-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A3gDiI+ICF4tZWcDQdyHKpmq7lC+XAWwO9pGbynqg+nxTTu5gv5f1gyte+A1H1uZ gv5hoTBwLoCtDlu4pxEosg== 0000950152-01-506623.txt : 20020413 0000950152-01-506623.hdr.sgml : 20020413 ACCESSION NUMBER: 0000950152-01-506623 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011226 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REYNOLDS & REYNOLDS CO CENTRAL INDEX KEY: 0000083588 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 310421120 STATE OF INCORPORATION: OH FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10147 FILM NUMBER: 1822762 BUSINESS ADDRESS: STREET 1: 115 S LUDLOW ST CITY: DAYTON STATE: OH ZIP: 45402 BUSINESS PHONE: 9374852000 MAIL ADDRESS: STREET 1: P.O. BOX 2608 CITY: DAYTON STATE: OH ZIP: 45401 10-K 1 l92008ae10-k.txt THE REYNOLDS AND REYNOLDS COMPANY FORM 10-K FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2001 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. FOR THE TRANSITION PERIOD FROM _______________ TO _______________. COMMISSION FILE NO. 1-10147 THE REYNOLDS AND REYNOLDS COMPANY (Exact name of registrant as specified in its charter) OHIO 31-0421120 (State of Incorporation) (IRS Employer Identification No.) 115 SOUTH LUDLOW STREET DAYTON, OHIO 45402 (Address of principal executive offices) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (937) 485-2000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: CLASS A COMMON SHARES (NO PAR VALUE) NEW YORK STOCK EXCHANGE - ------------------------------------- ----------------------- (Title of class) (Exchange on which registered) SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE ---- (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in the definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or in any amendment to this Form 10-K. The aggregate market value of the Class A Common Shares held by non-affiliates of the registrant, as of December 18, 2001, was $1,800,257,950. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of December 18, 2001: Class A Common Shares: 69,593,719 (exclusive of 22,534,520 Treasury shares) Class B Common Shares: 20,000,000 DOCUMENTS INCORPORATED BY REFERENCE Part III - Portions of Proxy Statement for 2002 Annual Meeting of Shareholders PART I (Dollars in thousands) ITEM 1. BUSINESS The Reynolds and Reynolds Company (the "company") was founded in 1866 and has been an Ohio corporation since 1889. The company's services include a full range of retail and enterprise management systems, networking and support, e-business applications, Web services, learning and consulting services, customer relationship management solutions, document management and leasing services for automotive retailers and manufacturers. In fiscal 2001, the company continued its transformation. Fiscal 2001 represented the first full year since the company's sale of its non-automotive documents business. Fueled by a business model built on a strong recurring revenue base, the company delivered quarterly and annual earnings that met or exceeded analysts' estimates and also invested significantly in people, processes and new products. During fiscal 2001, the company: - Strengthened its core product platform and added new offerings in network services. Automark(TM) Web Services and ReySource(TM), a new Internet procurement solution for automotive retailers, made significant contributions. "Automark(TM) gives automotive retailers and customers complete control over their website's content and appearance, allows them to fit e-commerce into the way they prefer to operate and ensures that every employee understands the special requirements and protocols for doing business online." - Invested in new businesses ranging from Internet-based customer relationship management ("CRM") solutions to advanced wireless technology. - Earned, for the third consecutive year, recognition from the Software Professionals Association for the excellence of the company's Technical Assistance Center ("TAC"). The TAC received the prestigious STAR (Software Technical Assistance Recognition) award in the high volume category. The award recognizes outstanding accomplishments and superior performance in the delivery of technical support to external customers. - Added significant new leadership talent, new perspectives and increased the numbers of minorities in executive positions. - Reorganized the sales organization and implemented a new human resources information system that provides the technological foundation for an enterprise-wide system that will improve organizational efficiencies. - Consolidated manufacturing facilities, creating a more efficient, effective manufacturing system. Reynolds is comprised of four segments, each containing allied solutions business units. The Software Solutions segment, formerly Retail Management Solutions, consists of the Software Solutions and the Info-Structure Services business units. This segment provides integrated computer systems products and related services. Products include integrated software packages, computer hardware and installation of hardware and software. Services include customer training, hardware maintenance and software support as well as consulting services. The Transformation Solutions segment includes the Transformation Solutions business unit and the Software Solutions Intellipath business unit. This segment provides specialized training, Web services and customer relationship management products and services. The Documents segment manufactures and distributes printed business forms to automotive retailers. The Financial Services segment provides financing for the company's computer systems products through the company's wholly-owned subsidiary, Reyna Capital Corporation. 2 FINANCIAL INFORMATION ABOUT SEGMENTS AND FOREIGN AND DOMESTIC OPERATIONS See Note 12 to the Consolidated Financial Statements on page 46 for financial and descriptive information about the business segments described above. NEW PRODUCTS The company introduced a number of new products and services during the past year. Those new products included: - - ReySource(TM), a new Internet procurement solution for automotive retailers which exceeded $20 million in sales during its first seven months in operation; - - A new ERA(TM)3 retail management solution, ConsumerReach(TM), featuring an Internet-ready set of retail management capabilities for automotive retailers that expands Reynolds' integrated suite of services; and - - Significantly expanded services offerings, introducing 22 new services including a number of industry-leading Distance Learning solutions. The company also announced a shift in emphasis to application service provider (ASP) services for front office dealership applications. RAW MATERIALS Computer hardware and peripherals are essential to the company. It purchases these products from a variety of suppliers. Hewlett-Packard supplies the hardware platform for the ERA system. If this source of supply were to be interrupted, some delay would occur in converting to a new platform. The company historically has not experienced difficulties in obtaining hardware and peripherals, nor does it reasonably foresee difficulty in obtaining them in the future on competitive terms and conditions. PATENTS, TRADEMARKS AND RELATED RIGHTS Except as described below, the company does not have any patents, trademarks, licenses, franchises or concessions which are material to an understanding of its business. The company's trademark REYNOLDS & REYNOLDS(R) is associated with many goods and services provided by the company. In the automotive systems market, the company has a number of direct and indirect distribution and licensing arrangements with equipment vendors and software providers relating to certain components of the company's products, including the principal operating systems. These arrangements are in the aggregate, but not individually (except for the operating systems), material to the company's business. COMPETITION The company is North America's leading provider of integrated software solutions to automotive retailers. The company's main competitor in the Software Solutions segment is the Dealer Services division of Automatic Data Processing, Inc. ("ADP"). ADP's assets and financial resources substantially exceed those of the company. Together, the two suppliers provide a significant share of the information management systems for automotive retailers in the United States and Canada. The company is expanding and supplementing its solutions in the Transformation Solutions segment. This segment experiences competition from hundreds of providers. The company's Documents segment has a leading market share position but experiences energetic competition from local printing brokers and regional printers across the United States and Canada. 3 The company believes it competes by providing value-added products, services and solutions that satisfy market needs and uses current technology to provide additional value and to improve price and performance. By specializing in a particular niche market, the company has emphasized reliable and responsive service, broad industry knowledge and long-term relationships to meet customer needs more effectively. No single customer accounts for five percent or more of the company's revenues. BACKLOG The backlog represents orders for computer systems or documents which have not yet been shipped to customers, and deferred revenues (orders which have been shipped but not yet recognized in revenues). At December 1, 2001, the dollar value of the product backlog including software license fees is estimated to be $37,000 compared to $30,000 last year. The company anticipates the backlog to be recognized as revenue during fiscal year 2002. RESEARCH AND DEVELOPMENT During fiscal 2001, the company continued its substantial investment in research and development to deliver new and enhanced solutions for customers. Expenditures for those activities were $71,080 in 2001, $75,925 in 2000 and $52,232 in 1999. ENVIRONMENTAL PROTECTION The company believes that it is in substantial compliance with all applicable federal, state and local statutes concerning environmental protection. The company has not experienced any material costs in this regard. The U.S. Environmental Protection Agency has designated the company as one of a number of potentially responsible parties under the Comprehensive Environmental Response, Compensation and Liability Act at one environmental remediation site, and the company has also been named as a defendant in a cost recovery lawsuit in Dayton, Ohio, regarding another environmental remediation site. (See Note 13 to the Consolidated Financial Statements, page 47.) EMPLOYEES On September 30, 2001, the company and its subsidiaries employed 4,763 persons. ITEM 2. PROPERTIES As of September 30, 2001, the company owned and operated two forms manufacturing plants in the United States encompassing approximately 427,000 square feet. Corporate headquarters are located in the Dayton, Ohio area in several buildings owned by the company which contain approximately 1,050,000 square feet. In addition, the company leases approximately 31 offices throughout the United States and Canada. In December 2001, the company commenced occupancy of the second phase of its new 351,000 square foot Dayton area facility. The new campus provides an environment that fosters high-level creative thinking and enhances the company's ability to attract and retain a very high quality workforce. See Note 1 to the Consolidated Financial Statements on page 30. ITEM 3. LEGAL PROCEEDINGS Relevant information appears in Note 13 to the Consolidated Financial Statements on page 47. 4 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable. PART II (Dollars in thousands except per share data) ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The company's Class A Common Shares are listed on the New York Stock Exchange. There is no principal market for the Class B Common Shares. The company also has an authorized class of 60 million preferred shares with no par value. As of the filing of this report, the company currently has no agreements or commitments with respect to the sale or issuance of the preferred shares except as described in Note 8 to the Consolidated Financial Statements, page 40. Information on market prices and dividends is set forth below: CLASS A COMMON SHARES SALE PRICES
2001 2000 ----- ---- Fiscal Quarter High Low High Low -------------- ---- --- ---- --- First $20.50 $16.94 $22.88 $17.88 Second $22.97 $19.25 $29.81 $19.31 Third $23.00 $18.25 $27.81 $18.25 Fourth $25.14 $21.26 $19.81 $16.19
CASH DIVIDENDS PAID
Class A Common Class B Common -------------- -------------- Months 2001 2000 2001 2000 ------ ----- ----- ----- ---- January $.11 $.11 $.0055 $.0055 April $.11 $.11 $.0055 $.0055 June $.11 $.11 $.0055 $.0055 September $.11 $.11 $.0055 $.0055
As of December 18, 2001, there were approximately 3,325 holders of record of Class A Common Shares and one holder of record of Class B Common Shares. 5 FIVE-YEAR SELECTED FINANCIAL DATA (Dollars in thousands except per share data)
For The Years Ended September 30 2001 2000 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------ CONSOLIDATED Net Sales and Revenues Automotive solutions $ 962,094 $ 914,481 $ 829,354 $ 771,156 $ 711,629 Financial services 41,918 40,206 38,674 34,497 30,383 ---------- ---------- ---------- ---------- ---------- Total net sales and revenues $1,004,012 $ 954,687 $ 868,028 $ 805,653 $ 742,012 ========== ========== ========== ========== ========== Income from Continuing Operations $ 97,934 $ 88,440 $ 87,891 $ 91,703 $ 57,780 Basic earnings per common share $ 1.34 $ 1.14 $ 1.12 $ 1.15 $ .71 Diluted earnings per common share $ 1.31 $ 1.11 $ 1.09 $ 1.13 $ .69 Net Income $ 99,557 $ 116,596 $ 122,721 $ 103,107 $ 59,219 Basic earnings per common share $ 1.36 $ 1.50 $ 1.57 $ 1.30 $ .73 Diluted earnings per common share $ 1.33 $ 1.47 $ 1.53 $ 1.27 $ .70 Return on Equity 20.4% 24.2% 28.3% 26.8% 16.1% Cash Dividends Per Class A Common Share $ .44 $ .44 $ .40 $ .36 $ .32 Book Value Per Outstanding Common Share $ 6.69 $ 6.68 $ 5.98 $ 5.14 $ 4.55 Assets Automotive solutions $ 720,016 $ 796,164 $ 752,599 $ 666,584 $ 644,714 Financial services 422,334 421,129 427,591 411,159 373,175 ---------- ---------- ---------- ---------- ---------- Total assets $1,142,350 $1,217,293 $1,180,190 $1,077,743 $1,017,889 ========== ========== ========== ========== ========== Long-Term Debt Automotive solutions $ 105,805 $ 111,124 $ 163,111 $ 160,346 $ 170,150 Financial services 147,429 126,868 154,040 145,460 137,455 ---------- ---------- ---------- ---------- ---------- Total long-term debt $ 253,234 $ 237,992 $ 317,151 $ 305,806 $ 307,605 ========== ========== ========== ========== ========== Number of Employees 4,763 4,945 9,083 9,152 9,138 AUTOMOTIVE SOLUTIONS (excluding Financial Services) Current Ratio 1.94 2.02 1.87 1.41 1.05 Net Property, Plant and Equipment $ 159,051 $ 138,108 $ 104,106 $ 93,900 $104,066 Total Debt $ 111,866 $ 116,838 $ 168,825 $ 166,837 $189,426 Total Debt to Capitalization 19.0% 19.0% 26.7% 29.2% 34.2%
Certain reclassifications have been made to prior years' consolidated financial statements to conform with the presentation used in 2001, including reclassifications to comply with Emerging Issues Task Force Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs". The company reclassified freight, postage and handling fees billed to customers from cost of sales to net sales and revenues. 6 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (In thousands except per share data) Certain statements in this report constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements are based on current expectations, estimates, forecasts and projections of future company or industry performance based on management's judgment, beliefs, current trends and market conditions. Forward-looking statements made or to be made by or on behalf of the company may be identified by the use of words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar expressions. Forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Actual outcomes and results may differ materially from what is expressed, forecasted or implied in the forward-looking statements. See also the discussion of factors that may affect future results contained in the company's Current Report on Form 8-K filed with the SEC on August 11, 2000, which we incorporate herein by reference. The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. SIGNIFICANT EVENTS BUSINESS COMBINATIONS In November 2000, the company purchased eCustomerCentric Solutions, Inc., a.k.a. DealerKid, a provider of electronic customer marketing and relationship management software and services for automotive retailers in the United States and Canada. Privately-held DealerKid had revenues of about $2,000 in 2000. In May 2000, the company purchased the outstanding membership interests of HAC Group, LLC, the leading provider of learning, customer relationship management and Web services to automobile retailers and manufacturers. The privately-held HAC Group had revenues of $65,000 in 1999. In May 2000, the company and other industry partners formed a new independent company, named ChoiceParts, LLC, that is developing an electronic parts exchange for the automotive parts market. The company contributed its existing parts locator business, which had annual revenues of nearly $12,000, and in-process software development of a Web-based parts locator product to ChoiceParts in exchange for a minority equity interest, consisting of both common and preferred interests. See Note 4 to the Consolidated Financial Statements for more information on business combinations. DISCONTINUED OPERATIONS In August 2000, the company sold the assets of its Information Solutions segment to The Carlyle Group for cash of $360,000 and recorded an after-tax gain on the sale of $10,853 or $.14 per diluted share. Operating results of the Information Solutions segment have been presented as discontinued operations in the statements of consolidated income. Cash flows from discontinued operations of the Information Solutions segment have been reported as a single line in the company's statements of condensed consolidated cash flows. In October 1998, the company sold essentially all net assets of its Healthcare Systems segment to InfoCure Corporation for about $50,000 and recorded an after-tax gain on the sale of $5,785 or $.07 per diluted share. Operating results of the Healthcare Systems segment have been presented as discontinued operations in the statements of consolidated income. See Note 2 to the Consolidated Financial Statements for more information on discontinued operations. RESTRUCTURING CHARGES During the fourth quarter of fiscal year 2000, the company approved a plan of restructuring and recorded a pre-tax charge of $10,560 or $6,230 after taxes ($.08 per diluted share). This charge represented costs for 272 former employees and included closing of the Oklahoma City manufacturing facility and vacating 38 leased facilities. See Note 3 to the Consolidated Financial Statements for more information on restructuring charges. 7 RECLASSIFICATIONS Certain reclassifications were made to prior years' financial information to conform with the presentation used in 2001, including reclassifications to comply with Emerging Issues Task Force Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs." The company reclassified freight, postage and handling fees billed to customers from cost of sales to net sales and revenues. ACCOUNTING CHANGE In October 1997, the American Institute of Certified Public Accountants issued Statement of Position (SOP) 97-2, "Software Revenue Recognition," which superseded SOP 91-1, "Software Revenue Recognition." SOP 97-2 provides guidance on applying generally accepted accounting principles in recognizing revenue on software transactions. The company adopted this pronouncement effective October 1, 1998. The adoption of this pronouncement reduced Software Solutions' computer systems products revenues $17,936, gross profit $11,205, operating income $10,624 and net income $6,204 or $.08 per diluted share during fiscal year 1999. RESULTS OF OPERATIONS CONSOLIDATED SUMMARY
2001 vs. 2000 2000 vs. 1999 2001 2000 1999 Change Change - ----------------------------------------------------------------------------------------------------------------------------------- Net sales and revenues $1,004,012 $954,687 $868,028 $49,325 5% $86,659 10% Gross profit $537,440 $498,737 $433,369 $38,703 8% $65,368 15% Operating income $171,732 $155,209 $153,922 $16,523 11% $1,287 1% Income from continuing operations $97,934 $88,440 $87,891 $9,494 11% $549 1% Discontinued operations $1,623 $28,156 $34,830 ($26,533) -94% ($6,674) -19% Net income $99,557 $116,596 $122,721 ($17,039) -15% ($6,125) -5% Basic earnings per share Income from continuing operations $1.34 $1.14 $1.12 $0.20 18% $0.02 2% Net income $1.36 $1.50 $1.57 ($0.14) -9% ($0.07) -4% Diluted earnings per share Income from continuing operations $1.31 $1.11 $1.09 $0.20 18% $0.02 2% Net income $1.33 $1.47 $1.53 ($0.14) -10% ($0.06) -4%
Consolidated net sales and revenues grew 5% in fiscal year 2001 and 10% in fiscal year 2000. Excluding the effect of acquisitions and divestitures, consolidated net sales and revenues increased 2% in fiscal year 2001 and 7% in fiscal year 2000, primarily as a result of growth in computer services revenues. Consolidated gross profit represented 55.9% of Automotive Solutions revenues (excluding Financial Services revenues) in 2001, compared to 54.5% in 2000 and 52.3% in 1999. Gross profit margins increased in both years, primarily as a result of growth in Software Solutions' computer services revenues. As a percentage of revenues, consolidated operating income was 17.1% in 2001 compared to 16.3% in 2000 and 17.7% in 1999. Fiscal year 2000 included a restructuring charge and fiscal year 1999 included the effect of an accounting change. In fiscal year 2001, operating margins reflected a full year of the fiscal year 2000 acquisition of HAC Group LLC, the fiscal year 2001 purchase of DealerKid and costs related to a work stoppage of a software development contract. These acquired businesses had lower operating margins than the existing business. Research and development expenses were $71,080 in 2001, $75,925 in 2000 and $52,232 in 1999. Fiscal year 2000 operating margins reflect the growth of R&D expenses. Interest expense declined over the last three years because of debt repayments and capitalization of interest expense for software development and construction of an office building. Interest income increased in fiscal year 2001 because of higher investments as a result of the cash proceeds from the August 2000 sale of the Information Solutions segment. Equity in net losses of affiliated companies increased in 2001 and 2000 because of greater losses from the company's investment in Kalamazoo Computer Group, the May 2000 investment in ChoiceParts and the May 2001 $3,200 write-off of the company's investment in Consumer Car Club. See Note 1 to the Consolidated Financial Statements for additional disclosures about the company's investment in Kalamazoo and Note 4 for additional disclosures about the company's investment in ChoiceParts. 8 The effective income tax rate was 39.7% in 2001, compared to 41.1% in 2000 and 41.5% in 1999. The effective tax rate declined in fiscal year 2001 primarily because of higher R&D tax credits. SOFTWARE SOLUTIONS
2001 vs. 2000 2000 vs. 1999 2001 2000 1999 Change Change - ----------------------------------------------------------------------------------------------------------------- Net sales and revenues Computer services $439,657 $400,727 $365,394 $38,930 10% $35,333 10% Computer systems products $146,586 $164,270 $167,167 ($17,684) -11% ($2,897) -2% -------------------------------------------------- -------------------- Total net sales and revenues $586,243 $564,997 $532,561 $21,246 4% $32,436 6% Gross profit $350,615 $324,086 $282,843 $26,529 8% $41,243 15% % of revenues 59.8% 57.4% 53.1% SG&A expenses $226,893 $218,016 $198,133 $8,877 4% $19,883 10% % of revenues 38.7% 38.6% 37.2% Operating income $123,722 $106,070 $84,710 $17,652 17% $21,360 25% % of revenues 21.1% 18.8% 15.9%
Software Solutions revenues grew 4% in fiscal year 2001 and 6% in fiscal year 2000 as growth in computer services revenues more than offset declines in computer systems products sales. Computer services revenues, comprised predominately of recurring software support and equipment maintenance revenues, increased for both years primarily because of the increased number of ERA retail management software applications supported. The company also increased sales prices to offset inflation each year. Sales of computer systems products declined in both fiscal years 2001 and 2000 primarily because of a decline in the number of ERA retail management systems sold. The backlog of new orders for computer systems products and deferred revenues (orders shipped, but not yet recognized in revenues) was $38,000 at September 30, 2001 compared to $33,000 last year. In fiscal year 1999, sales of computer systems products also reflect a $17,936 negative effect of an accounting change related to software revenue recognition. Gross profit margins and operating income margins increased in both fiscal years 2001 and 2000 because of growth in higher margin computer service revenues. Gross margins on computer service revenues also increased each year because of economies of scale in supporting the greater number of software applications. TRANSFORMATION SOLUTIONS
2001 vs. 2000 2000 vs. 1999 2001 2000 1999 Change Change - --------------------------------------------------------------------------------------------------------------------- Net sales and revenues $188,798 $153,142 $97,437 $35,656 23% $55,705 57% Gross profit $76,157 $59,356 $30,842 $16,801 28% $28,514 92% % of revenues 40.3% 38.8% 31.7% SG&A expenses $91,593 $60,237 $32,167 $31,356 52% $28,070 87% % of revenues 48.5% 39.4% 33.1% Operating income (loss) ($15,436) ($881) ($1,325) ($14,555) $444 % of revenues -8.2% -0.6% -1.4%
Transformation Solutions revenues grew in fiscal years 2001 and 2000, in large part, because of the May 2000 acquisition of HAC Group LLC. Excluding the impact of acquisitions and divestitures, Transformation Solutions revenues declined 3% in fiscal year 2001 primarily because of a decline in CarPoint revenues and a slowdown in consulting revenues. CarPoint revenues declined about $12,000 in fiscal year 2001 because of a change in the CarPoint business model. In fiscal year 2002, it is anticipated that these revenues will decline an additional $19,000. Consulting revenues declined in the fourth quarter reflecting the overall economy. In fiscal year 2001, IntelliPath sales and CreditMaster revenues continued to grow because of higher volume. Excluding the impact of acquisitions and divestitures, Transformation Solutions revenues grew 27% in fiscal year 2000 reflecting strong internal sales growth of newer products such as CarPoint, IntelliPath and CreditMaster. Campaign Management Services revenues declined in 2000 because of lower volume. 9 Operating losses increased substantially in fiscal year 2001 because of the decline in CarPoint revenues, costs related to the DealerKid acquisition, the slowdown in consulting revenues and higher R&D expenses related to product development. In fiscal year 2000, gross profit margins increased because of the strong growth in IntelliPath revenues. SG&A expenses increased in fiscal year 2000 also because of higher R&D expenses. SG&A expenses also include amortization expenses from both the DealerKid and HAC Group LLC acquisitions. DOCUMENTS
2001 vs. 2000 2000 vs. 1999 2001 2000 1999 Change Change - --------------------------------------------------------------------------------------------------- Net sales and revenues $187,053 $196,342 $199,356 ($9,289) -5% ($3,014) -2% Gross profit $110,668 $115,295 $119,684 ($4,627) -4% ($4,389) -4% % of revenues 59.2% 58.7% 60.0% SG&A expenses $ 70,877 $ 75,710 $ 69,711 ($4,833) -6% $5,999 9% % of revenues 37.9% 38.5% 34.9% Operating income $ 39,791 $ 39,585 $ 49,973 $206 1% ($10,388) -21% % of revenues 21.3% 20.2% 25.1%
Documents sales volumes have declined each of the last two years as a result of a decline in the volume of business forms sold. In other reporting segments, revenues from laser printing solutions increased and substantially offset the decline in document sales. Gross profit and operating margins remained strong over the three-year period. In fiscal year 2000, SG&A expenses increased over 1999 primarily as a result of software development costs related to Web-enabled products and processes. FINANCIAL SERVICES
2001 vs. 2000 2000 vs. 1999 2001 2000 1999 Change Change - -------------------------------------------------------------------------------------------------- Net sales and revenues $41,918 $40,206 $38,674 $1,712 4% $1,532 4% Operating income $23,655 $20,995 $20,564 $2,660 13% $ 431 2% % of revenues 56.4% 52.2% 53.2%
In fiscal year 2001, Financial Services revenues grew 4% with about half of the increase from higher interest revenues and the other half related to realization of residual values at contract maturity. Interest revenues grew 2% in 2001 because of slightly higher average interest rates on finance receivables as average finance receivable balances were about the same as last year. In fiscal year 2000, Financial Services revenues grew because average interest bearing finance receivables increased 4% as non-interest bearing receivables were converted into interest bearing receivables. The average interest rate earned on the portfolio of finance receivables was relatively stable over the last three years. Financial Services interest rate spread remained strong at 3.4% in 2001, compared to 3.1% in 2000 and 3.7% in 1999. In 2001, the interest spread increased because of slightly higher average interest rates on finance receivables. In 2000, the interest spread declined because of higher borrowing rates on debt. Bad debt expenses were $2,500 in 2001, $2,360 in 2000 and $2,550 in 1999. LIQUIDITY AND CAPITAL RESOURCES AUTOMOTIVE SOLUTIONS CASH FLOWS (EXCLUDING FINANCIAL SERVICES) Automotive Solutions continued to provide strong cash flows from operating activities in fiscal year 2001. Net cash provided by operating activities was $165,548 in fiscal year 2001 and resulted primarily from income from continuing operations adjusted for noncash charges. This operating cash flow funded the company's investments for normal operations and capital expenditures of $51,383, which included $27,789 for the construction of a new office building near Dayton, Ohio. During fiscal year 2001, the company also capitalized $20,310 of software licensed to customers. Fiscal year 2002 capital expenditures and capitalized software licensed to customers in the ordinary course of business are anticipated to be about $65,000, which includes about $20,000 for the new office building and related contents. See the shareholders' equity caption of this analysis regarding the payment of dividends and share repurchases. 10 FINANCIAL SERVICES CASH FLOWS Financial Services operating cash flow, collections on finance receivables and additional borrowings were invested in new finance receivables for the company's computer systems and used to make scheduled debt repayments. CAPITALIZATION The company's ratio of total debt (total Automotive Solutions debt) to capitalization (total Automotive Solutions debt plus shareholders' equity) was 19.0% as of both September 30, 2001 and September 30, 2000. During fiscal year 2001, the company negotiated a new $150,000 three-year revolving credit agreement to replace an expiring arrangement. Remaining credit available under this revolving credit agreement was $67,300 at September 30, 2001. In addition to this committed credit agreement, the company also has a variety of other short-term credit lines available. Management estimates that cash balances, cash flow from operations and cash available from existing credit agreements will be sufficient to fund fiscal year 2002 normal operations. Cash balances are placed in short-term investments until such time as needed. See Note 1 to the Consolidated Financial Statements for a description of cash investments. The company has consistently produced strong operating cash flows sufficient to fund normal operations. Strong operating cash flows are the result of stable operating margins and a high percentage of recurring service revenues, which require relatively low capital investment. Debt instruments have been used primarily to fund business combinations and Financial Services receivables. As of September 30, 2001, the company can issue an additional $130,000 of notes under a 1997 shelf registration statement on file with the Securities and Exchange Commission. Management believes that its strong balance sheet and cash flows should help maintain an investment grade credit rating that should provide access to capital sufficient to meet the company's cash requirements beyond fiscal year 2002. See Note 7 to the Consolidated Financial Statements for additional disclosures regarding the company's debt instruments. SHAREHOLDERS' EQUITY The company lists its Class A common shares on the New York Stock Exchange. There is no principal market for Class B common shares. The company also has an authorized class of 60,000 preferred shares with no par value. As of November 13, 2001, no preferred shares were outstanding and there were no agreements or commitments with respect to the sale or issuance of these shares, except for those described in Note 8 to the Consolidated Financial Statements. The company paid cash dividends of $32,121 in 2001, $34,130 in 2000 and $31,316 in 1999. Dividends per Class A common share were $.44 in both 2001 and 2000, and $.40 in 1999. Dividends are typically declared each November, February, May and August and paid in January, April, June and September. Dividends per Class A common share must be twenty times the dividends per Class B common share and all dividend payments must be simultaneous. The company has paid dividends each year since its initial public offering in 1961. The company repurchased $140,816 of Class A common shares in 2001, $101,018 in 2000 and $55,679 in 1999. Average prices paid per share were $21.70 in 2001, $18.41 in 2000 and $20.69 in 1999. As of September 30, 2001, the company could repurchase an additional 4,700 Class A common shares under existing board of directors' authorizations. MARKET RISKS INTEREST RATES The Automotive Solutions portion of the business borrows money, as needed, primarily to fund business combinations. Generally the company borrows under fixed rate agreements with terms of ten years or less. The Financial Services segment of the business obtains borrowings to fund the investment in finance receivables. These fixed rate receivables generally have repayment terms of five years. The company funds finance receivables with debt that has repayment terms consistent with the maturities of the finance receivables. Generally the company attempts to lock in the interest spread on the fixed rate finance receivables by borrowing under fixed rate agreements or using interest rate management agreements to manage variable interest rate exposure. The company does not use financial instruments for trading purposes. 11 Because fixed rate finance receivables are primarily funded with fixed rate debt or its equivalent (variable rate debt that has been fixed with interest rate swaps), management believes that a 100 basis point change in interest rates would not have a material effect on the company's financial statements. See Note 7 to the Consolidated Financial Statements for additional disclosures regarding the company's debt instruments and interest rate management agreements. FOREIGN CURRENCY EXCHANGE RATES The company has foreign-based operations, primarily in Canada, which accounted for 6% of net sales and revenues in 2001. In the conduct of its foreign operations, the company has intercompany sales, expenses and loans between the U.S. and Canada and may receive dividends denominated in different currencies. These transactions expose the company to changes in foreign currency exchange rates. At September 30, 2001, the company had no foreign currency exchange contracts outstanding. Based on the company's overall foreign currency exchange rate exposure at September 30, 2001, management believes that a 10% change in currency rates would not have a material effect on the company's financial statements. ENVIRONMENTAL MATTERS See Note 13 to the Consolidated Financial Statements for a discussion of the company's environmental contingencies. ACCOUNTING STANDARDS See Note 15 to the Consolidated Financial Statements for a discussion of the effect of accounting standards that the company has not yet adopted. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See "Market Risks" section in Management Discussion and Analysis (Part II, Item 7 of this report on pages 11 and 12). ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial information required by Item 8 is contained in Item 14 of Part IV (page 14) of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The name, age, background information and business experience for each of the company's directors and nominees are incorporated herein by reference to the section of the company's Proxy Statement for its 2002 Annual Meeting of Shareholders captioned "PROPOSAL I - ELECTION OF DIRECTORS." 12 EXECUTIVE OFFICERS OF THE COMPANY The executive officers of the company are elected by the Board of Directors at its meeting immediately following the Annual Meeting of Shareholders to serve generally for a term of one year. The executive officers of the company, as of December 18, 2001, are: NAME AGE POSITION - ------- --- -------- David R. Holmes 61 Chairman of the Board Lloyd G. Waterhouse 50 President and Chief Executive Officer Dale L. Medford 51 Executive Vice President and Chief Financial Officer, and Director Douglas M. Ventura 41 General Counsel and Secretary Michael J. Gapinski 51 Treasurer and Assistant Secretary A description of prior positions held by executive officers of the company within the past 5 years, to the extent applicable, is as follows: Mr. Holmes has been Chairman of the Board since November 2000; prior thereto, Chairman of the Board and Chief Executive Officer from May 1999 to November 2000; and prior thereto Chairman of the Board, President and Chief Executive Officer. Mr. Holmes will retire from the company effective January 1, 2002. Mr. Waterhouse has been President and Chief Executive Officer since November 2000; prior thereto President and Chief Operating Officer from May 1999 to November 2000; prior thereto General Manager of E-Business Services for IBM Corporation from July 1998 to May 1999; prior thereto General Manager of Marketing & Business Development for IBM Global Services from 1996 to July 1998; and prior thereto Director of Strategy for IBM from 1994-1995. Mr. Waterhouse will become Chairman of the Board, President and Chief Executive Officer effective January 1, 2002. Mr. Ventura has been General Counsel and Secretary since September 2000; prior thereto was Associate General Counsel and Assistant Secretary from September 1996 to September 2000. All other executive officers of the company have held their positions for at least 5 years. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Compliance with the filings required under Section 16(a) of the Securities Exchange Act of 1934 is herein incorporated by reference to the section of the company's Proxy Statement for its 2002 Annual Meeting of Shareholders captioned "Section 16(a) Beneficial Ownership Reporting Compliance." ITEM 11. EXECUTIVE COMPENSATION Information on compensation of the company's executive officers and directors is incorporated herein by reference to the section of the company's Proxy Statement for its 2002 Annual Meeting of Shareholders captioned "EXECUTIVE COMPENSATION." ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The number of Common Shares of the company beneficially owned by each five percent shareholder, director or current nominee for director, officer and by all directors and officers as a group as of December 18, 2001 is incorporated herein by reference to the section of the company's Proxy Statement for its 2002 Annual Meeting of Shareholders captioned "STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT." 13 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information concerning transactions with management, certain business relationships and indebtedness of management is incorporated herein by reference to the section of the company's Proxy Statement for its 2002 Annual Meeting of Shareholders captioned "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." PART IV (Dollars in thousands) ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) FINANCIAL STATEMENTS The following consolidated financial statements of the company are set forth on pages 26-50. Statements of Consolidated Income - For The Years Ended September 30, 2001, 2000 and 1999 Consolidated Balance Sheets - September 30, 2001 and 2000 Statements of Consolidated Shareholders' Equity - For The Years Ended September 30, 2001, 2000 and 1999 Statements of Condensed Consolidated Cash Flows - For the Years Ended September 30, 2001, 2000 and 1999 Notes to Consolidated Financial Statements (Including Supplementary Data) (a)(2) FINANCIAL STATEMENT SCHEDULES FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED SEPTEMBER 30, 2001 ARE ATTACHED HERETO: Schedule II Valuation Accounts Page 51 All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. (a)(3) EXHIBITS ------------------ ------------------------------------------------------ Exhibit No. Item ------------------ ------------------------------------------------------ (3)(a) Amended Articles of Incorporation, Restatement effective February 9, 1995; incorporated by reference to Exhibit A of the company's definitive proxy statement dated January 5, 1995 filed with the Securities and Exchange Commission. ------------------ ------------------------------------------------------ (3)(b) Amendment to Amended and Restated Articles of Incorporation, effective April 25, 1997; incorporated by reference to Exhibit 2 of the company's Form 8A/A dated October 20, 1998 filed with the Securities and Exchange Commission. ------------------ ------------------------------------------------------ (3)(c) Amendment to Amended and Restated Articles of Incorporation, effective April 18, 2001. ------------------ ------------------------------------------------------ (3)(d) Amended and Restated Consolidated Code of Regulations; incorporated by reference to Exhibit A to the company's definitive proxy statement dated January 8, 2001 filed with the Securities and Exchange Commission. ------------------ ------------------------------------------------------ 14 ------------------ ------------------------------------------------------ Exhibit No. Item ------------------ ------------------------------------------------------ (4)(a) Copies of the agreements relating to long-term debt, which are not required as exhibits to this Form 10-K, will be provided to the Securities and Exchange Commission upon request. ------------------ ------------------------------------------------------ (4)(b) Amended and Restated Rights Agreement between The Reynolds and Reynolds Company and Mellon Investor Services LLC as Rights Agent dated as of December 1, 2001. ------------------ ------------------------------------------------------ (9) Not applicable. ------------------ ------------------------------------------------------ (10)(a) * Second Amended and Restated Employment Agreement with David R. Holmes dated as of August 17, 1998; incorporated by reference to Exhibit (10)(a) to Form 10-K for the fiscal year ended September 30, 1998. ------------------ ------------------------------------------------------ (10)(b)* Amendment Number 1 to the Second Amended and Restated Employment Agreement of David R. Holmes effective as of August 7, 2001. ------------------ ------------------------------------------------------ (10)(c)* Amended and Restated Employment Agreement with Lloyd G. Waterhouse, as of December 1, 2001. ------------------ ------------------------------------------------------ (10)(d)* Employment Agreement with Dale L. Medford dated as of May 7, 2001. ------------------ ------------------------------------------------------ (10)(e)* Employment Agreement with Timothy J. Bailey dated as of December 1, 2001 ------------------ ------------------------------------------------------ (10)(f)* Employment Agreement with Douglas M. Ventura dated as of December 1, 2001. ------------------ ------------------------------------------------------ (10)(g)* Consulting Agreement with Eustace W. Mita effective October 1, 2001. ------------------ ------------------------------------------------------ (10)(h)* Amended and Restated Employment Agreement with Robert C. Nevin dated as of February 1, 1997; incorporated by reference to Exhibit (10)(b) to Form 10-K for the fiscal year ended September 30, 1997. ------------------ ------------------------------------------------------ (10)(i)* Employment Agreement with Rodney A. Hedeen dated February 1, 1997; incorporated by reference to Exhibit (10)(e) to Form 10-K for the fiscal year ended September 30, 1997. ------------------ ------------------------------------------------------ (10)(j)* General form of Indemnification Agreement between the company and each of its directors dated as of December 1, 1989; incorporated by reference to Exhibit (10)(m) to Form 10-K for the fiscal year ended September 30, 1989. ------------------ ------------------------------------------------------ (10)(k)* Amended and Restated Stock Option Plan -- 1989, effective November 13, 2001. ------------------ ------------------------------------------------------ (10)(l)* Restated Stock Option Plan - 1995, effective November 13, 2001. ------------------ ------------------------------------------------------ (10)(m)* The Reynolds and Reynolds Company Supplemental Retirement Plan; incorporated by reference to Exhibit (10)(G) to Form 10-K for the fiscal year ended September 30, 1980. ------------------ ------------------------------------------------------ (10)(n)* The Reynolds and Reynolds Company Supplemental Retirement Plan; Amendment No. 2, adopted on August 17, 1982; incorporated by reference to Exhibit (10)(j) to Form 10-K for the fiscal year ended September 30, 1982. ------------------ ------------------------------------------------------ (10)(o)* The Reynolds and Reynolds Company Supplemental Retirement Plan, Amendment No. 3, adopted on August 16, 1983; incorporated by reference to Exhibit (10)(j) to Form 10-K for the fiscal year ended September 30, 1983. ------------------ ------------------------------------------------------ 15 ------------------ ------------------------------------------------------ Exhibit No. Item ------------------ ------------------------------------------------------ (10)(p)* The Reynolds and Reynolds Company Supplemental Retirement Plan, Amendment No. 4, adopted on November 6, 1984; incorporated by reference to Exhibit (10)(l) to Form 10-K for the fiscal year ended September 30, 1984. ------------------ ------------------------------------------------------ (10)(q)* The Reynolds and Reynolds Company Supplemental Retirement Plan, Amendment No. 5, adopted on May 13, 1985; incorporated by reference to Exhibit (10)(s) to Form 10-K for the fiscal year ended September 30, 1985. ------------------ ------------------------------------------------------ (10)(r)* The Reynolds and Reynolds Company Supplemental Retirement Plan, Amendment No. 6, adopted on February 11, 1986; incorporated by reference to Exhibit (10)(r) to Form 10-K for the fiscal year ended September 30, 1986. ------------------ ------------------------------------------------------ (10)(s)* The Reynolds and Reynolds Company Supplemental Retirement Plan, Amendment No. 7, adopted on August 12, 1986; incorporated by reference to Exhibit (10)(s) to Form 10-K for the fiscal year ended September 30, 1986. ------------------ ------------------------------------------------------ (10)(t)* The Reynolds and Reynolds Company Supplemental Retirement Plan, Amendment No. 8, adopted on February 10, 1987; incorporated by reference to Exhibit (10)(s) to Form 10-K for the fiscal year ended September 30, 1987. ------------------ ------------------------------------------------------ (10)(u)* The Reynolds and Reynolds Company Supplemental Retirement Plan, Amendment No. 9, adopted on August 11, 1987; incorporated by reference to Exhibit (10)(t) to Form 10-K for the fiscal year ended September 30, 1987. ------------------ ------------------------------------------------------ (10)(v)* The Reynolds and Reynolds Company Supplemental Retirement Plan, Amendment No. 10, adopted on May 8, 1989; incorporated by reference to Exhibit (10)(dd) to Form 10-K for the fiscal year ended September 30, 1989. ------------------ ------------------------------------------------------ (10)(w)* The Reynolds and Reynolds Company Restated Supplemental Retirement Plan adopted November 9, 1988; incorporated by reference to Exhibit (10)(ee) to Form 10-K for the fiscal year ended September 30, 1989. ------------------ ------------------------------------------------------ (10)(x)* Resolution of the Board of Directors amending The Reynolds and Reynolds Company Supplemental Retirement Plan dated as of December 1, 1989; incorporated by reference to Exhibit (10)(ff) to Form 10-K for the fiscal year ended September 30, 1989. ------------------ ------------------------------------------------------ (10)(y)* Resolution of the Board of Directors amending The Reynolds and Reynolds Company Supplemental Retirement Plan (Amendment No. 1), dated as of November 13, 1990; incorporated by reference to Exhibit (10)(ff) to Form 10-K for the fiscal year ended September 30, 1990. ------------------ ------------------------------------------------------ (10)(z)* Resolution of the Board of Directors amending The Reynolds and Reynolds Company Supplemental Retirement Plan (Amendment No. 2), dated as of July 23, 1991; incorporated by reference to Exhibit (10)(dd) to Form 10-K for the fiscal year ended September 30, 1991. ------------------ ------------------------------------------------------ (10)(aa)* The Reynolds and Reynolds Company Supplemental Retirement Plan Amendment No. 3, adopted August 8, 1995; incorporated by reference to Exhibit (10)(dd) to Form 10-K for the fiscal year ended September 30, 1995. ------------------ ------------------------------------------------------ (10)(bb)* The Reynolds and Reynolds Company Supplemental Retirement Plan Amendment No. 4, adopted March 14, 1997; incorporated by reference to Exhibit (10)(dd) to Form 10-K for the fiscal year ended September 30, 1997. ------------------ ------------------------------------------------------ 16 ------------------ ------------------------------------------------------ Exhibit No. Item ------------------ ------------------------------------------------------ (10)(cc)* The Reynolds and Reynolds Company Supplemental Retirement Plan Amendment No. 5, adopted November 12, 2001. ------------------ ------------------------------------------------------ (10)(dd)* Description of The Reynolds and Reynolds Company Annual Incentive Compensation Plan adopted as of October 1, 1986; incorporated by reference to Exhibit (10)(t) to Form 10-K for the fiscal year ended September 30, 1987. ------------------ ------------------------------------------------------ (10)(ee)* Description of The Reynolds and Reynolds Company Amended and Restated Annual Incentive Compensation Plan effective October 1, 1995; incorporated by reference to (10)(ff) to Form 10-K for the fiscal year ended September 30, 1995. ------------------ ------------------------------------------------------ (10)(ff)* Description of The Reynolds and Reynolds Company Intermediate Incentive Compensation Plan adopted as of October 1, 1986; incorporated by reference to Exhibit (10)(v) to Form 10-K for the fiscal year ended September 30, 1987. ------------------ ------------------------------------------------------ (10)(gg)* Resolution of the Board of Directors amending The Reynolds and Reynolds Company Intermediate Incentive Compensation Plan dated as of December 1, 1989; incorporated by reference to Exhibit (10)(jj) to Form 10-K for the fiscal year ended September 30, 1989. ------------------ ------------------------------------------------------ (10)(hh)* A performance-based incentive compensation plan for the Chief Executive Officer and those other officers permitted under Internal Revenue Code Section 162(m) incorporated by reference to Proposal II within the company's definitive proxy statement dated January 4, 2000 filed with the Securities and Exchange Commission. ------------------ ------------------------------------------------------ (10)(ii)* The Reynolds and Reynolds Company Retirement Plan (formerly The Reynolds and Reynolds Company Salaried Retirement Plan) October 1, 1995 Restatement; incorporated by reference to Exhibit (10)(ii) to Form 10-K for the fiscal year ended September 30, 1995. ------------------ ------------------------------------------------------ (10)(jj)* The Reynolds and Reynolds Company Retirement Plan (formerly The Reynolds and Reynolds Company Salaried Retirement Plan) October 1, 1995 Restatement Amendment No. 1, adopted December 19, 1996; incorporated by reference to Exhibit (10)(ii) to Form 10-K for the fiscal year ended September 30, 1997. ------------------ ------------------------------------------------------ (10)(kk)* The Reynolds and Reynolds Company Retirement Plan (formerly The Reynolds and Reynolds Company Salaried Retirement Plan) October 1, 1995 Restatement Amendment No. 2, adopted August 11, 1997; incorporated by reference to Exhibit (10)(ii) to Form 10-K for the fiscal year ended September 30, 1997. ------------------ ------------------------------------------------------ (10)(ll)* The Reynolds and Reynolds Company Retirement Plan (formerly The Reynolds and Reynolds Company Salaried Retirement Plan) October 1, 1995 Restatement Amendment No. 3, adopted September 22, 1998, as filed herewith; incorporated by reference to Exhibit (10)(oo) to Form 10-K for the fiscal year ended September 30, 1998. ------------------ ------------------------------------------------------ (10)(mm)* General Form of Deferred Compensation Agreement between the company and each of the following officers: R. H. Grant, III, David R. Holmes and Dale L. Medford; incorporated by reference to Exhibit (10)(p) to Form 10-K for the fiscal year ended September 30, 1983. ------------------ ------------------------------------------------------ (10)(nn)* Resolution of the Board of Directors and General Form of Amendment dated December 1, 1989 to the Deferred Compensation Agreements between the company and each of the following officers: R. H. Grant, III, David R. Holmes, Dale L. Medford and Robert C. Nevin; incorporated by reference to Exhibit (10)(fff) to Form 10-K for the fiscal year ended September 30, 1989. ------------------ ------------------------------------------------------ 17 ------------------ ------------------------------------------------------ Exhibit No. Item ------------------ ------------------------------------------------------ (10)(oo)* General Form of Collateral Assignment Split-Dollar Insurance Agreement and Policy and Non-Qualified Compensation and Disability Benefit Agreement between the company and each of the following officers: Michael J. Gapinski, R. H. Grant, III, David R. Holmes, Dale L. Medford and Robert C. Nevin; incorporated by reference to Exhibit (10)(dd) to Form 10-K for the fiscal year ended September 30, 1985. ------------------ ------------------------------------------------------ (10)(pp)* Resolution of the Board of Directors and General Form of Amendment dated December 1, 1989 to the Non-Qualified Compensation and Disability Benefit between the company and each of the following officers: Michael J. Gapinski, R. H. Grant, III, David R. Holmes and Dale L. Medford; incorporated by reference to Exhibit (10)(hhh) to Form 10-K for the fiscal year ended September 30, 1989. ------------------ ------------------------------------------------------ (10)(qq)* General Form of Non-Qualified Deferred Compensation and Disability Agreement between the Company and each of its officers effective December 1, 2001. ------------------ ------------------------------------------------------ (10)(rr) Agreement dated March 11, 1963, between the company and Richard H. Grant, Jr., restricting transfer of Class B Common Stock of the company; incorporated by reference to Exhibit 9 to Registration Statement No. 2-40237 on Form S-7. ------------------ ------------------------------------------------------ (10)(ss) Amendment dated February 14, 1984 to Richard H. Grant, Jr.'s Agreement restricting transfer of Class B Common Stock of the company dated March 11, 1963; incorporated by reference to Exhibit (10)(u) to Form 10-K for the fiscal year ended September 30, 1984. ------------------ ------------------------------------------------------ (10)(tt) Agreement and Plan of Merger dated April 20, 1996 among the company, Delaware Acquisition Co. and Duplex Products Inc.; incorporated by reference to Exhibit (c)(1) to the company's schedule 14 D-1 filed with the Securities and Exchange Commission on April 22, 1996. ------------------ ------------------------------------------------------ (10)(uu) Asset Purchase Agreement dated as of September 28, 1998 by and among The Reynolds and Reynolds Company, InfoCure Corporation and Thoroughbred Acquisition, Inc. and Amendment No. 1 dated as of October 22, 1998; incorporated by reference to Exhibit (c)(2) to the company's filing on Form 8-K dated November 9, 1998. (File No. 001-10147) ------------------ ------------------------------------------------------ (10)(vv) Purchase Agreement dated as of June 19, 2000, by and between The Reynolds and Reynolds Company and ISG Acquisition Corp.; incorporated by reference to the company's Form 10-Q filed August 14, 2000. ------------------ ------------------------------------------------------ (11) Not applicable ------------------ ------------------------------------------------------ (12) Not applicable ------------------ ------------------------------------------------------ (13) Not applicable ------------------ ------------------------------------------------------ (18) Not applicable ------------------ ------------------------------------------------------ (21) List of subsidiaries (See Page 52) ------------------ ------------------------------------------------------ (22) Not applicable ------------------ ------------------------------------------------------ (23) Consent of Independent Auditors (See Page 25) ------------------ ------------------------------------------------------ (24) Not Applicable ------------------ ------------------------------------------------------ 18 ------------------ ------------------------------------------------------ Exhibit No. Item ------------------ ------------------------------------------------------ (99) Not applicable ------------------ ------------------------------------------------------ * Management contracts or compensatory plans or arrangements required to be filed as an exhibit to this form pursuant to Item 14(c) of this report. (b) REPORTS ON FORM 8-K. During the quarter ended September 30, 2001, we reported items under Item 5 of Form 8-K on August 7, 2001. (c) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K. Please refer to Part IV, Item 14(a)(3) beginning on page 14. (d) CONSOLIDATED FINANCIAL STATEMENTS Individual financial statements and schedules of the company's consolidated subsidiaries are omitted from this Annual Report on Form 10-K because consolidated financial statements and schedules are submitted and because the registrant is primarily an operating company and all subsidiaries included in the consolidated financial statements are wholly owned. ----------------------------------------------------------------------------- The Company will provide a copy of its 2001 Annual Report to Shareholders upon written request to: DOUGLAS M. VENTURA, GENERAL COUNSEL AND SECRETARY THE REYNOLDS AND REYNOLDS COMPANY P. O. BOX 2608 DAYTON, OHIO 45401 Or by calling: 1-888-4REYREY (473-9739) ----------------------------------------------------------------------------- SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. THE REYNOLDS AND REYNOLDS COMPANY By /S/ DOUGLAS M. VENTURA -------------------------------------- DOUGLAS M. VENTURA General Counsel and Secretary Date: December 21, 2001 19 PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED. Date: December 21, 2001 By /S/ DAVID R. HOLMES ------------------------------------------- DAVID R. HOLMES Chairman of the Board Date: December 21, 2001 By /S/ LLOYD G. WATERHOUSE ------------------------------------------- LLOYD G. WATERHOUSE President and Chief Executive Officer and Director (Principal Executive Officer) Date: December 21, 2001 By /S/ DALE L. MEDFORD ------------------------------------------- DALE L. MEDFORD Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) and Director Date: December 21, 2001 By /S/ JAMES L. ARTHUR ------------------------------------------- JAMES L. ARTHUR, Director Date: December 21, 2001 By /S/ DR. DAVID E. FRY ------------------------------------------- DR. DAVID E. FRY, Director Date: December 21, 2001 By /S/ RICHARD H. GRANT, III ------------------------------------------- RICHARD H. GRANT, III, Director Date: December 21, 2001 By /S/ CLEVE L. KILLINGSWORTH, JR. ------------------------------------------- CLEVE L. KILLINGSWORTH, JR. Director 20 Date: December 21, 2001 By /S/ EUSTACE W. MITA ------------------------------------------- EUSTACE W. MITA, Director Date: December 21, 2001 By /S/ PHILIP A. ODEEN ------------------------------------------- PHILIP A. ODEEN, Director Date: December 21, 2001 By /S/ DONALD K. PETERSON ------------------------------------------- DONALD K. PETERSON, Director 21 ANNUAL REPORT ON FORM 10-K ITEM 14(a)(1) and (2); 14(c) and (d) Financial Statements, Schedules and Exhibits Year Ended September 30, 2001 The Reynolds and Reynolds Company Dayton, Ohio 22 MANAGEMENT'S STATEMENT OF RESPONSIBILITY To Our Shareholders: The management of The Reynolds and Reynolds Company is responsible for accurately and objectively preparing the company's consolidated financial statements. These statements are prepared in accordance with accounting principles generally accepted in the United States of America and include amounts based on management's best estimates and judgments. Management believes that the financial information in this annual report is free from material misstatement. The company's management maintains an environment of multilevel controls. The Company Business Principles, for example, is distributed to all employees and communicates high standards of integrity that are expected in the company's day-to-day business activities. The Company Business Principles addresses a broad range of issues including potential conflicts of interest, business relationships, accurate and timely reporting of financial information, confidentiality of proprietary information, insider trading and social responsibility. The company also maintains and monitors a system of internal controls designed to provide reasonable assurances regarding the safeguarding of company assets and the integrity and reliability of financial records. These internal controls include the appropriate segregation of duties and the application of formal policies and procedures. Furthermore, an internal audit department, which has access to all financial and other corporate records, regularly performs tests to evaluate the system of internal controls to ensure the system is adequate and operating effectively. At the date of these financial statements, management believes the company has an effective internal control system. The company's independent auditors, Deloitte & Touche LLP, perform an independent audit of the company's consolidated financial statements. They have access to minutes of board meetings, all financial information and other corporate records. Their audit is conducted in accordance with auditing standards generally accepted in the United States of America and includes consideration of the system of internal controls. Their report is included in this annual report. Another level of control resides with the audit committee of the company's board of directors. The committee, comprised of four directors who are not members of management, oversees the company's financial reporting process. They recommend to the board, subject to shareholder approval, the selection of the company's independent auditors. They discuss the overall audit scope and the specific audit plans with the independent auditors and the internal auditors. This committee also meets regularly (separately and jointly) with the independent auditors, the internal auditors and management to discuss the results of those audits, the evaluation of internal controls, the quality of financial reporting and specific accounting and reporting issues. Lloyd G. "Buzz" Waterhouse Dale L. Medford President and Executive Vice President Chief Executive Officer and Chief Financial Officer 23 INDEPENDENT AUDITORS' REPORT The Shareholders of The Reynolds and Reynolds Company: We have audited the accompanying consolidated balance sheets of The Reynolds and Reynolds Company and its subsidiaries as of September 30, 2001 and 2000 and the related statements of consolidated income, shareholders' equity and cash flows for each of the three years in the period ended September 30, 2001. Our audits also included the financial statement schedule included as Item 14(a)(2). These financial statements and financial statement schedule are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of The Reynolds and Reynolds Company and its subsidiaries at September 30, 2001 and 2000 and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2001, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. Deloitte & Touche LLP Dayton, Ohio November 13, 2001 24 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in The Reynolds and Reynolds Company (1) Registration Statement No. 33-56045 on Form S-8, (2) Post-Effective Amendment No. 1 to Registration Statement No. 333-12681 on Form S-8, (3) Registration Statement No. 333-16583 on Form S-3, (4) Registration Statement No. 333-18585 on Form S-3, (5) Registration Statement No. 333-41983 on Form S-3, (6) Registration Statement No. 333-41985 on Form S-3, (7) Post-Effective Amendment No. 1 to Registration Statement No. 33-51895 on Form S-3, (8) Post-Effective Amendment No. 1 to Registration Statement No. 33-58877 on Form S-3, (9) Pre-Effective Amendment No. 1 to Registration Statement No. 33-61725 on Form S-3, (10) Registration Statement No. 33-59615 on Form S-3, (11) Registration Statement No. 33-59617 on Form S-3, (12) Registration Statement No. 333-12967 on Form S-3, (13) Registration Statement No. 333-72639 on Form S-3, (14) Registration Statement No. 333-85177 on Form S-8, (15) Registration Statement No. 333-85179 on Form S-8, (16) Registration Statement No. 333-85551 on Form S-8, (17) Registration Statement No. 333-94687 on Form S-3, (18) Registration Statement No. 333-30090 on Form S-8, (19) Registration Statement No. 333-53798 on Form S-3, (20) Registration Statement No. 333-57272 on Form S-8 and (21) Registration Statement No. 333-70630 on Form S-8 of our report dated November 13, 2001, appearing in this Annual Report on Form 10-K of The Reynolds and Reynolds Company for the year ended September 30, 2001, and to the reference to Deloitte & Touche LLP under the heading "Experts" in the respective Prospectuses, which is part of each of the above Registration Statements. DELOITTE & TOUCHE LLP Dayton, Ohio December 20, 2001 25 STATEMENTS OF CONSOLIDATED INCOME (In thousands except per share data)
For The Years Ended September 30 2001 2000 1999 - ----------------------------------------------------------------------------------------------------- Net Sales and Revenues Automotive solutions Services $ 600,681 $ 535,372 $ 454,581 Products 361,413 379,109 374,773 ----------- ----------- ----------- Total automotive solutions 962,094 914,481 829,354 Financial services 41,918 40,206 38,674 ----------- ----------- ----------- Total net sales and revenues 1,004,012 954,687 868,028 ----------- ----------- ----------- Costs and Expenses Cost of sales Services 220,721 203,311 174,372 Products 203,933 212,433 221,613 ----------- ----------- ----------- Total cost of sales 424,654 415,744 395,985 Selling, general and administrative expenses 389,363 353,963 300,011 Restructuring charges 10,560 Financial services 18,263 19,211 18,110 ----------- ----------- ----------- Total costs and expenses 832,280 799,478 714,106 ----------- ----------- ----------- Operating Income 171,732 155,209 153,922 ----------- ----------- ----------- Other Charges (Income) Interest expense 5,303 7,441 10,282 Interest income (7,818) (6,736) (6,737) Equity in net losses of affiliated companies 13,019 4,416 1,520 Other (1,296) (54) (1,498) ----------- ----------- ----------- Total other charges 9,208 5,067 3,567 ----------- ----------- ----------- Income Before Income Taxes 162,524 150,142 150,355 Income Taxes 64,590 61,702 62,464 ----------- ----------- ----------- Income from Continuing Operations 97,934 88,440 87,891 Income from Discontinued Operations 1,623 28,156 34,830 ----------- ----------- ----------- Net Income $ 99,557 $ 116,596 $ 122,721 =========== =========== =========== Basic Earnings Per Common Share Income from continuing operations $ 1.34 $ 1.14 $ 1.12 Income from discontinued operations $ .02 $ .36 $ .45 Net income $ 1.36 $ 1.50 $ 1.57 Average number of common shares outstanding 73,183 77,474 78,254 Diluted Earnings Per Common Share Income from continuing operations $ 1.31 $ 1.11 $ 1.09 Income from discontinued operations $ .02 $ .35 $ .43 Net income $ 1.33 $ 1.47 $ 1.53 Average number of common shares and equivalents outstanding 74,919 79,499 80,340 See Notes to Consolidated Financial Statements
26 CONSOLIDATED BALANCE SHEETS (In thousands) September 30 2001 2000 - -------------------------------------------------------------------------------- AUTOMOTIVE SOLUTIONS ASSETS --------------------------- Current Assets Cash and equivalents $ 110,511 $ 205,455 ------------ ------------ Accounts receivable (less allowance for doubtful accounts: 2001--$3,662; 2000--$2,324) 124,954 127,314 ------------ ------------ Inventories Finished products 10,271 14,360 Work in process 398 480 Raw materials and supplies 177 447 ------------ ------------ Total inventories 10,846 15,287 ------------ ------------- Deferred income taxes 23,437 23,438 ------------ ------------- Prepaid expenses and other assets 16,465 12,052 ------------ ------------ Total current assets 286,213 383,546 ------------ ------------ Property, Plant and Equipment Land and improvements 9,921 10,109 Buildings and improvements 64,668 66,429 Computer equipment 135,256 119,352 Machinery and equipment 42,004 42,693 Furniture and other 34,405 33,982 Construction in progress 51,859 31,778 ------------ ------------ Total property, plant and equipment 338,113 304,343 Less accumulated depreciation 179,062 166,235 ------------ ------------ Net property, plant and equipment 159,051 138,108 ------------ ------------ Intangible Assets Goodwill 34,663 31,061 Software licensed to customers 59,690 39,479 Other 107,262 118,575 ------------ ------------ Total intangible assets 201,615 189,115 ------------ ------------ Other Assets 73,137 85,395 ------------ ------------ Total Automotive Solutions Assets 720,016 796,164 ------------ ------------ FINANCIAL SERVICES ASSETS ------------------------- Finance Receivables 421,370 420,588 Cash and Other Assets 964 541 ------------ ------------ Total Financial Services Assets 422,334 421,129 ------------ ------------ TOTAL ASSETS $1,142,350 $1,217,293 ============ ============ September 30 2001 2000 - -------------------------------------------------------------------------------- AUTOMOTIVE SOLUTIONS LIABILITIES -------------------------------- Current Liabilities Current portion of long-term debt $ 6,061 $ 5,714 Accounts payable Trade 41,258 42,514 Other 3,380 4,862 Accrued liabilities Compensation and related items 43,321 54,913 Income taxes 6,961 29,748 Other 28,519 36,942 Deferred revenues 18,362 15,604 ------------ ------------ Total current liabilities 147,862 190,297 ------------ ------------ Long-Term Debt 105,805 111,124 ------------ ------------ Other Liabilities Postretirement medical 42,742 41,317 Pensions 56,192 52,995 Other 5,066 3,406 ------------ ------------ Total other liabilities 104,000 97,718 ------------ ------------ Total Automotive Solutions Liabilities 357,667 399,139 ------------ ------------ FINANCIAL SERVICES LIABILITIES ------------------------------ Notes Payable 203,512 212,176 Deferred Income Taxes 97,169 103,591 Other Liabilities 7,219 3,893 ------------ ------------ Total Financial Services Liabilities 307,900 319,660 ------------ ------------ SHAREHOLDERS' EQUITY -------------------- Capital Stock Preferred Class A common 167,356 124,247 Class B common 625 625 Other Comprehensive Losses (9,547) (7,139) Retained Earnings 318,349 380,761 ------------ ------------ Total Shareholders' Equity 476,783 498,494 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,142,350 $1,217,293 ========== ========== See Notes to Consolidated Financial Statements. 27 STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY (In thousands except per share data)
For The Years Ended September 30 2001 2000 1999 - ------------------------------------------------------------------------------------------------ Capital Stock Class A common Balance, beginning of year $124,247 $78,598 $57,610 Capital stock issued 44,455 46,842 19,101 Capital stock repurchased (10,968) (5,653) (1,991) Capital stock retired (459) (808) (1,163) Tax benefits from stock options 10,081 5,268 5,041 --------- --------- --------- Balance, end of year 167,356 124,247 78,598 --------- --------- --------- Class B common 625 625 625 --------- --------- --------- Other Comprehensive Income (Losses) Balance, beginning of year (7,139) (9,448) (9,727) Foreign currency translation (1,591) (645) 780 Minimum pension liability 847 2,954 (501) Cumulative effect of accounting change 15 Net unrealized losses on derivative contracts (1,679) --------- --------- --------- Balance, end of year (9,547) (7,139) (9,448) --------- --------- --------- Retained Earnings Balance, beginning of year 380,761 393,660 355,943 Net income 99,557 116,596 122,721 Cash dividends Class A common (2001--$.44 PER SHARE; 2000--$.44 per share; 1999--$.40 per share) (31,681) (33,690) (30,916) Class B common (2001--$.022 PER SHARE; 2000--$.022 per share; 1999--$.02 per share) (440) (440) (400) Capital stock repurchased (129,848) (95,365) (53,688) --------- --------- --------- Balance, end of year 318,349 380,761 393,660 --------- --------- --------- Total Shareholders' Equity $476,783 $498,494 $463,435 ========= ========= ========= Comprehensive Income Net income $99,557 $116,596 $122,721 Foreign currency translation (1,591) (645) 780 Minimum pension liability 847 2,954 (501) Cumulative effect of accounting change 15 Net unrealized losses on derivative contracts (1,679) --------- --------- --------- Total comprehensive income $97,149 $118,905 $123,000 ========= ========= =========
See Notes to Consolidated Financial Statements. 28 STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS (In thousands)
For The Years Ended September 30 2001 2000 1999 - --------------------------------------------------------------------------------------------- AUTOMOTIVE SOLUTIONS Cash Flows Provided by Operating Activities $165,548 $118,948 $116,249 --------- --------- --------- Cash Flows Provided by (Used for) Investing Activities Business combinations (12,008) (101,635) Capital expenditures (51,383) (65,677) (35,944) Net proceeds from sales of assets 3,770 9,157 1,308 Capitalization of software licensed to customers (20,310) (20,258) (16,038) Repayments from (advances to) financial services (4,321) 13,051 4,369 --------- --------- --------- Net cash used for investing activities (84,252) (165,362) (46,305) --------- --------- --------- Cash Flows Provided by (Used for) Financing Activities Additional borrowings 47,145 Principal payments on debt (7,930) (61,036) (45,206) Cash dividends paid (32,121) (34,130) (31,316) Capital stock issued 43,996 16,786 16,067 Capital stock repurchased (140,816) (101,018) (55,679) --------- --------- --------- Net cash used for financing activities (136,871) (179,398) (68,989) --------- --------- --------- Effect of Exchange Rate Changes on Cash (1,591) (645) 780 --------- --------- --------- Net Cash Provided by (Used for) Discontinued Operations (37,778) 328,317 61,880 --------- --------- --------- Increase (Decrease) in Cash and Equivalents (94,944) 101,860 63,615 Cash and Equivalents, Beginning of Year 205,455 103,595 39,980 --------- --------- --------- Cash and Equivalents, End of Year $110,511 $205,455 $103,595 ========= ========= ========= FINANCIAL SERVICES Cash Flows Provided by Operating Activities $14,019 $20,858 $19,580 --------- --------- --------- Cash Flows Provided by (Used for) Investing Activities Finance receivables originated (178,268) (132,633) (152,815) Collections on finance receivables 168,577 131,854 127,315 --------- --------- --------- Net cash used for investing activities (9,691) (779) (25,500) --------- --------- --------- Cash Flows Provided by (Used for) Financing Activities Additional borrowings 78,813 63,887 35,760 Principal payments on debt (87,477) (71,134) (26,898) Advances from (repayments to) automotive solutions 4,321 (13,051) (4,369) --------- --------- --------- Net cash provided by (used for) financing activities (4,343) (20,298) 4,493 --------- --------- --------- Increase (Decrease) in Cash and Equivalents (15) (219) (1,427) Cash and Equivalents, Beginning of Year 456 675 2,102 --------- --------- --------- Cash and Equivalents, End of Year $441 $456 $675 ========= ========= =========
See Notes to Consolidated Financial Statements. 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands except per share data) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION The consolidated financial statements include the accounts of the parent company and its domestic and foreign subsidiaries and present details of revenues, expenses, assets, liabilities and cash flows for both Automotive Solutions and Financial Services. Automotive Solutions is comprised of the company's Software Solutions, Transformation Solutions and Documents segments. Financial Services is comprised of Reyna Capital Corporation, the company's wholly owned financial services subsidiary and a similar operation in Canada. In accordance with industry practice, the assets and liabilities of Automotive Solutions are classified as current or noncurrent and those of Financial Services are unclassified. Intercompany balances and transactions are eliminated. USE OF ESTIMATES The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America and include amounts based on management's best estimates and judgments. The use of estimates and judgments may affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. CASH AND EQUIVALENTS For purposes of reporting cash flows, cash and equivalents include cash on hand, cash deposits and investments with maturities of three months or less at the time of purchase. The carrying amount of these short-term investments approximates fair value. CONCENTRATIONS OF CREDIT RISK The company is a leading provider of information management systems and services to automotive retailers. Substantially all finance receivables and accounts receivable are from automotive retailers. ALLOWANCE FOR LOSSES An allowance for losses on finance receivables is established based on historical loss experience, portfolio profile, industry averages and current economic conditions. Finance receivables are charged to the allowance for losses when an account is deemed to be uncollectible, taking into consideration the financial condition of the customer and the value of the collateral. Recoveries of finance receivables, previously charged off as uncollectible, are credited to the allowance for losses. INVENTORIES Inventories are stated at the lower of cost or market. Costs of business forms inventories are determined by the last-in, first-out (LIFO) method. At September 30, 2001 and 2000, LIFO inventories were $4,634 and $5,360, respectively. These inventories determined by the first-in, first-out (FIFO) method would increase by $3,784 in 2001 and $4,067 in 2000. For other inventories, comprised primarily of computer equipment, cost is determined by specific identification or the FIFO method. Market is based on net realizable value. 30 PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost. Depreciation and amortization are provided over the estimated useful service lives of the assets or asset groups, principally on the straight-line method for financial reporting purposes. Estimated asset lives are: Years - -------------------------------------------------------------------------------- Land improvements 10 Buildings and improvements 3--33 Computer equipment 3--5 Machinery and equipment 3--20 Furniture and other 3--15 INTANGIBLE ASSETS The excess of cost over net assets of companies acquired is recorded as goodwill and amortized on a straight-line basis over five to twenty years. Amortization expense was $7,122 in 2001, $7,003 in 2000 and $7,278 in 1999. At September 30, 2001 and 2000, accumulated amortization was $51,344 and $44,238, respectively. The company capitalizes certain costs of developing its software products. Upon completion of a software product, amortization is determined based on the larger of the amounts computed using (a) the ratio that current gross revenues for each product bears to the total of current and anticipated future gross revenues for that product or (b) the straight-line method over the remaining estimated economic life of the product, ranging from five to seven years. Amortization expense for software licensed to customers was $1,967 in 2001, $1,105 in 2000 and $1,308 in 1999. September 30, 2001 and 2000, accumulated amortization was $48,032 and $46,696, respectively. Other intangible assets are amortized over periods ranging from three to twenty years. Amortization expense was $11,292 in 2001, $4,777 in 2000 and $483 in 1999. At September 30, 2001 and 2000, accumulated amortization was $18,387 and $7,113, respectively. Other intangible assets related to Trade Cycle Technology and CyberCar were acquired in the May 2000 purchase of HAC Group LLC. These assets are being amortized on a straight-line basis over their useful lives because this method of amortization best matches expected future revenues. The useful lives for the Trade Cycle Technology and CyberCar intangible assets reflect the relationship between HAC Group and the customer that began in 1983. This relationship is expected to continue over the remaining useful life of the Trade Cycle Technology and CyberCar assets.
