-----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, WsUknqtXhV0HfSzRFPLqMOqBxrlLEwuNuI1xVGFysOyVbkbW1zH1U8SaFO3DpBba aoXNVF4ScuQ7AAr9jkOtdA== /in/edgar/work/0000950134-00-008643/0000950134-00-008643.txt : 20001017 0000950134-00-008643.hdr.sgml : 20001017 ACCESSION NUMBER: 0000950134-00-008643 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20000831 FILED AS OF DATE: 20001016 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELITE LOGISTICS INC CENTRAL INDEX KEY: 0000095284 STANDARD INDUSTRIAL CLASSIFICATION: [1000 ] IRS NUMBER: 910843203 STATE OF INCORPORATION: ID FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-29825 FILM NUMBER: 740963 BUSINESS ADDRESS: STREET 1: 1201 NORTH AVENUE H CITY: FREEPORT STATE: TX ZIP: 77541 BUSINESS PHONE: 4092300222 10QSB 1 d80861e10qsb.txt FORM 10QSB FOR QUARTER ENDING AUGUST 31, 2000 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended AUGUST 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ________________ Commission File Number 000-29825 ELITE LOGISTICS, INC. (Exact Name of Registrant as Specific in its Charter) Idaho 91-0843203 (State of Incorporation) (I.R.S. Employer Identification No.) 1201 North Avenue H Freeport, Texas 77541 (Address of Principal Executive Offices) (Zip Code) (979) 230-0222 (Registrant's Telephone Number) Check whether the (issuer) (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or such shorter period that registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As of October 11, 2000, the number of shares outstanding of the registrant's only class of common stock was 12,343,223. Transitional Small Business Disclosure Format (Check one): Yes [] No: [X] 2 TABLE OF CONTENTS ELITE LOGISTICS, INC. PART I. FINANCIAL INFORMATION
Page ---- Item 1. Consolidated Financial Statements (Unaudited) Balance sheet as of August 31, 2000 2 Statements of operations for the three months ended August 31, 2000 and 1999 3 Statement of stockholders' equity for the three months ended August 31, 2000 4 Statements of cash flows for the three months ended August 31, 2000 and 1999 5 Notes to the consolidated financial statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Operations 11 PART II. OTHER INFORMATION Item 1. Legal Proceedings 16 Item 2. Changes in Securities 16 Item 3. Defaults Upon Senior Securities 16 Item 4. Submission of Matters to a Vote of Security Holders 16 Item 5. Other Information 16 Item 6. Exhibits and Reports on Form 8-K 17
3 PART I ITEM 1. FINANCIAL STATEMENTS. ELITE LOGISTICS, INC. (FORMERLY ELITE LOGISTICS SERVICES, INC.) CONSOLIDATED BALANCE SHEET (UNAUDITED) - --------------------------------------------------------------------------------
August 31, 2000 ------------ ASSETS Current Assets Cash $ 58,835 Accounts receivable 110,778 Other receivables 5,234 Inventory 808,210 ------------ Total current assets 983,057 Property and equipment Computer equipment 126,950 Furniture and equipment 10,207 Software 91,052 Less: accumulated depreciation and amortization (116,474) ------------ Total property and equipment 111,735 ------------ Patents 47,757 ------------ Total assets $ 1,142,549 ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 689,997 Accrued expenses 100,720 Leases payable 7,227 Deferred salaries 48,356 Accrued preferred dividends 24,781 Shareholder loans payable 60,321 Note payable 30,010 ------------ Total current liabilities 961,412 ------------ Redeemable preferred stock 244,500 ------------ Total liabilities 1,205,912 ------------ Stockholders' equity (deficit) Common stock - $0.01 par value; 50,000,000 shares authorized, 12,260,227 issued and outstanding 122,603 Warrants 230,210 Additional paid-in capital 1,618,205 Accumulated deficit (2,034,381) ------------ Total stockholders' deficit (63,363) ------------ Total liabilities and stockholders' equity $ 1,142,549 ------------
See notes to consolidated financial statements. 2 4 ELITE LOGISTICS, INC. (FORMERLY ELITE LOGISTICS SERVICES, INC.) STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED) - --------------------------------------------------------------------------------
Three Months Ended August 31, ------------------------------ 2000 1999 Revenues $ 172,221 $ 225,133 Cost of revenues 174,944 189,920 ------------ ------------ Gross profit (loss) (2,723) 35,213 ------------ ------------ Expenses Marketing 120,433 30,367 Administrative expenses 196,302 51,461 Research and development 108,073 40,558 ------------ ------------ Total expenses 424,808 122,386 ------------ ------------ Operating loss (427,531) (87,173) ------------ ------------ Other income (expense) Loss on sale of equipment (608) -- Loss on exchange of investments (19,400) -- Interest income 735 -- Interest expense (1,102) (130) ------------ ------------ Total other income (expense) (20,375) (130) ------------ ------------ Loss before income taxes (447,906) (87,303) Income taxes -- -- ------------ ------------ Net loss $ (447,906) $ (87,303) ------------ ------------ Basic and diluted loss per common share $ (0.04) $ (0.01) ------------ ------------ Basic and diluted weighted average number of common stock shares outstanding 12,231,494 10,040,000 ------------ ------------
See notes to consolidated financial statements. 3 5 ELITE LOGISTICS, INC. (FORMERLY ELITE LOGISTICS SERVICES, INC.) STATEMENT OF CONSOLIDATED STOCKHOLDERS' EQUITY (UNAUDITED) - --------------------------------------------------------------------------------
Common Stock ----------------------------- Additional Total Number of Paid-in Accumulated Stockholders' Shares Amounts Warrants Capital Deficit Equity (Deficit) ------------ ------------ ------------ ------------ ------------ ---------------- Balance at May 31, 2000 12,186,139 $ 121,862 $ 230,210 $ 1,479,968 $ (1,579,446) $ 252,594 Issuance of 73,588 shares of common stock and 66,033 warrants, net of expenses of $62,661 73,588 736 41,557 95,685 -- 137,978 Exercise of options 500 5 -- 995 -- 1,000 Preferred cumulative dividends -- -- -- -- (7,029) (7,029) Net loss -- -- -- -- (447,906) (447,906) ------------ ------------ ------------ ------------ ------------ ------------ Balance at August 31, 2000 12,260,227 $ 122,603 $ 271,767 $ 1,576,648 $ (2,034,381) $ (63,363) ------------ ------------ ------------ ------------ ------------ ------------
See notes to consolidated financial statements. 4 6 ELITE LOGISTICS, INC. (FORMERLY ELITE LOGISTICS SERVICES, INC.) STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED) - --------------------------------------------------------------------------------
Three Months Ended August 31, --------------------------- 2000 1999 Cash flows from operating activities: Net loss $ (447,906) $ (87,303) Adjustments to reconcile net loss to net cash used by operating activities Depreciation 9,911 -- Stock issued for services 88,962 -- Investments exchanged for services 5,000 Loss on exchange of investments 19,400 -- Notes payable issued for services 41,100 Loss on sale of equipment 608 -- Changes in assets and liabilities Accounts receivable 138,890 (97,618) Note receivable 10,000 -- Inventory (63,484) (168,000) Accounts payable 90,171 184,388 Accrued expenses 5,126 1,660 Deferred salaries -- 49,115 ---------- ---------- Net cash used in operating activities (102,222) (117,758) ---------- ---------- Cash flows from investing activities: Purchase of property, equipment and software (159) (1,211) Proceeds from sale of equipment 591 -- Payments on leased equipment (1,016) (1,445) Patent costs (6,259) (9,943) ---------- ---------- Net cash used in investing activities (6,843) (12,599) ---------- ---------- Cash flows from financing activities: Issuance of stock net of related costs 38,335 -- Exercise of common stock options 1,000 -- Proceeds from notes payable -- 99,995 Payments on notes payable (11,090) -- Payments on shareholder notes payable (679) -- Proceeds from shareholder notes payable 51,000 30,000 ---------- ---------- Net cash provided by financing activities 78,566 129,995 ---------- ---------- Net decrease in cash (30,499) (362) Cash, beginning of period 89,334 34,264 ---------- ---------- Cash, end of period $ 58,835 $ 33,902 ---------- ---------- Supplemental disclosures Cash paid for interest and income taxes: Interest $ -- $ 130 Income taxes $ -- $ -- Non-cash transactions Stock issued for services $ 88,962 $ -- Stock issued for equipment $ 10,681 $ -- Notes payable issued for services $ 41,100 Investments exchanged for services $ 5,000 $ --
