gross income and the deductions allocable to those items, and after taking
into account the deduction allowed by the Code for contributions to a
tax-qualified plan on behalf of Employees other than Self-Employed Persons. Net
earnings shall be determined with regard to the deduction allowed to the
Employer by Section 164(f) of the Code for taxable years beginning after
December 31, 1989.
2.8 CONTRACT OR POLICY. "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.
2.9 CONTRIBUTION. "Contribution" means cash or other property paid or
designated to be paid by the Employer to the Trust Fund.
2.10 CURRENT OBLIGATIONS. "Current Obligations" means Trust obligations
arising from extension of credit to the Trust and payable in cash within one (1)
year from the date an Employer Contribution is due. With respect to the estates
of decedents who die prior to July 13, 1989, Trust obligations shall include the
liability for payment of taxes imposed by Code Section 2001, which liability is
incurred pursuant to Code Section 2210(b).
2.11 DISABILITY. "Disability" means the inability to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment that can be expected to result in death, or which has lasted
or can be expected to last for a continuous period of not less than twelve (12)
months. The Disability of a Participant shall be determined by a licensed
physician chosen by the Plan Administrator. However, if the condition qualifies
as a "total disability" for
-2
<PAGE> 16
purposes of the federal Social Security Acts, the Plan Administrator may deem
the Participant to have a "Disability" for purposes of this Plan. The
determination shall be made in a uniform and nondiscriminatory manner.
2.12 DISQUALIFIED PERSON. "Disqualified Person" means:
(a) a Fiduciary for the Plan;
(b) a person providing services to the Plan;
(c) an Employer;
(d) an employee organization any of whose members are covered by the
Plan;
(e) an owner, direct or indirect, of fifty percent (50%) or more of:
(i) the combined voting power of all classes of stock entitled
to vote or the total value of shares of all classes of
stock of a corporation, or
(ii) the capital interest or the profits interest of a
partnership, or
(iii) the beneficial interest of a trust or unincorporated
enterprise,
that is an Employer under the Plan or that is an employee organization described
in (d);
(f) a spouse, ancestor, lineal descendant, or spouse of a lineal
descendant of any individual described in subsection (a), (b), (c), or (e);
(g) a corporation, partnership, trust, or estate of which (or in
which) fifty percent (50%) or more of:
(i) the combined voting power of all classes of stock entitled
to vote or the total value of shares of all classes of
stock of such a corporation, or
(ii) the capital interest or the profits interest of such a
partnership, or
(iii) the beneficial interest of such a trust or estate,
is owned directly or indirectly, or is held by persons described in subsection
(a), (b), (c), (d), or (e);
(h) an officer, director (or an individual having powers or
responsibilities similar to those of officers or directors), a ten percent (10%)
or more shareholder, or a highly compensated employee (earning ten percent (10%)
or more of the yearly wages of an employer) of a person described in subsection
(c), (d), (e), or (g); or
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<PAGE> 17
(i) a ten percent (10%) or more (in capital or profits) partner or
joint venturer of a person described in paragraph (c), (d), (e), or (g).
2.13 EARLY RETIREMENT DATE. "Early Retirement Date" means the first day of
the month coincident with or next following the date upon which (1) the Employee
reaches his tenth anniversary of employment with the Employer, and (2) the
Employee's total number of completed Years of Service and years of age equals or
exceeds 62.
2.14 EFFECTIVE DATE. "Effective Date" means the effective date of this
amended and restated Plan, i.e., July 1, 1997. The initial effective date of the
Plan was July 1, 1978.
2.15 EMPLOYEE. "Employee" means any person (excluding any nonresident alien
who performs no services within the United States) who is employed by the
Employer maintaining the Plan or by any Related Employer which is required to be
aggregated with the Employer under Sections 414(b), (c), (m), or (o) of the
Code. The term "Employee" shall also include any Leased Employee who is required
to be treated as an Employee under Sections 414(n) or (o) of the Code.
Notwithstanding the preceding sentence, a Leased Employee shall not be eligible
to participate in the Plan or to accrue benefits under the Plan based on service
as a Leased Employee. If a Leased Employee becomes an Employee, then service as
a Leased Employee will be credited for purposes of determining eligibility and
vesting.
Any person whose employment with the Employer is governed by the terms of a
collective bargaining agreement between employee representatives (as defined for
purposes of Code Section 7701(a)(46)) and the Employer shall not be considered
an "Employee" for purposes of this Plan if retirement benefits were the subject
of good faith bargaining between the parties under the agreement and the
agreement does not expressly provide for coverage under this Plan.
Any person who is employed by the Employer, but is classified by the
Employer as a Temporary Employee or an Independent Contractor, shall not be
considered an "Employee" for purposes of this Plan unless or until the Employer
redesignates the individual to a classification under which the individual would
be considered an "Employee" as defined herein. An individual is a "Temporary
Employee" if so classified by the Employer regardless of how long the individual
is employed or the number of Hours of Service completed in any given year. An
individual is an "Independent Contractor" if so classified by the Employer
regardless of whether the individual is the Employer's common law employee.
"Owner-Employee" means, in the case of an employer who adopts this Plan or
is specified by the Plan, a sole proprietor or practitioner, or, if the employer
is a partnership, a partner who owns more than ten percent (10%) of either a
capital or profit interest in the partnership.
"Self-Employed Individual" means, in the case of any employer who adopts
this Plan or is specified by the Plan, any individual employer who has Earned
Income from any trade, business,
-4
<PAGE> 18
or practice (or who would have had Earned Income but for the fact that the
trade, business, or practice had no net profits for the Employer's taxable
year).
"Shareholder-Employee" means, in the case of any employer who adopts this
Plan or is specified by this Plan, and who is an electing "small business
corporation" [as defined in Section 1371(b) of the Code], any employee or
officer of the employer who owns or is deemed to own more than five percent (5%)
of the outstanding stock of the employer on any day during the taxable year of
such corporation.
2.16 EMPLOYER. "Employer" shall mean Rural/Metro Corporation, any Related
Employer (unless not an Adopting Employer in accordance with Article 15), and
any Adopting Employer which adopts this Plan in accordance with Article 15.
2.17 EXEMPT LOAN. "Exempt Loan" means a loan to the Trustee on behalf of
the Plan as defined in, and which satisfies the requirements of, Treasury
Regulation Section 54.4975-7(b) and Department of Labor Regulation Section
2550.4086-3.
2.18 FIDUCIARY. "Fiduciary" means any person who exercises any
discretionary authority or control with respect to the management of the Plan;
who exercises any authority or control with respect to the management or
disposition of its assets; who renders investment advice for a fee or other
compensation, directly or indirectly, with respect to any monies or other
property of the Plan, or has any authority or responsibility to do so; who has
any discretionary authority or discretionary responsibility in the
administration of the Plan; or who acts to carry out a fiduciary responsibility,
when designated by a named Fiduciary pursuant to authority granted by the Plan;
subject, however, to any exception granted directly or indirectly by the
provisions of ERISA or any applicable regulations. The Employer is the "named
fiduciary" for purposes of Section 402(a)(2) of ERISA.
2.19 FORFEITURE. "Forfeiture" means that portion of a Participant's
Accounts which is not vested in the Participant, and which is forfeited pursuant
to Section 6.02 of the Plan.
2.20 HIGHLY COMPENSATED EMPLOYEE. "Highly Compensated Employee" means an
Employee who:
(a) during the Plan Year or during the preceding 12-month period is a
five percent owner of the Employer; or
(b) is any Employee who either:
(i) has Compensation in excess of $80,000 in the prior Plan
Year only; or
(ii) has Compensation in excess of $80,000 in the prior Plan
Year only and is part of the top-paid 20% group of
employees (based on Compensation for the relevant year)
excluding employees who are non-resident aliens and
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<PAGE> 19
who receive no earned income [within the meaning of
Section 911(d)(2) of the Code] from the Employer which
constitutes income from sources within the United States.
For purposes of this Section 2.20, with Plan Years beginning after December
31, 1997, "Compensation" means compensation as defined in Section 415(c)(3) of
the Code, which includes: (i) elective deferrals under a Code Section 401(k)
arrangement or under a Simplified Employee Pension maintained by the Employer,
(ii) amounts paid by the Employer which are not currently includable in the
Employee's gross income because of Section 125 of the Code, and (iii) Employer
contributions made pursuant to a salary reduction agreement under Section 403(b)
of the Code. However, for Plan Years beginning before January 1, 1998,
compensation excludes the amounts referred to in (i), (ii), and (iii) of this
paragraph.
For purposes of this Section 2.20, "five percent owner" means any person
who owns (or is considered as owning within the meaning of Section 318 of the
Code) more than 5 percent of the outstanding stock of the Employer or stock
possessing more than 5 percent of the total combined voting power of all stock
of the corporation or, if the Employer is not a corporation, any person who owns
more than 5 percent of the capital or profits interest in the Employer.
The Secretary shall adjust the $80,000 amount under subparagraph (b) above,
at the same time and in the same manner as under Section 415(d) of the Code,
except that the base period shall be the calendar quarter ending September 30,
1996.
The Employer will determine who is a Highly Compensated Employee, including
which of the criteria set forth in (i) and (ii) above to use for purposes of
making this determination, consistent with Section 414(q) of the Code, on an
annual basis. The Employer may make a calendar year election to determine the
Highly Compensated Employees for the Plan Year, as prescribed in Treasury
Regulations. A calendar year election must apply to all employee benefit plans
and arrangements of the Employer.
2.21 HOUR OF SERVICE.
(a) "Hour of Service" means:
(i Each hour for which an Employee is paid, or entitled to
payment, for the performance of duties for the Employer.
These hours shall be credited to the Employee for the
computation period or periods in which the duties are
performed. Each overtime hour shall be credited as a
single hour irrespective of any increase in the rate of
pay for such hour.
(ii Each hour for which an Employee is paid, or entitled to
payment, by the Employer on account of a period of time
during which no duties are performed (irrespective of
whether the employment relationship has terminated) due to
vacation, holiday, illness, incapacity (including
disability),
-6
<PAGE> 20
layoff, jury duty, military duty, or leave of absence. No
more than 200 hours of service shall be credited under
this Section 2.21(a)(ii) for any single continuous period
(whether or not such period occurs in a single computation
period). Hours under this Section 2.21(a)(ii) shall be
calculated and credited pursuant to Section 2530.200b-2 of
Department of Labor Regulations, which are incorporated by
reference.
(iii Each hour for which back pay, irrespective of mitigation
of damages, is either awarded or agreed to by the
Employer. The same hours of service shall not be credited
both under Section 2.21(a)(i) or Section 2.21(a)(ii), as
the case may be, and under this Section 2.21(a)(iii).
These hours shall be credited to an Employee for the
computation period or periods to which the award or
agreement pertains other than the computation period in
which the award, agreement, or payment is made.
(b The number of Hours of Service credited to an Employee shall be
determined on the basis of the actual Hours of Service of the Employee.
(c Service with the Employer for purposes of eligibility, vesting, and
contributions shall include service with any Related Employer or other employer
only to the extent specified in Sections 3.01 (eligibility), 6.01 (vesting), or
5.03 (allocations of contributions).
(d Solely for purposes of determining whether a Break in Service (as
defined in Section 2.04) has occurred in a computation period, for purposes of
participation and vesting, an Employee who is absent from work for purposes of
maternity or paternity shall receive credit for the Hours of Service which would
otherwise have been credited to the Employee but for such absence, or in any
case in which such hours cannot be determined, eight (8) Hours of Service for
each day of such absence. The total Hours of Service required to be credited for
a maternity or paternity leave of absence shall not exceed 199. For purposes of
this paragraph, an absence from work for purposes of maternity or paternity
means an absence (i) by reason of the Employee's pregnancy; (ii) by reason of
the birth of the Employee's child; (iii) by reason of the placement of a child
with the Employee in connection with the adoption of such child by such
Employee; or (iv) for purposes of caring for such child for a period beginning
immediately following such birth or placement. The Hours of Service credited
under this paragraph shall be credited (i) in the computation period in which
the absence begins if the crediting is necessary to prevent a Break in Service
in that period, or (ii) in all other cases, in the following computation period.
(e Notwithstanding any provision of this Plan to the contrary,
contributions, benefits and service credit with respect to qualified military
service will be provided in accordance with Section 414(u) of the Code.
2.22 INVESTMENT MANAGER. "Investment Manager" means an "investment manager"
as defined by Section 3(38) of ERISA.
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<PAGE> 21
2.23 LEASED EMPLOYEE. "Leased Employee" means any person (other than an
employee of the Employer) who pursuant to an agreement between the Employer and
any other person ("leasing organization") has performed services for the
Employer [or for the Employer and related persons determined in accordance with
Section 414(n)(6) of the Code] on a substantially full time basis for a period
of at least one year, and such services are performed under primary direction or
control by the Employer. Contributions or benefits provided a Leased Employee by
the leasing organization which are attributable to services performed for the
Employer will be treated as provided by the Employer.
A Leased Employee shall not be considered an Employee of the Employer if:
(a the Leased Employee is covered by a money purchase pension plan
providing:
(i a non-integrated employer contribution rate of at least
ten percent (10%) of compensation, as defined in Section
415(c)(3) of the Code, but including amounts contributed
pursuant to a salary reduction agreement which are
excludable from the employee's gross income under Section
125, Section 402(a)(8), Section 402(h) or Section 403(b)
of the Code,
(ii immediate participation, and
(iii full and immediate vesting; and
(b Leased Employees do not constitute more than twenty percent (20%)
of the Employer's nonhighly compensated Employees.
2.24 NET INCOME. "Net Income" means net income of the Employer prior to
income taxes (including but not limited to federal and state income taxes) as
reflected by the Employer's federal income tax return for the period, as
originally filed, before deduction of the Employer's Contribution to the Trust
(but after the deduction of any Employer Contribution to any pension trust
established by the Employer), and not including dividends received by the
Employer from stock held in other corporations.
2.25 NORMAL RETIREMENT AGE AND NORMAL RETIREMENT DATE. "Normal Retirement
Age" means age sixty-five (65). The term "Normal Retirement Date" shall be the
date a Participant attains the Normal Retirement Age.
2.26 OTHER INVESTMENTS ACCOUNT. "Other Investments Account" means the
account or subaccount of a Participant which is credited with his share of the
net gain (or loss) of the Plan, Forfeitures, and Employer Contributions in other
than Company Stock.
2.27 PARTICIPANT. "Participant" means any Employee who satisfies the
eligibility requirements to participate, and who participates in accordance with
the provisions of Article 3.
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<PAGE> 22
2.28 PLAN. "Plan" means the provisions of this Agreement.
2.29 PLAN ADMINISTRATOR. "Plan Administrator" means the Employer and, to
the extent of the duties and responsibilities delegated to it by the Employer,
the Advisory Committee.
2.30 PLAN YEAR. "Plan Year" means the 12 consecutive month period
commencing on July 1 of each year and ending on the following June 30. The Plan
Year is the Plan's "limitation year" for purposes of measuring maximum
allocations to Participants under the Plan.
2.31 RELATED EMPLOYER. "Related Employer" means any corporation which is a
member of a "controlled group of corporations" [as defined in Section 414(b) of
the Code] of which the Employer is a component member; any trade, business, or
practice (whether or not incorporated) which is under "common control" with the
Employer [as defined in Section 414(c) of the Code]; any corporation,
partnership, or other organization which is a member of an "affiliated service
group" [as defined in Section 414(m) of the Code] of which the Employer is a
component member; and any organization which is required by regulations issued
under Section 414(o) of the Code to be aggregated with the Employer for certain
testing purposes. "Related Employer" also means any predecessor employer which
previously sponsored this Plan or the Prior Plan.
2.32 TOP HEAVY PLAN.
(a A plan is a "Top Heavy Plan," for a Plan Year, if:
(i The top heavy ratio for this Plan exceeds sixty percent
(60%) and this Plan is not part of any Required
Aggregation Group or Permissive Aggregation Group of
plans; or
(ii This Plan is a part of a Required Aggregation Group of
plans, but not part of a Permissive Aggregation Group and
the top heavy ratio for the Required Aggregation Group
exceeds sixty percent (60%); or
(iii This Plan is a part of a Required Aggregation Group and
also part of a Permissive Aggregation Group of plans, and
the top heavy ratio for the Permissive Aggregation Group
exceeds sixty percent (60%).
The "top heavy ratio" (for purposes of determining whether the Plan is a Top
Heavy Plan) is a fraction, the numerator of which is the sum of the Account
Balances or Present Value of Accrued Benefits of Key Employees under this Plan
and any plan of an Aggregation Group, as of the Determination Date, and the
denominator of which is a similar sum determined for all Participants. The top
heavy ratio shall be calculated without regard to any Non-Key Employee who was
formerly a Key Employee. The top heavy ratio shall be calculated in accordance
with Section 416 of the Code and applicable Regulations.
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<PAGE> 23
(b If the Employer maintains any other tax-qualified plan (including
any simplified employee pension plan), this Plan (and any other plan with the
relevant Aggregation Group) is a Top Heavy Plan only if it is part of the
Required Aggregation Group, and the Required Aggregation Group is a Top Heavy
Group. An Aggregation Group is a "Top Heavy Group" if the top heavy ratio
(determined as of the Determination \Date) for both the Required Aggregation
Group and the Permissive Aggregation Group exceeds sixty percent (60%). The "top
heavy ratio" (for purposes of determining whether an Aggregation Group is a "Top
Heavy Group") is a fraction, the numerator of which is the sum of the Present
Value of Accrued Benefits of Key Employees under all defined benefit plans
within the Aggregation Group, and the Account Balances of Key Employees under
the defined contribution plans within the Aggregation Group, as of the
Determination Date, and the denominator of which is a similar sum determined for
all Participants. The top heavy ratio shall be calculated without regard to any
Non-Key Employee who was formerly a Key Employee. In addition, for Plan Years
beginning after December 31, 1984, if a Participant or former Participant has
not performed services for the Employer maintaining the Plan (other than
benefits provided under the Plan) at any time during the five (5) year period
ending on the Determination Date, the Account Balances and/or Present Value of
Accrued Benefits for such Participant or former Participant shall not be taken
into account for purposes of determining whether this Plan is a Top Heavy Plan.
When aggregating plans, the value of Account Balances and Accrued Benefits will
be calculated with reference to the Determination Dates that fall within the
same calendar year. The Accrued Benefit of a Participant (other than a Key
Employee) shall be determined under (a) the method, if any, that uniformly
applies for accrual purposes under all defined benefit plans maintained by the
Employer, or (b) if there is no such method, as if such benefit accrued not more
rapidly than the slowest accrual rate permitted under the fractional rule of
Section 411(b)(1)(C) of the Code.