Useful Life (years) 9/30/01 9/30/00 - -------------------------------------------------------------------------------------- Customer relationship - Trade Cycle Technology 20 $ 64,484 $ 67,954 Customer relationship - CyberCar 10 13,648 15,238 Other intangible assets 3 - 20 29,130 35,383 --------- -------- Total other intangible assets $107,262 $118,575 ========= ========
The carrying values of goodwill and other intangible assets are reviewed if the facts and circumstances indicate potential impairment of their carrying value. Any impairment in the carrying value of such intangibles is recorded when identified in accordance with Accounting Principles Board (APB) Opinion No. 17, "Intangible Assets" and Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." 31 EQUITY INVESTMENT The company owns 16,500 shares of Kalamazoo Computer Group plc (Kalamazoo) of the United Kingdom, representing about 26% of the outstanding shares. In addition, two of the company's officers are members of Kalamazoo's board of directors. At September 30, 2001, the market value of the company's Kalamazoo shares was $1,705 based on the closing sale price reported by the London Stock Exchange. This investment is accounted for under the equity method and the carrying value of $13,910 at September 30, 2001, was included with other assets in the company's consolidated balance sheets. Quarterly, the company evaluates the recoverability of its investment in Kalamazoo as required by SFAS No. 121 and Staff Accounting Bulletin No. 59. As part of its evaluation, management considered the market value and carrying value of its investment, management's likelihood of holding or selling its investment and potential sales proceeds and related tax benefits. Based on this evaluation a charge of $3,507 was recorded in the fourth quarter of 2001. The company recorded losses of $7,718 in 2001, $4,362 in 2000 and $3,043 in 1999, representing amortization of intangible assets, its share of Kalamazoo's net losses and the fourth quarter 2001 charge. These losses were recorded as equity in net losses of affiliated companies in the statements of consolidated income. REVENUE RECOGNITION ACCOUNTING CHANGE In October 1997, the American Institute of Certified Public Accountants issued Statement of Position (SOP) 97-2, "Software Revenue Recognition," which superseded SOP 91-1, "Software Revenue Recognition." SOP 97-2 provides guidance on applying generally accepted accounting principles recognizing revenue on software transactions. The company adopted this pronouncement effective October 1, 1998. The adoption of this pronouncement reduced Software Solutions' computer systems products revenues $17,936, gross profit $11,205, operating income $10,624 and net income $6,204 or $.08 per diluted share during the six months ended March 31, 1999. The company completed the transition period for the adoption of SOP 97-2 as of March 31, 1999, and there was no impact on fiscal year 1999's third or fourth quarter operating results. AUTOMOTIVE SOLUTIONS Sales of computer hardware and business forms products are recorded when title passes upon shipment to customers. Revenues from software license fees are recorded over the installation period. Service revenues, which include computer hardware maintenance, software support and training are recorded ratably over the contract period or as services are performed. FINANCIAL SERVICES Financial Services revenues consist primarily of interest earned on financing the company's computer systems sales. Revenues are recognized over the lives of financing contracts, generally five years, using the interest method. LEASE OBLIGATIONS The company leases premises and equipment under operating lease agreements. Certain of these leases contain renewal and purchase options and residual value guarantees. As of September 30, 2001, future minimum lease payments relating to operating lease agreements were $33,950 with annual payments of $18,082 in 2002, $6,204 in 2003, $4,528 in 2004, $2,829 in 2005 and $1,188 in 2006. Rental expenses were $24,939 in 2001, $25,188 in 2000 and $19,868 in 1999. PURCHASE COMMITMENTS At September 30, 2001, the company had a purchase commitment of about $7,400 for the construction of a new office building near Dayton, Ohio. The building is expected to be completed in 2002 at an estimated cost of about $45,000. During 2001, the company entered into an agreement to outsource certain computer services. This agreement requires annual payments of about $18,000 over the eight year term of the agreement. 32 RESEARCH AND DEVELOPMENT COSTS The company expenses research and development costs as incurred. These costs, primarily representing software development costs, were $71,080 in 2001, $75,925 in 2000 and $52,232 in 1999. INCOME TAXES The parent company and its domestic subsidiaries file a consolidated U.S. federal income tax return. No deferred income tax liabilities are recorded on undistributed earnings of the foreign subsidiary because, for the most part, those earnings are permanently reinvested. Undistributed earnings of the foreign subsidiary at September 30, 2001, were $28,137. The calculation of the unrecognized deferred income tax liability on these earnings is not practicable. EARNINGS PER COMMON SHARE Basic earnings per common share (EPS) is computed by dividing income by the weighted average number of common shares outstanding during the year. Diluted EPS is computed by dividing income by the weighted average number of common shares and common share equivalents outstanding during each year. The weighted average number of common shares outstanding assumed that Class B common shares were converted into Class A common shares. The company's common share equivalents represent the effect of employee stock options. 2001 2000 1999 - -------------------------------------------------------------------------------- Average number of common shares outstanding (used to determine basic EPS) 73,183 77,474 78,254 Effect of employee stock options 1,736 2,025 2,086 ------ ------ ------ Average number of common shares and equivalents outstanding (used to determine diluted EPS) 74,919 79,499 80,340 ====== ====== ====== Employee stock options to purchase 3,705, 4,092 and 2,617 of common stock were outstanding during 2001, 2000 and 1999, respectively, but were not included in the computation of diluted EPS because the options' exercise price was greater than the average market price of the common shares and, therefore, the effect would be antidilutive. RECLASSIFICATIONS Certain reclassifications have been made to prior years' consolidated financial statements to conform with the presentation used in 2001, including reclassifications to comply with Emerging Issues Task Force Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs". The company reclassified freight, postage and handling fees billed to customers from cost of sales to net sales and revenues. 33 2. DISCONTINUED OPERATIONS During the second quarter of fiscal year 2001, the company recorded income from discontinued operations of $1,623. Income from discontinued operations included about $.01 per share from the collection of notes receivable obtained in the October 1998 sale of the Healthcare Systems segment and about $.01 per share from tax benefits related to the August 2000 sale of the Information Solutions segment. On August 4, 2000, the company sold the net assets of its Information Solutions segment to The Carlyle Group for cash of $360,000 and recorded an after-tax gain of $10,853 (net of income taxes of $31,181) or $.14 per diluted share. Additional income from discontinued operations was $17,303 (net of $13,022 of income taxes) in 2000 and $29,045 (net of $19,853 of income taxes) in 1999. The Information Solutions segment manufactured and distributed printed business forms and provided forms management services to general business markets. On October 23, 1998, the company sold essentially all net assets of its Healthcare Systems segment to InfoCure Corporation for about $50,000. The proceeds consisted of about $40,000 of cash with the balance in subordinated notes. The company recorded a gain on the sale of $5,785 (net of income taxes of $2,064) or $.07 per diluted share. About $1,200 of Healthcare Systems operating losses (net of income taxes of about $800) from October 1, 1998 through October 23, 1998, were included in the determination of the gain on the sale of the Healthcare Systems segment. 3. RESTRUCTURING CHARGES During fiscal year 2000, the company recorded a pre-tax restructuring charge of $10,560. This charge consisted of $4,751 of employee termination benefits, $4,715 of retirement costs and $1,094 of lease obligations. Employee termination benefits represented severance and outplacement benefits for 252 employees, 135 of which were in administrative positions. The remaining 117 employees worked at the Oklahoma City manufacturing facility that was closed during the first quarter of fiscal year 2001. As of September 30, 2001, all of the identified employees have begun receiving severance payments. Retirement costs represent pension and other postretirement benefits in excess of regular plan benefits for 20 employees, including several executives. These incremental benefits will be paid along with normal pension and other postretirement benefits. See Note 10 to the Consolidated Financial Statements for additional disclosures about postretirement benefits. Lease obligations represent remaining lease payments in excess of sublease rentals for 38 sales offices vacated by the company. Activity related to restructuring accruals was as follows: Severance and Lease Related Costs Obligations - ----------------------------------------------------------------------------- Restructuring charges $4,751 $1,094 Payments (791) (88) ------- ------- Balances at September 30, 2000 3,960 1,006 Payments (3,482) (422) Adjustments to income (318) (96) ------- ------- Balances at September 30, 2001 $160 $488 ======= ======= 34 4. BUSINESS COMBINATIONS In November 2000, the company purchased eCustomerCentric Solutions, Inc., a.k.a. DealerKid, a provider of electronic customer marketing and relationship management software and services for automotive retailers in the United States and Canada. Privately held DealerKid had revenues of about $2,000 in 2000. The purchase price of $10,452 was paid with $9,758 of cash from existing balances and the issuance of a $694 note payable. This business combination was accounted for as a purchase and the accounts of DealerKid were included in the financial statements since the acquisition date. In connection with this business combination the company recorded goodwill of $11,307. Goodwill is being amortized on a straight-line basis over five years. In May 2000, the company purchased the outstanding membership interests of HAC Group, LLC, the leading provider of learning, customer relationship management and Web services to automobile retailers and manufacturers. The privately-held HAC Group had revenues of $65,000 in 1999. The purchase price of $124,660 consisted of $97,460 of cash and the issuance of 1,222 restricted Class A common shares. The issuance of capital stock was considered a noncash transaction for accounting purposes and was not included in the statements of cash flows. This business combination was accounted for as a purchase and the accounts of HAC Group were included in the financial statements since the acquisition date. In connection with this business combination, the company recorded goodwill of $16,221 and various other intangible assets of $118,500 related to customer relationships and acquired contracts. Goodwill and other intangible assets are being amortized on a straight-line basis over three to twenty years. Under terms of the purchase agreement, the company may be required to make additional payments over the next two years of up to $60,000 in the aggregate, contingent on the operating results of the business purchased. In May 2000, the company and other industry partners formed a new independent company, named ChoiceParts, LLC, to develop an electronic parts exchange for the automotive parts market. The company contributed its existing parts locator business, which had annual revenues of nearly $12,000 and in-process software development of a Web-based parts locator product to ChoiceParts in exchange for a minority equity interest, consisting of both common and preferred interests. The company also made a capital contribution to ChoiceParts of $1,675. This investment is accounted for under the equity method and the carrying value is included with other assets in the company's consolidated balance sheets. In connection with this transaction, the company recorded goodwill of $852 that is being amortized on a straight-line basis over five years. During fiscal years 2001 and 2000, the company recorded losses of $4,191 and $959, respectively representing amortization of goodwill and its share of the losses of ChoiceParts. These losses were recorded as equity in net losses of affiliated companies in the statements of consolidated income. Under the terms of certain purchase agreements, the company may be required to make additional payments, contingent on the operating results of the businesses purchased. The effect of contingent arrangements reduced goodwill $728 in 2001 and increased goodwill $728 in 2000 and $2,048 in 1999. COMPONENTS OF PURCHASE PRICES 2001 2000 1999 - -------------------------------------------------------------------------------- Cash (net of cash and equivalents acquired) $12,008 $101,635 Capital stock issued (1,222 shares) 27,200 Note payable issued 694 Contingent payments made Capital stock issued 2000 - 109 shares 1999 - 88 shares) 2,048 $1,871 -------- -------- -------- Totals $12,702 $130,883 $1,871 ======== ======== ======== 35 5. INCOME TAXES PROVISION FOR INCOME TAXES 2001 2000 1999 - -------------------------------------------------------------------------------- Current Federal $50,055 $47,831 $47,209 State and local 8,543 8,598 7,895 Foreign 1,502 1,695 2,430 Deferred 4,490 3,578 4,930 ------- ------- ------- Provision for income taxes $64,590 $61,702 $62,464 ======= ======= ======= Income taxes paid (net of refunds) $56,404 $72,651 $64,903 ======= ======= ======= RECONCILIATION OF INCOME TAX RATES 2001 2000 1999 AMOUNT PERCENT Amount Percent Amount Percent - -------------------------------------------------------------------------------- Statutory federal income taxes $56,884 35.0% $52,550 35.0% $52,624 35.0% State and local taxes less federal income tax effect 6,611 4.1 5,840 3.9 6,396 4.3 Tax audit settlements (1,058) (.7) Goodwill amortization 1,199 .7 1,924 1.3 2,135 1.4 Other (104) (.1) 1,388 .9 2,367 1.5 -------- ---- -------- ---- -------- ---- Provision for income taxes $64,590 39.7% $61,702 41.1% $62,464 41.5% ======== ==== ======== ==== ======== ==== AUTOMOTIVE SOLUTIONS DEFERRED INCOME TAX ASSETS (LIABILITIES) 2001 2000 - -------------------------------------------------------------------------------- Deferred income tax assets Postretirement medical $18,280 $17,811 Pensions 24,550 23,475 Software revenue recognition 51 2,176 Other 24,904 26,789 Deferred income tax liabilities Depreciation (21,833) (15,272) Other (13,042) (13,658) -------- -------- Totals 32,910 41,321 Current 23,437 23,438 -------- -------- Noncurrent $9,473 $17,883 ======== ======== 36 6. FINANCIAL SERVICES INCOME SUMMARY 2001 2000 1999 - -------------------------------------------------------------------------------- Revenues $41,918 $40,206 $38,674 ------- ------- ------- Expenses Interest expense 13,258 14,224 13,108 Allowance for losses 2,500 2,360 2,550 General and administrative 2,505 2,627 2,452 ------- ------- ------- Total expenses 18,263 19,211 18,110 ------- ------- ------- Operating Income $23,655 $20,995 $20,564 ======= ======= ======= FINANCE RECEIVABLES 2001 2000 - -------------------------------------------------------------------------------- Product financing receivables $462,950 $462,134 Unguaranteed residual values 40,434 40,475 Allowance for losses (5,956) (5,846) Unearned interest income (78,939) (79,193) Other 2,881 3,018 --------- --------- Totals $421,370 $420,588 ========= ========= As of September 30, 2001, product financing receivables due for each of the next five years were $171,581 in 2002, $133,796 in 2003, $88,332 in 2004, $48,920 in 2005 and $20,194 in 2006. ALLOWANCE FOR LOSSES 2001 2000 - -------------------------------------------------------------------------------- Balance, beginning of year $5,846 $6,581 Provisions Financial services 2,500 2,360 Automotive solutions 500 520 Net losses (2,890) (3,615) ------- ------- Balance, end of year $5,956 $5,846 ======= ======= 37 7. FINANCING ARRANGEMENTS AUTOMOTIVE SOLUTIONS
2001 2000 - ---------------------------------------------------------------------------------------------------- Fixed rate notes, $100,000 face value, interest rate of 7.0%, maturing in 2007 $99,745 $99,696 Fixed rate notes, weighted average interest rate of 6.7%, maturing through 2003 12,121 17,142 -------- -------- Totals 111,866 116,838 Current portion 6,061 5,714 -------- -------- Long-term portion $105,805 $111,124 ======== ========
Loan agreements limit consolidated indebtedness and require a minimum interest coverage ratio. The fair values of Automotive Solutions financing arrangements were $117,917 at September 30, 2001 and $111,844 at September 30, 2000. At September 30, 2001, debt maturities were $6,061 in 2002 and $6,060 in 2003. Interest paid was $4,484 in 2001, $11,048 in 2000 and $13,250 in 1999. Interest capitalized was $4,016 in 2001, $2,643 in 2000 and $613 in 1999. FINANCIAL SERVICES In the ordinary course of business, the company borrows cash to fund investments in finance receivables from the sale of the company's products. The company attempts to limit its interest rate exposure between the interest earned on fixed rate finance receivables and the interest paid on variable rate financing agreements through the use of interest rate management agreements. Interest rate swaps provide for interest to be received on notional amounts at variable rates and provide for interest to be paid on the same notional amounts at fixed rates. Fixed interest rates do not change over the life of the agreements. Variable interest rates are reset at least every ninety days and are based on LIBOR or commercial paper indices and are settled with counterparties at that time. Net interest expense or income on these contracts is reflected in interest expense. The company is exposed to credit related losses in the event of nonperformance by counterparties to the interest rate management agreements. The company attempts to minimize this credit risk by entering into agreements only with counterparties that have a Standard & Poor's rating of "A" or higher. The company also diversifies its interest rate management agreements among several financial institutions. Interest rate management agreements are accounted for using settlement accounting. 38 Notional Amounts NOTES SWAPS - ------------------------------------------------------------------------- SEPTEMBER 30, 2001 - ------------------------------------------------------------------------- Variable rate instruments, maturing through 2005 $146,200 $63,500 Weighted average interest rate 4.2% Weighted average pay rate 6.3% Weighted average receive rate 3.0% Fixed rate notes, maturing through 2005 57,312 Weighted average interest rate 6.4% ---------- ------- Totals $203,512 $63,500 ========== ======= September 30, 2000 - ------------------------------------------------------------------------- Variable rate instruments, maturing through 2005 $116,457 $70,582 Weighted average interest rate 7.1% Weighted average pay rate 6.5% Weighted average receive rate 6.6% Fixed rate notes, maturing through 2004 95,719 Weighted average interest rate 6.5% ---------- ------- Totals $212,176 $70,582 ========== ======= Loan agreements limit consolidated indebtedness and require a minimum consolidated net worth and interest coverage ratio. The fair value of Financial Services debt was $204,632 and $211,216 at September 30, 2001 and 2000, respectively. At September 30, 2001, maturities of notes were $56,083 in 2002, $34,208 in 2003, $105,096 in 2004, and $8,125 in 2005. Interest paid was $13,476 in 2001, $14,301 in 2000 and $13,262 in 1999. At September 30, 2001, notional amount maturities of swap agreements were $27,000 in 2002, $20,125 in 2003, $13,250 in 2004, and $3,125 in 2005. The fair values of interest rate swap agreements were $(2,724) and $25 at September 30, 2001 and 2000, respectively. REVOLVING CREDIT AGREEMENTS Automotive Solutions and Financial Services share variable rate revolving credit agreements which total $150,000 and require commitment fees on unused credit. At September 30, 2001, available balances under these agreements were $67,300. FAIR VALUES Fair values of financial instruments are estimated based on quoted market prices for debt and interest rate management agreements with the same remaining maturities. 39 8. CAPITAL STOCK 2001 2000 1999 - -------------------------------------------------------------------------------- Preferred No par value Authorized shares 60,000 60,000 60,000 Class A common No par value Authorized shares 240,000 240,000 240,000 ======== ======== ======== Issued and outstanding shares Balance, beginning of year 73,622 76,532 77,757 Issued 3,119 2,611 1,519 Repurchased (6,490) (5,488) (2,691) Retired (21) (33) (53) -------- -------- -------- Balance, end of year 70,230 73,622 76,532 ======== ======== ======== Class B common No par value Authorized shares 40,000 40,000 40,000 Issued and outstanding shares 20,000 20,000 20,000 Dividends on Class A common shares must be twenty times the dividends on Class B common shares and must be paid simultaneously. Each share of Class A common and Class B common is entitled to one vote. The Class B common shareholder may convert twenty Class B common shares to one share of Class A common. The company has reserved sufficient authorized Class A common shares for Class B conversions and stock option plans. Each outstanding Class A common share has one preferred share purchase right. Each outstanding Class B common share has one-twentieth of a right. Rights become exercisable if a person or group acquires or seeks to acquire, through a tender or exchange offer, 15% or more of the company's Class A common shares. In that event, all holders of Class A common shares and Class B common shares, other than the acquirer, could exercise their rights and purchase preferred shares at a specified amount. At the date of these financial statements, except for the preferred share purchase rights, the company had no agreements or commitments with respect to the sale or issuance of the preferred shares. The company repurchased Class A common shares for treasury at average prices of $21.70 in 2001, $18.41 in 2000 and $20.69 in 1999. The remaining balance of shares authorized for repurchase by the board of directors was 4,700 at September 30, 2001. Treasury shares at September 30 were 21,903 in 2001, 18,531 in 2000 and 15,654 in 1999. 40 9. EMPLOYEE STOCK OPTION PLANS The company's stock option plans award incentive stock options and/or nonqualified stock options to purchase Class A common shares to substantially all employees. Stock options are generally granted at a price equal to fair market value of the common stock on the date of grant. During the three years ended September 30, 2001, the company granted a nonqualified stock option for 200 Class A common shares at an option price of $.01 per share and recognized compensation expense of $1,009 in 2001, $1,921 in 2000 and $1,001 in 1999. At September 30, 2001, options to purchase 3,259 additional Class A common shares were available for future awards to certain key employees. Under a broad-based stock option plan, the board of directors may award options at its discretion.
Weighted Average Shares Under Option Option Prices Per Share 2001 2000 1999 2001 2000 1999 - ------------------------------------------------------------------------------------- Outstanding Beginning of year 17,620 13,675 10,615 $18.04 $17.48 $16.30 Granted 281 6,493 5,149 19.99 18.61 18.55 Exercised (3,090) (1,276) (1,431) 13.89 12.19 11.33 Canceled (870) (1,272) (658) 19.96 20.85 20.12 ------- ------- ------- End of year 13,941 17,620 13,675 18.88 18.04 17.48 ======= ======= ======= Exercisable at September 30 5,090 5,719 5,049 18.96 16.56 13.55 ======= ======= =======
Outstanding, September 30, 2001 Exercisable, September 30, 2001 Weighted Weighted Average Average Weighted Option Number of Remaining Option Number of Average Price Range Options Life in Years Price Options Option Price - -------------------------------------------------------------------------------- $.01 100 7.6 $.01 $5.47 - $17.25 4,770 6.7 15.98 2,181 $14.91 $17.44 - $20.07 4,652 7.6 18.59 447 18.23 $20.10 - $27.13 4,419 6.4 22.73 2,462 22.69 ------ ----- Totals 13,941 6.9 18.88 5,090 18.96 ====== =====
The company accounts for employee stock options under APB Opinion No. 25, "Accounting for Stock Issued to Employees" and follows the disclosure requirements of SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 requires the valuation of stock options using option valuation models and the disclosure of the pro forma effect on earnings. The company valued its stock options using the Black-Scholes option valuation model which was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of subjective assumptions, such as expected stock price volatility, which can materially affect the fair value estimate. Because the company's stock options have characteristics significantly different from traded options, the fair value determined may not reflect the actual value of the company's stock options. The weighted average fair value of the company's stock options granted at fair market value was $6.47 in 2001, $5.23 in 2000 and $4.91 in 1999. The fair value of the company's stock options granted below fair market value was $23.04 in 1999. There were no options granted below fair market value in 2001 or 2000. Had compensation expense been recognized using these fair values, the company's net income and diluted earnings per common share would have decreased by $11,948 or $.16 per share in 2001, $11,695 or $.15 per share in 2000 and $8,152 or $.10 per share in 1999. OPTION VALUATION ASSUMPTIONS 2001 2000 1999 - -------------------------------------------------------------------------------- Expected life in years 5 5 5 Dividend yield 1.9% 1.7% 1.5% Risk free interest rate 5.9% 6.1% 4.3% Volatility 33% 33% 29% 41 10. POSTRETIREMENT BENEFITS PENSION EXPENSE
2001 2000 1999 - ------------------------------------------------------------------------------------------------- Net periodic pension cost Service cost $8,794 $12,747 $12,517 Interest cost 15,918 17,677 16,548 Estimated return on plan assets (12,893) (15,840) (14,863) Amortization of unrecognized transitional asset 147 144 147 Amortization of prior service cost 427 523 239 Recognized net actuarial losses 153 830 2,131 Plan administration 767 791 813 Special termination benefits 4,526 1,971 Settlement - discontinued operations 533 ------- ------- ------- Net periodic pension cost 13,313 21,931 19,503 Defined contribution plans 6,258 10,435 9,045 Multi-employer plans 37 154 175 ------- ------- ------- Totals $19,608 $32,520 $28,723 ======= ======= ======= Actuarial assumptions Discount rate 6.5%-7.75% 6.5%-7.75% 6.0%-6.75% Rate of compensation increase 3.75%-5.0% 3.75%-6.0% 3.75%-5.0% Expected long-term rate of return on assets 9.0% 9.0% 9.0% Actuarial cost method PROJECTED UNIT CREDIT Measurement period JULY 1 - JUNE 30
The company sponsors contributory and noncontributory, defined benefit pension plans for most employees. Pension benefits are primarily based on years of service and compensation. The company's funding policy is to make annual contributions to the plans sufficient to meet or exceed the minimum statutory requirements. The company and its actuaries review the pension plans each year. The actuarial assumptions are intended to reflect expected experience over the life of the pension liability. The company expensed special termination benefits of $4,526 in 2000 and $1,971 in 1999 in connection with the restructuring in 2000 and the sale of the Healthcare Systems segment in 1999. These benefits will be in addition to the employee's regular plan benefits and will be paid directly from company assets rather than plan assets. Pension expense for fiscal years 2000 and 1999, was not separately disclosed for continuing and discontinuing operations because it is not practicable to present this information. The company sponsors defined contribution savings plans covering most domestic employees. Generally, contributions are funded monthly and represent 40% of the first 3% of compensation contributed to the plan by participating employees. The company also funds a discretionary contribution. Contributions for this portion of the plan are funded annually based on the company's return on equity and contributions are the same for each eligible employee. Forfeitures of nonvested discretionary contributions are used to reduce contributions required by the company. 42 FUNDED STATUS OF DEFINED BENEFIT PENSION PLANS
2001 2000 - ----------------------------------------------------------------------------------------- Change in projected benefit obligation Projected benefit obligation, beginning of year $212,295 $259,496 Service cost 8,672 12,945 Interest cost 15,905 17,633 Actuarial gains (3,976) (8,014) Benefits paid (11,021) (13,415) Liabilities transferred (59,807) Special termination benefits 4,526 Change in plan provisions 71 Employee contributions (109) (213) Foreign currency translation (330) (856) -------- -------- Projected benefit obligation, end of year $221,507 $212,295 ======== ======== Change in plan assets Fair value of plan assets, beginning of year $149,166 $193,406 Actual return (losses) on plan assets (9,770) 17,409 Administrative expenses paid (809) (710) Employer contributions 3,927 6,029 Employee contributions (109) (213) Assets transferred (58,451) Benefits paid (6,179) (7,349) Foreign currency translation (344) (955) -------- -------- Fair value of plan assets, end of year $135,882 $149,166 ======== ======== Net amount recognized Funded status $85,625 $63,129 Unrecognized transition obligation (552) (685) Unrecognized prior service cost (3,592) (3,954) Unrecognized net losses (24,937) (6,515) Multi-employer liability 94 3 Minimum pension liability 8,012 10,000 -------- -------- Net amount recognized $64,650 $61,978 ======== ======== Minimum pension liability Intangible asset $4,158 $4,718 Deferred income tax benefit 1,546 2,127 Accumulated other comprehensive income 2,308 3,155 -------- -------- Totals $8,012 $10,000 ======== ======== Actuarial assumptions Projected benefit obligation discount rate 7.0% - 7.5% 6.5% - 7.75% Rate of compensation increase 3.75% - 5.0% 3.75% - 5.0%
At September 30, 2001 and 2000, about 30% and 46% of the plans' assets were invested in cash and equivalents, government bonds and investment grade corporate bonds. The balance of the plans' assets were invested in equities. In 2000, as part of the sale of the Information Solutions segment, the company settled its pension obligations by transferring the liability and plan assets to the purchaser. The company sponsors certain unfunded pension plans. These pension plans have accumulated benefit obligations exceeding plan assets. The projected benefit obligations were $52,529 and $54,132 at September 30, 2001 and 2000, respectively. The accumulated benefit obligations were $51,143 and $52,410 at September 30, 2001 and 2000, respectively. 43 POSTRETIREMENT MEDICAL AND LIFE INSURANCE EXPENSE
2001 2000 1999 - ------------------------------------------------------------------------------------------------- Service cost $752 $1,127 $1,311 Interest cost 3,773 3,209 3,635 Amortization of prior service cost (337) (391) (110) Recognized net actuarial losses 260 3 285 Special termination benefits 189 Settlement - discontinued operations (865) ------- ------- ------- Totals $4,448 $3,272 $5,121 ======= ======= ======= Actuarial assumptions Discount rate 7.75% 7.0% - 7.75% 6.75% Healthcare cost trend rate through 2007 6.0% 6.0% 6.0% Healthcare cost trend rate thereafter 5.0% 5.0% 5.0%
The company sponsors a defined benefit medical plan for employees who retired before October 1, 1993. Future retirees may purchase postretirement medical insurance from the company. Discounts from the market price of postretirement medical insurance will be provided to certain retirees based on age and length of remaining service as of October 1, 1993. These discounts are included in the determination of the accumulated benefit obligation. The company also sponsors a defined benefit life insurance plan for substantially all employees. The company funds medical and life insurance benefits on a pay-as-you-go basis. In 2001, the company revised its actuarial assumptions for future retiree medical costs to better reflect historical experience. POSTRETIREMENT MEDICAL AND LIFE INSURANCE OBLIGATION
2001 2000 - ---------------------------------------------------------------------------------------- Change in projected benefit obligation Projected benefit obligation, beginning of year $40,107 $47,388 Service cost 751 1,124 Interest cost 3,773 3,209 Plan participants' contributions 138 165 Actuarial (gains) losses 16,362 (4,602) Benefits paid (3,402) (2,972) Change in plan provisions (2,335) Liability transferred (4,205) -------- -------- Projected benefit obligation, end of year $55,394 $40,107 ======== ======== Net amount recognized Projected benefit obligation, end of year $55,394 $40,107 Unrecognized prior service cost 5,369 3,371 Unrecognized net gains (losses) (15,121) 989 -------- -------- Net amount recognized $45,642 $44,467 ======== ======== Actuarial assumptions Discount rate 7.50% 7.75% Healthcare cost trend rate through 2007 6.0% 6.0% Healthcare cost trend rate thereafter 5.0% 5.0%
The effect of a 1% increase in the assumed healthcare cost trend rate would have increased fiscal year 2001 service and interest costs by $183 and the September 30, 2001 accumulated benefit obligation by $2,446. Similiary, a 1% decrease would have decreased fiscal year 2001 service and interest costs by $160 and the September 30, 2001 accumulated benefit obligation by $2,137. 44 11. CASH FLOW STATEMENTS
2001 2000 1999 ------------------------------------------------- AUTOMOTIVE SOLUTIONS Cash flows provided by (used for) operating activities Net income $85,019 $104,067 $110,156 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 49,901 38,676 32,071 Deferred income taxes 7,829 1,557 (3,394) Deferred income taxes transferred to (from) financial services (2,647) (7,886) 5,507 Income from discontinued operations (1,623) (28,156) (34,830) Loss (gain) on sales of assets (337) 557 279 Changes in operating assets and liabilities Accounts receivable 9,249 (1,955) (4,501) Inventories 4,441 1,884 (1,971) Prepaid expenses, intangible and other assets (1,249) (2,451) (1,285) Accounts payable (2,792) (1,443) 346 Accrued and other liabilities 17,757 14,098 13,871 --------- --------- --------- Net cash provided by operating activities $165,548 $118,948 $116,249 ========= ========= ========= FINANCIAL SERVICES Cash flows provided by (used for) operating activities Net income $14,538 $12,529 $12,565 Adjustments to reconcile net income to net cash provided by operating activities Deferred income taxes (6,422) (2,641) 9,861 Deferred income taxes transferred to (from) automotive solutions 2,647 7,886 (5,507) Changes in receivables, other assets and other liabilities 3,256 3,084 2,661 --------- --------- --------- Net cash provided by operating activities $14,019 $20,858 $19,580 ========= ========= =========
45 12. SEGMENT REPORTING The company's six solutions business units have been aggregated into four segments for reporting purposes. The Software Solutions, formerly Retail Management Solutions, segment consists of the Software Solutions business unit and the Info-Structure Services business unit. This segment provides integrated computer systems products and related services. Products include integrated software packages, computer hardware and installation of hardware and software. Services include customer training, hardware maintenance and software support as well as consulting services. The Transformation Solutions segment includes the Transformation Solutions business unit and the Software Solutions Intellipath business unit. This segment provides specialized training, Web services and customer relationship management products and services. The Documents segment manufactures and distributes printed business forms to automotive retailers. The Financial Services segment provides financing for the company's computer systems products. Total assets were not allocated by segment except for Financial Services' assets. Investments in equity method investees and capital expenditures were not allocated by segment. Depreciation and amortization were reflected in determining segment operating income, however, it is not practicable to present this information by segment.
2001 2000 1999 - ------------------------------------------------------------------------------------------------------- Net sales and revenues Software solutions Computer services $439,657 $400,727 $365,394 Computer systems products 146,586 164,270 167,167 ----------- ----------- ----------- Total software solutions 586,243 564,997 532,561 Transformation solutions 188,798 153,142 97,437 Documents 187,053 196,342 199,356 Financial services 41,918 40,206 38,674 ----------- ----------- ----------- Total net sales and revenues $1,004,012 $954,687 $868,028 =========== =========== =========== Operating income (loss) Software solutions $123,722 $106,070 $84,710 Transformation solutions (15,436) (881) (1,325) Documents 39,791 39,585 49,973 Financial services 23,655 20,995 20,564 Restructuring charges (10,560) ----------- ----------- ----------- Total operating income $171,732 $155,209 $153,922 =========== =========== =========== Assets Automotive solutions $720,016 $796,164 $491,839 Financial services 422,334 421,129 427,591 Discontinued operations 260,760 ----------- ----------- ----------- Total assets $1,142,350 $1,217,293 $1,180,190 =========== =========== =========== Investments in equity method investees $20,531 $32,906 $31,908 Capital expenditures 51,383 65,677 35,944 Depreciation and amortization 49,901 38,676 32,071
46 13. CONTINGENCIES The U.S. Environmental Protection Agency (EPA) has designated the company as one of a number of potentially responsible parties (PRP) under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) at an environmental remediation site. The EPA has contended that any company linked to a CERCLA site is potentially liable for all response costs under the legal doctrine of joint and several liability. This environmental remediation site involves a municipal waste disposal facility owned and operated by four municipalities. The company joined a PRP coalition and is sharing remedial investigation and feasibility study costs with other PRPs. During fiscal year 1996, an agreement was reached whereby the state of Connecticut contributed $8,000 towards remediation costs. Preliminary remediation continued during fiscal year 2001 utilizing Connecticut's contribution. The EPA issued a Record of Decision on September 28, 2001 which selects a remedy at the site involving "monitored natural attenuation." The EPA's estimated future remedial costs are approximately $2,000. The company was also named a defendant in a cost recovery lawsuit in Dayton, Ohio regarding another environmental remediation site. Discovery in that lawsuit is in its early stages, too early to determine the company's liability exposure. The company believes that the reasonably foreseeable resolution of these two matters will not have a material adverse effect on the financial statements. During the quarter ended March 31, 2001, the company ceased certain software development efforts. During the quarter ended September 30, 2001, the company settled this contract with no additional impact on the financial statements. 14. 47 ACCOUNTING CHANGES In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." In September 2000, the FASB amended certain provisions of that statement by issuing SFAS Statement No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities." These statements require all derivatives to be recognized as either assets or liabilities in the statement of financial position and to measure those instruments at fair value. Gains or losses resulting from changes in fair values of derivatives are recorded either as a separate component of shareholders' equity or in the income statement depending upon whether the instruments meet the criteria for hedge accounting. Effective October 1, 2000, the company adopted the provisions of these statements. The company has determined that its derivative instruments meet the criteria for cash flow hedge accounting. In the ordinary course of business, the company borrows cash to fund investments in finance receivables from the sale of the company's products. The company attempts to limit its interest rate exposure between the interest earned on fixed rate finance receivables and the interest paid on variable rate financing agreements through the use of interest rate management agreements. Interest rate swaps provide for interest to be received on notional amounts at variable rates and provide for interest to be paid on the same notional amounts at fixed rates. Fixed interest rates do not change over the life of the agreements. Variable interest rates are reset at least every 90 days and are based on LIBOR or commercial paper indices and are settled with counterparties at that time. The fair value of the company's derivative instruments was a $25 asset at October 1, 2000, which was recorded as a cumulative effect of accounting change, and a $2,724 liability at September 30, 2001. This liability was included in Financial Services' other liabilities on the consolidated balance sheet. The adjustments to record the cumulative effect of accounting change and the net change in the fair value during the periods presented was recorded, net of income taxes, in other comprehensive income. All existing cash flow hedges were 100% effective. As a result, there was no current impact to earnings because of hedge ineffectiveness. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements," which provides guidance on applying generally accepted accounting principles for recognizing revenue. SAB No. 101 as amended was effective for the quarter ended September 30, 2001. The company was already in compliance with the provisions of SAB No. 101 and there was no effect from the adoption of SAB No. 101. 48 15. ACCOUNTING STANDARDS In June 2001, the FASB voted in favor of SFAS Statement No. 141, "Business Combinations" and SFAS Statement No. 142, "Goodwill and Other Intangible Assets." SFAS Statement No. 141 prohibits the pooling of interests method of accounting and requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS Statement No. 142 will require that goodwill no longer be amortized, but instead tested for impairment at least annually. The statement will also require recognized intangible assets with finite useful lives to be amortized over their useful lives and reviewed for impairment in accordance with SFAS Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The company is permitted to adopt the provisions of SFAS Statement No. 142 on either October 1, 2001 or October 1, 2002. Management has chosen to adopt the provisions of SFAS Statement No. 142 effective October 1, 2001. This statement will require certain intangible assets, that do not meet the criteria for recognition apart from goodwill, to be reclassified to goodwill. Management estimates the effect of ceasing goodwill amortization will be to increase earnings by about $.12 per share. This statement will also require that goodwill be tested for impairment, initially as of October 1, 2001, and thereafter at least annually. The company has six months to perform the first step of the goodwill impairment test and until the end of the fiscal year to measure any impairment. Management is currently preparing its initial impairment analysis and has not determined the impact on the company's financial statements. In August 2001, the FASB issued SFAS Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This pronouncement establishes a single accounting model, based on the framework established in SFAS Statement No. 121, for long-lived assets to be disposed of by sale. The provisions of this statement are effective for financial statements issued for fiscal years beginning after December 15, 2001. Management does not believe the adoption of this pronouncement will have a material impact on the company's financial statement. 49 16. QUARTERLY FINANCIAL DATA (UNAUDITED)
First Second Third Fourth Quarter Quarter Quarter Quarter - ---------------------------------------------------------------------------------------------------------------------------------- 2001 - ---------------------------------------------------------------------------------------------------------------------------------- Net sales and revenues Automotive solutions $241,516 $239,623 $239,799 $241,156 Financial services 10,218 10,471 10,651 10,578 ------------- ------------- ------------- ------------- Totals $251,734 $250,094 $250,450 $251,734 ============= ============= ============= ============= Gross profit $135,519 $129,652 $134,024 $138,245 Income from continuing operations $23,879 $22,199 $24,719 $27,137 Basic earnings per common share $.32 $.31 $.34 $.37 Diluted earnings per common share $.32 $.30 $.33 $.36 Net income $23,879 $23,822 $24,719 $27,137 Basic earnings per common share $.32 $.33 $.34 $.37 Diluted earnings per common share $.32 $.32 $.33 $.36 Cash dividends declared per share Class A common $.11 $.11 $.11 $.11 Class B common $.0055 $.0055 $.0055 $.0055 Closing market prices of Class A common shares High $20.50 $22.97 $23.00 $25.14 Low $16.94 $19.25 $18.25 $21.26 - ---------------------------------------------------------------------------------------------------------------------------------- 2000 - ---------------------------------------------------------------------------------------------------------------------------------- Net sales and revenues Automotive solutions $218,863 $217,872 $233,570 $244,176 Financial services 9,764 10,515 9,746 10,181 ------------- ------------- ------------- ------------- Totals $228,627 $228,387 $243,316 $254,357 ============= ============= ============= ============= Gross profit $120,126 $118,143 $125,719 $134,749 Income from continuing operations $25,059 $23,548 $21,024 $18,809 Basic earnings per common share $.32 $.31 $.27 $.24 Diluted earnings per common share $.32 $.29 $.26 $.24 Net income $31,300 $32,968 $25,293 $27,035 Basic earnings per common share $.41 $.43 $.32 $.35 Diluted earnings per common share $.40 $.41 $.31 $.35 Cash dividends declared per share Class A common $.11 $.11 $.11 $.11 Class B common $.0055 $.0055 $.0055 $.0055 Closing market prices of Class A common shares High $22.88 $29.81 $27.81 $19.81 Low $17.88 $19.31 $18.25 $16.19
50 VALUATION ACCOUNTS FOR THE YEARS ENDED SEPTEMBER 30, 2001, 2000, AND 1999 (Dollars in Thousands)
- ------------------------------------------------------------------------------------------------------------------------------- Column A Column B Column C Column D Column E -----Additions----- ------Deductions----- Balance Charged at to Costs Other Write-offs Other Balance Beginning and Net of At End Description of Year Expenses (a) Recoveries (b) of Year - ------------------------------------------------------------------------------------------------------------------------------- Valuation Accounts - Deducted From Assets to Which They Apply AUTOMOTIVE SOLUTIONS Reserves for accounts receivable: Year ended September 30, 2001 2,324 5,340 (978) 3,024 0 3,662 Year ended September 30, 2000 2,056 3,197 (697) 2,232 0 2,324 Year ended September 30, 1999 3,382 2,449 (902) 1,906 967 2,056 Reserves for inventory: Year ended September 30, 2001 1,644 77 (8) 743 0 970 Year ended September 30, 2000 2,336 2,809 (2,694) 807 0 1,644 Year ended September 30, 1999 3,749 1,088 13 2,293 221 2,336 FINANCIAL SERVICES Reserves for finance receivables: Year ended September 30, 2001 5,846 2,500 493 2,883 0 5,956 Year ended September 30, 2000 6,581 2,360 517 3,612 0 5,846 Year ended September 30, 1999 4,540 2,550 2,005 2,514 0 6,581
(a) Includes adjustments from translation of foreign currency to United States dollars, the effects of acquisitions of businesses and transfers between reserves. (b) Includes adjustments for disposal of businesses. 51 EX-3.C 3 l92008aex3-c.txt EX-(3)(C) CERTIFICATE OF AMENDMENT BY DIRECTORS EXHIBIT (3)(c) CERTIFICATE OF AMENDMENT BY DIRECTORS TO AMENDED ARTICLES OF INCORPORATION OF THE REYNOLDS AND REYNOLDS COMPANY Ohio Charter Number: 007639 Pursuant to Section 1701.73 of the Ohio Revised Code David R. Holmes, who is the Chairman of the Board of The Reynolds and Reynolds Company, an Ohio corporation for profit (the "Corporation"), does hereby certify that the following is a true and complete copy of the resolution adopting an amendment to the Amended Articles of Incorporation of the Corporation (the "Amended Articles of Incorporation") duly adopted by the Board of Directors of the Corporation at its meeting held on the 18th day of April, 2001 pursuant to the authority vested in the Board of Directors of the Corporation in accordance with the provisions of Section 1701.70(B)(1) of the Ohio Revised Code and Section 2.a. of Article FOURTH of the Amended Articles of Incorporation: RESOLVED, that Article FOURTH of the Amended Articles of Incorporation of the Corporation be, and it hereby is, amended to add a new Section 5 providing for a new series of preferred shares of the Corporation and that the form of such amendment and the express terms and provisions of the new series of preferred shares are as follows: Section 5. Terms and Provisions of Series B Participating Preferred Shares. a. DESIGNATION AND AMOUNT. There shall be established a series of Preferred Shares which shall be designated as the "Series B Participating Preferred Shares" and the number of shares constituting such series shall be 2,000,000. b. DIVIDENDS AND DISTRIBUTIONS. (1) Subject to the provisions for adjustment set forth in this Section 5.b. of this Article FOURTH, the holders of Series B Participating Preferred Shares shall be entitled to receive, when and if declared by the Board of Directors out of funds legally available for the purpose, dividends on each Series B Participating Preferred Share equal to 1,000 (as adjusted from time to time as provided in subparagraph (2) of this Section 5.b. of this Article FOURTH, the "Class A Multiple") times the aggregate amount of dividends or distributions declared (whether or not paid) from time to time per Class A Common Share (other than to the extent that such dividends and distributions are payable in Class A Common Shares); provided that, in the event the dividends and distributions declared on each Series B Participating Preferred Share outstanding during the period (a "Dividend Period") between any Dividend Payment Date (as defined below) and the next subsequent Dividend Payment Date (or, in the case of the first Dividend Period, the period between the date of issuance of the first Series B Participating Preferred Share or any fraction thereof and the next subsequent Dividend Payment Date), do not in the aggregate equal at least $10 per Series B Participating Preferred Share, then each Series B Participating Preferred Share shall be entitled to receive, when and if declared by the Board of Directors out of funds legally available for the purpose, dividends ("Minimum Dividends") on each Series B Participating Preferred Share equal to the difference between $10 and the amount of any dividends or distributions declared on the Series B Participating Preferred Shares during such Dividend Period. Minimum Dividends shall be payable in cash on the Dividend Payment Date ending the applicable Dividend Period. "Dividend Payment Dates" shall mean the dates determined by the Board of Directors, which dates shall be no later than the last day of January, April, June and September in each year. (2) In the event the corporation shall at any time or from time to time after May 6, 2001 (the "Rights Declaration Date") (a) declare any dividend or distribution on the Class A Common Shares payable in Class A Common Shares, (b) subdivide the outstanding Class A Common Shares, or (c) combine the outstanding Class A Common Shares into a smaller number of shares, then in each such case the Class A Multiple shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of Class A Common Shares outstanding immediately after such event and the denominator of which is the number of Class A Common Shares outstanding immediately prior to such event. (3) The corporation shall declare a dividend or distribution on the Series B Participating Preferred Shares as set forth in subparagraph (1) of this Section 5.b. of this Article FOURTH prior to or simultaneously with a declaration of any dividend or distribution on the Class A Common Shares (other than a dividend or distribution payable in Class A Common Shares) or, in the case of dividends payable on a Dividend Payment Date, prior to such Dividend Payment Date. (4) Dividends shall begin to accrue and be cumulative on each outstanding Series B Participating Preferred Share from the date of issuance thereof. Accrued and accumulated but unpaid dividends shall not bear interest. Dividends paid on the Series B Participating Preferred Shares in an amount less than the total amount of such dividends at the time accrued, accumulated and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of Series B Participating Preferred Shares entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 60 days prior to the date fixed for the payment thereof. 2 c. VOTING RIGHTS. Subject to the Ohio Code and any amendments to these Amended Articles of Incorporation by the Board of Directors providing for the issuance of any series of Preferred Shares (other than the Series B Participating Preferred Shares), the holders of the Class A Common Shares, Class B Common Shares and Preferred Shares of all series (including, without limitation, the Series B Participating Preferred Shares) shall be entitled to one vote per share and shall vote together as a single class for all corporate purposes. d. LIQUIDATION, DISSOLUTION OR WINDING UP. In the event of any liquidation, dissolution or winding up of the corporation, voluntary or otherwise, then, before any distribution or payment shall be made to the holders of Common Shares or any class of stock of the corporation ranking junior to the Series B Participating Preferred Shares in respect of the liquidation, dissolution or winding up of the corporation, first (1) the holders of the Series B Participating Preferred Shares shall be entitled to be paid an amount in dollars equal to (a) the Class A Multiple per share, plus (b) any accrued, accumulated and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment and then (2) the holders of the Series B Participating Preferred Shares shall be entitled to be paid in full an amount per share equal to the Remaining Assets (as defined below) multiplied by a fraction (a) the numerator of which is 20,000 and (b) the denominator of which is the sum of (i) the number of issued and outstanding Series B Participating Preferred Shares multiplied by 20,000, (ii) the number of issued and outstanding Class A Common Shares multiplied by 20 and (iii) the number of issued and outstanding Class B Common Shares. "Remaining Assets" shall mean the amount of assets legally available for payment to shareholders of the corporation upon liquidation, dissolution or winding up of the corporation, voluntary or otherwise, minus any payments to holders of Preferred Shares upon liquidation, dissolution or winding up of the corporation, voluntarily or otherwise to be made pursuant to clause (1) of the first sentence of this Section 5.d. of this Article FOURTH or pursuant to any amendments to these Amended Articles of Incorporation made by the Board of Directors providing for the issuance of any other series of Preferred Shares. e. CONSOLIDATION, MERGER, ETC. In case the corporation shall enter into any consolidation, merger, combination or other transaction in which the Class A Common Shares are exchanged for or converted into other shares or securities, cash or any other property, then in any such case each Series B Participating Preferred Share shall at the same time be similarly exchanged for or converted into an amount per share equal to the Class A Multiple times the aggregate amount of shares, securities, cash or any other property (payable in kind), as the case may be, into which or for which each Class A Common Share is exchanged or changed; PROVIDED that, the Series B Participating Preferred Shares shall not be exchanged for or converted into Common Shares and in lieu thereof the holders of the Series B Preferred Shares will receive cash or other consideration in the form and amount determined by the Board of Directors to be equivalent to the per share amount referred to immediately preceding this proviso. f. NO REDEMPTION. The Series B Participating Preferred Shares shall not be redeemable. g. FRACTIONAL SHARES. Series B Participating Preferred Shares may be issued in fractions of a share which shall entitle the holder, in proportion to such holder's fractional 3 shares, to exercise voting rights, receive dividends, participate in distributions and have the benefit of all other rights of holders of Series B Participating Preferred Shares. 4 IN WITNESS WHEREOF, the above-named officer, acting for and on behalf of the Corporation, has hereunto subscribed his name on this ____ day of April, 2001. __________________________________________ Name: David R. Holmes Title: Chairman of the Board of Directors 5 EX-4.B 4 l92008aex4-b.txt EX-(4)(B) AMENDED AND RESTATED RIGHTS AGREEMENT EXHIBIT (4)(b) EXECUTION COPY - -------------------------------------------------------------------------------- AMENDED AND RESTATED RIGHTS AGREEMENT between THE REYNOLDS AND REYNOLDS COMPANY and MELLON INVESTOR SERVICES LLC as Rights Agent - -------------------------------------------------------------------------------- Dated as of April 18, 2001 TABLE OF CONTENTS
PAGE SECTION 1. CERTAIN DEFINITIONS....................................................................................2 SECTION 2. APPOINTMENT OF RIGHTS AGENT...........................................................................10 SECTION 3. ISSUANCE OF RIGHT CERTIFICATES........................................................................11 SECTION 4. FORM OF RIGHT CERTIFICATES............................................................................14 SECTION 5. COUNTERSIGNATURE AND REGISTRATION.....................................................................15 SECTION 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHT CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHT CERTIFICATES.........................................................................16 SECTION 7. EXERCISE OF RIGHTS PURCHASE PRICE; EXPIRATION DATE OF RIGHTS..........................................17 SECTION 8. CANCELLATION AND DESTRUCTION OF RIGHT CERTIFICATES....................................................21 SECTION 9. RESERVATION AND AVAILABILITY OF CAPITAL STOCK.........................................................22 SECTION 10. PREFERRED SHARE RECORD DATE..........................................................................24 SECTION 11. ADJUSTMENT TO PURCHASE PRICE, NUMBER AND KIND OF SHARES OR NUMBER OF RIGHTS..........................25 SECTION 12. CERTIFICATION OF CERTAIN ADJUSTMENTS.................................................................40 SECTION 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR EARNING POWER.................................40 SECTION 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES..............................................................47 SECTION 15. RIGHTS OF ACTION.....................................................................................49 SECTION 16. AGREEMENT OF RIGHT HOLDERS...........................................................................49 SECTION 17. RIGHT CERTIFICATE HOLDER NOT DEEMED A SHAREHOLDER....................................................51 SECTION 18. CONCERNING THE RIGHTS AGENT..........................................................................51 SECTION 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT............................................53 SECTION 20. DUTIES OF RIGHTS AGENT...............................................................................54 SECTION 21. CHANGE OF RIGHTS AGENT...............................................................................57 SECTION 22. ISSUANCE OF NEW RIGHT CERTIFICATES...................................................................59
i SECTION 23. REDEMPTION...........................................................................................59 SECTION 24. NOTICE OF CERTAIN EVENTS.............................................................................61 SECTION 25. NOTICES..............................................................................................62 SECTION 26. SUPPLEMENTS AND AMENDMENTS...........................................................................63 SECTION 27. SUCCESSORS...........................................................................................64 SECTION 28. DETERMINATIONS AND ACTIONS TAKEN BY THE BOARD OF DIRECTORS...........................................64 SECTION 29. BENEFITS OF THIS AGREEMENT...........................................................................65 SECTION 30. GOVERNING LAW........................................................................................65 SECTION 31. COUNTERPARTS.........................................................................................66 SECTION 32. DESCRIPTIVE HEADINGS.................................................................................66 SECTION 33. SEVERABILITY.........................................................................................66 SECTION 34. EXCHANGE.............................................................................................66
Exhibit A - Form of Certificate of Amendment to Amended Articles of Incorporation Exhibit B - Form of Right Certificate Exhibit C - Form of Summary of Rights ii AMENDED AND RESTATED RIGHTS AGREEMENT ------------------------------------- AMENDED AND RESTATED RIGHTS AGREEMENT dated as of April 18, 2001 (the "Agreement") between The Reynolds and Reynolds Company, an Ohio corporation (the "Company"), and Mellon Investor Services LLC, a New Jersey limited liability company (successor to Wells Fargo Bank Minnesota, N.A., a national banking association), as rights agent (the "Rights Agent"). WITNESSETH ---------- WHEREAS, on April 18, 2001 (the "Rights Dividend Declaration Date"), the Board of Directors of the Company (the "Board") authorized and declared a dividend distribution of one (1) right (a "Right") for each share of the Company's Class A Common Shares, no par value per share (the "Class A Shares"), and one-twentieth (1/20th) of a Right for each share of the Company's Class B Common Shares, no par value per share (the "Class B Shares"), outstanding as of the Close of Business (as hereinafter defined) on May 6, 2001 (the "Record Date"), each Right initially representing the right to purchase one one-thousandth (1/1000th) of a share (a "Unit") of the Company's Series B Participating Preferred Shares (the "Preferred Shares", as defined hereinafter) upon the terms and subject to the conditions hereinafter set forth; and authorized the issuance of one (1) Right (subject to adjustment) with respect to each Class A Share and one-twentieth (1/20th) of a Right (subject to adjustment) with respect to each Class B Share that shall become outstanding between the Record Date and the earlier of the Distribution Date (as hereinafter defined) or the Expiration Date (as hereinafter defined) and, to the extent provided in Section 22 hereof, with respect to each such share issued after the Distribution Date and prior to the Expiration Date; and WHEREAS, the Company desires to set forth certain terms and conditions governing the Rights; NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereby agree as follows: Section 1. CERTAIN DEFINITIONS. For purposes of this Agreement, the following terms have the meanings indicated: (a) "Acquiring Person" shall mean any Person (as hereinafter defined) who or which, together with all Affiliates (as hereinafter defined) and Associates (as hereinafter defined) of such Person, shall be the Beneficial Owner (as hereinafter defined) of securities of the Company constituting a Substantial Block (as hereinafter defined); PROVIDED, HOWEVER, that an Acquiring Person shall not include an Exempt Person (as hereinafter defined). Notwithstanding the foregoing, (A) no Person shall become an Acquiring Person solely as the result of an acquisition of Class A Shares by the Company that, by reducing the number of shares outstanding, increases the proportionate number of Class A Shares beneficially owned by a Person to equal or exceed a Substantial Block of the Class A Shares then outstanding; provided, however, that if such Person becomes the Beneficial Owner of a Substantial Block of Class A Shares solely by reason of purchases of Class A Shares by the Company and shall, after such purchases by the Company, become the Beneficial Owner of any additional Class A Shares which has the effect of increasing such Person's percentage ownership of the then-outstanding Class A Shares by any means whatsoever, then such Person shall be deemed to be an Acquiring Person, and (B) if the Board of Directors determines that a Person who would otherwise be an Acquiring 2 Person has become such inadvertently (including, without limitation, because (1) such Person was unaware that it beneficially owned a Substantial Block of Class A Shares or (2) such Person was aware of the extent of such Beneficial Ownership but such Person acquired Beneficial Ownership of such Class A Shares without the intention to change or influence the control of the Company) and such Person divests itself as promptly as practicable of a sufficient number of Class A Shares so that such Person would no longer be an Acquiring Person, then such Person shall not be deemed to be, or have been, an Acquiring Person for any purposes of this Agreement, and no Share Acquisition Date shall be deemed to have occurred. All questions as to whether a Person who would otherwise be an Acquiring Person has become such inadvertently shall be determined by the Board. (b) "Adjustment Spread" shall have the meaning set forth in Section 34(a)(ii) hereof. (c) "Adjustment Units" shall have the meaning set forth in Section 11(a)(ii) hereof. (d) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934 as in effect as of the date hereof. (e) "Agreement" shall have the meaning set forth in the first paragraph hereof. (f) A Person shall be deemed the "Beneficial Owner" of, and shall be deemed to "beneficially own," any securities: (i) which such Person or any of such Person's Affiliates or Associates, directly or indirectly, has the right to acquire (whether such right is 3 exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (whether or not in writing) or upon the exercise of any conversion, exchange or purchase rights, warrants or options, or otherwise; PROVIDED, HOWEVER, that a Person shall not be deemed the "Beneficial Owner" of, or to "beneficially own," (A) securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase or exchange; (B) securities issuable upon the exercise of Rights at any time prior to the occurrence of a Section 11(a)(ii) Event or a Section 13 Event (as such terms are hereinafter defined); or (C) securities issuable from and after the occurrence of a Section 11(a)(ii) Event or a Section 13 Event upon the exercise of Original Rights or Rights acquired by such Person or any of such Person's Affiliates or Associates pursuant to Section 11(i) hereof in connection with any adjustment made with respect to any Original Rights; (ii) which such Person or any of such Person's Affiliates or Associates, directly or indirectly, has the right to vote or dispose of or has beneficial ownership of (as determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Exchange Act), including pursuant to any agreement, arrangement or understanding (whether or not in writing); provided, however, that a Person shall not be deemed the "Beneficial Owner" of, or to "beneficially own," any securities under this Section l(f)(ii) as a result of an agreement, arrangement or understanding to vote such security which: (A) arises solely by reason of the grant of a revocable proxy or consent to any Person who 4 shall have obtained such proxy or consent pursuant to and as a result of a public proxy or consent solicitation subject to and conducted in accordance with the applicable provisions of the Exchange Act and the applicable rules and regulations thereunder and (B) also is not then reportable by such Person on Schedule 13D under the Exchange Act (or any comparable or successor report); or (iii) which are "beneficially owned," directly or indirectly, by any other Person (or any Affiliate or Associate thereof) with which such Person or any of such Person's Affiliates or Associates has any agreement, arrangement or understanding (whether or not in writing) for the purpose of acquiring, holding, voting (except pursuant to a revocable proxy as described in clause (A) of subparagraph (ii) of this Section l(f)) or disposing of any securities of the Company; provided, HOWEVER, that nothing in this Section l(f) shall cause a Person engaged in business as an underwriter of securities to be the "Beneficial Owner" of, or to "beneficially own," any securities acquired through such Person's participation in good faith in a firm commitment underwriting until the expiration of forty (40) days after the date of such acquisition. (g) "Board" shall have the meaning set forth in the WHEREAS clause at the beginning of this Agreement. (h) "Business Day" shall mean any day other than a Saturday, Sunday or day on which banking institutions in the State of Ohio or the state in which the office of the Rights Agent is located are authorized or obligated by law or executive order to close. 5 (i) "Certificate of Amendment" shall mean the Certificate of Amendment to Amended Articles of Incorporation setting forth the express terms and provisions of the Preferred Shares, a form of which is attached hereto as Exhibit A. (j) "Class A Shares" shall have the meaning set forth in the WHEREAS clause at the beginning of this Agreement. (k) "Class B Shares" shall have the meaning set forth in the WHEREAS clause at the beginning of this Agreement. (l) "Close of Business" on any given date shall mean 5:00 P.M., Dayton, Ohio time, on such date; PROVIDED, HOWEVER, that if such date is not a Business Day, it shall mean 5:00 P.M., Dayton, Ohio time, on the next succeeding Business Day. (m) "Common Shares" when used with reference to the Company shall mean the Class A Shares and the Class B Shares or any other shares of capital stock of the Company into which such stock shall be reclassified or changed. "Common Shares" when used with reference to any Person that is organized in corporate form, other than the Company, shall mean the capital stock or other equity security with the greatest voting power, or the equity securities or other equity interest having power to control or direct the management, of such Person or, if such Person is a Subsidiary of another Person, the Person or Persons which ultimately control such first-mentioned Person and which has issued any such outstanding capital stock, equity securities or equity interest. "Common Shares" when used with reference to any Person that is not be organized in corporate form shall mean units of beneficial interest which (i) shall represent the right to participate generally in the profits and losses of such Person (including, without limitation, any flow-through tax benefits resulting from an ownership interest in such 6 Person) and (ii) shall be entitled to exercise the greatest voting power of such Person or, in the case of a limited partnership, shall have the power to remove the general partner or partners. (n) "Company" shall have the meaning set forth in the first paragraph of this Agreement. (o) "Current Market Price" shall have the meaning set forth in Section 11(d) hereof. (p) "Current Value" shall have the meaning set forth in Section 11(a)(iii) hereof. (q) "Distribution Date" shall have the meaning set forth in Section 3(a) hereof. (r) "Equivalent Preference Shares" shall have the meaning set forth in Section 11(b) hereof. (s) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (t) "Exempt Person" shall mean (i) the Company, (ii) any Subsidiary (as hereinafter defined) of the Company, and (iii) any employee benefit plan or employee stock plan of the Company or of any Subsidiary of the Company or any Person organized, appointed, established or holding Common Shares by, for or pursuant to, the terms of any such plan. (u) "Expiration Date" shall have the meaning set forth in Section 7(a) hereof. (v) "Final Expiration Date" shall have the meaning set forth in Section 7(a) hereof. 7 (w) "NASDAQ" shall mean the National Association of Securities Dealers Automated Quotations. (x) "Original Rights" shall mean Rights which were acquired by a Person or any of such Person's Affiliates or Associates prior to the Distribution Date or pursuant to Section 3(a), 3(c) or Section 22 hereof. (y) "Person" shall mean any individual, firm, corporation, partnership, limited liability company, association, unincorporated organization, trust or other entity, as well as any syndicate or group deemed to be a person under Section 14(d)(2) of the Exchange Act, and shall include any successor (by merger or otherwise) of such entity. (z) "Preferred Shares" shall mean the Series B Participating Preferred Shares, no par value per share, of the Company having the voting powers, designation, preferences and rights and qualifications, limitations and restrictions set forth in the Certificate of Amendment, a form of which is attached hereto as Exhibit A. (aa) "Principal Party" shall have the meaning set forth in Section 13(b) hereof. (bb) "Purchase Price" shall have the meaning set forth in Section 4(a) hereof as adjusted pursuant to Section 11(a)(ii) and Section 13(a) hereof. (cc) "Record Date" shall have the meaning set forth in the WHEREAS clause at the beginning of this Agreement. (dd) "Redemption Price" shall have the meaning set forth in Section 23(a) hereof. (ee) "Right" shall have the meaning set forth in the WHEREAS clause at the beginning of this Agreement. (ff) "Right Certificate" shall have the meaning set forth in Section 3(a) hereof. 