See notes to consolidated financial statements. 5 7 ELITE LOGISTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - BUSINESS ORGANIZATION The financial statements included herein have not been audited pursuant to the rules and regulations of the Securities and Exchange Commission, and reflect all adjustments which are, in the opinion of management, necessary to present a fair statement of the results for the interim periods on a basis consistent with the annual audited consolidated financial statements. All such adjustments are of a normal recurring nature. The results of operations for the interim periods are not necessarily indicative of the results to be expected for an entire year. Certain information, accounting policies and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the Company's audited consolidated financial statements included in the Company's Annual Report on Form 10-KSB for the year ended May 31, 2000. Nature of Operations Elite Logistics, Inc. (hereinafter "ELI" or the "Company") an Idaho corporation, through its wholly owned subsidiary Elite Logistics Services, Inc. ("Elite") is engaged in the design, sales and operation of asset management systems and provides the required services for the operation of these systems. The Company's products and services are marketed nationally. Acquisition and Merger On November 17, 1999, Elite completed an acquisition agreement and plan of merger with Summit Silver, Inc. ("SSI"). In late November 1999, SSI was renamed to Elite Logistics, Inc. As SSI was a nonoperating public company with limited assets, the substance of the merger transaction is a capital transaction, rather than a business combination. The transaction is equivalent to the issuance of stock by Elite for the net assets of SSI, accompanied by a recapitalization. The accounting is identical to that resulting from a reverse acquisition, except that no goodwill or other intangibles are recorded. Under the terms of the acquisition agreement, SSI issued 10,400,000 shares of common stock in exchange for all of Elite's common stock. Immediately prior to the agreement and plan of recapitalization, Elite had 10,400,000 shares of common stock issued and outstanding. Subsequent to the merger, Elite continued as a wholly owned subsidiary of ELI. In connection with this transaction, all 2,445 shares of Elite's preferred stock were exchanged for an equivalent amount of SSI preferred stock, which conferred the same rights and provisions as the original shares of Elite's preferred stock. The exchange of the redeemable preferred stock resulted in no significant valuation adjustment in the allocation of value in the merger. Also, the 1,215,555 outstanding warrants in Elite were exchanged with SSI for warrants of the same terms and rights. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiary. All significant intercompany transactions and balances have been eliminated in consolidation. For accounting purposes, Elite was deemed to be the acquirer under a reverse takeover transaction; accordingly, historical results of operations of the Company prior to November 17, 1999 includes the accounts and results of operations of Elite. The financial statements and notes for all periods presented have been retroactively restated to comply with the reporting requirements for a capital transaction. 6 8 ELITE LOGISTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Accounting Pronouncements Derivatives - In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes accounting and reporting standards for derivative instruments and hedging activities that require an entity to recognize all derivatives as an asset or liability measured at fair value. Depending on the intended use of the derivatives, changes in its fair value will be reported in the period of change as either a component of earnings or a component of other comprehensive income. In June 1999, the Financial Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133" ("SFAS No. 137"). SFAS No. 137 delays the effective date for implementation of SFAS No. 133 for one year making SFAS No. 133 effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. Retroactive application to periods prior to adoption is not allowed. At August 31, 2000, the Company has not engaged in any transactions that would be considered derivative instruments or hedging activities. Income Taxes The Company accounts for income taxes under the provisions of Statement of Financial Accounting Standards No. 109 - "Accounting for Income Taxes," ("SFAS No. 109") which provides for an asset and liability approach in accounting for income taxes. Under this approach, deferred tax assets and liabilities are recognized based on anticipated future tax consequences, using currently enacted tax laws, attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases. Prior to August 31, 1999, Elite elected to be taxed under the provision of Subchapter S of the Internal Revenue Code. Under those provisions, Elite does not pay federal corporate income taxes on its taxable income. Instead, the former stockholders of Elite are liable for individual federal income taxes on their respective shares of corporate income. Accordingly, no provision has been made for federal income taxes for any period prior to August 31, 1999 in the accompanying financial statements. Subsequent to August 31, 1999, the Company has not generated taxable income thus no provision for tax expense has been recorded for any period. Due to the uncertainty as to whether the Company will be profitable in the future, an allowance has been provided to offset the tax benefits of its deferred tax assets. Basic and Diluted Earnings Per Share In December 1997, the Company adopted Statement of Financial Accounting Standards Statement No. 128, "Earnings Per Share" ("SFAS No. 128"). In accordance with SFAS No. 128 basic earnings per share are computed using the weighted average number of common shares outstanding. Due to the Company having a net loss during the three months ended August 31, 2000 and August 31, 1999, diluted net loss per share is the same as basic net loss per share as the inclusion of common stock equivalents would be antidilutive. NOTE 3 - DEBT Capital leases Elite has a capital lease with Linc Monex Equipment, Inc. payable monthly at $770, including interest at 18%. The remaining capital lease outstanding as of August 31, 2000 was $7,227. 7 9 ELITE LOGISTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 - DEBT (CONTINUED) Notes payable Elite has unsecured notes payable with American Express in the amount of $30,010 at August 31, 2000 payable monthly at $7,171 including interest at 15.9%, of which each note payable has a maturity of six months. Shareholder loans payable The Company has cash loans from its shareholders in the amount of $60,321 at August 31, 2000. The notes bear an interest rate of 5% annually, are unsecured, and due in November 2000. Deferred salaries due to shareholders amount to $48,356 at August 31, 2000. Factoring agreement On June 21, 2000, the Company entered into an accounts receivable agreement with Silicon Valley Bank. Silicon Valley Bank will advance the Company 80% of each receivable purchased up to a maximum of $750,000, subject to full recourse to the Company. Finance charges equal 1.25% per month of the average daily account balance outstanding and an administrative fee of 0.25% of each purchased receivable. Through August 31, 2000, the Company has received no advances under this facility. NOTE 4 - REDEEMABLE PREFERRED STOCK Redeemable Preferred Stock On September 15, 1999, Elite issued 2,445 shares of $100 par value series A redeemable preferred stock ("series A preferred stock") as payment to existing stockholders for deferred compensation. These shares are preferred as to dividends and upon liquidation. The cumulative dividends are payable at prime plus 2% (which was 10.25% at August 31, 2000). As of August 31, 2000, cumulative dividends of $24,781 have accrued and are recorded as Accrued Preferred Dividends, but have not been declared or paid. As referred to in Note 1, as part of the acquisition of SSI, these shares were exchanged for 2,445 shares of SSI's series A preferred stock at $.01 par value. The Corporation is required to redeem all issued and outstanding shares of series A preferred stock on September 15, 2000 at a redemption price of $100 per share. Prior to such time, the Corporation may redeem in whole or in part series A preferred stock at the option of the board of directors. Total authorized shares of series A preferred stock is 10,000,000. At August 31, 2000, no shares of series A preferred stock were redeemed. At September 15, 2000, the Company failed to redeem the outstanding shares of series A preferred stock as required and is in the process of negotiating with the series A preferred shareholders to extend the terms. NOTE 5 - EQUITY Common Stock Elite Logistics Services, Inc. originally had 100 shares of no par stock issued and outstanding. In September 1999, the original 100 shares were split at 100,400 to 1 and converted to 10,040,000 shares of common stock. As a result of the stock split, the financial statements have been retroactively restated for the 10,040,000 shares of common stock as if they have always been outstanding. Also, in September 1999, Elite issued 320,000 shares of common stock to various investor groups in exchange for cash proceeds of $400,000. This issuance resulted in non-qualifying shareholders which then caused the termination of the Company's S election and resulted in Elite's conversion to a C Corporation. 