(c For purposes of this Section 2.32:
(i The term "Required Aggregation Group" means (A) each
qualified plan of the Employer in which a Key Employee
participates or participated at any time during the
determination period (regardless of whether the Plan has
terminated); and (B) any other qualified plan of the
Employer which enables a plan described in (A) to meet the
requirements of Sections 401(a)(4) or 410 of the Code.
(ii The term "Permissive Aggregation Group" means the Required
Aggregation Group plus any other qualified plans
maintained by the Employer, but only if such group would
satisfy in the aggregate the requirements of Sections
401(a)(4) and 410 of the Code. The Advisory Committee
shall determine which plans to take into account in
determining the Permissive Aggregation Group.
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(iii The term "Determination Date" means, for any Plan Year,
the Anniversary Date of the preceding Plan Year or, in the
case of the first Plan Year of the Plan, the Anniversary
Date of that Plan Year.
(iv The term "Employer" means the Employer and any Related
Employer.
(v The term "valuation date" means the Anniversary Date of
this Plan, or the date elected by an employer under any
other plan included within an Aggregation Group as of
which Account Balances or Accrued Benefits are valued for
purposes of calculating the top heavy ratio.
(vi The term "Key Employee" means, as of any Determination
Date (as defined above), any Employee or former Employee
(and the Beneficiary or Beneficiaries of such Employee)
who, at any time during the Plan Year (which includes the
Determination Date) or during the preceding four Plan
Years, is an officer of the Employer who has an annual
Compensation greater than fifty percent (50%) of the
amount in effect under Section 415(b)(1)(A) of the Code
for any such Plan Year; one of the ten (10) Employees
owning the largest interests in the Employer and having
annual Compensation from the Employer of more than the
limitation in effect under Section 415(c)(1)(A) of the
Code; a more than five percent (5%) owner of the Employer;
or a more than one percent (1%) owner of the Employer who
has annual Compensation of more than One Hundred Fifty
Thousand Dollars ($150,000). "Annual Compensation" means
compensation as defined in Section 415(c)(3) of the Code,
but including amounts contributed by the Employer pursuant
to a salary reduction agreement which are excludable from
the Employee's gross income under Section 125, Section
402(a)(8), Section 402(h) or Section 403(b) of the Code.
The constructive ownership rules of Section 318 of the
Code (or the principles of that Section, in the case of an
unincorporated Employer) will apply for purposes of
determining ownership in the Employer. A "five percent
(5%) owner" or a "one percent (1%) owner" means any person
who owns (or is considered as owning within the meaning of
Code Section 318) more than five percent (5%) or one
percent (1%), respectively, of the outstanding stock of
the Employer, or stock possessing more than five percent
(5%) or one percent (1%), respectively, 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%) or one percent (1%),
respectively, of the capital or profits interest in the
Employer. In determining the percentage of ownership under
this paragraph, employers that would otherwise be
aggregated under Code Sections 414(b), (c), and (m) shall
be treated as separate employers. However, in determining
whether an individual has annual Compensation of more than
$150,000, Compensation from each employer required to be
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<PAGE> 25
aggregated under Code Sections 414(b), (c), and (m) shall
be taken into account. The determination of an Employee's
status as a Key Employee shall be made by the Advisory
Committee, in accordance with rules set forth in Section
416(i)(1) of the Code and applicable Regulations.
(vii The term "Non-Key Employee" means, as of any Determination
Date, any Employee who is not a Key Employee.
(d For purposes of this Section 2.32, a Participant's "Account
Balance" as of the Determination Date is the sum of:
(i The balance in his Employer Accounts as of the most recent
valuation occurring within a twelve (12) month period
ending on the Determination Date.
(ii 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 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.
(iii Any 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
Account Balance as of the valuation date. Notwithstanding
any contrary provision of this Plan, all distributions,
including distributions made prior to January 1, 1984, and
distributions made under a terminated plan which, but for
its termination, would have been required to be included
in an Aggregation Group, will be counted.
(iv Any Employee contributions, except deductible Participant
contributions.
(v With respect to unrelated rollovers and transfers (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 for rollovers or
transfers, it shall always consider such rollover or
transfer as a distribution for the purposes of this
Section 2.32. If this Plan is the plan accepting such
rollovers or transfers, it shall not consider such
rollovers or transfers accepted after December 31, 1983,
as part of the Participant's Account Balance. However,
rollovers or transfers accepted prior to
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January 1, 1984, shall be considered as part of the
Participant's Account Balance.
(vi With respect to related rollovers and transfers (either
not initiated by the Employee or made to a plan maintained
by the same employer), if this Plan provides the rollover
or transfer, it shall not be counted as a distribution for
purposes of this Section 2.32. If this Plan is the plan
accepting such rollover or transfer, it shall consider
such rollover or transfer as part of the Participant's
Account Balance, irrespective of the date on which such
rollover or transfer is accepted.
(e For purposes of this Section 2.32, a Participant's "Present Value
of Accrued Benefit," in the case of any defined benefit plan, shall be
determined:
(i As of the most recent "actuarial valuation date," which is
the most recent valuation date within a twelve (12) month
period ending on the Determination Date.
(ii For the first Plan Year, as if (A) the Participant
terminated service as of the Determination Date; or (B)
the Participant terminated service as of the actuarial
valuation date, but taking into account the estimated
Present Value of Accrued Benefits as of the Determination
Date.
(iii For any other Plan Year, as if the Participant terminated
service as of the actuarial valuation date.
(iv The actuarial valuation date must be the same date used
for computing the defined benefit plan minimum funding
costs, regardless of whether a valuation is performed that
Plan Year.
(f For purposes of this Section 2.32, a Participant's "Present Value
of Accrued Benefit," in the case of a defined benefit plan, shall be determined
under the top heavy provisions of the applicable defined benefit plan.
(g Notwithstanding any contrary provision, the top heavy rules
described in this Section 2.32 shall be applied in accordance with Section 416
of the Code and applicable regulations.
2.33 TRUST. "Trust" means the trust established by the Trustee under this
Plan, consisting of contributions, and any increases or decreases in the value
of the same. The Trustee may combine the trusts created under the plans of all
employers designated by the Employer with respect to this Plan into a single
trust for investment purposes.
2.34 TRUSTEE. "Trustee" means the institution(s) or person(s) named in this
Plan, or any successor.
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2.35 UNALLOCATED COMPANY STOCK SUSPENSE ACCOUNT. "Unallocated Company Stock
Suspense Account" means an account or subaccount containing Company Stock
acquired with the proceeds of an Exempt Loan and which has not been released
from such account or subaccount and allocated to Participant's Company Stock
Accounts.
2.36 YEAR OF SERVICE. "Year of Service" means the periods specified in the
Plan for purposes of measuring eligibility for participation [Section 3.01(b)]
and vesting [Section 6.01(b)].
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3. ELIGIBILITY AND PARTICIPATION
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3.1 ELIGIBILITY TO PARTICIPATE.
(a Each Employee who has completed at least one (1) Year of Service
and has attained age twenty-one (21) shall become a Participant as of the
applicable Entry Date. The Entry Date for an Employee who completes all of the
eligibility requirements during the initial eligibility period shall be the
Employee's date of hire. The Entry Date for an Employee who completes the
eligibility requirements subsequent to the initial eligibility period shall be
the anniversary date of the Employee's date of hire in the Plan Year during
which the Employee completed all of the eligibility requirements of this Plan.
(b For purposes of determining initial eligibility, the term "Year of
Service" means a twelve (12) consecutive month period during which an Employee
completes at least 200 Hours of Service, measured from the date the Employee
completes his first Hour of Service. The second and any subsequent Year of
Service shall be a Plan Year during which the Employee completes at least 200
Hours of Service, measured from the first day of the Plan Year in which the
first anniversary of the Employee's first Hour of Service occurs, regardless of
whether the Employee is entitled to be credited with 200 Hours of Service during
the initial eligibility computation period. An Employee who is credited with 200
Hours of Service in both the initial eligibility computation period and the
first Plan Year which commences prior to the first anniversary of the Employee's
initial eligibility computation period will be credited with two (2) Years of
Service for purposes of eligibility. For purposes of determining eligibility,
all service with the Employer, and with any Related Employer, shall be counted.
(c Any Employee who was a Participant in the Prior Plan on the day
before the Effective Date of this Plan shall continue as a Participant in the
Plan.
(d If a Participant's employment is not terminated, but the
Participant ceases to be a member of a class or unit of Employees covered by
this Plan, as provided under Sections 2.15 and 3.01(a), then for any Plan Year
that such a Participant is not a member of the covered class or unit, the
Participant shall not share in the allocation of Contributions and Forfeitures
except to the extent of the Compensation paid for his services as a member of
the covered class or unit (assuming that the Participant otherwise satisfies the
applicable allocation requirements). However, if a Participant returns to the
eligible class or unit of employees, he will resume participation as of the date
he rejoins the eligible class or unit. If an Employee who is not a Participant
becomes a member of a class or unit of Employees covered by this Plan, he shall
participate in the Plan immediately if he has otherwise satisfied all of the
conditions of Section 3.01 and would have been a member of the covered class or
unit during his period of service with the Employer.
3.2 REEMPLOYMENT BEFORE BREAK IN SERVICE. If an Employee's employment with
the Employer terminates and he is subsequently reemployed before he incurs a
one-year Break in Service, his Years of Service and his employment will not be
deemed to have been interrupted
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<PAGE> 29
during such year and, if he was a Participant in the Plan (or otherwise
satisfied the requirements for participation specified in Section 3.01 of the
Plan), he will remain (or become) a Participant immediately upon his
reemployment by the Employer. If he was not a Participant in the Plan but
otherwise satisfied the requirements for participation specified in Section 3.01
of the Plan, he will become a Participant on the later of the date he would have
entered the Plan had he not terminated employment or upon his reemployment.
3.3 REEMPLOYMENT AFTER BREAK IN SERVICE. If a Participant completes a
one-year Break in Service and is subsequently reemployed by the Employer, the
former Participant shall be considered a new Employee, for eligibility purposes,
and shall be required to complete the requirements specified in Section 3.01 of
the Plan [provided the service requirement in Section 3.01 does not exceed one
(1) Year of Service] to become a Participant. A Participant who completes the
eligibility requirements in accordance with this provision shall again become a
Participant as of the date of his reemployment (i.e., the date upon which he
completed his first Hour of Service following his Break in Service) by the
Employer.
3.4 DETERMINATION OF ELIGIBILITY. The Employer's records with respect to an
Employee's or Participant's employment, Hours of Service, Years of Service,
Breaks in Service, termination of employment, reemployment, leaves of absence,
and Compensation will be conclusive as to all persons, unless demonstrated to
the Employer's satisfaction to be incorrect. All doubtful cases of eligibility
to participate in this Plan shall be resolved by the Advisory Committee, whose
determination in such cases shall be conclusive and binding upon all persons,
except as otherwise provided by law. Any individual deemed to be an Employee of
the Employer by reason of any law unless such individual is otherwise determined
to be an eligible Employee by the Employer, shall nevertheless be excluded from
participation in the Plan.
3.5 EXCLUSION OF ELIGIBLE EMPLOYEE. If, in any Plan Year, any Employee who
should be included as a Participant in the Plan is erroneously excluded, 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, (if necessary after the application of available Forfeitures, if
any,) so that the omitted Employee receives the same amount which the Employee
would have received had he not been omitted.
3.6 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 that 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, but the
amount erroneously contributed will be applied as a Forfeiture for the Plan Year
in which the error is discovered.
3.7 ELECTION NOT TO PARTICIPATE. An Employee who is otherwise eligible to
participate in the Plan may make a one-time irrevocable election not to
participate. The Employee's election must be in writing, and must be delivered
to the Plan Administrator on or before the date the Employee
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first becomes eligible to participate in the Plan. The Plan Administrator will
furnish any form required to make an election under this Section 3.07.
3.8 PARTICIPATION OF OWNER-EMPLOYEES. Notwithstanding any other provision
of this Plan, no Owner-Employee shall become a Participant under this Plan if
such Owner-Employee, either alone or in conjunction with one or more other
Owner-Employees: (i) controls an unincorporated trade, business, or practice
other than the trade, business, or practice of the Employer, unless the
Employees of such other trade, business, or practice are included under a plan
which meets the requirements of Sections 401(a) and (d) of the Code and which
provides contributions and benefits which are not less favorable than the
contributions and benefits provided for Owner-Employees under this Plan; (ii)
controls both the trade, business, or practice of the Employer, and one or more
other unincorporated trades, businesses, or practices, unless plans are
established with respect to such other unincorporated trades, business, or
practices and such plans and this Plan, in combination, would form a single plan
which meets the requirements of Sections 401(a) and (d) of the Code; or (iii)
controls the trade, business or practice of the Employer, unless this Plan
provides contributions and benefits which are not less favorable than those
provided by any other plans under which such Owner-Employee is covered as an
Owner-Employee. If an Employee is covered as an Owner-Employee under the plans
of two or more trades, businesses or practices which are not controlled, and the
Employee controls a trade, business or practice, then the contributions or
benefits of the Employees under the plan of the trades, businesses or practices
which are controlled must be as favorable as those provided for the Employee
under the most favorable plan of the trade, business or practice which is not
controlled. For purposes of these limitations, an Owner-Employee, or two or more
Owner-Employees, will be considered to control a trade, business, or practice if
the Owner-Employee, or two or more Owner-Employees together:
(a own the entire interest in an unincorporated trade, business, or
practice; or
(b in the case of a partnership, own more than fifty percent (50%)
of either a capital or profit interest in the partnership.
For purposes of the preceding sentence, an Owner-Employee, or two or more
Owner-Employees, shall be treated as owning any interest in a partnership which
is owned, directly or indirectly, by a partnership which such Owner-Employee, or
such two or more Owner-Employees, are considered to control within the meaning
of the preceding sentence. In the event an Owner-Employee becomes a Participant
and, thereafter, at any time fails to meet the requirements of this Section
3.08, that person shall cease to be a Participant for all purposes under this
Plan until such time as he again satisfies the limitations under this Section.
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4. CONTRIBUTIONS
- ------------------------------------------------------------------------------
4.1 EMPLOYER CONTRIBUTIONS.
(a The Employer may make a contribution to the Plan for any Plan Year
in an amount determined by the Employer in its sole discretion.
(b The Employer's Contribution(s), if any, may consist of cash,
"qualifying employer securities" or "qualifying employer real property" [as
defined in Section 407(d) of ERISA], or of any other property acceptable to the
Trustee. Employer Contributions in cash and other cash received by the Trust
shall first be applied to pay any Current Obligations of the Trust.
(c The Employer may make Contributions to the Plan without regard to
current or accumulated earnings and profits for the taxable year or years ending
with or within the Plan Year.
(d The Employer's total Contribution(s) for any Plan Year shall not
exceed the maximum deductible amount for the Employer's corresponding taxable
year as determined under Section 404 of the Code.
4.2 PAYMENTS. All Contributions shall be deposited with the Trust, and may
be made on any date or dates selected by the Employer; provided, however, that
the total annual Contribution(s) for each Plan Year shall be paid on or before
the date on which the Employer is required to file its federal income tax return
for the corresponding taxable year of the Employer, including any extensions.
4.3 NO RESPONSIBILITY FOR COLLECTION OR VERIFICATION. Neither the Trustee
nor any other party with respect to the Trust, shall have responsibility or
obligation to collect any Contribution under the Plan, or to verify the
correctness of the amount of any Contribution under the Plan.
4.4 TOP HEAVY MINIMUM CONTRIBUTION.
(a If this Plan is a Top Heavy Plan, the Employer shall make a Minimum
Top Heavy Contribution, if any [as described in Section 4.04(b)], on behalf of
each Participant who is a Non-Key Employee and who is employed by the Employer
on the Anniversary Date. For purposes of this Section 4.04, a Non-Key Employee
Participant includes any Employee otherwise eligible to participate in the Plan
but who is not entitled to receive an allocation of the Employer's Contribution
for any Plan Year because of (i) the Participant's failure to complete any
minimum Hours of Service, or (ii) Compensation less than a stated amount.
(b If the Employer contribution rate for the Key Employee with the
highest contribution rate is less than three percent (3%), the Minimum Top Heavy
Contribution for Non-Key Employees shall be equal to the highest contribution
rate attributable to the Key Employee. The "contribution rate" is the sum of
Employer contributions (not including Employer contributions to
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<PAGE> 32
Social Security) and Forfeitures allocated to the Participant's Account for the
Plan Year, divided by his Compensation for the Plan Year. To determine the
contribution rate, the Advisory Committee shall consider all qualified defined
contribution plans maintained by the Employer as a single plan. [Notwithstanding
the preceding provisions of this Section 4.04, if a defined benefit plan
maintained by the Employer which benefits a Key Employee depends on this Plan to
satisfy the anti-discrimination rules of Section 401(a)(4) of the Code, or the
coverage rules of Section 410 (or another plan benefiting the Key Employee so
depends on the defined benefit plan), the Minimum Top Heavy Contribution for a
Non-Key Employee is three percent (3%) of his Compensation regardless of the
contribution rate for any Key Employee.]
(c If the contribution rate for the Plan Year with respect to any
Non-Key Employee(s) described in this Section 4.04 is less than the Minimum Top
Heavy Contribution, the Employer will increase its contribution for the Non-Key
Employee to the extent necessary to equal the Minimum Top Heavy Contribution.
(d For purposes of this Section 4.04, the term "Compensation" shall
have the meaning defined in Section 5.08(a)(iii).
(e Notwithstanding the provisions of Section 5.03, any Minimum Top
Heavy Contribution made under this Section 4.04 shall be allocated to the
Accounts of eligible Participants in the ratio that each such Participant's
Compensation for the Plan Year bears to the total Compensation of all such
Participants for the Plan Year, without any reduction on account of integration
with Social Security.
(f In lieu of the Minimum Top Heavy Contribution requirements of this
Section 4.04(a)-(e), if a Non-Key Employee participates in this Plan and a
defined benefit pension plan included in a Required Aggregation Group which is
Top Heavy, a minimum allocation of five percent (5%) of Compensation shall be
provided under this Plan.
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5. ALLOCATIONS TO ACCOUNTS
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5.1 PARTICIPANTS' ACCOUNTS. An Account shall be maintained in the name of
each Participant, reflecting his share of Employer Contributions and
Forfeitures, if any, under the Plan, together with the earnings, losses,
appreciation, and depreciation attributable to such amounts. Each Participant's
Account may consist of a Company Stock Account and Other Investments Account as
well as such other accounts or subaccounts the Plan Administrator and/or the
Trustee, in their discretion, decide to maintain. Unless the context indicates
otherwise, the term "Account," as used in this Plan, shall include all accounts
(and subaccounts) maintained for a Participant. Each such Account shall be
valued and adjusted, as provided in this Article 5, to reflect any withdrawals
and distributions and any appreciation and depreciation in the value of the
assets credited to the Account. The maintenance and establishment of separate
Accounts for each Participant shall not be construed as giving any person an
interest in any specific assets of the Trust, the whole of which, for investment
purposes, shall be administered as a single fund except to the extent otherwise
provided in this Plan.