8 (gg) "Rights Agent" shall have the meaning set forth in the first paragraph of this Agreement. (hh) "Rights Dividend Declaration Date" shall have the meaning set forth in the WHEREAS clause at the beginning of this Agreement. (ii) "Schedule 13G Filer" shall mean any Person who satisfies both of the criteria set forth in Rule 13d-1(b)(1)(i) and Rule 13d-1(b)(1)(ii) of the General Rules and Regulations under the Exchange Act as in effect on the date of this Agreement, and who has reported such ownership on Schedule 13G (or any comparable or successor report) under the Exchange Act, in each case, as determined by the Board. (jj) "Section 11(a)(ii) Event" shall have the meaning set forth in Section 11(a)(ii) hereof. (kk) "Section 11(a)(ii) Trigger Date" shall have the meaning set forth in Section 11(a)(iii) hereof. (ll) "Section 13 Event" shall have the meaning set forth in Section 13(a) hereof. (mm) "Section 34(a)(i) Exchange Ratio" has the meaning set forth in Section 34(a)(i) hereof. (nn) "Section 34(a)(ii) Exchange Ratio" has the meaning set forth in Section 34(a)(ii) hereof. (oo) "Securities Act" shall mean the Securities Act of 1933, as amended. (pp) "Spread" shall have the meaning set forth in Section 11(a)(iii) hereof. (qq) "Stock Acquisition Date" shall mean the first date of public announcement (which, for purposes of this definition, shall include, without limitation, a report filed 9 pursuant to Section 13(d) under the Exchange Act) by the Company or an Acquiring Person that an Acquiring Person has become such. (rr) "Subsidiary" shall mean, with respect to any Person, any corporation or other entity of which securities or other ownership interests having ordinary voting power sufficient, in the absence of contingencies, to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly beneficially owned, or otherwise controlled, by such Person and any Affiliate of such Person. (ss) "Substantial Block" shall mean 15% or more in number of the outstanding Class A Shares; PROVIDED, however, that, for any Schedule 13G Filer (as defined herein), a "Substantial Block" shall mean 20% or more in number of the outstanding Class A Shares. (tt) "Substitution Period" shall have the meaning set forth in Section 11(a)(iii) hereof. (uu) "Summary of Rights" shall have the meaning set forth in Section 3(b) hereof. (vv) "Trading Day" shall have the meaning set forth in Section 11(d)(i) hereof. (ww) "Unit" shall have the meaning set forth in the WHEREAS clause at the beginning of this Agreement. Section 2. APPOINTMENT OF RIGHTS AGENT. The Company hereby appoints the Rights Agent to act as agent for the Company in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Company may from time to time act as Co-Rights Agent or appoint such Co-Rights Agents as it may deem necessary or 10 desirable. Any actions which may be taken by the Rights Agent pursuant to the terms of this Agreement may be taken by any such Co-Rights Agent. The Rights Agent shall have no duty to supervise, and shall not be liable for the acts or omissions of any such Co-Rights Agent. Section 3. ISSUANCE OF RIGHT CERTIFICATES. (a) Until the earlier of the Close of Business on (i) the tenth Business Day (or, if such tenth Business Day occurs before the Record Date, the Close of Business on the Record Date) after the Stock Acquisition Date or (ii) the tenth Business Day (or, if such tenth Business Day occurs before the Record Date, the Close of Business on the Record Date), or such specified or unspecified later date as may be determined by action of the Board, after the date that a tender or exchange offer by any Person (other than an Exempt Person) is first published, sent or given within the meaning of Rule 14d-4(a) of the General Rules and Regulations under the Exchange Act, if, upon consummation thereof, such Person, together with its Affiliates and Associates, would be the Beneficial Owner of a Substantial Block (irrespective of whether any shares are actually purchased pursuant to such offer) (the earlier of the dates set forth in clauses (i) and (ii) above being herein referred to as the "Distribution Date"), (x) the Rights will be evidenced (subject to the provisions of paragraph (b) of this Section 3) by the certificates for the Common Shares of the Company registered in the names of the holders of the Common Shares of the Company (which certificates for Common Shares of the Company shall be deemed also to be certificates for Rights) and not by separate Right Certificates and (y) each Right or fraction thereof will be transferable only in connection with the transfer of the underlying Common Shares (including a transfer by the Company). As promptly as practicable after the Distribution Date, the Rights Agent will send, by first-class, postage-prepaid mail, to each record holder of the Common Shares of the Company as of the Close of Business on the Distribution Date, as 11 shown by the records of the Company, at the address of such holder shown on such records, one or more certificates for Rights, in substantially the form of Exhibit B hereto (each such certificate, a "Right Certificate"), evidencing one (1) Right for each Class A Share and one-twentieth (1/20th) of a Right for each Class B Share so held, subject to adjustment as provided herein and to the provisions of Section 14(a) hereof. As of and after the Close of Business on the Distribution Date, the Rights will be evidenced solely by the Right Certificates. (b) As promptly as practicable following the Record Date, the Company will send a copy of a Summary of Rights to Purchase Preferred Shares, in substantially the form attached hereto as Exhibit C (the "Summary of Rights"), by first-class, postage-prepaid mail, to each record holder of its Common Shares as of the Close of Business on the Record Date, at the address of such holder shown on the records of the Company. With respect to certificates for the Common Shares outstanding as of the Close of Business on the Record Date, until the earlier of the Close of Business on the Distribution Date or the Expiration Date, the Rights will be evidenced by such certificates for the Common Shares together with the Summary of Rights and the registered holders of the Common Shares shall also be the registered holders of the associated Rights. Until the earlier of the Close of Business on the Distribution Date or the Expiration Date, the surrender for transfer of any of the certificates for the Common Shares of the Company in respect of which Rights have been issued, with or without a copy of the Summary of Rights attached, shall also constitute the transfer of the Rights associated with the Common Shares evidenced by such certificates. (c) Rights shall be issued in respect of all Common Shares of the Company which shall become outstanding after the Record Date but prior to the earlier of the Close of Business on the Distribution Date and the Expiration Date, and, to the extent provided in Section 12 22 hereof, in respect of Common Shares of the Company issued after the Close of Business on the Distribution Date and prior to the Expiration Date. Certificates for Common Shares of the Company that shall become outstanding or be transferred after the Record Date but prior to the earlier of the Close of Business on the Distribution Date and the Expiration Date shall have impressed on, printed on, written on or otherwise affixed to them the following legend: This certificate also evidences and entitles the holder hereof to certain Rights as set forth in the Amended and Restated Rights Agreement between The Reynolds and Reynolds Company (the "Company") and Mellon Investor Services LLC (successor to Wells Fargo Bank Minnesota, N.A.), as Rights Agent, dated as of April 18, 2001, as the same shall be amended from time to time (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of the Company. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. The Company will mail to the holder of this certificate a copy of the Rights Agreement (as in effect on the date of mailing) without charge within five days after receipt of a written request therefor. Under certain circumstances, as provided in the Rights Agreement, Rights beneficially owned by an Acquiring Person or any Associate or Affiliate thereof (as such terms are defined in the Rights Agreement), whether by or on behalf of such Person or by any subsequent holder, may become null and void. The Rights shall not be exercisable, and shall be void so long as held, by a holder in any jurisdiction where the requisite qualification to the issuance to such holder, or the exercise by such holder, of the Rights in such jurisdiction shall not have been obtained or be obtainable. With respect to such certificates containing the foregoing legend, until the earlier of the Close of Business on the Distribution Date and the Expiration Date, the Rights associated with the Common Shares of the Company evidenced by such certificates shall be evidenced by such certificates alone, and the surrender for transfer of any such certificates shall also constitute the surrender for transfer of the Rights associated with the Common Shares of the Company evidenced by such certificates. 13 Section 4. FORM OF RIGHT CERTIFICATES. (a) The Right Certificates (and the forms of election to purchase shares and of assignment to be printed on the reverse thereof) shall be in substantially the form of Exhibit B hereto and may have such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Agreement and which do not alter the rights, duties or obligations of the Rights Agent, or as may be required to comply with any applicable law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Rights may from time to time be listed, or to conform to usage. Subject to the provisions of Section 11 and Section 22 hereof, the Right Certificates, whenever distributed, shall be dated as of the Record Date and on their face shall entitle the holders thereof to purchase such number of Units as shall be set forth therein, as the same may from time to time be adjusted as provided herein, at the price per Unit set forth therein, as the same may from time to time be adjusted as provided herein (such exercise price per Unit, the "Purchase Price"). (b) Any Right Certificate issued pursuant to Section 3(a) or Section 22 hereof that evidences Rights beneficially owned by (i) an Acquiring Person or any Associate or Affiliate of such Acquiring Person, (ii) a transferee of any such Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee after the Acquiring Person becomes such or (iii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee prior to or concurrently with the Acquiring Person becoming such and receives such Rights pursuant to either (A) a transfer (whether or not for consideration) from such Acquiring Person (or such 14 Associate or Affiliate) to holders of equity interests in such Acquiring Person (or such Associate or Affiliate) or to any Person with whom such Acquiring Person (or such Associate or Affiliate) has any continuing agreement, arrangement or understanding regarding the transferred Rights or (B) a transfer which the Board has determined is part of a plan, arrangement or understanding which has as a primary purpose or effect avoidance of the provisions of Section 7(e) hereof, and any Right Certificate issued pursuant to Section 6 or Section 11 hereof upon transfer, exchange, replacement or adjustment of any other Right Certificate referred to in this sentence, shall contain (to the extent feasible) the following legend: The Rights evidenced by this Right Certificate are or were beneficially owned by a Person who was or became an Acquiring Person or an Affiliate or Associate of an Acquiring Person (as such terms are defined in the Rights Agreement). Accordingly, under certain circumstances as provided in the Rights Agreement, this Right Certificate and the Rights evidenced hereby may become null and void as provided in Section 7(e) of the Rights Agreement. Section 5. COUNTERSIGNATURE AND REGISTRATION. (a) The Right Certificates shall be executed on behalf of the Company by its Chairman of the Board, President or any Vice President, either manually or by facsimile, engraved, stamped or printed signature, and by the Treasurer or any Assistant Treasurer or the Secretary or an Assistant Secretary of the Company, either manually or by facsimile, engraved, stamped or printed signature. The Right Certificates shall be countersigned, manually or by facsimile, by the Rights Agent and shall not be valid for any purpose unless so countersigned. Although any officer of the Company whose manual or facsimile signature is affixed to any Right Certificate ceases to be such officer before the Right Certificate is delivered, such Right Certificate shall be effective in all respects when countersigned by the Rights Agent and delivered; and any Right Certificate may be signed on behalf of the Company by any person who, at the actual date of the execution of such Right Certificate, shall be a proper officer of the 15 Company to sign such Right Certificate, although at the date of the execution of this Rights Agreement any such person was not such an officer. (b) Following the Distribution Date (and, if the Rights Agent is not the transfer agent with respect to the Common Shares, receipt by the Rights Agent of all relevant information), the Rights Agent will keep or cause to be kept, at its office or offices designated as the appropriate place for surrender of Right Certificates upon exercise or transfer, books for registration and transfer of the Right Certificates issued hereunder. Such books shall show the names and addresses of the respective holders of the Right Certificates, the number of Rights evidenced on its face by each Right Certificate, the certificate number and the date of each Right Certificate. Section 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHT CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHT CERTIFICATES. (a) Subject to the provisions of Section 4(b), Section 7(e) and Section 14 hereof, at any time after the Close of Business on the Distribution Date, and at or prior to the Expiration Date, any Right Certificate or Right Certificates may be transferred, split up, combined or exchanged for another Right Certificate or Right Certificates, entitling the registered holder to purchase such number of Units (or other securities, cash or assets, as the case may be) as the Right Certificate or Right Certificates surrendered then entitled such holder (or former holder in the case of a transfer) to purchase. Any registered holder desiring to transfer, split up, combine or exchange any Right Certificate or Right Certificates shall make such request in writing delivered to the Rights Agent, and shall surrender the Right Certificate or Right Certificates to be transferred, split up, combined or exchanged at the office or offices of the Rights Agent designated for such purpose. Neither the Rights Agent nor the Company shall be 16 obligated to take any action whatsoever with respect to the transfer of any such surrendered Right Certificate or Right Certificates until the registered holder shall have completed and signed the certificate contained in the form of assignment on the reverse side of such Right Certificate or Right Certificates and shall have provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates thereof as the Company shall reasonably request. Thereupon the Rights Agent shall, subject to Section 4(b), Section 7(e) and Section 14 hereof, countersign and deliver to the Person entitled thereto a Right Certificate or Right Certificates, as the case may be, as so requested. The Company may require payment from the holders of Right Certificates of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer, split up, combination or exchange of such Right Certificates. (b) Upon receipt by the Company and the Rights Agent of evidence reasonably satisfactory to them of the loss, theft, destruction or mutilation of a valid Right Certificate and of indemnity or security satisfactory to them, and reimbursement to the Company and the Rights Agent of all reasonable expenses incidental thereto, the Company will execute and deliver a new Right Certificate of like tenor to the, Rights Agent for countersignature and delivery to the registered owner in lieu of the Right Certificate so lost, stolen, destroyed or mutilated. Section 7. EXERCISE OF RIGHTS PURCHASE PRICE; EXPIRATION DATE OF RIGHTS. (a) Subject to Section 7(e) hereof, the registered holder of any Right Certificate may exercise the Rights evidenced thereby (except as otherwise provided herein including, without limitation, the restrictions on exercisability set forth in Section 9(d), Section 11(a)(iii) and Section 23(a) hereof) in whole or in part at any time on or after the Close of 17 Business on the Distribution Date upon surrender of the Right Certificate, with the form of election to purchase and the certificate on the reverse side thereof duly executed, to the Rights Agent at the office or offices of the Rights Agent designated for such purpose, together with payment of the aggregate Purchase Price for the total number of Units (or other securities, cash or assets, as the case may be) as to which such surrendered Rights are exercised, prior to the earliest of (i) the Close of Business on May 6, 2011 (the "Final Expiration Date"), (ii) the time at which the Rights are redeemed as provided in Section 23 hereof or (iii) the time at which the Rights expire pursuant to Section 13(d) hereof (the earliest of the dates set forth in clauses (i), (ii) and (iii) being herein referred to as the "Expiration Date"). (b) The initial Purchase Price for each Unit shall be $105.00 and shall be subject to adjustment from time to time as provided in Section 11 and Section 13 hereof and shall be payable in lawful money of the United States of America in accordance with paragraph (c) below. (c) Upon receipt of a Right Certificate evidencing exercisable Rights, with the form of election to purchase and certificate duly executed, accompanied by payment (in cash, or by certified bank check or money order payable to the order of the Company), with respect to the Rights so exercised, of the Purchase Price (as such amount may be reduced pursuant to Section 11(a)(iii) hereof) for each Unit (or other securities, cash or assets, as the case may be) to be purchased and an amount equal to any applicable tax or charge required to be paid by the holder of the Rights pursuant hereto (in cash, or by certified check or money order payable to the order of the Company), the Rights Agent shall, subject to Section 7(f) hereof, (i) promptly (A) requisition from any transfer agent of the Preferred Shares (or make available, if the Rights Agent is the transfer agent for such shares) a certificate for the number of Units to be purchased 18 (and the Company hereby irrevocably authorizes and directs its transfer agent to comply with all such requests), or (B) if the Company shall have elected under Section 14(b) hereof to deposit the total number of Preferred Shares issuable upon exercise of the Rights hereunder with a depositary agent, requisition from the depositary agent depositary receipts evidencing interests in such number of Units as are to be purchased (in which case certificates for the Preferred Shares evidenced by such receipts shall be deposited by the transfer agent with the depositary agent) and the Company hereby authorizes and directs the depositary agent to comply with such request, (ii) if and when appropriate, requisition from the Company the amount of cash to be paid in lieu of issuance of fractional shares in accordance with Section 14 hereof, (iii) promptly after receipt of such Preferred Shares certificates or depositary receipts, cause the same to be delivered to or upon the order of the registered holder of such Right Certificate, registered in such name or names as may be designated by such holder, and (iv) if and when appropriate, after receipt thereof, promptly deliver any such cash to be paid in lieu of issuance of fractional shares to or upon the order of the registered holder of such Right Certificate; PROVIDED, HOWEVER, that in the case of a purchase of securities other than Preferred Shares, the Rights Agent shall promptly take the appropriate actions with respect to such securities to be purchased as shall as nearly as practicable correspond to the actions described in the foregoing clauses (i) through (iv). In the event that the Company is obligated to issue other securities of the Company (including Common Shares), pay cash or distribute assets pursuant to Section 11(a) hereof, the Company will make all arrangements necessary so that such other securities, cash or assets are available for distribution by the Rights Agent, if and when appropriate. The Company reserves the right, but shall not be obligated, to require prior to the occurrence of a Section 11(a)(ii) Event or a Section 19 13 Event that, upon any exercise of Rights, such number of Rights be exercised so that only whole Preferred Shares would be issued. (d) In case the registered holder of any Right Certificate shall exercise less than all the Rights evidenced thereby, a new Right Certificate evidencing rights equivalent to the Rights remaining unexercised shall be issued by the Rights Agent and delivered to, or upon the order of, the registered holder of such Right Certificate, registered in such name or names as may be designated by such holder, subject to the provisions of Section 14 hereof. (e) Notwithstanding anything in this Agreement to the contrary, from and after the first occurrence of a Section 11(a)(ii) Event, the Right beneficially owned by (i) an Acquiring Person or any Associate or Affiliate of such Acquiring Person or (ii) a transferee of any such Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee (A) after such Acquiring Person becomes such or (B) prior to or concurrently with the Acquiring Person becoming such and receives such Rights pursuant to either (1) a transfer (whether or not for consideration) from such Acquiring Person (or such Associate or Affiliate) to holders of equity interests in such Acquiring Person (or such Associate or Affiliate) or to any Person with whom such Acquiring Person (or such Associate or Affiliate) has any continuing agreement, arrangement or understanding regarding the transferred Rights or (2) a transfer which the Board has determined is part of a plan, arrangement or understanding which has as a primary purpose or effect the avoidance of this Section 7(e), shall become null and void without any further action, and no holder of such Rights shall have any rights whatsoever with respect to such Rights, whether under any provision of this Agreement or otherwise. The Company shall notify the Rights Agent promptly of any determination by the Board pursuant to Section 7(e)(ii)(B)(2) and shall use reasonable efforts to insure that the provisions of Section 4(b) hereof and this 20 Section 7(e) are complied with, but neither the Company nor the Rights Agent shall have any liability to any holder of Right Certificates or other Person as a result of the Company's failure to make any determinations with respect to an Acquiring Person or any of the Affiliates, Associates or transferees thereof hereunder. (f) Notwithstanding anything in this Agreement to the contrary, neither the Rights Agent nor the Company shall be obligated to undertake any action with respect to a registered holder of any Right Certificate upon the occurrence of any purported exercise as set forth in this Section 7 unless such registered holder shall have (i) properly completed and signed the certificate contained in the form of assignment or election to purchase set forth on the reverse side of the Right Certificate surrendered for such assignment or exercise and (ii) provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) of the Rights evidenced by such Right Certificate or Affiliates or Associates thereof as the Company and the Rights Agent shall reasonably request. Section 8. CANCELLATION AND DESTRUCTION OF RIGHT CERTIFICATES. All Right Certificates surrendered for the purpose of exercise, transfer, split up, combination or exchange shall, if surrendered to the Company or to any of its agents, be delivered to the Rights Agent for cancellation or in cancelled form, or, if surrendered to the Rights Agent, shall be cancelled by it, and no Right Certificates shall be issued in lieu thereof except as expressly permitted by this Agreement. The Company shall deliver to the Rights Agent for cancellation and retirement, and the Rights Agent shall so cancel and retire, any other Right Certificate purchased or acquired by the Company otherwise than upon the exercise thereof. The Rights Agent shall deliver all cancelled Right Certificates to the Company, or shall, at the written request of the Company and after any Securities and Exchange Commission required retention period, destroy such cancelled 21 Right Certificates and, in such case, shall deliver a certificate of destruction thereof to the Company. Section 9. RESERVATION AND AVAILABILITY OF CAPITAL STOCK. (a) The Company covenants and agrees that it shall cause to be reserved and kept available out of its authorized and unissued Preferred Shares (and, if necessary, out of its authorized and unissued Common Shares or other securities or out of its authorized and issued shares held in its treasury), the number of Preferred Shares (and, if necessary, Common Shares of the Company or other securities) that, as provided in this Agreement (including without limitation Section 11(a)(iii) hereof), will be sufficient to permit the exercise in full of all outstanding Rights. (b) The Company covenants and agrees to take all such action as may be necessary to insure that all Preferred Shares (and, if necessary, Common Shares of the Company or other securities) delivered upon exercise of Rights shall, at the time of delivery of the certificates for such shares (subject to payment of the Purchase Price), be duly and validly authorized and issued and fully paid and nonassessable. (c) The Company covenants and agrees that, except as set forth in Section 6 hereof, it will pay when due and payable any and all federal and state transfer taxes and charges which may be payable in respect of the issuance or delivery of the Right Certificates or of any certificates evidencing Preferred Shares (or Common Shares of the Company or other securities, as the case may be) upon the exercise of Rights. The Company shall not, however, be required to pay any tax or charge which may be payable in respect of any transfer or delivery of Right Certificates to a Person other than, or the issuance or delivery of certificates or depositary receipts evidencing interests in a number of Preferred Shares (or Common Shares of the 22 Company or other securities, as the case may be) in a name other than that of, the registered holder of the Right Certificate evidencing Rights surrendered for exercise or to issue or deliver any certificates evidencing Preferred Shares (or Common Shares of the Company or other securities, as the case may be) or depositary receipts evidencing interests in Preferred Shares in a name other than that of the registered holder upon the exercise of any Rights until any such tax or charge shall have been paid (any such tax or charge being payable by the holder of such Right Certificate at the time of surrender) or until it has been established to the Company's satisfaction that no such tax or charge is due. (d) The Company shall use its best efforts to (i) file, as soon as practicable following the earliest date after the first occurrence of a Section 11(a)(ii) Event or a Section 13 Event in which the consideration to be delivered by the Company upon exercise of the Rights has been determined in accordance with this Agreement, or as soon as is required by law following the Distribution Date, as the case may be, a registration statement under the Securities Act with respect to the securities purchasable upon exercise of the Rights on an appropriate form, (ii) cause such registration statement to become effective as soon as practicable after such filing and (iii) cause such registration statement to remain effective (with a prospectus at all times meeting the requirements of the Securities Act) until the earlier of (A) the date as of which the Rights are no longer exercisable for such securities or (B) the Expiration Date. The Company will also take such action as may be appropriate under, or to ensure compliance with, the securities or "blue sky" laws of the various states in connection with the exercisability of the Rights. The Company may, acting by resolution of its Board, temporarily suspend, for a period of time not to exceed ninety (90) days after the date set forth in clause (i) of the first sentence of this Section 9(d), the exercisability of the Rights in order to prepare and file such registration statement and permit it 23 to become effective. Upon any such suspension, the Company shall promptly notify the Rights Agent thereof and issue a public announcement stating that the exercisability of the Rights has been suspended, as well as a public announcement (with prompt notice thereof to the Rights Agent) at such time as the suspension is no longer in effect. Notwithstanding any provision of this Agreement to the contrary, the Rights shall not be exercisable in any jurisdiction if the requisite qualification in such jurisdiction shall not have been obtained, the exercise thereof shall not be permitted under applicable law or a registration statement shall not have been declared effective. (e) So long as the Preferred Shares (and, where applicable, any Common Shares of the Company or other securities) issuable and deliverable upon the exercise of the Rights may be listed on any national securities exchange, the Company shall use its best efforts to cause, from and after such time as the Rights become exercisable, all Preferred Shares reserved for such issuance to be listed on such exchange upon official notice of issuance upon such exercise. Section 10. PREFERRED SHARE RECORD DATE. Each Person in whose name any certificate for a number of Preferred Shares (or Common Shares of the Company or other securities, as the case may be) is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of Preferred Shares (or Common Shares of the Company or other securities, as the case may be) evidenced thereby on, and such certificate shall be dated, the date upon which the Right Certificate evidencing such Rights was duly surrendered and payment of the Purchase Price (and all applicable taxes or charges) was made; PROVIDED, HOWEVER, that if the date of such surrender and payment is a date on which the Company's transfer books for the Preferred Shares (or Common Shares of the Company or other securities, 24 as the case may be) are closed, such Person shall be deemed to have become the record holder of such shares (fractional or otherwise) on, and such certificate shall be dated, the next succeeding Business Day on which the Company's transfer books for the Preferred Shares (or Common Shares of the Company or other securities, as the case may be) are open; and PROVIDED FURTHER, HOWEVER, that if delivery of the Units is delayed as a result of a failure to register such Units pursuant to Section 9(c), such Persons shall be deemed to have become the record holders of such Units only when such Units first become deliverable. Prior to the exercise of the Rights evidenced thereby, the holder of a Right Certificate shall not be entitled to any rights of a shareholder of the Company with respect to shares for which the Rights shall be exercisable, except as provided in Section 17 hereof. Section 11. ADJUSTMENT TO PURCHASE PRICE, NUMBER AND KIND OF SHARES OR NUMBER OF RIGHTS. The Purchase Price and the number and kind of shares, or fractions thereof, subject to purchase upon the exercise of each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 11. (a) (i) In the event the Company shall at any time after the date of this Agreement (A) declare a dividend or distribution on the Preferred Shares payable in Preferred Shares, (B) subdivide or split the outstanding Preferred Shares into a greater number of shares, (C) combine or consolidate the outstanding Preferred Shares into a smaller number of shares or effect a reverse split of the outstanding Preferred Shares or (D) issue any Preferred Shares in a reclassification of the capital stock of the Company (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing or surviving corporation), except as otherwise provided in Section 7(e) hereof and this Section 11(a), the Purchase Price in effect at the 25 time of the record date for such dividend or distribution or of the effective date of such subdivision, combination or reclassification, and the number of Units issuable per Right on such date, shall be adjusted so that the holder of any Right exercised after such time shall be entitled to receive, upon payment of the Purchase Price then in effect, the aggregate number of Units which, if such Right had been exercised immediately prior to such date and exercised at a time when the transfer books for the Preferred Shares were open, such holder would have owned upon such exercise and been entitled to receive by virtue of such dividend, distribution, subdivision, combination or reclassification. If an event occurs which would require an adjustment under both this Section 11(a)(i) and Section 11(a)(ii) hereof, the adjustment provided for in this Section 11(a)(i) shall be in addition to, and shall be made prior to, any adjustment required pursuant to Section 11(a)(ii) hereof. (ii) In the event (a "Section 11(a)(ii) Event") that any Person (other than an Exempt Person), alone or together with its Affiliates and Associates (other than an Exempt Person), shall, at any time after the date of this Agreement, become the Beneficial Owner of a Substantial Block, unless the event causing such threshold to be crossed is an acquisition of beneficial ownership of Class A Shares pursuant to a tender or exchange offer for all outstanding Class A Shares at a price and on terms determined by the Board, after receiving advice from one or more investment banking firms, to be (A) a price which is fair to the holders of Class A Shares (taking into account all factors which the Board deems relevant, including, without limitation, prices which could reasonably be achieved if the Company or its assets were sold on an orderly basis designed to realize maximum value) and (B) otherwise in the best interests of the 26 Company and its shareholders, then, promptly following the first occurrence of any such Section 11(a)(ii) Event, proper provision shall be made to adjust the Rights so that each holder of a Right, except as provided below and in Section 7(e) hereof, shall thereafter have the right to receive, upon exercise thereof at the then current Purchase Price in accordance with the terms of this Agreement, such number of Units as shall equal the result obtained by (x) multiplying the then current Purchase Price by the number of Units for which a Right was exercisable immediately prior to the first occurrence of such Section 11(a)(ii) Event, whether or not such Right was then exercisable, and (y) dividing that product (which product, following such first occurrence, as the same may be adjusted as provided herein, shall thereafter be referred to as the "Purchase Price" for each Right (regardless of the number of Units purchasable upon the exercise of a Right) and for all purposes of this Agreement) by 50% of the Current Market Price of one Unit on the date of such first occurrence (such number of Units being hereinafter referred to as the "Adjustment Units"). (iii) In lieu of issuing Units in accordance with Section 11(a)(ii) hereof, the Company, acting by resolution of its Board, may, and, in the event that the number of Preferred Shares which is authorized by the Company's Amended Articles of Incorporation but not outstanding or reserved for issuance for purposes other than upon exercise of the Rights is not sufficient to permit exercise in full of the Rights in accordance with Section 11(a)(ii) hereof, the Company, acting by resolution of its Board, shall (A) determine the excess of (1) the value of the Adjustment Units issuable upon the exercise of a Right (the "Current Value") over (2) the Purchase Price attributable to each Right (such excess being hereinafter referred to as the "Spread") and (B) with respect to 27 each Right (subject to Section 7(e) hereof), make adequate provision to substitute for the Adjustment Units, upon payment of the applicable Purchase Price, (1) cash, (2) a reduction in the Purchase Price, (3) Common Shares or other equity securities of the Company, (4) debt securities of the Company, (5) other assets or (6) any combination of the foregoing which, when added to any Units issued upon such exercise, have an aggregate value equal to the Current Value, where such aggregate value has been determined by action of the Board based upon the advice of a nationally recognized investment banking firm selected by the Board; PROVIDED, HOWEVER, if the Company shall not have made adequate provision to deliver value pursuant to clause (B) above within thirty (30) days following the later of (x) the first occurrence of a Section 11(a)(ii) Event and (y) the date on which the Company's right of redemption pursuant to Section 23 hereof, as such date may be amended pursuant to Section 26 hereof, expires (the later of (x) and (y) being referred to herein as the "Section 11(a)(ii) Trigger Date"), then the Company shall be obligated to deliver, upon the surrender for exercise of a Right and without requiring payment of the Purchase Price, Units or Common Shares of the Company (to the extent available) and then, if necessary, cash, which shares or cash have an aggregate value equal to the Spread. If, after the occurrence of a Section 11(a)(ii) Event, the number of Preferred Shares that is authorized by the Company's Amended Articles of Incorporation but not outstanding or reserved for issuance for purposes other than upon exercise of the Rights are not sufficient to permit exercise in full of the Rights in accordance with Section 11(a)(ii) hereof and the Company, acting by resolution of its Board, shall determine in good faith that it is likely that sufficient additional Preferred Shares could be authorized for issuance upon exercise in full of the Rights, the thirty (30) 28 day period set forth above may be extended to the extent necessary, but not beyond the Expiration Date or more than ninety (90) days after the Section 11(a)(ii) Trigger Date, in order that the Company may seek shareholder approval for the authorization of such additional shares (such period as it may be extended, the "Substitution Period"). To the extent that the Company determines that some action is to be taken pursuant to the first or second sentence of this Section 11(a)(iii), the Company (x) shall provide, subject to Section 7(e) hereof, that such action shall apply uniformly to all outstanding Rights and (y) may suspend the exercisability of the Rights until the expiration of the Substitution Period in order to seek such shareholder approval for the authorization of additional shares or to decide the appropriate form of distribution to be made pursuant to the first sentence of this Section 11(a)(iii) and to determine the value thereof. In the event of any such suspension, the Company shall promptly notify the Rights Agent thereof and issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement (with prompt notice to the Rights Agent) at such time as the suspension is no longer in effect. For purposes of this Section 11(a)(iii), the value of each Unit shall be the Current Market Price of one Unit on the date of the first occurrence of the Section 11(a)(ii) Trigger Date. (b) In the event that the Company shall at any time after the date of this Agreement fix a record date for the issuance of rights, options or warrants to all holders of Preferred Shares entitling them (for a period expiring within forty-five (45) calendar days after such record date) to subscribe for or purchase Preferred Shares (or shares having substantially the same rights, privileges and preferences as the Preferred Shares ("Equivalent Preference Shares")) or securities convertible into Preferred Shares or Equivalent Preference Shares at a 29 price per Preferred Share or Equivalent Preference Share (or having a conversion price per share, if a security convertible into Preferred Shares or Equivalent Preference Shares) less than the Current Market Price per Preferred Share on such record date, the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, of which the numerator shall be the number of Preferred Shares outstanding on such record date plus the number of additional Preferred Shares or Equivalent Preference Shares which the aggregate subscription or purchase price of the total number of Preferred Shares or Equivalent Preference Shares so to be offered (or the aggregate initial conversion price of the convertible securities so to be offered) would purchase at such Current Market Price, and of which the denominator shall be the number of Preferred Shares outstanding on such record date plus the number of additional Preferred Shares or Equivalent Preference Shares to be offered for subscription or purchase (or into which the convertible securities so to be offered are initially convertible). In case such subscription price may be paid by delivery of consideration part or all of which may be in a form other than cash, the value of such consideration shall be as determined in good faith by the Board, whose determination shall be described in a statement filed with the Rights Agent and shall be conclusive for all purposes. Such adjustments shall be made successively whenever such a record date is fixed; and in the event that such rights, options or warrants are not issued, the Purchase Price shall again be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed. (c) In case the Company shall fix a record date for the making of a distribution to all holders of Preferred Shares (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing or surviving 30 corporation or any reclassification of the Preferred Shares) of evidences of indebtedness, cash or assets (other than a regular periodic cash dividend or a dividend or distribution payable in Preferred Shares) or subscription or other rights, options or warrants (excluding those referred to in Section 11(b) hereof), the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, of which the numerator shall be the Current Market Price per Preferred Share on such record date, less the fair market value (as determined in good faith by the Board, whose determination shall be described in a statement filed with the Rights Agent and shall be conclusive for all purposes) of the portion of the assets, cash or evidences of indebtedness so to be distributed or of such subscription or other rights, options or warrants applicable to one Preferred Share, and of which the denominator shall be such Current Market Price per Preferred Share; provided that the Purchase Price shall not be reduced below zero. Such adjustments shall be made successively whenever such a record date is fixed, and in the event that such distribution is not so made, the Purchase Price shall again be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed. (d) (i) For the purpose of any computation hereunder (other than computations made pursuant to Section 11(a)(iii) hereof), the "Current Market Price" per share of Preferred Stock on any date shall be deemed to be the average of the daily closing prices per Preferred Share for the thirty (30) consecutive Trading Days (as such term is defined in the last sentence of this Section 11(d)(i)) immediately prior to such date and for the purposes of computations made pursuant to Section 11(a)(iii) hereof, the "Current Market Price" per Preferred Share on any date shall be deemed to be the average of the daily closing prices per Preferred Share for the ten (10) consecutive Trading Days immediately following such date; 31 provided, however, that in the event that the Current Market Price per Preferred Share is determined during a period following the announcement by the Company of (a) a dividend or distribution on the Preferred Shares payable in Preferred Shares or securities convertible into Preferred Shares (other than the Rights) or (b) any subdivision, split, combination, consolidation, reverse stock split or reclassification of the Preferred Shares and prior to the expiration of the requisite thirty (30) Trading Day or ten (10) Trading Day period, as set forth above, after the ex-dividend date for such dividend or distribution, or the record date for such subdivision, combination, consolidation or reclassification, as the case may be, then, and in each such case, the Current Market Price shall be appropriately adjusted to reflect ex-dividend trading. The closing price for any day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Preferred Shares are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Preferred Shares are listed or admitted to trading or, if the Preferred Shares are not listed or admitted trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by NASDAQ or such other system then in use, or, if on any such date the Preferred Shares are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in Preferred Shares selected by the Board. If the Current Market Price per Preferred Share cannot be determined in the manner provided above or if the Preferred Shares are not publicly held or 32 not so listed or traded, the Current Market Price per Preferred Share shall be deemed to be an amount equal to 1,000 (as such number may be appropriately adjusted for such events as stock splits, stock dividends and recapitalizations with respect to the Preferred Shares or Class A Shares of the Company occurring after the date of this Agreement) multiplied by the Current Market Price per Class A Share. If neither the Class A Shares nor the Preferred Shares are publicly held or so listed or traded, the Current Market Price per Preferred Share shall mean the fair value per share as determined in good faith by the Board, whose determination shall be described in a statement filed with the Rights Agent and shall be conclusive for all purposes. For all purposes of this Agreement, the Current Market Price of one Unit shall be equal to the Current Market Price of one Preferred Share divided by 1,000. The term "Trading Day" shall mean a day on which the principal national securities exchange on which the shares are listed or admitted to trading is open for the transaction of business or, if the shares are not listed or admitted to trading on any national securities exchange, a Business Day. (ii) For the purpose of any computation hereunder, the Current Market Price per Class A Share shall be determined in the same manner as set forth for the Preferred Shares of the Company in Section 11(d)(i) hereof (other than the fourth to last, third to last and penultimate sentences thereof). If the Current Market Price per Class A Share cannot be determined in the manner provided above, or if the Class A Shares are not publicly held or listed or traded in a manner described in Section 11(d)(i) hereof, Current Market Price per share shall mean the fair value per share as determined by a nationally recognized investment banking firm selected by the Board, or, if no such investment banking firm is in the good faith judgment of the Board available to make such determination, in good faith by the Board whose determination shall be described in a statement filed with the Rights Agent and shall be conclusive for all purposes. 33 (e) Except as hereinafter provided, no adjustment in the Purchase Price shall be required unless such adjustment would require an increase or decrease of at least 1% in the Purchase Price; PROVIDED, HOWEVER, that any adjustments which by reason of this Section 11(e) are not required to be made shall be carried forward and cumulated and taken into account in any subsequent adjustment. All calculations under this Section 11 shall be made to the nearest cent (other than calculations of the Current Market Price per Unit, which shall be made to the nearest one-thousandth of a cent) or to the nearest one-millionth of a Preferred Share or one-thousandth of a Class A Share, as the case may be. Notwithstanding the first sentence of this Section 11(e), any adjustment required by this Section 11 shall be made no later than the earlier of (i) three years from the date of the transaction which mandates such adjustment or (ii) the Expiration Date. (f) If, as a result of the operation of Section 11(a) or Section 13(a) hereof, the holder of any Right thereafter exercised shall become entitled to receive any shares of capital stock of the Company other than Preferred Shares, thereafter the Purchase Price and the number of such other shares so receivable upon exercise of any Right shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Preferred Shares contained in Sections 11(a), (b), (c), (d), (e), (g), (h), (i), (j), (k), (l) and (m), inclusive, and the provisions of Sections 7, 9, 10, 13 and 14 hereof with respect to the Preferred Shares shall apply on like terms to any such other shares; PROVIDED, HOWEVER, that the Company shall not be liable for its inability to reserve and keep available for issuance upon exercise of the Rights pursuant to Section 11(a)(ii) a number of Preferred Shares greater than the number then authorized by the Company's Amended Articles of Incorporation but not outstanding or reserved for any other purpose. 34 (g) All Rights originally issued by the Company or transferred subsequent to any adjustment made to the Purchase Price hereunder shall evidence the right to purchase, at the adjusted Purchase Price, the number of Units purchasable from time to time hereunder upon exercise of the Rights, all subject to further adjustment as provided herein. (h) Unless the Company shall have exercised its election as provided in Section 11(i), upon each adjustment of the Purchase Price as a result of the calculations made in Section 11(b) and Section 11(c), each Right outstanding immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Purchase Price, that number of Units (calculated to the nearest one-millionth of a Preferred Share) obtained by (i) multiplying (A) the number of Units covered by a Right immediately prior to such adjustment of the Purchase Price by (B) the Purchase Price in effect immediately prior to such adjustment of the Purchase Price and (ii) dividing the product so obtained by the Purchase Price in effect immediately after such adjustment of the Purchase Price; PROVIDED, HOWEVER, that if the Purchase Price is adjusted to zero, then no adjustment shall be made pursuant to the foregoing part of this Section 11(h) and each Right outstanding immediately prior to the making of such adjustment shall evidence the right to acquire that number of Units or such other securities or assets determined in good faith by the Board. (i) The Company may elect on or after the date of any adjustment of the Purchase Price to adjust the number of Rights, in substitution for any adjustment in the number of Units purchasable upon the exercise of a Right. Each of the Rights outstanding after such adjustment in the number of Rights shall be exercisable for the number of Units for which a Right was exercisable immediately prior to such adjustment. Each Right held of record prior to such adjustment of the number of Rights shall become that number of Rights (calculated to the 35 nearest ten-thousandth of a Right) obtained by dividing the Purchase Price in effect immediately prior to adjustment of the Purchase Price by the Purchase Price in effect immediately after adjustment of the Purchase Price. The Company shall make a public announcement and promptly notify the Rights Agent of its election to adjust the number of Rights, indicating the record date for the adjustment, and, if known at the time, the amount of the adjustment to be made. This record date may be the date on which the Purchase Price is adjusted or any day thereafter, but, if the Right Certificates have been issued, shall be at least ten days later than the date of the public announcement. If Right Certificates have been issued, upon each adjustment of the number of Rights pursuant to this Section 11(i), the Company shall, as promptly as practicable, cause to be distributed to holders of record of Right Certificates on such record date Right Certificates evidencing, subject to Section 14 hereof, any additional Rights to which such holders shall be entitled as a result of such adjustment, or at the option of the Company, shall cause to be distributed to such holders of record in substitution and replacement for the Right Certificates held by such holders prior to the date of adjustment, and upon surrender thereof, if required by the Company, new Right Certificates evidencing all the Rights to which such holders shall be entitled after such adjustment. Right Certificates to be so distributed shall be issued, executed and countersigned in the manner provided for herein (and may bear, at the option of the Company, the adjusted Purchase Price) and shall be registered in the names of the holders of record of Right Certificates on the record date specified in the public announcement. (j) Irrespective of any adjustment or change in the Purchase Price or the number of Units issuable upon the exercise of the Rights, the Right Certificates theretofore and thereafter issued may continue to express the Purchase Price per Unit and the number of Units 36 which were expressed in the initial Right Certificates issued hereunder, but shall evidence the Purchase Price or number of Units as adjusted or changed. (k) Before taking any action that would cause an adjustment reducing the Purchase Price below the then par value, if any, of one Unit, the Company shall use its best efforts to take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable Units at such adjusted Purchase Price. (l) In any case in which this Section 11 shall require that an adjustment in the Purchase Price be made effective as of a record date for a specified event, the Company may elect to defer (and shall promptly notify the Rights Agent of any such election) until the occurrence of such event the issuance to the holder of any Right exercised after such record date of the number of Units and other capital stock or securities of the Company, if any, issuable upon such exercise over and above the number of Units and other capital stock or securities of the Company, if any, issuable upon such exercise on the basis of the Purchase Price in effect prior to such adjustment; PROVIDED, HOWEVER, that the Company shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares (fractional or otherwise) or securities upon the occurrence of the event requiring such adjustment. (m) Anything in this Section 11 to the contrary notwithstanding, in the event of (i) any reclassification of stock of the Company, (ii) any recapitalization, reorganization or partial liquidation of the Company, (iii) any consolidation or subdivision of the Preferred Shares, (iv) any issuance of Preferred Shares (or securities which by their terms are convertible into or exchangeable for Preferred Shares) wholly for cash at less than the Current Market Price or (v) 37 any stock dividends or issuance of rights, options or warrants referred above in this Section 11 or any similar transaction, the Company shall be entitled to make such further adjustments in the Purchase Price, in addition to those adjustments expressly required by the other paragraphs of this Section 11, as and to the extent that the Board in its sole discretion shall determine to be necessary or appropriate in order for the holders of the Rights in such event to be treated equitably and in accordance with the purpose and intent of this Agreement or, subject to the preceding provisions of this Section 11(m), in order that any such event shall not, in the opinion of counsel for the Company, result in the shareholders of the Company being subject to any United States federal income tax liability by reason thereof. (n) The Company covenants and agrees that it shall not, at any time after the Distribution Date, (i) consolidate with any other Person (other than a Subsidiary of the Company in an action which complies with Section 11(o) hereof), (ii) merge with or into any other Person (other than a Subsidiary of the Company in a transaction which complies with Section 11(o) hereof) or (iii) sell or transfer (or permit any Subsidiary to sell or transfer), in one transaction or a series of related transactions, assets or earning power aggregating more than 50% of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person or Persons (other than the Company or any of its Subsidiaries in one or more transactions each of which complies with Section 11(o) hereof) if (x) at the time of or immediately after such consolidation, merger or sale, there are any rights, warrants or other instruments or securities outstanding or agreements in effect which would substantially diminish or otherwise eliminate the benefits intended to be afforded by the Rights or (y) prior to, simultaneously with or immediately after such consolidation, merger or sale, the shareholders of the Person who constitutes, or would constitute, the Principal Party for purposes of Section 13(a) hereof shall 38 have received a distribution of Rights previously owned by such Person or any of its Affiliates and Associates. (o) The Company covenants and agrees that, after the Distribution Date, it will not, except as otherwise provided herein or permitted by Section 23 or Section 26 hereof, take (or permit any Subsidiary to take) any action if at the time such action is taken it is reasonably foreseeable that such action will diminish substantially or otherwise eliminate the benefits intended to be afforded by the Rights. (p) Anything in this Agreement to the contrary notwithstanding, in the event the Company shall at any time after the Record Date and prior to the Distribution Date (i) declare a dividend or distribution on any of its Common Shares payable in Common Shares of the Company or (ii) subdivide or split any of its outstanding Common Shares into a greater number of shares, (iii) combine or consolidate any of its outstanding Common Shares into a smaller number of shares or effect a reverse split of any of its outstanding Common Shares or (iv) issue any of its Common Shares by reclassification or otherwise than by payment of dividends or distributions in Common Shares, then in any such case, (x) the number of Units purchasable after such event upon proper exercise of each Right shall be adjusted such that the aggregate number of Units so purchasable by the holder of each Class A Share and/or each Class B Share, as the case may be, immediately after such event shall equal the number of Units purchasable by such holder immediately prior to such event and (y) action shall be taken (if the Board determines that action is required) such that the number of Rights associated with each Common Share of the Company outstanding immediately or issued or delivered after such event shall equal that number of Rights associated with each Common Share of the Company outstanding immediately prior to such event. The adjustments provided for in this Section 11(p) shall be made 39 successively whenever such a dividend is declared or paid or such a subdivision, combination or consolidation is effected. If an event occurs which would require an adjustment under Section 11(a)(ii) and this Section 11(p), the adjustments provided for in this Section 11(p) shall be in addition and prior to any adjustment required pursuant to Section 11(a)(ii). Section 12. CERTIFICATION OF CERTAIN ADJUSTMENTS. Whenever an adjustment is made as provided in Sections 11 and/or 13 hereof, the Company shall (a) promptly prepare a certificate setting forth such adjustment and a brief statement of the facts accounting for such adjustment, (b) promptly file with the Rights Agent and with each transfer agent for its Common Shares and Preferred Shares a copy of such certificate and (c) mail a brief summary thereof to each holder of a Right Certificate (or, if prior to the Distribution Date, to each holder of a certificate evidencing Common Shares) in accordance with Section 25 hereof. Notwithstanding the foregoing sentence, the failure of the Company to prepare such certificate or statement or make such filings or mailings shall not affect the validity of, the force or effect of, or the requirement for making any such adjustment. The Rights Agent shall be fully protected in relying on any such certificate and on any adjustment contained therein and shall have no duty with respect to, and shall not be deemed to have knowledge of, any adjustment unless and until it shall received such certificate. Section 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR EARNING POWER. (a) In the event (a "Section 13 Event") that, directly or indirectly, at any time following the Stock Acquisition Date: (x) the Company shall consolidate or otherwise combine with, or merge with or into, any other Person or Persons (other than a Subsidiary of the Company in a 40 transaction which complies with Section 11(o) hereof) and the Company shall not be the continuing or surviving corporation of such consolidation, combination or merger; (y) any Person or Persons (other than a Subsidiary of the Company in a transaction which complies with Section 11(o) hereof) shall consolidate or otherwise combine with, or merge with or into, the Company and the Company shall be the continuing or surviving corporation of such consolidation, combination or merger and, in connection therewith, all or part of the outstanding Class A Shares shall be changed into or exchanged for stock or other securities of any other Person or of the Company or cash or any other property; or (z) the Company shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise transfer), in one transaction or a series of related transactions, assets or earning power aggregating more than 50% of the assets or earning power of the Company and its Subsidiaries (taken as a whole and calculated, with respect to the assets reflected therein, on the basis of the Company's most recent regularly prepared financial statement) to any other Person or Persons (other than the Company or any Subsidiary of the Company in one or more transactions each of which complies with Section 11(o) hereof), PROVIDED, HOWEVER, that this clause (z) of Section 13(a) shall not apply to the proportional distribution by the Company of assets (including securities) of the Company or any of its Subsidiaries to all holders of the Company's Common Shares on the basis set forth for such distributions in the Amended Articles of Incorporation; then, and in each such case (except as may be contemplated by Section 13(d) hereof), proper provision shall be made so that: 41 (i) each holder of a Right (except as provided in Section 7(e) hereof) shall, on or after the later of (A) the date of the first occurrence of any such Section 13 Event or (B) the date of the expiration of the period within which the Rights may be redeemed pursuant to Section 23 hereof (as the same may be amended as provided in Section 26 hereof), have the right to receive, upon the exercise thereof at the then current Purchase Price in accordance with the terms of this Agreement, such number of validly authorized and issued, fully paid, nonassessable and freely tradable Common Shares of the Principal Party, not subject to any liens, encumbrances, rights of call, rights of first refusal or other adverse claims, as shall be equal to the result obtained by (1) multiplying the then current Purchase Price by the number of Units for which a Right was exercisable immediately prior to the first occurrence of a Section 13 Event (or, if a Section 11(a)(ii) Event has occurred prior to the first occurrence of a Section 13 Event, multiplying the number of such Units for which a Right was exercisable immediately prior to the first occurrence of a Section 11(a)(ii) Event by the Purchase Price in effect immediately prior to the first occurrence of a Section 11(a)(ii) Event), and (2) dividing that product (which, following the first occurrence of a Section 13 Event, shall be referred to as the "Purchase Price" for each Right (regardless of the number of Units purchasable upon the exercise of a Right) and for all purposes of this Agreement) by 50% of the Current Market Price per Common Share of such Principal Party on the date of consummation of such Section 13 Event; (ii) the Principal Party shall thereafter be liable for, and shall assume, by virtue of such Section 13 Event, all the obligations and duties of the Company pursuant to this Agreement; 42 (iii) the term "Company" shall thereafter be deemed to refer to such Principal Party, it being specifically intended that the provisions of Section 11 hereof shall apply only to such Principal Party following the first occurrence of a Section 13 Event; (iv) the Principal Party shall take such steps (including, but not limited to, the reservation of a sufficient number of Common Shares) in connection with the consummation of any such transaction as may be necessary to assure that the provisions hereof shall thereafter be applicable, as nearly as reasonably may be, in relation to the Common Shares thereafter deliverable upon the exercise of the Rights; and (v) the provisions of Section 11(a)(ii) hereof shall be of no effect following the first occurrence of any Section 13 Event; PROVIDED, HOWEVER, that, upon the subsequent occurrence of any merger, consolidation, sale of all or substantially all assets, recapitalization, reclassification of shares, reorganization or other extraordinary transaction analogous to any of the events described in Section 11 hereof in respect of such Principal Party, each holder of a Right shall thereupon be entitled to receive, upon exercise of a Right and payment of the Purchase Price, such cash, shares, rights, warrants or other property which such holder would have been entitled to receive had such holder, at the time of such transaction, owned the Common Shares of the Principal Party purchasable upon the exercise of a Right, and such Principal Party shall take such steps (including, but not limited to, reservation of its Common Shares) as may be necessary (in a manner analogous to the applicable adjustments provided for in Section 11 hereof) to permit the subsequent exercise of the Rights in accordance with the terms hereof for such cash, shares, rights, warrants or other property. (b) "Principal Party" shall mean 43 (i) in the case of any transaction described in clause (x) or clause (y) of the first sentence of Section 13(a) hereof, (A) the Person that is the issuer of the securities into which Common Shares of the Company are converted in such merger, consolidation or other combination, or, if there is more than one such issuer, the issuer of the Common Shares which have the greatest market value or (B) if no securities are so issued, the Person that is the other party to the merger, consolidation or other combination and survives said merger (or, if there is more than one such Person, the Person the Common Shares of which have the greatest market value) or, if the Person that is the other party to the merger does not survive the merger, the Person that does survive the merger (including the Company if it survives); and (ii) in the case of any transaction described in clause (z) of the first sentence of Section 13(a) hereof, the Person that is the party receiving the greatest portion of the assets or earning power transferred pursuant to such transaction or transactions, or, if each Person that is a party to such transaction or transactions receives the same portion of the assets or earning power so transferred or if the Person receiving the greatest portion of the assets or earning power cannot be determined, whichever of such Persons as is the issuer of Common Shares having the greatest market value; PROVIDED, HOWEVER, that in any such case, (1) if the Common Shares of such Person are not at such time and have not been continuously over the preceding 12-month period registered under Section 12 of the Exchange Act, and such Person is a direct or indirect Subsidiary of another Person the Common Shares of which are and have been so registered, "Principal Party" shall refer to such other Person; (2) if such Person is a Subsidiary, directly or indirectly, of more than one Person, the Common Shares of two or more of which are and have been so registered, 44 "Principal Party" shall refer to whichever of such Persons is the issuer of the Common Shares having the greatest aggregate market value; and (3) if the Common Shares of such Person are not and have not been so registered and such Person is owned, directly or indirectly, by a joint venture formed by two or more Persons that are not owned, directly or indirectly, by the same Person, the rules set forth in (1) and (2) above shall apply to each of the chains of ownership having an interest in such joint venture as if such party were a Subsidiary of both or all of such joint ventures and the Principal Parties in each such chain shall bear the obligations set forth in this Section 13 in the same ratio as their direct or indirect interests in such Person bear to the total of such interests. (c) The Company shall not consummate any Section 13 Event unless prior thereto the Principal Party shall have a sufficient number of authorized Common Shares which have not been issued or reserved for issuance to permit the exercise in full of the Rights in accordance with this Section 13 and unless prior thereto the Company and such Principal Party shall have executed and delivered to the Rights Agent a supplemental agreement confirming that the requirements of Sections 13(a) and (b) hereof shall promptly be performed in accordance with their terms and that such Section 13 Event shall not result in a default by the Principal Party under this Agreement as the same shall have been assumed by the Principal Party pursuant to Sections 13(a) and (b) hereof and further providing that, as soon as practicable on or after the date of any Section 13 Event the Principal Party will: (i) prepare and file a registration statement under the Securities Act with respect to the Rights and the securities purchasable upon exercise of the Rights on an appropriate form and will use its best efforts (A) to cause such registration statement to (1) become effective as soon as practicable after such filing and (2) remain effective 45 (with a prospectus at all times meeting the requirements of the Securities Act) until the Expiration Date and (B) to similarly comply with applicable state securities laws; (ii) use its best efforts to list (or continue the listing of) the Rights and the securities issuable upon exercise of the Rights on a national securities exchange; (iii) deliver to holders of the Rights historical financial statements for the Principal Party and each of its Affiliates which comply in all respects with the requirements for registration on Form 10 (or any successor form) under the Exchange Act; and (iv) use its best efforts to obtain waivers of any rights of first refusal or preemptive rights in respect of the Common Shares of the Principal Party subject to purchase upon exercise of outstanding Rights. The provisions of this Section 13 shall similarly apply to successive mergers or consolidations or sales or other transfers prior to the exercise of the Rights. In the event that a Section 13 Event shall occur at any time after the occurrence of a Section 11(a)(ii) Event, the Rights which have not theretofore been exercised shall thereafter be exercisable in the manner described in Section 13(a) hereof. (d) Notwithstanding anything in this Agreement to the contrary, this Section 13 shall not be applicable to a transaction described in subparagraphs (x) and (y) of Section 13(a) hereof if (i) such transaction is consummated with a Person or Persons (or a wholly-owned subsidiary of any such Person or Persons) who acquired Class A Shares of the Company pursuant to a tender offer or exchange offer for all outstanding Class A Shares which complies with the exception provided for in Section 11(a)(ii) hereof, (ii) the price per share for the Class A Shares offered in such transaction is not less than the respective price per Class A Share paid to 46 all holders of the Class A Shares whose Class A Shares were purchased pursuant to such tender offer or exchange offer and (iii) the form of consideration being offered to the remaining holders of the Class A Shares pursuant to such transaction is the same as the form of consideration paid pursuant to such tender offer or exchange offer. Upon consummation of any such transaction contemplated by this Section 13(d), all Rights hereunder shall expire. Section 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES. (a) The Company may, but shall not be required to, issue fractions of Rights (other than fractions which are integral multiples of one-twentieth of a Right) or to distribute Right Certificates which evidence fractional Rights (other than fractions which are integral multiples of one-twentieth of a Right). If the Company shall determine not to issue such fractional Rights, in lieu of such fractional Rights, there shall be paid to the registered holders of the Rights with regard to which such fractional Rights would otherwise be issuable an amount in cash equal to the same fraction of the current market value of a whole Right. For the purposes of this Section 14(a), the current market value of a whole Right shall be the closing price of the Rights for the Trading Day immediately prior to the date on which such fractional Rights would have been otherwise issuable. The closing price of the Rights for any day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Rights are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Rights are listed or admitted to trading or, if the Rights are not listed or admitted to trading on any national securities exchange, 47 the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by NASDAQ or such other system then in use, or, if on any such date the Rights are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Rights. If on any such date no such market maker is making a market in the Rights, the fair value of the Rights on such date as determined in good faith by the Board shall be used. (b) The Company may, but shall not be required to, issue fractions of Preferred Shares (other than fractions which are integral multiples of one-twentieth of a Unit) upon exercise of the Rights or to distribute certificates which evidence fractional Preferred Shares (other than fractions which are integral multiples of one-twentieth of a Unit). Interests in fractions of Preferred Shares which are integral multiples of one-twentieth of a Unit may, at the election of the Company, be evidenced by depositary receipts, pursuant to an appropriate agreement between the Company and a depositary selected by it, provided that such agreement shall provide that the holders of such depositary receipts shall have all of the rights, privileges and preferences to which they are entitled as beneficial owners of the Preferred Shares. In the event the Company elects not to issue fractions of Preferred Shares that are not integral multiples of one-twentieth of a Unit, the Company shall pay to the registered holders of Right Certificates at the time such Right Certificates are exercised as herein provided an amount in cash equal to the same fraction of the current market value of one Unit. For purposes of this Section 14(b), the current market value of one Unit shall be the closing price of one Unit (as determined pursuant to Section 11(d)(i) hereof) for the Trading Day immediately prior to the date of such exercise. 