8 10 ELITE LOGISTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5 - EQUITY (CONTINUED) Common Stock (continued) During the three months ended August 31, 2000, the Company completed various private offerings of its common stock for cash and in exchange for various goods and services. The Company issued 36,726 shares of common stock generating cash proceeds of $38,335 (net of offering expenses of $62,661). In addition the Company issued 36,862 shares of common stock in exchange for goods and services valued at $99,643. Warrants On September 20, 1999, the Board of Directors approved the issuance of a warrant to Vernor Investments to purchase up to 100,000 shares of the Company's common stock at 5% below the current market value at the time of purchase, exercisable from the date of issuance until September 30, 2000. As of August 31, 2000, this warrant has not been exercised. On November 10, 1999, the Board of Directors approved the issuance of a warrant to Forte Group LLC to purchase up to 1,115,555 shares of the Company's common stock at $1.25 per share from the date of issuance until September 30, 2002. As of August 31, 2000, this warrant has not been exercised. During the three months ended August 31, 2000, as referred to above, the Company completed various private offerings of its common stock for cash and goods and services. In conjunction with these offerings, the Company also issued warrants to acquire an additional 56,033 shares of common stock with an exercise price ranging from $2.70 - $2.75 per share, expiring 18 months to 3 years from the date of issuance. Additionally, during June 2000, in conjunction with the execution of the accounts receivable agreement with Silicon Valley Bank, the Company issued a warrant to purchase 10,000 of the Company's common stock at an exercise price of $2.75 per share, expiring 18 months from the date of issuance. The fair value of each warrant granted is estimated on the grant date using the Black-Scholes Option Price Calculation. The following assumptions were made in estimating fair value. The risk-free interest rate is 5.5%, volatility is 30% and the expected life of the warrants is one to three years. The fair value of warrants issued during the three months ended August 31, 2000 was $41,557. Options In January 2000, the Company adopted the Elite Logistics, Inc. 2000 Equity Incentive Plan, under which 1,000,000 shares of common stock are available for issuance with respect to awards granted to officers, management and other key employees and consultants of the Company. The plan also includes a provision for an annual increase in the number of shares available for issuance of 200,000 shares or 1.5% of the outstanding shares or a lessor amount determined by the Board. At the time the option is granted, the administrator shall fix the period within which the option may be exercised, fixing the exercise price at no less than 100% of the fair market value per share on the date of grant and will determine the acceptable form of consideration for exercising the option. Effective August 7, 2000, the Company entered into a compensation agreement with an employee which provides for the granting of 30,000 options to purchase common stock of the Company in each of the next three years with the first grant commencing August 1, 2001 contingent upon continued employment. These options vest 1/3 upon the completion of one year of service following the date of grant and thereafter 1/24 vests each subsequent month of service and are exercisable at the fair market value on the date of grant. 9 11 ELITE LOGISTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 - INCOME TAXES On September 1, 1999, the Company sold shares of common stock to non-qualifying holders for an S Corporation. Prior to August 31, 1999, Elite elected to be taxed under the provision of Subchapter S of the Internal Revenue Code. Under those provisions, Elite does not pay federal corporate income taxes on its taxable income. Instead, the stockholders are liable for individual federal income taxes on their respective shares of corporate income. Accordingly, no provision has been made for federal income taxes for any period prior to August 31, 1999 in the accompanying financial statements. As of September 1, 1999, Elite's S election was terminated and all undistributed losses prior to August 31, 1999 were passed to the shareholders of record on that date. No provision for taxes or tax benefit from net operating loss carryforwards has been reported in the financial statements as the Company is expected to continue to experience operating losses in the future. Total net operating losses ("NOL") generated since September 1, 1999 approximates $(2,084,910) which will begin to expire in 2019. Due to the uncertainty as to whether the Company will be profitable in the future, an allowance has been provided to offset the tax benefits of its deferred tax assets. It is currently unknown if the carryforwards will expire unused. At November 17, 1999, SSI had a net operating loss of approximately $1,450,000, which may be offset against future taxable income of the Company through 2013. Due to the significant change in ownership, the future utilization of this net operating loss carryforward will be substantially minimized in accordance with IRS section 382. The Company has no significant book to tax differences in its assets and liabilities, which would give rise to deferred tax assets or liabilities other than its NOL. NOTE 7 - GOING CONCERN As shown in the accompanying consolidated financial statements, the Company incurred a net loss of $(447,906) for the three months ended August 31, 2000 and continues to experience negative cash flow from operations. In the four months subsequent to the period ended August 31, 2000 management expects to raise additional capital through private placements to fund the Company's operations and will continue to do so until such time as the Company generates revenues sufficient to maintain itself as a viable entity. Management believes that these actions will assist the Company in reaching the point of profitability from operations and enable the Company to raise further capital from private placements or public offerings. If successful, these actions will serve to mitigate the factors which had raised substantial doubt about the Company's ability to continue as a going concern and increase the availability of resources for funding of the Company's current operations and future market development. NOTE 8 - SUBSEQUENT EVENTS On September 12, 2000 the Company issued 66,096 shares of common stock at $1.35 per share and a warrant to purchase 33,048 shares at $2.70 (exercisable through 2003) representing payment for consulting services valued at $89,230. An additional 1,000 shares of common stock with corresponding warrants (18 month expiration date) at $2.75 were issued in September 2000. 