5.2 DATE(S) FOR CREDITING CONTRIBUTIONS. For purposes of valuations and
adjustments made pursuant to this Article 5, Contributions to the Plan shall be
credited as of the last day of the Plan Year for which the Contributions are
made, or on such other, more frequent, dates as may be specified by the Plan
Administrator.
5.3 ALLOCATION OF EMPLOYER CONTRIBUTIONS.
(a All Participants employed by the Employer during a Plan Year (but
excluding Participants who fail to complete 200 Hours of Service during the Plan
Year, or whose employment was terminated during but prior to the last day of the
Plan Year for a reason other than retirement at or after the Early or Normal
Retirement Date, Disability, or death) shall be eligible to share in the
allocation of Contributions, if any, for the Plan Year. Subject to the Minimum
Top Heavy Contribution rules under Section 4.04, and the limitations on annual
additions and benefits specified in Section 5.08, Contributions, if any, shall
be allocated as of the relevant date(s) to the Accounts of eligible Participants
as of such dates in the ratio that each such Participant's Compensation for the
Plan Year bears to the total Compensation of all such Participants for the Plan
Year.
(b The Company Stock Account of each Participant shall be credited for
each Plan Year, within the time period set forth in Section 5.02, with
Forfeitures of Company Stock and the Participant's allocable share, if any, of
Company Stock (including fractional shares) purchased and paid for by the Plan
or contributed in kind by the Employer. Stock dividends on Company Stock held in
his Company Stock Account shall be credited to his Company Stock Account when
paid. Cash dividends on Company Stock held in his Company Stock Account shall,
in the sole discretion of the Plan Administrator, either be credited to his
Other Investments Account when paid or be used to repay an Exempt Loan;
provided, however, that when cash dividends are used to repay an Exempt Loan,
Company Stock shall be released from the Unallocated Company Stock Suspense
Account and allocated to the Participant's Company Stock Account pursuant to
Section 5.03(d) and, provided, further, that Company Stock allocated to the
Participant's Company Stock Account shall
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have a fair market value not less than the amount of cash dividends which would
have been allocated to such Participant's Other Investments Account for the Plan
Year.
Company Stock acquired by the Plan with the proceeds of an Exempt Loan
shall only be allocated to each Participant's Company Stock Account upon release
from the Unallocated Company Stock Suspense Account as provided in Section
5.03(d) herein. Company Stock acquired with the proceeds of an Exempt Loan shall
be an asset of the Trust Fund and maintained in the Unallocated Company Stock
Suspense Account.
(c As of each Anniversary Date or other valuation date, allocation of
Employer Contributions and Forfeitures, any earnings or losses (net appreciation
or net depreciation) of the Trust shall be allocated in the same proportion that
each Participant's nonsegregated accounts (other than each Participant's Company
Stock Account) bear to the total of all Participants' nonsegregated accounts
(other than Participants' Company Stock Accounts) as of such date.
Earnings or losses do not include the interest paid under any
installment contract for the purchase of Company Stock by the Trust or on any
loan used by the Trust to purchase Company Stock, nor does it include income
received by the Trust with respect to Company Stock acquired with the proceeds
of an Exempt Loan; all income received by the Trust from Company Stock acquired
with the proceeds of an Exempt Loan may, at the discretion of the Plan
Administrator, be used to repay such loan.
(d All Company Stock acquired by the Plan with the proceeds of an
Exempt Loan must be added to and maintained in the Unallocated Company Stock
Suspense Account. Such Company Stock shall be released and withdrawn from that
account as if all Company Stock in that account were encumbered. For each Plan
Year during the duration of the loan, the number of shares of Company Stock
released shall equal the number of encumbered shares held immediately before
release for the current Plan Year multiplied by a fraction, the numerator of
which is the amount of principal and interest paid for the Plan Year and the
denominator of which is the sum of the numerator plus the principal and interest
to be paid for all future Plan Years. As of each Anniversary Date, the Plan must
consistently allocate to each Participant's Account, in the same manner as
Employer discretionary contributions pursuant to Section 4.01(a) are allocated,
non-monetary units (shares and fractional shares of Company Stock) representing
each Participant's interest in Company Stock withdrawn from the Unallocated
Company Stock Suspense Account. However, Company Stock released from the
Unallocated Company Stock Suspense Account with cash dividends pursuant to
Section 5.03(a) shall be allocated to each Participant's Company Stock Account
in the same proportion that each such Participant's number of shares of Company
Stock sharing in such cash dividends bears to the total number of shares of all
Participants' Company Stock sharing in such cash dividends. Income earned with
respect to Company Stock in the Unallocated Company Stock Suspense Account shall
be used, at the discretion of the Plan Administrator, to repay the Exempt Loan
used to purchase such Company Stock. Company Stock released from the Unallocated
Company Stock Suspense Account with such income, and any income which is not so
used, shall be allocated as of each valuation date in the same proportion that
each Participant's nonsegregated accounts after the allocation of any earnings
or losses pursuant to Section 5.03(b) bear to the total
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of all Participants' nonsegregated accounts after the allocation of any earnings
or losses pursuant to Section 5.03(b).
(e If the allocations of Contributions for a Plan Year under Section
5.03(a) are insufficient to satisfy the minimum coverage requirements under
Section 410(b) of the Code, the Plan Administrator shall determine the number of
additional Participants who must receive an allocation of Contributions for
purposes of complying with Section 410(b) of the Code and shall list, in
ascending order by Compensation, all Participants who completed at least one (1)
Hour of Service and who did not receive an allocation under Section 5.03(a).
Some or all of the listed Participants, beginning with the Participant with the
least Compensation, and then in ascending order, shall be eligible to share in
the allocation of Contributions until the total allocations of Contributions
satisfy the coverage requirements under Section 410(b) of the Code.
5.4 VALUATION AND ADJUSTMENT OF ACCOUNTS. Accounts may be valued and
adjusted on an annual or more frequent (including daily) basis, in accordance
with such rules and procedures as may be established by the Plan Administrator,
and applied in a uniform and nondiscriminatory manner.
5.5 METHOD OF VALUATION. Valuations must be made in good faith and based on
all relevant factors for determining the fair market value of securities. In the
case of a transaction between the Plan and a Disqualified Person, value must be
determined as of the date of the transaction. For all other Plan purposes, value
must be determined as of the most recent "valuation date" under the Plan. An
independent appraisal will not in itself be a good faith determination of value
in the case of a transaction between the Plan and a Disqualified Person.
However, in other cases, a determination of fair market value based on at least
an annual appraisal independently arrived at by a person who customarily makes
such appraisals and who is independent of any party to the transaction will be
deemed to be a good faith determination of value. Company Stock not readily
tradeable on an established securities market shall be valued by an independent
appraiser meeting requirements similar to those prescribed under Code Section
170(a)(1) and the applicable regulations promulgated thereunder.
5.6 APPLICATION OF FORFEITURES. Any Forfeitures arising under Sections 6.01
and 6.02 of the Plan since the last Anniversary Date will be allocated in the
following order: (i) to correct administrative errors, if any; (ii) to reinstate
previously forfeited account balances of former Participants, if any, in
accordance with Section 6.04(b)(iv)(C); and (iii) allocated in accordance with
Section 5.03(a) in the same manner and form as an Employer Contribution.
5.7 CHARGING OF DISTRIBUTIONS. All payments or distributions made to a
Participant or Beneficiary shall be charged to his Accounts when made. The Plan
Administrator shall determine which of the Participant's Accounts shall be so
charged.
5.8 LIMITATIONS ON ANNUAL ADDITIONS AND BENEFITS.
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(a For the purposes of this Section 5.08, the following terms shall
have the definitions set forth below:
(i) Allocation Date. "Allocation Date" means the date with
respect to which all or a portion of the Contributions or
Forfeitures are allocated to Participants' Accounts.
(ii) Annual Additions. "Annual Additions" means the sum of the
following amounts, if any, credited to a Participant's
Accounts for the Limitation Year:
(A) Employer Contribution;
(B) Forfeitures;
(C) Employee Contributions (as determined under Section
415(c)(2) of the Code); and
(D) Amounts allocated after March 31, 1984, to an
individual medical account, as defined in Section
415(1)(2) of the Code, which is part of a pension or
annuity plan maintained by the Employer, and 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 Section 419A(d)(3) of
the Code, which is part of a welfare benefit fund, as
defined in Section 419(e) of the Code, maintained by
the Employer, will be considered Annual Additions to a
Defined Contribution Plan.
For purposes of this Section 5.08, any Excess Amount applied under this
Section 5.08 in any Limitation Year to reduce Employer Contributions will be
included in Annual Additions for such Limitation Year.
(iii) Compensation. "Compensation" means a Participant's earned
income, wages, salaries, fees for professional service and
other amounts received for personal services actually
rendered in the course of employment with the Employer
maintaining the Plan (including, but not limited to,
commissions, compensation for services on the basis of a
percentage of profits, tips and bonuses). The term
"Compensation" shall not include:
(A) Employer contributions, to a plan of deferred
compensation, to the extent the contributions are not
included in the gross income of the Employee for the
taxable year in which the contributions are made;
Employer contributions on behalf of an Employee,
through a salary
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reduction arrangement, to a cash or deferred plan
described in Section 401(k) of the Code or a
tax-deferred annuity described in Section 403(b) of
the Code, or to a simplified employee pension plan
described in Section 408(k) of the Code, to the extent
such contributions are deductible by the Employee
under Section 219(b)(2) of the Code; and any
distributions from a plan of deferred compensation,
regardless of whether such amounts are includable in
the gross income of the Employee when distributed;
(B) Amounts realized from the exercise of a non-qualified
stock option, or when restricted stock (or property)
held by an Employee either becomes freely transferable
or is no longer subject to a substantial risk of
forfeiture;
(C) Amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock
option;
(D) Other amounts which receive special tax benefits, such
as premiums for group term life insurance (but only to
the extent that the premiums are not includable in the
gross income of the Employee), or contributions made
by an Employer (whether or not under a salary
reduction agreement) towards the purchase of an
annuity contract described in Section 403(b) of the
Code (whether or not the contributions are excludable
from the gross income of the Employee).
The provisions of this paragraph (iii) shall apply solely
to this Section 5.08. Amounts included as Compensation
under this paragraph (iii) are those amounts actually paid
to a Participant or includable in his gross income within
the Limitation Year. Notwithstanding the preceding
sentence, Compensation for a Participant in a Defined
Contribution Plan who is permanently and totally disabled
(as defined in Section 22(e)(3) of the Internal Revenue
Code) is the Compensation such Participant would have
received for the Limitation Year if the Participant had
been paid at the rate of Compensation paid immediately
before becoming permanently and totally disabled; such
imputed Compensation for the disabled Participant may be
taken into account only if the Participant is not a Highly
Compensated Employee (as defined in Section 414(q) of the
Code) and Contributions made on behalf of such Participant
are nonforfeitable when made.
(iv) Defined Benefit Fraction. "Defined Benefit Fraction" means
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
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of one hundred twenty-five percent (125%) of the dollar
limitation determined for the Limitation Year under
Sections 415(b) and (d) of the Code or one hundred forty
percent (140%) of the Participant's highest average
compensation, including any adjustments under Section
415(b) of the Code. For purposes of this Section, the term
"highest average compensation" shall mean the average
Compensation for the three consecutive Years of Service
that produces the highest average.
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 one hundred twenty-five
percent (125%) of the sum of the annual benefits under
such plans which the Participant had accrued as of the
close of the last Limitation Year beginning before January
1, 1987, disregarding any changes in the terms and
conditions of the Plan after May 5, 1986. The preceding
sentence applies only if the Defined Benefit Plans
individually and in the aggregate satisfied the
requirements of Section 415 of the Code, for all
Limitation Years beginning before January 1, 1987.
(v) Defined Benefit Plan."Defined Benefit Plan" means a
retirement plan which does not provide for individual
accounts for Employer contributions. All Defined Benefit
Plans (whether or not terminated) maintained by the
Employer shall be treated as a single plan.
(vi) Defined Contribution Fraction."Defined Contribution
Fraction" means a fraction, the numerator of which is the
sum of the Annual Additions to the Participant's accounts
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 voluntary
contributions to this and all other Defined Contribution
Plans and all Defined Benefit Plans, whether or not
terminated, and the Annual Additions attributable to all
welfare benefit funds, as defined in Section 419(e) of the
Code, and individual medical accounts, as defined in
Section 415(l)(2) of the Code, 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 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 one hundred twenty-five percent
(125%) of the dollar limitation in effect under Section
415(c)(1)(A) of the Code, or thirty-five percent (35%) of
the Participant's Compensation for such year.
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Notwithstanding the above, 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 5, 1986, the
numerator of this fraction will be adjusted if the sum of
this fraction and the Defined Benefit Fraction would
otherwise exceed one (1.0) under the terms of this Plan.
Under the adjustment, an amount equal to the product of
(A) the excess of the sum of the fractions over one (1.0)
times (B) the denominator of this fraction, will be
permanently subtracted from the numerator of this
fraction. The adjustment is calculated using the fractions
as they would be computed as of the 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 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.
(vii) Defined Contribution Plan. "Defined Contribution Plan"
means a retirement plan which provides for individual
accounts for employee contributions, and includes an
employee stock ownership plan that satisfies the
requirements of Section 301(d) of the Tax Reduction Act of
1975. All Defined Contribution Plans (whether or not
terminated) maintained by the Employer shall be treated as
a single plan. For purposes of the limitations of this
Section 5.08 only, employee contributions made to a
Defined Benefit Plan maintained by the Employer shall be
treated as a Defined Contribution Plan.
(viii) Employer. For purposes of this Section 5.08, "Employer"
means the Employer that adopts this Plan, and all members
of a controlled group of corporations [as defined in
Section 414(b) of the Code, as modified by Section
415(h)], all commonly controlled trades or businesses [as
defined in Section 414(c) of the Code, as modified by
Section 415(h)] or an affiliated service group [as defined
in Section 414(m) of the Code] of which the adopting
Employer is a part, and any other entity required to be
aggregated with the Employer pursuant to regulations under
Section 414(o) of the Code.
(ix) Excess Amount."Excess Amount" means the excess of the
Participant's Annual Additions for the Limitation Year
over the Maximum Permissible Amount.
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(x) Limitation Year."Limitation Year" means the Plan Year or
other 12 consecutive month period specified by the
Employer in Section 2.30 of the Plan. All qualified plans
maintained by the Employer must use the same Limitation
Year. If the Limitation Year is amended, the new
Limitation Year must begin on a date within the Limitation
Year in which the amendment is made.
(xi) Maximum Permissible Amount."Maximum Permissible Amount"
means the maximum annual addition that may be contributed
or allocated to a Participant's Accounts under the Plan
for any Limitation Year and shall not exceed the lesser
of:
(A) Thirty Thousand Dollars ($30,000), or
(B) Twenty-five percent (25%) of the Participant's
Compensation for the Limitation Year.
The compensation limitation referred to in (B) shall not
apply for any contribution for medical benefits (within
the meaning of Section 401(h) or Section 419A(f)(2) of the
Code) which is otherwise treated as an annual addition
under Section 415(l)(1) or Section 419A(d)(2) of the Code.
If a short Limitation Year is created because of an
amendment changing the Limitation Year to a different
Limitation Year, the Maximum Permissible Amount will not
exceed the lesser of (A) $30,000.00 multiplied by a
fraction, the numerator of which is the number of months
in the short Limitation Year and the denominator of which
is 12, or (B) 25% of the Participant's Compensation for
the short Limitation Year. The dollar limitations of this
Section 5.08 shall be automatically adjusted as of the
first day of the calendar year for any year for which the
Commissioner of Internal Revenue publishes an adjustment.
The adjusted limitations, if any, shall apply to the
Limitation Year ending with or within the calendar year
for which the Commissioner of Internal Revenue makes the
adjustment.
(xii) Projected Annual Benefit."Projected Annual Benefit" means
the annual retirement benefit (adjusted to an actuarially
equivalent straight life annuity, if such benefit is
expressed in a form other than a straight life annuity or
qualified joint and survivor annuity) to which the
Participant would be entitled under the terms of the Plan
assuming:
(A) the Participant will continue employment until the
Normal Retirement Date under the Plan (or current
age, if later), and
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(B) the Participant's Compensation for the current
Limitation Year and all other relevant factors used
to determine benefits under the Plan will remain
constant for all future Limitation Years.
(b) (i) If the Participant does not participate in, and has never
participated in another qualified plan maintained by the
Employer or a welfare benefit fund, as defined in Section
419(e) of the Code maintained by the Employer, or an
individual medical account, as defined in Section
415(l)(2) of the Code, maintained by the Employer, which
provides an Annual Addition as defined in Section
5.08(a)(ii), the amount of Annual Additions which may be
credited to the Participant's Accounts for any Limitation
Year will not exceed the lesser of the Maximum Permissible
Amount or any other limitation contained in this Plan. If
any amount that would otherwise be contributed or
allocated to the Participant's Accounts would cause the
Annual Additions for the Limitation Year to exceed the
Maximum Permissible Amount, the amount contributed or
allocated will be reduced so that the Annual Additions for
the Limitation Year will equal the Maximum Permissible
Amount. Prior to determining the Participant's actual
Compensation for the Limitation Year, the Employer may
determine the Maximum Permissible Amount for a Participant
on the basis of a reasonable estimation of the
Participant's Compensation for the Limitation Year,
uniformly determined for all Participants similarly
situated. As soon as is administratively feasible after
the end of the Limitation Year, the Maximum Permissible
Amount for the Limitation Year will be determined on the
basis of the Participant's actual Compensation for the
Limitation Year.
(ii) If pursuant to (i) above or as a result of the allocation
of Forfeitures, there is an excess amount, the excess will
be disposed of as follows:
(A) If the Participant is covered by the Plan at the end
of the Limitation Year, the Excess Amount in the
Participant's Accounts plus applicable earnings, if
any, will be used to reduce Employer Contributions
(including any allocation of Forfeitures) for such
Participant in the next Limitation Year, and each
succeeding Limitation Year if necessary.
(B) If, after the application of paragraph (A), an Excess
Amount still exists, and the Participant is not
covered by the Plan at the end of a Limitation Year,
the Excess Amount, plus applicable earnings, if any,
will be held unallocated in a suspense account. The
suspense account will be applied to reduce future
Employer Contributions (including the allocation of
any Forfeitures) for all remaining
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Participants in the next Limitation Year, and each
succeeding Limitation Year if necessary;
(C) If a suspense account is in existence at any time
during a Limitation Year pursuant to this Section, it
will not participate in the allocation of the Trust's
investment gains and losses. If a suspense account is
in existence at any time during a particular
Limitation Year, all amounts in the suspense account
must be allocated and reallocated to Participants'
Accounts before any Employer Contributions or any
Participant contributions may be made to the Plan for
that Limitation Year. Excess amounts may not be
distributed to Participants or former Participants.