48 (c) The holder of a Right by the acceptance of the Rights expressly waives such holder's right to receive any fractional Rights or any fractional shares upon exercise of a Right, except as permitted by this Section 14. Section 15. RIGHTS OF ACTION. All rights of action in respect of this Agreement, except the rights of action vested in the Rights Agent under this Agreement, are vested in the respective registered holders of the Right Certificates (and, prior to the Distribution Date, the registered holders of Common Shares of the Company); and any registered holder of any Right Certificate (or, prior to the Distribution Date, of Common Shares of the Company), without the consent of the Rights Agent or of the holder of any other Right Certificate (or, prior to the Distribution Date, of Common Shares of the Company), may, on such holder's own behalf and for such holder's own benefit, enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, such holder's right to exercise the Rights evidenced by such Right Certificate in the manner provided in such Right Certificate and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and shall be entitled to specific performance of the obligations hereunder and injunctive relief against actual or threatened violations of the obligations hereunder of any Person subject to this Agreement. Section 16. AGREEMENT OF RIGHT HOLDERS. Every holder of a Right by accepting such Right, consents and agrees with the Company and the Rights Agent and with every other holder of a Right that: (a) prior to the Close of Business on the earlier of the Distribution Date or the Expiration Date, the Rights shall be evidenced by the certificates for Common Shares of 49 the Company registered in the name of the holders of such shares (which certificates for Common Shares of the Company shall also constitute certificates for Rights) and Rights will be transferable only in connection with the transfer of Common Shares of the Company; (b) after the Close of Business on the Distribution Date, the Right Certificates will be transferable only on the registry books of the Rights Agent if surrendered at the principal office or offices of the Rights Agent designated for such purposes, duly endorsed or accompanied by a proper instrument of transfer and with the appropriate forms and certificates duly executed and accompanied by any tax or governmental charge imposed in accordance with Section 6(a) hereof; (c) subject to Section 6(a) and Section 7(f) hereof, the Company and the Rights Agent may deem and treat the Person in whose name the Right Certificate (or, prior to the Distribution Date, the associated Common Share certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on the Right Certificate or the associated Common Share certificate made by anyone other than the Company, the Rights Agent or the transfer agent for the Common Shares) for all purposes whatsoever, and neither the Company nor the Rights Agent, subject to the last sentence in Section 7(e) hereof, shall be affected by any notice to the contrary; and (d) notwithstanding anything in this Agreement to the contrary neither the Company nor the Rights Agent shall have any liability to any holder of a Right or other Person as a result of its inability to perform any of its obligations under this Agreement by reason of any preliminary or permanent injunction or other order, decree or ruling 50 issued by a court of competent jurisdiction or by a governmental, regulatory or administrative agency or commission, or any statute, rule, regulation or executive order promulgated or enacted by any governmental authority, prohibiting or otherwise restraining performance of such obligation; PROVIDED, HOWEVER, the Company must use its best efforts to have any such order, decree or ruling lifted or otherwise overturned as soon as possible. Section 17. RIGHT CERTIFICATE HOLDER NOT DEEMED A SHAREHOLDER. No holder of any Right or Right Certificate, as such, shall be entitled to vote, receive dividends or other distributions or be deemed for any purpose the holder of the number of Units or any other securities of the Company which may at any time be issuable on the exercise of the Rights evidenced thereby, nor shall anything contained herein or in any Right Certificate be construed to confer upon the holder of any Right Certificate, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting shareholders (except as provided in Section 24 hereof), or to receive dividends, distributions or subscription rights, or to exercise preemptive rights or otherwise, until the Right or Rights evidenced by such Right Certificate shall have been exercised in accordance with the provisions hereof and the Units or other securities shall have been issued in respect thereof. Section 18. CONCERNING THE RIGHTS AGENT. (a) The Company agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and disbursements and other disbursements incurred in 51 the administration, execution and future amendment of this Agreement and the exercise and performance of its duties hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability, judgment, fine, penalty, claim, demand, settlement, cost or expense incurred without gross negligence, bad faith or willful misconduct on the part of the Rights Agent, as each is finally determined by a court of competent jurisdiction, for any action taken, suffered or omitted by the Rights Agent in connection with the acceptance and administration of this Agreement, including, without limitation, the costs and expenses of defending against any claim of liability in the premises. The indemnity provided herein shall survive the termination of this Agreement, the resignation or removal of the Rights Agent and the expiration of the Rights. The reasonable costs and expenses incurred by the Rights Agent in enforcing the right of indemnification provided herein shall be paid by the Company; provided, however, that the Company shall not be responsible for any such costs or expenses unless it is finally determined by a court of competent jurisdiction that the Rights Agent is entitled to indemnification pursuant to this Section 18. (b) The Rights Agent shall be protected and shall incur no liability for or in respect of any action taken, suffered or omitted by it in connection with its administration of this Agreement in reliance upon any Right Certificate or certificate for Preferred Shares or for other securities of the Company or any other Person, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged by the proper Person or Persons. Anything in this Agreement to the contrary notwithstanding, in no event shall the Rights Agent be liable for special, indirect, incidental, punitive or consequential loss or damage of any kind whatsoever (including but not 52 limited to lost profits), even if the Rights Agent has been advised of the likelihood of such loss or damage. Any liability of the Rights Agent under this Agreement will not exceed an amount equal to three times the amount of annual fees to be paid by the Company to the Rights Agent during the year in which such liability arose. So long as the Rights are listed on the New York Stock Exchange, the Rights Agent, if its principal offices are located outside New York City, shall maintain in the New York City area facilities for the servicing of the Rights in the area of Manhattan located south of Chambers Street. Such facilities may consist of either an office or agency where transactions in the Rights are serviced directly or a "drop" where Common Share certificates, Right Certificates and other instruments relating to transactions in Rights may be received for redelivery to an office or agency outside New York City, all in accordance with the provisions of Section 6 of the Listed Company Manual of the New York Stock Exchange. Section 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT. (a) Any Person into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any Person resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent shall be a party, or any Person succeeding to the corporate trust or stock transfer business of the Rights Agent or any successor Rights Agent, shall be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto; PROVIDED, HOWEVER, that such Person would be eligible for appointment as a successor Rights Agent under the provisions of Section 21 hereof. The purchase of all or substantially all of the Rights Agent's assets employed in the performance of transfer agent activities shall be deemed a merger or consolidation for purposes of this Section 19. In case at the time such successor 53 Rights Agent shall succeed to the agency created by this Agreement, any of the Right Certificates shall have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of any predecessor Rights Agent and deliver such Right Certificates so countersigned; and in case at that time any of the Right Certificates shall not have been countersigned, any successor Rights Agent may countersign such Right Certificates either in the name of the predecessor Rights Agent or in the name of the successor Rights Agent; and in all such cases such Right Certificates shall have the full force provided in the Right Certificates and in this Agreement. (b) In case at any time the name of the Rights Agent shall be changed and at such time any of the Right Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Right Certificates so countersigned; and in case at that time any of the Right Certificates shall not have been countersigned, the Rights Agent may countersign such Right Certificates either in its prior name or in its changed name; and in all such cases such Right Certificates shall have the full force provided in the Right Certificates and in this Agreement. Section 20. DUTIES OF RIGHTS AGENT. The Rights Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions and no implied duties or obligations shall be read into this Agreement against the Rights Agent, by all of which the Company and the holders of Right Certificates, by their acceptance thereof, shall be bound: (a) The Rights Agent may consult with legal counsel (which may be legal counsel for the Company), and the advice or opinion of such counsel shall be full and complete authorization and protection to the Rights Agent and the Rights Agent shall incur no liability 54 with respect to any action taken, suffered or omitted by it in good faith and in accordance with such advice or opinion. (b) Whenever in the performance of its duties under this Agreement the Rights Agent shall deem it necessary or desirable that any fact or matter (including without limitation the identity of any Acquiring Person and the determination of any Current Market Price) be proved or established by the Company prior to taking, suffering or omitting any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by the Chairman of the Board, the Vice Chairman of the Board, the President or any Vice President and by the Secretary or any Assistant Secretary of the Company or the Treasurer or any Assistant Treasurer and delivered to the Rights Agent; and such certificate shall be full authorization and protection to the Rights Agent, and the Rights Agent shall incur no liability in respect of any action taken, suffered or omitted in good faith by it under the provisions of this Agreement in reliance upon such certificate. (c) The Rights Agent shall be liable hereunder only for its own gross negligence, bad faith or willful misconduct, as each is finally determined by a court of competent jurisdiction. (d) The Rights Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the Right Certificates or be required to verify the same (except as to its countersignature on the Right Certificates), but all such statements and recitals are and shall be deemed to have been made by the Company only. (e) The Rights Agent shall not have any liability for, nor be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof 55 (except the due execution hereof by the Rights Agent) or in respect of the validity or execution of any Right Certificate (except its countersignature thereof); nor shall it be liable or responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Right Certificate; nor shall it be liable or responsible for any adjustment required under the provisions of Section 11 or Section 13 or liable or responsible for the manner, method or amount of any such adjustment or the ascertaining of the existence of facts that would require any such adjustment (except with respect to the exercise of Rights evidenced by Right Certificates after actual notice of any such adjustment); nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any Preferred Shares, Common Shares of the Company or other securities to be issued pursuant to this Agreement or any Right Certificate or as to whether any Preferred Shares, Common Shares of the Company or other securities will, when so issued, be validly authorized and issued, fully paid and nonassessable. (f) The Company agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement. (g) The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from the President, the Chief Financial Officer and the Treasurer of the Company, and to apply to such officers for advice or instructions in connection with its duties, and such advice or instructions shall be full authorization or protection to the Rights Agent and the Rights Agent shall not be liable for any action taken, suffered or omitted by it in good faith in accordance with instructions of any such officer. 56 (h) The Rights Agent and any shareholder, affiliate, director, officer or employee of the Rights Agent may buy, sell or deal in any of the Rights or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not the Rights Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Company or for any other Person. (i) The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent shall not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Company resulting from any such act, default, neglect or misconduct, provided reasonable care was exercised in the selection and continued employment thereof. (j) No provision of this Agreement shall require the Rights Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of its rights if it reasonably believes that repayment of such funds or adequate indemnification against such risk or liability is not reasonably assured to it. Section 21. CHANGE OF RIGHTS AGENT. The Rights Agent or any successor Rights Agent may resign and be discharged from its duties under this Agreement upon thirty (30) days' prior notice in writing mailed to the Company and to each transfer agent of the Common Shares of the Company and the Preferred Shares by registered or certified mail, and to the holders of the Right Certificates by first-class mail. The Company may remove the Rights Agent or any successor Rights Agent upon thirty (30) days' prior notice in writing, mailed to the Rights Agent or successor Rights Agent, as the case may be, and to each transfer agent of the Common 57 Shares of the Company and the Preferred Shares by registered or certified mail, and to the holders of the Right Certificates by first-class mail. If the Rights Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Rights Agent. If the Company shall fail to make such appointment within a period of thirty (30) days after giving notice of such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of a Right Certificate (who shall, with such notice, submit such holder's Right Certificate for inspection by the Company), then the registered holder of any Right Certificate may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Company or by such a court, shall be (a) a Person organized and doing business under the laws of the United States or of any state of the United States so long as such Person is in good standing, is authorized under such laws to exercise shareholder services powers and is subject to supervision or examination by federal or state authority and which has at the time of its appointment as Rights Agent a combined capital and surplus of at least $50,000,000 or (b) an Affiliate of a Person described in clause (a) above. After appointment, the successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it here under and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment, the Company shall file notice thereof in writing with the predecessor Rights Agent and each transfer agent of its Common Shares and the Preferred Shares, and mail a notice thereof to the registered holders of the Right Certificates. Failure to give any notice 58 provided for in this Section 21, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be. Section 22. ISSUANCE OF NEW RIGHT CERTIFICATES. Notwithstanding any of the provisions of this Agreement or of the Rights to the contrary, the Company may, at its option, issue new Right Certificates evidencing Rights in such form as may be approved by its Board to reflect any adjustment or change in the Purchase Price and the number or kind or class of shares of stock or other securities or property purchasable under the Right Certificates made in accordance with the provisions of this Agreement. In addition, in connection with the issuance or sale of Common Shares following the Distribution Date (other than upon exercise of a Right) and prior to the redemption of the Rights or the Expiration Date, the Company (a) shall, with respect to Common Shares so issued or sold pursuant to the exercise of stock options or under any employee plan or arrangement, granted or awarded as of the Distribution Date, or upon the exercise, conversion or exchange of securities, notes or debentures issued by the Company as of the Distribution Date, and (b) may, in any other case, if deemed necessary or appropriate by the Board, issue Right Certificates evidencing the appropriate number of Rights in connection with such issuance or sale; PROVIDED, HOWEVER, that (i) no such Right Certificate shall be issued if and to the extent that the Company shall be advised by counsel that such issuance would create a significant risk of material adverse tax consequences to the Company or the Person to whom such Right Certificate would be issued and (ii) no such Right Certificate shall be issued if and to the extent that appropriate adjustment shall otherwise have been made in lieu of the issuance thereof. Section 23. REDEMPTION. 59 (a) The Board may, at its option, at any time prior to the earlier of (x) the Close of Business on the tenth Business Day following the day on which the Stock Acquisition Date occurs (or, if the Stock Acquisition Date shall have occurred prior to the Record Date, the Close of Business on the tenth Business Day following the day on which the Record Date occurs) or (y) the Close of Business on the Final Expiration Date, redeem all but not less than all of the then outstanding Rights at a redemption price of $0.01 per Right (payable in cash, Class A Shares (based on the Current Market Price of the Class A Shares at the time of redemption) or any other form of consideration deemed appropriate by the Board), as such amount may be appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such redemption price being hereinafter referred to as the "Redemption Price"). Notwithstanding anything contained in this Agreement to the contrary, the Rights shall not be exercisable after the first occurrence of a Section 11(a)(ii) Event until such time as the Company's right of redemption hereunder has expired. (b) Immediately upon the action of the Board ordering the redemption of the Rights, without any further action and without any notice, the right to exercise the Rights will terminate and the only right thereafter of the holders of Rights shall be to receive the Redemption Price for each Right so held. As soon as practicable after the action of the Board ordering the redemption of the Rights, the Company shall give notice of such redemption to the Rights Agent and the holders of the then outstanding Rights by mailing such notice to each such holder at its last address as it appears upon the registry books of the Rights Agent or, prior to the Distribution Date, on the registry books of the transfer agent for the Common Shares of the Company. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the 60 holder receives the notice. Each such notice of redemption will state the method by which the payment of the Redemption Price will be made. Section 24. NOTICE OF CERTAIN EVENTS. In case the Company shall propose, at any time after the Distribution Date: (a) to pay any dividend payable in stock of any class to the holders of its Preferred Shares or to make any other distribution to the holders of its Preferred Shares (other than a regular periodic dividend out of earnings or retained earnings of the Company); (b) to offer to the holders of Preferred Shares options, rights or warrants to subscribe for or to purchase any additional Preferred Shares or shares of stock of any class or any other securities, rights or options; (c) to effect any reclassification of the Preferred Shares (other than a reclassification including only the subdivision of outstanding Preferred Shares) or any recapitalization or reorganization of the Company; (d) to effect any of the transactions referred to in Section 11(a)(ii) or Section 13 of this Agreement; or (e) to effect the liquidation, dissolution or winding up of the Company, then, in each such case, the Company shall give to each holder of a Right, to the extent feasible and in accordance with Section 25 hereof, a notice of such proposed action, which shall specify the date on which such dividend, distribution, offer, reclassification, recapitalization, reorganization, Section 11(a)(ii) or Section 13 transaction, liquidation, dissolution or winding up is to take place and the date of participation therein by the holders of Preferred Shares, if any such date is to be fixed, and, in the case of a transaction referred to in clause (d) above, the consequences of the event to the holders of the Rights under Section 11(a)(ii) and Section 13 hereof, as the case may 61 be. In case of the occurrence of a Section 11(a)(ii) Event or a Section 13 Event, or if the Rights otherwise become exercisable for Common Shares or other securities, all references in this Section 24 to Preferred Shares shall be deemed thereafter to refer also to Common Shares or other securities issuable in respect of the Rights. Such notice shall be so given at least twenty (20) days prior to the date of the taking of such proposed action or the date of participation therein by the holders of Common Shares or Preferred Shares, whichever shall be the earlier. Upon the consummation of such transaction, the Company (or its successor or assign) shall similarly give notice thereof to each holder of the Rights, to the extent feasible. The failure to give notice required by this Section 24 or any defect therein shall not affect the legality or validity of the action taken by the Company or the vote upon any such action. Section 25. NOTICES. Notices or demands authorized by this Agreement to be given or made by the Rights Agent or by the holder of any Right Certificate to or on the Company shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Rights Agent) as follows: The Reynolds and Reynolds Company 115 South Ludlow Street Dayton, Ohio 45402 Attention: Douglas M. Ventura, Esq. Subject to the provisions of Section 21 hereof, any notice or demand authorized by this Agreement to be given or made by the Company or by the holder of any Right Certificate to or on the Rights Agent shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Company) as follows: Mellon Investor Services LLC 4 Station Square 62 Suite 301 Pittsburgh, Pennsylvania 15219 Attention: Linda D. Fuhrer Notices or demands authorized by this Agreement to be given or made by the Company or the Rights Agent to the holder of any Right Certificate (or, if prior to the Distribution Date, to each holder of a certificate representing Common Shares of the Company) shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed to such holder at the address of such holder as shown on the registry books of the Company. Section 26. SUPPLEMENTS AND AMENDMENTS. Prior to the Distribution Date and subject to the penultimate sentence of this Section 26, the Company and the Rights Agent shall, if the Company so directs, supplement or amend any provision of this Agreement in any respect whatsoever (including, without limitation, any extension of the period in which the Rights may be redeemed) without the approval of any holders of certificates representing Common Shares of the Company. From and after the Distribution Date and subject to the penultimate sentence of this Section 26, the Company and the Rights Agent shall, if the Company so directs, supplement or amend this Agreement without the approval of any holders of certificates representing Common Shares of the Company or of Right Certificates in order (i) to cure any ambiguity, (ii) to correct or supplement any provision contained herein which may be defective or inconsistent with any other provisions herein, (iii) to shorten or lengthen any time period hereunder or (iv) to change or supplement or make any other provisions in any manner which the Company may deem necessary or desirable and which shall not adversely affect the interests of the holders of Right Certificates (other than an Acquiring Person or an Affiliate or Associate thereof); PROVIDED, HOWEVER, that this Agreement may not be supplemented or amended to lengthen, 63 pursuant to clause (iii) of this sentence, (A) whether before or after the Distribution Date a time period relating to when the Rights may be redeemed or to modify the ability (or inability) of the Board to redeem the Rights, in either case at such time as the Rights are not then redeemable or (B) after the Distribution Date, any other time period unless such lengthening is for the purpose of protecting, enhancing or clarifying the rights of, or the benefits to, the holders of Rights (other than an Acquiring Person or an Affiliate or Associate thereof). Upon the delivery of a certificate from an appropriate officer of the Company which states that the proposed supplement or amendment is in compliance with the terms of this Section 26, the Rights Agent shall execute such supplement or amendment unless the Rights Agent shall have determined in good faith that such supplement or amendment would adversely affect its rights, duties, liabilities or obligations under this Agreement. Notwithstanding anything contained in this Agreement to the contrary, no supplement or amendment shall be made which changes the Redemption Price or the number of Units for which a Right is exercisable. Prior to the Distribution Date, the interests of the holders of Rights shall be deemed coincident with the interests of the holders of Common Shares. Section 27. SUCCESSORS. All the covenants and provisions of this Agreement by or for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. Section 28. DETERMINATIONS AND ACTIONS TAKEN BY THE BOARD OF DIRECTORS. For all purposes of this Agreement, any calculation of the number of Common Shares outstanding at any particular time, including for purposes of determining the particular percentage of outstanding Class A Shares of which any Person is the Beneficial Owner, shall be made in accordance with the last sentence of Rule 13d-3(d)(1)(i) of the General Rules and Regulations under the Exchange Act. The Board shall have the exclusive power and authority to administer 64 this Agreement and to exercise all rights and powers specifically granted to such Board, or as may be necessary or advisable in the administration of this Agreement, including, without limitation, the right and power to (i) interpret the provisions of this Agreement and (ii) make all determinations deemed necessary or advisable for the administration of this Agreement (including a determination to redeem or not redeem the Rights or to amend the Agreement). All such actions, calculations, interpretations and determinations (including, for purposes of clause (y) below, all omissions with respect to the foregoing) which are done or made by the Board or the Company in good faith, shall (x) be final, conclusive and binding on the Company, the Rights Agent, the holders of the Right Certificates and all other parties and (y) not subject the Board to any liability to the holders of the Rights and Right Certificates. Section 29. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be construed to give to any Person other than the Company, the Rights Agent and the registered holders of the Right Certificates (and, prior to the Distribution Date, the registered holders of Common Shares of the Company) any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent and the registered holders of the Right Certificates (and, prior to the Distribution Date, registered holders of Common Shares of the Company). Section 30. GOVERNING LAW. This Agreement and each Right and Right Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of Ohio and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts to be made and performed entirely within such State, except that the rights and obligations of the Rights Agent under this Agreement shall be governed by and construed in accordance with the laws of the State of New York. 65 Section 31. COUNTERPARTS. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. Section 32. DESCRIPTIVE HEADINGS. Descriptive headings of the several Sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. Section 33. SEVERABILITY. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, (a) such invalid, void or unenforceable term, provision, covenant or restriction shall nevertheless be valid, legal and enforceable to the extent, if any, provided by such court or authority and (b) the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated; PROVIDED, HOWEVER, that notwithstanding anything in this Agreement to the contrary, if any such term, provision, covenant or restriction is held by such court or authority to be invalid, void or unenforceable and the Board determines in its good faith judgment that severing the invalid language from this Agreement would adversely affect the purpose or effect of this Agreement, the right of redemption set forth in Section 23 hereof shall be reinstated and shall not expire until the Close of Business on the tenth Business Day following the date of such determination by the Board. Section 34. EXCHANGE. (a) (i) The Company may, at its option, at any time after any Person becomes an Acquiring Person, upon resolution adopted by the Board, exchange all or part of the then outstanding and exercisable Rights (which shall not include Rights that have become void 66 pursuant Section 7(e)) for Units at an exchange ratio of one Unit per Right, appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the Record Date (such exchange ratio being hereinafter referred to as the "Section 34(a)(i) Exchange Ratio"). Notwithstanding the foregoing, the Company may not effect such exchange at any time after any Person (other than an Exempt Person), together with all Affiliates and Associates of such Person, becomes the Beneficial Owner of 50% or more of the shares of Class A Shares then outstanding. (ii) The Company may, at its option, at any time after any Person becomes an Acquiring Person, upon resolution adopted by the Board, exchange all or part of the then outstanding and exercisable Rights (which shall not include Rights that have become void pursuant to Section 7(e)) for Units at an exchange ratio specified in the following sentence, as appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the Record Date. Subject to such adjustment, each Right may be exchanged for that number of Units obtained by dividing the Adjustment Spread (as defined below) by the then Current Market Price per Unit on the earlier of (i) the date on which any Person becomes an Acquiring Person and (ii) the date on which a tender or exchange offer by any Person (other than an Exempt Person) is first published or sent or given within the meaning of Rule 14d-4(a) of the General Rules and Regulations under the Exchange Act, or any successor rule, if upon consummation thereof such Person would be the Beneficial Owner of a Substantial Block (such exchange ratio being the "Section 34(a)(ii) Exchange Ratio"). The "Adjustment Spread" shall equal (x) the aggregate market price on the date of such event of the number of Adjustment Units minus (y) the Purchase Price. Notwithstanding the foregoing, the Company may not effect such exchange at any time after any Person (other than an Exempt Person), together with all Affiliates 67 and Associates of such Person, becomes the Beneficial Owner of 50% or more of the Class A Shares then outstanding. (b) Immediately upon the action of the Board ordering the exchange of any Rights pursuant to Section 34(a), and without any further action and without any notice, the right to exercise such Rights shall terminate and the only right thereafter of a holder of such Rights shall be to receive that number of Units equal to the number of such Rights held by such holder multiplied by the Section 34(a)(i) Exchange Ratio or Section 34(a)(ii) Exchange Ratio, as the case may be. The Company shall promptly give public notice of any such exchange (with notice thereof to the Rights Agent); PROVIDED, HOWEVER, that the failure to give, or any defect in, such notice shall not affect the validity of such exchange. The Company promptly shall mail a notice of any such exchange to all of the holders of such Rights at their last addresses as they appear upon the registry books of the Rights Agent. Any notice that is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of exchange shall state the method by which the exchange of Units for Rights will be effected and, in the event of any partial exchange, the number of Rights that will be exchanged. Any partial exchange shall be effected pro rata based on the number of Rights (other than Rights that have become void pursuant to Section 7(e)) held by each holder of Rights. (c) In the event that the number of Preferred Shares that are authorized by the Company's Amended Articles of Incorporation but not outstanding or reserved for issuance for purposes other than upon exercise of the Rights are not sufficient to permit any exchange of Rights as contemplated in accordance with this Section 34, the Company shall take all such action as may be necessary to authorize additional Preferred Shares for issuance upon exchange of the Rights or make adequate provision to substitute (1) cash, (2) Common Shares or other 68 equity securities of the Company, (3) debt securities of the Company, (4) other assets or (5) any combination of the foregoing, having an aggregate value equal to the Adjustment Spread, where such aggregate value has been determined by the Board. (d) The Company may, but shall not be required to, issue fractions of Units (other than fractions which are integral multiples of one-twentieth of a Right) or to distribute certificates that evidence fractional Units. In lieu of fractional Units (other than fractions which are integral multiples of one-twentieth of a Right), the Company may pay to the registered holders of Right Certificates at the time such Rights are exchanged as herein provided an amount in cash equal to the same fraction of the current market value of one Unit. For purposes of this Section 34(d), the current market value of one Unit shall be the closing price of one Unit (as determined pursuant to Section 11(d)(i) hereof) for the Trading Day immediately prior to the date of such exercise. 69 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed all as of the day and year first above written.
Attest: THE REYNOLDS AND REYNOLDS COMPANY By: /s/ Douglas M. Ventura By: /s/ Lloyd G. Waterhouse ---------------------------------------- --------------------------------------- Name: Douglas M. Ventura Name: Lloyd G. Waterhouse Title: General Counsel and Secretary Title: President and Chief Executive Officer Attest: MELLON INVESTOR SERVICES LLC, as Rights Agent By: /s/ Rita Swartz By: /s/ Linda D. Fuhrer ---------------------------------------- --------------------------------------- Name: Rita Swartz Name: Linda D. Fuhrer Title: Vice President Title: Assistant Vice President
CERTIFICATE OF AMENDMENT BY DIRECTORS TO AMENDED ARTICLES OF INCORPORATION OF THE REYNOLDS AND REYNOLDS COMPANY Ohio Charter Number: 007639 Pursuant to Section 1701.73 of the Ohio Revised Code David R. Holmes, who is the Chairman of the Board of The Reynolds and Reynolds Company, an Ohio corporation for profit (the "Corporation"), does hereby certify that the following is a true and complete copy of the resolution adopting an amendment to the Amended Articles of Incorporation of the Corporation (the "Amended Articles of Incorporation") duly adopted by the Board of Directors of the Corporation at its meeting held on the 18th day of April, 2001 pursuant to the authority vested in the Board of Directors of the Corporation in accordance with the provisions of Section 1701.70(B)(1) of the Ohio Revised Code and Section 2.a. of Article FOURTH of the Amended Articles of Incorporation: RESOLVED, that Article FOURTH of the Amended Articles of Incorporation of the Corporation be, and it hereby is, amended to add a new Section 5 providing for a new series of preferred shares of the Corporation and that the form of such amendment and the express terms and provisions of the new series of preferred shares are as follows: Section 5. Terms and Provisions of Series B Participating Preferred Shares. a. DESIGNATION AND AMOUNT. There shall be established a series of Preferred Shares which shall be designated as the "Series B Participating Preferred Shares" and the number of shares constituting such series shall be 2,000,000. b. DIVIDENDS AND DISTRIBUTIONS. (1) Subject to the provisions for adjustment set forth in this Section 5.b. of this Article FOURTH, the holders of Series B Participating Preferred Shares shall be entitled to receive, when and if declared by the Board of Directors out of funds legally available for the purpose, dividends on each Series B Participating Preferred Share equal to 1,000 (as adjusted from time to time as provided in subparagraph (2) of this Section 5.b. of this Article FOURTH, the "Class A Multiple") times the aggregate amount of dividends or distributions declared (whether or not paid) from time to time per Class A Common Share (other than to the extent that such dividends and distributions are payable in Class A Common Shares); provided that, in the event the dividends and distributions declared on each Series B Participating Preferred Share outstanding during the period (a "Dividend Period") between any Dividend Payment Date (as defined below) and the next subsequent Dividend Payment Date (or, in the case of the first Dividend Period, the period between the date of issuance of the first Series B Participating Preferred Share or any fraction thereof and the next subsequent Dividend Payment Date), do not in the aggregate equal at least $10 per Series B Participating Preferred Share, then each Series B Participating Preferred Share shall be entitled to receive, when and if declared by the Board of Directors out of funds legally available for the purpose, dividends ("Minimum Dividends") on each Series B Participating Preferred Share equal to the difference between $10 and the amount of any dividends or distributions declared on the Series B Participating Preferred Shares during such Dividend Period. Minimum Dividends shall be payable in cash on the Dividend Payment Date ending the applicable Dividend Period. "Dividend Payment Dates" shall mean the dates determined by the Board of Directors, which dates shall be no later than the last day of January, April, June and September in each year. (2) In the event the corporation shall at any time or from time to time after May 6, 2001 (the "Rights Declaration Date") (a) declare any dividend or distribution on the Class A Common Shares payable in Class A Common Shares, (b) subdivide the outstanding Class A Common Shares, or (c) combine the outstanding Class A Common Shares into a smaller number of shares, then in each such case the Class A Multiple shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of Class A Common Shares outstanding immediately after such event and the denominator of which is the number of Class A Common Shares outstanding immediately prior to such event. (3) The corporation shall declare a dividend or distribution on the Series B Participating Preferred Shares as set forth in subparagraph (1) of this Section 5.b. of this Article FOURTH prior to or simultaneously with a declaration of any dividend or distribution on the Class A Common Shares (other than a dividend or distribution payable in Class A Common Shares) or, in the case of dividends payable on a Dividend Payment Date, prior to such Dividend Payment Date. (4) Dividends shall begin to accrue and be cumulative on each outstanding Series B Participating Preferred Share from the date of issuance thereof. Accrued and accumulated but unpaid dividends shall not bear interest. Dividends paid on the Series B Participating Preferred Shares in an amount less than the total amount of such dividends at the time accrued, accumulated and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of Series B Participating Preferred Shares entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 60 days prior to the date fixed for the payment thereof. c. VOTING RIGHTS. Subject to the Ohio Code and any amendments to these Amended Articles of Incorporation by the Board of Directors providing for the issuance of any series of Preferred Shares (other than the Series B Participating Preferred Shares), the holders of the Class A Common Shares, Class B Common Shares and Preferred Shares of all series (including, without limitation, the Series B Participating Preferred Shares) shall be entitled to one vote per share and shall vote together as a single class for all corporate purposes. d. LIQUIDATION, DISSOLUTION OR WINDING UP. In the event of any liquidation, dissolution or winding up of the corporation, voluntary or otherwise, then, before any 2 distribution or payment shall be made to the holders of Common Shares or any class of stock of the corporation ranking junior to the Series B Participating Preferred Shares in respect of the liquidation, dissolution or winding up of the corporation, first (1) the holders of the Series B Participating Preferred Shares shall be entitled to be paid an amount in dollars equal to (a) the Class A Multiple per share, plus (b) any accrued, accumulated and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment and then (2) the holders of the Series B Participating Preferred Shares shall be entitled to be paid in full an amount per share equal to the Remaining Assets (as defined below) multiplied by a fraction (a) the numerator of which is 20,000 and (b) the denominator of which is the sum of (i) the number of issued and outstanding Series B Participating Preferred Shares multiplied by 20,000, (ii) the number of issued and outstanding Class A Common Shares multiplied by 20 and (iii) the number of issued and outstanding Class B Common Shares. "Remaining Assets" shall mean the amount of assets legally available for payment to shareholders of the corporation upon liquidation, dissolution or winding up of the corporation, voluntary or otherwise, minus any payments to holders of Preferred Shares upon liquidation, dissolution or winding up of the corporation, voluntarily or otherwise to be made pursuant to clause (1) of the first sentence of this Section 5.d. of this Article FOURTH or pursuant to any amendments to these Amended Articles of Incorporation made by the Board of Directors providing for the issuance of any other series of Preferred Shares. e. CONSOLIDATION, MERGER, ETC. In case the corporation shall enter into any consolidation, merger, combination or other transaction in which the Class A Common Shares are exchanged for or converted into other shares or securities, cash or any other property, then in any such case each Series B Participating Preferred Share shall at the same time be similarly exchanged for or converted into an amount per share equal to the Class A Multiple times the aggregate amount of shares, securities, cash or any other property (payable in kind), as the case may be, into which or for which each Class A Common Share is exchanged or changed; PROVIDED that, the Series B Participating Preferred Shares shall not be exchanged for or converted into Common Shares and in lieu thereof the holders of the Series B Preferred Shares will receive cash or other consideration in the form and amount determined by the Board of Directors to be equivalent to the per share amount referred to immediately preceding this proviso. f. NO REDEMPTION. The Series B Participating Preferred Shares shall not be redeemable. g. FRACTIONAL SHARES. Series B Participating Preferred Shares may be issued in fractions of a share which shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and have the benefit of all other rights of holders of Series B Participating Preferred Shares. 3 IN WITNESS WHEREOF, the above-named officer, acting for and on behalf of the Corporation, has hereunto subscribed his name on this ____ day of April, 2001. ------------------------------------------ Name: David R. Holmes Title: Chairman of the Board of Directors 4 EXHIBIT B [Form of Right Certificate] Certificate No. ______ _____Rights NOT EXERCISABLE AFTER THE EXPIRATION DATE (AS DEFINED IN THE RIGHTS AGREEMENT REFERRED TO BELOW). THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES (SPECIFIED IN THE RIGHTS AGREEMENT), RIGHTS BENEFICIALLY OWNED BY ACQUIRING PERSONS (AS DEFINED IN THE RIGHTS AGREEMENT) OR ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS RIGHT CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT REFERRED TO BELOW). ACCORDINGLY, THIS RIGHT CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(E) OF THE RIGHTS AGREEMENT.]* RIGHT CERTIFICATE THE REYNOLDS AND REYNOLDS COMPANY This certifies that _____________, or registered assigns, is the registered holder of the number of Rights set forth above, each of which entitles the registered holder thereof, subject to the terms and conditions of the Amended and Restated Rights Agreement, dated as of April 18, 2001 (the "Rights Agreement"; terms defined therein are used herein with the same meaning unless otherwise defined herein) between The Reynolds and Reynolds Company, an Ohio corporation (the "Company"), and Mellon Investor Services LLC, a New Jersey limited liability company (successor to Wells Fargo Bank Minnesota, N.A., a national banking association), as Rights Agent (which term shall include any successor Rights Agent under the Rights Agreement), to purchase from the Company at any time after the Distribution Date and prior to the Expiration Date at the office of the Rights Agent, one one-thousandth of a fully paid and non-assessable share of Series B Preferred Shares, no par value per share (the "Preferred Shares"), of the Company at the Purchase Price initially of $___ per one one-thousandth share (each such one one-thousandth of a share being a "Unit") of Preferred Shares, upon presentation and surrender of this Right Certificate with the Election to Purchase and related certificate duly executed. The number of Rights evidenced by this Right Certificate (and the number of Units which may be purchased upon exercise thereof) set forth above, and the - ----------------------- * The portion of the legend in brackets shall be inserted only if applicable and shall replace the preceding sentence. Purchase Price per Unit set forth above shall be subject to adjustment in certain events as provided in the Rights Agreement. Upon the occurrence of a Section 11(a)(ii) Event or Section 13 Event, if the Rights evidenced by this Right Certificate are beneficially owned by an Acquiring Person or an Affiliate or Associate of any such Acquiring Person or, under certain circumstances described in the Rights Agreement, a transferee of any such Acquiring Person, Associate or Affiliate, such Rights shall become null and void and no holder hereof shall have any right with respect to such Rights from and after the occurrence of such Section 11(a)(ii) Event or Section 13 Event. In certain circumstances described in the Rights Agreement, the Rights evidenced hereby may entitle the registered holder thereof to purchase capital stock of an entity other than the Company or receive common stock, cash or other assets, all as provided in the Rights Agreement. This Right Certificate is subject to all of the terms and conditions of the Rights Agreement, which terms and conditions are hereby incorporated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Right Certificates. Copies of the Rights Agreement are on file at the principal office of the Company and are available from the Company upon written request. This Right Certificate, with or without other Right Certificates, upon surrender at the office of the Rights Agent designated for such purpose, may be exchanged for another Right Certificate or Right Certificates of like tenor and date evidencing an aggregate number of Rights equal to the aggregate number of Rights evidenced by the Right Certificate or Right Certificates surrendered. If this Right Certificate shall be exercised in part, the registered holder shall be entitled to receive, upon surrender hereof, another Right Certificate or Right Certificates for the number of whole Rights not exercised. Subject to the provisions of the Rights Agreement, the Rights evidenced by this Certificate may be redeemed by the Company under certain circumstances at its option at a redemption price of $0.01 per Right, payable at the Company's option in cash or in common stock of the Company, subject to adjustment in certain events as provided in the Rights Agreement. No fractional Preferred Shares are required to be issued upon the exercise of any Right or Rights evidenced hereby (other than fractions which are integral multiples of one one-twentieth of a Unit which may, at the election of the Company, be evidenced by depositary receipts), but in lieu thereof a cash payment may be made, as provided in the Rights Agreement. The Company has reserved the right to require prior to the occurrence of a Section 11(a)(ii) Event or a Section 13 Event that Rights be exercised so that only whole Preferred Shares are issued. Other than those provisions relating to the Redemption Price or the number of Units for which a Right is exercisable, any of the provisions of the Rights Agreement may be amended by the Board of Directors of the Company in any respect whatsoever up until the Distribution Date, and thereafter in certain respects which do not adversely affect the interests of holders of Right Certificates (other than an Acquiring Person or its Affiliates or Associates). No holder of this Right Certificate, as such, shall be entitled to vote or receive dividends or be deemed for any purpose the holder of Preferred Shares or of any other securities which may at any time be issuable on the exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting shareholders (except as provided in the Rights Agreement), or to receive dividends or subscription rights, or otherwise, until the Rights evidenced by this Right Certificate shall have been exercised as provided in the Rights Agreement. This Right Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent. WITNESS the facsimile signature of the proper officers of the Company and its corporate seal. Dated as of ____________ ___, 20__. ATTEST: THE REYNOLDS AND REYNOLDS COMPANY By: By: ------------------------------ --------------------------------- Name: Name: Title: Title: MELLON INVESTOR SERVICES LLC, as Rights Agent By: ------------------------------ Name: Title: [Form of Reverse Side of Right Certificate] FORM OF ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer the Right Certificate.) FOR VALUE RECEIVED ______________________________________ hereby sells, assigns and transfers unto: - -------------------------------------------------------------------------------- (Please print name and address of transferee) this Right Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint ____________ Attorney, to transfer the within Rights Certificate on the books of the within-named Company, with full power of substitution. Dated: _________ ___, 20__ ----------------------------------- Signature Signature Medallion Guaranteed: CERTIFICATE The undersigned hereby certifies by checking the appropriate boxes that: (1) this Right Certificate [ ] is [ ] is not being sold, assigned and transferred by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of any such Acquiring Person (as such terms are defined pursuant to the Rights Agreement); and (2) after due inquiry and to the best knowledge of the undersigned, the undersigned [ ] did [ ] did not acquire the Rights evidenced by this Right Certificate from any Person who is, was or subsequently became an Acquiring Person or an Affiliate or Associate of an Acquiring Person. Dated: _________ ___, 20__ -------------------------------- Signature Signature Medallion Guaranteed: -------------------------------------------------------------- NOTICE ------ The signature to the foregoing Assignment and Certificate must correspond to the name as written upon the face of this Right Certificate in every particular, without alteration or enlargement or any change whatsoever. In the event the certification set forth above is not completed, the Company will deem the beneficial owner of the Rights evidenced by this Right Certificate to be an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement) and, in the case of an Assignment, will affix a legend to that effect on any Right Certificates issued in exchange for this Right Certificate. FORM OF ELECTION TO PURCHASE (To be executed if the registered holder desires to exercise Rights represented by the Right Certificate.) To: THE REYNOLDS AND REYNOLDS COMPANY The undersigned hereby irrevocably elects to exercise ______________ Rights represented by this Right Certificate to purchase the Units issuable upon the exercise of the Rights (or such other securities of the Company or of any other person or other property which may be issuable upon the exercise of the Rights) and requests that certificates for such Units be issued in the name of and delivered to: - ----------------------------------------- (Please print name and address) - ----------------------------------------- Please insert social security or other identifying number: -------------------------------- If such number of Rights shall not be all the Rights evidenced by this Right Certificate, a new Right Certificate for the balance of such Rights shall be registered in the name of and delivered to: - -------------------------------------------- (Please print name and address) - ------------------------------------------- Please insert social security or other identifying number: _______________ Dated: _________ ___, 200__ -------------------------------------- Signature Signature Medallion Guaranteed: CERTIFICATE ----------- The undersigned hereby certifies by checking the appropriate boxes that: (1) the Rights evidenced by this Right Certificate [ ] are [ ] are not beneficially owned by an Acquiring Person or an Affiliate or an Associate of any such Acquiring Person (as defined in the Rights Agreement); and (2) after due inquiry and to the best knowledge of the undersigned, the undersigned [ ] did [ ] did not acquire the Rights evidenced by this Right Certificate from any person who is, was or subsequently became an Acquiring Person or an Affiliate or Associate of an Acquiring Person. Dated: _________ ___, 20__ -------------------------------- Signature Signature Medallion Guaranteed: -------------------------------------------------------------- NOTICE ------ The signature in the foregoing Election to Purchase and Certificate must conform to the name as written upon the face of this Right Certificate in every particular, without alteration or enlargement or any change whatsoever. In the event the certification set forth above is not completed, the Company will deem the beneficial owner of the Rights evidenced by this Right Certificate to be an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement) and, in the case of an Assignment, will affix a legend to that effect on any Right Certificates issued in exchange for this Right Certificate. EXHIBIT C THE REYNOLDS AND REYNOLDS COMPANY SUMMARY OF RIGHTS TO PURCHASE PREFERRED SHARES ---------------------------------------------- On April 18, 2001, the Board of Directors of The Reynolds and Reynolds Company (the "Company") declared a dividend distribution of one right (a "Right") for each outstanding Class A Common Share, no par value per share, of the Company (the "Class A Shares") and 1/20th of a Right for each Class B Common Share, no par value per share, of the Company (the "Class B Shares", and together with the Class A Shares, the "Common Shares"). The Rights will issue at 5:00 P.M. Dayton, Ohio time on May 6, 2001 (the "Record Date") to shareholders of record on that date. The following is a summary of the terms of the Rights. Each Right entitles the registered holder thereof to purchase from the Company a unit (a "Unit") consisting of one one-thousandth of a share of the Company's Series B Participating Preferred Shares, no par value per share (the "Series B Preferred Shares"), at a price of $105.00, subject to adjustment under certain circumstances (the "Purchase Price"). The terms of the Rights are set forth in an Amended and Restated Rights Agreement, dated as of April 18, 2001 (the "Rights Agreement"), between the Company and Mellon Investor Services LLC, a New Jersey limited liability company (successor to Wells Fargo Bank Minnesota, N.A., a national banking association), as rights agent (the "Rights Agent"). AS DISCUSSED BELOW, INITIALLY THE RIGHTS ARE NOT EXERCISABLE, CERTIFICATES FOR THE RIGHTS WILL NOT BE SENT TO SHAREHOLDERS AND THE RIGHTS WILL AUTOMATICALLY TRADE WITH THE COMMON SHARES. Until the Distribution Date (as described below) or earlier redemption or expiration of the Rights, the Rights will be evidenced by the certificates for Common Shares together with this Summary of Rights, and the registered holders of Common Shares shall also be the registered holders of the associated Rights. The Rights Agreement provides that, until the Distribution Date or earlier redemption or expiration of the Rights, the Rights will be transferred with and only with the Common Shares. Until the Distribution Date or earlier redemption or expiration of the Rights, Common Share certificates delivered after the Record Date upon transfer, sale from the Company's treasury or new issuance of the Common Shares will contain a legend incorporating the Rights Agreement by reference, and the surrender or transfer of any of the Common Share certificates, with or without the aforesaid legend or a copy of the Summary of Rights attached thereto, will also constitute the transfer of the Rights associated with the Common Shares represented by such certificate. As promptly as practicable following the Distribution Date, separate certificates evidencing the Rights ("Right Certificates") will be mailed to holders of record of the Common Shares as of the close of business on the Distribution Date, and such separate certificates alone will evidence the Rights from and after the Distribution Date. The Rights will become exercisable after the "Distribution Date" which shall occur on the earlier of the close of business on (i) the tenth business day after a public announcement that a person or group of affiliated or associated persons (an "Acquiring Person"), other than the Company, any subsidiary of the Company, or any employee benefit plan or employee stock plan of the Company or of any subsidiary of the Company or any entity organized appointed, established or holding Common Shares by, for or pursuant to, the terms of any such plan (an "Exempt Person"), has acquired beneficial ownership of 15% or more (20% or more for any person or group of affiliated persons that satisfies both of the criteria set forth in Rule 13d-1(b)(1)(i) and Rule 13d-1(b)(1)(ii) of the General Rules and Regulations under the Securities Exchange Act of 1934, and who has reported such ownership on Schedule 13G) of the outstanding number of Class A Shares of the Company, or (ii) the tenth business day or, if determined by the Board of Directors a specified or unspecified later date, following the commencement of a tender or exchange offer (other than a tender or exchange offer by an Exempt Person) which, if successful, would result in a person (together with its affiliates and associates) becoming an Acquiring Person, even if no purchases actually occur pursuant to the offer. The Rights are not exercisable until the Distribution Date. The Rights will expire on the close of business on May 6, 2011 (the "Expiration Date"), unless the Rights earlier are redeemed by the Company as described below or expire in accordance with the terms of Section 13(d) of the Rights Agreement. The Series B Preferred Shares will be nonredeemable and will be of equal rank in respect of the preference as to dividends and to payments upon the liquidation, dissolution or winding up of the Company with all other classes or series of the Company's preferred shares. Subject to antidulution adjustments, each Series B Preferred Share will be entitled to receive, when and if declared, dividends for each Series B Preferred Share equal to 1,000 times the aggregate dividends or distributions declared (whether or not paid) from time to time per Class A Share (other than to the extent that such dividends or distributions are payable in Class A Shares); provided that, in the event that during specified periods dividends declared on the Series B Preferred Shares do not in the aggregate equal $10 per Series B Preferred Share per dividend period, then each Series B Preferred Share will be entitled to receive, in cash, the difference between $10 and the per share dividend declared on the Series B Preferred Shares during such specified periods. In the event of any liquidation, dissolution or winding up of the corporation, voluntary or otherwise, then, before any distribution or payment is made to the holders of Class A Shares, Class B Shares or any class of stock of the corporation ranking junior to the Series B Preferred Shares in respect to the liquidation, dissolution or winding up of the corporation, first (i) the holders of the Series B Preferred Shares would be entitled to be paid in full the sum of (A) $1,000 per share, plus (B) an amount equal to any accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment and then (ii) the holders of the Series B Preferred Shares would be entitled to proportionately share in the remaining assets of the Company with the holders of Class A Shares and Class B Shares. Each Series B Preferred Share will have one vote, voting together with the Common Shares. In the event of any merger, consolidation or other transaction in which Class A Shares are changed or 2 converted, each Series B Preferred Share will be entitled to receive an amount equal to 1,000 (subject to adjustment) times the amount received per Class A Share. The number of Series B Preferred Shares or the amount of other securities or property issuable upon exercise of the Rights is subject to adjustment from time to time to prevent dilution in the event of a stock dividend on, or subdivision, combination or reclassification of the Class A Shares, Class B Shares or Series B Preferred Shares. The Purchase Price is subject to adjustment in the event of, among other things, the issuance of certain rights, options or warrants or extraordinary distributions of cash or other property to holders of the Series B Preferred Shares. In the event that a person or group becomes an Acquiring Person, except pursuant to a tender or exchange offer for all outstanding Class A Shares determined by the Board of Directors to be at a fair price and otherwise in the best interests of the Company and its shareholders (a "Flip-in Event"), each holder of a Right (other than the Acquiring Person) will thereafter be entitled to receive, upon payment of the Purchase Price, that number of the Series B Preferred Shares (or, in certain circumstances, cash, a reduction in the Purchase Price, Class A Shares, Class B Shares, other equity or debt securities of the Company, other assets or any combination thereof) having a market value (as determined in the manner set forth in the Rights Agreement) of two times the Purchase Price. Any Rights that are, or (under certain circumstances specified in the Rights Agreement) were, beneficially owned by an Acquiring Person will be null and void. Rights are not exercisable following the occurrence of a Flip-in Event until such time as the Rights are no longer redeemable by the Company as set forth below. Unless the Rights are earlier redeemed, in the event that on or after the date a person or group becomes an Acquiring Person (1) the Company is acquired in a merger or other business combination transaction (in which any Class A Shares are changed into or exchanged for other securities or property) or (2) more than 50% of the assets or earning power of the Company and its subsidiaries (taken as a whole) are sold or transferred in one transaction or a series of related transactions (collectively, a "Flip-Over Event"), proper provision will be made so that each holder of Rights will be entitled to receive, upon payment of the Purchase Price, that number of common shares (or, under certain circumstances, an economically equivalent security or securities) of the surviving, resulting or acquiring company which at the time of such transaction has a market value (as determined the manner set forth in the Rights Agreement) of two times the Purchase Price. The Purchase Price payable upon exercise of the Rights, and the number of Series B Preferred Shares or other securities or property issuable upon exercise, are subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of, the Series B Preferred Shares, (ii) upon the grant to holders of the Series B Preferred Shares of certain rights, options, or warrants to subscribe for Series B Preferred Shares or convertible securities at less than the current market price of the Series B Preferred Shares, or (iii) upon the distribution to holders of the Series B Preferred Shares of evidences of indebtedness or cash, assets, stock (other than dividends payable in Series B Preferred Shares) or of subscription rights or warrants (other than those referred to above). 3 With certain exceptions, no adjustment in the Purchase Price will be required until cumulative adjustments require an adjustment of at least 1% in the Purchase Price. No fractional Series B Preferred Shares (other than integral multiples of one-twentieth of a Unit which may, upon the election of the Company, be evidenced by depositary receipts) are required to be issued by the Company and, in lieu of any fractional shares, an adjustment in cash may be made. At any time on or prior to the close of business on the tenth day after the public announcement that a person or group has become an Acquiring Person, the Board of Directors may redeem the Rights in whole, but not in part, at a price of $0.01 per Right (the "Redemption Price"). The Redemption Price may be paid in cash, Class A Shares or any other form of consideration deemed appropriate by the Board of Directors. The redemption period may be extended by the Company at any time prior to the expiration of such period. Immediately upon the action of the Board of Directors authorizing redemption of the Rights, the right to exercise the Rights will terminate and the only right of the holders of Rights will be to receive the Redemption Price. At any time after a person or group of affiliated persons becomes an Acquiring Person and until any person or group of affiliated persons beneficially owns 50% or more of the then-outstanding Class A Shares, the Board of Directors may exchange all or part of the then-outstanding Rights for Units (1) on a one-to-one basis or (2) at an exchange ratio equal to (A) the difference between the aggregate market price of the number of Units to be received on a Flip-in Event and the Purchase Price, divided by (B) the market price per Unit upon a Flip-in Event. In such event, the right to exercise the Rights terminates and the only right thereafter of a holder of such Rights shall be to receive that number of Units equal to the number of such Rights held by such holder multiplied by the applicable exchange ratio. Other than those provisions relating to the amount of the Redemption Price or the number of Units for which a Right is exercisable any of the provisions of the Rights Agreement may be amended by the Board of Directors prior to the Distribution Date. After the Distribution Date, the provisions of the Rights Agreement may be amended by the Board of Directors in order to cure any ambiguity, to make changes which do not adversely affect the interests of holders of Rights, or to shorten or lengthen any time period under the Rights Agreement, subject to certain limitations. In any event, no amendment to lengthen the time period for redemption may be made at such time as the Rights are not redeemable. Upon becoming exercisable, Rights may be exercised by completing and signing the Election to Purchase and the accompanying certificate on the reverse side of the Right Certificate and surrendering such Right Certificate, together with cash or a certified check or bank draft in the aggregate amount of the Purchase Price and any applicable transfer tax or charge, to the Rights Agent. Until a Right is exercised, the holder thereof, by reason of ownership of a Right, will have no rights as a shareholder of the Company, including, without limitation, the right to vote or to receive dividends. A copy of the Rights Agreement has been filed with the Securities and Exchange Commission as an Exhibit to a Current Report on Form 8-K dated April 18, 2001. A copy of the Rights Agreement is available free of charge from the Company. This summary description of 4 the Rights does not purport to be complete and is qualified in its entirety by reference to the Rights Agreement, which is hereby incorporated herein by reference. 5 EX-10.B 5 l92008aex10-b.txt EX-(10)(B) AMENDED AND RESTATED EMPLOYMENT AGREEMT EXHIBIT 10(b) AMENDMENT NUMBER 1 TO THE SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT OF DAVID R. HOLMES --------------------------------------- AMENDMENT NUMBER 1 TO THE SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT is entered into between THE REYNOLDS AND REYNOLDS COMPANY, an Ohio corporation ("REYNOLDS"), and DAVID R. HOLMES ("HOLMES"), effective as of August 7, 2001 (the "AMENDMENT DATE"). Reynolds and Holmes executed the Second Amended and Restated Employment Agreement (the "AGREEMENT") as of August 17, 1998, pursuant to which Holmes is currently employed as Chairman of the Board. Reynolds and Holmes now desire to clarify the original intent of the Agreement in light of certain recent changes to Reynolds' bonus plan. Therefore, Reynolds and Holmes agree as follows: 1. Section 2(c) shall be removed and replaced with the following: (c) "Bonuses" shall mean bonus payments earned by Holmes under Reynolds' Incentive Compensation Plans and under any future bonus or incentive compensation plans of Reynolds for its executive officers (irrespective of the manner in which such bonus payments are paid). Effective as of October 1, 2000 (the "CHANGE DATE") the intermediate bonus previously paid to Holmes was eliminated. Retirement or Early Retirement Benefits under Article 6 of this Agreement shall be calculated as though the intermediate bonus, as calculated immediately prior to the Change Date, continued to be paid for the remaining term of this Agreement. 