10 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The "Management's Discussion and Analysis of Financial Condition and Results of Operations" included herein should be read in conjunction with the unaudited consolidated financial statements and Notes to the consolidated financial statements of Elite Logistics, Inc. and subsidiary included in Item 1 above and the Company's Audited Consolidated Financial Statements included in the Company's Annual Report on Form 10-KSB for the year ended May 31, 2000. Such unaudited consolidated financial statements for the quarter ended August 31, 2000, includes (i) the consolidated financial statements of Elite Logistics Inc and Elite Logistics Services, Inc for the quarter ended August 31, 2000 and, (ii) the historical accounts of Elite Logistics Services, Inc for the quarter ended August 31, 1999. All significant inter-company balances and transactions have been eliminated. The Company's financial statements have been prepared in accordance with generally accepted accounting principles in the United States. The financial information in "Management's Discussion and Analysis of Financial Condition and Results of Operations" refers to the continuing operations of Elite Logistics, Inc. for the three months ended August 31, 2000 and Elite Logistics Services, Inc. for the three months ended August 31, 1999 (herein collectively referred to as the "Company"). OVERVIEW Elite Logistics Services, Inc. (hereinafter "Elite") is engaged in the design and operation of Internet-enabled asset management systems and provides the required services for the operation of these systems. Elite's wireless monitoring and tracking system integrates Motorola's two-way ReFLEX(TM) telemetry and Global Positioning Systems (GPS) technology, with an Internet-enabled Geographic Information System (GIS) to allow online remote tracking and control of vehicles and other assets. The Intelligent Vehicle Systems (IVS) can monitor, track, analyze, and control the movement of virtually any object, including ground vehicles, marine vessels, railway equipment and valuable objects that are in transit. The Company's products and services are marketed nationally. The Company has a limited operating history upon which investors may evaluate its business and prospects. Since inception the Company has incurred significant losses, and as of August 31, 2000 it had an accumulated deficit of $2,034,381. The Company terminated its subchapter S status on September 1, 1999 and the accumulated loss through August 31, 1999 in the amount of $706,208 (generated when the company was a subchapter S corporation) was reclassified to additional paid in capital for financial reporting purposes during the year ended May 31, 2000. The Company's predecessor auditors issued a going concern opinion in connection with their audit of the Company's consolidated financial statements as of May 31, 2000. This means that the Company's auditors believe there is substantial doubt that the Company can continue as an on-going business for the next twelve months unless the Company obtains additional capital to cover its operating expenses. In order to meet its needs, the Company will have to raise cash from sources other than the sale of its products and services. To do so, the Company has been raising cash through the private placement of its securities and intends to continue to do so until such time as it will generate sufficient revenues to maintain itself as a viable entity. There is no assurance, however, that the Company will be able to raise the additional funds it needs to continue in business. If the Company is unable to raise additional funds until it becomes a viable entity, it will have to cease operations. BUSINESS ORGANIZATION Elite was incorporated as an "S" Corporation on August 6, 1997 under the laws of the State of Texas and commenced business operations on November 19, 1997. On September 1, 1999, the Company amended its articles of incorporation to become a regular "C" Corporation. 11 13 On November 17, 1999, Elite agreed to an exchange of its stock in a merger with Summit Silver, Inc. (hereinafter "SSI"), a non-operating, publicly traded company with limited assets. The merger transaction has been accounted for as a capital transaction comprising a re-capitalization of a non-operating public enterprise (SSI) by a private operating company (Elite). As part of the acquisition, Elite acquired limited assets from SSI. Elite changed its year-end from December 31 to May 31, which was the year-end of SSI, with effect for the reporting period beginning June 1, 1999. SSI subsequently changed its name to Elite Logistics Inc. (hereinafter "ELI"). ELI, an Idaho Corporation, is the holding company of Elite and Elite is now a wholly owned subsidiary of ELI, which is consolidated for financial reporting purposes. For accounting purposes, Elite was deemed to be the acquirer of SSI under a reverse takeover transaction; accordingly, historical results of operations of the Company prior to November 17, 1999 includes the accounts and results of operations of Elite. The financial statements and notes for all periods presented have been retroactively restated to comply with the reporting requirements of this capital transaction. RESULTS OF OPERATIONS Revenues for the three months ending August 31, 2000 were $172,221 compared to revenues of $225,133 during the three months ended August 31, 1999. Revenues include sales of the Company's PageTrack(TM) products to distributors and the resale of SkyTel wireless telemetry services as well as miscellaneous third party hardware sales. A significant amount of management's time was devoted to efforts to secure the funding base of the company. Given the limited amount of available management resources, this adversely affected sales and operations. The company has been constrained by a lack of funding to effectively undertake the marketing activities necessary to generate sales growth. Cost of revenues for the three months ending August 31, 2000 were $174,944 compared to cost of revenues of $189,920 during the three months ended August 31, 1999. Cost of revenues for the year ended August 31, 2000 included the manufactured cost of our PageTrack(TM) products, wireless telemetry network services provided by SkyTel and the costs of operating Elite's 24-hour Control Center. Gross loss for the three months ending August 31, 2000 was $(2,723) compared to gross profit of $35,213 during the three months ended August 31, 1999. Gross loss for the three months ended August 31, 2000 included margins on our PageTrack(TM) products and the resale of wireless telemetry network services provided by SkyTel offset by the costs of operating Elite's 24-hour Control Center. Gross profit decline reflects the increased cost of control center operations, which was not offset by a corresponding increase in revenues. Marketing expenses for the three months ending August 31, 2000 was $120,433 compared to $30,367 during the three months ended August 31, 1999. Marketing expenses consist primarily of compensation for our marketing and business development personnel, advertising, trade show and other promotional costs, design and creation expenses for marketing literature and our website. The Company does not make an allocation of our occupancy costs and other overhead. This increase was primarily due to increases in the number of marketing personnel, and advertising and promotional programs. The Company expects that sales and marketing expenses will increase both in absolute dollars and as a percentage of total net revenues in future periods due to expanded efforts to market and promote its products and services both domestically and internationally. Selling and Administrative expenses for the three months ending August 31, 2000 was $196,302 compared to $51,461 during the three months ended August 31, 1999. Selling and administrative expenses consist primarily of compensation for personnel and payments to outside contractors for general corporate functions, including finance, information systems, human resources, facilities, general management, bad debt expense and the Company's occupancy costs and other overhead. This increase was primarily due to increases in the number of personnel and outside contractors needed to support the 12 14 growth of the Company's business. The Company expects that selling and administrative expenses will increase in absolute dollars as it hires additional personnel and incur additional expenses relating to the anticipated growth of its business, such as costs associated with increased infrastructure and its public company status. Research and development expenses for the three months ending August 31, 2000 was $108,073 compared to $40,558 during the three months ended August 31, 1999. Research and development expenses consist primarily of compensation for the Company's research and development personnel, network operations and, to a lesser