(c) (i) This subsection applies if, in addition to this Plan, the
Participant is covered under a qualified master or
prototype Defined Contribution Plan maintained by the
Employer, a welfare benefit fund, as defined in Section
419(e) of the Code maintained by the Employer, or an
individual medical account, as defined in Section
415(l)(2) of the Code maintained by the Employer, or an
individual medical account, as defined in Section
415(l)(2) of the Code, maintained by the Employer, which
provides an Annual Addition as defined in Section
5.08(a)(ii) during any Limitation Year. The Annual
Additions which may be credited to a Participant's account
under this Plan for any such Limitation Year will not
exceed the Maximum Permissible Amount reduced by the
Annual Additions credited to a Participant's account under
the other plans and welfare benefit funds for the same
Limitation Year. If the Annual Additions with respect to
the Participant under other Defined Contribution Plans and
welfare benefit funds maintained by the Employer are less
than the Maximum Permissible Amount and the Employer
Contribution that would otherwise be contributed or
allocated to the Participant's Accounts under this Plan
would cause the Annual Additions for the Limitation Year
to exceed this limitation, the amount contributed or
allocated will be reduced so that the Annual Additions
under all such plans and funds for the Limitation Year
will equal the Maximum Permissible Amount. If the Annual
Additions with respect to the Participant under such other
Defined Contribution Plans and welfare benefit funds in
the aggregate are equal to or greater than the Maximum
Permissible Amount, no amount will be contributed or
allocated to the Participant's Accounts under this Plan
for the Limitation Year. Prior to determining the
Participant's actual Compensation for the Limitation Year,
the Employer may determine the Maximum Permissible Amount
for a Participant in the manner described in Section
(b)(i) above. As soon as is administratively feasible
after the end of the Limitation Year, the Maximum
Permissible Amount for the Limitation
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Year will be determined on the basis of the Participant's
actual Compensation for the Limitation Year.
(ii) If, pursuant to (i) above or as a result of the allocation
of Forfeitures, a Participant's Annual Additions under
this Plan and such other plans would result in an Excess
Amount for a Limitation Year, the Excess Amount will be
deemed to consist of the Annual Additions last allocated,
except that Annual Additions attributable to a welfare
benefit fund or individual medical account will be deemed
to have been allocated first regardless of the actual
Allocation Date.
(iii) If an Excess Amount was allocated to a Participant on an
Allocation Date of this Plan which coincides with an
allocation date of another plan, the Excess Amount
attributed to this Plan will be the product of,
(A) the total Excess Amount allocated as of such date,
times
(B) the ratio of (1) the Annual Additions allocated to the
Participant for the Limitation Year as of such date
under this Plan to (2) the total Annual Additions
allocated to the Participant for the Limitation Year
as of such date under this and all the other qualified
master or prototype Defined Contribution Plans.
(iv) Any Excess Amount attributed to this Plan will be disposed
of in the manner described in subsection (b)(ii) above.
(d) If the Participant is covered under another qualified Defined
Contribution Plan maintained by the Employer, which is not a master or prototype
plan, Annual Additions which may be credited to the Participant's Accounts under
this Plan for any Limitation Year will be limited in accordance with Subsections
(c)(i) through (iv) as though the other plan were a master or prototype plan.
(e) If the Employer maintains, or at any time maintained, a qualified
Defined Benefit Plan covering any Participant in this Plan, the sum of the
Participant's Defined Benefit Plan Fraction and Defined Contribution Plan
Fraction will not exceed one (1.0) in any Limitation Year. If, in any Limitation
Year the sum of the Defined Benefit Fraction and the Defined Contribution
Fraction on behalf of a Participant does exceed one (1.0), then the Employer
shall reduce its contribution on behalf of such Participant to reduce the annual
additions on behalf of such Participant under this Plan to the extent necessary
to prevent the sum of the Defined Contribution Fraction and the Defined Benefit
Fraction from exceeding one (1.0).
(f) If, during any Limitation Year, a Participant is a participant in
both a Defined Contribution Plan and a Defined Benefit Plan which are a part of
a Top Heavy Group, the limitations
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of this Section 5.08 shall be applied to such Participant by substituting "100%"
for "125%" each place it appears in Subsection (a).
The above limitation shall not apply if, for any Plan Year in which the Top
Heavy ratio determined under Section 2.32 of the Plan does not exceed 90%, the
minimum Top Heavy contribution set forth in Section 4.04 of the Plan for each
Non-Key Employee who is a Participant only in this Plan is increased to four
percent rather than three percent of Compensation as described in Section 4.04
of the Plan, or the minimum Top Heavy contribution for each Non-Key Employee who
is a Participant in both this Plan and the Defined Benefit Plan is increased to
seven and one-half percent rather than five percent as described in Section
4.04.
(g) Notwithstanding anything contained in this Section 5.08 to the
contrary, the limitations, adjustments and other requirements prescribed in this
Section shall at all times comply with the provisions of Section 415 of the Code
and the Regulations thereunder, the terms of which are specifically incorporated
herein by reference.
5.9 TRANSACTIONS INVOLVING COMPANY STOCK.
(a) No portion of the Trust attributable to (or allocable in lieu of)
Company Stock acquired by the Plan in a sale to which Code Section 1042 applies
may accrue or be allocated directly or indirectly under any plan maintained by
the Employer meeting the requirements of Code Section 401(a):
(i) during the "Nonallocation Period," for the benefit of
(A) any taxpayer who makes an election under Code Section
1042(a) with respect to Company Stock,
(B) any individual who is related to the taxpayer (within
the meaning of Code Section 267(b)), or
(ii) for the benefit of any other person who owns (after
application of Code Section 318(a) applied without regard
to the employee trust exception in Code Section
318(a)(2)(B)(i)) more than twenty-five percent (25%) of
(A) any class of outstanding stock of the Employer or
Related Employer which issued such Company Stock, or
(B) the total value of any class of outstanding stock of
the Employer or Related Employer.
(b) Except, however, subparagraph (a)(1)(ii) above shall not apply to
lineal descendants of the taxpayer, provided that the aggregate amount allocated
to the benefit of all such lineal descendants during the "Nonallocation Period"
does not exceed more than five percent (5%)
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<PAGE> 45
of the Company Stock (or amounts allocated in lieu thereof) held by the Plan
which are attributable to a sale to the Plan by any person related to such
descendants (within the meaning of Code Section 267(c)(4)) in a transaction to
which Code Section 1042 is applied.
(c) A person shall be treated as failing to meet the stock ownership
limitation under paragraph (a)(2) above if such person fails such limitation:
(i) at any time during the one year period ending on the date
of sale of Company Stock to the Plan, or
(ii) on the date as of which Company Stock is allocated to
Participants in the Plan.
(d) For purposes of this Section, "Nonallocation Period" means the
period beginning on the date of the sale of the Company Stock and ending on the
later of:
(i) the date which is ten (10) years after the date of sale,
or
(ii) the date of the Plan allocation attributable to the final
payment of the Exempt Loan incurred in connection with
such sale.
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<PAGE> 46
6. VESTING, DISTRIBUTIONS AND WITHDRAWALS
- --------------------------------------------------------------------------------
6.1 VESTING.
(a) The interest of each Participant in his Account shall vest and
become nonforfeitable up to a maximum of 100%, as follows:
(i) Pursuant to the following vesting schedule:
<TABLE>
<CAPTION>
Years of Service Vesting Percentage
=====================================================
<S> <C>
Less than 3 0%
3 but less than 4 20%
4 but less than 5 40%
5 but less than 6 60%
6 but less than 7 80%
7 or more 100%
</TABLE>
(ii) 100% when the Participant reaches the Early or Normal
Retirement Age while employed by the Employer.
(iii) 100% upon termination of employment as a result of the
Participant's death or Disability.
(b) For the purposes of determining a Participant's vested interest
under the Plan, the term 'Year of Service' means the completion of at least 200
Hours of Service by a Participant during a Plan Year. For purposes of
determining vesting, all of a Participant's Years of Service with the Employer
[excluding years prior to the initial Effective Date of the Plan and years prior
to the year in which the Participant attained age eighteen (18)] shall be
counted. For purposes of determining vesting, Service with Adopting Employers
prior to the effective date of their adoption of the Plan and Service with
predecessors and Related Employers shall not be counted unless otherwise
specified in Schedule A hereto, which may be amended from time to time by the
Employer, or in a separate adoption agreement executed by the Employer.
(c) If a Participant completes a one-year Break in Service he shall,
upon subsequent re-employment by the Employer, be required to resatisfy the
participation requirements of Section 3.01 of the Plan [provided the service
requirement in Section 3.01 does not exceed one (1) Year of Service] before he
is eligible to receive vesting credit for any Years of Service prior to his
Break in Service. Once an Employee has again satisfied the requirements for
participation in the Plan, Years of Service before the Break shall be taken into
account for vesting purposes subject to the following
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<PAGE> 47
provisions. In the case of a Participant who has five (5) or more consecutive
one (1) year Breaks in Service, all service after such Breaks in Service shall
not be counted for purposes of determining such Participant's vested interest in
his Account which accrued prior to his Breaks in Service. Such Participant's
pre-break service will count in vesting the post-break Account only if either:
(i) such Participant has any nonforfeitable interest in his
Account at the time of separation from service; or
(ii) upon returning to service the number of consecutive
1-year Breaks in Service is less than the number of his
pre-break Years of Service.
Separate accounts will be maintained for the Participant's pre-break
and post-break portions of the Participant's Account.
In the case of a Participant who does not have five (5) consecutive
one (1) year Breaks in Service, both the pre-break and post-break service shall
be aggregated in determining both the pre-break and post-break portions of the
Participant's Account.
(d) For any Plan Year for which the Plan is a Top Heavy Plan, and
for all subsequent Plan Years, a Participant's vested percentage in his Accounts
(including benefits accrued before the effective date of Section 416 of the Code
and before the Plan became a Top Heavy Plan) shall be determined under the
following schedule:
<TABLE>
<CAPTION>
Years of Service Vesting Percentage
===============================================
<S> <C>
Less than 2 0%
2 but less than 3 20%
3 but less than 4 40%
4 but less than 5 60%
5 but less than 6 80%
6 or more 100%
</TABLE>
The provisions of this Section 6.01(d) shall apply to all
Participants who earn at least one (1) Hour of Service in any Plan Year in which
the Plan is a Top Heavy Plan. The implementation of a shorter vesting schedule
under this Section 6.01(d) shall be deemed to be an amendment to the Plan's
vesting schedule, to which the provisions of Section 6.01(e) apply.
(e) If the Employer makes a permissible amendment to the vesting
schedule, each Participant having at least three Years of Service with the
Employer may elect to have the vested (nonforfeitable) percentage of his
Accounts computed under the Plan without regard to the amend-
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<PAGE> 48
ment. The Participant must file his election with the Plan Administrator within
60 days of the latest of (i) the Employer's adoption of the amendment; (ii) the
effective date of the amendment; or (iii) his receipt of a copy of the
amendment. The Plan Administrator will communicate the change to the vesting
schedule to all affected Participants, together with an explanation of the
amendment, its effect, and the manner in which the Participant can elect to
remain under the pre-amendment vesting schedule. For purposes of this Section
6.01, an amendment to the vesting schedule includes any Plan amendment which
directly or indirectly affects the computation of the nonforfeitable percentage
of a Participant's Accounts. Further, if the Plan is amended, in the case of an
Employee who is a Participant as of the later of the date the amendment is
adopted or the date it becomes effective, the nonforfeitable percentage
(determined as of the relevant date) of the Employee's Accounts will not be less
than his percentage computed under the Plan without regard to such amendment.
(f) The vested percentage of any Participant covered under the
provisions of the Prior Plan shall not be less than the vested percentage the
Participant would have had if the provisions of the Prior Plan had continued
without change.
6.2 FORFEITURES. That portion of a Participant's Accounts, if any, which
is not fully vested in accordance with Section 6.01, shall be a "Forfeiture,"
and shall be applied in accordance with the provisions of Section 5.06 on the
earlier of:
(a) the date the Participant's entire vested Accounts are
distributed following termination of employment with the Employer; or
(b) the last day of the Plan Year in which the Participant incurs
five consecutive One Year Breaks in Service.
If a portion of a Participant's Account is forfeited, Company Stock allocated to
the Participant's Company Stock Account must be forfeited only after the
Participant's Other Investment Accounts and any other subaccounts have been
depleted. If interest in more than one class of Company Stock has been allocated
to a Participant's Account, the Participant must be treated as forfeiting the
same proportion of each such class.
6.3 PAYMENTS TO PARTICIPANTS AND BENEFICIARIES.
(a) Within the time periods specified in Section 6.04, and after a
Participant's (i) retirement on or after the Early or Normal Retirement Date,
(ii) death, (iii) termination of employment with the Employer, or (iv)
termination of employment due to Disability, the Participant's vested interest
in his Accounts shall be valued and adjusted as of the most recent periodic
valuation date (as defined in Section 5.04) to reflect the changes, if any, in
the net fair market value of the Trust Fund. If the Participant became a
Participant in the Plan on or after the Effective Date, the Participant's vested
interest in his Account, as valued and adjusted, shall be distributed to the
Participant or, in the event of his death, to his Beneficiary, in the form of a
single lump sum distribution of Company Stock (except that a Participant who
receives a fifty percent (50%) distribution pursuant to Section 6.04(b)(ii) or
(iii) may elect to receive such distribution in the form of Company Stock
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<PAGE> 49
or cash). If the Participant was a participant in the Prior Plan prior to the
Effective Date of this Plan, his vested interest in his Accounts, as valued and
adjusted, shall be distributed to the Participant or, in the event of his death,
to his Beneficiary, in accordance with Section 6.03(b).
(b) Any Participant who was a participant in the Prior Plan prior to
the Effective Date of this Plan may elect to receive his distribution in the
form of cash or Company stock and in one or more of the following methods:
(i) one or two lump-sum payments provided that, if the
Participant is receiving a distribution for reasons
other than his death, disability, or attainment of the
Early or Normal Retirement Age while employed, the total
lump sum payments made during the three (3) year period
beginning on the date the Participant first becomes
eligible for a distribution (other than an in-service
distribution under Section 6.07 or a distribution made
pursuant to Section 8.02(a)) together with all prior
in-service distributions taken by the Participant, does
not exceed fifty percent (50%) of the sum of the
Participant's vested Account balance plus the amount of
all such prior in-service distributions made pursuant to
Section 6.07, or
(ii) payments over a period certain in monthly, quarterly,
semiannual, or annual installments in accordance with
the following rules:
(A) The period over which such payment is to be made
shall be established so that the amount
distributed during the three (3) years immediately
following the commencement of distributions does
not exceed fifty percent (50%) of the sum of the
Participant's vested Account balance as of the
date on which the distribution commences plus the
amount, if any, of previous distributions to the
Participant as an in-service distribution pursuant
to Section 6.07. The period over which payment is
to be made shall not extend beyond the earlier of
the Participant's life expectancy (or the life
expectancy of the Participant and his designated
beneficiary) or the limited distribution period
provided for in (B) below.
(B) Unless the Participant elects in writing a longer
distribution period, distributions to a
Participant or his Beneficiary attributable to
Company Stock shall be in substantially equal
monthly, quarterly, semiannual, or annual
installments over a period not longer than five
(5) years. In the case of a Participant with an
account balance attributable to Company Stock in
excess of Five Hundred Thousand Dollars
($500,000.00), the five (5) year period shall
extend one (1) additional year (but not more than
five (5) additional years) for each One Hundred
Thousand Dollars ($100,000.00) or fraction thereof
by which such balance exceeds Five Hundred
Thousand
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<PAGE> 50
Dollars ($500,000.00). The dollar limitations
shall be adjusted at the same time and manner as
provided in Code Section 415(d).
(c) The Participant or, if applicable, Beneficiary shall always have
the right to demand that any distribution (other than Company Stock reinvested
pursuant to Section 8.02(a)) be made in the form of Company Stock; provided,
however, that if the Employer's charter or by-laws restrict stock ownership of
substantially all of Company Stock to Employees and the Trust, as described in
Code Section 409(h)(2), the Administrator shall distribute a Participant's
Account entirely in cash without granting the Participant the right to demand
distribution in shares of Company Stock.
(d) Distributions made in the form of Company Stock will be made in
whole shares or other units of Company Stock. If the Company Stock available for
distribution was acquired with an Exempt Loan and consists of more than one
class of stock, the Participant shall receive substantially the same proportion
of each such class of stock. Any balance in a Participant's Other Investments
Account or other subaccounts will be applied to acquire for distribution the
maximum number of whole shares or other units of Company Stock at the then fair
market value. Any fractional unit value unexpended will be distributed in cash.
If Company Stock is not available for purchase by the Trustee, the Trustee shall
hold such balance until Company Stock is acquired and then make such
distribution, subject to Section 6.04(d).
(e) Except as otherwise provided herein, Company Stock distributed
by the Trustee may be restricted as to sale or transfer by the by-laws or
articles of incorporation of the Employer, provided restrictions are applicable
to all Company Stock of the same class. If a Participant is required to offer
the sale of his Company Stock to the Employer before offering to sell his
Company Stock to a third party, in no event may the Employer pay a price less
than that offered to the distributee by another potential buyer making a bona
fide offer and in no event shall the Trustee pay a price less than the fair
market value of the Company Stock.
6.4 WHEN PAYMENTS ARE MADE.
(a) In the case of a Participant who retires on or after the Early
or Normal Retirement Date, or whose employment is terminated by death or
Disability, payment of the Participant's Accounts shall be made not later than
(unless the Participant otherwise elects) 60 days following the end of the Plan
Year in which the Participant terminates his employment with the Employer.
Notwithstanding any contrary provision, a Participant may not elect to defer
receipt of benefits to an extent that he creates a death benefit that is more
than incidental.
(b) In the case of a Participant who terminates his employment with
the Employer other than for death, Disability or retirement on or after the
Early or Normal Retirement Date:
(i) Payment of the Participant's vested interest in his
Accounts shall be made on the occurrence of an event
which would have resulted in a distribution had the
Participant remained employed with the Employer (e.g.,
the
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<PAGE> 51
Participant's death, Disability, or retirement on or
after the Early or Normal Retirement Date);
(ii) Notwithstanding (i) above, at the election of any
Participant who became a Participant on or after the
Effective Date of this Plan, payment of the
Participant's vested interest in his Account shall be
made as soon as practicable following the third
anniversary of his termination of employment with the
Employer. Furthermore, if the Participant is fully
vested in his Account, he may elect to receive a
distribution of up to fifty percent (50%) of his
Account, as soon as practicable following his
termination of employment with the Employer. For
purposes of this fifty percent (50%) distribution, the
Participant's Account balance shall include all amounts
previously distributed as an In-Service Distribution and
the fifty percent (50%) distributable amount shall be
reduced by all prior In-Service Distributions.