2. Section 2(m) shall be removed and replaced with the following: (m) "Retirement Benefits" shall mean payments to Holmes based upon his lifetime in an annual amount equal to a designated percentage of Holmes' Final Average Annual Compensation or, in the case of Section 8(d) below, Final Annual Compensation, which shall be comprised of the sum of: (i) Holmes' primary Social Security retirement benefits when he is entitled to receive such benefit (age sixty-two (62)) [until that time an amount equal to the primary Social Security retirement benefit shall be paid to Holmes from Reynolds' Supplemental Plan]; (ii) Holmes' pension benefits determined as a life annuity (without regard to actual payment form) under the Pension Plan; (iii) deferred compensation payments under the Non-Qualified Deferred Compensation and Disability Agreement dated June 15, 1992, between Reynolds and Holmes, which sets forth the terms and conditions of Holmes' participation in the program commonly referred to as the "officers salary continuation plan"; and (iv) such amount of supplemental retirement benefits under the Supplemental Plan as shall be necessary to achieve the designated percentage of Holmes' Final Average Annual Compensation or, in the case of Section 8(d) below, Final Annual Compensation. There shall be no adjustment to the preceding calculation as a result of payments to Holmes pursuant to a Deferred Compensation Agreement entered into between Reynolds and Holmes, and dated October 1, 1984, however. In addition to said annual amount, Retirement Benefits shall include a continuation of coverage for the remainder of Holmes' life under Reynolds-sponsored medical benefits and life insurance programs, but only to the extent applicable to participants in Reynolds' retiree medical plans. For purposes of determining the amount of supplemental retirement benefits to be paid by Reynolds pursuant to the Supplemental Plan, the method of payment of retirement benefits to Holmes pursuant to the Pension Plan shall determine the amount and method of payment of the supplemental retirement payments pursuant to the Supplemental Plan. These payments by Reynolds pursuant to the Supplemental Plan shall continue so long as pension benefits are payable under the Pension Plan and shall be in addition to the pension benefit payments under the Pension Plan. TO EVIDENCE THEIR AGREEMENT, the parties have executed this amendment as of the Amendment Date. THE REYNOLDS AND REYNOLDS COMPANY By: _____________________________________ _________________________________________ DAVID R. HOLMES EX-10.C 6 l92008aex10-c.txt EX-(10)(C) EMPLOYMENT AGREEMENT EXHIBIT (10)(c) EMPLOYMENT AGREEMENT -------------------- EMPLOYMENT AGREEMENT ("Agreement") made and entered into as of the 1st day of May, 1999, and amended and restated as of December 1, 2001, by and between THE REYNOLDS AND REYNOLDS COMPANY, a corporation existing under the laws of the State of Ohio ("Reynolds"), and LLOYD G. WATERHOUSE ("Employee"). W I T N E S S E T H: WHEREAS, Reynolds and Employee desire to enter into this Agreement on the terms and conditions hereinafter set forth; NOW THEREFORE, in consideration of the foregoing premises and of the mutual promises set forth below, Reynolds and Employee hereby agree as follows: 1. DEFINITIONS. ------------ For purposes of this Agreement, the terms set forth below shall have the following meanings: (a) "Annual Compensation Value" shall mean Employee's then-current Base Compensation plus an amount equal to the average of all Bonuses (excluding any compensation attributable to stock options of any type granted by Reynolds) earned by Employee during the three (3) calendar years preceding the date upon which the valuation is made. (b) "Base Compensation" shall mean the then-current annual base salary (exclusive of Bonuses) of Employee. (c) "Bonuses" shall mean bonus payments earned by Employee under Reynolds' Incentive Compensation Plans and under any future bonus or incentive compensation plans of Reynolds for its executive officers. Currently Reynolds has in effect the following Incentive Compensation Plans: the Annual Bonus Plan, the Intermediate Bonus Plan and the Personal Performance Plan, true and correct copies of which have been delivered to Employee. (d) "Change in Control" shall mean the occurrence of any of the following: (i) Any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") (other than Richard H. Grant, Jr., his children or his grandchildren, Reynolds, any trustee or other fiduciary holding securities under an employee benefit plan of Reynolds or any company owned, directly or indirectly, by the shareholders of Reynolds in substantially the same proportions as their ownership of stock of Reynolds), who is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of Reynolds representing twenty percent (20%) or more of the combined voting power of Reynolds' then outstanding securities; (ii) during any period of two consecutive years (not including any period prior to the execution of this Plan), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with Reynolds to effect a transaction described in clause (i), (iii) or (iv) of this Section) who election by Reynolds' shareholders was approved by a vote of at least two-thirds (2/3) of the directors at the beginning of the period or whose election or nomination for election was previously so approved cease for any reason to constitute at least a majority thereof; 2 (iii) the consummation of a merger or consolidation of Reynolds or any direct or indirect subsidiary of Reynolds with any other corporation, other than (1) a merger or consolidation which would result in the voting securities of Reynolds outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) more than 50% of the combined voting power of the voting securities of Reynolds or such surviving entity or parent thereof outstanding immediately after such merger or consolidation or (2) a merger or consolidation effected to implement a recapitalization of Reynolds (or similar transaction) in which no "person" (as hereinabove defined) is or becomes the beneficial owner, directly or indirectly, of securities of Reynolds (not including in the securities beneficially owned by such person any securities acquired directly from Reynolds or its affiliates other than in connection with the securities acquired directly from Reynolds or its affiliates other than in connection with the acquisition by Reynolds or its affiliates of a business) representing twenty percent (20%) or more of the combined voting power of Reynolds' then outstanding securities; or (iv) the shareholders of Reynolds approve a plan of liquidation, dissolution or winding up of Reynolds or an agreement for the sale or disposition by Reynolds of all or substantially all of Reynolds' assets. (e) "Discharge For Cause" shall be construed to have occurred whenever occasioned by reason of felonious acts on the part of Employee, actions by Employee involving serious moral turpitude or his misconduct in such manner as to bring substantial and material discredit upon Reynolds, following the giving of thirty (30) days' written notice to Employee specifying the respect in which Reynolds claims Employee has violated this provision and the failure, inability or unwillingness of Employee to remedy the situation to the satisfaction of 3 Reynolds within said thirty-day period. In establishing whether a Discharge For Cause shall have occurred, the standard for judgment shall be the level of conduct by Employee and by other comparably situated executive officers prior to the alleged improper activity of Employee for which the Discharge For Cause has been made. (f) "Escrow Agreement" shall mean the agreement dated May 1, 1999 entered into between Reynolds and Bank One, NA, a copy of which is attached hereto and made a part hereof as Exhibit A. (g) "Escrow Agent" shall mean Bank One, NA. (h) "Escrow Amount" shall mean the amounts placed in escrow by Reynolds pursuant to subsection (e)(iii) of Section 7 of this Agreement. (i) "Escrow Funding Event" shall mean the occurrence of any of the following events: (i) Class A Common Shares of Reynolds have been acquired other than directly from Reynolds in exchange for cash or property by any person (other than Richard H. Grant, Jr., his children or his grandchildren, Reynolds, any trustee or other fiduciary holding securities under an employee benefit plan of Reynolds, or any company owned directly or indirectly by the shareholders of Reynolds in substantially the same proportions as their ownership of the stock of Reynolds) who either thereby becomes the owner of more than nine and one half percent (9.5%) of Reynolds' outstanding Class A Common Shares, or having directly or indirectly become the owner of more than five percent (5%) of Reynolds' Class A Common Shares either alone or in conjunction with another person has expressed an intent to continue acquiring Reynolds' outstanding Class A Common Shares so as to become thereby the owner of more than nine and one-half percent (9.5%) of such stock either directly or indirectly; 4 (ii) Any person (other than Richard H. Grant, Jr., his children or grandchildren, Reynolds, any trustee or other fiduciary holding securities under an employee benefit plan of Reynolds, or any company owned directly or indirectly by the shareholders of Reynolds in substantially the same proportions as their ownership of stock of Reynolds) has made a tender offer for, or a request for invitations for tenders of, Class A Common Shares of Reynolds. (iii) Any person forwards or causes to be forwarded to shareholders of Reynolds proxy statement(s) in any period of twenty-four (24) consecutive months, soliciting proxies, to elect to the Board of Reynolds two (2) or more candidates who were not nominated as candidates in proxy statements forwarded to shareholders during such period by the Board; or (iv) The Board adopts a resolution to the effect that, for purposes of this Agreement, an Escrow Funding Event has occurred. (j) "Final Annual Compensation" shall mean Employee's Base Compensation at the time of termination of employment plus an amount equal to the average of all Bonuses (excluding any compensation attributable to stock options of any type granted by Reynolds) earned by Employee during the three (3) calendar years preceding his termination of employment. (k) "Final Average Annual Compensation" shall mean the average of Employee's Base Compensation and Bonuses (excluding any compensation attributable to stock options of any type granted by Reynolds) as determined for the five (5) consecutive calendar years of the last ten (10) calendar years preceding and including the calendar year in which Employee's employment terminates which yields the highest sum. 5 (l) "Pension Plan" shall mean the existing Reynolds and Reynolds Company Non-Union Pension Plan, as the same may be amended from time to time. (m) "Retirement Benefits" shall mean payments to Employee based upon his lifetime in an annual amount equal to a designated percentage of Employee's Final Average Annual Compensation or, in the case of Section 7(d) below, Final Annual Compensation, which shall be comprised of the sum of (i) Employee's primary Social Security retirement benefits when he is entitled to receive such benefit (age sixty-two (62)) [until that time an amount equal to the primary Social Security retirement benefit shall be paid to Employee from Reynolds' Supplemental Plan], (ii) Employee's pension benefits determined as a life annuity (without regard to actual payment form) under the Pension Plan and deferred compensation payments under the Non-Qualified Deferred Compensation and Disability Benefit Agreement dated May 1, 1999 between Employee and Reynolds, or such other non-contributory deferred compensation agreement(s) then existing between Reynolds and Employee, and (iii) such amount of supplemental retirement benefits under the Supplemental Plan as shall be necessary to achieve the designated percentage of Employee's Final Average Annual Compensation or, in the case of Section 7(d) below, Final Annual Compensation. In addition to said annual amount, Retirement Benefits shall include a continuation of coverage for the remainder of Employee's life under Reynolds-sponsored medical benefits and life insurance programs, but only to the extent applicable to participants in Reynolds' Qualified Retiree Medical Plans. For purposes of determining the amount of supplemental retirement benefits to be made by Reynolds pursuant to the Supplemental Plan, the method of payment of retirement benefits to Employee pursuant to the Pension Plan shall determine the amount and method of payment of the supplemental retirement payments pursuant to the Supplemental Plan. These supplemental retirement 6 payments by Reynolds pursuant to the Supplemental Plan shall continue so long as pension benefits are payable under the Pension Plan and shall be in addition to the pension benefit payments under the Pension Plan. (n) "Supplemental Plan" shall mean Reynolds' existing Supplemental Retirement Plan, as the same may be amended from time to time. 2. TERMS AND DUTIES. ----------------- (a) The term of this Agreement shall continue from the date hereof and end on May 1, 2004. Employee shall be employed by Reynolds as President and Chief Operating Officer or such other reasonably equivalent position designated by the Board, consistent with the provisions of this Agreement. In addition, Employee agrees to perform such other duties as may be specifically designated for him from time to time by the Board, consistent with the provisions of this Agreement. Reynolds shall recommend to the Board that Employee be appointed as a Director. Subject to Employee's willingness to so extend his employment, Reynolds may extend the term of this Agreement for additional renewal periods of not less than one (1) year each by giving written notice thereof not less than twelve (12) months prior to May 1, 2004, initially and not less than twelve (12) months prior to each succeeding renewal term termination date thereafter. (b) At all times Employee will, to the best of his ability, energy and skill, faithfully perform all of the duties that may be required of him from time to time by the Board and diligently devote his entire working time, attention and efforts to the business affairs and best interests of Reynolds, except for absences for sickness and vacations. If the Board determines that any outside activity engaged in by him is detrimental to the best interests of Reynolds, he will discontinue such outside activity within thirty (30) days after written notice from the Board. 7 (c) For a period of two (2) years from and after Employee's employment with Reynolds shall have terminated (provided, however, in the event of termination of Employee's employment due to Reynolds' decision not to renew this Agreement the period shall be one (1) year if the renewal period ending is also one (1) year) and after he shall have ceased receiving retirement (provided that such retirement benefits have then begun to be paid during the two (2) year (or one (1) year) period mentioned in this Section 2(c)), severance or disability benefits under this Agreement, whichever shall last occur, and during the period of his employment by Reynolds, he will not, directly or indirectly, further the affairs of any other corporation, partnership, or any business enterprise by employment of any kind, investment therein (except as otherwise permitted under Section 8(d) below), counseling or otherwise, if the same is in competition with Reynolds, without the written consent of the Board. This provision, however, shall not be construed to prevent him from pursuing personal investments in any business or enterprise which is not in competition with Reynolds and which do not interfere with his employment and the performance of his duties to Reynolds hereunder. 3. COMPENSATION AND FRINGE BENEFITS. --------------------------------- (a) The Base Compensation of Employee during the term of this Agreement shall be $500,000, which may be increased from time to time by the Board or, in the case of any proposed decrease, such other amount as mutually may be agreed upon by Employee and Reynolds; provided, however, that such Base Compensation may not be reduced below said rate of $500,000 without Employee's consent, unless necessitated by general business conditions adversely affecting Reynolds' operations; but, in the event of a reduction, his Base Compensation shall be fair and reasonable, and any disagreement concerning the same shall be resolved by arbitration in the manner provided in Section 9 below. Employee's Base 8 Compensation shall be reviewed at least annually to determine whether in view of Reynolds' performance during the year any increase is warranted. Responsibility for this determination rests within the sole discretion of the Board, and this provision shall not be construed as requiring any such increase for any given year. (b) Employee shall participate in the non-qualified deferred plan referred to in Section 1(m) above and the bonus plan arrangements under the Incentive Compensation Plans (or their equivalent) for executive officers of Reynolds and shall be entitled to such awards under any future bonus, incentive, or similar compensation plans of Reynolds, as shall, in the determination of the Board, be appropriate and consistent with the purposes of such plans and with the awards granted to other executive officers of Reynolds. (c) Employee shall be eligible to participate in the Stock Option Plan - -1995 of Reynolds and shall be entitled to the grant of such options to purchase shares of Class A Common Stock ("Common Stock") of Reynolds under any other future stock option plans for employees and to participate in such other executive compensation incentive plans awarding stock as shall, in the determination of the Board, be appropriate and consistent with the purposes of the plans and with the grants of such options to the executive officers of Reynolds. Effective the date hereof, Reynolds hereby awards Employee non-qualified stock options covering 300,000 shares of Common Stock on the terms and conditions of the Stock Option Agreements entered into between the parties simultaneously herewith and attached hereto as Exhibits B and C and made a part hereof. (d) Reynolds hereby agrees to grant to Employee additional non-qualified stock options covering 200,000 shares of Common Stock at the option price of one cent ($.01) 9 per share. The Stock Option Agreement to be used for this option is attached hereto as Exhibit D and made a part hereof. (e) In addition to the specific benefits provided for Employee under the terms of this Agreement, Reynolds shall provide him with other fringe benefits (including bonuses, vacations, health and disability insurance, pension plan participation and others) at least equivalent to those of the other executive officers of Reynolds and as set forth on Exhibit E attached hereto and made a part hereof. Notwithstanding anything contained herein or in any Incentive Compensation Plans in which Employee participates, Reynolds shall pay to Employee a bonus of at least $350,000 for the period ended September 30, 1999, payable not later than November 30, 1999; provided, however, Employee shall be continuously employed by Reynolds from the date hereof at least through September 30, 1999. 4. EXPENSES -------- Employee shall be reimbursed for his reasonable business-related expenses incurred for the benefit of Reynolds in accordance with Reynolds' policies governing such reimbursement in effect from time to time. Such expenses shall include, but shall not be limited to, travel, lodging away from home, entertainment, and meals. With respect to any expenses which are reimbursed by Reynolds to Employee, Employee shall account to Reynolds in sufficient detail to entitle Reynolds to a federal income tax deduction for such reimbursed item if such item is deductible. 5. RETIREMENT AND EARLY RETIREMENT BENEFITS. ----------------------------------------- (a) If Employee continues his employment with Reynolds until he attains age sixty-two (62), he shall be entitled to receive at the time of his retirement, Retirement Benefits at a level equal to sixty percent (60%) of his Final Average Annual Compensation. If Employee 10 continues his employment with Reynolds beyond age sixty-two (62), the level of his retirement benefits as a percentage of his Final Average Annual Compensation shall be increased by one percent (1%) for each additional twelve (12) month period over age sixty-two (62) with a maximum Retirement Benefit of sixty-three percent (63%) of Final Average Annual Compensation. (b) For each year prior to age sixty-two (62) Employee is employed by Reynolds, his Retirement Benefits as a percentage of his Final Average Annual Compensation shall accrue at the rate of four percent (4%) per year, payable beginning at age sixty-two (62). As an example, if Employee terminates employment due to death, disability, resignation or otherwise after ten (10) years of employment with Reynolds, he shall be entitled to a Retirement Benefit equal to forty percent (40%) of his Final Average Annual Compensation payable beginning at age sixty-two (62). For purposes of this paragraph, a "year of employment" shall mean each twelve (12) month period or part thereof from the date hereof in which Employee works at least 1,000 hours. (c) In the event Employee remains continuously employed with Reynolds at least until May 1, 2009, he shall be entitled to an early retirement benefit payable commencing on the date of termination of employment which shall be actuarially reduced to reflect the fact that payments shall commence prior to age sixty-two (62). (d) To the extent Employee receives any similar benefits under the Pension Plan, Supplemental Plan or other Reynolds benefit plan for any of its employees, such benefits shall be included in calculating the amount to which Employee shall be entitled under Sections 5(a) and 5(b) above; provided, however, that in no event shall the benefits described in Sections 5(a) and 5(b) above be reduced by the provisions of this Section 5(d). 11 6. DISABILITY AND DEATH BENEFITS. ------------------------------ (a) If Employee becomes disabled prior to his retirement he shall be entitled to an annual disability benefit equal to fifty percent (50%) of his Annual Compensation Value; provided, however, that such annual benefit under this Agreement shall not exceed $500,000. The disability benefit shall be provided through the then existing Reynolds sponsored disability plan with Reynolds making any additional contributions as may be necessary to pay Employee the required amount, and said benefit shall also be offset by any Retirement Benefits which Employee may then be receiving. The disability benefit, including any Reynolds required contribution, shall be paid so long as and on the same terms and conditions as the payments being made under the Reynolds sponsored disability plan. See Section 7(c) below. (b) In the event of Employee's death while still employed by Reynolds pursuant to this Agreement, Employee shall be entitled to Retirement Benefits calculated as if he had elected retirement as of the day before his actual death. Reynolds shall also pay to such beneficiary or beneficiaries as he shall have designated by written notice delivered to Reynolds prior to his death, or failing such written notice, to his estate, an amount equal to the Base Compensation plus the Bonuses, if any, which Employee would have received or which would have been accrued for his benefit during the period of six (6) months immediately following his death if he had lived and had been employed by Reynolds during that period. Such payment shall be made in one lump sum or in six (6) equal monthly installments as Reynolds shall elect and shall be in addition to the proceeds of any insurance policies carried on Employee's life with respect to which he has the right to designate beneficiaries. Also, Reynolds shall pay to Employee's spouse an amount, periodically as such payments are required to be made by said spouse, to enable her to continue medical coverage for her and her dependents in the same 12 manner as immediately prior to Employee's death for a period expiring at the earlier of: (i) her death; (ii) forty-two (42) months after Employee's death; or (iii) eligibility for regular Medicare and Medicaid or any successor programs furnished by the government. Thereafter, Reynolds shall make available to Employee's spouse (including her dependents), at her cost, such medical coverage as shall be available to a person of her then age under the then-existing Reynolds-sponsored medical benefits program, but only to the extent coverage is available under such program. 7. TERMINATION; DISCHARGE. ----------------------- (a) TERMINATION OR DISCHARGE WITHOUT CAUSE. Reynolds reserves the right to discharge Employee at any time and for any reason; but such discharge, unless a Discharge For Cause, shall not extinguish the obligation of Reynolds to provide Employee (and, in the event of his prior death, his designated beneficiary or beneficiaries or his estate) with the following severance benefits: (i) If Reynolds does not renew this Agreement, Employee shall be entitled to receive for a period expiring one (1) year from May 1, 2004 (or any renewal termination date thereof if the renewal term then ending is also one (1) year) payments from Reynolds in an amount equal to his Annual Compensation Value, which shall be reduced by seventy percent (70%) of the amount of compensation received by Employee from any subsequent employment obtained by him during said payment period. (ii) If such discharge occurs prior to May 1, 2004 (or thereafter if the renewal term then ending is greater than one (1) year), Employee shall be entitled to receive for a period expiring two (2) years from the date of discharge, payments from Reynolds in an amount equal to his Annual Compensation Value, which shall be reduced by seventy percent (70%) of the 13 amount of compensation received by Employee from any subsequent employment obtained by him during said payment period. (iii) Employee shall be entitled, during the period expiring on the earlier of Employee's securing other employment or two (2) years from the date of discharge (or such longer period as required by law), to continuing coverage under the then-existing Reynolds-sponsored medical benefits program, which, at the option of Reynolds, may be provided outside of such program through the purchase of insurance or otherwise. (iv) For purposes of determining Employee's benefits under the Supplemental Plan, Employee shall receive credit toward his Years of Service under the Supplemental Plan for the time period that he receives or is entitled to receive payments under subsections (i) or (ii) of this Section 7(a). In addition, during the time period that he receives or is entitled to receive payments under said subsections (i) or (ii) of this Section 7(a), Employee's Base Compensation shall be deemed to be increased by the annual economic range adjustment for Reynolds' salaried employees announced in October of each year (or, if there is no such announced economic range adjustment in a given year, by an assumed five (5%) increase for that year) in order to calculate his highest earnings during five (5) consecutive years out of the last ten (10) years prior to retirement under the Supplemental Plan, and his Final Annual Compensation (see Section 7(d) below) and Final Average Annual Compensation shall be deemed to increase in the same manner for purposes of determining the amount of his Retirement Benefits under this Agreement. (v) Employee shall be reimbursed for up to $20,000 for out-placement fees if he chooses to seek other employment following his discharge by Reynolds. Employee shall not be obligated to seek other employment in order to mitigate his damages resulting from his discharge. 14 (vi) In addition to all of the foregoing, Employee shall be entitled to receive the payments required of Reynolds under the non-qualified deferred agreement referred to in Section 1(m) above in accordance with the terms of such agreement(s). Employee acknowledges that he shall remain subject to and bound by the restrictive provisions of Section 8 below. (b) DISCHARGE FOR CAUSE. If Employee's employment with Reynolds is terminated by a Discharge For Cause, regardless of whether such Discharge For Cause occurs after the occurrence of any of the events set forth in Sections 7(d) or 7(e) below, he shall be entitled to receive only his Base Compensation up to the date of his discharge and no further payments hereunder shall be required from Reynolds; provided, however, that Employee shall be entitled to receive his benefits, if any, under the Pension Plan and the payments required of Reynolds under his then-existing deferred compensation agreement(s) with Reynolds in accordance with the terms of such agreement(s). Employee shall remain subject to the restrictive provisions of Section 8 below for a period for two (2) years from the date of discharge. Should Employee disagree that his discharge was a Discharge For Cause the question shall be submitted to arbitration in accordance with Section 9 below. (c) TERMINATION DUE TO DISABILITY. If, by reason of illness, disability, or other incapacity certified by two (2) physicians competent to do so in the opinion of Reynolds' Board of Directors, Employee is unable to perform the duties required of him under this Agreement for a period of six (6) consecutive months, Reynolds, following the giving of thirty (30) days' written notice to Employee and the failure of Employee by reason of illness, disability, or other incapacity to resume his duties within such thirty (30) days and thereafter perform the same for a period of two (2) consecutive months, may terminate Employee's employment by giving him 15 written notice thereof; and in that event all obligations of Reynolds hereunder shall cease on the date such notice of termination is given except for payment of the disability benefits under Section 6 above and except that Employee's Retirement Benefits shall continue to accrue at the rate of four percent (4%) per year for each year he continues to receive disability payments under said Section 6. (d) BENEFITS UPON TERMINATION UNDER CERTAIN CIRCUMSTANCES. If Employee voluntarily terminates his employment or Employee is discharged by Reynolds and such discharge is not a Discharge For Cause, and if such voluntary termination or involuntary discharge takes place within eighteen (18) months after the occurrence of any of the following events: (i) Employee is required by Reynolds, prior to a Change in Control, to perform duties or services which differ significantly from those performed by him on the effective date hereof or which are not ordinarily and generally performed by a President and Chief Operating Officer (or either one of the foregoing positions) of a corporation similar in size and scope to Reynolds; or (ii) The nature of the duties or services which Reynolds, prior to a Change in Control, requires him to perform necessitates absence overnight from his place of residence on the effective date hereof, because of travel involving the business or affairs of Reynolds, for more than ninety (90) days during any period of twelve (12) consecutive months; Employee shall be entitled to receive from Reynolds all of the severance benefits set forth in Section 7(a) above, except that Employee's right to receive his Retirement Benefits shall be based upon his Final Annual Compensation, as the same may be adjusted pursuant to Section 7(a)(iv) above. Employee shall remain subject to and bound by the restrictive provisions of Section 8 below. 16 (e) BENEFITS UPON A CHANGE IN CONTROL. Reynolds recognizes that the threat of a Change in Control would be of significant concern to Employee. The following provisions provide termination protection for Employee in the event of a Change in Control. These provisions, among other purposes, are intended to foster and encourage Employee's continued attention and dedication to his duties in the event of such potentially disturbing and disruptive circumstances. Reynolds, therefore, agrees to do the following: (i) If Reynolds terminates Employee's employment for any reason other than a Discharge for Cause, or if Employee terminates his employment with Reynolds voluntarily for any reason other than disability or retirement within the twenty-four (24) month period following a Change in Control, Employee shall be entitled to receive from Reynolds the following benefits: (A) A lump sum severance payment (the "Severance Payment"), in cash, equal to three (3) times the sum of (i) the higher of Employee's annual Base Compensation in effect immediately prior to the occurrence of the event or circumstance upon which such termination of employment is based or in effect immediately prior to the Change in Control, and (ii) the average of Employee's Bonuses during the three (3) calendar years immediately preceding the year in which the date of termination occurs. (B) Employee shall be entitled, during the period expiring on the earlier of his securing other employment or twenty-four (24) months from the date of such termination of employment (or such longer period as required by law), to continued coverage under the Reynolds sponsored medical benefits program in existence on such date of termination or, if such continued coverage is barred, Reynolds shall provide equivalent medical benefit coverage through the purchase of insurance or otherwise. (C) For purposes of determining Employee's benefits under the Supplemental Plan, Employee shall receive credit toward his Years of Service under the Supplemental Plan for the two (2) year period following such termination of employment. In 17 addition, with respect to the two (2) year period following such termination of employment, Employee's Base Compensation shall be deemed to be increased by the annual economic range adjustment for Reynolds' salaried employees announced in October of each year (or, if there is no such announced economic range adjustment in a given year, by an assumed five percent (5%) increase for that year) in order to calculate his highest earnings during five (5) consecutive years out of the last ten (10) years prior to retirement under the Supplemental Plan. (D) Employee shall be reimbursed for up to $20,000 for outplacement fees if he chooses to seek other employment following his discharge by Reynolds. Employee shall not be obligated to seek other employment in order to mitigate his damages resulting from his discharge. (E) In addition to all of the foregoing, Employee shall be entitled to receive the payments required of Reynolds under his then-existing deferred compensation agreement(s) with Reynolds in accordance with the terms of such agreement(s), and the retirement benefit provided for in Section 5 of this Agreement. The benefits provided in this Section 7(e) shall be in lieu of any benefits provided under Section 7(d) of this Agreement. (ii) Notwithstanding any other provisions of this Agreement, in the event that any payment or benefit received or to be received by Employee in connection with a Change in Control or the termination of Employee's employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with Reynolds, any person whose actions result in a Change in Control or any person affiliated with Reynolds or such person) (all such payments and benefits, including the Severance Payment, being hereinafter called "Total Payments") would be subject (in whole or part), to an excise tax pursuant to Sections 280G and 4999 of the Internal Revenue Code of 1986, as amended (the "Code") (such tax hereinafter referred to as the "Excise Tax"), then the Severance Payment shall be reduced to the extent 18 necessary so that no portion of the Total Payments is subject to Excise Tax (after taking into account any reduction in the Total Payments provided by reason of Section 280G of the Code in such other plan, arrangement or agreement) if (A) the net amount of such Total Payments, as so reduced, (and after deduction of the net amount of federal, state and local income tax on such Total Payments), is greater than (B) the excess of (i) the net amount of such Total Payments, without reduction (but after deduction of the net amount of federal, state and local income tax on such Total Payments), over (ii) the amount of Excise Tax to which Employee would be subject in respect of such Total Payments. For purposes of determining whether and the extent to which the Total Payments will be subject to the Excise Tax, (i) no portion of the Total Payments the receipt or enjoyment of which Employee shall have effectively waived in writing prior to the date of this termination of employment shall be taken into account, (ii) no portion of the Total Payments shall be taken into account which in the opinion of tax counsel selected by Reynolds does not constitute a "parachute payment" within the meaning of Section 280G(b)(2) of the Code, (including by reason of Section 280G(b)(4)(A) of the Code) and, in calculating the Excise Tax, no portion of such Total Payment shall be taken into account which constitutes reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the base amount as defined in Section 280G(b)(3) of the Code allowable to such reasonable compensation, and (iii) the value of any non-cash benefit or any deferred payment or benefit included in the Total Payments shall be determined by Reynolds in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. Prior to the fifth day following the date of Employee's termination of employment, Reynolds shall provide Employee with its calculation of the amounts referred to in this Section and such supporting materials as are reasonably necessary for Employee to evaluate Reynolds' calculations. If Employee objects to 19 Reynolds' calculations, he shall notify Reynolds of his objections prior to the initial payment date set forth in Section 7(e)(vi) hereof, and Reynolds shall pay to Employee such portion of the Severance Payment (up to one hundred percent (100%) thereof) as Employee determines is necessary to result in Employee's receiving the greater of clauses (A) and (B) of this Section. (iii) Upon the occurrence of an Escrow Funding Event, Reynolds shall pay into an escrow account at the Escrow Agent an amount equal to three (3) times the sum of (i) Employee's Base Compensation in effect immediately prior to the Escrow Funding Event and (ii) the average of Employee's Bonuses during the three (3) calendar years immediately preceding the year in which the Escrow Funding Event occurs. Subsequent to the delivery to the Escrow Agent of the Escrow Amount, Reynolds shall, in the event that either Employee's Base Compensation is increased (or decreased) or he receives a Bonus that affects the amount described in Section 7(e)(i)(A), unless the Escrow Amount shall theretofore have been released pursuant to this subsection, recalculate the Escrow Amount as of the date such change in Base Compensation or receipt of Bonus occurs, treating the Escrow Funding Event as having occurred on such date. If the amount so calculated exceeds the fair market value of the Escrow Amount, Reynolds shall promptly (and in no event later than seven (7) days from such date) pay to the Escrow Agent an amount in cash (or marketable securities or any combination thereof) equal to such excess. If the Escrow Amount so calculated is less than the fair market value of the Escrow Amount then held in the escrow account, the Escrow Agent, upon receipt of a written request from Reynolds, shall distribute to Reynolds such difference in cash; provided, however, that this sentence shall not apply after the occurrence of a Change in Control. (iv) Unless the parties otherwise agree, Reynolds may withdraw the Escrow Amount when and only when two (2) years have expired from the date of deposit and no proper 20 demand pursuant to Section 7(e)(vi) below has been made during the time, or when the conditions requiring the deposit have ceased to exist for a period of ninety (90) days without a demand right having been created, or when Employee's right to a payment under this Section 7(e) has been forfeited, whichever occurs first. If, before the expiration of such period or forfeiture, there shall occur another Escrow Funding Event, Reynolds will not be required to make an additional deposit, but the two (2) year period shall then be measured from the date of the last such event. Notwithstanding a deposit with the Escrow Agent pursuant to subsection (iii) of this Section 7(e), Employee shall continue to be entitled to receive all of the benefits from Reynolds under this Agreement until a termination of employment shall occur. (v) Reynolds shall pay the charges of the Escrow Agent for its services under the Escrow Agreement, and Reynolds will be entitled to any interest or other income arising from the date of the deposit of the Escrow Amount until all payments have been made under the Escrow Agreement to Employee. All interest or other income arising from the Escrow Amount deposited with the Escrow Agent shall be paid monthly to Reynolds. (vi) If Reynolds terminates Employee's employment for any reason but a Discharge for Cause, or if Employee terminates his employment with Reynolds voluntarily for any reason other than disability or retirement within the twenty-four (24) month period following the date of a Change in Control, the Escrow Agent, upon written demand made on or after the tenth (10th) day following such termination of employment, shall pay the Escrow Amount in accordance with this Section and Employee shall no longer be subject to the restrictive provisions of Section 8 below, except for Section 8(e). Employee shall notify the Escrow Agent prior to the tenth (10th) day following his termination of employment as to whether he has accepted the determination of Reynolds of the amount of the Severance Payments pursuant to 21 Section 7(e) (iii). If he has accepted such determination, Reynolds shall provide the Escrow Agent with Reynolds' written determination as set forth in Section 7(e) (iii) and the Escrow Agent shall pay to Employee all or a portion of the Escrow Amount as provided in such determination, and any remaining amount shall be paid to Reynolds. If Employee does not accept Reynolds' determination, Employee shall provide to the Escrow Agent his determination of the Severance Payment, and the Escrow Agent shall pay to Employee all or a portion of the Escrow Amount as provided in Employee's determination and any remaining amount shall be paid to Reynolds. (vii) In the event that, following the creation of a demand right pursuant to Section 7(e)(vi) above, Employee incurs any costs or expenses, including attorneys' fees, in the enforcement of rights under this Section 7(e) or under any plan for the benefit of employees of Reynolds, including without limitation the stock option plan, pension plans, payroll-based stock ownership plan, tax deferred savings and protection plan, bonus arrangements, supplemental pension plan, deferred compensation agreements, incentive compensation plans, and life insurance and compensation program, then, unless Reynolds or the consolidated, surviving or transferee entity in the event of a consolidation, merger or sale of assets, is wholly successful in defending against the enforcement of such rights, Reynolds, or such consolidated, surviving or transferee entity, shall promptly pay to Employee all such costs and expenses. 8. NON-COMPETITION; CONFIDENTIALITY. --------------------------------- (a) In order to protect Reynolds, it is understood that a covenant not to compete is a necessary and appropriate adjunct to the other provisions of this Agreement. Therefore, should Employee at any time determine prior to the expiration of this Agreement that he does not desire to remain an employee of Reynolds and shall terminate his employment for 22 any reason other than the grounds specified in Section 7(e) above, or should he be Discharged For Cause by Reynolds, Employee shall remain subject to the restrictive provisions hereinafter set forth. In addition, these restrictive provisions shall remain in full force and effect at any other time (subject to the limitations set forth in Sections 8(b) and 8(c) below) during which payments are required to be made by Reynolds pursuant to the retirement (Section 5), severance (Section 7, except for Section 7(e)(vi)) or disability (Section 6) provisions of this Agreement. These restrictive provisions are as follows: (b) For a period of two (2) years from and after Employee's employment with Reynolds shall have terminated (provided, however, in the event of termination of Employee's employment due to Reynolds' decision not to renew this Agreement the period shall be one (1) year if the renewal period ending is also one (1) year) and after he shall have ceased receiving retirement (provided that such retirement benefits have then begun to be paid during the two (2) year (or one (1) year) period mentioned in this Section 8(b)), severance or disability benefits under this Agreement, whichever shall last occur, he shall not, directly or indirectly, compete with Reynolds or any of its related or affiliated companies. For purposes of this Agreement, competition with Reynolds or any of its related or affiliated companies shall include the manufacture, distribution, and sale of business forms and computer hardware and software and the furnishing of EDP services which are similar in nature or function to the products and/or services then being furnished by Reynolds for sale in the same vertical markets in which Reynolds' products and/or services are then being marketed at the time of Employee's termination of employment or upon the cessation of any retirement, severance or disability benefits under this Agreement. 23 (c) From and after the execution of this Agreement and for a period of two (2) years after termination (provided, however, in the event of termination of Employee's employment due to Reynolds' decision not to renew this Agreement the period shall be one (1) year if the renewal period ending is also one (1) year) of his employment with Reynolds and after he shall have ceased receiving retirement (provided that such retirement benefits have then begun to be paid during the two (2) year (or one (1) year) period mentioned in this Section 8(c)), severance or disability benefits under this Agreement, whichever shall last occur, Employee shall not, directly or indirectly, by direct participation, by purchase of stocks or bonds or other evidences of indebtedness, by loaning of money, by guarantee of loans of others, by gift to establish or assist others, or in any other manner or fashion, engage in any such restricted activity in competition with Reynolds or any of its related or affiliated companies, nor shall he assist any present employees of Reynolds or any other person similarly to engage in such competing business for the full two-year prohibition period set forth in this Agreement. (d) The restrictive provisions of this Section 8, however, are in no way intended to prohibit Employee from acquiring in open market transactions investments in equity stock or evidences of indebtedness of a corporation if the said stock or if the said evidence of indebtedness is traded on a national or regional securities exchange or in the over-the-counter market and the investment therein represents no more than five percent (5%) of the outstanding securities of the issue being acquired. Moreover, it is not the intention of this Section 8 to limit in any way Employee's ability to invest in businesses not competitive with Reynolds. (e) Employee shall keep secret and inviolate all knowledge or information of a confidential nature (which is not then nor later, through no breach of this Agreement, in the public domain), including all unpublished matters related to, without limitation thereof, the 24 business, properties, accounts, books and records, research and development information, processes, procedures, products, know-how, trade secrets, memoranda, devices, suppliers, and customers of Reynolds which he may now know or hereafter come to know as a result of his affiliation in business with Reynolds. (f) All copyrights, improvements, discoveries and inventions and all claims, interest and rights thereto relating to any part of the business of Reynolds conceived, developed or made by Employee, either alone or with others, during the period of his employment, and whether conceived, developed or made during his regular working hours or at any other time during such period, shall be and are the sole property of Reynolds and Employee hereby assigns to Reynolds all right, title and interest in and to such copyrights, improvements, discoveries and inventions. Further, Employee will, at any time in the future upon Reynolds' request, execute specific assignments of any said copyrights, improvements, discoveries and inventions as well as execute all documents and perform all lawful acts which Reynolds deems necessary or advisable to vest full ownership thereof in Reynolds, to register same in the name of Reynolds or its designee or otherwise to provide legal protection for Reynolds' ownership interests therein. (g) This Agreement shall be without geographical limitation in continental North America and, in addition, in any other areas of the world in which Reynolds or any of its related or affiliated companies shall be doing business at the time of the proposed competing entry into business by Employee, it being agreed that the contacts of Employee and the potential scope of operation of Reynolds is without any limitation within the area of prohibition. Any violation of this covenant may be enforced by specific performance in any court of competent jurisdiction within the area of limitation imposed by this provision. If any court of competent jurisdiction shall determine that either the period or the territory covered by this provision 25 against competition in unreasonable, said provision shall not be determined to be null, void, and of no effect but shall be reformed by said court to impose a reasonable period or a reasonable geographical limitation, as the case may be. 9. RESOLUTION OF DISPUTES; ARBITRATION. ------------------------------------ (a) Except for the breach or threatened breach by Employee of the noncompetition provisions of this Agreement which may be enforced by appropriate injunctive relief at the option of Reynolds, any dispute or controversy arising out of or relating to this Agreement, including, but not limited to, whether Employee has been Discharged for Cause, shall be submitted to and settled by arbitration in Dayton, Ohio in accordance with the rules then pertaining of the American Arbitration Association. (b) Should Employee disagree that his termination was due to a Discharge for Cause, the question shall, within thirty (30) days after the termination, be submitted to arbitration by three (3) arbitrators, one of whom shall be selected by Reynolds, another of whom shall be selected by Employee, and the third of whom shall be selected by the two arbitrators so appointed. The decision of these arbitrators on the question shall be final and conclusive upon Reynolds and upon Employee and his wife or widow, personal representatives, designated beneficiaries and heirs, and shall be enforceable in any court having competent jurisdiction thereof. A discharge which is eventually determined under arbitration to have been a Discharge for Cause, or no arbitration having been requested and the discharge being one which Reynolds had determined was for a Discharge for Cause, shall extinguish any and all liability of Reynolds under this Agreement from and after the date of termination. (c) The arbitrators for all other disputes or controversies under this Agreement shall be selected as set forth above and the parties shall select the arbitrators within thirty (30) 26 days after demand from Employee or Reynolds to the other to settle matters by arbitration. As stated above, the decision of the arbitrators shall be final and conclusive. 10. NONASSIGNABLE RIGHTS. --------------------- Employee, his wife, or his widow after his death, or his personal representatives, designated beneficiaries and heirs, shall not have the right to anticipate or commute, or to sell, assign, transfer, or otherwise alienate or convey the right to receive any payments hereunder, whether by his, her or their voluntary or involuntary act, or by operation of law and, in particular, that any payments due hereunder shall not be subject to attachment or garnishment or any other legal proceedings by any creditor, or be in any way responsible for the debts or liabilities of Employee or his wife or his widow after his death or his personal representatives, designated beneficiaries and heirs. Should Employee or his wife or his widow after his death or his personal representatives, designated beneficiaries and heirs, voluntarily attempt to breach this Section of this Agreement, Reynolds' liability to make payments hereunder from and after the date of said attempt shall be extinguished; and should any attempt be made to reach the payments by other than Employee or his wife or his widow after his death or his personal representatives, designated beneficiaries and heirs, Reynolds shall make each payment as it becomes due to such person or persons for the sole benefit of Employee or his wife or his widow or his personal representatives, designated beneficiaries and heirs, as the case may be, as Reynolds may deem expedient. 11. UNFUNDED AGREEMENT. ------------------- (a) Reynolds' obligation under this Agreement shall be unfunded, but Reynolds reserves the right to provide for its liability under this Agreement in any manner it deems advisable, including the purchasing of such assets (including an insurance policy or 27 policies on Employee's life) as it may deem necessary or proper; provided, however, that Employee's insurability or non-insurability shall in no way affect Reynolds' obligations pursuant to this Agreement. Any asset so purchased by Reynolds shall be the sole property of Reynolds and shall not be deemed to provide funding of Reynolds' obligations under this Agreement. (b) In the event Reynolds determines to purchase any insurance policy or policies on Employee's life, Employee agrees to submit to such examination and to supply information as may be required by the insurer. (c) Any policy so purchased by Reynolds shall be issued so that Reynolds is the sole, full, and complete owner of the policy or policies, with the right and power to exercise any and all privileges and options thereof or available under the rules of the issuing insurer without the consent of any other persons. (d) Employee, his wife, or his widow after his death, or his designated beneficiaries, personal representatives, heirs, successors and assigns shall have no claim or rights with respect to, and shall have no property or equitable interests whatsoever in, any specific funds or assets of Reynolds and shall have only the status of a general creditor with respect to Reynolds hereunder. 12. FACILITY OF PAYMENT. -------------------- In the event of a physical or mental illness or disability of Employee or of his widow after his death or of his designated beneficiaries at a time when he or she (or they) is (are) entitled to payments hereunder, such payments as may be due shall be paid to such person or persons for the benefit of Employee or his widow or his designated beneficiaries, as the case may be, as Reynolds or, if applicable, the Escrow Agent may deem proper. In the event of Employee's death after he has made demand pursuant to Section 7(e)(v) above, the Escrow 28 Agent shall pay such amounts as thereafter are due to such beneficiary or beneficiaries as Employee shall have designated in writing, or failing such writing, to his estate. No liability shall accrue to Reynolds or Escrow Agent for any alleged payment to an improper person or representative if so made after such reasonable investigation and Reynolds and Escrow Agent shall have no responsibility to see to the proper application of such payments. 13. MISCELLANEOUS PROVISIONS. ------------------------- (a) All notices required or permitted to be given under this Agreement shall be in writing and shall be mailed, postage prepaid, by registered or certified mail or personally delivered, if to Reynolds, addressed to: The Reynolds and Reynolds Company Attention: Vice President, Corporate Finance and Chief Financial Officer 115 South Ludlow St. Dayton, Ohio 45402 and, if to Employee, addressed to: Lloyd G. Waterhouse 2245 Ridgeway Road Dayton, OH 45419 Either party may change the address to which notices to such party are to be sent by giving written notice of such change to the other party in the manner specified in this provision. (b) (i) This Agreement shall be binding upon Employee, his wife, and upon his or her heirs, executors, administrators, designated beneficiaries and upon anyone claiming under him or his wife or widow, and upon Reynolds and its successor or assigns. (ii) Reynolds shall not merge or consolidate with any other entity unless and until such other entity shall expressly assume Reynolds' obligations under this Agreement or Reynolds has provided an appropriate alternative arrangement covering its contingent liabilities 29 under this Agreement, and Reynolds shall not voluntarily dissolve without first providing an appropriate arrangement covering its contingent liabilities under this Agreement. (c) This Agreement may be amended, but only with the consent of Employee during his lifetime and, after his death only with the consent of his widow during her lifetime or his other designated beneficiaries during their lifetime, as the case may be. Any agreement of amendment shall be executed with the same formality as this Agreement. (d) This Agreement supersedes any prior agreements or understandings covering the subject matter hereof, either written or oral, between the parties. (e) This Agreement shall be construed under the laws of the State of Ohio. (f) The paragraph headings used in this Agreement are for convenience of reference only and shall not be considered in construing this Agreement. IN WITNESS WHEREOF, the parties hereto have hereunto set their respective hands on November ____, 2001. THE REYNOLDS AND REYNOLDS COMPANY By________________________________ Douglas M. Ventura General Counsel and Secretary LLOYD G. WATERHOUSE __________________________________ Lloyd G. Waterhouse 30 EX-10.D 7 l92008aex10-d.txt EX-(10)(D) EMPLOYMENT AGREEMENT EXHIBIT (10)(d) --------------- EMPLOYMENT AGREEMENT AGREEMENT made and entered into the 7th day of May, 2001, and amended and restated as of December 1, 2001, by and between THE REYNOLDS AND REYNOLDS COMPANY, a corporation existing under the laws of the State of Ohio (hereinafter referred to as the "Employer"), and Dale L. Medford (hereinafter referred to as "Employee") WITNESSETH: WHEREAS, Employee is currently an employee of the Employer; and WHEREAS, Employer considers Employee a key member of the management team of Employer and in order to induce and encourage Employee to remain with Employer, Employer desires to provide Employee with additional benefits of employment as set forth herein; and WHEREAS, the Employer also recognizes that a major change in the control of the Employer would be of significant concern to Employee; and WHEREAS, the parties hereto desire to set forth their mutual agreement regarding the terms of Employee's employment under certain specified circumstances in order to induce and encourage Employee to remain with Employer and to foster and encourage continued attention and dedication to Employee's assigned duties in the event of a major change in the control of the Employer. NOW, THEREFORE, in consideration of the foregoing premises, Employee's continued employment for any period after execution of this Agreement, and the mutual promises set forth herein, the parties hereby agree as follows: 1. DEFINITIONS. For purposes of this Agreement: (a) "Base Compensation" shall mean the then-current annual base salary (exclusive of Bonuses) of Employee, as the same may be fixed from time to time by the Board of Directors or its Compensation Committee or, if applicable, by the appropriate executive officer of Employer. (b) "Bonuses" shall mean bonus payments earned by Employee under Employer's Incentive Compensation Plans and under any future bonus or incentive compensation plans of Employer for its executive officers in which Employee participates. (c) "Change in Control" shall mean the occurrence of any of the following events: (i) Any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") (other than Richard H. Grant, Jr., his children or his grandchildren, Employer, any trustee or other fiduciary holding securities under an employee benefit plan of Employer or any company owned, directly or indirectly, by the shareholders of Employer in substantially the same proportions as their ownership of stock of Employer), who is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of Employer representing twenty percent (20%) or more of the combined voting power of Employer's then outstanding securities; (ii) during any period of two consecutive years (not including any period prior to the execution of this Plan), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with Employer to effect a transaction described in clause (i), (iii) or (iv) of this Section) who election by Employer's shareholders was approved by a vote of at least two-thirds (2/3) of the directors at the beginning of the period or whose election or nomination for election was previously so approved cease for any reason to constitute at least a majority thereof; (iii) the consummation of a merger or consolidation of Employer or any direct or indirect subsidiary of Employer with any other corporation, other than (1) a merger or consolidation which would result in the voting securities of Employer outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) more than 50% of the combined voting power of the voting securities of Employer or such surviving entity or parent thereof outstanding immediately after such merger or consolidation or (2) a merger or consolidation effected to implement a recapitalization of Employer (or similar transaction) in which no "person" (as hereinabove defined) is or becomes the beneficial owner, directly or indirectly, of securities of Employer (not including in the securities beneficially owned by such person any securities acquired directly from Employer or its affiliates other than in connection with the securities acquired directly from Employer or its affiliates other than in connection with the acquisition by Employer or its affiliates of a business) representing twenty percent (20%) or more of the combined voting power of Employer's then outstanding securities; or 2 (iv) the shareholders of Employer approve a plan of liquidation, dissolution or winding up of Employer or an agreement for the sale or disposition by Employer of all or substantially all of Employer's assets. (d) "Disability" or "Disabled" shall mean the inability of Employee, because of any mental or physical illness or incapacity, to perform substantially the duties of his employment with the Employer as determined under the Employer's long-term disability program. (e) "Discharge For Cause" shall be construed to have occurred whenever occasioned by reason of felonious acts on the part of Employee, actions by Employee involving serious moral turpitude or his misconduct in such manner as to bring substantial and material discredit upon Employer, following the giving of thirty (30) days' written notice to Employee specifying the respect in which Employer claims Employee has violated this provision and the failure, inability or unwillingness of Employee to remedy the situation to the satisfaction of Employer within said thirty-day period. In establishing whether a Discharge For Cause shall have occurred, the standard for judgment shall be the level of conduct by Employee and by other comparably situated executive officers prior to the alleged improper activity of Employee for which the Discharge For Cause has been made. (f) "Escrow Agreement" shall mean the agreement entered into simultaneously herewith between Employer and Bank One Trust Company, NA, a copy of which is attached hereto and made a part hereof as Exhibit A. (g) "Escrow Agent" shall mean Bank One Trust Company, NA. (h) "Escrow Amount" shall mean the amounts placed in escrow by Employer pursuant to subsection (a) of Section 2 of this Agreement. (i) "Escrow Funding Event" shall mean the occurrence of any of the following events: (i) Class A Common Shares of Employer have been acquired other than directly from Employer in exchange for cash or property by any person (other than Richard H. Grant, Jr., his children or his grandchildren, Employer, any trustee or other fiduciary holding securities under an employee benefit plan of Employer, or any company owned directly or indirectly by the shareholders of Employer in substantially the same proportions as their ownership of the stock of Employer) who either thereby becomes the owner of more than nine and one-half percent (9.5%) of Employer's outstanding Class A Common Shares, or having directly or indirectly become the owner of more than five percent (5%) of Employer's Class A Common Shares either alone or in conjunction with another person has expressed an intent to continue acquiring Employer's outstanding Class A Common Shares so as to become 3 thereby the owner of more than nine and one-half percent (9.5%) of such stock either directly or indirectly; (ii) Any person (other than Richard H. Grant, Jr., his children or grandchildren, Employer any trustee or other fiduciary holding securities under an employee benefit plan of Employer, or any company owned directly or indirectly by the shareholders of Employer in substantially the same proportions as their ownership of the stock of Employer) has made a tender offer for, or a request for invitations for tenders of, Class A Common Shares of Employer; (iii) Any person forwards or causes to be forwarded to shareholders of Employer proxy statement(s) in any period of twenty-four (24) consecutive months, soliciting proxies, to elect to the Board of Directors of Employer two (2) or more candidates who were not nominated as candidates in proxy statements forwarded to shareholders during such period by the Board of Directors of Employer; or (iv) The Board of Directors of the Employer adopts a resolution to the effect that, for purposes of this Agreement, an Escrow Funding Event has occurred. (j) "Retirement Benefits" shall mean the benefits payable to Employee under the Employer's Retirement Benefit Plans. (i) "Retirement Benefit Plans" shall mean: (ii) The Officers' Supplemental Plan; (iii) The Non-Qualified Deferred Compensation Plan; (iv) The Officers' Salary Continuation Plan; and (v) The Retirement Plan, as each of the foregoing may be amended, supplemented or succeeded by another plan from time to time. 2. PAYMENT OF RETIREMENT BENEFITS. (a) Upon the happening of any of the events set forth below at any time after the date hereof, Employee shall be entitled to receive Retirement Benefits payable in accordance with Employer's Retirement Benefit Plans in which Employee then participates. If such event occurs at any time from the date hereof through 4 December 31, 2002, the Retirement Benefits shall be calculated as if the Employee was age 58 rather than actual age at the time of the event. If such event occurs at any time from January 1, 2003 through May 31, 2012, the Retirement Benefits shall be calculated as if the Employee was age 62 rather than actual age at the time of the event; provided, however, that the portion of Employee's Retirement Benefits under the Employer's Retirement Plan (as referred to in Section 1(l)(iv) above) shall be calculated without making any age adjustment. Employee shall be entitled to the Retirement Benefits in the event any of the following occurs: (i) the Employee's death; (ii) the Employee's Disability; (iii) the termination of Employee's employment by Employer at any time and for any reason unless such termination is a Discharge for Cause; (iv) if, prior to a Change in Control, Employee voluntarily terminates his employment with Employer upon giving the Employer at least 180 days written notice; and (v) if, after a Change in Control, Employee voluntarily terminates his employment upon the giving of at least 180 days written notice for reasons other than as set forth in subsection (a) of Section 5 of this Agreement, or his employment is terminated pursuant to subsection (b)(i) of Section 5 of this Agreement. (b) Employer and Employee agree that the Retirement Benefits provided hereunder shall be in lieu of all other benefits to which Employee may then be entitled upon the happening of any of the events set forth in subsections (i) through (v) of Section 2(a) of this Agreement, except that Employee shall in all events be entitled to: (i) those benefits required by law; (ii) retiree medical coverage to the extent and on the same terms and conditions then being provided by Employer; (iii) any amounts necessary to replace up to age 62 any "Social Security" payments that are taken into consideration (but not yet paid to him due to his age at the time Retirement Benefits hereunder are being paid) for purposes of calculating his Retirement Benefits; and (iv) in the event of a Change in Control, Employee shall be entitled to the Retirement Benefits and the benefits set forth in Section 5 of this Agreement. 5 Employee shall also be entitled to exercise all then outstanding stock options in Employer to the extent said options are exercisable in accordance with the terms thereof; provided, however, that upon an event giving rise to the payment of Retirement Benefits hereunder, Employee shall for purposes of such options be considered retired and have the right to exercise such options as fully as if he had remained continuously employed by the Employer. 3. STOCK OPTIONS AWARD. Effective December 28, 2000, Employer hereby awards Employee non-qualified stock options consisting of 90,000 shares of the Class A Common Stock of Employer at the option price of $20.06 per share. The Stock Option Agreement to be used for this option is attached hereto as EXHIBIT B and made a part hereof. 4. PAYMENTS INTO ESCROW. (a) Upon the occurrence of an Escrow Funding Event within five (5) years after the date of this Agreement, Employer shall pay into an escrow account at the Escrow Agent an amount equal to two and ninety-nine one hundredths (2.99) times the sum of the (i) higher of Employee's annual Base Compensation in effect immediately prior to the occurrence of the event or circumstance upon which such termination of employment is based or in effect immediately prior to the Change in Control, and (ii) the average of Employee's Bonuses during the three (3) calendar years immediately preceding the year in which the date of termination occurs. Subsequent to the delivery to the Escrow Agent of the Escrow Amount, Employer shall, in the event that either Employee's Base Compensation is increased (or decreased) or he receives a Bonus that affects the amount described in this subsection, unless the Escrow Amount shall theretofore have been released pursuant to subsection (b) of this Section, recalculate the Escrow Amount as of the date such change in Base Compensation or receipt of Bonus occurs, treating the Escrow Funding Event as having occurred on such date. If the amount so calculated exceeds the fair market value of the Escrow Amount, Employer shall promptly (and in no event later than seven (7) days from such date) pay to the Escrow Agent an amount in cash (or marketable securities or any combination thereof) equal to such excess. If the Escrow Amount so calculated is less than the fair market value of the Escrow Amount then held in the escrow account, the Escrow Agent, upon receipt of a written request from Employer, shall distribute to Employer such difference in cash; provided, however, that this sentence shall not apply after the occurrence of a Change in Control. The Escrow Amount shall be governed by the terms and conditions of this Agreement and the Escrow Agreement. (b) Unless the parties otherwise agree, the Employer may withdraw the Escrow Amount when and only when two (2) years have expired from the date of deposit and no proper demand pursuant to subsection (b) (i) of Section 5 of this Agreement has been made during that time, or when the conditions requiring the deposit have ceased to exist for a period of ninety (90) days without a demand right having been created, or when Employee's right to a payment under this Agreement has been forfeited, whichever occurs first. If, before the expiration of such periods or forfeiture, there shall occur another Escrow Funding Event, the Employer will not be required to make an additional deposit, but the two (2) year period shall 6 then be measured from the date of the last such event. Notwithstanding a deposit with the Escrow Agent pursuant to subsection (a) of this Section, Employee shall continue to be entitled to receive all of the normal and usual benefits from Employer until a termination of employment shall occur. (c) The Employer shall pay the charges of the Escrow Agent for its services under the Escrow Agreement, and the Employer will be entitled to any interest or other income arising from the date of the deposit of the Escrow Amount until all payments have been made under the Escrow Agreement to Employee. All interest or other income arising from the Escrow Amount deposited with the Escrow Agent shall be paid monthly to Employer. (d) In the event that, following the creation of a demand right pursuant to Section 5 of this Agreement, Employee incurs any costs or expenses, including attorneys' fees, in the enforcement of rights under this Agreement or, subject to the limitations set forth in subsection (b) of Section 2 of this Agreement, under any plan for the benefit of employees of the Employer, including without limitation the stock option plan, pension plans, payroll-based stock ownership plan, tax deferred savings and protection plan, bonus arrangements, supplemental pension plan, deferred compensation agreements, incentive compensation plans, and life insurance and compensation program, then, unless the Employer or the consolidated, surviving or transferee entity in the event of a consolidation, merger or sale of assets, is wholly successful in defending against the enforcement of such rights, the Employer, or such consolidated, surviving or transferee entity, shall promptly pay to Employee all such costs and expenses. 5. EMPLOYMENT TERMS AND SEVERANCE BENEFITS AFTER CHANGE IN CONTROL. (a) After a Change in Control has occurred: (i) The Employer shall not reduce Employee's Base Compensation below the amount of such Base Compensation in effect immediately preceding the Change in Control without Employee's written consent; (ii) The Employer shall continue to provide Employee with fringe benefits (including bonuses, vacation, health and disability insurance, etc.) at least equivalent to those of other similarly situated executive officers of the Employer; (iii) Employee shall not be required by the Employer to perform duties or services which differ significantly from those performed by him prior to the Change in Control, or which are not ordinarily and generally performed by a similarly situated executive of a corporation; (iv) The nature of the duties or services which the Employer requires him to perform shall not necessitate absence overnight from his place of residence on the effective date hereof, because of travel involving the business affairs of the Employer for more than ninety (90) days during any period of twelve (12) consecutive months. (b) (i) If the Employer terminates Employee's employment or if Employee terminates his employment with Employer for any of the reasons specified in subsection (a) of this Section within the twenty-four (24) month period following the date of a Change in Control, the Escrow Agent upon written demand from Employee shall pay promptly to the Employee the Escrow Amount in one (1) lump sum in cash. 7 (ii) Employee shall also be entitled to the following benefits commencing as of the date of the payment of the Escrow Amount to Employee: A. During the period expiring on the earlier of Employee securing other employment or twenty-four (24) months from date of payment of the Escrow Amount (or such longer period as required by law) to continued coverage under the Employer's sponsored medical benefits program in existence on such date of payment, or, if such continued coverage is barred, Employer shall provide equivalent medical benefit coverage through the purchase of insurance or otherwise. B. In addition to the Retirement Benefits being calculated pursuant to subsection (a) of Section 2 of this Agreement, for purposes of determining Employee's benefits under Employer's Supplemental Plan, Employee shall receive credit toward his Years of Service under the Supplemental Plan for the two (2) year period following his termination of employment. In addition, with respect to the two (2) year period following such termination of employment, Employee's Base Compensation shall be deemed to be increased by the annual economic range adjustment for Employer's salaried employees announced in October of each year (or, if there is no such announced economic range adjustment in a given year, by an assumed five percent (5%) increase for that year) in order to calculate his highest earnings during five (5) consecutive years out of the last ten (10) years prior to retirement under the Supplemental Plan. C. Employee shall be reimbursed for up to $20,000 for outplacement fees if he chooses to seek other employment following his termination of employment with Employer. (c) Notwithstanding anything to the contrary in this Section, Employee shall not be entitled to any payments pursuant to subsection (b) (i) of this Section if Employee dies prior to making a demand for payment pursuant to subsection (b) (i) of this Section, or if the Employer terminates Employee's employment because of a Discharge for Cause, because of Employee's Disability, or if Employee voluntarily terminates his employment with the Employer for reasons other than as set forth in subsection (a) of this Section; provided, however, Employee shall continue to be entitled to receive the Retirement Benefits and to have his Retirement Benefits calculated pursuant to subsection (a) of Section 2 of this Agreement in the event, prior to making a demand for payment pursuant to subsection (b)(i) of this Section, he dies, becomes Disabled or voluntarily terminates his employment upon giving at least 180 days written notice for reasons other than as set forth in subsection (a) of this Section. 