extent, depreciation on equipment used for research and development. The Company does not make an allocation of its occupancy costs and other overhead. This increase was primarily due to increases in the number of personnel needed to develop new products and services and build the Company's external network and computer data center infrastructure. The Company expects that research and development expenses will increase in absolute dollars in future periods due to expanded investments in the development of enhanced and new products and online services. Interest expense for the three months ending August 31, 2000 was $1,102 compared to $130 during the three months ended August 31, 1999. Net interest expense consists of expenses related to the Company's financing obligations, which include borrowings under equipment loans, and short-term bank loans and capital lease obligations. This increase was primarily due to interest paid to American Express. LIQUIDITY AND CAPITAL RESOURCES Since inception, the Company has financed its operations primarily through the sale of its common stock by way of private placements, loans from shareholders, equipment financing, lines of credit, short-term loans and through deferred employee compensation ($244,500 of this deferred salary obligation was converted to series A redeemable preferred stock). The Company does not anticipate positive cash flow until it achieves an installed base of around 20,000 units (the current installed base is approximately 2,500 units). The Company expects to achieve this installed base target within the 2001 fiscal year, but there can be no assurance that this target will be achieved. The Company's business plan includes building a nationwide PageTrack(TM) distribution network of dealers and distributors. The plan requires hiring additional personnel for sales, marketing, customer support and technical support. The Company estimates a minimum of $2,500,000 is required to fund its current business plan. There can be no assurance that the Company will be successful in obtaining any such funds on terms acceptable to it, if at all. In the event that the Company is unable to secure such additional funding, management would attempt to re-orient its business plan to a slower growth scenario that would enable the Company to survive and grow at a slower pace. However failure to capitalize on current market opportunities could allow competitors to overtake the Company and significantly impair the long-term growth and value of the Company. The Company intends to raise at least an additional $10,000,000 during the 2001 fiscal year by way of private placements and/or public offerings of its securities. The company is currently in negotiations with several strategic partners who have the capability to provide such funding. The Company is also seeking to retain an investment bank to assist in raising its capital. There can be no assurance that the company will be able to successfully raise some or all of the $10,000,000 it has targeted. If the Company is successful in raising $10,000,000 or more, it intends to use the net proceeds of the offering to repay any borrowings including the series A redeemable preferred stock in the amount of $244,500, hire additional employees, develop new products, develop e-commerce capabilities, expand marketing efforts, expand Company facilities, initiate remote sales and control centers, and for working capital and potential acquisitions. 13 15 Until such time as the Company has successfully completed such funding arrangements, it remains at risk of a sudden negative disruption to the equity markets preventing such funding from proceeding. The sale of additional equity or convertible debt securities could result in additional dilution to our stockholders. The Company recently entered into an accounts receivable agreement with Silicon Valley Bank. Silicon Valley Bank will advance the Company 80% of each receivable purchased up to a maximum of $750,000, subject to full recourse to the Company. Finance charges equal 1.25% per month of the average daily account balance outstanding and an administrative fee of 0.25% of each purchased receivable. Through August 31, 2000, the Company has received no advances under this facility. The Company also has some lease financing agreements that amount to less than $7,300. The Company has no material commitments for capital expenditures, but anticipates an increase in the rate of capital expenditures consistent with its anticipated growth in operations, infrastructure and personnel. The Company anticipates that it will continue to add computer hardware resources, and expand its primary office facility during the next twelve months. The Company may also use cash to acquire or license technology, products or businesses related to its current business. In addition, the Company anticipates that it will continue to experience significant growth in its operating expenses for the foreseeable future and that its operating expenses will be a material use of its cash resources. CASH FLOW FOR THREE MONTHS ENDING AUGUST 31, 2000 Net cash used in operating activities was $(102,222) for the Three months Ending August 31, 2000 compared to $(117,758) for the three months ended August 31, 1999. Net cash used for operating activities was primarily the result of a net loss before changes in assets and liabilities of $(282,925), and an increase in inventory of $63,484 offset by a decrease in accounts receivable of $138,890 and an increase in accounts payable at $90,171. Net cash used in investing activities of $(6,843) is comprised of patent application costs and fixed asset purchases. Net cash provided by financing activities was $78,566 and principally consisted of proceeds from the sale of the company's common stock of $39,335 and net proceeds from borrowings from shareholders of $50,321, offset by payments of notes payable of $11,090. FORWARD LOOKING STATEMENTS Except for historical information contained herein, certain other matters discussed herein are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, that address future activities, events or developments, including such things as future revenues, ability to raise capital and amounts at capital of private or public offerings, product development, market acceptance, responses from competitors, capital expenditures (including the amount and nature thereof), business strategy and measures to implement strategy, competitive strengths, goals, expansion and growth of Elite Logistics, Inc., and its subsidiaries' business and operations, plans, references to future success and other such matters, are forward-looking statements. The words "anticipates," "believes," "estimates," "expects," "plans," "intends," "should," "seek," "will," and similar expressions are intended to identify these forward-looking statements, but are not the exclusive means of identifying them. These statements are based on certain historical trends, current conditions and expected future developments as well as other factors we believe are appropriate in the circumstances. However, whether actual results will conform to our expectations and predictions is subject to a number of risks and uncertainties that may cause actual results to differ materially, our success or failure to implement our business strategy, our ability to successfully market our on-line location, tracking and logistics management concept, changes in consumer demand, changes in general economic conditions, the opportunities (or lack thereof) that may 14 16 be presented to and pursued by us, changes in laws or regulations, changes in technology, the rate of acceptance of the Internet as a commercial vehicle, competition in the online logistics management business and other factors, many of which are beyond our control. Consequently, all of the forward-looking statements made in this Report are qualified by these cautionary statements and there can be no assurance that the actual results we anticipate will be realized or, even if substantially realized, that they will have the expected consequences to or effects on us or our business or operations. We assume no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. 15 17 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES The foregoing shares were sold pursuant to Section 4(6) of the Securities Act of 1933 (the "Act"). All purchasers were accredited investors as that term is defined in Rule 501 of the Securities Act of 1933.