(iii) Notwithstanding (i) above, any Participant who was a
Participant in the Prior Plan prior to the Effective
Date of this Plan may elect to receive a distribution of
his vested interest in his Account as soon as
practicable following the date upon which the
Participant incurs a one-year break in Service;
provided, however, that no distribution shall commence
being made to a non-fully vested terminated Participant
until three (3) years following his termination of
employment with the Employer. Notwithstanding the
foregoing, if a fully vested Participant elects a lump
sum distribution under Section 6.03(b)(1), he may
receive fifty percent (50%) of his Account as soon as
practicable following his termination of employment. For
purposes of this fifty percent (50%) distribution, the
Participant's Account Balance shall include all amounts
previously distributed as an In-Service Distribution and
the fifty percent (50%) distributable amount shall be
reduced by all prior In-Service Distributions.
(iv) If a distribution of the Participant's entire vested
interest is made at a time when a Participant has less
than a one hundred percent (100%) vested
(non-forfeitable) interest in his Accounts:
(A) The nonvested portion of the Participant's
Accounts will be treated as a Forfeiture.
(B) If the value of a Participant's vested Account
balance is zero, the Participant shall be deemed
to have received a distribution of such vested
Account balance.
(C) If the Participant is reemployed by the Employer,
the Participant may repay the full amount
previously distributed to him, or deemed
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<PAGE> 52
to have been distributed to him on or before the
earlier of five consecutive one year Breaks in
Service following the date of distribution, or
five years from the date of re-employment with the
Employer. Upon such repayment, the forfeitable
amount of his Employer Accounts must be restored
in full, unadjusted by any subsequent gains or
losses.
(c) Notwithstanding anything else contained in this Section 6.04 to
the contrary, if the Participant's Accounts are immediately distributable, then
such Participant's Accounts may not be currently distributed to him without the
consent of the Participant. Written consent of the Participant to the
distribution must be obtained within the 90 day period ending on the annuity
starting date. The annuity starting date is the first day of the first period
for which an amount is paid as an annuity or any other form. The Employer shall
notify the Participant of the right to defer any distribution until the
Participant's Account balance is no longer immediately distributable. Such
notification shall include a general description of the material features, and
an explanation of the relative values of, the optional forms of benefit
available under the Plan in a manner that would satisfy the notice requirements
of Section 417(a)(3) of the Code and shall be provided no less than 30 days and
no more than 90 days prior to the annuity starting date.
Notwithstanding the foregoing, the consent of the Participant shall not be
required to the extent that a distribution is required to satisfy Section
401(a)(9) or Section 415 of the Code. In addition, upon termination of this Plan
if the Plan does not offer an annuity option (purchased from a commercial
provider), the Participant's Account balance may, without the Participant's
consent, be distributed to the Participant or transferred to another defined
contribution plan [other than an employee stock ownership plan as defined in
Section 4975(e)(7) of the Code] within the same controlled group.
Distribution of a Participant's Accounts is immediately or currently
distributable if any part of it may be distributed to the Participant (or
Surviving Spouse) before the Participant attains (or would have attained, if not
deceased) the later of the normal retirement age [as defined in Section
411(a)(8) of the Code], or age 62.
If a distribution is one to which Sections 401(a)(11) and 417 of the
Internal Revenue Code do not apply, such distribution may commence less than 30
days after the notice required under Section 1.411(a)-11(c) of the Income Tax
Regulations is given, provided that:
(i) the Plan Administrator clearly informs the Participant that
the Participant has a right to a period of at least 30 days
after receiving the notice to consider the decision of whether
or not to elect a distribution (and, if applicable, a
particular distribution option), and
(ii) the Participant, after receiving the notice, affirmatively
elects a distribution.
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<PAGE> 53
(d) The requirements of this Section shall apply to any distribution
of a Participant's interest and will take precedence over any inconsistent
provisions of this Plan. Unless otherwise specified, the provisions of this
Section apply to calendar years beginning after December 31, 1996. All
distributions required under this Section shall be determined and made in
accordance with the Proposed Regulations under Section 401(a)(9) of the Code, as
amended, including the minimum distribution incidental benefit requirement of
Section 1.401(a)(9)-2 of the Proposed Regulations. Notwithstanding the
provisions of this subparagraph (d), any Participant who does not own more than
five percent of the Employer who began taking distributions pursuant to Code
Section 401(a)(9) prior to its amendment by the Small Business Job Protection
Act of 1996, shall have the right to suspend distributions in accordance with
amended Code Section 401(a)(9) and any applicable regulations.
(i) Required Beginning Date. A Participant's benefit must be
distributed or begin to be distributed no later than his
Required Beginning Date which generally is the first day
of April of the calendar year following the later of (A)
the calendar year in which the Participant attains age
70-1/2, or (B) the calendar year in which the
Participant retires. Notwithstanding the above, the
Required Beginning Date for a Participant who owns more
than five percent (5%) of the Employer is the April 1 of
the calendar year following the calendar year in which
the Participant attains age 70-1/2.
Also, notwithstanding the above, a Participant who does
not own more than five percent (5%) of the Employer may
elect to receive his benefit as of the first day of
April of the calendar year following the calendar year
in which he attains 70- 1/2 rather than wait for
retirement.
(ii) Determination of Amount to be Distributed Each Year. If
the Participant's benefit is to be distributed in other
than a single sum, the following minimum distribution
rules shall apply on or after the Required Beginning
Date:
(A) If a Participant's benefit is to be distributed
over (1) a period not extending beyond the life
expectancy of the Participant or the joint life
and last survivor expectancy of the Participant
and the Participant's Designated Beneficiary or
(2) a period not extending beyond the life
expectancy of the Designated Beneficiary, the
amount required to be distributed for each
calendar year, beginning with distributions for
the first distribution calendar year, must at
least equal the quotient obtained by dividing the
Participant's benefit by the applicable life
expectancy.
(B) For calendar years beginning before January 1,
1989, if the Participant's Spouse is not the
Designated Beneficiary, the method of distribution
selected must assure that at least fifty percent
(50%) of the
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<PAGE> 54
present value of the amount available for
distribution is paid within the life expectancy of
the Participant.
(C) For calendar years beginning after December 31,
1988, the amount to be distributed each year,
beginning with distributions for the first
distribution calendar year shall not be less than
the quotient obtained by dividing the
Participant's benefit by the lesser of (1) the
applicable life expectancy or (2) if the
Participant's Spouse is not the Designated
Beneficiary, the applicable divisor determined
from the table set forth in Q&A-4 of Section
1.401(a)(9)-2 of the Proposed Regulations.
Distributions after the death of the Participant
shall be distributed using the applicable life
expectancy in (A) above as a relevant divisor
without regard to Proposed Regulations Section
1.401(a)(9)-2.
(D) The minimum distribution required for the
Participant's first distribution calendar year
must be made on or before the Participant's
Required Beginning Date. The minimum distribution
for other calendar years, including the minimum
distribution for the distribution calendar year in
which the Participant's Required Beginning Date
occurs, must be made on or before December 31 of
that distribution calendar year.
(E) As of the first distribution calendar year,
distributions, if not made in a single sum, may
only be made over one of the following periods (or
a combination thereof):
(1) the life of the Participant,
(2) the life of the Participant and a Designated
Beneficiary,
(3) a period certain not extending beyond the
life expectancy of the Participant, or
(4) a period certain not extending beyond the
joint and last survivor expectancy of the
Participant and a Designated Beneficiary.
(F) If the Participant's benefit is distributed in the
form of an annuity purchased from an insurance
company, distributions thereunder shall be made in
accordance with the requirements of Section
401(a)(9) of the Code and the Proposed Regulations
thereunder.
(iii) Death Distribution Provisions.
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<PAGE> 55
(A) Distribution beginning before death. If the
Participant dies after distribution of his benefit
has begun, the remaining portion of such benefit
will continue to be distributed at least as
rapidly as under the method of distribution being
used prior to the Participant's death.
(B) Distribution beginning after death. If the
Participant dies before distribution of his
benefit begins, distribution of the Participant's
entire benefit shall be completed by December 31
of the calendar year containing the fifth
anniversary of the Participant's death except to
the extent that an election is made to receive
distributions in accordance with (1) or (2) below:
(1) if any portion of the Participant's benefit
is payable to a Designated Beneficiary,
distributions may be made over the life or
over a period certain not greater than the
life expectancy of the Designated
Beneficiary commencing on or before December
31 of the calendar year immediately
following the calendar year in which the
Participant died;
(2) if the Designated Beneficiary is the
Participant's Surviving Spouse, the date
distributions are required to begin in
accordance with (1) above shall not be
earlier than the later of (a) December 31 of
the calendar year immediately following the
calendar year in which the Participant died
and (b) December 31 of the calendar year in
which the Participant would have attained
age 70-1/2.
If the Participant has not made an election
pursuant to this Section by the time of his
death, the Participant's Designated
Beneficiary must elect the method of
distribution no later than the earlier of
(a) December 31 of the calendar year in
which distributions would be required to
begin under this Section, or (b) December 31
of the calendar year which contains the
fifth anniversary of the date of death of
the Participant. If the Participant has no
Designated Beneficiary, or if the Designated
Beneficiary does not elect a method of
distribution, distribution of the
Participant's entire benefit must be
completed by December 31 of the calendar
year containing the fifth anniversary of the
Participant's death.
(C) For purposes of (B) above, if the Surviving Spouse
dies after the Participant, but before payments to
such Spouse begin, the pro-
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<PAGE> 56
visions of (B) above, with the exception of
paragraph (2) therein, shall be applied as if the
Surviving Spouse were the Participant.
(D) For purposes of this Section 6.04(d)(iii), any
amount paid to a child of the Participant will be
treated as if it had been paid to the Surviving
Spouse if the amount becomes payable to the
Surviving Spouse when the child reaches the age of
majority.
(E) For the purposes of this Section 6.04(d)(iii),
distribution of a Participant's benefit is
considered to begin on the Participant's Required
Beginning Date [or, if (C) above is applicable,
the date distribution is required to begin to the
Surviving Spouse pursuant to (B) above]. If
distribution in the form of an annuity irrevocably
commences to the Participant before the Required
Beginning Date, the date distribution is
considered to begin is the date distribution
actually commences.
(iv) Definitions.
(A) Applicable life expectancy. "Applicable life
expectancy" means the life expectancy (or joint
and last survivor expectancy) calculated using the
attained age of the Participant (or Designated
Beneficiary) as of the Participant's (or
Designated Beneficiary's) birthday in the
applicable calendar year reduced by one for each
calendar year which has elapsed since the date
life expectancy was first calculated. If life
expectancy is being recalculated, the applicable
life expectancy shall be the life expectancy as so
recalculated. The applicable calendar year shall
be the first distribution calendar year, and if
life expectancy is being recalculated such
succeeding calendar year.
(B) Designated Beneficiary. "Designated Beneficiary"
means the individual who is designated as the
Beneficiary under the Plan in accordance with
Section 401(a)(9) of the Code and the Proposed
Regulations thereunder.
(C) Distribution calendar year. "Distribution calendar
year" means a calendar year for which a minimum
distribution is required. For distributions
beginning before the Participant's death, the
first distribution calendar year is the calendar
year immediately preceding the calendar year which
contains the Participant's Required Beginning
Date. For distributions beginning after the
Participant's death, the first distribution
calendar year is the calendar year in
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<PAGE> 57
which distributions are required to begin pursuant
to Section 6.04(d)(iii) above.
(D) Life expectancy. "Life expectancy" and "joint and
last survivor expectancy" are computed by use of
the expected return multiples in Tables V and VI
of Section 1.72-9 of the Income Tax Regulations.
Unless otherwise elected by the Participant [or
Spouse, in the case of distributions described in
Section 6.04(d)(iii) above] by the time
distributions are required to begin, life
expectancies shall be recalculated annually. Such
election shall be irrevocable as to the
Participant (or Spouse) and shall apply to all
subsequent years. The life expectancy of a
nonspouse Beneficiary may not be recalculated.
(E) Participant's benefit.
(1) "Participant's benefit" means a
Participant's account balance as of the last
valuation date in the calendar year
immediately preceding the distribution
calendar year (valuation calendar year)
increased by the amount of any contributions
or forfeitures allocated to the account
balance as of dates in the valuation
calendar year after the valuation date and
decreased by distributions made in the
valuation calendar year after the valuation
date.
(2) For purposes of paragraph (1) above, if any
portion of the minimum distribution for the
first distribution calendar year is made in
the second distribution calendar year on or
before the Required Beginning Date, the
amount of the minimum distribution made in
the second distribution calendar year shall
be treated as if it had been made in the
immediately preceding distribution calendar
year.
6.5 SELECTION OF METHOD OF PAYMENT. The Participant shall decide the
manner in which the Participant's Accounts will be paid in accordance with
Sections 6.03 and 6.04 of the Plan.
6.6 DESIGNATION OF BENEFICIARY.
(a) Each Participant may, from time to time, designate the person or
persons (who may be designated concurrently, contingently, or successively) to
whom his Accounts are to be paid if he should die before his Accounts are fully
distributed to him. Each beneficiary designation will supersede any prior
designation(s) made by the Participant; will be in writing in a form which is
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<PAGE> 58
acceptable to the Plan Administrator, and will be effective only when signed by
the Participant and filed with the Plan Administrator at any time prior to the
Participant's death. If a Participant fails to designate a Beneficiary, as
provided above, the Participant's Beneficiary will be the following, in
succession: the Participant's Surviving Spouse, if any; or, if none, his
surviving child or children, in equal shares; or, if none, his surviving parent
or parents, in equal shares; or, if none, the Participant's personal
representative, executor, or administrator, as the case may be, shall be the
Beneficiary or Beneficiaries of the Participant's Accounts.
(b) The term "Designated Beneficiary" shall mean the natural or
legal person or persons (including a Trustee or other legal representative
acting in a fiduciary capacity) designated by a Participant as his beneficiary
in the last effective beneficiary designation form filed by the Participant with
the Plan Administrator. The term "Beneficiary" shall mean the natural or legal
person or persons to whom a deceased Participant's benefits are payable under
this Section 6.06.
(c) A Participant may specify in his beneficiary designation that
his Accounts be paid to his Designated Beneficiary in any method of payment
described in Section 6.03 of the Plan.
(d) Notwithstanding any contrary provision, if the Participant is
married, his Designated Beneficiary shall be his Spouse unless the Spouse
consents in writing to the designation of another beneficiary and acknowledges
that by such consent the Spouse is waiving any rights to a benefit under the
Plan. The Participant may then designate a Beneficiary which may itself not be
changed without an additional spousal consent -- unless the spousal consent
expressly permits the Participant to designate Beneficiaries without any further
consent by the Spouse. The Spouse's consent must be witnessed by the Plan
Administrator or by a notary public. If the Participant establishes to the
satisfaction of the Plan Administrator that written consent may not be obtained
because there is no Spouse, or because the Spouse cannot be located, the consent
requirements may be waived. Any consent required under this provision will be
valid only with respect to the Spouse who signs the consent.
6.7 IN-SERVICE DISTRIBUTIONS.
(a) Notwithstanding any other provision hereof, a Participant shall
be entitled, during continuation of employment with the Employer, to receive a
distribution of a portion of his Participant's Account upon the terms set forth
in this Section 6.07.
(b) The Participant shall be eligible for an in-service distribution
pursuant to this Section 6.07 only if: (1) the Participant's Account is one
hundred percent (100%) vested as provided in the vesting schedule set forth in
Section 6.01; and (2) the sum of the requested distribution and all prior
in-service distributions by such Participant does not exceed the maximum amount
set forth in Section 6.07(c).
(c) The maximum amount that may be distributed in an in-service
distribution pursuant to this Section 6.07 shall be fifty percent (50%) of the
sum of the Participant's Account balance plus the amount of all prior in-service
distributions by such Participant. For this purpose,
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the Participant's Account balance shall be determined as of the most recent
valuation date. Any amounts paid to an alternate payee (or to be paid to an
alternate payee) pursuant to a qualified domestic relations order shall be
treated as a prior in-service distribution to the Participant for purposes of
determining the amount, if any, available to the Participant for in-service
distribution pursuant to this Section.
(d) Any distribution pursuant to this Section 6.07 shall be subject
to any spouse's right of consent afforded under this Plan and shall be requested
and effected in accordance with the procedures established by the Plan
Administrator for the orderly administration of this Section 6.07. At the
election of the Participant, the distribution shall be made in either Company
Stock or cash.
(e) Any Participant receiving a distribution pursuant to this
Section shall continue to participate in the Plan in the same manner and on the
same basis as he did prior to the distribution.
6.8 PAYMENTS TO MINORS OR INCOMPETENTS. In the event a distribution is to
be made to a minor Beneficiary, or to the custodian for such minor 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 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.
If the Plan Administrator receives satisfactory evidence that any person
entitled to a benefit hereunder is physically, mentally or legally incompetent
to receive the benefit and give a valid receipt therefor at the time the benefit
is payable, and that an individual or institution is then maintaining or has
custody of that person and that a guardian or other representative of that
person has been appointed to see to the affairs of that person, the Plan
Administrator may direct the Trustee to pay the benefit to the individual or
institution maintaining or then having custody of that person and the receipt by
that individual or institution shall be a valid and complete discharge from
further liability of the Plan to such person.
6.9 QUALIFIED DOMESTIC RELATIONS ORDERS. Notwithstanding any contrary
provision, if the Plan Administrator receives a domestic relations order issued
pursuant to state domestic relations law, and determines that the order is a
"Qualified Domestic Relations Order" ("QDRO"), for purposes of Section 206(d)(3)
of ERISA and Section 414(p) of the Code, then a distribution may be made to the
alternate payee named in the QDRO as soon as practicable following the Plan
Administrator's determination that the QDRO is qualified, if so provided in the
QDRO. A distribution pursuant to a QDRO may only be made in the form of a single
lump sum payment of Company Stock. No special valuations of accounts will be
made in connection with QDROs. Rather, all Participant Accounts will only be
valued as provided in Section 5.04. This provision is intended to comply with
Section 414(p)(10) of the Code and applicable regulations.
6.10 ELIGIBLE ROLLOVER DISTRIBUTIONS.
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(a) Notwithstanding any contrary provision that would otherwise
limit a distributee's election under this Article, a distributee may elect, at
the time and in the manner prescribed by the Advisory Committee, to have any
portion of an eligible rollover distribution paid directly to an eligible
retirement plan specified by the distributee in a direct rollover.
(b) Definitions.