8 (d) Employee shall not be required to mitigate damages with respect to the amount of any payments provided for in subsection (b) of this Section by seeking other employment or otherwise. Employee's sole remedy under this Agreement for a breach by the Employer of subsection (a) of this Section shall be to terminate employment and receive any payments to which he is entitled under Section 2 of this Agreement and subsection (b) of this Section. (e) Should Employee disagree that his termination was due to a Discharge For Cause, the question shall, within thirty (30) days after the termination of employment, be submitted to arbitration by three (3) arbitrators, one of whom shall be selected by Employer, another of whom shall be selected by Employee, and the third of whom shall be selected by the two arbitrators so appointed. The arbitration shall take place in Dayton, Ohio in accordance with the then rules of the American Arbitration Association. The decision of these arbitrators on the question shall be final and conclusive upon Employer and upon Employee and his wife or widow, personal representatives, designated beneficiaries and heirs, and shall be enforceable in any court having competent jurisdiction thereof. A termination which is eventually determined under arbitration to have been a Discharge For Cause, or no arbitration having been requested and the termination being one which Employer has determined was a Discharge For Cause, shall extinguish any and all liability of Employer under this Agreement from and after the date of the termination of employment. 6. CONFIDENTIALITY; ENFORCEMENT. (a) Employee shall keep secret and inviolate all knowledge or information of a confidential nature (which is not then nor later, through no breach of this Agreement, in the public domain), including all unpublished matters related to, without limitation thereof, the business, properties, accounts, books and records, research and development information, processes, procedures, products, know-how, trade secrets, memoranda, devices, suppliers, and customers of Employer which he may now know or hereafter come to know as a result of his affiliation in business with Employer. (b) All copyrights, improvements, discoveries and inventions and all claims, interests and rights thereto relating to any part of the business of Employer conceived, developed or made by Employee, either alone or with others, during the period of his employment, and whether conceived, developed or made during his regular working hours or at any other time during such period, shall be and are the sole property of Employer and Employee hereby assigns to Employer all right, title and interest in and to such copyrights, improvements, discoveries and inventions. Further, Employee will, at any time in the future upon Employer's request, execute specific assignments of any said copyrights, improvements, discoveries and inventions as well as execute all documents and perform all lawful acts which Employer deems necessary or advisable to vest full ownership thereof in Employer, to register same in the name of Employer or its designee or otherwise to provide legal protection for Employer's ownership interests therein. (c) Any violation of this Section 6 by Employee may be enforced by Employer by specific performance or appropriate injunctive relief in any court of competent 9 jurisdiction. Any other dispute or controversy arising under this Agreement shall be settled by arbitration in the manner set forth in subsection (e) of Section 5 of this Agreement. 7. UNFUNDED AGREEMENT. The Employer's obligations under this Agreement are unfunded other than from the date of deposit of the Escrow Amount, but the Employer reserves the right to provide for its liability under this Agreement in any manner it deems advisable, including the purchasing of such assets as it may deem necessary or proper. Any asset so purchased by the Employer shall be the sole property of the Employer and shall not be deemed to provide funding of the Employer's obligations under this Agreement. Any other provision in this Agreement to the contrary notwithstanding, Employee shall be only an unsecured general creditor of the Employer with respect to all payments to be made under the terms of this Agreement and shall have no claim, equity, interest, or right in or to any specific assets or funds of the Employer as security for said payments other than the Escrow Amount. 8. NON-ASSIGNABLE RIGHTS. Employee shall not have the right to anticipate or commute with any third party, or to sell, assign, transfer, or otherwise alienate or convey the right to receive any payments hereunder, whether by his voluntary or involuntary act, or by operation of law and, in particular, that any payments due hereunder shall not be subject to attachment or garnishment or any other legal proceedings by any creditor, or be in any way responsible for the debts or liabilities of Employee. Should any attempt be made to reach any payments hereunder by other than Employee, the Escrow Agent shall make each payment as it becomes due to such person or persons, for the sole benefit of Employee upon written direction from Employee. 9. FACILITY OF PAYMENT; LIMITATION. In the event of a Disability of Employee after Employee has made demand hereunder, such payments as may thereafter be due shall be paid to such person or persons for the benefit of Employee as directed by Employee. In the event of Employee's death after he has made demand, the Escrow Agent shall pay such amounts as thereafter are due to such beneficiary or beneficiaries as Employee shall have designated in writing on Exhibit C attached hereto and made a part hereof, or failing such writing, to his estate. No liability shall accrue to the Employer or Escrow Agent for any alleged payment to an improper person or representative if so made after such reasonable investigation and the Employer and Escrow Agent shall have no responsibility to see to the proper application of such payments. Notwithstanding any other provisions of this Agreement, in the event that any payment or benefit received or to be received by Employee in connection with a Change in Control or the termination of Employee's employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with Employer, any person whose actions result in a Change in Control or any person affiliated with Employer or such person)(all such payments and benefits, including the Escrow Amount, being hereinafter called "Total Payments") would be subject (in whole or part), to an excise tax pursuant to Sections 280G and 10 4999 of the Internal Revenue Code of 1986, as amended (the "Code") (such tax hereinafter referred to as the "Excise Tax"), then the Escrow Amount shall be reduced to the extent necessary so that no portion of the Total Payments is subject to Excise Tax (after taking into account any reduction in the Total Payments provided by reason of Section 280G of the Code in such other plan, arrangement or agreement) if (A) the net amount of such Total Payments, as so reduced, (and after deduction of the net amount of federal, state and local income tax on such Total Payments), is greater than (B) the excess of (i) the net amount of such Total Payments, without reduction (but after deduction of the net amount of federal, state and local income tax on such Total Payments), over (ii) the amount of Excise Tax to which Employee would be subject in respect of such Total Payments. For purposes of determining whether and the extent to which the Total Payments will be subject to the Excise Tax, (i) no portion of the Total Payments the receipt or enjoyment of which Employee shall have effectively waived in writing prior to the date of this termination of employment shall be taken into account, (ii) no portion of the Total Payments shall be taken into account which in the opinion of tax counsel selected by Employer does not constitute a "parachute payment" within the meaning of Section 280G(b)(2) of the Code, (including by reason of Section 280G(b)(4)(A) of the Code) and, in calculating the Excise Tax, no portion of such Total Payment shall be taken into account which constitutes reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the base amount as defined in Section 280G(b)(3) of the Code allowable to such reasonable compensation, and (iii) the value of any non-cash benefit or any deferred payment or benefit included in the Total Payments shall be determined by Employer in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. Prior to the fifth day following the date of Employee's termination of employment, Employer shall provide Employee with its calculation of the amounts referred to in this paragraph and such supporting materials as are reasonably necessary for Employee to evaluate Employer's calculations. If Employee objects to Employer's calculations, he shall notify Employer of his objections prior to the initial payment date set forth in Section 5 hereof, and Employer shall pay to Employee such portion of the Total Payments (up to one hundred percent (100%) thereof) as Employee determines is necessary to result in Employee receiving the greater of clauses (A) and (B) of this paragraph. 10. RESPONSIBILITY FOR LEGAL EFFECT. Neither party hereto makes any representations or warranties, express or implied, or assumes any responsibility concerning the legal, tax, or other implications or effects of this Agreement. The Employer and the Escrow Agent shall take all actions required by law with respect to any payments due hereunder including but not limited to, withholding of tax from such payments. 11. INDEPENDENCE OF AGREEMENT; EMPLOYMENT TERMINATION. This Agreement shall be independent of any other contract or agreement that may exist between the parties hereto from time to time. This Agreement shall not restrict the Employer's rights to terminate Employee's employment with the Employer nor Employee's rights to terminate employment with the Employer; provided, however, that the Employer shall not terminate Employee's employment prior to a Change in Control solely to avoid its 11 obligations to make payments required in the event of a Change in Control. No merger or consolidation with any other entity, or sale of all or substantially all of Employer's assets constituting an Escrow Funding Event, or thereafter a Change in Control shall occur without assumption of the Agreement by the purchaser or payment by purchaser or Employer of the sums set forth in subsection (a) of Section 4 of this Agreement. 12. SECTION HEADINGS. The Section headings used in this Agreement are for convenience of reference only and shall not be considered in construing this Agreement. 13. NOTICES. Any notices required or permitted to be given under this Agreement shall be sufficient if in writing and if personally delivered or sent by certified or registered mail to his residence as last shown on the employment records of the Employer in the case of Employee, or to the corporate headquarters to the attention of the President in the case of the Employer. 14. NON-WAIVER. The waiver by the Employer or Employee of a breach of any provision of this Agreement by Employee or the Employer shall not operate or be construed as a waiver of any subsequent breach by Employee or the Employer of the same or any other provision hereof. 15. ENTIRE AGREEMENT; AMENDMENT. This Agreement represents the entire understanding of the parties with respect to the subject matter hereof and supersedes all previous understandings, written or oral, including the agreement between the parties dated August 17, 1998, which shall be rendered null and void. Any amendment to this Agreement shall be executed in writing with the same formality as this Agreement. 16. BINDING EFFECT. This Agreement shall be binding upon Employee and the Employee's heirs, executors, administrators, successors and assigns and upon the Employer and its successors and assigns. 17. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio. 12 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on November ___, 2001. THE REYNOLDS AND REYNOLDS COMPANY By: ------------------------------------------- Lloyd G. Waterhouse President and Chief Executive Officer ---------------------------------------------- Dale L. Medford 13 EXHIBIT A ESCROW AGREEMENT This Escrow Agreement made and entered into as of this 7th day of May, 2001 by and between THE REYNOLDS AND REYNOLDS COMPANY, an Ohio corporation (hereinafter referred to as "Reynolds") and BANK ONE TRUST COMPANY, N.A. (hereinafter referred to as the "Escrow Agent"). WITNESSETH: WHEREAS, Reynolds, has adopted a policy of providing termination pay protection for certain of its key management personnel under conditions set forth in an agreement dated May 7, 2001 (hereinafter referred to as the "Agreement"); and WHEREAS, Reynolds has identified Dale L. Medford (hereinafter referred to as "Employee") as key management personnel and has entered into the Agreement with him; and WHEREAS, certain required protective payments under the Agreement are to be paid to an escrow account at the Escrow Agent; NOW, THEREFORE, in consideration of the covenants and agreements contained in this Escrow Agreement, the parties hereby do agree as follows: 1. ACCEPTANCE OF ESCROW. The Escrow Agent shall serve as Escrow Agent in accordance with the provisions of this Escrow Agreement, and the duties of the Escrow Agent shall be solely those imposed by this Escrow Agreement. 2. TERMS. The Escrow Agent shall receive, hold and disburse funds as Escrow Agent in accordance with the Agreement, in the form attached hereto as Exhibit A and made a part hereof. The Escrow Agent acknowledges that it has reviewed and is familiar with the Agreement and shall be bound by the obligations, terms and conditions therein relating to the Escrow Agent and its duties. However, the Escrow Agent is not a party to or bound by the Agreement, except as specifically provided for therein and as provided in Sections 2, 4, 6, 7 and 8 of this Escrow Agreement. The Escrow Agent shall be liable for only such funds and items as are actually deposited and received by it for the purposes of said escrow. 3. INDEMNIFICATION. So long as the Escrow Agent shall follow the terms of this Escrow Agreement and any instructions issued hereunder in good faith, relying upon documents which it believes to be genuine and properly signed and executed, it shall be held free, clear and harmless and shall incur no liability hereunder. Reynolds shall indemnify and hold the Escrow Agent harmless from any loss, liability, cost, or expense, including reasonable legal fees and expenses, which may arise or be incurred by reason of this Escrow Agreement or the Escrow Agent's performance in good faith of any duty or obligation hereunder. The Escrow Agent shall not be liable for any error of judgment or for any act done or omitted by it in good faith, or for anything which it may in good faith do or refrain from doing in connection with said escrow; nor will any liability be incurred by the Escrow Agent if, in the event of any dispute or question as to the construction of this Escrow Agreement or any demand or notice hereunder, the Escrow Agent acts in accordance with the opinion of its legal counsel. 4. INVESTMENTS BY ESCROW AGENT; INCOME. The Escrow Agent shall invest escrow funds in federally-insured interest bearing accounts selected by Reynolds or in any one or more of the following investments, selected by the Escrow Agent: (a) Certificates of Deposit of United States commercial banks holding membership in the Federal Reserve System. Such U.S. banks shall have minimum total assets of $1,000,000,000 and shall not be currently listed on any publicly-disclosed report of U.S. banks having financial problems warranting close monitoring by the Federal Reserve Board. (b) Euro-dollar Certificates of Deposit issued by the twenty-five (25) largest United States commercial banks, which banks shall have minimum total assets of $1,000,000,000 and shall not be currently listed on any publicly-disclosed report of U.S. banks having financial problems warranting close monitoring by the Federal Reserve Board. (c) Bankers Acceptances of United States commercial banks holding membership in the Federal Reserve System. Such U.S. banks shall have minimum total assets of $1,000,000,000 and shall not be currently listed on any publicly-disclosed report of U.S. banks having financial problems warranting close monitoring by the Federal Reserve Board. (d) United States Treasury Bills. (e) United States Treasury Notes. (f) United States Government Guaranteed "Project Notes" and/or Tax-Exempt Notes rated MIG 1 by Moody's rating agency. (g) Debt instruments issued by the following five United States Government agencies: Federal Intermediate Credit Banks Banks for Cooperatives Federal Land Banks Federal Home Loan Banks Federal National Mortgage Association 2 (h) Commercial Paper rated Prime-1 by Moody's rating agency or rated A-1 by Standard & Poors rating agency. (i) Money market funds (including those managed by the Escrow Agent) the assets of which are obligations of or guaranteed by the United States of America (or repurchase agreements fully collateralized by such obligations) and which funds are rated, at the time of purchase, "Am" or "Am-G" or higher by Standard & Poors rating agency. In addition, with respect to any corporation's commercial paper being purchased, such corporation's long-term debt, if any, must be rated either A by Moody's rating agency or A by Standard & Poors rating agency. The total investments in the above-described approved Certificates of Deposit, Bankers Acceptances, Commercial Paper, and/or Tax-Exempt Notes shall be limited to a maximum of $1,000,000 at any one time in any one single bank, corporation, state and/or municipality. With respect to funds deposited in escrow by Reynolds pursuant to the terms of the Agreement, principal shall be used only for the payments to the Employee. Any and all income on invested funds shall be paid to Reynolds in accordance with subsection (c) of Section 2 of the Agreement. Fees of the Escrow Agent shall be paid by Reynolds in accordance with subsection (c) of Section 2 of the Agreement. With respect to funds deposited pursuant to the Agreement, the Escrow Agent shall be authorized to invest such funds. The Escrow Agent will maintain such liquidity in the investments as will permit them to be cashed when necessary to fund the required distributions to Employee. 5. TERMINATION. This Escrow Agreement and all obligations of the Escrow Agent shall terminate upon satisfaction by the Escrow Agent of all of its obligations under this Escrow Agreement and the Agreement. 6. ADVERSE CLAIMS. Escrow Agent shall make delivery or disbursement of the funds deposited hereunder in accordance with the terms of the Escrow Agreement and the Agreement, regardless of any disagreement or the presentation of any adverse claims or demands of any person, unless such person shall have obtained an injunction from a court having proper jurisdiction, enjoining Escrow Agent from making such delivery or disbursement. Escrow Agent shall not become liable to Reynolds or to any other person, for or because of such delivery or disbursement of such funds, even with knowledge of a disagreement or adverse claim or demand. 7. DEMANDS. Except in cases where demand or notice by a single party is specifically provided for in this Escrow Agreement or in the Agreement, the Escrow Agent shall not be bound to recognize any notice, demand or change of instructions as having any effect on this escrow unless given in writing and signed by all parties considered by the Escrow Agent to be affected thereby. 3 8. NOTICES. Any notice required or permitted to be given hereunder shall be given in writing and shall be sufficiently delivered if sent by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: Bank One Trust Company, NA 100 East Broad Street, 8th Floor Columbus, OH 43215 Attention: Corporate Trust Department The Reynolds and Reynolds Company 115 S. Ludlow Street Dayton, Ohio 45401 Attn: General Counsel Should the address of any party identified above change for the purposes herein, such party shall give written notice of the new address to the other parties identified above. All notice hereunder to the Escrow Agent shall be given in writing to an officer of the Escrow Agent. Unless written notice shall so be given, the Escrow Agent shall not be required to take or be bound by said notice or to take action concerning such notice. If written notice be properly given and the Escrow Agent is required upon receipt thereof to take any action hereunder and such action involves any expense or liability, the Escrow Agent shall not be required to take any such action unless it is indemnified against such expense or liability in a manner reasonably satisfactory to the Escrow Agent. At the time of depositing funds into escrow on behalf of Employee, Reynolds shall deliver to the Escrow Agent a written notice setting forth such person's name and address, and social security number identifying the amounts being deposited on such person's behalf, and the conditions of the Agreement, which have been met and which, therefore, require that such deposit be made. 9. RECORD KEEPING. The Escrow Agent shall maintain records showing the amount and date of all deposits made by Reynolds for the benefit of Employee and the amount and date of all disbursements made to Employee, his heirs, successors and assigns. Reynolds shall be given access to said records at reasonable times upon request. 10. ESCROW FEE. Reynolds shall pay to the Escrow Agent for its services hereunder an escrow fee based upon the then-current schedule of charges for such services promulgated by the Escrow Agent and shall pay additional reasonable compensation for any further or extraordinary service which the Escrow Agent may be required to render pursuant to the terms of this Escrow Agreement. 11. BINDING EFFECT. This Escrow Agreement shall be binding upon and inure to the heirs, executors, administrators, personnel representatives, successors and assigns of all parties hereto. 12. MISCELLANEOUS. Employee is acknowledged to be third party beneficiary upon the deposit of any amounts under this Escrow Agreement for his benefit. This Escrow 4 Agreement may be modified or amended only by a writing signed (i) by all parties hereto, (ii) by the third party beneficiary and (iii) by any other person the Escrow Agent considers to be affected by said modification or amendment. This Escrow Agreement shall be construed and enforced in accordance with the laws of the State of Ohio. IN WITNESS WHEREOF, the parties hereto have set their respective hands the year and date first hereinabove written. THE REYNOLDS AND REYNOLDS COMPANY By: --------------------------------------------- "REYNOLDS" BANK ONE TRUST COMPANY, NA By: --------------------------------------------- 5 EXHIBIT B Dale L. Medford Executive Vice President and Chief Financial Officer STOCK OPTION AGREEMENT GRANTED UNDER THE REYNOLDS AND REYNOLDS COMPANY STOCK OPTION PLAN -- 1995 NONQUALIFIED STOCK OPTION -- GRANT NUMBER 040219 A Nonqualified Stock Option is hereby granted this 28th day of December, 2000 (the "Grant Date") by The Reynolds and Reynolds Company (the "Company") to Dale L. Medford (the "Employee") in accordance with the provisions of the Company's Stock Option Plan -- 1995 (the "Plan"). On May 7, 2001 the Employee and the Company entered into an Agreement (the "Agreement") conferring certain benefits of employment on Employee. In order to give the Employee additional incentive to contribute to the success of the Company, to induce the Employee to remain in the employ of the Company and to encourage the Employee to secure or increase on reasonable terms stock ownership in the Company, the Company effective December 28, 2000 hereby grants to the Employee a Nonqualified Stock Option (the "Option") to purchase all or any part of a total of 90,000 of the Company's Class A Common Shares, no par value per share (the "Option Shares" or "Shares"), at a price of $20.06 per Option Share, subject to and upon the following terms and conditions: 1. The term of the Option shall be ten (10) years from the Grant Date and shall expire on December 28, 2010 (the "Expiration Date"), unless earlier terminated in accordance with the provisions of the Plan. 2. The Option Shares shall be exercisable in whole or in part at any time beginning as follows: twenty-five percent (25%) December 28, 2001; an additional twenty-five percent (25%) December 28, 2002; an additional twenty-five percent (25%) December 28, 2003; and an additional twenty-five percent (25%) December 28, 2004. In the event of a Change in Control (as defined in the Plan), all options outstanding on the date of such Change in Control (including this Option) shall become immediately and fully exercisable. To the extent the Option is then exercisable, it may be exercised in whole or in part at any time or from time to time within the exercise period, subject to the provisions of the Plan. The exercise of the Option shall be effectuated by submitting to the Secretary of the Company at its office in Dayton, Ohio: (a) written notice of intent to exercise the Option with respect to a specified number of Option Shares; (b) payment, in cash, or by check payable to the Company, or with already-owned shares of the Company, or a combination of such already-owned shares and cash, of the full amount of the purchase price for the number of Option Shares with respect to which the Option is then being exercised; and (c) payment in cash or by check of the full amount of all federal, state, and local taxes, if any, that the Company is required by law to withhold with respect to such exercise. The Option may not be exercised for a fraction of an Option Share. 3. The Option is not transferable other than by will or by laws of descent and distribution and may be exercised during the lifetime of the Employee only by the Employee. 4. If Employee's employment is terminated by the Company other than due to a Discharge For Cause(as defined in the Agreement), Employee shall be deemed to have elected retirement for purposes of the Plan, and the Option, subject to the Expiration Date, shall become exercisable by the Employee, as if he had remained continuously employed by the Company. If Employee's employment is terminated by death, the Option, to the extent not theretofore exercised on the date of death, may be exercised within one year after the date of death, subject to the Expiration Date, by the person to whom the Option is transferred by will or the applicable laws of descent and distribution. If Employee's termination is a Discharge For Cause (as defined in the Agreement), all options (including this Option) not previously exercised shall immediately terminate. If the Employee voluntarily terminates his employment upon giving the Company at least 180 days written notice, or if his employment terminates due to disability (as defined in the Employment Agreement), the Option, subject to the Expiration Date, shall be exercisable by the Employee in the manner and to the extent the Employee was entitled to exercise the Option as of the date of such termination. Other than as set forth in the Employment Agreement, nothing contained herein shall give the Employee any right with respect to continuance of employment with the Company or any subsidiary nor restrict in any way the right of the Company or any subsidiary to terminate his or her employment at any time. 5. In the event of any change in the Option Shares by reason of a merger, consolidation, reorganization, recapitalization, stock dividend, stock split-up, combination or exchange of shares, or other change in the corporate structure (provided that the Company remains as the surviving entity upon the completion of any of the foregoing transactions) the number and class of Option Shares and the option price per Option Share shall be appropriately adjusted by the Committee, whose determination in each case shall be conclusive. 6. Anything to the contrary notwithstanding, if the Company is the subject of a merger, acquisition, or other reorganization in which the Company is not to be the surviving entity, the Company shall, in its discretion (exercisable by the affirmative vote of 75% of the Directors of the Company in office immediately prior to the proposed transaction), have the right to cancel the Option immediately prior to the effective date of such merger, acquisition, or reorganization, by giving written notice to the Employee or his or her personal representative of its intention to do so and by permitting the purchase during the thirty (30) day period next preceding such effective date of all Option Shares. 2 7. Neither the Employee nor his or her legal representative shall be or have any of the rights or privileges of a shareholder of the Company in respect to any of the Option Shares unless and until certificates representing such Option Shares have been issued. 8. (a) This Option is subject to all laws and regulations of any governmental authority which may be applicable hereto; notwithstanding any provisions hereof, the holder of this Option shall not be entitled to exercise such Option nor shall the Company be obligated to issue any Option Shares hereunder to the holder if such exercise or issuance shall constitute a violation by the Employee or the Company of any provisions of any such law or regulation. (b) The Company, in its discretion, may postpone the issuance and delivery of Option Shares upon any exercise of this Option until completion of any stock exchange listing or registration or other qualification of such Shares under any state or federal law, rule, or regulation as the Company may consider appropriate and may require any person exercising this Option to make such representations and furnish such information as it may consider appropriate in connection with the issuance of the Option Shares in compliance with applicable law. Under such circumstances, the Company shall proceed with reasonable promptness to complete any such listing, registration, or other qualification. (c) Option Shares issued and delivered upon exercise of this Option may be subject to such restrictions on trading, including appropriate legending of certificates to that effect, as the Company, in its discretion, shall determine necessary to satisfy applicable legal requirements and obligations. (d) The Employee, for himself or herself and his or her transferees by will or the laws of descent and distribution, by accepting this Option: (i) represents that acquisition of the Option Shares shall be for investment purposes only; (ii) agrees that he or she will not sell, pledge, hypothecate, or otherwise distribute such Option Shares or any interest therein unless a registration statement covering such Option Shares is in effect under the Securities Act of 1933, as now or hereafter amended (the "ACT"), or unless counsel for the Company shall have rendered to the Company an opinion that such sale, pledge, hypothecation, or other such distribution may be carried out without registration of such Option Shares under the Act; and (iii) agrees that an appropriate legend may be placed on the stock certificate or certificates evidencing ownership of Option Shares acquired hereunder, which legend shall reflect the restrictions on disposition contained herein; provided, however, that the foregoing representations and agreements in this Paragraph (d) of Section 8 with respect to the Option Shares shall be inoperative and shall expire in the event that either: (A) the Option Shares shall be registered under the Act; or (B) in the opinion of counsel for the Company, such representations and agreements are not necessary under the Act or any rule or regulation promulgated pursuant thereto. 3 9. The terms of this Agreement specifically incorporate and are subject to the terms and conditions of the Plan, a copy of which has been furnished to the Employee, as the same may be amended from time to time in the future; provided, however, that this Option cannot be altered to the detriment of the Employee, without his consent. 10. Inability of the Company to obtain from any regulatory body having jurisdiction, the authority deemed by the Company's counsel to be necessary to the lawful issuance of any Option Shares hereunder shall relieve the Company of any liability in respect of the non-issuance of such Option Shares as to which such requisite authority shall not have been obtained. 11. The interpretation, performance, and enforcement of this option shall be governed by the laws of the State of Ohio. THE REYNOLDS AND REYNOLDS COMPANY By: --------------------------------------------- Lloyd G. Waterhouse President and Chief Executive Officer ATTEST: - --------------------------------- Douglas M. Ventura General Counsel & Secretary December 28, 2000 Nonqualified Stock Option Agreement 4 Acceptance of December 28, 2000 NONQUALIFIED STOCK OPTION I have reviewed a copy of The Reynolds and Reynolds Company Stock Option Plan -- 1995, and agree to be bound by all of the terms and conditions thereof and of this Agreement. ---------------------------------------- (Signature) DALE L. MEDFORD ---------------------------------------- (Printed Name) ---------------------------------------- (Social Security Number) Dated: May 7, 2001, but effective as of December 28, 2000 DO NOT RETURN THIS COPY THIS COPY SHOULD REMAIN WITH YOUR AGREEMENT 5 EXHIBIT C BENEFICIARY DESIGNATION TO: The President of The Reynolds and Reynolds Company Pursuant to the Agreement dated May 7, 2001 the undersigned hereby designates the following beneficiary (beneficiaries) to receive any benefits which may be payable under said Agreement subsequent to the undersigned's death: (1) Karen L. Medford. (2) If the beneficiary (beneficiaries) named in (1) above is not living or is no longer in existence, as the case may be, then to: Kristina M. Medford and Bethany R. Medford in equal portions. This Beneficiary Designation revokes all prior designations made by the undersigned and is subject to all the terms of the Agreement. Dated: May 7, 2001 ------------------------------------ Dale L. Medford EX-10.E 8 l92008aex10-e.txt EX-(10)(E) EMPLOYMENT AGREEMENT EXHIBIT (10)(e) EMPLOYMENT AGREEMENT AGREEMENT made and entered into the 15th day of December, 2000, and amended and restated as of the 1st day of December, 2001, by and between THE REYNOLDS AND REYNOLDS COMPANY, a corporation existing under the laws of the State of Ohio (hereinafter referred to as the "Employer"), and Timothy J. Bailey (hereinafter referred to as "Employee") WITNESSETH: WHEREAS, Employee is currently an employee of the Employer; and WHEREAS, the Employer considers Employee a key member of the management team of the Employer and recognizes that a major change in the control of the Employer would be of significant concern to Employee; and WHEREAS, the parties hereto desire to set forth their mutual agreement regarding the terms of Employee's employment under certain specified circumstances in order to foster and encourage continued attention and dedication to Employee's assigned duties in the event of such circumstances; NOW, THEREFORE, in consideration of the foregoing premises, Employee's continued employment for any period after execution of this Agreement, and the mutual promises set forth herein, the parties hereby agree as follows: 1. DEFINITIONS For purposes of this Agreement: (a) "Base Compensation" shall mean the then-current annual base salary (exclusive of Bonuses) of Employee, as the same may be fixed from time to time by the Board of Directors or its Compensation Committee or, if applicable, by the appropriate executive officer of Employer. (b) "Bonuses" shall mean bonus payments earned by Employee under Employer's Incentive Compensation Plans and under any future bonus or incentive compensation plans of Employer for its executive officers in which Employee participates. (c) "Change in Control" shall mean the occurrence of any of the following events: (i) Any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") (other than Richard H. Grant, Jr., his children or his grandchildren, Reynolds, any trustee or other fiduciary holding securities under an employee benefit plan of Reynolds or any company owned, directly or indirectly, by the shareholders of Reynolds in substantially the same proportions as their ownership of stock of Reynolds), who is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of Reynolds representing twenty percent (20%) or more of the combined voting power of Reynolds' then outstanding securities; (ii) during any period of two consecutive years (not including any period prior to the execution of this Plan), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with Reynolds to effect a transaction described in clause (i), (iii) or (iv) of this Section) who election by Reynolds' shareholders was approved by a vote of at least two-thirds (2/3) of the directors at the beginning of the period or whose election or nomination for election was previously so approved cease for any reason to constitute at least a majority thereof; (iii) the consummation of a merger or consolidation of Reynolds or any direct or indirect subsidiary of Reynolds with any other corporation, other than (1) a merger or consolidation which would result in the voting securities of Reynolds outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) more than 50% of the combined voting power of the voting securities of Reynolds or such surviving entity or parent thereof outstanding immediately after such merger or consolidation or (2) a merger or consolidation effected to implement a recapitalization of Reynolds (or similar transaction) in which no "person" (as hereinabove defined) is or becomes the beneficial owner, directly or indirectly, of securities of Reynolds (not including in the securities beneficially owned by such person any securities acquired directly from Reynolds or its affiliates other than in connection with the securities acquired directly from Reynolds or its affiliates other than in connection with the acquisition by Reynolds or its affiliates of a business) representing twenty percent (20%) or more of the combined voting power of Reynolds' then outstanding securities; or (iv) the shareholders of Reynolds approve a plan of liquidation, dissolution or winding up of Reynolds or an agreement for the sale or disposition by Reynolds of all or substantially all of Reynolds' assets. (d) "Disability" shall mean the inability of Employee, because of any mental or physical illness or incapacity, to perform substantially the duties of his employment with the Employer as determined under the Employer's long-term disability program. (e) "Discharge For Cause" shall be construed to have occurred whenever occasioned by reason of felonious acts on the part of Employee, actions by Employee involving serious moral turpitude or his misconduct in such manner as to bring substantial and material discredit upon Employer, following the giving of thirty (30) days' written notice to Employee specifying the respect in which Employer claims Employee has violated this provision and the failure, inability or unwillingness of Employee to remedy the situation to the satisfaction of Employer within said thirty-day period. In establishing whether a Discharge For Cause shall have occurred, the standard for judgment shall be the level of conduct by Employee and by other comparably situated executive officers prior to the alleged improper activity of Employee for which the Discharge For Cause has been made. 2 (f) "Escrow Agreement" shall mean the agreement entered into simultaneously herewith between Employer and Bank One, N.A., a copy of which is attached hereto and made a part hereof as Exhibit A. (g) "Escrow Agent" shall mean Bank One, N.A. (h) "Escrow Amount" shall mean the amounts placed in escrow by Employer pursuant to subsection (a) of Section 2 of this Agreement. (i) "Escrow Funding Event" shall mean the occurrence of any of the following events: (i) Class A Common Shares of Employer have been acquired other than directly from Employer in exchange for cash or property by any person (other than Richard H. Grant, Jr., his children or his grandchildren, Employer, any trustee or other fiduciary holding securities under an employee benefit plan of Employer, or any company owned directly or indirectly by the shareholders of Employer in substantially the same proportions as their ownership of the stock of Employer) who either thereby becomes the owner of more than nine and one-half percent (9.5%) of Employer's outstanding Class A Common Shares, or having directly or indirectly become the owner of more than five percent (5%) of Employer's Class A Common Shares either alone or in conjunction with another person has expressed an intent to continue acquiring Employer's outstanding Class A Common Shares so as to become thereby the owner of more than nine and one-half percent (9.5%) of such stock either directly or indirectly; (ii) Any person (other than Richard H. Grant, Jr., his children or grandchildren, Employer any trustee or other fiduciary holding securities under an employee benefit plan of Employer, or any company owned directly or indirectly by the shareholders of Employer in substantially the same proportions as their ownership of the stock of Employer) has made a tender offer for, or a request for invitations for tenders of, Class A Common Shares of Employer; (iii) Any person forwards or causes to be forwarded to shareholders of Employer proxy statement(s) in any period of twenty-four (24) consecutive months, soliciting proxies, to elect to the Board of Directors of Employer two (2) or more candidates who were not nominated as candidates in proxy statements forwarded to shareholders during such period by the Board of Directors of Employer; or (iv) The Board of Directors of the Employer adopts a resolution to the effect that, for purposes of this Agreement, an Escrow Funding Event has occurred. 2. PAYMENTS INTO ESCROW. (a) Upon the occurrence of an Escrow Funding Event within five (5) years after the date of this Agreement, Employer shall pay into an escrow account at the Escrow Agent an amount equal to two and ninety-nine one hundredths (2.99) times the sum of the (i) higher of Employee's annual Base Compensation in effect immediately prior to the occurrence of the event or circumstance upon which such termination of employment is based or in effect immediately prior to the Change in Control, and (ii) the average of Employee's Bonuses during 3 the three (3) calendar years immediately preceding the year in which the date of termination occurs. Subsequent to the delivery to the Escrow Agent of the Escrow Amount, Employer shall, in the event that either Employee's Base Compensation is increased (or decreased) or he receives a Bonus that affects the amount described in this subsection, unless the Escrow Amount shall theretofore have been released pursuant to subsection (b) of this Section, recalculate the Escrow Amount as of the date such change in Base Compensation or receipt of Bonus occurs, treating the Escrow Funding Event as having occurred on such date. If the amount so calculated exceeds the fair market value of the Escrow Amount, Employer shall promptly (and in no event later than seven (7) days from such date) pay to the Escrow Agent an amount in cash (or marketable securities or any combination thereof) equal to such excess. If the Escrow Amount so calculated is less than the fair market value of the Escrow Amount then held in the escrow account, the Escrow Agent, upon receipt of a written request from Employer, shall distribute to Employer such difference in cash; provided, however, that this sentence shall not apply after the occurrence of a Change in Control. The Escrow Amount shall be governed by the terms and conditions of this Agreement and the Escrow Agreement. (b) Unless the parties otherwise agree, the Employer may withdraw the Escrow Amount when and only when two (2) years have expired from the date of deposit and no proper demand pursuant to subsection (b) (i) of Section 3 of this Agreement has been made during that time, or when the conditions requiring the deposit have ceased to exist for a period of ninety (90) days without a demand right having been created, or when Employee's right to a payment under this Agreement has been forfeited, whichever occurs first. If, before the expiration of such periods or forfeiture, there shall occur another Escrow Funding Event, the Employer will not be required to make an additional deposit, but the two (2) year period shall then be measured from the date of the last such event. Notwithstanding a deposit with the Escrow Agent pursuant to subsection (a) of this Section, Employee shall continue to be entitled to receive all of the normal and usual benefits from Employer until a termination of employment shall occur. (c) The Employer shall pay the charges of the Escrow Agent for its services under the Escrow Agreement, and the Employer will be entitled to any interest or other income arising from the date of the deposit of the Escrow Amount until all payments have been made under the Escrow Agreement to Employee. All interest or other income arising from the Escrow Amount deposited with the Escrow Agent shall be paid monthly to Employer. (d) In the event that, following the creation of a demand right pursuant to Section 3 of this Agreement, Employee incurs any costs or expenses, including attorneys' fees, in the enforcement of rights under this Agreement or under any plan for the benefit of employees of the Employer, including without limitation, the stock option plan, pension plans, payroll-based stock ownership plan, tax deferred savings and protection plan, bonus arrangements, supplemental pension plan, deferred compensation agreements, incentive compensation plans, and life insurance and compensation program, then, unless the Employer or the consolidated, surviving or transferee entity in the event of a consolidation, merger or sale of assets, is wholly successful in defending against the enforcement of such rights, the Employer, or such consolidated, surviving or transferee entity, shall promptly pay to Employee all such costs and expenses. 4 3. EMPLOYMENT TERMS AND SEVERANCE BENEFITS AFTER CHANGE IN CONTROL (a) After a Change in Control has occurred: (i) The Employer shall not reduce Employee's Base Compensation below the amount of such Base Compensation in effect immediately preceding the Change in Control without Employee's written consent; (ii) The Employer shall continue to provide Employee with fringe benefits (including bonuses, vacation, health and disability insurance, etc.) at least equivalent to those of other similarly situated executive officers of the Employer; (iii) Employee shall not be required by the Employer to perform duties or services which differ significantly from those performed by him prior to the Change in Control, or which are not ordinarily and generally performed by a similarly situated executive of a corporation; (iv) The nature of the duties or services which the Employer requires him to perform shall not necessitate absence overnight from his place of residence on the effective date hereof, because of travel involving the business affairs of the Employer for more than ninety (90) days during any period of twelve (12) consecutive months. (b) (i) If the Employer terminates Employee's employment or if Employee terminates his employment with Employer for any of the reasons specified in subsection (a) of this Section within the twenty-four (24) month period following the date of a Change in Control, the Escrow Agent upon written demand from Employee shall pay promptly to the Employee the Escrow Amount in one (1) lump sum in cash. (ii) Employee shall also be entitled to the following benefits commencing as of the date of the payment of the Escrow Amount to Employee: A. During the period expiring on the earlier of Employee securing other employment or twenty-four (24) months from date of payment of the Escrow Amount (or such longer period as required by law) to continued coverage under the Employer's sponsored medical benefits program in existence on such date of payment, or, if such continued coverage is barred, Employer shall provide equivalent medical benefit coverage through the purchase of insurance or otherwise. B. For purposes of determining Employee's benefits under Employer's Supplemental Plan, Employee shall receive credit toward his Years of Service under the Supplemental Plan for the two (2) year period following his termination of employment. In addition, with respect to the two (2) year period following such termination of employment, Employee's Base Compensation shall be deemed to be increased by the annual economic range adjustment for Employer's salaried employees announced in October of each year (or, if there is no such announced economic range adjustment in a given year, by an assumed five percent (5%) increase for that year) in order to calculate his highest earnings during five (5) consecutive years out of the last ten (10) years prior to retirement under the Supplemental Plan. C. Employee shall be reimbursed for up to $20,000 for outplacement fees if he chooses to seek other employment following his termination of employment with Employer. 5 (c) Notwithstanding anything to the contrary in this Section, Employee shall not be entitled to any payments pursuant to subsection (b) (i) of this Section if Employee dies prior to making a demand for payment pursuant to subsection (b) (i) of this Section, or if the Employer terminates Employee's employment because of a Discharge for Cause, because of Employee's Disability, or if Employee voluntarily terminates his employment with the Employer for reasons other than as set forth in subsection (a) of this Section. (d) Employee shall not be required to mitigate damages with respect to the amount of any payments provided for in subsection (b) of this Section by seeking other employment or otherwise. Employee's sole remedy under this Agreement for a breach by the Employer of subsection (a) of this Section shall be to terminate employment and receive any payments to which he is entitled under subsection (b) of this Section. (e) Should Employee disagree that his termination was due to a Discharge For Cause, the question shall, within thirty (30) days after the termination of employment, be submitted to arbitration by three (3) arbitrators, one of whom shall be selected by Employer, another of whom shall be selected by Employee, and the third of whom shall be selected by the two arbitrators so appointed. The arbitration shall take place in Dayton, Ohio in accordance with the then rules of the American Arbitration Association. The decision of these arbitrators on the question shall be final and conclusive upon Employer and upon Employee and his wife or widow, personal representatives, designated beneficiaries and heirs, and shall be enforceable in any court having competent jurisdiction thereof. A termination which is eventually determined under arbitration to have been a Discharge For Cause, or no arbitration having been requested and the termination being one which Employer has determined was a Discharge For Cause, shall extinguish any and all liability of Employer under this Agreement from and after the date of the termination of employment. 4. CONFIDENTIALITY; ENFORCEMENT (a) Employee shall keep secret and inviolate all knowledge or information of a confidential nature (which is not then nor later, through no breach of this Agreement, in the public domain), including all unpublished matters related to, without limitation thereof, the business, properties, accounts, books and records, research and development information, processes, procedures, products, know-how, trade secrets, memoranda, devices, suppliers, and customers of Employer which he may now know or hereafter come to know as a result of his affiliation in business with Employer. (b) All copyrights, improvements, discoveries and inventions and all claims, interests and rights thereto relating to any part of the business of Employer conceived, developed or made by Employee, either alone or with others, during the period of his employment, and whether conceived, developed or made during his regular working hours or at any other time during such period, shall be and are the sole property of Employer and Employee hereby assigns to Employer all right, title and interest in and to such copyrights, improvements, discoveries and inventions. Further, Employee will, at any time in the future upon Employer's request, execute specific assignments of any said copyrights, improvements, discoveries and inventions as well as execute all documents and perform all lawful acts which Employer deems necessary or advisable 6 to vest full ownership thereof in Employer, to register same in the name of Employer or its designee or otherwise to provide legal protection for Employer's ownership interests therein. (c) Any violation of this Section 4 by Employee may be enforced by Employer by specific performance or appropriate injunctive relief in any court of competent jurisdiction. Any other dispute or controversy arising under this Agreement shall be settled by arbitration in the manner set forth in subsection (e) of Section 3 of this Agreement. 5. UNFUNDED AGREEMENT The Employer's obligations under this Agreement are unfunded other than from the date of deposit of the Escrow Amount, but the Employer reserves the right to provide for its liability under this Agreement in any manner it deems advisable, including the purchasing of such assets as it may deem necessary or proper. Any asset so purchased by the Employer shall be the sole property of the Employer and shall not be deemed to provide funding of the Employer's obligations under this Agreement. Any other provision in this Agreement to the contrary notwithstanding, Employee shall be only an unsecured general creditor of the Employer with respect to all payments to be made under the terms of this Agreement and shall have no claim, equity, interest, or right in or to any specific assets or funds of the Employer as security for said payments other than the Escrow Amount. 6. NON-ASSIGNABLE RIGHTS Employee shall not have the right to anticipate or commute with any third party, or to sell, assign, transfer, or otherwise alienate or convey the right to receive any payments hereunder, whether by his voluntary or involuntary act, or by operation of law and, in particular, that any payments due hereunder shall not be subject to attachment or garnishment or any other legal proceedings by any creditor, or be in any way responsible for the debts or liabilities of Employee. Should any attempt be made to reach any payments hereunder by other than Employee, the Escrow Agent shall make each payment as it becomes due to such person or persons, for the sole benefit of Employee as the Escrow Agent may deem expedient. 7. FACILITY OF PAYMENT; LIMITATION (a) In the event of a Disability of Employee after Employee has made demand hereunder, such payments as may thereafter be due shall be paid to such person or persons for the benefit of Employee as the Escrow Agent may deem proper after reasonable investigation. In the event of Employee's death after he has made demand, the Escrow Agent shall pay such amounts as thereafter are due to such beneficiary or beneficiaries as Employee shall have designated in writing on Exhibit B attached hereto and made a part hereof, or failing such writing, to his estate. No liability shall accrue to the Employer or Escrow Agent for any alleged payment to an improper person or representative if so made after such reasonable investigation and the Employer and Escrow Agent shall have no responsibility to see to the proper application of such payments. (b) Notwithstanding any other provisions of this Agreement, in the event that any payment or benefit received or to be received by Employee in connection with a Change in Control or the termination of Employee's employment (whether pursuant to the terms of this 7 Agreement or any other plan, arrangement or agreement with Employer, any person whose actions result in a Change in Control or any person affiliated with Employer or such person)(all such payments and benefits, including the Escrow Amount, being hereinafter called "Total Payments") would be subject (in whole or part), to an excise tax pursuant to Sections 280G and 4999 of the Internal Revenue Code of 1986, as amended (the "Code") (such tax hereinafter referred to as the "Excise Tax"), then the Escrow Amount shall be reduced to the extent necessary so that no portion of the Total Payments is subject to Excise Tax (after taking into account any reduction in the Total Payments provided by reason of Section 280G of the Code in such other plan, arrangement or agreement) if (A) the net amount of such Total Payments, as so reduced, (and after deduction of the net amount of federal, state and local income tax on such Total Payments), is greater than (B) the excess of (i) the net amount of such Total Payments, without reduction (but after deduction of the net amount of federal, state and local income tax on such Total Payments), over (ii) the amount of Excise Tax to which Employee would be subject in respect of such Total Payments. For purposes of determining whether and the extent to which the Total Payments will be subject to the Excise Tax, (i) no portion of the Total Payments the receipt or enjoyment of which Employee shall have effectively waived in writing prior to the date of this termination of employment shall be taken into account, (ii) no portion of the Total Payments shall be taken into account which in the opinion of tax counsel selected by Employer does not constitute a "parachute payment" within the meaning of Section 280G(b)(2) of the Code, (including by reason of Section 280G(b)(4)(A) of the Code) and, in calculating the Excise Tax, no portion of such Total Payment shall be taken into account which constitutes reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the base amount as defined in Section 280G(b)(3) of the Code allowable to such reasonable compensation, and (iii) the value of any non-cash benefit or any deferred payment or benefit included in the Total Payments shall be determined by Employer in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. Prior to the fifth day following the date of Employee's termination of employment, Employer shall provide Employee with its calculation of the amounts referred to in this paragraph and such supporting materials as are reasonably necessary for Employee to evaluate Employer's calculations. If Employee objects to Employer's calculations, he shall notify Employer of his objections prior to the initial payment date set forth in Section 3 hereof, and Employer shall pay to Employee such portion of the Total Payments (up to one hundred percent (100%) thereof) as Employee determines is necessary to result in Employee receiving the greater of clauses (A) and (B) of this paragraph. 8. RESPONSIBILITY FOR LEGAL EFFECT Neither party hereto makes any representations or warranties, express or implied, or assumes any responsibility concerning the legal, tax, or other implications or effects of this Agreement. The Employer and the Escrow Agent shall take all actions required by law with respect to any payments due hereunder including but not limited to, withholding of tax from such payments. 9. INDEPENDENCE OF AGREEMENT; EMPLOYMENT TERMINATION This Agreement shall be independent of any other contract or agreement that may exist between the parties hereto from time to time. This Agreement shall not restrict the Employer's rights to terminate Employee's employment with the Employer nor Employee's 8 rights to terminate employment with the Employer; provided, however, that the Employer shall not terminate Employee's employment prior to a Change in Control solely to avoid its obligations under this Agreement. No merger or consolidation with any other entity, or sale of all or substantially all of Employer's assets constituting an Escrow Funding Event, or thereafter a Change in Control shall occur without assumption of the Agreement by the purchaser or payment by purchaser or Employer of the sums set forth in subsection (a) of Section 2 of this Agreement. 10. SECTION HEADINGS The Section headings used in this Agreement are for convenience of reference only and shall not be considered in construing this Agreement. 11. NOTICES Any notices required o r permitted to be given under this Agreement shall be sufficient if in writing and if personally delivered or sent by certified or registered mail to his residence as last shown on the employment records of the Employer in the case of Employee, or to the corporate headquarters to the attention of the President in the case of the Employer. 12. NON-WAIVER The waiver by the Employer or Employee of a breach of any provision of this Agreement by Employee or the Employer shall not operate or be construed as a waiver of any subsequent breach by Employee or the Employer of the same or any other provision hereof. 13. ENTIRE AGREEMENT; AMENDMENT This Agreement represents the entire understanding of the parties with respect to the subject matter hereof and supersedes all previous understandings, written or oral. Any amendment to this Agreement shall be executed in writing with the same formality as this Agreement. 14. BINDING EFFECT This Agreement shall be binding upon Employee and the Employee's heirs, executors, administrators, successors and assigns and upon the Employer and its successors and assigns. 15. GOVERNING LAW This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio. 9 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of November __, 2001. THE REYNOLDS AND REYNOLDS COMPANY By --------------------------------------- Lloyd G. Waterhouse President and Chief Executive Officer ----------------------------------------- Timothy J. Bailey 10 Exhibit A ESCROW AGREEMENT This Escrow Agreement made and entered into as of this 15th day of December, 2000, by and between THE REYNOLDS AND REYNOLDS COMPANY, an Ohio corporation (hereinafter referred to as "REYNOLDS") and BANK ONE, N.A. (hereinafter referred to as the "ESCROW AGENT"), WITNESSETH: WHEREAS, REYNOLDS, has adopted a policy of providing termination pay protection for certain of its key management personnel under conditions set forth in an agreement dated December 15, 2000 (hereinafter referred to as the "Agreement"); and WHEREAS, REYNOLDS has identified Timothy J. Bailey (hereinafter referred to as "Employee") as key management personnel and has entered into the Agreement with him; and WHEREAS, the required protective payments under the Agreement are to be paid to an escrow account at the ESCROW AGENT; NOW, THEREFORE, in consideration of the covenants and agreements contained in this ESCROW AGREEMENT, the parties hereby do agree as follows: 1. ACCEPTANCE OF ESCROW. The ESCROW AGENT shall serve as ESCROW AGENT in accordance with the provisions of this ESCROW AGREEMENT, and the duties of the ESCROW AGENT shall be solely those imposed by this ESCROW AGREEMENT. 2. TERMS. The ESCROW AGENT shall receive, hold and disburse funds as ESCROW AGENT in accordance with the Agreement, in the form attached hereto as Exhibit A and made a part hereof. The ESCROW AGENT acknowledges that it has reviewed and is familiar with the Agreement and shall be bound by the obligations, terms and conditions therein relating to the ESCROW AGENT and its duties. However, the ESCROW AGENT is not a party to or bound by the Agreement, except as specifically provided for therein and as provided in Sections 2, 4, 6, 7 and 8 of this ESCROW AGREEMENT. The ESCROW AGENT shall be liable for only such funds and items as are actually deposited and received by it for the purposes of said escrow. 3. INDEMNIFICATION. So long as the ESCROW AGENT shall follow the terms of this ESCROW AGREEMENT and any instructions issued hereunder in good faith, relying upon documents which it believes to be genuine and properly signed and executed, it shall be held free, clear and harmless and shall incur no liability hereunder. REYNOLDS shall indemnify and hold the ESCROW AGENT harmless from any loss, liability, cost, or expense, including reasonable legal fees, which may arise or be incurred by reason of this ESCROW AGREEMENT or the ESCROW AGENT's performance in good faith of any duty or obligation hereunder. The ESCROW AGENT shall not be liable for any error of judgment or for any act done or omitted by it in good faith, or for anything which it may in good faith do or refrain from doing in connection with said escrow; nor will any liability be incurred by the ESCROW AGENT if, in the event of any dispute or question as to the construction of this ESCROW AGREEMENT or any demand or notice hereunder, the ESCROW AGENT acts in accordance with the opinion of its legal counsel. 4. INVESTMENTS BY ESCROW AGENT; INCOME. The ESCROW AGENT shall invest escrow funds in federally-insured interest bearing accounts selected by the ESCROW AGENT or in any one or more of the following investments, selected by the ESCROW AGENT: (a) Certificates of Deposit of United States commercial banks holding membership in the Federal Reserve System. Such U.S. banks shall have minimum total assets of $1,000,000,000 and shall not be currently listed on any publicly-disclosed report of U.S. banks having financial problems warranting close monitoring by the Federal Reserve Board. (b) Euro-dollar Certificates of Deposit issued by the twenty-five (25) largest United States commercial banks, which banks shall have minimum total assets of $1,000,000,000 and shall not be currently listed on any publicly-disclosed report of U.S. banks having financial problems warranting close monitoring by the Federal Reserve Board. (c) Bankers Acceptances of United States commercial banks holding membership in the Federal Reserve System. Such U.S. banks shall have minimum total assets of $1,000,000,000 and shall not be currently listed on any publicly-disclosed report of U.S. banks having financial problems warranting close monitoring by the Federal Reserve Board. (d) United States Treasury Bills. (e) United States Treasury Notes. (f) United States Government Guaranteed "Project Notes" and/or Tax-Exempt Notes rated MIG 1 by Moody's rating agency. (g) Debt instruments issued by the following five United States Government agencies: Federal Intermediate Credit Banks Banks for Cooperatives Federal Land Banks Federal Home Loan Banks Federal National Mortgage Association (h) Commercial Paper rated Prime-1 by Moody's rating agency or rated A-1 by Standard & Poors rating agency. 2 In addition, with respect to any corporation's commercial paper being purchased, such corporation's long-term debt, if any, must be rated either A by Moody's rating agency or A by Standard & Poors rating agency. The total investments in the above-described approved Certificates of Deposit, Bankers Acceptances, Commercial Paper, and/or Tax-Exempt Notes shall be limited to a maximum of $1,000,000 at any one time in any one single bank, corporation, state and/or municipality. With respect to funds deposited in escrow by REYNOLDS pursuant to the terms of the Agreement, principal shall be used only for the payments to the Employee. Any and all income on invested funds shall be paid to REYNOLDS in accordance with subsection (c) of Section 2 of the Agreement. Fees of the Escrow Agent shall be paid by REYNOLDS in accordance with subsection (c) of Section 2 of the Agreement. With respect to funds deposited pursuant to the Agreement, the ESCROW AGENT shall be authorized to invest such funds. The ESCROW AGENT will maintain such liquidity in the investments as will permit them to be cashed when necessary to fund the required distributions to Employee. 5. TERMINATION. This ESCROW AGREEMENT and all obligations of the ESCROW AGENT shall terminate upon satisfaction by the ESCROW AGENT of all of its obligations under this ESCROW AGREEMENT and the Agreement. 6. ADVERSE CLAIMS. ESCROW AGENT shall make delivery or disbursement of the funds deposited hereunder in accordance with the terms of the ESCROW AGREEMENT and the Agreement, regardless of any disagreement or the presentation of any adverse claims or demands of any person, unless such person shall have obtained an injunction from a court having proper jurisdiction, enjoining ESCROW AGENT from making such delivery or disbursement. ESCROW AGENT shall not become liable to REYNOLDS or to any other person, for or because of such delivery or disbursement of such funds, even with knowledge of a disagreement or adverse claim or demand. 7. DEMANDS. Except in cases where demand or notice by a single party is specifically provided for in this ESCROW AGREEMENT or in the Agreement, the ESCROW AGENT shall not be bound to recognize any notice, demand or change of instructions as having any effect on this escrow unless given in writing and signed by all parties considered by the ESCROW AGENT to be affected thereby. 8. NOTICES. Any notice required or permitted to be given hereunder shall be given in writing and shall be sufficiently delivered if sent by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: --------------------------, Trust Officer Trust Division Bank One, NA Kettering Tower 3 Dayton, Ohio 45423 The Reynolds and Reynolds Company 115 S. Ludlow Street Dayton, Ohio 45401 Attn: Chief Financial Officer Should the address of any party identified above change for the purposes herein, such party shall give written notice of the new address to the other parties identified above. All notice hereunder to the ESCROW AGENT shall be given in writing to an officer of the ESCROW AGENT. Unless written notice shall so be given, the ESCROW AGENT shall not be required to take or be bound by said notice or to take action concerning such notice. If written notice be properly given and the ESCROW AGENT is required upon receipt thereof to take any action hereunder and such action involves any expense or liability, the ESCROW AGENT shall not be required to take any such action unless it is indemnified against such expense or liability in a manner reasonably satisfactory to the ESCROW AGENT. At the time of depositing funds into escrow on behalf of Employee, REYNOLDS shall deliver to the ESCROW AGENT a written notice setting forth such person's name and address, and social security number identifying the amounts being deposited on such person's behalf, and the conditions of the Agreement, which have been met and which, therefore, require that such deposit be made. 9. RECORD KEEPING. The ESCROW AGENT shall maintain records showing the amount and date of all deposits made by REYNOLDS for the benefit of Employee and the amount and date of all disbursements made to Employee, his heirs, successors and assigns. REYNOLDS shall be given access to said records at reasonable times upon request. 10. ESCROW FEE. REYNOLDS shall pay to the ESCROW AGENT for its services hereunder an escrow fee based upon the then-current schedule of charges for such services promulgated by the ESCROW AGENT and shall pay additional reasonable compensation for any further or extraordinary service which the ESCROW AGENT may be required to render pursuant to the terms of this ESCROW AGREEMENT. 11. BINDING EFFECT. This ESCROW AGREEMENT shall be binding upon and inure to the heirs, executors, administrators, personnel representatives, successors and assigns of all parties hereto. 