SHARES OF COMMON DATE STOCK PRICE CONSIDERATION SERVICES WARRANTS PRICE EXPIRATION - ---- --------- ----- ------------- -------- -------- ----- ---------- 6/8/00 10,000 2.75 $27,500.00 10,000 2.75 12/8/01 6/21/00 10,000 2.75 6/21/03 6/30/00 1,500 2.75 $ 4,125.00 1,500 2.75 12/30/01 6/27/00 3,000 2.75 $ -- $ 8,250.00 3,000 2.75 12/27/01 7/10/00 5,000 2.75 $13,750.00 5,000 2.75 1/10/02 7/3/00 10,000 2.75 $27,500.00 10,000 2.75 1/3/02 7/17/00 5,455 2.75 $ 4,319.91 $10,681.34 5,455 2.75 1/17/02 7/20/00 3,000 2.75 $ 8,250.00 3,000 2.75 1/20/02 7/21/00 5,000 2.75 $13,750.00 5,000 2.75 1/21/02 7/17/00 6,867 4.76 $32,712.00 6,867 2.75 1/17/02 7/21/00 655 2.75 $ 1,801.25 655 2.75 1/21/02 8/25/00 12,000 2.75 $33,000.00 8/20/00 500 2.00 $ 1,000.00 8/29/00 11,111 1.35 14,999.85 5,556 2.70 8/29/03
ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None 16 18 ITEM 6. EXHIBITS AND REPORTS ON FORM (a) EXHIBITS Exhibit Description 3.1 * Articles of Incorporation 3.2 * Amended (No. 1) Articles of Incorporation 3.3 * Amended (No. 2) Articles of Incorporation 3.4 * Amended (No. 3) Articles of Incorporation 3.5 * Amended (No. 4) Articles of Incorporation 3.6 * Bylaws 4.1 * Specimen Stock Certificate 4.2 Management Services Agreement dated September 1, 2000 by and between Elite Logistics, Inc and Joseph D. Smith. 4.3 Management Services Agreement dated September 1, 2000 by and between Elite Logistics, Inc and Diana M. Smith. 4.4 Management Services Agreement dated September 1, 2000 by and between Elite Logistics, Inc and Richard L. Hansen. 4.5 Management Services Agreement dated September 1, 2000 by and between Elite Logistics, Inc and Thien K. Nguyen. 4.6 Elite Logistics 2000 Equity Incentive Plan dated March 2, 2000 4.7 Elite Logistics Services, Inc. 401K Plan dated May 24, 2000. 11.1 Computation of Per Share Earnings 27.1 Financial Data Schedule * Incorporated by reference as indicated. (b) REPORTS ON FORM 8-K Form 8-K filed October 13, 2000 to report its change in independent public accountants effective October 9, 2000. 17 19 SIGNATURES Pursuant to the requirements of Section 13 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. ELITE LOGISTICS SERVICES, INC. /s/ Joseph D. Smith --------------------------- Joseph D. Smith, Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated.
Name Title Date - ---- ----- ---- /s/ Russell A. Naisbitt CFO October 14, 2000 - -------------------------- Russell A. Naisbitt
20 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------- ----------- 3.1 * Articles of Incorporation 3.2 * Amended (No. 1) Articles of Incorporation 3.3 * Amended (No. 2) Articles of Incorporation 3.4 * Amended (No. 3) Articles of Incorporation 3.5 * Amended (No. 4) Articles of Incorporation 3.6 * Bylaws 4.1 * Specimen Stock Certificate 4.2 Management Services Agreement dated September 1, 2000 by and between Elite Logistics, Inc and Joseph D. Smith. 4.3 Management Services Agreement dated September 1, 2000 by and between Elite Logistics, Inc and Diana M. Smith. 4.4 Management Services Agreement dated September 1, 2000 by and between Elite Logistics, Inc and Richard L. Hansen. 4.5 Management Services Agreement dated September 1, 2000 by and between Elite Logistics, Inc and Thien K. Nguyen. 4.6 Elite Logistics 2000 Equity Incentive Plan dated March 2, 2000 4.7 Elite Logistics Services, Inc. 401K Plan dated May 24, 2000. 11.1 Computation of Per Share Earnings 27.1 Financial Data Schedule
* Incorporated by reference as indicated. EX-4.2 2 d80861ex4-2.txt MANAGEMENT SERVICES AGREEMENT - JOSEPH D. SMITH 1 EXHIBIT 4.2 MANAGEMENT SERVICES AGREEMENT MADE THIS 1ST DAY OF SEPTEMBER 2000 PARTIES: 1. ELITE LOGISTICS, INC. AND SUBSIDIARIES (ELITE), AND; 2. JOSEPH D SMITH (MANAGER) (LOCATED IN FREEPORT, TEXAS OR OTHER LOCATION) BACKGROUND: 1. ELITE wishes to retain the services of MANAGER to provide management services in accordance with the Position Specification attached hereto. 2. MANAGER agrees to render such services to ELITE subject to the terms and conditions of this Agreement. 3. The mission of ELITE as outlined in its business plan is as follows: "Elite will harness the power of wireless communications and global positioning technology to improve the security of life and property and the efficiency of our clients' business by providing best of breed monitoring, tracking and information systems for motor vehicles and other mobile and fixed assets." 4. Pursuant to this Management Services Agreement MANAGER will assist ELITE to fulfill its business plan and accomplish its mission. DECLARATION I, MANAGER declare that I have read and fully understand the conditions of employment detailed in the attached Management Services Agreement and accept them fully. SIGNED BY MANAGER SIGNED FOR AND ON BEHALF OF ELITE LOGISTICS, INC. - ----------------------- By: ---------------------- Title: Board of Director Witness: Witness: ---------------------- ---------------------- Full Name Full Name ---------------------- ---------------------- Address Address ---------------------- ---------------------- Occupation Occupation ---------------------- ---------------------- Confidential Page 1 9-1-2000 2 1 DEFINITIONS: ELITE GROUP Means ELITE Logistics Services, Inc. and all subsidiary and affiliate companies in which ELITE may have an equity interest from time to time. THE BOARD Means the Board of Directors of ELITE. THE BUSINESS PLAN Means the plan for the operation of ELITE's business as approved by the Board and amended by the Board from time to time. CONFIDENTIAL INFORMATION Means all information that is confidential to and the property of ELITE and the ELITE Group whether in written, electronic or other form or retained in the mind of the MANAGER. Without limiting the generality of the forgoing, it includes all and any information relating to the business, business plans, affairs, policies, processes, intellectual property (including without limitation software products, source codes, designs, specifications, drawings, technical information, know how, trade secrets, technical and scientific research, copyright, patents and patent applications), documents, costing, pricing methods, operations, finances, strategic relationships, customers, product knowledge, quality standards, devices, market research, past and present legal or regulatory matters and all such similar information of ELITE and the ELITE Group. DOCUMENTS Means all memoranda, notes, specifications, manuals, drawings, plans, design reports, records and other material stored in written, audio, visual or electronic or whatsoever form INTELLECTUAL PROPERTY Means the right to use, copy, modify, market, or license any software concept, design, source code, or documentation. It also includes all rights to any brand, patent, copyright, registered design, trademark, distinguishing logos, trade secret or any other intellectual property right belonging to ELITE or Elite Group including any software, systems or products discovered by MANAGER or by ELITE. It also includes such other Industrial, Intellectual and Contractual Property as may further establish or reinforce the ELITE Group rights in the ELITE software, systems and products. MANAGEMENT SERVICES Means this agreement between the parties and any AGREEMENT amendments thereto. REQUIRED NOTICE OF Means the minimum period for notice of termination TERMINATION set out in Schedule A. REVIEW DATE Means the date for annual salary review as set out in Schedule A. TERRITORY Means the territories as set out in Schedule A. Confidential Page 2 9-1-2000 3 2. COMMENCEMENT DATE 2.1 This Agreement shall commence on the commencement date specified in Schedule A. 3 MANAGER'S DUTIES 3.1 MANAGER shall perform the duties set out in the Position Specification contained in Schedule B diligently and competently and in a professional manner to the best of MANAGER'S ability for the benefit of ELITE. The Chief Executive Officer or designated representative may from time to time at their sole discretion as they deem appropriate assign to MANAGER such other responsibilities and duties. 