(i) Eligible rollover distribution. "Eligible rollover
distribution" means any distribution of all or any
portion of the balance to the credit of the distributee,
except that an eligible rollover distribution does not
include: any distribution that is one of a series of
substantially equal periodic payments (not less
frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or
joint life expectancies) of the distributee and the
distributee's designated beneficiary, or for a specified
period of ten years or more; any distribution to the
extent such distribution is required under Section
401(a)(9) of the Code; 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).
(ii) Eligible retirement plan. "Eligible retirement plan"
means an individual retirement account described in
Section 408(a) of the Code, an individual retirement
annuity described in Section 408(b) of the Code, an
annuity plan described in Section 403(a) of the Code, or
a qualified trust described in Section 401(a) of the
Code, 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.
(iii) Distributee. "Distributee" means 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 QDRO are distributees with regard to the
interest of the Spouse or former Spouse.
(iv) Direct rollover. "Direct rollover" means a payment by
the Plan to the eligible retirement plan specified by
the distributee.
6.11 RIGHT OF FIRST REFUSALS.
(a) If any Participant, his Beneficiary or any other person to whom
shares of Company Stock are distributed from the Plan (the "Selling
Participant") shall, at any time, desire to sell some or all of such shares (the
"Offered Shares") to a third party (the "Third Party"), the Selling Participant
shall give written notice of such desire to the Employer and the Plan Admin-
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istrator, which notice shall contain the number of shares offered for sale,
the proposed terms of the sale and the names and addresses of both the Selling
Participant and Third Party. Both the Trust and the Employer shall each have the
right of first refusal for a period of fourteen (14) days from the date the
Selling Participant gives such written notice to the Employer and the Plan
Administrator (such fourteen (14) day period to run concurrently against the
Trust and the Employer) to acquire the Offered Shares. As between the Trust and
the Employer, the Trust shall have priority to acquire the shares pursuant to
the right of first refusal. The selling price and terms shall be the same as
offered by the Third Party.
(b) If the Trust and the Employer do not exercise their right of
first refusal within the required fourteen (14) day period provided above, the
Selling Participant shall have the right, at any time following the expiration
of such fourteen (14) day period, to dispose of the Offered Shares to the Third
Party; provided, however, that (i) no disposition shall be made to the Third
Party on terms more favorable to the Third Party than those set forth in the
written notice delivered by the Selling Participant above, and (ii) if such
disposition shall not be made to a Third Party on the terms offered to the
Employer and the Trust Fund, the offered Shares shall again be subject to the
right of first refusal set forth above.
(c) The closing pursuant to the exercise of the right of first
refusal under Section 6.11(a) above shall take place at such place agreed upon
between the Plan Administrator and the Selling Participant, but not later than
ten (10) days after the Employer or the Trust shall have notified the Selling
Participant of the exercise of the right of first refusal. At such closing, the
Selling Participant shall deliver certificates representing the Offered Shares
duly endorsed in blank for transfer, or with stock powers attached duly executed
in blank with all required transfer tax stamps attached or provided for, and the
Employer or the Trust shall deliver the purchase price, or an appropriate
portion thereof, to the Selling Participant.
(d) Except as provided in this paragraph (d), no Company Stock
acquired with the proceeds of an Exempt Loan complying with the requirements of
Section 7.02 hereof shall be subject to a right of first refusal. Company Stock
acquired with the proceeds of an Exempt Loan, which is distributed to a
Participant or Beneficiary, shall be subject to the right of first refusal
provided for in paragraph (a) of this Section only so long as the Company Stock
is not publicly traded. The term "publicly traded" refers to a securities
exchange registered under Section 6 of the Securities Exchange Act of 1934 (15
U.S.C. 78F) or that is quoted on a system sponsored by a national securities
association registered under Section 15A(b) of the Securities Exchange Act (15
U.S.C. 780). In addition, in the case of Company Stock which was acquired with
the proceeds of a loan described in Section 7.02, the selling price and other
terms under the right must not be less favorable to the seller than the greater
of the value of the security determined under Regulation 54.4975-11(d)(5), or
the purchase price and other terms offered by a buyer (other than the Employer
or the Trust), making a good faith offer to purchase the security. The right of
first refusal must lapse no later than fourteen (14) days after the security
holder gives notice to the holder of the right that an offer by a Third Party to
purchase the security has been made. The right of first refusal shall comply
with the provisions of paragraphs (a), (b) and (c) of this Section, except to
the extent those provisions may conflict with the provisions of this paragraph.
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6.12 STOCK CERTIFICATE LEGEND. Certificates for shares distributed
pursuant to the Plan shall contain the following legend:
The shares represented by this certificate are transferable only
upon compliance with the terms of RURAL/METRO CORPORATION EMPLOYEE
STOCK OWNERSHIP PLAN AND TRUST (effective as of July 1, 1989, and as
thereafter amended), which grants to Rural/Metro Corporation a right
of first refusal, a copy of said Plan being on file in the office of
the Company.
6.13 PUT OPTION.
(a) If Company Stock which was not acquired with the proceeds of an
Exempt Loan is distributed to a Participant and such Company Stock is not
readily tradeable on an established securities market, a Participant has a right
to require the Employer to repurchase the Company Stock distributed to such
Participant under a fair valuation formula. Such Stock shall be subject to the
provisions of Section 6.13(c).
(b) Company Stock which is acquired with the proceeds of an Exempt
Loan and which is not publicly traded when distributed, or if it is subject to a
trading limitation when distributed, must be subject to a put option. For
purposes of this paragraph, a "trading limitation" on Company Stock is a
restriction under any Federal or State securities law or any regulation
thereunder, or an agreement (not prohibited by Section 6.14) affecting the
Company Stock which would make the Company Stock not as freely tradeable as
stock not subject to such restriction.
(c) The put option must be exercisable only by a Participant
(including former Participants and Beneficiaries), by the Participant's donees,
or by a person (including an estate or its distributee) to whom the Company
Stock passes by reason of a Participant's death. The put option must permit a
Participant to put the Company Stock to the Employer. Under no circumstances may
the put option bind the Plan. However, it shall grant the Plan an option to
assume the rights and obligations of the Employer at the time that the put
option is exercised. If it is known at the time a loan is made that Federal or
State law will be violated by the Employer's honoring such put option, the put
option must permit the Company Stock to be put, in a manner consistent with such
law, to a third party (e.g., an affiliate of the Employer or a shareholder other
than the Plan) that has substantial net worth at the time the loan is made and
whose net worth is reasonably expected to remain substantial.
The put option shall commence as of the day following the date the
Company Stock is distributed to the Participant and end 60 days thereafter. If
not exercised within such 60-day period, an additional 60-day option shall
commence on the first day of the fifth month of the Plan Year next following the
date the stock was distributed to the Participant (or such other 60-day period
as provided in regulations promulgated by the Secretary of the Treasury).
However, in the case of Company Stock that is publicly traded without
restrictions when distributed but ceases to be so
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traded within either of the 60-day periods described herein after distribution,
the Employer must notify each holder of such Company Stock in writing on or
before the tenth day after the date the Company Stock ceases to be so traded
that, for the remainder of the applicable 60-day period, the Company Stock is
subject to the put option. The number of days between the tenth day and the date
on which notice is actually given, if later than the tenth day, must be added to
the duration of the put option. The notice must inform distributees of the term
of the put options that they are to hold. The terms must satisfy the
requirements of this paragraph.
The put option is exercised by the holder notifying the Employer in
writing that the put option is being exercised. The notice shall state the name
and address of the holder and the number of shares to be sold. The period during
which a put option is exercisable does not include any time when a distributee
is unable to exercise it because the party bound by the put option is prohibited
from honoring it by applicable Federal or State law. The price at which a put
option must be exercisable is the value of the Company Stock determined in
accordance with Section 5.05. Payment under the put option involving a "Total
Distribution" shall be paid in substantially equal monthly, quarterly,
semiannual or annual installments over a period certain beginning not later than
thirty (30) days after the exercise of the put option and not extending beyond
five (5) years. The deferral of payment is reasonable if adequate security and a
reasonable interest rate on the unpaid amounts are provided. The amount to be
paid under the put option involving installment distributions must be paid not
later than thirty (30) days after the exercise of the put option. Payment under
a put option must not be restricted by the provisions of a lien or any other
arrangement, including the terms of the Employer's articles of incorporation,
unless so required by applicable state law.
For purposes of this Section, "Total Distribution" means a
distribution to a Participant or his Beneficiary within one taxable year of the
entire Vested Participant's Account.
(d) An arrangement involving the Plan that creates a put option must
not provide for the issuance of put options other than as provided under this
Section. The Plan (and the Trust) must not otherwise obligate itself to acquire
Company Stock from a particular holder thereof at an indefinite time determined
upon the happening of an event such as the death of the holder.
6.14 NONTERMINABLE PROTECTIONS AND RIGHTS.
No Company Stock, except as provided in Section 5.03(e) and Section
6.13(b), acquired with the proceeds of a loan described in Section 7.02(b) may
be subject to a put, call, or other option, or buy-sell or similar arrangement
when held by and when distributed from the Trust, whether or not the Plan is
then an ESOP. The protections and rights granted in this Section are
nonterminable, and such protections and rights shall continue to exist under the
terms of this Plan so long as any Company Stock acquired with the proceeds of a
loan described in Section 7.02(b) is held by the Trust or by any Participant or
other person for whose benefit such protections and rights have been created,
and neither the repayment of such loan nor the failure of the Plan to be an
ESOP, nor an amendment of the Plan shall cause a termination of said protections
and rights.
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6.15 DIVIDEND PAYMENTS. Notwithstanding anything herein to the contrary,
the Plan Administrator, in his sole discretion, may direct that cash dividends
on shares of Company Stock allocable to Participants' Company Stock Accounts be
distributed to such Participants within ninety (90) days after the close of the
Plan Year in which the dividends are paid.
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7. LOANS
- --------------------------------------------------------------------------------
7.1 LOANS TO PARTICIPANTS. No loans shall be made to Participants from the
assets of the Trust.
7.2 LOANS TO THE TRUST.
(a) The Plan may borrow money for any lawful purpose, provided the
proceeds of an Exempt Loan are used within a reasonable time after receipt only
for any or all of the following purposes:
(i) To acquire Company Stock.
(ii) To repay such loan.
(iii) To repay a prior Exempt Loan.
(b) All loans to the Trust which are made or guaranteed by a
Disqualified Person must satisfy all requirements applicable to Exempt Loans,
including but not limited to the following:
(i) The loan must be at a reasonable rate of interest;
(ii) Any collateral pledged to the creditor by the Plan shall
consist only of the Company Stock purchased with the
borrowed funds;
(iii) Under the terms of the loan, any pledge of Company Stock
shall provide for the release of shares so pledged on a
pro rata basis pursuant to Section 5.03(d);
(iv) Under the terms of the loan, the creditor shall have no
recourse against the Plan except with respect to such
collateral, earnings attributable to such collateral,
Employer contributions (other than contributions of
Company Stock) that are made to meet Current Obligations
and earnings attributable to such contributions;
(v) The loan must be for a specific term and may not be
payable at the demand of any person, except in the case
of default;
(vi) In the event of default upon an Exempt Loan, the value
of the Trust transferred in satisfaction of the Exempt
Loan shall not exceed the amount of default. If the
lender is a Disqualified Person, an Exempt Loan shall
provide for a transfer of Trust Funds upon default only
upon and to the
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extent of the failure of the Plan to meet the payment
schedule of the Exempt Loan;
(vii) Exempt Loan payments during a Plan Year must not exceed
an amount equal to:
(A) the sum, over all Plan Years, of all contributions
and cash dividends paid by the Employer to the
Plan with respect to such Exempt Loan and earnings
on such Employer contributions and cash dividends,
less
(B) the sum of the Exempt Loan payments in all
preceding Plan Years.
A separate accounting shall be maintained for such
Employer contributions, cash dividends and earnings
until the Exempt Loan is repaid.
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8. PARTICIPANT DIRECTED INVESTMENTS
- --------------------------------------------------------------------------------
8.1 GENERAL RULE. Except as provided in Section 8.02, Participants shall
not have the right to direct the investment of their Accounts.
8.2 DIRECTED INVESTMENT ACCOUNT.
(a) Each "Qualified Participant," for Plan Years beginning after
December 31, 1986, may elect within ninety (90) days after the close of each
Plan Year during the "Qualified Election Period" to direct the Trustee in
writing as to the investment of twenty-five percent (25%) of the total number of
shares of Company Stock acquired by or contributed to the Plan that have ever
been allocated to such "Qualified Participant's" Company Stock Account (reduced
by the number of shares of Company Stock previously invested pursuant to a prior
election). In the case of the election year in which the Participant can make
his last election, the preceding sentence shall be applied by substituting
"fifty percent (50%)" for "twenty-five percent (25%)." If the "Qualified
Participant" elects to direct the Trustee as to the investment of his Company
Stock Account, such direction shall be effective no later than one hundred
eighty (180) days after the close of the Plan Year to which such direction
applies. In lieu of directing the Trustee as to the investment of his Company
Stock Account, the "Qualified Participant" may elect a distribution in cash or
Company Stock of a portion of his Company Stock Account covered by the election
within ninety (90) days after the last day of the period during which the
election can be made. Any such distribution of Company Stock shall be subject to
Section 6.13.
Notwithstanding the above, if the fair market value (determined
pursuant to Section 5.04 at the Plan valuation date immediately preceding the
first day on which a "Qualified Participant" is eligible to make an election) of
Company Stock acquired by or contributed to the Plan and allocated to a
"Qualified Participant's" Company Stock Account is Five Hundred Dollars ($500)
or less, then such Company Stock shall not be subject to this paragraph. For
purposes of determining whether the fair market value exceeds Five Hundred
Dollars ($500), Company Stock held in accounts of all employee stock ownership
plans (as defined in Code Section 4975(e)(7)) and tax credit employee stock
ownership plans (as defined in Code Section 409(a)) maintained by the Employer
or any Related Employer shall be considered as held by the Plan.
(b) For the purposes of this Section the following definitions shall
apply:
(i) "Qualified Participant" means any Participant who has
completed ten (10) Plan Years of Service as a
Participant and has attained age fifty-five (55).
(ii) "Qualified Election Period" means the six (6) Plan Year
period beginning with the later of (1) the first Plan
Year in which the Participant first became a "Qualified
Participant," or (2) the first Plan Year beginning after
December 31, 1986.
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(c) 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 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.
8.3 INVESTMENT POLICY.
(a) The Plan is designed to invest primarily in Company Stock.
(b) With due regard to subparagraph (a) above, the Administrator may
also direct the Trustee to invest funds under the Plan in other property
described in the Trust or in life insurance policies to the extent permitted by
subparagraph (c) below, or the Trustee may hold such funds in cash or cash
equivalents.
(c) With due regard to subparagraph (a) above, the Administrator may
also direct the Trustee to invest funds under the Plan in insurance policies on
the life of any "key man" Employee. The proceeds of a "key man" insurance policy
may not be used for the repayment of any indebtedness owed by the Plan which is
secured by Company Stock. In the event any "key man" insurance is purchased by
the Trustee, the premiums paid thereon during any Plan Year, net of any policy
dividends and increases in cash surrender values, shall be treated as the cost
of Plan investment and any death benefit or cash surrender value received shall
be treated as proceeds from an investment of the Plan.
(d) The Plan may not obligate itself to acquire Company Stock from a
particular holder thereof at an indefinite time determined upon the happening of
an event such as the death of the holder.
(e) The Plan may not obligate itself to acquire Company Stock under
a put option binding upon the Plan. However, at the time a put option is
exercised, the Plan may be given an option to assume the rights and obligations
of the Employer under a put option binding upon the Employer.
(f) All purchases of Company Stock shall be made at a price which,
in the judgment of the Plan Administrator, does not exceed the fair market value
thereof. All sales of Company Stock shall be made at a price which, in the
judgment of the Plan Administrator, is not less than the fair market value
thereof. The valuation rules set forth in Sections 5.04 and 5.05 shall be
applicable.
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9. ADMINISTRATION
- --------------------------------------------------------------------------------
9.1 AUTHORITY OF PLAN ADMINISTRATOR. The Plan Administrator shall have
complete control of the administration of the Plan. The Plan Administrator,
through the Advisory Committee and through any other persons designated by the
Employer, has the power to interpret the provisions of this Plan and related
policies and procedures, and to decide any and all questions which may arise in
relation to the Plan. All decisions of the Plan Administrator (and of the
Advisory Committee, to the extent of any delegation of powers and
responsibilities by the Employer to the Committee) made within the scope of its
authority shall be final.
In addition, the Plan Administrator shall:
(a) Establish a funding policy and method based upon its
consideration of the Plan's needs for liquidity, appreciation, and
stability.
(b) Periodically review the performance of Fiduciaries and other
parties to whom any allocation or delegation of duties has been made,
whether or not involving the management and control of Plan assets;
(c) Maintain and retain records on matters with respect to which
disclosure to appropriate governmental agencies and/or to Participants and
Beneficiaries is required;
(d) Prepare and furnish to Participants and Beneficiaries all the
information required by the provisions of this Plan or by law;
(e) Prepare and file or publish with the appropriate government
agencies all reports and other information required to be filed or
published by law;
(f) Establish and communicate to Participants a procedure, which
includes at least three (3) investment options pursuant to the applicable
Treasury Regulations, for allowing each Participant to direct the Trustee
as to the investment of his Company Stock Account pursuant to Section
8.02; and
(g) Establish and communicate to Participants a procedure and method
to ensure that each Participant may vote Company Stock allocated to such
Participant's Company Stock Account to the extent provided by and in
accordance with Section 10.07.
9.2 ORGANIZATION AND MEMBERSHIP OF ADVISORY COMMITTEE. The Employer shall
appoint one or more members to a committee to be known as the "Advisory
Committee" (or such other name as the Employer may select), to which the
Employer may delegate certain of its responsibilities as Plan Administrator.
Members of the Advisory Committee need not be Participants or Beneficiaries, and
officers and directors of the Employer shall not be precluded from serving as
members. A member shall serve until his resignation, death, or disability, or
until removed by the Employer. In
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the event of any vacancy arising by reason of the death, disability, removal, or
resignation of a member, the Employer may, but is not required to, appoint a
successor to serve in his place. The Advisory Committee shall select a Chairman
and a Secretary from among its members. Members of the Advisory Committee shall
serve in such capacity without compensation. The Advisory Committee shall act by
majority vote. The proper expenses of the Advisory Committee, and the
compensation of its agents appointed pursuant to Section 9.03 of the Plan, if
any, shall be paid directly by the Employer.