12. MISCELLANEOUS. Employee is acknowledged to be third party beneficiary upon the deposit of any amounts under this ESCROW AGREEMENT for his benefit. This ESCROW AGREEMENT may be modified or amended only by a writing signed (i) by all parties hereto, (ii) by the third party beneficiary and (iii) by any other person the ESCROW AGENT considers to be affected by said modification or amendment. This ESCROW AGREEMENT shall be construed and enforced in accordance with the laws of the State of Ohio. 4 IN WITNESS WHEREOF, the parties hereto have set their respective hands the year and date first hereinabove written. THE REYNOLDS AND REYNOLDS COMPANY By: ------------------------------------- "REYNOLDS" BANK ONE, N.A. By: ------------------------------------- "ESCROW AGENT" 5 Exhibit B BENEFICIARY DESIGNATION TO: The President of The Reynolds and Reynolds Company Pursuant to the Agreement dated December 15, 2000 the undersigned hereby designates the following beneficiary (beneficiaries) to receive any benefits which may be payable under said Agreement subsequent to the undersigned's death: (1) ----------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (2) If the beneficiary (beneficiaries) named in (1) above is not living or is no longer in existence, as the case may be, then to: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This Beneficiary Designation revokes all prior designations made by the undersigned and is subject to all the terms of the Agreement. Dated: December 15, 2000 ---------------------------------------- Timothy J. Bailey EX-10.F 9 l92008aex10-f.txt EX-(10)(F) EMPLOYMENT AGREEMENT EXHIBIT (10)(f) EMPLOYMENT AGREEMENT AGREEMENT made and entered into the 15th day of December, 2000, and amended and restated as of the 1st day of December, 2001, by and between THE REYNOLDS AND REYNOLDS COMPANY, a corporation existing under the laws of the State of Ohio (hereinafter referred to as the "Employer"), and Douglas M. Ventura (hereinafter referred to as "Employee") WITNESSETH: WHEREAS, Employee is currently an employee of the Employer; and WHEREAS, the Employer considers Employee a key member of the management team of the Employer and recognizes that a major change in the control of the Employer would be of significant concern to Employee; and WHEREAS, the parties hereto desire to set forth their mutual agreement regarding the terms of Employee's employment under certain specified circumstances in order to foster and encourage continued attention and dedication to Employee's assigned duties in the event of such circumstances; NOW, THEREFORE, in consideration of the foregoing premises, Employee's continued employment for any period after execution of this Agreement, and the mutual promises set forth herein, the parties hereby agree as follows: 1. DEFINITIONS For purposes of this Agreement: (a) "Base Compensation" shall mean the then-current annual base salary (exclusive of Bonuses) of Employee, as the same may be fixed from time to time by the Board of Directors or its Compensation Committee or, if applicable, by the appropriate executive officer of Employer. (b) "Bonuses" shall mean bonus payments earned by Employee under Employer's Incentive Compensation Plans and under any future bonus or incentive compensation plans of Employer for its executive officers in which Employee participates. (c) "Change in Control" shall mean the occurrence of any of the following events: (i) Any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") (other than Richard H. Grant, Jr., his children or his grandchildren, Reynolds, any trustee or other fiduciary holding securities under an employee benefit plan of Reynolds or any company owned, directly or indirectly, by the shareholders of Reynolds in substantially the same proportions as their ownership of stock of Reynolds), who is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of Reynolds representing twenty percent (20%) or more of the combined voting power of Reynolds' then outstanding securities; (ii) during any period of two consecutive years (not including any period prior to the execution of this Plan), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with Reynolds to effect a transaction described in clause (i), (iii) or (iv) of this Section) who election by Reynolds' shareholders was approved by a vote of at least two-thirds (2/3) of the directors at the beginning of the period or whose election or nomination for election was previously so approved cease for any reason to constitute at least a majority thereof; (iii) the consummation of a merger or consolidation of Reynolds or any direct or indirect subsidiary of Reynolds with any other corporation, other than (1) a merger or consolidation which would result in the voting securities of Reynolds outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) more than 50% of the combined voting power of the voting securities of Reynolds or such surviving entity or parent thereof outstanding immediately after such merger or consolidation or (2) a merger or consolidation effected to implement a recapitalization of Reynolds (or similar transaction) in which no "person" (as hereinabove defined) is or becomes the beneficial owner, directly or indirectly, of securities of Reynolds (not including in the securities beneficially owned by such person any securities acquired directly from Reynolds or its affiliates other than in connection with the securities acquired directly from Reynolds or its affiliates other than in connection with the acquisition by Reynolds or its affiliates of a business) representing twenty percent (20%) or more of the combined voting power of Reynolds' then outstanding securities; or (iv) the shareholders of Reynolds approve a plan of liquidation, dissolution or winding up of Reynolds or an agreement for the sale or disposition by Reynolds of all or substantially all of Reynolds' assets. (d) "Disability" shall mean the inability of Employee, because of any mental or physical illness or incapacity, to perform substantially the duties of his employment with the Employer as determined under the Employer's long-term disability program. (e) "Discharge For Cause" shall be construed to have occurred whenever occasioned by reason of felonious acts on the part of Employee, actions by Employee involving serious moral turpitude or his misconduct in such manner as to bring substantial and material discredit upon Employer, following the giving of thirty (30) days' written notice to Employee specifying the respect in which Employer claims Employee has violated this provision and the failure, inability or unwillingness of Employee to remedy the situation to the satisfaction of Employer within said thirty-day period. In establishing whether a Discharge For Cause shall have occurred, the standard for judgment shall be the level of conduct by Employee and by other comparably situated executive officers prior to the alleged improper activity of Employee for which the Discharge For Cause has been made. 2 (f) "Escrow Agreement" shall mean the agreement entered into simultaneously herewith between Employer and Bank One, N.A., a copy of which is attached hereto and made a part hereof as Exhibit A. (g) "Escrow Agent" shall mean Bank One, N.A. (h) "Escrow Amount" shall mean the amounts placed in escrow by Employer pursuant to subsection (a) of Section 2 of this Agreement. (i) "Escrow Funding Event" shall mean the occurrence of any of the following events: (i) Class A Common Shares of Employer have been acquired other than directly from Employer in exchange for cash or property by any person (other than Richard H. Grant, Jr., his children or his grandchildren, Employer, any trustee or other fiduciary holding securities under an employee benefit plan of Employer, or any company owned directly or indirectly by the shareholders of Employer in substantially the same proportions as their ownership of the stock of Employer) who either thereby becomes the owner of more than nine and one-half percent (9.5%) of Employer's outstanding Class A Common Shares, or having directly or indirectly become the owner of more than five percent (5%) of Employer's Class A Common Shares either alone or in conjunction with another person has expressed an intent to continue acquiring Employer's outstanding Class A Common Shares so as to become thereby the owner of more than nine and one-half percent (9.5%) of such stock either directly or indirectly; (ii) Any person (other than Richard H. Grant, Jr., his children or grandchildren, Employer any trustee or other fiduciary holding securities under an employee benefit plan of Employer, or any company owned directly or indirectly by the shareholders of Employer in substantially the same proportions as their ownership of the stock of Employer) has made a tender offer for, or a request for invitations for tenders of, Class A Common Shares of Employer; (iii) Any person forwards or causes to be forwarded to shareholders of Employer proxy statement(s) in any period of twenty-four (24) consecutive months, soliciting proxies, to elect to the Board of Directors of Employer two (2) or more candidates who were not nominated as candidates in proxy statements forwarded to shareholders during such period by the Board of Directors of Employer; or (iv) The Board of Directors of the Employer adopts a resolution to the effect that, for purposes of this Agreement, an Escrow Funding Event has occurred. 2. PAYMENTS INTO ESCROW. (a) Upon the occurrence of an Escrow Funding Event within five (5) years after the date of this Agreement, Employer shall pay into an escrow account at the Escrow Agent an amount equal to two and ninety-nine one hundredths (2.99) times the sum of the (i) higher of Employee's annual Base Compensation in effect immediately prior to the occurrence of the event or circumstance upon which such termination of employment is based or in effect immediately prior to the Change in Control, and (ii) the average of Employee's Bonuses during 3 the three (3) calendar years immediately preceding the year in which the date of termination occurs. Subsequent to the delivery to the Escrow Agent of the Escrow Amount, Employer shall, in the event that either Employee's Base Compensation is increased (or decreased) or he receives a Bonus that affects the amount described in this subsection, unless the Escrow Amount shall theretofore have been released pursuant to subsection (b) of this Section, recalculate the Escrow Amount as of the date such change in Base Compensation or receipt of Bonus occurs, treating the Escrow Funding Event as having occurred on such date. If the amount so calculated exceeds the fair market value of the Escrow Amount, Employer shall promptly (and in no event later than seven (7) days from such date) pay to the Escrow Agent an amount in cash (or marketable securities or any combination thereof) equal to such excess. If the Escrow Amount so calculated is less than the fair market value of the Escrow Amount then held in the escrow account, the Escrow Agent, upon receipt of a written request from Employer, shall distribute to Employer such difference in cash; provided, however, that this sentence shall not apply after the occurrence of a Change in Control. The Escrow Amount shall be governed by the terms and conditions of this Agreement and the Escrow Agreement. (b) Unless the parties otherwise agree, the Employer may withdraw the Escrow Amount when and only when two (2) years have expired from the date of deposit and no proper demand pursuant to subsection (b) (i) of Section 3 of this Agreement has been made during that time, or when the conditions requiring the deposit have ceased to exist for a period of ninety (90) days without a demand right having been created, or when Employee's right to a payment under this Agreement has been forfeited, whichever occurs first. If, before the expiration of such periods or forfeiture, there shall occur another Escrow Funding Event, the Employer will not be required to make an additional deposit, but the two (2) year period shall then be measured from the date of the last such event. Notwithstanding a deposit with the Escrow Agent pursuant to subsection (a) of this Section, Employee shall continue to be entitled to receive all of the normal and usual benefits from Employer until a termination of employment shall occur. (c) The Employer shall pay the charges of the Escrow Agent for its services under the Escrow Agreement, and the Employer will be entitled to any interest or other income arising from the date of the deposit of the Escrow Amount until all payments have been made under the Escrow Agreement to Employee. All interest or other income arising from the Escrow Amount deposited with the Escrow Agent shall be paid monthly to Employer. (d) In the event that, following the creation of a demand right pursuant to Section 3 of this Agreement, Employee incurs any costs or expenses, including attorneys' fees, in the enforcement of rights under this Agreement or under any plan for the benefit of employees of the Employer, including without limitation, the stock option plan, pension plans, payroll-based stock ownership plan, tax deferred savings and protection plan, bonus arrangements, supplemental pension plan, deferred compensation agreements, incentive compensation plans, and life insurance and compensation program, then, unless the Employer or the consolidated, surviving or transferee entity in the event of a consolidation, merger or sale of assets, is wholly successful in defending against the enforcement of such rights, the Employer, or such consolidated, surviving or transferee entity, shall promptly pay to Employee all such costs and expenses. 4 3. EMPLOYMENT TERMS AND SEVERANCE BENEFITS AFTER CHANGE IN CONTROL (a) After a Change in Control has occurred: (i) The Employer shall not reduce Employee's Base Compensation below the amount of such Base Compensation in effect immediately preceding the Change in Control without Employee's written consent; (ii) The Employer shall continue to provide Employee with fringe benefits (including bonuses, vacation, health and disability insurance, etc.) at least equivalent to those of other similarly situated executive officers of the Employer; (iii) Employee shall not be required by the Employer to perform duties or services which differ significantly from those performed by him prior to the Change in Control, or which are not ordinarily and generally performed by a similarly situated executive of a corporation; (iv) The nature of the duties or services which the Employer requires him to perform shall not necessitate absence overnight from his place of residence on the effective date hereof, because of travel involving the business affairs of the Employer for more than ninety (90) days during any period of twelve (12) consecutive months. (b) (i) If the Employer terminates Employee's employment or if Employee terminates his employment with Employer for any of the reasons specified in subsection (a) of this Section within the twenty-four (24) month period following the date of a Change in Control, the Escrow Agent upon written demand from Employee shall pay promptly to the Employee the Escrow Amount in one (1) lump sum in cash. (ii) Employee shall also be entitled to the following benefits commencing as of the date of the payment of the Escrow Amount to Employee: A. During the period expiring on the earlier of Employee securing other employment or twenty-four (24) months from date of payment of the Escrow Amount (or such longer period as required by law) to continued coverage under the Employer's sponsored medical benefits program in existence on such date of payment, or, if such continued coverage is barred, Employer shall provide equivalent medical benefit coverage through the purchase of insurance or otherwise. B. For purposes of determining Employee's benefits under Employer's Supplemental Plan, Employee shall receive credit toward his Years of Service under the Supplemental Plan for the two (2) year period following his termination of employment. In addition, with respect to the two (2) year period following such termination of employment, Employee's Base Compensation shall be deemed to be increased by the annual economic range adjustment for Employer's salaried employees announced in October of each year (or, if there is no such announced economic range adjustment in a given year, by an assumed five percent (5%) increase for that year) in order to calculate his highest earnings during five (5) consecutive years out of the last ten (10) years prior to retirement under the Supplemental Plan. C. Employee shall be reimbursed for up to $20,000 for outplacement fees if he chooses to seek other employment following his termination of employment with Employer. 5 (c) Notwithstanding anything to the contrary in this Section, Employee shall not be entitled to any payments pursuant to subsection (b) (i) of this Section if Employee dies prior to making a demand for payment pursuant to subsection (b) (i) of this Section, or if the Employer terminates Employee's employment because of a Discharge for Cause, because of Employee's Disability, or if Employee voluntarily terminates his employment with the Employer for reasons other than as set forth in subsection (a) of this Section. (d) Employee shall not be required to mitigate damages with respect to the amount of any payments provided for in subsection (b) of this Section by seeking other employment or otherwise. Employee's sole remedy under this Agreement for a breach by the Employer of subsection (a) of this Section shall be to terminate employment and receive any payments to which he is entitled under subsection (b) of this Section. (e) Should Employee disagree that his termination was due to a Discharge For Cause, the question shall, within thirty (30) days after the termination of employment, be submitted to arbitration by three (3) arbitrators, one of whom shall be selected by Employer, another of whom shall be selected by Employee, and the third of whom shall be selected by the two arbitrators so appointed. The arbitration shall take place in Dayton, Ohio in accordance with the then rules of the American Arbitration Association. The decision of these arbitrators on the question shall be final and conclusive upon Employer and upon Employee and his wife or widow, personal representatives, designated beneficiaries and heirs, and shall be enforceable in any court having competent jurisdiction thereof. A termination which is eventually determined under arbitration to have been a Discharge For Cause, or no arbitration having been requested and the termination being one which Employer has determined was a Discharge For Cause, shall extinguish any and all liability of Employer under this Agreement from and after the date of the termination of employment. 4. CONFIDENTIALITY; ENFORCEMENT (a) Employee shall keep secret and inviolate all knowledge or information of a confidential nature (which is not then nor later, through no breach of this Agreement, in the public domain), including all unpublished matters related to, without limitation thereof, the business, properties, accounts, books and records, research and development information, processes, procedures, products, know-how, trade secrets, memoranda, devices, suppliers, and customers of Employer which he may now know or hereafter come to know as a result of his affiliation in business with Employer. (b) All copyrights, improvements, discoveries and inventions and all claims, interests and rights thereto relating to any part of the business of Employer conceived, developed or made by Employee, either alone or with others, during the period of his employment, and whether conceived, developed or made during his regular working hours or at any other time during such period, shall be and are the sole property of Employer and Employee hereby assigns to Employer all right, title and interest in and to such copyrights, improvements, discoveries and inventions. Further, Employee will, at any time in the future upon Employer's request, execute specific assignments of any said copyrights, improvements, discoveries and inventions as well as execute all documents and perform all lawful acts which Employer deems necessary or advisable 6 to vest full ownership thereof in Employer, to register same in the name of Employer or its designee or otherwise to provide legal protection for Employer's ownership interests therein. (c) Any violation of this Section 4 by Employee may be enforced by Employer by specific performance or appropriate injunctive relief in any court of competent jurisdiction. Any other dispute or controversy arising under this Agreement shall be settled by arbitration in the manner set forth in subsection (e) of Section 3 of this Agreement. 5. UNFUNDED AGREEMENT The Employer's obligations under this Agreement are unfunded other than from the date of deposit of the Escrow Amount, but the Employer reserves the right to provide for its liability under this Agreement in any manner it deems advisable, including the purchasing of such assets as it may deem necessary or proper. Any asset so purchased by the Employer shall be the sole property of the Employer and shall not be deemed to provide funding of the Employer's obligations under this Agreement. Any other provision in this Agreement to the contrary notwithstanding, Employee shall be only an unsecured general creditor of the Employer with respect to all payments to be made under the terms of this Agreement and shall have no claim, equity, interest, or right in or to any specific assets or funds of the Employer as security for said payments other than the Escrow Amount. 6. NON-ASSIGNABLE RIGHTS Employee shall not have the right to anticipate or commute with any third party, or to sell, assign, transfer, or otherwise alienate or convey the right to receive any payments hereunder, whether by his voluntary or involuntary act, or by operation of law and, in particular, that any payments due hereunder shall not be subject to attachment or garnishment or any other legal proceedings by any creditor, or be in any way responsible for the debts or liabilities of Employee. Should any attempt be made to reach any payments hereunder by other than Employee, the Escrow Agent shall make each payment as it becomes due to such person or persons, for the sole benefit of Employee as the Escrow Agent may deem expedient. 7. FACILITY OF PAYMENT; LIMITATION (a) In the event of a Disability of Employee after Employee has made demand hereunder, such payments as may thereafter be due shall be paid to such person or persons for the benefit of Employee as the Escrow Agent may deem proper after reasonable investigation. In the event of Employee's death after he has made demand, the Escrow Agent shall pay such amounts as thereafter are due to such beneficiary or beneficiaries as Employee shall have designated in writing on Exhibit B attached hereto and made a part hereof, or failing such writing, to his estate. No liability shall accrue to the Employer or Escrow Agent for any alleged payment to an improper person or representative if so made after such reasonable investigation and the Employer and Escrow Agent shall have no responsibility to see to the proper application of such payments. (b) Notwithstanding any other provisions of this Agreement, in the event that any payment or benefit received or to be received by Employee in connection with a Change in Control or the termination of Employee's employment (whether pursuant to the terms of this 7 Agreement or any other plan, arrangement or agreement with Employer, any person whose actions result in a Change in Control or any person affiliated with Employer or such person)(all such payments and benefits, including the Escrow Amount, being hereinafter called "Total Payments") would be subject (in whole or part), to an excise tax pursuant to Sections 280G and 4999 of the Internal Revenue Code of 1986, as amended (the "Code") (such tax hereinafter referred to as the "Excise Tax"), then the Escrow Amount shall be reduced to the extent necessary so that no portion of the Total Payments is subject to Excise Tax (after taking into account any reduction in the Total Payments provided by reason of Section 280G of the Code in such other plan, arrangement or agreement) if (A) the net amount of such Total Payments, as so reduced, (and after deduction of the net amount of federal, state and local income tax on such Total Payments), is greater than (B) the excess of (i) the net amount of such Total Payments, without reduction (but after deduction of the net amount of federal, state and local income tax on such Total Payments), over (ii) the amount of Excise Tax to which Employee would be subject in respect of such Total Payments. For purposes of determining whether and the extent to which the Total Payments will be subject to the Excise Tax, (i) no portion of the Total Payments the receipt or enjoyment of which Employee shall have effectively waived in writing prior to the date of this termination of employment shall be taken into account, (ii) no portion of the Total Payments shall be taken into account which in the opinion of tax counsel selected by Employer does not constitute a "parachute payment" within the meaning of Section 280G(b)(2) of the Code, (including by reason of Section 280G(b)(4)(A) of the Code) and, in calculating the Excise Tax, no portion of such Total Payment shall be taken into account which constitutes reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the base amount as defined in Section 280G(b)(3) of the Code allowable to such reasonable compensation, and (iii) the value of any non-cash benefit or any deferred payment or benefit included in the Total Payments shall be determined by Employer in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. Prior to the fifth day following the date of Employee's termination of employment, Employer shall provide Employee with its calculation of the amounts referred to in this paragraph and such supporting materials as are reasonably necessary for Employee to evaluate Employer's calculations. If Employee objects to Employer's calculations, he shall notify Employer of his objections prior to the initial payment date set forth in Section 3 hereof, and Employer shall pay to Employee such portion of the Total Payments (up to one hundred percent (100%) thereof) as Employee determines is necessary to result in Employee receiving the greater of clauses (A) and (B) of this paragraph. 8. RESPONSIBILITY FOR LEGAL EFFECT Neither party hereto makes any representations or warranties, express or implied, or assumes any responsibility concerning the legal, tax, or other implications or effects of this Agreement. The Employer and the Escrow Agent shall take all actions required by law with respect to any payments due hereunder including but not limited to, withholding of tax from such payments. 9. INDEPENDENCE OF AGREEMENT; EMPLOYMENT TERMINATION This Agreement shall be independent of any other contract or agreement that may exist between the parties hereto from time to time. This Agreement shall not restrict the Employer's rights to terminate Employee's employment with the Employer nor Employee's 8 rights to terminate employment with the Employer; provided, however, that the Employer shall not terminate Employee's employment prior to a Change in Control solely to avoid its obligations under this Agreement. No merger or consolidation with any other entity, or sale of all or substantially all of Employer's assets constituting an Escrow Funding Event, or thereafter a Change in Control shall occur without assumption of the Agreement by the purchaser or payment by purchaser or Employer of the sums set forth in subsection (a) of Section 2 of this Agreement. 10. SECTION HEADINGS The Section headings used in this Agreement are for convenience of reference only and shall not be considered in construing this Agreement. 11. NOTICES Any notices required o r permitted to be given under this Agreement shall be sufficient if in writing and if personally delivered or sent by certified or registered mail to his residence as last shown on the employment records of the Employer in the case of Employee, or to the corporate headquarters to the attention of the President in the case of the Employer. 12. NON-WAIVER The waiver by the Employer or Employee of a breach of any provision of this Agreement by Employee or the Employer shall not operate or be construed as a waiver of any subsequent breach by Employee or the Employer of the same or any other provision hereof. 13. ENTIRE AGREEMENT; AMENDMENT This Agreement represents the entire understanding of the parties with respect to the subject matter hereof and supersedes all previous understandings, written or oral. Any amendment to this Agreement shall be executed in writing with the same formality as this Agreement. 14. BINDING EFFECT This Agreement shall be binding upon Employee and the Employee's heirs, executors, administrators, successors and assigns and upon the Employer and its successors and assigns. 15. GOVERNING LAW This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio. 9 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of November , 2001. THE REYNOLDS AND REYNOLDS COMPANY By --------------------------------------------- Lloyd G. Waterhouse President and Chief Executive Officer ----------------------------------------------- Douglas M. Ventura 10 Exhibit A ESCROW AGREEMENT This Escrow Agreement made and entered into as of this 15th day of December, 2000, by and between THE REYNOLDS AND REYNOLDS COMPANY, an Ohio corporation (hereinafter referred to as "REYNOLDS") and BANK ONE, N.A. (hereinafter referred to as the "ESCROW AGENT"), WITNESSETH: WHEREAS, REYNOLDS, has adopted a policy of providing termination pay protection for certain of its key management personnel under conditions set forth in an agreement dated December 15, 2000 (hereinafter referred to as the "Agreement"); and WHEREAS, REYNOLDS has identified Douglas M. Ventura (hereinafter referred to as "Employee") as key management personnel and has entered into the Agreement with him; and WHEREAS, the required protective payments under the Agreement are to be paid to an escrow account at the ESCROW AGENT; NOW, THEREFORE, in consideration of the covenants and agreements contained in this ESCROW AGREEMENT, the parties hereby do agree as follows: 1. ACCEPTANCE OF ESCROW. The ESCROW AGENT shall serve as ESCROW AGENT in accordance with the provisions of this ESCROW AGREEMENT, and the duties of the ESCROW AGENT shall be solely those imposed by this ESCROW AGREEMENT. 2. TERMS. The ESCROW AGENT shall receive, hold and disburse funds as ESCROW AGENT in accordance with the Agreement, in the form attached hereto as Exhibit A and made a part hereof. The ESCROW AGENT acknowledges that it has reviewed and is familiar with the Agreement and shall be bound by the obligations, terms and conditions therein relating to the ESCROW AGENT and its duties. However, the ESCROW AGENT is not a party to or bound by the Agreement, except as specifically provided for therein and as provided in Sections 2, 4, 6, 7 and 8 of this ESCROW AGREEMENT. The ESCROW AGENT shall be liable for only such funds and items as are actually deposited and received by it for the purposes of said escrow. 3. INDEMNIFICATION. So long as the ESCROW AGENT shall follow the terms of this ESCROW AGREEMENT and any instructions issued hereunder in good faith, relying upon documents which it believes to be genuine and properly signed and executed, it shall be held free, clear and harmless and shall incur no liability hereunder. REYNOLDS shall indemnify and hold the ESCROW AGENT harmless from any loss, liability, cost, or expense, including reasonable legal fees, which may arise or be incurred by reason of this ESCROW AGREEMENT or the ESCROW AGENT's performance in good faith of any duty or obligation hereunder. The ESCROW AGENT shall not be liable for any error of judgment or for any act done or omitted by it in good faith, or for anything which it may in good faith do or refrain from doing in connection with said escrow; nor will any liability be incurred by the ESCROW AGENT if, in the event of any dispute or question as to the construction of this ESCROW AGREEMENT or any demand or notice hereunder, the ESCROW AGENT acts in accordance with the opinion of its legal counsel. 4. INVESTMENTS BY ESCROW AGENT; INCOME. The ESCROW AGENT shall invest escrow funds in federally-insured interest bearing accounts selected by the ESCROW AGENT or in any one or more of the following investments, selected by the ESCROW AGENT: (a) Certificates of Deposit of United States commercial banks holding membership in the Federal Reserve System. Such U.S. banks shall have minimum total assets of $1,000,000,000 and shall not be currently listed on any publicly-disclosed report of U.S. banks having financial problems warranting close monitoring by the Federal Reserve Board. (b) Euro-dollar Certificates of Deposit issued by the twenty-five (25) largest United States commercial banks, which banks shall have minimum total assets of $1,000,000,000 and shall not be currently listed on any publicly-disclosed report of U.S. banks having financial problems warranting close monitoring by the Federal Reserve Board. (c) Bankers Acceptances of United States commercial banks holding membership in the Federal Reserve System. Such U.S. banks shall have minimum total assets of $1,000,000,000 and shall not be currently listed on any publicly-disclosed report of U.S. banks having financial problems warranting close monitoring by the Federal Reserve Board. (d) United States Treasury Bills. (e) United States Treasury Notes. (f) United States Government Guaranteed "Project Notes" and/or Tax-Exempt Notes rated MIG 1 by Moody's rating agency. (g) Debt instruments issued by the following five United States Government agencies: Federal Intermediate Credit Banks Banks for Cooperatives Federal Land Banks Federal Home Loan Banks Federal National Mortgage Association (h) Commercial Paper rated Prime-1 by Moody's rating agency or rated A-1 by Standard & Poors rating agency. 2 In addition, with respect to any corporation's commercial paper being purchased, such corporation's long-term debt, if any, must be rated either A by Moody's rating agency or A by Standard & Poors rating agency. The total investments in the above-described approved Certificates of Deposit, Bankers Acceptances, Commercial Paper, and/or Tax-Exempt Notes shall be limited to a maximum of $1,000,000 at any one time in any one single bank, corporation, state and/or municipality. With respect to funds deposited in escrow by REYNOLDS pursuant to the terms of the Agreement, principal shall be used only for the payments to the Employee. Any and all income on invested funds shall be paid to REYNOLDS in accordance with subsection (c) of Section 2 of the Agreement. Fees of the Escrow Agent shall be paid by REYNOLDS in accordance with subsection (c) of Section 2 of the Agreement. With respect to funds deposited pursuant to the Agreement, the ESCROW AGENT shall be authorized to invest such funds. The ESCROW AGENT will maintain such liquidity in the investments as will permit them to be cashed when necessary to fund the required distributions to Employee. 5. TERMINATION. This ESCROW AGREEMENT and all obligations of the ESCROW AGENT shall terminate upon satisfaction by the ESCROW AGENT of all of its obligations under this ESCROW AGREEMENT and the Agreement. 6. ADVERSE CLAIMS. ESCROW AGENT shall make delivery or disbursement of the funds deposited hereunder in accordance with the terms of the ESCROW AGREEMENT and the Agreement, regardless of any disagreement or the presentation of any adverse claims or demands of any person, unless such person shall have obtained an injunction from a court having proper jurisdiction, enjoining ESCROW AGENT from making such delivery or disbursement. ESCROW AGENT shall not become liable to REYNOLDS or to any other person, for or because of such delivery or disbursement of such funds, even with knowledge of a disagreement or adverse claim or demand. 7. DEMANDS. Except in cases where demand or notice by a single party is specifically provided for in this ESCROW AGREEMENT or in the Agreement, the ESCROW AGENT shall not be bound to recognize any notice, demand or change of instructions as having any effect on this escrow unless given in writing and signed by all parties considered by the ESCROW AGENT to be affected thereby. 8. NOTICES. Any notice required or permitted to be given hereunder shall be given in writing and shall be sufficiently delivered if sent by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: ----------------------------, Trust Officer Trust Division Bank One, NA Kettering Tower 3 Dayton, Ohio 45423 The Reynolds and Reynolds Company 115 S. Ludlow Street Dayton, Ohio 45401 Attn: Chief Financial Officer Should the address of any party identified above change for the purposes herein, such party shall give written notice of the new address to the other parties identified above. All notice hereunder to the ESCROW AGENT shall be given in writing to an officer of the ESCROW AGENT. Unless written notice shall so be given, the ESCROW AGENT shall not be required to take or be bound by said notice or to take action concerning such notice. If written notice be properly given and the ESCROW AGENT is required upon receipt thereof to take any action hereunder and such action involves any expense or liability, the ESCROW AGENT shall not be required to take any such action unless it is indemnified against such expense or liability in a manner reasonably satisfactory to the ESCROW AGENT. At the time of depositing funds into escrow on behalf of Employee, REYNOLDS shall deliver to the ESCROW AGENT a written notice setting forth such person's name and address, and social security number identifying the amounts being deposited on such person's behalf, and the conditions of the Agreement, which have been met and which, therefore, require that such deposit be made. 9. RECORD KEEPING. The ESCROW AGENT shall maintain records showing the amount and date of all deposits made by REYNOLDS for the benefit of Employee and the amount and date of all disbursements made to Employee, his heirs, successors and assigns. REYNOLDS shall be given access to said records at reasonable times upon request. 10. ESCROW FEE. REYNOLDS shall pay to the ESCROW AGENT for its services hereunder an escrow fee based upon the then-current schedule of charges for such services promulgated by the ESCROW AGENT and shall pay additional reasonable compensation for any further or extraordinary service which the ESCROW AGENT may be required to render pursuant to the terms of this ESCROW AGREEMENT. 11. BINDING EFFECT. This ESCROW AGREEMENT shall be binding upon and inure to the heirs, executors, administrators, personnel representatives, successors and assigns of all parties hereto. 12. MISCELLANEOUS. Employee is acknowledged to be third party beneficiary upon the deposit of any amounts under this ESCROW AGREEMENT for his benefit. This ESCROW AGREEMENT may be modified or amended only by a writing signed (i) by all parties hereto, (ii) by the third party beneficiary and (iii) by any other person the ESCROW AGENT considers to be affected by said modification or amendment. This ESCROW AGREEMENT shall be construed and enforced in accordance with the laws of the State of Ohio. 4 IN WITNESS WHEREOF, the parties hereto have set their respective hands the year and date first hereinabove written. THE REYNOLDS AND REYNOLDS COMPANY By: --------------------------------------------- "REYNOLDS" BANK ONE, N.A. By: ---------------------------------------------- "ESCROW AGENT" 5 Exhibit B BENEFICIARY DESIGNATION TO: The President of The Reynolds and Reynolds Company Pursuant to the Agreement dated December 15, 2000 the undersigned hereby designates the following beneficiary (beneficiaries) to receive any benefits which may be payable under said Agreement subsequent to the undersigned's death: (1) ----------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (2) If the beneficiary (beneficiaries) named in (1) above is not living or is no longer in existence, as the case may be, then to: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This Beneficiary Designation revokes all prior designations made by the undersigned and is subject to all the terms of the Agreement. Dated: December 15, 2000 ------------------------------------ Douglas M. Ventura EX-10.G 10 l92008aex10-g.txt EX-(10)(G) EMPLOYMENT AGREEMENT EXHIBIT (10)(g) CONSULTING AGREEMENT This Consulting Agreement ("Agreement") is made and entered into this _____ day of September 2001, by and between The Reynolds and Reynolds Company, an Ohio corporation (the "Company"), and Eustace W. Mita, an individual ("Mita"), under the following circumstances: R E C I T A L S WHEREAS, pursuant to the Employment and Non Competition Agreement dated April 17, 2000 by and between the Company and Mita (the "Employment Agreement"), Mita has served as the General Manager, Transformation Services and other positions since May 2000; WHEREAS, Mita has also served as a member of the Company's board of directors since May 2000; WHEREAS, Mita desires to resign from his employment with the Company effective September 30, 2001; WHEREAS, Mita desires to continue to serve on the Company's board of directors; WHEREAS, the Company desires to engage Mita (effective October 1, 2001) to render consulting and advisory services to the Company upon the terms and conditions hereinafter set forth; and WHEREAS, Mita desires to accept such engagement upon the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the covenants and agreements contained herein, the parties agree as follows: 1 RESIGNATION FROM EMPLOYMENT. 1.1 RESIGNATION. Mita hereby resigns from his employment with the Company effective September 30, 2001 (the "Date of Termination") in accordance with Section 10.1(a) of the Employment Agreement with the consequences set forth in Section 10.2 of the Employment Agreement. For purposes of clarification and without limiting or modifying the provisions of Section 10.2 of the Employment Agreement: 1.1.1 MEDICAL INSURANCE. Mita's participation in any and all medical, dental or any other health related employee benefit plans ("Health Plans") available to Mita as an employee of the Company shall cease as of the Date of Termination. Beginning on the Date of Termination, Mita shall be eligible to elect COBRA under the Company's Health Plans available to Mita. If Mita elects COBRA continuation, the premium for COBRA continuation coverage after the Date of Termination shall be at Mita's expense and the amount thereof may be different from the premium charged during Mita's employment with the Company. Mita's participation in the Health Plans shall terminate in accordance with the COBRA continuation of coverage provisions under the Health Plans. 1.1.2 LIFE INSURANCE. If any individual life insurance policies were provided to Mita as an employee of the Company, the Company shall cease paying premiums for any such policies as of the Date of Termination and the Company shall have no further obligations whatsoever regarding said policies, including no obligation to pay premiums, or maintain or administer the policies. 1.1.3 RETIREMENT BENEFITS. If Mita is a participant in any of the Company's pension, retirement or other non-health benefit plans (the "Retirement Plans"), any and all accruals of benefits for Mita under any Retirement Plans shall cease as of the Date of Termination. After the Date of Termination, Mita may no longer contribute to any Company Retirement Plans, including without limitation, any 401(k) plan. Distributions from any such Retirement Plans shall be made in accordance with the terms and conditions of any such plans, as such plans are in effect from time to time. 1.2 EFFECT ON EMPLOYMENT AGREEMENT. Effective October 1, 2001, except as otherwise set forth herein, the Employment Agreement shall terminate immediately, be of no further force and effect and this Agreement shall govern exclusively. 1.3 RELEASE. Except for the rights and obligations expressly set forth herein, Mita, for himself and his spouse, successors, administrators, executors, trusts, trustees, beneficiaries, heirs and assigns, hereby fully and generally releases, waives and forever discharges the Company and its shareholders, directors, officers, employees, agents and attorneys whether past, present or future (the "Released Parties"), from any and all actions, suits, debts, demands, damages, claims, judgments, liabilities, benefits or other remedial relief of any nature, including costs and attorneys' fees, whether known or unknown, including, but not limited to, all claims arising out of Mita's employment with or separation from the Company, its predecessors, successors, assigns, such as (by way of example only) any claim for compensation, severance or other benefits apart from the benefits stated herein; breach of contract; wrongful or tortious discharges; impairment of economic opportunity; any claim under common law or equity; any tort; claims for reimbursements; claims for commissions; implied or express employment contracts and/or estoppel; or claims for employment discrimination under Title VII of the Civil Rights Act of 1964, as amended, the Rehabilitation Act of 1973, as amended, the Americans with Disabilities Act of 1990, as amended, the Civil Rights Act of 1866 and 1991, as amended, or any other state, federal or local law, statute, or regulation. 1.4 RELEASE OF AGE CLAIMS. Mita specifically waives and releases the Company and its agents from all claims Mita may have as of the date he signs this agreement regarding claims or rights arising under the Age Discrimination in Employment Act of 1967, as amended 29 U.S.C. Section 621 ("ADEA"). This SECTION 1.3 does not waive rights or claims that may arise under 2 the ADEA after the date Mita signs this Agreement; Mita further agrees: (a) that his waiver of rights under this release is knowing and voluntary and in compliance with the Older Worker's Benefit Protection Act of 1990; (b) that he understands the terms of this release; (c) that payments and other benefits called for in this Agreement would not be provided to any employee terminating his employment with the Company who did not sign a release similar to this release, that such payment and benefits would not have been provided had Mita not signed this release, and that the payment and benefits are in exchange for the signing of this release; (d) that he has been advised in writing by the Company to consult with an attorney prior to executing this release; (e) that the Company has given Mita a period of at least twenty-one (21) days within which to consider this release which Mita may waive by signing this Agreement on a date prior to the expiration of that twenty-one (21) day period; (f) THAT MITA REALIZES THAT FOLLOWING HIS EXECUTION OF THIS RELEASE, HE HAS SEVEN (7) DAYS IN WHICH TO REVOKE THIS RELEASE BY WRITTEN NOTICE TO THE COMPANY; AND (G) THAT THIS ENTIRE AGREEMENT SHALL BE VOID AND OF NO FORCE AND EFFECT IF MITA CHOOSES TO SO REVOKE, AND IF HE CHOOSES NOT TO SO REVOKE, THAT THIS AGREEMENT AND RELEASE SHALL THEN BECOME EFFECTIVE AND ENFORCEABLE. 1.5 STOCK OPTIONS. Those employee stock options granted to Mita pursuant to the Company's Stock Option Plan - 1995 which are exercisable as of the Date of Termination may be exercised by Mita for a period of sixty (60) days of the Date of Termination as if he had remained continuously employed by the Company. 2 ENGAGEMENT AS CONSULTANT. 2.1 ENGAGEMENT. The Company hereby engages the services of Mita, as an independent contractor, on the terms and conditions set forth hereinafter commencing on October 1, 2001 and ending on January 15, 2002 (the "Consulting Period"). Mita hereby accepts this engagement. 2.2 CONSULTING SERVICES. Mita agrees to provide the consulting services described in EXHIBIT A attached hereto (the "Services"). Mita shall serve on an as-needed basis and, when requested by the Company, shall make himself available at reasonable times after receiving a written request from the Company (a "Work Order") stating the specific Services to be provided, the expected number of days required and the specific desired outcome(s) from Mita performing the Services. Each Work Order shall provide for engagements on a full Day (as defined below) basis. In the event a conflict between any Work Order and this Agreement, this Agreement shall control. 2.3 CONSULTANT COMPENSATION. 2.3.1 Base Compensation. During the Consulting Period, the Company shall pay to Mita a monthly retainer (the "Retainer") equal to Ten Thousand Dollars ($10,000), prorated for any partial month during the period. The Retainer shall be paid on the first (1st) day of each month. During the Consulting Period, within ten (10) business days following the end of each month, Mita shall submit to the Company a written statement (the "Statement"). The Statement shall set forth: (i) in reasonable detail and with specific reference(s) to the applicable Work Order(s), the amount of time spent by Mita during the immediately preceding month providing 3 Services to the Company (including any travel time other than ordinary commuting time); and (ii) in sufficient detail to entitle the Company to a federal income tax deduction (if deductible), the amount of reasonable business expenses incurred by Mita during the immediately preceding month for the benefit of the Company. The Company shall pay to Mita an amount equal to One Thousand Seven Hundred Dollars ($1,700) for each Day Mita provided Services to the Company, prorated for each partial Day, plus reimburse Mita for reasonable business expenses. For purposes of this section, a "Day" shall be a period equal to eight (8) hours. If, based on the Statement, the amount due to Mita in any month exceeds the Retainer for such month, within five (5) business days of receipt of the Statement, the Company shall pay to Mita that amount in excess of the Retainer. Alternatively, if, based on the Statement, the amount due to Mita in any month is less than the Retainer for such month, Mita shall be entitled to keep the entire Retainer. 2.3.2 Bonus Compensation. In addition to the base compensation, Mita shall be paid a bonus equal to One Hundred Thousand Dollars ($100,000) within five (5) business days following the expiration of the Consulting Period. 2.3.3 Taxes. Mita shall be responsible for, and shall pay, all federal, state and local taxes and charges of any nature arising out of his performance of the Services hereunder. 3 DIRECTORSHIP. 3.1 DIRECTOR. Nothing contained herein shall affect Mita's service on the Company's board of directors. Mita shall continue to serve on the Company's board of directors for the remainder of his current term in accordance with the Company's Code of Regulations, as amended from time to time, and applicable law. 3.2 DIRECTOR COMPENSATION. As a member of the Company's board of directors and a non-employee of the Company, effective October 1, 2001, Mita shall be eligible to receive any compensation (including cash, stock and/or options) payable to the Company's non-employee directors and to participate in any and all compensation plans of the Company in the same manner as all other non-employee directors of the Company. Mita shall be eligible to receive a pro rata portion of those non-employee director awards previously granted under such compensation plans to the Company's non-employee directors for service on the Company's board of directors for the remainder of calendar year 2001. 3.3 USE OF COMPANY JET. Mita shall be entitled to use the Company jet as a member of the Company's board of directors for transportation to/from meetings of the board of directors in a manner similar to the other directors and subject to applicable Company travel policies. 4 COVENANT NOT TO COMPETE; CONTINUING OBLIGATIONS. 4.1 COVENANT NOT TO COMPETE. By executing this Agreement, Mita agrees to extend, and to continue to be bound by the "Covenant Not to Compete" contained in SECTION 6.1 of the Employment Agreement as if Mita remained continuously employed by the Company for the Consulting Period and a period of one year following expiration of the Consulting Period. 4.2 CONTINUING OBLIGATIONS. By executing this Agreement, Mita agrees to continue to be bound by those covenants and restrictions contained in SECTIONS 6.2 (AGREEMENT NOT TO 4 DISCLOSE), 6.4 (ACKNOWLEDGMENT OF EQUITABLE REMEDIES), 7 (OWNERSHIP), 8 (OWNERSHIP AND DISCLOSURE OF INVENTIONS) AND 9 (REPRESENTATIONS) of the Employment Agreement as if Mita remained continuously employed by the Company. 5 TERMINATION. This Agreement shall terminate upon the expiration of the Consulting Period. If the Company terminates this Agreement prior to its stated term due to no fault of Mita, any earned but unpaid base compensation and the entire bonus compensation (described in SECTION 2.3 above) shall be paid in accordance with the terms hereof. If the Company terminates this Agreement prior to its stated term due to fault of Mita, any earned but unpaid base compensation shall be paid in accordance with the terms hereof and the bonus compensation shall be forfeited. 6 INDEPENDENT CONTRACTOR. During the Consulting Period, Mita shall be an independent contractor of the Company and is not an agent, employee or representative of the Company in any manner other than in Mita's capacity as a director of the Company. 7 NOTICES. All notices, requests, demands and other communications hereunder shall be in writing and shall be delivered by hand or mailed by certified or registered mail, return receipt requested, postage prepaid or sent via facsimile (with a copy of same mailed by regular U.S. mail the same day) or via overnight courier with a reputable national courier service, and in any event shall be deemed given when received, as follows: (a) If to the Company to: The Reynolds and Reynolds Company 115 South Ludlow Street Dayton, Ohio 45402 Attn: General Counsel Tel.: (937) 485-2710 Fax: (937) 485-3124 (b) If to Mita to: Eustace W. Mita ------------------ ------------------ ------------------ or to such other address as either party shall have previously specified in writing to the other. 8 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 9 AMENDMENT; WAIVER. This Agreement may not be amended except by an instrument in writing signed by the parties hereto. No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of 5 this Agreement, except by written instrument signed by the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived. 10 SEVERABILITY. Should any provision of this Agreement, or the application thereof, be held invalid or unenforceable by a court of competent jurisdiction, the remainder of this Agreement, or alternative applications thereof, other than the provision(s) which shall have been held invalid or unenforceable, shall not be affected thereby and shall continue to be valid and enforceable to the fullest extent permitted by law or equity. 11 ASSIGNMENT. This Agreement shall not be assignable by any of the parties hereto without the written consent of the other parties. Nothing contained in this Agreement, express or implied, is intended to confer upon any person or entity, other than the parties hereto and their permitted successors, assigns and transferees any rights or remedies under or by reason of this Agreement. 12 BINDING EFFECT. This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective executors, administrators, legal representatives, heirs, permitted successors, assigns and transferees. 13 GOVERNING LAW. This Agreement has been executed and delivered in the State of Ohio and its validity, interpretation, performance, and enforcement shall be governed by, and construed and enforced in accordance with, the laws of the State of Ohio. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed effective as of the date first above written. COMPANY: THE REYNOLDS AND REYNOLDS COMPANY, an Ohio corporation. By: --------------------------------- Its: -------------------------------- MITA: -------------------------------- EUSTACE W. MITA 6 EXHIBIT A CONSULTING SERVICES __________________ In his role as a consultant to the Company, Mita shall advise and assist the Company in the following matters: (a) RTS - assist RTS management as requested from time-to-time by Greg Collins in the transition of RTS management and in particular, in the transition of the Ford relationship (including securing a new contract for TCT); (b) Europe - assist the Company generally in the execution of the first steps in its new European strategy (i.e., the "DMS Inc." consolidation; structuring a strategic alliance with a major European partner; and restructuring the Company's existing European operations); and (c) Sales - provide such assistance as may be requested by Scott Schafer from time-to-time. In performing the Services, Mita may base his advice and assistance solely upon his existing knowledge of the Company and its business. 7 EX-10.K 11 l92008aex10-k.txt EX-(10)(K) AMENDED AND RESTATED 1989 SOP EXHIBIT (10)(k) THE REYNOLDS AND REYNOLDS COMPANY AMENDED AND RESTATED STOCK OPTION PLAN -- 1989 (RESTATED DECEMBER 1, 2001) THE REYNOLDS AND REYNOLDS COMPANY AMENDED AND RESTATED STOCK OPTION PLAN -- 1989 SECTION 1. PURPOSES. The Reynolds and Reynolds Company Amended and Restated Stock Option Plan -- 1989 (the "Plan") is intended to promote the growth and general prosperity of The Reynolds and Reynolds Company the ("Company") and its Subsidiaries, as defined in Section 2 below, by providing key employees responsible for the policies and operations of the Company with an additional incentive to contribute to its success; by assisting the Company in attracting and retaining the best available personnel for positions of substantial responsibility; and by increasing the identity of interests of key employees with those of the shareholders of the Company. It is intended that these purposes be effected through the granting of Options, as defined in Section 2 below. The Plan, approved by the Board on November 9, 1988 and by the Shareholders at the Company's Annual Meeting held February 16, 1989, has been amended and restated to incorporate all amendments previously made. SECTION 2. DEFINITIONS. (a) "Affiliate" means a person controlling, controlled by, or under common control with the Company. (b) "Change in Control" shall mean the occurrence of any of the following: (i) Any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") (other than Richard H. Grant, Jr., his children or his grandchildren, the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any company owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company), who is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities; (ii) during any period of two consecutive years (not including any period prior to the execution of this Plan), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (i), (iii) or (iv) of this Section) who election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors at the beginning of the period or whose election or nomination for election was previously so approved cease for any reason to constitute at least a majority thereof; (iii) the consummation of a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than (1) a 1 merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) more than 50% of the combined voting power of the voting securities of the Company or such surviving entity or parent thereof outstanding immediately after such merger or consolidation or (2) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no "person" (as hereinabove defined) is or becomes the beneficial owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such person any securities acquired directly from the Company or its affiliates other than in connection with the securities acquired directly from the Company or its affiliates other than in connection with the acquisition by the Company or its affiliates of a business) representing twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities; or (iv) the shareholders of the Company approve a plan of liquidation, dissolution or winding up of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. (c) "Board" means the Board of Directors of the Company. (d) "Code" means the Internal Revenue Code of 1986, as amended. (e) "Committee" means the Stock Option Committee referred to in Section 4. (f) "Date of Grant" means the date upon which the Committee determines to grant an Option or such later date as may be determined by the Committee at the time such grant is authorized, subject to satisfaction of any conditions the Committee may place on the effectiveness of the grant. (g) "Fair Market Value of a Share" means the mean between the "high" and "low" quotations in the over-the-counter market on the date the value of a Share is to be determined, as reported by the National Association of Securities Dealers through NASDAQ or, if no quotations are available on such date, then on the next preceding date on which such quotations are available. In the event the Shares of the Company are listed for trading on a national securities exchange on the date the value of a Share is to be determined, the "Fair Market Value of a Share" means the mean between the highest and lowest reported selling prices of the Shares as reported in the appropriate composite listing for said exchange on the date the value of a Share is to be determined under this Plan or, If no such sales occurred on that date, then on the next preceding date on which a sale was made. (h) "Incentive Stock Option" means any Option granted hereunder, the terms of which, at the time of grant, comply with the provisions of section 422A of the Code. (i) "Non-Qualified Stock Option" means any Option granted hereunder, the terms of which, at the 2 time of grant, do not comply with the provisions of section 422A of the Code. (j) "Option" means the right to purchase a specified number of Shares of the Company in accordance with the terms of this Plan. (k) "Option Price" means the purchase price per Share specified in an Option granted under the Plan, which price shall be established by the Committee in accordance with its authority set forth in Sections 4 and 7 and may vary from one Option to another; provided, however, that in no event may said price be less than the par value of the Shares; and provided further, that in no event may said price of any Incentive Stock Option granted hereunder be less than the Fair Market Value of a Share on the Date of Grant. (l) "Share" or "Shares" means the Class A Common Shares of the Company which shares have a par value of $.625. (m) "Subsidiary" means any company more than 50% of the voting stock of which is owned or controlled, directly or indirectly, by the Company. (n) "Termination for Cause" means a termination of an optionee's employment whenever occasioned by (i) the willful and continued failure by the optionee to substantially perform the optionee's duties with the Company (other than any such failure resulting from the optionee's incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to the optionee by the Board, which demand specifically identifies the manner in which the Board believes the optionee has not substantially performed the optionee's duties, or (ii) the willful engaging by the optionee in conduct which is demonstrably and materially injurious to the Company or its Subsidiaries, monetarily or otherwise. For purposes of this definition, no act, or failure to act, on the optionee's part shall be deemed "willful" unless done, or omitted to be done, by the optionee not in good faith and without reasonable belief that the optionee's act, or failure to act, was the best interest of the Company. (o) "He" and "His" also mean "She" and "Hers." SECTION 3. SHARES SUBJECT TO THE PLAN. (a) Subject to the adjustments required under the provisions of Section 11 hereof, the total number of Shares which may be issued upon, the exercise of all Options granted under the Plan shall not exceed the sum of: (i) 500,000 Shares originally authorized and reserved for issuance under the plan; plus (ii) annual amounts equal to the lesser of (a) three percent (3%) of the total issued and outstanding Shares of the Company as of October 1 of each full or partial Company fiscal year during which the plan is in effect beginning with the Company's fiscal year commencing October 1, 1990; or (b) such amount calculated as of October 1, 1990 (three percent (3%) of 10,098,004 Shares or 302,940 Shares). 3 To the extent that the actual number of Shares issued upon the exercise of Options granted under the Plan in any such year is less than the maximum annual amount allowed hereunder, such excess number of Shares may be issued upon the exercise of Options granted under the Plan in subsequent years. (b) Shares subject to the Plan may be, at the discretion of the Board, either authorized and unissued Shares or Shares acquired by and belonging to the Company as treasury shares. (c) If all or any part of an Option ceases to be exercisable for any reason, the Shares which are subject to the unexercisable portion of the Option shall again become available for grant under the Plan. SECTION 4. ADMINISTRATION OF THE PLAN. (a) The Board shall appoint a Committee consisting of not fewer than three members of the Board to administer the Plan. From time to time, the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause), and appoint new members in substitution therefor and fill vacancies, however caused. No person shall serve as a member of the Committee if such person is then or was, at any time within one year prior thereto, eligible to receive an Option grant under the Plan or under any other plan of the Company or its Affiliates under the terms of which participants are, or were, eligible to receive stock, stock options, or stock appreciation rights of the Company or any of its Affiliates. (b) Subject to the express terms and conditions of the Plan, the Committee shall have the authority (i) to grant Options and determine the Option Price for Shares covered by each Option, the employees to whom Options are granted, the time or times at which Options are granted, and the number of Shares covered by each Option; (ii) to construe, interpret, and implement the Plan and any agreements executed in connection with the Plan; (iii) to prescribe, amend, and rescind rules and regulations relating to the Plan; (iv) to make all determinations necessary or advisable in administering the Plan; and (v) to correct any defect, supply any omission and reconcile any inconsistency in the Plan; and (vi) to determine whether an Incentive Stock Option, a Non-Qualified Stock Option or a combination of the two shall be granted to an optionee. In exercising its authority under (1) next above, the Committee, consistent with the express provisions of the Plan, may take into account the nature of the services rendered by the respective eligible employees, their present and potential contributions and value to the Company's success and such other factors as the Committee in its discretion shall deem relevant. Any action to be taken by a majority of the Committee shall be the action of the Committee. (c) The determination of the Committee with respect to any matter relating to the Plan or any Option shall be conclusive. No member of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any grant thereunder. (d) With respect to the grant of any Option, the Committee may establish terms and conditions governing its exercise which are more restrictive than the terms and conditions contained in the Plan. 4 SECTION 5. ELIGIBILITY AND TIMING OF GRANTS. (a) Options may be granted by the Committee to any key employees of the Company or any Subsidiary holding positions at or above the director level (as described in the Company's personnel manual) and such other key employees, regardless of title or designation, as shall, in the determination of the Board, be responsible in the future for the duties presently being discharged by employees at or above the director level. The Committee may condition an Option grant and the execution of an option agreement containing such provisions as the Committee and the Board determines to be advisable. An otherwise eligible employee shall not be rendered ineligible by reason of service as a member of the Board. If the Committee deems it appropriate to do so, it may determine (i) to grant Options to some, but not to all, eligible employees in a particular year, or (ii) to refrain from granting any Options at all in a particular year. An employee who has been granted an Option under this Plan or under any other prior or current stock option plans of the Company may, if he is otherwise eligible, be granted an additional Option or Options under this Plan. (b) Unless otherwise determined by the Committee, Options shall be granted annually during the term of the Plan. SECTION 6. TERM OF OPTION AND NUMBER OF SHARES COVERED BY INDIVIDUAL OPTIONS. (a) The term of each Option shall not exceed ten years from the Date of Grant of the Option. The Committee shall promptly cause such grantee of an Option to be notified of the grant and the details thereof. (b) The number of Shares covered by an Option shall be determined by the Committee in its discretion; provided, however, that no employee may be granted Options under this Plan covering more than fifteen percent of the total number of Shares reserved under Section 3; and provided further, that no Incentive Stock Option may be granted to any employee then possessing more than ten percent of the total combined voting power of all classes of stock of the Company unless such Incentive Stock Option sets forth a per share exercise price of one hundred ten percent of the Fair Market Value of a Share on the Date of Grant. The aggregate Fair Market Value, determined as of the Date of Grant, of the Shares with respect to which Incentive Stock Options granted under the Plan or under any other incentive stock option plan of the Company are first exercisable by an employee during any calendar year shall not exceed one hundred thousand dollars. SECTION 7. OPTION PRICE AND PAYMENT THEREOF. (a) Each Option shall state the number of Shares to which it pertains and the Option Price applicable thereto. The Option Price for each Option shall be determined by the Committee in its discretion, at the time of grant; provided, however, that in no event may said Option Price be less than the par value of a share; and provided further, that the Option price of any Incentive Stock Option granted shall not be less than the Fair Market Value of a Share on the Date of Grant. (b) The Option Price shall be payable to the Company either (i) in United States dollars in cash 5 (including check, bank draft or money order), or (ii) at the discretion of the Committee exercised as of the Date of Grant, by delivering either Shares already owned by the optionee or a combination of Shares and cash. The Shares delivered to the Company shall be valued at their Fair Market Value. (c) The proceeds of the sale of the Shares subject to Options hereunder are to be added to the general funds of the Company and used for its general corporate purposes. SECTION 8. EXERCISE OF OPTION. (a) Any Option granted hereunder shall be exercisable at such times and under such conditions as shall be permissible under the terms of the Plan and of the Option. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Notwithstanding the exercise of an Option, until the issuance of stock certificates, no rights of a shareholder, including the right to vote or receive dividends, shall exist with respect to Shares subject to the Option. Except as provided in Section 11, no adjustment will be made for dividend or other rights for which a record date occurs prior to the date stock certificates are issued, with respect to Options exercised under the Plan. (b) The following restrictions shall apply to exercise of Options: (i) Each Option shall be exercisable in whole or in part at any time or from time to time within the exercise period established by the Committee for that Option, but in no event shall said Option be exercisable after the expiration of ten years from the Date of Grant of said Option. (ii) Except as provided in Subsections 8(b) (3), (4) and (5), an Option may be exercised only if the optionee has been continuously employed by the Company since the Date of Grant of the Option. If an optionee"s employment is terminated by the Company pursuant to a Termination for Cause, all Options theretofore granted to an optionee shall, to the extent not previously exercised, terminate immediately. Whether an authorized leave of absence shall constitute a termination of employment shall be determined by the Committee. (iii) If an optionee dies while employed by Company, the Option of such deceased optionee may, subject to the ten-year limitation in Section 6, be exercised within one year from the date of the optionee's death, to the extent the optionee was entitled to exercise the Option on that date, by the person or persons (including the optionee's estate) to whom his rights under such Option passed by will or by the laws of descent and distribution. (iv) If an optionee retires from active employment with the Company with the consent of the Board, the Option of such retired optionee may, subject to the ten-year limitation in Section 6, be exercised by the retired optionee as fully as if he had remained continuously employed by the Company. (v) If an optionee's employment is terminated by either the company or the optionee 6 (other than a Termination for Cause), the Option of such optionee, may, subject to the ten-year limitation in Section 6, be exercised by the optionee within 60 days of such termination of employment, to the extent that Optionee was entitled to exercise the Option on that date, as fully as If he had remained continuously employed by the Company. (vi) No fraction of a Share may be purchased by an Option holder upon exercise of A Option; and, to the extent that the use of fractional or percentage computations would otherwise give rise to the right of the Option holder to purchase a fraction of a Share, the total Shares subject to exercise shall be adjusted to the nearest whole number with any half Share balance being adjusted to one whole Share. (c) Upon the occurrence of a Change in Control, all options outstanding on the date of such Change in Control, shall become immediately and fully exercisable. SECTION 9. AUTHORITY TO AMEND OPTIONS. (a) Except as otherwise specifically provided hereunder, the Committee shall have discretion to determine the terms upon which any Option is exercisable, and shall include such terms as it deems advisable to subject the exercise of any Option to exemption from the application of Section 16(b) of the Securities Exchange Act of 1934. To assure such exemption, Options outstanding, and option agreements evidencing such Options, may be amended, if necessary, by the Committee at any time. (b) The Committee, in granting Incentive Stock Options, shall have discretion to determine the terms upon which said Options are exercisable subject to the applicable provisions of the Plan, and to include in those terms such provisions as it deems advisable to permit treatment of such Options as "incentive stock options" under Section 422A of the Code. SECTION 10. NONTRANSFERABILITY. Options may not be sold, pledged, assigned, hypothecated or transferred other than by will or the laws of descent and distribution and may be exercised only by an optionee during his lifetime, or by his legal guardian or legal representative. SECTION 11. ADJUSTMENT UPON CHANGES IN SHARES OR CAPITALIZATION In the event of any change in the Shares subject to the Plan or to any Option granted hereunder by reason of a merger, consolidation, reorganization, recapitalization, stock dividend, stock split-up, combination or exchange of shares or other change in the corporate structure (provided that the Company remains as the surviving entity upon the completion of any of the foregoing transactions), the aggregate number of Shares as to which Options may be granted under the Plan, the number and class of Shares subject to each outstanding Option and the Option Price per Share shall be adjusted to the extent deemed appropriate by the Committee, which determination shall be conclusive. SECTION 12. COMPLIANCE WITH LAWS AND REGULATIONS. 