3.2 MANAGER shall work full-time (a minimum 40 hours per week) for ELITE. MANAGER may act as a non-executive director or advisor for other companies provided that MANAGER advises Elite of such other activities and they do not, in the opinion of ELITE impair MANAGER'S ability to fulfill this Agreement. 3.2 MANAGER shall prepare such business plans, forecasts, activity reports, financial reports, and management reports as the Chief Executive Officer or designated representative may request. MANAGER shall inform the Chief Executive Officer or designated representative of important developments including without limitation: o Information about competitors, their products and prices. o Comments on ELITE' products from actual and prospective customers. o Opportunities for further product development or for new products. o Any other market intelligence. 3.3 MANAGER acknowledges receipt of a copy of the Employee Handbook/Company Policy Manual and has read understood and agreed to the same. MANAGER agrees to abide by company policy and such other reasonable limitations upon his scope of authority as may be established from time to time by the Chief Executive Officer or designated representative. 3.4 MANAGER shall comply with all the applicable laws and regulations in the territory in performing his duties for ELITE. 4 SALARY AND SALARY REVIEWS 4.1 MANAGER shall receive the compensation package including the salary and performance related cash bonuses detailed in Schedule A in the manner detailed. Salary including cash bonuses shall be reviewed annually on the Review Date. 5. GENERAL CONDITIONS 5.1 The general conditions of employment shall be as set out in the Employee Handbook (copy attached at Schedule C) and as amended from time to time, in Elite's sole discretion. Confidential Page 3 9-1-2000 4 6. EXPENSES. 6.1 ELITE shall reimburse MANAGER for reasonable business expenses necessarily incurred in the performance of his duties in accordance with ELITE travel and expenses policies and procedures that are in effect at the time the expenses are incurred. 6.2 If ELITE provides MANAGER with a corporate credit card, MANAGER is responsible for any personal charges incurred on the company credit card and without limitation to any other remedy which may be available to ELITE hereby grants to ELITE the right to offset such charges against any and all amounts which may be due to MANAGER from ELITE. MANAGER shall return such credit card to ELITE immediately upon request by ELITE and in any event upon termination of this Agreement for whatever reason. 6.3 If ELITE provides MANAGER with a corporate phone card, MANAGER is responsible for any personal charges incurred on the company phone card and without limitation to any other remedy which may be available to ELITE hereby grants to ELITE the right to offset such charges against any and all amounts which may be due to MANAGER from ELITE. MANAGER shall return such phone card to ELITE and desist from using such service immediately upon request by ELITE and in any event upon termination of this Agreement for whatever reason. 7. CONFIDENTIAL INFORMATION 7.1 Elite promises to provide MANAGER and MANAGER acknowledges, that by virtue of MANAGER'S employment with ELITE, MANAGER will gain knowledge of Confidential Information. MANAGER agrees and acknowledges that all such Confidential Information is the sole and exclusive property of ELITE. MANAGER covenants that the Confidential Information, and any other information obtained by MANAGER in relation to the ELITE Group shall during the currency of MANAGER'S employment and at all times thereafter, be kept secret and confidential and except to the extent that any such Confidential Information or other information shall be part of the public domain (other than as a result of the breach by the MANAGER of this Clause) such information shall not be disclosed other than as required by law. 7.2 MANAGER will not disclose Confidential Information to such parties within ELITE who MANAGER should reasonably expect to be excluded from receiving such Confidential Information. 7.3 MANAGER further agrees to promptly deliver to ELITE upon termination of this Agreement, or at any time that ELITE may so request, all software, media memoranda, notes, records and other documents comprising Confidential Information that he then possesses or has under his control. 7.4 The MANAGER shall not during the term of this Agreement or subsequently directly or indirectly divulge to any person other than MANAGER'S professional advisor(s) any of the terms of this Agreement. Confidential Page 4 9-1-2000 5 8. PROTECTION OF INTELLECTUAL PROPERTY 8.1 MANAGER acknowledges that all ELITE Group software, systems, products and processes are proprietary to the ELITE Group by virtue of their unique design. 8.2 MANAGER shall have no rights in respect of any Intellectual Property of the ELITE Group, or the goodwill associated therewith and MANAGER acknowledges that all such rights are vested in the ELITE Group. 8.3 MANAGER shall not during the term of this Agreement or for a period of two years thereafter aid, abet or assist, either directly or indirectly, anyone else in replicating, creating, manufacturing, marketing, licensing, or in any other way dealing in systems and products infringing the ELITE Group's Intellectual Property. 8.4 MANAGER shall comply with all directives of the Board and take all other reasonable steps to prevent infringement by third parties of the Intellectual Property of the ELITE Group. 8.5 MANAGER shall promptly notify the Board of Directors in the event that he becomes aware of any infringement by third parties of the ELITE Group's Intellectual Property. 8.6 MANAGER further agrees to promptly deliver to ELITE on termination of this Management Services Agreement, or at any time that ELITE may so request, all memoranda, notes, records and other documents comprising or relating to the Intellectual Property that MANAGER then possesses or has under MANAGER'S control. 9. COVENANTS NOT TO COMPETE 9.1 MANAGER agrees that the services he has to perform under this Agreement are of a special, unique, unusual, extraordinary and intellectual in character. 9.2 MANAGER acknowledges that ELITE would sustain considerable injury were MANAGER to take the knowledge, skills, business contacts and information (whether confidential or otherwise) acquired during MANAGER'S service with ELITE and use them to compete with ELITE. 9.3 In order to protect Elite's interests in its Confidential Information and Intellectual Property, MANAGER covenants that during the term of this Agreement and for a period of one year after termination for any reason, neither MANAGER, nor any corporation, partnership or joint venture of which MANAGER is a member, will without the prior written consent of ELITE, either directly or indirectly, and whether as principal, agent, trustee, financier, shareholder, debenture holder, director, consultant, partner, advisor, or otherwise in the Territory: a) Compete with the Business of ELITE as carried on by ELITE until the date of termination. b) Be concerned in any corporation or business that is or may be engaged or concerned in or does or may carry on business that competes with the Business of ELITE as carried on by ELITE until the date of termination. MANAGER may hold or make investments in Companies whose business does not directly compete with the Business at the time of making such investment, but shall immediately disclose such investments should their business subsequently become competitive. c) Solicit or entice away from ELITE by any means whatsoever (or endeavor to do so) any business from any person who is or was a customer of ELITE within the six month period prior to termination of this Agreement. Confidential Page 5 9-1-2000 6 d) Employ, offer or procure the offer of employment, or solicit or entice away from ELITE, or induce to breach his/her Agreement of service with ELITE (or endeavor to do so) any person who was employed by ELITE or who was an officer or agent of ELITE, or a Contractor to ELITE at the date of termination or was employed by ELITE in any such capacity at any time during the six month period prior to termination. 