9.3 DESIGNATION OF AGENTS AND ALLOCATION OF RESPONSIBILITIES.
(a) The Plan Administrator may delegate to one or more qualified
"Investment Manager(s)" the responsibility and authority to invest the assets of
the Trust. Any named Investment Manager shall accept his or its responsibility
in writing, and shall acknowledge in writing that it is a Fiduciary with respect
to the investment of Trust assets. If an Investment Manager is designated
pursuant to this Section 9.03, a copy of the delegation, acceptance, and
acknowledgment shall be provided to the Trustee, and the Trustee is authorized
and entitled to rely upon that delegation. The Investment Manager, and not the
Trustee or the Plan Administrator, shall be the Named Fiduciary with respect to
the investment, management, and control of the assets of the Trust within the
scope of the Investment Manager's authority.
(b) The Plan Administrator may designate other persons to carry out
fiduciary duties, to render advice (including legal and investment advice), and
to perform such other services as the Plan Administrator, in its sole
discretion, deems necessary and appropriate. The delegation or allocation of
responsibilities shall be effective upon the date(s) specified by the Plan
Administrator. Any such delegation or allocation shall be communicated to the
Participants and Beneficiaries, to the extent required by law.
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10. TRUST AND TRUSTEE
- --------------------------------------------------------------------------------
10.1 INVESTMENT OF TRUST FUND. The Trust, as defined in Section 2.33 of
the Plan, shall be held, administered, and invested in the manner provided in
this Article 10, as a single fund, unless otherwise specifically provided in
this Plan. The Trust may be invested, held, and reinvested in every and all
forms of real, personal, or mixed property and any interest therein, as provided
in Section 10.05 of the Plan, subject to the fiduciary responsibilities provided
in Article 11 of the Plan. The Trustee shall invest, manage, and control the
assets of the Trust. Cash may be held uninvested at any time, and from time to
time, and in such amounts as may be deemed advisable by the Trustee, subject to
the direction of the Advisory Committee or of any Investment Manager appointed
pursuant to Section 9.03(a) of the Plan.
10.2 COMMINGLING OF TRUST ASSETS. Notwithstanding any other provision of
this instrument, the Trustee shall have the full power and authority to invest
and reinvest any assets of the Trust in qualified common trust funds established
by the Trustee, and to commingle moneys and assets of this Trust with moneys and
assets of other trusts in such qualified common trust funds. Pursuant to the
direction of the Advisory Committee or the Plan Administrator, the Trustee shall
combine the assets of this Trust for investment purposes with the assets of any
other tax-qualified employee pension benefit trust established by the Employer
or any Related Employer, provided that separate accounts and records are
maintained for each trust.
10.3 VALUATION OF TRUST FUND. As of the last day of each Plan Year, and
upon such other more frequent dates as the Trustee and the Advisory Committee
shall agree, the Trustee shall determine the fair market value of the Trust and
shall adjust the value of the Participants' Accounts in accordance with the
provisions of Article 5 of the Plan. The Trustee shall prepare and furnish the
Advisory Committee with a statement of account, including its valuation as
provided in Sections 5.04 and 5.05 of the Plan. The Trustee, in its sole
discretion, may require the Employer to furnish a written independent appraisal
of the value of any employer securities or employer real property held as part
of the Trust, in a form acceptable to the Trustee, and the Trustee shall be
entitled to rely exclusively upon such appraisal in making its valuation. Any
valuation by the Trustee shall be conclusive and binding on any person having an
interest in the Trust.
10.4 TRUSTEE TO HOLD TRUST ASSETS. Title to all the assets of the Trust
shall be and remain in the Trustee. Except where assets are invested by a
designated investment advisor pursuant to Section 9.03 of the Plan, the Trustee
shall have the custody and care of all of the assets of the Trust. No part of
the Trust shall revert to the Employer, or be used or diverted for any purpose
other than for the exclusive benefit of the Participants and their
Beneficiaries, except in the case of charges and fees properly paid in
connection with the Plan, and except as otherwise provided in Section 14.01
herein.
10.5 GENERAL POWERS OF TRUSTEE. The Trustee, in addition to all powers and
authorities under common law, statutory authority, and other provisions of the
Plan, shall have the following powers and authorities, to be exercised in the
Trustee's sole discretion:
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(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. Notwithstanding the
foregoing, the Trustee shall not obligate the Plan to acquire securities
from a particular security holder at an indefinite time determined upon
the happening of a stated event.
(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.
(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; 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 assets of the Trust 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.
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(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 Plan Administrator, as an investment of the Trust
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.
(l) 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 land 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 deposit monies in federally insured savings accounts or
certificates of deposit in banks or savings and loan associations.
(p) To vote Company Stock as provided in Section 10.07.
(q) To consent to or otherwise participate in reorganizations,
recapitalizations, consolidations, mergers and similar transactions with
respect to Company Stock or any other securities and to pay any
assessments or charges in connection therewith.
(r) To deposit such Company Stock (but only if such deposit does not
violate the provisions of Section 10.07) or other securities in any voting
trust, or with any protective or like committee, or with a trustee or with
depositories designated thereby.
(s) To sell or exercise any options, subscription rights and
conversion privileges and to make any payments incidental thereto.
(t) To exercise any of the powers of an owner, with respect to such
Company Stock and other securities or other property comprising the Trust.
The Plan Administrator, with the Trustee's approval, may authorize the
Trustee to act on any administrative matter or class of matters with
respect to which direction or instruction to the Trustee by the Plan
Administrator
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is called for hereunder without specific direction or other instruction
from the Plan Administrator.
(u) 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.
(v) 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.
No enumeration of specific powers herein shall be construed as a
limitation upon the foregoing general powers of the Trustee, nor shall any of
the powers conferred upon the Trustee be exhausted by the use thereof, but shall
be continuing.
10.6 DIRECTED INVESTMENT ACCOUNT. The powers granted to the Trustee shall
be exercised in the sole fiduciary discretion of the Trustee. However, pursuant
to Section 8.02, 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 Plan 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.
10.7 VOTING COMPANY STOCK. Each Participant or Beneficiary in the Plan
shall be entitled to direct the Administrator as to the manner in which the
shares of Company Stock allocated to the Participant's or Beneficiary's Company
Stock Account are to be voted. If the Participant or Beneficiary fails or
refuses to provide the Administrator with timely instructions as to the manner
in which such Company Stock is to be voted, the Administrator may determine, in
its sole and complete discretion, the manner in which such Company Stock is to
be voted.
All Company Stock shall be voted by the Trustee in accordance with the
Administrator's instructions. If the Administrator fails or refuses to give
timely instructions as to the voting of Company Stock, the Trustee shall treat
such failure or refusal as an instruction not to vote such Company Stock.
10.8 EXPENSES AND COMPENSATION OF TRUSTEE. The Employer shall pay or
reimburse the Trustee for all reasonable and necessary expenses incurred in
administering the Trust, including Trustee's fees, for each Plan Year. The
Trustee's compensation shall be in an amount agreed upon
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from time to time by the Trustee and the Employer. If, and to the extent, such
fees and charges are not paid directly by the Employer, the Trustee may deduct
such amounts, as well as all other reasonable and necessary expenses, charges,
costs, and fees incurred in connection with the administration of the Trust or
the operation of the Plan, from the assets of the Trust.
10.9 DISTRIBUTIONS. The Trustee shall make all distributions and payments
out of the Trust to Participants or their beneficiaries in such manner, in such
amounts, and for such purposes as may be necessary and proper in accordance with
the provisions of the Plan.
10.10 LIMITATION ON DUTIES OF TRUSTEE. The Trustee shall be responsible
for the safekeeping and administration of the assets of the Plan and Trust in
accordance with the provisions of this instrument and any amendments thereof.
The duties of the Trustee under the Plan shall be determined solely by the
express provisions of this instrument, and no other or further duties or
responsibilities shall be implied. Subject to the terms of the Plan, the Trustee
shall be fully protected and shall incur no liability in acting in reliance upon
the written instructions, directions, or accountings (including allocations of
Employer contributions) of the Advisory Committee, the Plan Administrator, a
qualified Investment Manager appointed pursuant to Section 9.03(a) of the Plan,
or any other named administrator or Fiduciary. The Trustee shall be under no
obligation whatsoever to determine whether contributions delivered to it comply
with the provisions of the Plan, and shall be obligated only to receive and
administer such contributions pursuant to the terms of the Plan. It shall be the
obligation of the Advisory Committee to notify the Trustee, in writing, of all
facts which may be necessary in order to determine the proper allocation of an
Employer contribution, and in order to determine the basis upon which
distributions of any kind are to be made, including length of service,
compensation, dates of death or Disability, leaves of absence, and termination
of employment by resignation, death, Disability, or retirement, to the extent
that the same may be necessary for the Trustee to perform its duties under the
terms of the Plan. The Trustee is hereby authorized to act solely upon the basis
of such notification and facts received from the Advisory Committee.
10.11 ACTIONS CONCLUSIVE. Any exercise by the Trustee of its discretion,
vested in it either expressly or by implication pursuant to the provisions of
the Plan, shall, except as may otherwise be determined by a court of competent
jurisdiction, be conclusive and binding upon all persons directly or indirectly
affected, without restricting, however, the Trustee's right to reconsider and
redetermine its actions.
10.12 BOND NOT REQUIRED. The Trustee shall not be required to give bond
for the faithful performance of its duties hereunder, except as may otherwise be
provided by law.
10.13 UNIFORM ACCOUNTING ACT. The Trustee is relieved of all duties which
it might otherwise have by virtue of the Uniform Trustees' Accounting Act, as
amended, or any similar act.
10.14 MULTIPLE TRUST FUNDS. If the assets of the Plan are held in more
than one trust fund, the Trustee shall not be liable except with respect to the
trust fund or funds of which it is trustee.
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10.15 TRUSTEE ENTITLED TO CONSULTATION. With the exception of those powers
and duties specifically allocated to the Trustee by the express terms of the
Plan, it shall not be the responsibility of the Trustee to interpret the terms
of the Plan, and the Trustee may request, and is entitled to receive, guidance
and written direction from the Advisory Committee on any matter requiring the
construction or interpretation of the Plan documents.
10.16 TAXES CHARGEABLE TO ACCOUNTS. If the whole or any part of the Trust
shall become liable for the payment of any estate, inheritance, income, or other
tax which the Trustee shall be required to pay, the Trustee shall have full
power and authority to pay such tax out of any monies or other property in its
control for the account of the Participant or other person in whose interest
such payment is made. Prior to making any such payment, the Trustee may require
such releases or other documents from any lawful taxing authority as it deems
necessary. The Trustee shall not be liable for any nonpayment of tax when it
distributes an interest under this Plan upon the instruction of the Advisory
Committee.
10.17 RECORDS AND ACCOUNTS. The Trustee shall keep a full, accurate, and
detailed record of all transactions of the Trust which the Advisory Committee
may examine at any time during the Trustee's regular business hours. As soon as
practicable following the later of (a) the end of each Plan Year, or (b) the
filing by the Employer of its federal income tax return for such Plan Year (or
the corresponding taxable year of the Employer), the Trustee shall furnish the
Advisory Committee with a statement of account. This account shall set forth all
receipts, disbursements, and other transactions effected by the Trustee during
the Plan Year. The Advisory Committee shall promptly notify the Trustee in
writing of its approval or disapproval of such statement of account. The
Advisory Committee's failure to disapprove the account within sixty (60) days
after receipt shall be considered an approval. The approval by the Advisory
Committee shall be binding as to all matters disclosed in any statement, to the
same extent as if the accounting of the Trustee had been settled by a judgment
or decree of a court of competent jurisdiction under which the Trustee, Advisory
Committee, Employer, and all persons having or claiming any interest in the
Trust were parties; provided, however, that the Trustee may have its accounting
judicially settled if it so desires.
10.18 DISPUTES. If at any time there shall be a dispute as to the person
to whom payment or delivery of moneys or property should be made by the Trustee,
or regarding any action to be taken by the Trustee, the Trustee may postpone
such payment, delivery, or action, retaining the funds or property involved
until such dispute shall have been resolved by a court of competent jurisdiction
or until the Trustee shall have been indemnified to its reasonable satisfaction
or shall have received a written direction from the Advisory Committee.
10.19 LIMITATION ON LIABILITY. The Employer shall indemnify and hold
harmless the Trustee of and from any liability, loss, cost, or expense arising
from or in any way connected with its acting upon the directions of the Advisory
Committee or the Plan Administrator or failing to act because of the lack of any
direction from the Advisory Committee or the Plan Administrator.
10.20 RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR TRUSTEE.
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(a) The Trustee may resign at any time by delivering to the Employer
a written notice of its resignation, to take effect at a date specified therein,
which shall not be less than thirty (30) days after the delivery thereof, unless
notice is waived. The Trustee may be removed by the Employer by delivery of a
written notice of such removal, to take effect at a date specified therein,
which shall not be less than ten (10) days after delivery thereof, unless notice
is waived.
(b) Upon the resignation or removal of the Trustee, the Trustee
shall have the right to a settlement of its account, which may be made, at the
option of the Trustee, either (i) by judicial settlement in an action instituted
by the Trustee in a court of competent jurisdiction, or (ii) pursuant to a
written settlement agreement between the Trustee and the Employer. Upon the
settlement of its account, all right, title, and interest of the Trustee in the
assets of the Trust, and all rights, privileges, and duties under the Plan
theretofore vested in the Trustee, shall vest in the successor Trustee, and all
future liability of the Trustee shall terminate.
(c) The Employer, upon receipt of a notice of the resignation of the
Trustee, or upon its removal of the Trustee, shall promptly designate a
successor trustee, whose appointment is subject to its written acceptance of
this Plan and Trust.
(d) Reference in this instrument to the term "Trustee" shall be
deemed to include not only the original Trustee, but also any successor trustee
or co-trustees, and each successor trustee shall, without the necessity of any
act of transfer or action by any court, become vested with title to the assets
of the Trust and have all the same powers and obligations as if such successor
were the original Trustee.
10.21 MULTIPLE TRUSTEES. If the assets of the Plan are at any time held by
two or more trustees:
(a) Each shall use reasonable care to prevent a co-trustee from
committing a breach of fiduciary responsibilities; and
(b) They shall jointly manage and control the assets of the Plan
subject to the approval of the Advisory Committee (or of an Investment
Manager, if approved by the Employer) as provided in this Plan, except
that the trustees are expressly permitted to enter into an agreement
allocating specific responsibilities, obligations, or duties among
trustees, in which event a trustee to whom certain responsibilities,
obligations, or duties have not been allocated shall not be liable by
reason of this Section 10.21, either individually or in its capacity as
trustee, for any loss resulting to the Plan arising from the acts or
omissions on the part of another trustee to whom such responsibilities,
obligations, or duties have been specifically allocated.
(c) In the event that any Trustee is unable or refuses to accept his
or its appointment as Trustee, or having accepted, ceases to act as
Trustee for any reason, including, but not limited to, disability, death,
or any legal or other incapacity, the surviving or remaining Trustee(s)
shall perform all of the functions of Trustee and succeed to all powers,
duties and discretionary authority given to the Trustees jointly.
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10.22 ACTIONS AGAINST TRUSTEE. No person or organization other than the
Employer, whether having an interest in the Trust or otherwise, may require an
accounting or bring any action against the Trustee with respect to the Trust or
any actions of the Trustee with respect to the same.
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11. FIDUCIARY RESPONSIBILITIES AND LIABILITIES
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11.1 FIDUCIARY RESPONSIBILITY. Every Fiduciary of the Plan shall discharge
his duties hereunder solely in the interest of the Participants and
Beneficiaries and:
(a) For the exclusive purpose of providing benefits to Participants
and Beneficiaries, and for defraying reasonable expenses of administering
the Trust; and
(b) With the care, skill, prudence, and diligence under the
circumstances then prevailing that a prudent man acting in a like capacity
and familiar with such matters would use in the conduct of an enterprise
of like character and with like aims; and
(c) By diversifying its investments of the Trust so as to minimize
the risk of large losses, unless under the circumstances it is clearly
prudent not to do so.
In the case of Participant directed investments, made in accordance with
Article 8 of the Plan:
(a) A Participant shall not be deemed to be a Fiduciary of the Plan
by reason of his investment direction, and shall also not be subject to
the standard of conduct described in this Section 11.01; and
(b) No person who is otherwise a Fiduciary of the Plan shall be
liable for any loss, or by reason of any breach, which results from the
Participant's investment direction.
Each Fiduciary warrants that any directions given, information furnished,
or action taken by it shall be in accordance with the provisions of this Plan,
authorizing or providing for such direction, information or action. Furthermore,
each Fiduciary may rely upon any such direction, information or action of
another Fiduciary as being proper under this Plan, and is not required under
this agreement to inquire into the propriety of any such direction, information
or action. It is intended under this Plan that each Fiduciary will be
responsible for the proper exercise of its own powers, duties, responsibilities
and obligations under the Plan. No Fiduciary shall guarantee the Trust in any
manner against investment loss or depreciation in asset values. Liability under
the terms of this Plan for a breach of fiduciary duty shall be limited to the
period of time during which a Fiduciary actually serves in such capacity with
respect to this Plan.
11.2 FIDUCIARIES NOT INSURERS. The Fiduciaries under the Plan in no way
guarantee the Trust from investment loss or depreciation. The Employer does not
guarantee the payment of any money which may be or becomes due to any person
from the Trust. The liability of the Advisory Committee and the Trustee to make
any payment from the Trust at any time and all times is limited to the available
assets of the Trust.
11.3 PROHIBITED TRANSACTIONS. No Fiduciary with respect to the Plan shall
engage in any prohibited transaction, as defined in Section 4975 of the Code or
Section 406 of ERISA. No invest-
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ment shall be made or directed which would cause (a) a loss of qualification of
the Plan under the provisions of the Code; (b) a loss of the deductibility of
the Employer's contributions to the Plan under the provisions of the Code; (c) a
Participant to become liable for income tax under the provisions of the Code,
prior to the distribution of the Participant's interest in his Accounts; or (d)
a loss of the Trust's income tax exemption under the provisions of the Code.
11.4 LIMITATION OF LIABILITY; INDEMNIFICATION. In addition to and in
furtherance of the limitations provided in Sections 9.03 and 10.21 of the Plan,
and to the extent permitted by applicable law, the Employer shall indemnify and
hold harmless its Board of Directors (collectively and individually), the
Advisory Committee (collectively and individually) and its officers, Employees,
and agents, against and with respect to any and all expenses, losses,
liabilities, costs, and claims, including legal fees to defend against such
liabilities and claims, arising out of their good-faith discharge of
responsibilities under or incident to the Plan, excepting only expenses and
liabilities resulting from willful misconduct. This indemnity shall not preclude
such further indemnities as may be available under insurance purchased by the
Employer or as may be provided by the Employer under any by-law, agreement, vote
of shareholders or disinterested directors, or otherwise, as such indemnities
are permitted under state law. Payments with respect to any indemnity and
payment of expenses or fees under this Section 11.04 shall be made only from
assets of the Employer, and shall not be made directly or indirectly from assets
of the Trust.
11.5 BENEFITS PAYABLE SOLELY FROM TRUST FUND. All benefits payable under
this Plan shall be paid or provided for solely from the Trust, and the Employer
assumes no liability or responsibility therefor.