7 (a) The Plan and all Options granted pursuant to it are subject to all laws and regulations of any governmental authority which may be applicable thereto; and, notwithstanding any provisions of this Plan or the Options granted, the holder of an Option shall not be entitled to exercise such Option nor shall the Company be obligated to issue any Shares under the Plan to the Option holder if such exercise or issuance shall constitute a violation by the optionee or the Company of any provision of any such law or regulation. (b) The Company, in its discretion, may postpone the issuance and delivery of Shares upon the exercise of an Option until completion of any stock exchange listing or registration or other qualification of such shares under any state or federal law, rule, or regulation as the Company may consider appropriate and may require any person exercising an Option to make such representations and furnish such information as It considers appropriate in connection with the issuance of the Shares In compliance with applicable law. Under such circumstances, the Company shall proceed with reasonable promptness to complete any such listing, registration or other qualification. (c) Shares issued and delivered upon exercise of an Option shall be subject to such restrictions on trading, including appropriate legending of certificates to that effect as the Company, in its discretion, shall determine necessary to satisfy applicable legal requirements and obligations. (d) Each optionee to whom an Option is awarded or Shares are issued shall, at the time the Option is granted or the Shares are issued, as a condition to such award or issuance, (i) represent, in form satisfactory to counsel for the Company, that acquisition of the Shares pursuant to the Option, shall be for investment purposes only; (ii) agree, in form satisfactory to counsel for the Company, that he will not sell, pledge, hypothecate or otherwise distribute such Shares or any interest therein unless a registration statement covering such Shares is in effect under the Securities Act of 1933, as now or hereafter amended, or unless counsel for the Company has rendered to the Company an opinion that such sale, pledge, hypothecation or other distribution may be carried out without registration of such Shares under said Act; and (iii) agree, in form satisfactory to counsel for the Company, that an appropriate legend may be placed on the stock certificate or certificates evidencing ownership of Shares acquired hereunder, which legend shall reflect the restrictions on disposition contained herein; provided, however, that the foregoing condition and the representation and agreements called for thereby with respect to the Shares shall be inoperative and shall expire in the event that either (A) the Shares are registered under the Securities Act of 1933, as now or hereafter amended or (B) in the opinion of counsel for the Company, such condition, representation, and agreements are not necessary under said Act or any rule or regulation promulgated pursuant thereto. SECTION 13. RESERVATION OF SHARES. The Company, during the term of this Plan, will at all times, consistent with Section 3, reserve and keep available such number of Shares as, in the judgment of the Board, shall be sufficient to satisfy the requirements of the Plan. SECTION 14. TERM OF PLAN. 8 This Plan shall expire on February 16, 1999 unless sooner terminated under Section 15. SECTION 15. AMENDMENT AND TERMINATION OF PLAN. (a) The Board may, from time to time, amend the Plan or any provision thereof in such respects as the Board may deem advisable except that, without the consent of the shareholders of the Company: (i) the maximum number of Shares that may be optioned under the Plan cannot be increased except in accordance with Section 11; (ii) the class of employees eligible for the grant of an Option cannot be changed; (iii) the minimum price at which Shares may be optioned cannot be decreased and no Option can be granted that is exercisable more than ten years after the date of grant; (iv) no person can while a member of the Committee be eligible to receive or hold an Option under this Plan. Except as specifically permitted by the terms of the Plan or an option agreement, no amendment shall cause an Option previously granted to any employee to be altered or affected to his detriment without his consent. (b) The Board may, at any time, terminate the Plan. (c) Any amendment (except as expressly provided in Section 9) or termination of the Plan shall not adversely affect any Option previously granted and such Option shall remain in full force and effect as if the Plan had not been amended or terminated. SECTION 16. CANCELLATION IN CASE OF MERGER, ACQUISITION OR OTHER REORGANIZATION Anything to the contrary notwithstanding, if the Company is the subject of a merger, acquisition or other reorganization in which the Company is not the surviving entity, the Company shall, at its option exercisable by the affirmative vote of seventy-five percent of the members of the Board duly elected and serving immediately prior to the proposed transaction, have the right to cancel, immediately prior to the effective date of such merger, acquisition or reorganization, all outstanding Options issued under this Plan by giving written notice to each optionee or his personal representative of its intention to do so and by permitting the purchase during the thirty day period next preceding such effective date of all Shares subject to such outstanding Options. SECTION 17. DISCLAIMER OF LIABILITY. Inability of the Company to obtain from any regulatory body the authority deemed by the Company's counsel to be necessary to the lawful grant of Options or issuance of any Shares thereunder shall relieve the Company and the Committee of any liability relating to the failure to grant such Options or issue such Shares. 9 SECTION 18. CLAIM TO STOCK OPTION, OWNERSHIP OR EMPLOYMENT RIGHTS Neither the grantee nor other holder of an Option, nor his legal representatives, legatees or distributees, shall have any rights as a shareholder of the Company with respect to any Shares covered by such Option until the date of the issuance of a stock certificate or certificates representing such Shares. Nothing contained in the Plan nor in any Option shall confer upon any employee any right with respect to continuance of employment by the Company or any Subsidiary nor interfere in any way with the right of the Company or any Subsidiary to terminate his employment at any time. SECTION 19. TAX WITHHOLDING. In connection with the grant and exercise of Options, the optionee or other holder of an Option may be required to pay to the Company or a Subsidiary, as appropriate, the amount of any federal, state, or local taxes which the Company or Subsidiary is required by law to withhold with respect to such transactions. SECTION 20. INDEMNIFICATION. Each person who is or shall have been a member of the Committee or of the Board shall be indemnified and held harmless by the Company against and from any loss, cost, liability or expense that may be imposed upon or reasonably incurred by him in connection with or resulting from any claim, action, Suit or proceeding to which he may be a party or in which he may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by him in settlement thereof, with the Company's approval, or paid by him in satisfaction of judgment in any such action, suit or proceeding against him; provided he shall give the Company an opportunity, at its own expense, to handle and defend the same before he undertakes to handle and defend it on his own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such person may be entitled under the Company's Articles of Incorporation or Code of Regulations, as a matter of law, or otherwise, or any power that the Company may have to indemnify him or hold him harmless. SECTION 21. NOTICES. Each notice relating to this Plan shall be in writing and delivered in person or by certified mail to the proper address. Each notice shall be deemed to have been given on the date it is received. Each notice to the Committee shall be addressed as follows: The Reynolds and Reynolds Company Post Office Box 2608 Dayton, Ohio 45401 Attention: Stock Option Committee Each notice to an optionee or other holder of an Option shall be addressed to the optionee or such other holder, as the case may be, at the optionee's address set forth in the Option or in the Company's current personnel records. Anyone to whom a notice may be given under this Plan may designate, by writing filed with the Committee, a new address. 10 SECTION 22. BENEFITS OF THE PLAN. This Plan shall inure to the benefit of and be binding upon each successor of the Company. All rights and obligations imposed upon an optionee shall be binding upon the optionee's heirs, legal representatives and successors. 11 EX-10.L 12 l92008aex10-l.txt EX-(10)(L) RESTATED SOP 1995 EXHIBIT (10)(l) As Restated As of December 1, 2001 THE REYNOLDS AND REYNOLDS COMPANY RESTATED STOCK OPTION PLAN -- 1995 SECTION 1. PURPOSES. The Reynolds and Reynolds Company Restated Stock Option Plan - 1995 is intended to promote the growth and general prosperity of The Reynolds and Reynolds Company and its Subsidiaries, as defined in Section 2 below, by providing key employees responsible for the policies and operations of the Company and nonemployee directors with an additional incentive to contribute to its success by assisting the Company in attracting and retaining the best available personnel for positions of substantial responsibility and by increasing the identity of interests of key employees and nonemployee directors with those of the shareholders of the Company. It is intended that these purposes be effected through the granting of Options, as defined in Section 2 below. SECTION 2. DEFINITIONS. (a) "ADMINISTRATOR" means the Employee Options Committee with respect to Employee Options and the Nonemployee Director Options Committee with respect to Nonemployee Director Options. (b) "AFFILIATE" means a person controlling, controlled by, or under common control with the Company. (c) "BOARD" means the Board of Directors of the Company. (d) "CHANGE IN CONTROL" shall mean the occurrence of any of the following: (i) Any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") (other than Richard H. Grant, Jr., his children or his grandchildren, the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any company owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company), who is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities; (ii) during any period of two consecutive years (not including any period prior to the execution of this Plan), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (i), (iii) or (iv) of this Section) who election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors at the beginning of the period or whose election or nomination for election was previously so approved cease for any reason to constitute at least a majority thereof; (iii) the consummation of a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than (1) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) more than 50% of the combined voting power of the voting securities of the Company or such surviving entity or parent thereof outstanding immediately after such merger or consolidation or (2) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no "person" (as hereinabove defined) is or becomes the beneficial owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such person any securities acquired directly from the Company or its affiliates other than in connection with the securities acquired directly from the Company or its affiliates other than in connection with the acquisition by the Company or its affiliates of a business) representing twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities; or (iv) the shareholders of the Company approve a plan of liquidation, dissolution or winding up of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. (e) "CODE" means the Internal Revenue Code of 1986, as amended. (f) "COMPANY" means The Reynolds and Reynolds Company. (g) "DATE OF GRANT" means the date upon which the Administrator determines to grant an Option or such later date as may be determined by the Administrator at the time such grant is authorized, subject to satisfaction of any conditions the Administrator may place on the effectiveness of the grant. 2 (h) "DIRECTOR" means a member of the Board. (i) "EMPLOYEE OPTION" means an Option other than Nonemployee Director Option. (j) "EMPLOYEE OPTIONS COMMITTEE" means the Employee Options Committee referred to in Section 4(a). (k) "FAIR MARKET VALUE OF A SHARE" means the mean between the highest and lowest reported selling prices on a national securities exchange of the Shares as reported in the appropriate composite listing for said exchange on the date the value of a Share is to be determined under this Plan or, if no such sales occurred on that date, then on the next preceding date on which a sale was made. In the event the Shares of the Company are traded in the over-the-counter market, Fair Market Value of a Share means the mean between the "high" and "low" quotations in the over-the-counter market on the date the value of a Share is to be determined, as reported by the National Association of Securities Dealers through NASDAQ or, if no quotations are available on such date, then on the next preceding date on which such quotations are available. (l) "HE" and "HIS" also mean "She" and "Hers." (m) "INCENTIVE STOCK OPTION" means any Employee Option granted hereunder, the terms of which, at the time of grant, comply with the provisions of section 422 of the Code. (n) "NONEMPLOYEE DIRECTOR" means each Director of the Company who is not an employee of the Company or any Subsidiary. (o) "NONEMPLOYEE DIRECTOR OPTION" means an Option granted to a Nonemployee Director. (p) "NONEMPLOYEE DIRECTOR OPTIONS COMMITTEE" means the Nonemployee Director Options Committee referred to in Section 4(b). (q) "NON-QUALIFIED STOCK OPTION" means any Option granted hereunder, the terms of which, at the time of grant, do not comply with the provisions of section 422 of the Code. (r) "OPTION" means the right to purchase a specified number of Shares of the Company in accordance with the terms of this Plan and shall include both Employee Options and Nonemployee Director Options. (s) "OPTION PRICE" means the purchase price per Share specified in an Option granted under the Plan, which price shall be established in accordance with Sections 4 and 7 and may vary from one Option to another; provided, however, that in no event may said price be less than the par value of the Shares, if any; and provided further, that in no event may 3 said price of any Incentive Stock Option granted hereunder or a Nonemployee Director Option be less than the Fair Market Value of a Share on the Date of Grant. (t) "PLAN" means The Reynolds and Reynolds Company Restated Stock Option Plan - 1995, as amended from time to time. (u) "SHARE" or "SHARES" means the Class A Common Shares of the Company. (v) "SUBSIDIARY" means any company in which more than 50% of the voting stock is owned or controlled, directly or indirectly, by the Company. (w) "TERMINATION FOR CAUSE" means a termination of an optionee's employment or service on the Board (by removal or failure of the Board to nominate the optionee) whenever occasioned by (i) the willful and continued failure by the optionee to substantially perform the optionee's duties with the Company (other than any such failure resulting from the optionee's incapacity due to physical or mental illness ) after a written demand for substantial performance is delivered to the optionee by the Board, which demand specifically identifies the manner in which the Board believes the optionee has not substantially performed the optionee's duties, or (ii) the willful engaging by the optionee in conduct which is demonstrably and materially injurious to the Company or its Subsidiaries, monetarily or otherwise. For purposes of this definition, no act, or failure to act, on the optionee's part shall be deemed "willful" unless done, or omitted to be done, by the optionee not in good faith and without reasonable belief that the optionee's act, or failure to act, was in the best interest of the Company. SECTION 3. SHARES SUBJECT TO THE PLAN. (a) Subject to the adjustments required under the provisions of Section 11 hereof, the total number of Shares which may be issued upon the exercise of all Options granted under the Plan shall not exceed the sum of: (i) 1,000,000 Shares; plus (ii) annual amounts equal to the lesser of (1) two percent (2%) of the total issued and outstanding Shares of the Company as of October 1 of each full or partial Company fiscal year during which the Plan is in effect beginning with the Company's fiscal year commencing October 1, 1995; or (2) such amount calculated as of October 1, 1994 (two percent (2%) of 41,707,576 Shares or 834,151 Shares). (b) To the extent that the actual number of Shares issued upon the exercise of Options granted under the Plan in any such year is less than the maximum amount allowed 4 hereunder, such excess number of Shares may be issued upon the exercise of Options granted under the Plan in subsequent years. (c) Shares subject to the Plan may be, at the discretion of the Board, either authorized and unissued Shares or Shares acquired by and belonging to the Company as treasury shares. (d) If all or any part of an Option ceases to be exercisable for any reason, the Shares which are subject to the unexercisable portion of the Option shall again become available for grant under the Plan. SECTION 4. ADMINISTRATION OF THE PLAN. (a) EMPLOYEE OPTIONS. (i) The Board shall appoint an Employee Options Committee consisting of not fewer than three members of the Board to administer the Plan with respect to Employee Options. From time to time, the Board may increase the size of the Employee Options Committee and appoint additional members thereof, remove members (with or without cause), and appoint new members in substitution therefor and fill vacancies, however caused. No person shall serve as a member of the Employee Options Committee if such person is then or was, at any time within one year prior thereto, eligible to receive an Employee Option grant under the Plan or under any other plan of the Company or its Affiliates under the terms of which participants are, or were, eligible to receive stock, stock options, or stock appreciation rights of the Company or any of its Affiliates. (ii) Subject to the express terms and conditions of the Plan, the Employee Options Committee shall have the authority to (i) grant Employee Options and determine the Option Price for Shares covered by each Employee Option, the employees to whom Employee Options are granted, the time or times at which Employee Options are granted, and the number of Shares covered by each Employee Option; (ii) construe, interpret, and implement the Plan and any agreements executed in connection with the Plan with respect to Employee Options; (iii) prescribe, amend, and rescind rules and regulations relating to the Plan with respect to Employee Options; (iv) make all determinations necessary or advisable in administering the Plan with respect to Employee Options; (v) correct any defect, supply any omission and reconcile any inconsistency in the Plan with respect to Employee Options; and (vi) determine whether an Incentive Stock Option, a Non-Qualified Stock Option or a combination of the two shall be granted as an Employee Option. In exercising its authority under (i) above, the Employee Options Committee, consistent with the express provisions of the Plan, may take into account the nature of the services rendered by the respective eligible employees, their present and potential contributions and value to the Company's success and such other factors as the Employee Options Committee in its discretion shall deem relevant. Any action to be taken by a 5 majority of the Employee Options Committee shall be the action of the Employee Options Committee. (iii) The determination of the Employee Options Committee with respect to any matter relating to the Plan with respect to any Employee Option shall be conclusive. No member of the Employee Options Committee shall be liable for any action or determination made in good faith with respect to the Plan or any grant thereunder. (iv) With respect to the grant of any Employee Option, the Employee Options Committee may establish terms and conditions governing its exercise which are more restrictive than the terms and conditions contained in the Plan. (b) NONEMPLOYEE DIRECTOR OPTIONS. The members of the Board who are employees shall constitute the Nonemployee Director Options Committee and shall be responsible for the administration of the Plan with respect to Nonemployee Director Options. With respect to Nonemployee Director Options, the Nonemployee Director Options Committee by majority thereof is authorized to interpret the Plan, to prescribe, amend, and rescind rules and regulations relating to the Plan, to provide for conditions and assurances deemed necessary or advisable to protect the interests of the Company, and to make all other determinations necessary or advisable for the administration of the Nonemployee Director Options, but only to the extent not contrary to the express provisions of the Plan. Determinations, interpretations, or other actions made or taken by the Nonemployee Director Options Committee with respect to Nonemployee Director Options, in good faith pursuant to the provisions of the Plan shall be final, binding, and conclusive for all purposes and upon all persons whomsoever. SECTION 5. ELIGIBILITY AND TIMING OF GRANTS. (a) EMPLOYEE OPTIONS. (i) Employee options, including without limitation, Incentive Stock Options may be granted by the Employee Options Committee to any key employees of the Company, or any Subsidiary, holding positions at or above the director level and such other key employees, regardless of title or designation, as shall, in the determination of the Employee Options Committee, be responsible in the future for the duties presently being discharged by employees at or above the director level. The Employee Options Committee may condition an Employee Option grant upon the execution of an option agreement containing such provisions as the Employee Options Committee determines to be advisable. An otherwise eligible employee shall not be rendered ineligible by reason of service as a member of the Board. If the Employee Options Committee deems it appropriate to do so, it may determine to (i) grant Employee Options to some, but not to all, eligible employees in a particular year, or (ii) refrain from granting any Employee Options at all in a particular year. An employee 6 who has been granted an Employee Option under this Plan or under any other prior or current stock option plan of the Company may, if he is otherwise eligible, be granted additional Employee Options under this Plan. (ii) Unless otherwise determined by the Employee Options Committee, Employee Options shall be granted annually during the term of the Plan. (b) NONEMPLOYEE DIRECTOR OPTIONS. Each Nonemployee Director who is a Nonemployee Director on October 1 of each year during the term of the Plan shall be automatically granted Nonemployee Director Options. SECTION 6. TERM OF OPTION AND NUMBER OF SHARES COVERED BY INDIVIDUAL OPTIONS. (a) EMPLOYEE OPTIONS. (i) The term of each Employee Option shall not exceed ten (10) years from the Date of Grant of the Employee Option. The Employee Options Committee shall promptly cause such grantee of an Employee Option to be notified of the grant and the details thereof. (ii) The number of Shares covered by an Employee Option shall be determined by the Employee Options Committee in its discretion; provided, however, that no employee may be granted Employee Options under this Plan covering more than fifteen percent (15%) of the total number of Shares reserved under Section 3; and provided further, that no Incentive Stock Option may be granted to any employee then possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company unless such Incentive Stock Option sets forth a per share exercise price of one hundred ten percent (110%) of the Fair Market Value of a Share on the Date of Grant. The aggregate Fair Market Value, determined as of the Date of Grant, of the Shares with respect to which Employee Options constituting Incentive Stock Options granted under the Plan or under any other incentive stock option plan of the Company are first exercisable by an employee during any calendar year shall not exceed one hundred thousand dollars ($100,000). (b) NONEMPLOYEE DIRECTOR OPTIONS. (i) The term of each Nonemployee Director Option shall be ten (10) years from the date of its grant. (ii) On October 1, or the first business day in October, of each year during the term of this Plan, each Nonemployee Director shall automatically be granted Nonemployee Director Options to purchase Shares with an aggregate Fair Market Value of $40,000, rounded to the nearest whole Share. The $40,000 standard shall be adjusted each October 7 1, commencing October 1, 1996, for annual increases in the Consumer Price Index. The index used in calculating any increase shall be the U.S. Consumer Price Index, all urban Consumers, all items (or equivalent successor index), published by the Bureau of Labor Statistics of the U.S. Department of Labor. Notwithstanding the foregoing, if on any date on which Nonemployee Director Options are to be granted there is not a sufficient number of Shares remaining authorized for grant under this Plan to enable each Nonemployee Director to be granted a Nonemployee Director Option to purchase the full number of Shares to which he or she would normally be entitled, Nonemployee Director Options covering the available Shares shall be prorated among the Nonemployee Directors. SECTION 7. OPTION PRICE AND PAYMENT THEREOF. (a) IN GENERAL. (i) The Option Price shall be payable to the Company either (1) in United States dollars in cash (including check, bank draft or money order), or (2) at the discretion of the applicable committee determined at the Date of Grant, by delivering either Shares already owned by the optionee or a combination of Shares and cash. The Shares delivered to the Company shall be valued at their Fair Market Value. (ii) The proceeds of the sale of the Shares subject to Options hereunder are to be added to the general funds of the Company and used for its general corporate purposes. (b) EMPLOYEE OPTIONS. Each Employee Option shall state the number of Shares to which it pertains and the Option Price applicable thereto. The Option Price for each Employee Option shall be determined by the Employee Options Committee in its discretion at the time of grant; provided, however, that the Option Price of any Employee Option which is an Incentive Stock Option shall be not less than the Fair Market Value of the Shares subject to such Incentive Stock Option on the Date of Grant. (c) NONEMPLOYEE DIRECTOR OPTIONS. Each Nonemployee Director Option shall state the number of Shares to which it pertains and the Option Price applicable thereto. The Option Price for each Nonemployee Director Option shall be equal to the Fair Market Value of the Shares subject to such Nonemployee Director Option on the Date of Grant. SECTION 8. EXERCISE OF OPTION. (a) EMPLOYEE OPTIONS. 8 (i) Employee Options granted hereunder shall be exercisable at such times and under such conditions as shall be permissible under the terms of the Plan and of the Employee Option. (ii) The following restrictions shall apply to the exercise of Employee Options: (1) Each Employee Option shall be exercisable in whole or in part at any time or from time to time within the exercise period established by the Employee Options Committee for that Employee Option, but in no event shall said Employee Option be exercisable after the expiration of ten (10) years from the Date of Grant of said Employee Option. (2) Except as provided in Subsections 8(a)(ii)(3), (4) and (5), an Employee Option may be exercised only if the optionee has been continuously employed by the Company since the Date of Grant of the Employee Option. If an optionee's employment is terminated by the Company pursuant to a Termination for Cause, all Employee Options theretofore granted to such optionee shall, to the extent not previously exercised, terminate immediately. Whether an authorized leave of absence shall constitute a termination of employment shall be determined by the Employee Options Committee. (3) If an optionee dies while employed by Company, the Employee Options of such deceased optionee may, subject to the ten-year limitation in Section 6, be exercised within one (1) year from the date of the optionee's death, to the extent the optionee was entitled to exercise the Employee Options on that date, by the person or persons (including the optionee's estate) to whom his rights under such Employee Options passed by will or by the laws of descent and distribution. (4)(a) With respect to Employee Options granted prior to October 1, 2001: (1) an optionee who retired from active employment with the Company prior to October 1, 2001, may, with consent of the Employee Options Committee, subject to the ten year limitation in Section 6, exercise Employee Options as fully as if he had remained continuously employed by the Company. (2) an optionee who retires from active employment with the Company on or after October 1, 2001, may, with consent of the Employee Options Committee, make a one-time election (an "Election") at retirement to either: (1) be permitted to exercise his Employee Options as fully as if he had remained continuously employed by the Company, subject to the ten year limitation in Section 6, or (2) have all of his unvested Employee Options vest immediately upon retirement and be permitted to, subject to the ten year limitation in Section 6, exercise his Employee Options within three (3) 9 years from the date of the optionee's retirement, as fully as if he had remained continuously employed by the Company. The Election must be made in a writing delivered to the Administrator within ten (10) business days of the optionee's retirement. If an optionee fails to make an Election, the retired optionee shall be deemed to have elected to exercise his Employee Options as fully as if he had remained continuously employed by the Company, subject to the ten year limitation in Section 6. (b) With respect to Employee Options granted on or after October 1, 2001, if an optionee retires from active employment with the Company, with consent of the Employee Options Committee, any unvested Employee Options of such retired optionee shall vest immediately upon retirement and the Employee Options may, subject to the ten year limitation in Section 6, be exercised by the retired optionee within three (3) years from the date of the optionee's retirement, as fully as if he had remained continuously employed by the Company. (5) If an optionee's employment is terminated by either the Company or the optionee (other than a Termination for Cause), the Employee Options of such optionee, may, subject to the ten-year limitation in Section 6, be exercised by the optionee within sixty (60) days of such termination of employment, to the extent the optionee was entitled to exercise the Employee Options on that date, as fully as if he had remained continuously employed by the Company. (b) NONEMPLOYEE DIRECTOR OPTIONS. (i) Except as otherwise provided in Section 8(b)(ii)(a)(2), a Nonemployee Director Option shall be exercisable with respect to twenty-five percent (25%) of the Shares subject to the Nonemployee Director Option on and after the first anniversary of the Date of Grant of such Nonemployee Director Option subject to the restrictions contained in Subsection 8(b)(ii). On and after each subsequent anniversary date of the Date of Grant, an additional twenty-five percent (25%) of the original Shares subject to the Nonemployee Director Option shall be exercisable subject to the restrictions contained in Subsection 8(b)(ii). (ii)(a) (1) With respect to each Nonemployee Director Option granted prior to October 1, 2001, if, prior to October 1, 2001, a Nonemployee Director retires, resigns or otherwise does not continue to serve on the Board for any reason, other than pursuant to a Termination for Cause as provided in subsection 8(b)(ii)(2)(b) (a "Retirement"), each Nonemployee Director Option shall be exercisable, in whole or in part, at any time or from time to time, regardless of the optionee's Retirement, with respect to Shares subject to the Options which are exercisable under subsection 10 8(b)(i), but in no event shall said Nonemployee Director Option be exercisable after the expiration of ten (10) years from the Date of Grant of said Nonemployee Director Option. (2) With respect to each Nonemployee Director Option granted prior to October 1, 2001, if, on or after October 1, 2001, a Nonemployee Director elects Retirement, at Retirement, the Nonemployee Director shall make a one-time election (a "Nonemployee Election") either to: (1) be permitted to exercise Nonemployee Director Options, in whole or in part, at any time or from time to time, regardless of the optionee's Retirement, with respect to Shares subject to the Options which are exercisable under subsection 8(b)(i), but in no event shall said Nonemployee Director Option be exercisable after the expiration of ten (10) years from the Date of Grant of said Nonemployee Director Option, or (2) have all unvested Nonemployee Director Options of such optionee vest immediately upon Retirement and be permitted to exercise, in whole or in part, such Options for a period of three (3) years from the date of the Nonemployee Director's Retirement, as fully as if he had continued to serve on the Board, but in no event shall said Nonemployee Director Options be exercisable after the expiration of ten (10) years from the Date of Grant of said Nonemployee Director Option. The Nonemployee Election shall be made in a writing delivered to the Administrator within ten (10) business days of the Nonemployee Director's Retirement. If a Nonemployee Director fails to make a Nonemployee Election, the Nonemployee Director shall be deemed to have elected to exercise Nonemployee Director Options of such Nonemployee Director, in whole or in part, at any time or from time to time, regardless of the optionee's Retirement, with respect to Shares subject to the Options which are exercisable under subsection 8(b)(i), but in no event shall said Nonemployee Director Option be exercisable after the expiration of ten (10) years from the Date of Grant of said Nonemployee Director Option. (3) With respect to each Nonemployee Director Option granted on or after October 1, 2001, if a Nonemployee Director elects Retirement, any unvested Nonemployee Director Options of such optionee shall vest immediately at Retirement and the Nonemployee Director Options may be exercised by the retired Nonemployee Director within three (3) years from the date of the Nonemployee Director's Retirement, but in no event shall said Nonemployee Director Option be exercisable after the expiration of ten (10) years from the Date of Grant of said Nonemployee Director Option. 11 (b) If an optionee's service on the Board is terminated pursuant to a Termination for Cause, all Nonemployee Director Options of such an optionee theretofore granted to such optionee shall, to the extent not previously exercised, terminate immediately. (c) GENERAL PROVISIONS. (i) An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Notwithstanding the exercise of an Option, until the issuance of stock certificates, no rights of a shareholder, including the right to vote or receive dividends, shall exist with respect to Shares subject to the Option. Except as provided in Section 11, no adjustment will be made for dividend or other rights for which a record date occurs prior to the date stock certificates are issued, with respect to Options exercised under the Plan. (ii) No fraction of a Share may be purchased by an optionee upon exercise of an Option; and, to the extent that the use of fractional or percentage computations would otherwise give rise to the right of the optionee to purchase a fraction of a Share, the total Shares subject to exercise shall be adjusted to the nearest whole number with any half Share balance being adjusted to one whole Share. (iii) Upon the occurrence of a Change in Control, all Options outstanding on the date of such Change in Control, shall become immediately and fully exercisable. SECTION 9. AUTHORITY TO AMEND OPTIONS. (a) Except as otherwise specifically provided hereunder, the Administrator shall have discretion to determine the terms upon which any Option, with respect to which it acts as Administrator, is exercisable, and shall include such terms as it deems advisable to subject the exercise of such Option to exemption from the application of Section 16(b) of the Securities Exchange Act of 1934. To assure such exemption, Options outstanding and option agreements evidencing such Options may be amended, if necessary, by the applicable Administrator. (b) The Employee Options Committee, in granting Incentive Stock Options, shall have discretion to determine the terms upon which said Options are exercisable subject to the applicable provisions of the Plan, and to include in those terms such provisions as it deems advisable to permit treatment of such Options as "incentive stock options" under Section 422 of the Code. 12 SECTION 10. NONTRANSFERABILITY. Options may not be sold, pledged, assigned, hypothecated or transferred other than by will or the laws of descent and distribution and may be exercised only by an optionee during his lifetime, or by his legal guardian or legal representative. SECTION 11. ADJUSTMENT UPON CHANGES IN SHARES OR CAPITALIZATION. In the event of any change in the Shares subject to the Plan or to any Option granted hereunder by reason of a merger, consolidation, reorganization, recapitalization, stock dividend, stock split-up, combination or exchange of shares or other change in the corporate structure (provided that the Company remains as the surviving entity upon the completion of any of the foregoing transactions), the aggregate number of Shares as to which Options may be granted under the Plan, the number and class of Shares subject to each outstanding Option and the Option Price per Share shall be adjusted accordingly. The Administrator shall be responsible for making the necessary changes with respect to such Options. SECTION 12. COMPLIANCE WITH LAWS AND REGULATIONS. (a) The Plan and all Options granted pursuant to it are subject to all laws and regulations of any governmental authority which may be applicable thereto; and, notwithstanding any provisions of this Plan or the Options granted, the holder of an Option shall not be entitled to exercise such Option nor shall the Company be obligated to issue any Shares under the Plan to the Option holder if such exercise or issuance shall constitute a violation by the optionee or the Company of any provision of any such law or regulation. (b) The Company, in its discretion, may postpone the issuance and delivery of Shares upon the exercise of an Option until completion of any stock exchange listing or registration or other qualification of such Shares under any state or federal law, rule, or regulation as the Company may consider appropriate and may require any person exercising an Option to make such representations and furnish such information as it considers appropriate in connection with the issuance of the Shares in compliance with applicable law. Under such circumstances, the Company shall proceed with reasonable promptness to complete any such listing, registration or other qualification. (c) Shares issued and delivered upon exercise of an Option shall be subject to such restrictions on trading, including appropriate legending of certificates to that effect as the Company, in its discretion, shall determine necessary to satisfy applicable legal requirements and obligations. (d) Each optionee to whom an Option is awarded or Shares are issued shall, at the time the Option is granted or the Shares are issued, as a condition to such award or issuance, (i) 13 represent, in form satisfactory to counsel for the Company, that acquisition of the Shares pursuant to the Option, shall be for investment purposes only; (ii) agree, in form satisfactory to counsel for the Company, that he will not sell, pledge, hypothecate or otherwise distribute such Shares or any interest therein unless a registration statement covering such Shares is in effect under the Securities Act of 1933, as now or hereafter amended, or unless counsel for the Company has rendered to the Company an opinion that such sale, pledge, hypothecation or other distribution may be carried out without registration of such Shares under said Act; and (iii) agree, in form satisfactory to counsel for the Company, that an appropriate legend may be placed on the stock certificate or certificates evidencing ownership of Shares acquired hereunder, which legend shall reflect the restrictions on disposition contained herein; provided, however, that the foregoing condition and the representation and agreements called for thereby with respect to the Shares shall be inoperative and shall expire in the event that either (A) the Shares are registered under the Securities Act of 1933, as now or hereafter amended or (B) in the opinion of counsel for the Company, such condition, representation, and agreements are not necessary under said Act or any rule or regulation promulgated pursuant thereto. SECTION 13. RESERVATION OF SHARES. The Company, during the term of this Plan, will at all times, consistent with Section 3, reserve and keep available such number of Shares as, in the judgment of the Board, shall be sufficient to satisfy the requirements of the Plan. SECTION 14. TERM OF PLAN. This Plan shall expire on February 9, 2005 unless sooner terminated under Section 15. SECTION 15. AMENDMENT AND TERMINATION OF PLAN. (a) The Board may, from time to time, amend the Plan or any provision thereof in such respects as the Board may deem advisable except that, without the consent of the shareholders of the Company: (1) the maximum number of Shares subject to the Plan cannot be increased except in accordance with Section 11; (2) the class of employees eligible for the grant of an Employee Option cannot be changed; (3) the minimum price at which Shares may be optioned cannot be decreased and no Option can be granted that is exercisable more than ten (10) years after the date of grant; and 14 (4) no person can while a member of the Employee Options Committee be eligible to receive or hold an Employee Option under this Plan. Except as specifically permitted by the terms of the Plan or an option agreement, no amendment shall cause an Option previously granted to any optionee to be altered or affected to his detriment without his consent. Notwithstanding the foregoing, the plan provision regarding Nonemployee Director Options shall not be amended more than once every six (6) months, other than to comply with changes in the Internal Revenue Code, the Employee Retirement Income Security Act, or the rules thereunder. (b) The Board may, at any time, terminate the Plan. (c) Any amendment (except as expressly provided in Section 9) or termination of the Plan shall not adversely affect any Option previously granted and such Option shall remain in full force and effect as if the Plan had not been amended or terminated. SECTION 16. DISCRETIONARY CANCELLATION IN CASE OF MERGER, ACQUISITION OR OTHER REORGANIZATION. Anything to the contrary notwithstanding, if the Company is the subject of a merger, acquisition or other reorganization in which the Company is not the surviving entity, the Company shall, at its option exercisable by the affirmative vote of seventy-five percent (75%) of the members of the Board duly elected and serving immediately prior to the proposed transaction, have the right to cancel, immediately prior to the effective date of such merger, acquisition or reorganization, all outstanding Options issued under this Plan by giving written notice to each optionee or his personal representative of its intention to do so and by permitting the purchase during the thirty day period next preceding such effective date of all Shares subject to such outstanding Options. SECTION 17. DISCLAIMER OF LIABILITY. Inability of the Company to obtain from any regulatory body the authority deemed by the Company's counsel to be necessary to the lawful grant of Options or issuance of any Shares thereunder shall relieve the Company and the Administrator of any liability relating to the failure to grant such Options or issue such Shares. SECTION 18. CLAIM TO OPTION, OWNERSHIP OR EMPLOYMENT RIGHTS. Neither the grantee nor other holder of an Option, nor his legal representatives, legatees or distributees, shall have any rights as a shareholder of the Company with respect to any Shares 15 covered by such Option until the date of the issuance of a stock certificate or certificates representing such Shares. Nothing contained in the Plan or in any Employee Option shall confer upon any employee any right with respect to continuance of employment by the Company or any Subsidiary or interfere in any way with the right of the Company or any Subsidiary to terminate his employment at any time. The granting of any Nonemployee Director Option shall not impose upon the Company, the Board of Directors or any other Directors any obligation to nominate any optionee for election as a Director and the right of the shareholders of the Company to remove any person as a Director shall not be diminished or affected by reason of the fact that a Nonemployee Director Option has been granted to such person. SECTION 19. TAX WITHHOLDING. In connection with the grant and exercise of Options, the optionee or other holder of an Option may be required to pay to the Company or a Subsidiary, as appropriate, the amount of any taxes which the Company or Subsidiary is required by law to withhold with respect to such transactions. SECTION 20. INDEMNIFICATION. Each person who is or shall have been a member of a committee serving as Administrator or of the Board shall be indemnified and held harmless by the Company against and from any loss, cost, liability or expense that may be imposed upon or reasonably incurred by him in connection with or resulting from any claim, action, suit or proceeding to which he may be a party or in which he may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by him in settlement thereof, with the Company's approval, or paid by him in satisfaction of judgment in any such action, suit or proceeding against him; provided he shall give the Company an opportunity, at its own expense, to handle and defend the same before he undertakes to handle and defend it on his own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such person may be entitled under the Company's Articles of Incorporation or Code of Regulations, as a matter of law, or otherwise, or any power that the Company may have to indemnify him or hold him harmless. SECTION 21. NOTICES. Each notice relating to this Plan shall be in writing and delivered in person or by certified mail to the proper address. Each notice shall be deemed to have been given on the date it is received. Each notice to the Administrator shall be addressed as follows: The Reynolds and Reynolds Company Post Office Box 2608 16 Dayton, Ohio 45401 Attention: Administrator - 1995 Stock Option Plan Each notice to an optionee or other holder of an Option shall be addressed to the optionee or such other holder, as the case may be, at the optionee's address set forth in the Option or in the Company's current records. Anyone to whom a notice may be given under this Plan may designate, by writing filed with the Administrator, a new address. SECTION 22. BENEFITS OF THE PLAN. This Plan shall inure to the benefit of and be binding upon each successor of the Company. All rights and obligations imposed upon an optionee shall be binding upon the optionee's heirs, legal representatives and successors. 17 EX-10.CC 13 l92008aex10-cc.txt EX-(10)(CC) AMENDMENT TO SUPPLEMENTAL RETIREMENT EXHIBIT (10)(cc) AMENDMENT NUMBER 5 TO THE REYNOLDS AND REYNOLDS COMPANY SUPPLEMENTAL RETIREMENT PLAN The Reynolds and Reynolds Company (the "COMPANY") adopted The Reynolds and Reynolds Company Supplemental Retirement Plan (the "PLAN") effective October 1, 1978. The Company has reserved the right under Section 8.5 of the Plan to amend the Plan at any time and has done so from time to time. The Company now desires to further amend the Plan as follows: Effective December 1, 2001, Section 1.5 shall be amended and restated in its entirety as follows: SECTION 1.5 - CHANGE IN CONTROL "CHANGE IN CONTROL" shall mean the occurrence of any of the following: (a) Any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") (other than Richard H. Grant, Jr., his children or his grandchildren, the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any Company owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company), who is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities; (b) during any period of two consecutive years (not including any period prior to the execution of this Plan), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (a), (c) or (d) of this Section) who election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors at the beginning of the period or whose election or nomination for election was previously so approved cease for any reason to constitute at least a majority thereof; (c) the consummation of a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than (1) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) more than 50% of the combined voting power of the voting securities of the Company or such surviving entity or parent thereof outstanding immediately after such merger or consolidation or (2) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no "person" (as hereinabove defined) is or becomes the beneficial owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such person any securities acquired directly from the Company or its affiliates other than in connection with the securities acquired directly from the Company or its affiliates other than in connection with the acquisition by the Company or its affiliates of a business) representing twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities; or (d) the shareholders of the Company approve a plan of liquidation, dissolution or winding up of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. EX-10.QQ 14 l92008aex10-qq.txt EX-(10)(QQ) DEFERRED COMPENSATION & DISABILITY Exhibit (10)(qq) NON-QUALIFIED DEFERRED COMPENSATION AND DISABILITY AGREEMENT ------------------------------------------------------------ THIS AGREEMENT is entered into this ______ day of ______, 2001, by and between THE REYNOLDS AND REYNOLDS COMPANY, an Ohio corporation (the "Corporation"), and _______________________ (the "Employee"). The Employee is a valued member of a select group of management or highly compensated employees of the Corporation, and is currently an Officer of the Corporation. The Corporation wants to encourage the Employee to stay with the Corporation as one of its executives. For the preceding reasons, the Corporation previously agreed to provide deferred compensation payments and other benefits to the Employee, subject to the terms and conditions of a document entitled "Non-Qualified Deferred Compensation and Disability Agreement" and dated December 20, 1984 (the "Prior Agreement"). The Employee and the Corporation now desire to amend and restate the Prior Agreement to include certain Change in Control provisions and to reflect a change in the benefit formula previously set forth on Schedule II to the Prior Agreement. THEREFORE, in consideration of the mutual obligations described below, the parties agree that: (a) this Agreement shall amend, restate and replace the Prior Agreement; and (b) upon the execution of this Agreement, the provisions of the Prior Agreement shall be null and void. THE PARTIES FURTHER AGREE as follows: 1. DEFINITIONS. As used in this Agreement, the terms set forth below shall have the following meanings: (a) "Annual Compensation" means, for a given year, an amount equal to the sum of (i) and (ii), below. (i) the base salary paid by the Corporation to the Employee, including any salary reduction amounts contributed at the election of the Employee for that year: (1) under any tax-qualified or non-qualified deferred compensation plan or agreement (other than this Agreement); and (2) under any plan described in Section 125 of the Internal Revenue Code which is maintained by the Corporation; AND (ii) the greater of: (1) the amount of any cash bonuses paid by the Corporation to Employee during that year; or (2) the amount of any cash bonuses accrued for payment by the Corporation to Employee for that year. For purposes of this clause (ii), any bonuses which are paid or accrued on a basis other than an annual basis, will be annualized. Except as otherwise provided below and in Section 4, the Annual Compensation of the Employee will be determined as of whichever of the following dates produces the greatest Annual Compensation: (i) the date the Employee terminates employment by the Corporation; or (ii) any earlier date during his or her employment by the Corporation which produces a greater amount of Annual Compensation. (b) "Change in Control" means the occurrence of any of the following: (i) Any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") (other than Richard H. Grant, Jr., his children or his grandchildren, the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any Company owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company), who is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities; (ii) during any period of two consecutive years (not including any period prior to the execution of this Plan), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (i), (iii) or (iv) of this Section) who election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors at the beginning of the period or whose election or nomination for election was previously so approved cease for any reason to constitute at least a majority thereof; (iii) the consummation of a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than (1) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) more than 50% of the combined voting power of the voting securities of the Company or such surviving entity or parent thereof outstanding immediately after such merger or consolidation or (2) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no "person" (as hereinabove defined) is or becomes the beneficial owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such person any securities acquired directly from the Company or its affiliates other than in connection with the securities acquired directly from the Company or its affiliates other than in connection with the acquisition by the Company or its affiliates of a business) representing twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities; or (iv) the shareholders of the Company approve a plan of liquidation, dissolution or winding up of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. (c) "Claimant" means the Employee, or any beneficiary of the Employee, as determined under the provisions of this Agreement. (d) "Disability" and/or "Disabled" means any of the following conditions which first occur after the date this Agreement is executed: (i) the total and irrevocable loss by the Employee of: (1) sight of both eyes; (2) the use of both hands or both feet; (3) the use of one hand and one foot; regardless of whether the Employee is able to perform the duties of, or is working at, any occupation; OR (ii) the inability of the Employee to perform all of the substantial and material duties of his regular occupation as a result of an injury or sickness. If a disability described in the preceding part of this clause (ii) continues for a period of sixty (60) months, then for purposes of this clause (ii), disability means the inability of the Employee to perform all of the substantial and material duties of any occupation for which he is reasonably qualified by education, training or experience. (e) "Good Reason" means the occurrence of any of the following events: (A) The Corporation reduces Employee's base salary below the amount of such base salary in effect immediately preceding a Change in Control without Employee's written consent; (B) the Corporation fails to continue to provide Employee with fringe benefits (including bonuses, vacation, health and disability insurance, etc.) at least equivalent to those of other similarly situated employees of the Corporation; (C) Employee is required by the Corporation to perform duties or services which differ significantly from those performed by him prior to the Change in Control, or which are not ordinarily and generally performed by a similarly situated executive of a corporation; or (D) the nature of the duties or services which the Corporation requires Employee to perform necessitates absence overnight from his place of residence, because of travel involving the business affairs of the Corporation for more than ninety (90) days during any period of six (6) consecutive months. (f) "Officer" means an employee of the Corporation who is designated as such by the Chief Human Resources Officer of the Corporation and is compensated in accordance with any salary scales or pay grades applicable to officers. For purposes of this Agreement, Officers shall be divided into three groups, as follows: (i) Category A, which includes the Chief Executive Officer and the Division Presidents; (ii) Category B, which includes Officers in pay grades fourteen (14) through (18), inclusive; and (iii) Category C, which includes Officers in pay grades ten (10) through thirteen (13), inclusive. (g) "Payment Date" means the first to occur of the following: (i) the date the Employee dies, but only if: (1) he was employed by the Corporation on that date; or (2) he previously terminated employment with the Corporation after having satisfied the Service Requirement; or (3) he previously terminated employment with the Corporation because he was Disabled, and he remained continuously Disabled until his death. (ii) the date the Employee terminates employment with the Corporation after attaining age fifty--five (55), but only if: (1) he has satisfied the Service Requirement as of his termination date; or (2) the Employee is Disabled as of his termination date. (iii) the date, after the termination of his employment with the Corporation, on which the Employee attains age fifty--five (55), but only if: (1) the Employee has satisfied the Service Requirement as of the date he attains age 55; or (2) he is Disabled when his employment by the Corporation terminates, and he remains continuously Disabled until he attains age fifty-five (55). (h) "Service Requirement" means the completion by Employee of at least one hundred seventy--four (174) calendar months of employment by the Corporation, whether or not continuous, during some part of which the Employee is an Officer. For purposes of the Service Requirement, employment before and after the date this Agreement is executed will be considered. The Employee shall be considered employed by the Corporation during an authorized leave of absence, as more fully described below. (i) "Termination for Cause" means a termination of Employee's employment whenever occasioned by (i) the willful and continued failure by Employee to substantially perform duties with the Corporation (other than any such failure resulting from incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to Employee by the Board, which demand specifically identifies the manner in which the Board believes Employee has not substantially performed Employee's duties, or (ii) the willful engaging by Employee in conduct which is demonstrably and materially injurious to the Corporation or its subsidiaries, monetarily or otherwise. For purposes of this definition, no act, or failure to act, on Employee's part shall be deemed "willful" unless done, or omitted to be done, by Employee not in good faith and without reasonable belief that Employee's act, or failure to act, was in the best interest of the Corporation. 2 - DEFERRED COMPENSATION PAYMENTS. The Corporation shall begin payments under this Agreement within thirty (30) days after the Employee's Payment Date. Unless otherwise provided in Section 4, the amount of the payments shall be determined as follows: (a) If the Employee is an Officer described in Category A, an amount equal to two hundred percent (200%) of his Annual Compensation, payable in substantially equal monthly installments over a period of ten (10) years; (b) If the Employee is an Officer described in Category B, an amount equal to one hundred and fifty percent (150%) of his Annual Compensation, payable in substantially equal monthly installments over a period of ten (10) years; (c) If the Employee is an Officer described in Category C, an amount equal to one hundred percent (100%) of his Annual Compensation, payable in substantially equal monthly installments over a period of ten (10) years; Notwithstanding any contrary provision of this Agreement, no payment shall be made under this Agreement by reason of the death of the Employee as a result of suicide which occurs within two years of the date of the Prior Agreement. The provisions of the preceding sentence shall apply whether or not the Employee is sane at the time the suicide occurs. If the Employee dies while this Agreement is in effect, and: (i) at the time of his death, the Employee has not received all of the payments to which he is entitled under this Agreement; or (ii) payments under this Agreement begin because of the death of the Employee: Any payments otherwise due shall be paid by the Corporation to a beneficiary or beneficiaries designated by the Employee in accordance with the provisions of Section 4. 3. DISABILITY BENEFIT. If prior to attaining age fifty-five (55) Employee becomes Disabled while employed by the Corporation, the Corporation shall make payment(s) to Employee as provided in "Schedule I," attached hereto and made a part hereof, until the earlier of (i) the date Employee is no longer Disabled, (ii) the death of Employee, or (iii) attainment by Employee of age fifty-five (55). 4. DESIGNATING A BENEFICIARY. Subject to the provisions of this Section, the Employee may, from time to time, designate a beneficiary or beneficiaries to receive any payments under this Agreement which remain due and payable at the time of his death. Each beneficiary must be designated by the Employee on a written beneficiary designation form, which must be received prior to his death. The Employee may change his designated beneficiary or beneficiaries by submitting an appropriately completed, written beneficiary designation form to the Chief Human Resources Officer (the "CHRO") of the Corporation prior to his death. The beneficiary or beneficiaries currently designated by the Employee are identified on Exhibit A, which is attached and made a part of this Agreement. If the Employee fails properly to designate a beneficiary, any payment otherwise due and payable under this Agreement will be made to the Employee's surviving spouse, if any, and otherwise to the personal representative of the Employee's estate. 5. THE EFFECT OF PROMOTION OR DEMOTION. (a) Generally. If the Employee is demoted so that he remains employed by the Corporation, but is no longer an Officer, his Annual Compensation shall be determined as of the date he ceased to be an Officer. In order to be eligible for payments under this Agreement, the Employee must satisfy all applicable Service Requirements or qualify for the payment under Section 10. (b) Application of the Payment Formula. For purposes of applying the payment formula contained in Section 2, the following rules shall apply. For purposes of applying these rules, Category A shall be considered the highest Officer category, and Category C the lowest. (i) if the Employee is promoted by the Corporation to a higher Officer category, the formula for the higher category shall apply for purposes of computing the payments to which the Employee (or his designated beneficiaries) may be entitled pursuant to Section 2; and (ii) if the Employee is demoted by the Corporation to a lower Officer category, or ceases to be an Officer, then the formula for his position immediately prior to the demotion shall apply for purposes of computing the payments to which the Employee (or his designated beneficiaries) may be entitled pursuant to Section 2. 6. ADMINISTRATION. The CHRO of the Corporation shall have the authority to control and manage the operation and administration of the arrangements made by the parties pursuant to this Agreement. The CHRO may delegate to other persons some or all of the responsibilities of the CHRO under this Agreement. Any such delegation may be accomplished only by delivering to the Corporation a written instrument signed by the CHRO that specifies the nature and extent of the responsibilities delegated and the names of the persons to whom the responsibilities have been delegated. This Agreement, and any related documents, shall be retained by the CHRO and made reasonably available for examination by the Employee. Upon written request, those documents and other relevant information shall be provided to the parties to this Agreement. 7. GENERAL CLAIM PROCEDURES. If a Claimant fails to receive a payment to which he believes he is entitled under this Agreement, he may file a written claim for the payment with the CHRO. If the claim is wholly or partially denied, written notice of the denial will be furnished to the Claimant within a reasonable time after the claim is filed. Each notice denying a claim shall include the following information: (a) the reason or reasons the claim was denied; (b) a specific reference to the provision of this Agreement upon which the denial is based; (c) a description of any additional material or information necessary for the Claimant to perfect the claim; and (d) an explanation of the claim appeal procedures described in Section 8, below. 8. APPEAL PROCEDURES. Subject to the requirements of this Section, a Claimant may appeal the denial of a claim. Appeals must be filed in writing with the CHRO not later than 60 days after the Claimant receives written notice that the claim has been denied. As a part of the appeal process, the Claimant may review pertinent documents, submit written comments and request that a hearing be held to consider the appeal. The decision to hold a hearing to consider the appeal shall be within the sole discretion of the CHRO, whether or not the Claimant requests a hearing. Except as provided below, each appeal will be decided not later than 60 days after the CHRO receives the written appeal. If, however, special circumstances require an extension of time for deciding an appeal, a decision shall be rendered within a reasonable period of time, but not later than 120 days after the CHRO receives the written appeal and any additional information submitted by the Claimant in accordance with this Section. Appeal decisions shall be written and shall include the specific reason(s) for the decision and the specific reference(s) to the pertinent provisions of this Agreement on which the decision is based. 9. SOURCE OF PAYMENTS. All payments under this Agreement shall be made solely from the general assets of the Corporation. No such assets shall be segregated or placed in trust to secure the performance of the obligations of the Corporation under this Agreement. The Corporation may, however, in its sole discretion, purchase one or more policies of insurance with respect to Employee, the proceeds of which may, but need not, be used by the Corporation to satisfy part or all of its obligations under this Agreement. The Corporation will be the owner of any such policy. Neither the Employee nor any other person or entity claiming through the Employee shall have any rights with respect to any such policy or to the proceeds of any such policy. As a condition of receiving any benefits under this Agreement, the Employee, on behalf of himself and any person or entity claiming through him, agrees to cooperate with the Corporation in obtaining any insurance policy that the Corporation chooses to purchase with respect to the Employee by submitting to such physical examinations, completing such forms, and making such records available as may be required from time to time. The rights under this Agreement of the Employee and any person or entity claiming through him shall be solely those of an unsecured, general creditor of the Corporation. No insurance policy or other asset of the Corporation shall be held by the Corporation for or on behalf of Employee, or any other person, or constitute security for the performance of any obligations of the Corporation under this Agreement. 10. CHANGE IN CONTROL. (a) (i) Notwithstanding any other provision of this Agreement to the contrary, if within twenty-four (24) months following a Change in Control of the Corporation Employee's employment is terminated by the Corporation (other than a "Termination for Cause" (as defined above)), or Employee terminates his employment for Good Reason, and Employee has attained at least one year of service as an Officer of the Corporation as of the date of such Change in Control, Employee shall be entitled to a lump sum payment equal to the present value of the benefit he would have received pursuant to Section 2 of the Agreement as if the requirements of Employee's Payment Date had been satisfied, multiplied by a fraction, the numerator of which is the sum of (x) Employee's whole and fractional years of service with the Corporation as of such date of termination and (y) the number of whole and fractional years during which Employee receives severance benefits pursuant to any employment or severance agreement entered into with the Corporation, and the denominator of which is fifteen (15), such fraction not to exceed one (1). (ii) If Employee has commenced receiving benefits under Section 2 of the Agreement as of the date of such Change in Control, Employee shall be entitled to receive a lump sum payment equal to the present value of the remaining payments he would have been entitled to receive pursuant to Section 2. For purposes of the preceding sentence, the present value of the payments made pursuant to Section 2 shall be calculated using the interest rate applied by the Pension Benefit Guaranty Corporation in valuing lump sum distributions that is in effect (A) for purposes of clause (i), above, on the date of Employee's termination of employment and (B) for purposes of clause (ii), above, on the date of such Change in Control. 11. INDEPENDENCE OF AGREEMENT. Except as otherwise expressly provided, this Agreement is independent of, and in addition to, any other employment agreement, employee benefit plan, or agreement, or other right that the Employee may have as a result of his employment by the Corporation. This Agreement is not a contract of employment between the Employee and the Corporation. No provision of this Agreement shall be construed to limit or restrict: (a) the right of the Corporation to discharge the Employee, with or without cause; or (b) the right of Employee to terminate his employment with the Corporation. 12. ACCELERATION OF PAYMENTS. The Corporation reserves the right to accelerate the payment of any benefits payable under this Agreement without the consent of the Employee, his estate, his designated beneficiaries, or any other person claiming through the Employee. 13. LEAVES OF ABSENCE. The Corporation may, in its sole discretion, permit the Employee to take one or more leaves of absence. No such leave of absence shall exceed one year, however. For purposes of the Agreement, including the provisions relating to the Service Requirement, the Employee will be considered employed by the Corporation during an authorized leave of absence. 14. LEGAL EFFECT. Neither party makes any representations or warranties, express or implied, or assumes any responsibility concerning the legal, tax, or other implications or effects of this Agreement. The Corporation may take all actions required by law with respect to any payments due under this Agreement, or any other compensation or benefits due to the Employee, including withholding of tax from such payments, compensation or benefits. 15. FACILITY OF PAYMENT. If, for any reason, the identity or legal capacity of any person to whom payments are to be made under this Agreement is in doubt, the Corporation may withhold payment until instructed by a final order of a court of competent jurisdiction. If the Employee or any designated beneficiary of the Employee is declared legally incompetent, the Corporation may make payment of any amounts due under this Agreement to the person legally charged with his or her care. Any payment made by the Corporation in good faith shall fully discharge the Corporation from its obligation with respect to that payment. 16. ASSIGNMENT OF RIGHTS. Except as expressly permitted by this Agreement, neither the Employee nor anyone claiming through him may sell, assign, transfer or pledge the right to receive any payments to which he is or may become entitled under this Agreement. No right to receive payments under this Agreement shall be subject to the claims of creditors of the Employee or anyone claiming through him, or to any legal, equitable, or other proceeding or process for the enforcement of such claims. 17. CORPORATE REORGANIZATION. The Corporation shall not merge or consolidate with any other entity unless and until such other entity expressly assumes the obligations of the Corporation under this Agreement. 18. SECTION HEADINGS. The Section headings used in this Agreement are for convenience of reference only, and shall not be considered in construing this Agreement. 19. AMENDMENT. This Agreement may be amended, but only with the consent of the Corporation and the Employee (or, after the death of the Employee, his designated beneficiaries or the executor or administrator of any estate to which payments are owed). Any amendment must be in writing signed by all parties who are to be legally bound by it. Any attempt to modify or amend this Agreement which does not satisfy the preceding requirements shall be null and void, and shall have no legal effect. 20. BINDING EFFECT. Except as otherwise provided in Section 16, this Agreement shall be binding upon Employee and his heirs, executors, administrators, assigns and upon anyone claiming through him, and upon the Corporation and its successors and assigns. 21. GOVERNING LAW. The laws of the State of Ohio shall, to the extent not preempted by applicable Federal law, govern the construction of this Agreement. TO EVIDENCE THEIR AGREEMENT, the Corporation, by a duly authorized officer, and the Employee have executed this document on the day and year first above written. ATTEST: THE REYNOLDS AND REYNOLDS COMPANY - -------------------------- By WITNESS ------------------------------------ THE "EMPLOYEE" - -------------------------- ------------------------------------ EXHIBIT A To Non-Qualified Deferred Compensation and Disability Agreement Between The Reynolds and Reynolds Company and _______________ DESIGNATION OF BENEFICIARY(IES) I, ________________________ request that the Corporation mark/change its records to reflect BENEFICIARY PERCENTAGE ------------------------ ------------------- ------------------------ ------------------- ------------------------ ------------------- ------------------------ ------------------- as the designated beneficiary(ies) of the deferred compensation payments which at the time of my death may be payable or remain due and payable under the Agreement dated December 20, 1984 (the "Agreement"), and to make such payments to the above designated beneficiary(ies) as provided under the terms of the Agreement. I further request that in the event one or more of the above named designated beneficiary(ies) predeceases me, payment of the deceased beneficiary's portion be made in equal shares to -------------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- as contingent designated beneficiary(ies). You are instructed to retain the above designated beneficiary(ies) and contingent designated beneficiary(ies) until such time as you receive a new "Designation of Beneficiary(ies)" from me which makes a change. - --------------------------- ------------------------------ Date EX-21 15 l92008aex21.txt EX-21 LIST OF SUBSIDIARIES EXHIBIT (21) LIST OF SUBSIDIARIES STATE OR OTHER JURISDICTION OF NAME INCORPORATION OR ORGANIZATION - -------------------------------------------------------------------------------- Reyna Capital Corporation Ohio Reynolds and Reynolds (Canada) Limited Canada Reynolds and Reynolds Holdings, Inc. Delaware Reynolds Vehicle Registration, Inc. Ohio 52 -----END PRIVACY-ENHANCED MESSAGE-----