11.6 NO LIABILITY. The Employer assumes no obligation or responsibility to
any Employee, Participant or Beneficiary for any act of, or failure to act, on
the part of the Trustee or any Investment Manager.
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12. PARTICIPANTS' RIGHTS AND LIMITATIONS
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12.1 DISMISSAL. Neither the adoption of the Plan by the Employer, nor any
action taken by the Plan Administrator, the Employer, the Advisory Committee, or
the Trustee, shall be construed to give any Employee the right to be retained in
the Employer's employ or any right to any payment whatsoever, except to the
extent of the benefits to which he is entitled under the terms of the Plan. The
Employer expressly reserves the right to dismiss any Employee, at any time,
without any liability for any claim either against the Employer or the Trust for
any payment whatsoever (except to the extent otherwise provided in the Plan).
12.2 ALIENATION.
(a) No benefit which shall be payable out of the Trust to any person
(including a Participant or 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 will be void. No Account or benefit shall in any
manner be liable for, or subject to, the debts, contracts, liabilities,
engagements, or torts of any Participant or Beneficiary, or be subject to
attachment or legal process for or against such person, and no attempted
attachment or legal process shall be recognized by the Plan Administrator or the
Trustee, except as may be required by law. The preceding provisions of this
Section 12.02(a) shall also apply to the creation, assignment, or recognition of
a right to any benefit payable with respect to a Participant pursuant to a
domestic relations order, unless such order is determined to be a QDRO, or any
domestic relations order entered before January 1, 1985.
(b) This prohibition against alienation shall not apply to the
extent a Participant or Beneficiary is indebted to the Plan, for any reason,
under any provision of this Plan, and at the time a distribution is to be made
to or for his benefit, a portion of the amount distributed equal to the
indebtedness to the Plan will be offset against such indebtedness. Prior to such
offset, however, the Participant or Beneficiary must be given written notice by
the Plan Administrator. If the Participant or Beneficiary does not agree that
the indebtedness is a valid claim against his vested Accounts, he will be
entitled to a review of the validity of the claim in accordance with the claims
procedures provided in Section 12.04.
(c) Notwithstanding any contrary provision in this Section 12.02, if
the Plan Administrator receives a domestic relations order issued pursuant to
State domestic relations law with respect to a Participant; and the Plan
Administrator determines that such is a Qualified Domestic Relations Order which
complies with the requirements of Section 206(d)(3) of ERISA, then the payment
to the alternate payee named in the Qualified Domestic Relations Order shall not
violate the prohibition against alienation provided for in this Section.
12.3 PROCEDURE WHEN TRUSTEE IS UNABLE TO LOCATE DISTRIBUTEE. Any
communication, statement, benefit distribution, or notice addressed to a
Participant or Beneficiary at his last known post office address filed with the
Plan Administrator shall be binding on the Participant or Bene-
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ficiary for all purposes under the Plan. The Plan Administrator shall not be
required to search for or to locate any Participant or Beneficiary under the
Plan. If the Plan Administrator notifies a Participant or Beneficiary that he is
entitled to a distribution, and also notifies him of the provisions of this
Section 12.03, and if the Participant or Beneficiary fails to claim his benefits
under the Plan or make his whereabouts known within five calendar years after
such notification, the Participant's or Beneficiary's benefits under the Plan
shall be reallocated in the same manner as a Forfeiture under Section 5.06. In
the event that a Participant or Beneficiary subsequently makes a claim for his
benefit, such benefit shall be restored, unadjusted for any gains or losses
subsequent to the date of Forfeiture, from additional Employer Contributions, if
necessary.
12.4 CLAIMS PROCEDURE. The Employer, as Plan Administrator, shall make all
initial determinations as to the right of any person to benefits. Any denial of
a claim by a Participant or Beneficiary for benefits under the Plan shall be
stated in writing by the Employer and shall be delivered or mailed to the
Participant or Beneficiary within 60 days of the Employer's receipt of the
Participant's or Beneficiary's written claim. The notice of denial shall set
forth the specific reasons for the denial, written to the best of the Employer's
ability in a manner that may be understood by the Participant or Beneficiary
without legal or actuarial counsel, and shall also set forth procedures, if
appropriate, for resubmitting the denied claim. In the event that a Participant
or Beneficiary should wish to appeal the final decision of the Employer, the
Participant or Beneficiary will file a written appeal with the Advisory
Committee within 60 days of the Participant's receipt of the Employer's written
decision. The Advisory Committee's written decision shall be delivered to the
Participant or Beneficiary within 60 days after the Advisory Committee receives
the Participant's or Beneficiary's written appeal. Except as provided in this
Section 12.04, and to the extent permitted by law, the decision of the Advisory
Committee shall be final and binding upon all persons.
In the event that a Participant or Beneficiary should desire to contest
the final decision of the Advisory Committee, the Participant or Beneficiary may
file a written request for arbitration with the Advisory Committee within 15
days after the written decision of the Advisory Committee is received by the
Participant or Beneficiary. The Participant or Beneficiary and the Advisory
Committee shall each name an arbitrator within 20 days after the Advisory
Committee receives a request for arbitration, and the two arbitrators shall
jointly name a third arbitrator. If either party fails to select an arbitrator
within the 20 day period, or if the two arbitrators fail to select a third
arbitrator within 15 days after their appointment, then the Presiding Judge of
the county court (or its equivalent) in the county in which the principal office
of the Employer is located shall appoint such other arbitrator or arbitrators.
The arbitrators shall render a decision within 60 days after their appointment
and shall conduct all proceedings pursuant to the laws of the state in which the
Employer's principal place of business is located and the then current Rules of
the American Arbitration Association governing commercial transactions, to the
extent that such rules are not inconsistent with applicable state law. The cost
of the arbitration procedure shall be borne by the losing party or, if the
decision is not clearly in favor of one party or the other, then in the manner
determined by the arbitrators. The arbitration proceeding provided for in this
Section 12.04 shall be the sole and exclusive remedy of a Participant or
Beneficiary to appeal decisions of the Advisory Committee and of the Plan
Administrator under this Plan.
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12.5 EMPLOYER AND TRUSTEE ONLY NECESSARY PARTIES TO LITIGATION. In any
application to or proceeding or action in any court pertaining to this Plan,
only the Employer and the Trustee shall be necessary parties, and no Participant
or any other person having or claiming an interest in the Trust need be made a
party to or shall be entitled to any notice of such application, proceeding,
action, or service of process in connection therewith. Any judgment entered into
in any such proceeding or action shall be conclusive upon all persons claiming
any rights under the Plan.
12.6 RECEIPTS AND RELEASES. Any payment to any Participant or Beneficiary
made in accordance with the provisions of the Plan shall, to the extent of that
payment, be in full satisfaction of all claims hereunder against the Plan, and
the Plan Administrator or Trustee may require such Participant or Beneficiary,
as a condition precedent to such payment, to execute a receipt and release for
that payment.
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13. AMENDMENT AND TERMINATION
- --------------------------------------------------------------------------------
13.1 AMENDMENT OF PLAN. The Employer may, at any time, amend the Plan in
whole or in part (either prospectively or retroactively) by executing a written
amendment authorized by the Employer's Board of Directors. However:
(a) The Employer shall have no power to amend the Plan in such a
manner as would cause or permit any part of the assets of the Trust to be
diverted to purposes other than for the exclusive benefit of Participants
or their Beneficiaries, or as would cause or permit any portion of the
assets to revert to or become the property of the Employer.
(b) No amendment to the Plan shall be effective if and to the extent
that it has the effect of decreasing a Participant's Accrued Benefit,
except to the extent permitted under Section 412(c)(8) of the Code. For
purposes of this paragraph, a Plan amendment which has the effect of
decreasing a Participant's Account balance or eliminating an optional form
of benefit with respect to benefits attributable to service before the
amendment shall be treated as reducing an Accrued Benefit.
(c) No amendment shall increase the duties of the Trustee, without
its written consent.
(d) The Employer shall not have the right to amend the Plan to
eliminate any optional form of distribution or any other protected
benefit, right, or feature.
(e) Notwithstanding any contrary provision, the Plan may be amended
at any time to conform with provisions of the Code and ERISA, and
applicable rules, regulations, and procedures of federal and state law.
13.2 TERMINATION OF THE PLAN. The Employer has established the Plan with
the bona fide intention and expectation that it will make Contributions to the
Plan indefinitely, but the Employer is not and shall not be under any obligation
or liability whatsoever to make Contributions or to maintain the Plan for any
given period of time. The Employer may, in its sole and absolute discretion,
discontinue Contributions or terminate the Plan, at any time, without any
liability whatsoever for such discontinuance or termination. In the event of any
termination or partial termination of the Plan, or of a complete discontinuance
of Contributions, all of the affected Participants or Beneficiaries shall be
fully vested in their Accounts at the date of termination, partial termination,
or discontinuance. The Plan shall terminate upon the occurrence of any of the
following events:
(a) Execution of a written amendment authorized by the Employer's
Board of Directors; or
(b) Adjudication of the Employer as a bankrupt, general assignment
by the Employer to or for the benefit of creditors, or legal dissolution
or liquidation of the Employer.
-1
<PAGE> 85
Unless the Employer provides by amendment for the liquidation of the Trust
and the immediate distribution of all Trust assets, the termination of the Plan
shall in no way alter the time and manner of payment provided under Article 6 of
the Plan. The Trust shall continue until all of the assets of the Trust have
been distributed in accordance with the terms of the Plan.
13.3 CONSOLIDATION, MERGER, DIVISION OR SALE. Nothing in this Plan shall
prevent the consolidation, merger, division, or sale of the Employer (or any
subsidiary, division, or unit of the Employer) with, into, or to any other
entity, or prevent the sale by the Employer of any of its assets. A successor
corporate employer which survives the consolidation, merger, division or
purchase of the Employer or its assets shall have the right to become a party to
the Plan or any successor plan, by proper authorization of its Board of
Directors and/or by execution of an appropriate amendment to this Plan. If
within 90 days from the effective date of such consolidation, merger, division
or sale of the Employer or its assets, the new employer does not become a party
to the Plan, the Plan shall automatically be deemed terminated as of the date of
such consolidation, merger, division or sale. In the case of any merger or
consolidation with, or the division or transfer of assets and liabilities to,
any other tax-qualified employee pension benefit plan, provisions shall be made
so that each Participant in the Plan on the relevant date will have an Accrued
Benefit immediately after the merger, consolidation, division or transfer which
is equal to or greater than the Accrued Benefit to which he would have been
entitled immediately prior to the merger, consolidation, division or transfer if
the Plan had terminated on such date.
-2
<PAGE> 86
14. MISCELLANEOUS PROVISIONS
- --------------------------------------------------------------------------------
14.1 REVERSION OF CONTRIBUTIONS. While it is intended that the assets of
the Plan will never inure to the benefit of the Employer and will be held for
the exclusive purposes of providing benefits to Participants and Beneficiaries
and defraying reasonable expenses of administering the Plan, the Employer
reserves the right to retrieve Contributions pursuant to Section 403(c) of
ERISA, as follows:
(a) A Contribution made by a mistake of fact will be returned to the
Employer within one (1) year after the payment of such Contribution.
(b) A Contribution which is conditioned on the initial qualification
of the Plan under the Code will be returned to the Company should the Plan
fail to qualify within one (1) year after the date of denial of such
qualification, provided the application for determination relating to
initial qualification is filed by the due date for the Employer's return
for the taxable year in which the Plan is adopted. Upon the return of such
Contribution to the Employer, the Plan will terminate, and the Trustee
will be discharged from all obligations under the Trust.
(c) A Contribution which is conditioned on its current deductibility
under Section 404 of the Code will be returned to the Employer, to the
extent that it is disallowed, within 1 year after the disallowance of the
deduction.
Earnings attributable to the Contributions described in Sections 14.01(a) and
(c) may not be returned to the Employer; however, losses attributable to those
Contributions must reduce the amount to be returned.
14.2 NOTICES. Any notices, documents, or forms required to be given to or
filed with the Plan Administrator, the Employer, or the Advisory Committee shall
be delivered or mailed by registered or certified mail, postage prepaid, to the
Advisory Committee or the Employer, at the Employer's principal business office.
Any notices, documents, or forms required to be given to or filed with the
Trustee shall be delivered or mailed by registered or certified mail, postage
prepaid, to the Trustee at its principal business office.
14.3 TITLES AND HEADINGS NOT TO CONTROL. The headings and subheadings in
this Plan have been inserted for convenience of reference only and are to be
ignored in any interpretation of the provisions herein.
14.4 APPLICABLE LAW. Except where otherwise preempted by federal law, all
legal questions pertaining to the Plan shall be determined in accordance with
the procedural and substantive laws of the state in which the Employer's
principal place of business is located, and all contributions made under the
Plan shall be deemed to have been made in such state.
-1
<PAGE> 87
14.5 COUNTERPARTS. This instrument may be executed in several
counterparts, each of which shall be deemed an original, and said counterparts
shall constitute but one and the same instrument, which may be sufficiently
evidenced by any one counterpart.
14.6 BINDING UPON SUCCESSORS, ETC. This Plan shall be binding upon all
Participants and Beneficiaries, heirs, executors, and administrators, upon the
Employer and its successors and assigns, and upon the Trustee and its
successors.
14.7 COPIES OF PLAN. A copy of this Plan shall be made available for
inspection by any Participant or other interested party at the principal office
of the Employer, during its normal business hours.
14.8 GENDER AND NUMBER. Words used herein in the masculine or feminine
gender shall be construed as the feminine or masculine gender, respectively,
where appropriate. Words used in the singular or plural shall be construed as
the plural or singular, respectively, where appropriate.
14.9 SEVERABILITY. Should any provisions of this Plan be determined to be
void by any court of competent jurisdiction, the Plan will continue to operate,
subject to the Employer's right to amend or terminate the Plan as provided in
Article 13, and, for purposes of the jurisdiction of the court only, will be
deemed not to include the provision determined to be void.
14.10 NO DUPLICATION OF BENEFITS. There shall be no duplication of
benefits under the Plan because of employment by more than one participating
Employer.
14.11 NOTICE AND WAIVER OF NOTICE. Whenever written notice is required to
be given under this Plan, such notice shall be deemed given on the date that
such written notice is deposited at a United States Postal Service station,
first class postage paid. Notice may be waived by any party entitled otherwise
to receive written notice concerning any matter under this Plan.
14.12 EVIDENCE FURNISHED CONCLUSIVE. Anyone required to give evidence
under the terms of the Plan may do so by certificate, affidavit, document or
other information which the person to act in reliance may consider pertinent,
reliable and genuine, and to have been signed, made or presented by the proper
party or parties. The Fiduciaries under the Plan shall be fully protected in
acting and relying upon any evidence described under this Section 14.12.
14.13 RELEASE OF CLAIMS. Any payment to any Participant or Beneficiary,
his legal representative, or to any guardian or committee appointed for such
Participant or Beneficiary, shall, to the extent thereof, be in full
satisfaction of all claims hereunder against the Plan Administrator and the
Trustee, 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
Plan Administrator or the Trustee.
-2
<PAGE> 88
14.14 MULTIPLE COPIES OF PLAN AND/OR TRUST DOCUMENT. This Plan and the
related Trust Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which shall constitute one and the
same agreement or Trust Agreement, as the case may be, and shall be binding on
the respective successors and assigns of the Employer and all other parties.
14.15 NONDISCRIMINATION. All provisions of this Plan shall be interpreted
and applied in a uniform, nondiscriminatory manner.
-3
<PAGE> 89
15. RELATED OR OTHER EMPLOYERS
- ------------------------------------------------------------------------------
15.1 ADOPTION BY RELATED OR OTHER EMPLOYERS. Any other corporation or
entity, whether related or not, may become an Adopting Employer with respect to
this Plan by executing an adoption agreement with the consent of the Employer. A
Related Employer may become an Adopting Employer by either executing an Adoption
Agreement with the consent of the Employer or being included in Schedule B
hereto, which may be amended from time to time by the Employer, with the consent
of the Employer.
15.2 REQUIREMENTS FOR ADOPTING EMPLOYERS.
(a) Each Adopting Employer shall be required to use the same
Trustee.
(b) The Trustee may, but shall not be required to, commingle, hold,
and invest as a single Trust all contributions made by Adopting Employers.
In any event, the assets of the Plan shall, on an ongoing basis, be
available to pay benefits to all Participants and Beneficiaries under the
Plan without regard to the source of the assets.
(c) The transfer of any Participant's employment among parties to
this Plan will not affect the Participant's rights under the Plan, and his
service with and Compensation from each Employer shall be aggregated for
all purposes under the Plan.
(d) Unless otherwise agreed by the parties, or required by law, no
Employer shall have any obligation to make contributions to this Plan for
or on behalf of the Employees of any other Employer. If an Employee is
employed by more than one Employer, any contribution made to the Plan on
his behalf shall be prorated between the Employers on the basis of his
Compensation from each Employer. In the event any such Employer shall be
unable to make a contribution for any Plan Year, any Related Employer may
make an additional contribution on behalf of any Employee of a
noncontributing Related Employer.
(e) The amendment of this Plan by the Employer, at any time, shall
be deemed accepted by the Adopting Employer.
15.3 DESIGNATION OF AGENT. Each Adopting Employer shall be deemed to have
irrevocably designated the Employer as its agent.
15.4 PLAN ADMINISTRATOR'S AUTHORITY. The Plan Administrator shall have
authority to make any and all necessary rules or regulations which will be
binding upon all Adopting Employers, Participants, and Beneficiaries, to
effectuate the purposes of this Article 15.
-1
<PAGE> 90
Schedule A
Includable Service for Vesting Purposes
July 1, 1997
Service with the following predecessors, Related Employers, and Adopting
Employers will be counted for vesting purposes:
None
<PAGE> 91
Schedule B
List of Adopting Related Employers
July 1, 1997
None
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<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 6,658
<SECURITIES> 0
<RECEIVABLES> 229,876
<ALLOWANCES> 65,615
<INVENTORY> 13,438
<CURRENT-ASSETS> 202,354
<PP&E> 156,974
<DEPRECIATION> 63,716
<TOTAL-ASSETS> 553,905
<CURRENT-LIABILITIES> 72,464
<BONDS> 260,833
0
0
<COMMON> 147
<OTHER-SE> 182,683
<TOTAL-LIABILITY-AND-EQUITY> 553,905
<SALES> 138,795
<TOTAL-REVENUES> 138,795
<CGS> 0
<TOTAL-COSTS> 108,391
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 19,897
<INTEREST-EXPENSE> 5,142
<INCOME-PRETAX> 5,317
<INCOME-TAX> 2,255
<INCOME-CONTINUING> 3,062
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<NET-INCOME> 3,062
<EPS-PRIMARY> 0.21
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