9.4 MANAGER will not at any time after termination of this agreement represent himself as being in any way connected with or interested in the Business or affairs of ELITE. 9.5 The provisions of this Clause 9 shall bind and enure for the benefit of the Parties after the termination of this Agreement. 9.6 MANAGER acknowledges that this covenant not to compete is not unreasonably restrictive nor will it interfere with his ability to earn his livelihood for among other things the following reasons: o It covers only those services and products of the type marketed by the ELITE Group. The market for such systems and products is very small relative to the total software market. o Inconvenience of this covenant not to compete upon MANAGER is minimal in comparison with the hardship that the ELITE Group would potentially sustain without it. o The experience and skills that MANAGER acquires in the course of his employment with ELITE are readily transferable to other non-competing management opportunities on termination of his Agreement with ELITE. 9.7 Each of the undertakings of MANAGER contained in Clause 9.3 shall be read and construed independently of the other undertakings so that if one or more should be held to be invalid as an unreasonable restraint of trade or for any other reason whatever then the remaining undertakings shall be valid to the extent that they are not held to be so invalid. 9.8 While the undertakings of MANAGER contained in Clause 9.3 and 9.4 are considered by the Parties to be reasonable in all the circumstances, if one or more of such undertakings should be held to be invalid as an unreasonable restraint of trade or for any other reason whatsoever, but would have been held valid if part of the wording thereof had been deleted or the period thereof reduced or the range of activities or area dealt with thereby reduced in scope, the said undertakings shall apply with such modifications as may be necessary to make them valid and binding upon the MANAGER. Any such modifications shall be kept to a minimum. 9.9 As further consideration for entering into the restrictive covenants contained in this Agreement MANAGER shall receive the incentive bonus and/or stock option grants as set out in Schedule A. 10 INTELLECTUAL PROPERTY ASSIGNMENT 10.1 MANAGER agrees that all software, inventions, processes, products, designs or procedures relating to the Business of ELITE which MANAGER may develop or participate in the development of during the term of this Agreement (hereinafter collectively referred to as "MANAGER'S Intellectual Property") whether during normal working hours or not shall be deemed to be the property of ELITE or its assignee. 10.2 MANAGER agrees to assign his rights if any to MANAGER'S Intellectual Property, developed while employed by ELITE, to ELITE and further to sign any documents reasonably required by ELITE in order to protect ELITE' interest in the MANAGER'S Intellectual Property. Confidential Page 6 9-1-2000 7 11 TERM 11.1 The initial term of this Agreement is set out in Schedule A. Thereafter it may be renewed by mutual agreement until terminated by either party giving the other party the Required Notice of Termination. 11.2 ELITE may terminate this Agreement forthwith for cause if: o MANAGER is guilty of gross dereliction of duty, incompetence or a major breach of this Agreement o MANAGER commits any illegal, dishonest or fraudulent act against the company or is indicted, convicted or pleads nolo contendere to any felony or any act of moral turpitude o MANAGER is guilty of the use or possession of illegal drugs, or the excessive use of alcohol, or commits any other act that brings ELITE into disrepute. o MANAGER dies, or is incapable of performing MANAGER'S obligations, in the normal manner, on account of disability for ten consecutive weeks, or in the aggregate fifteen weeks, of any year. If this Agreement is terminated for cause pursuant to this sub-clause (iv), MANAGER or his heirs and assigns as the case may be, shall immediately vest in all options allocated to MANAGER up to and including the end of the calendar year of such death or disability. o Any other termination shall be deemed to be without cause. 11.3 ELITE shall have the right to terminate this Agreement without cause upon written notice to MANAGER. If ELITE terminates this Agreement without cause, ELITE shall continue to pay the salary portion of MANAGER'S compensation as it becomes due and continue benefits for a period of one month from the effective date of termination of this Agreement. 11.4 The Termination of this Agreement shall be without prejudice to the rights of the parties that accrued up to the date of termination. Termination shall not affect those clauses herein, which by their nature the parties intend to survive termination. 12. REPRESENTATIONS AND WARRANTIES 12.1 The parties represent the warrant to each other: o Each is free to enter into this Management Services Agreement o Each possesses the legal authority to enter into this Management Services Agreement o There are no outstanding Contractual commitments that will prevent or restrict any of them from entering into this Agreement and performing the obligations hereunder. Confidential Page 7 9-1-2000 8 13. GOVERNING LAW 13.1 The laws of Texas and controlling Federal Law shall govern this Management Services Agreement and any action hereunder shall subject to the jurisdiction of the federal and state courts sitting in Brazoria County, Texas. 14. ENTIRE AGREEMENT 14.1 This Agreement represents the entire agreement between the parties with respect to the subject thereof as such it supersedes and replaces any prior arrangements between the parties either oral or written. 14.2 Any changes or modifications to this Agreement shall be valid only if made in writing and signed by both parties. 15. SEVERABILITY 15.1 Each provision in this Management Services Agreement is severable wholly and in part and if any provision is said to be illegal or unenforceable for any reason only the illegal or unenforceable portion shall be ineffective and the remainder shall remain in full force and effect. 16. AMENDMENT 16.1 Any purported amendment or variation of this Agreement must be in writing and be signed by both Parties. Confidential Page 8 9-1-2000 9 SCHEDULE A COMPENSATION, TERMS AND CONDITIONS NAME Joseph D. Smith POSITION CHIEF EXECUTIVE OFFICER AND PRESIDENT COMMENCEMENT DATE August 6, 1997 INITIAL TERM One year REVIEW DATE 1 January each year. TERRITORY United States of America REQUIRED NOTICE OF Thirty (30) days notice in writing TERMINATION (unless terminated for cause) COMPENSATION 1. ANNUAL COMPENSATION MANAGER shall receive the following salary:
SALARY: Base Salary (payable biweekly) $120,000.00 per annum TOTAL ON TARGET REMUNERATION $120,000.00 PERFORMANCE BONUS As determined by the Board of Directors
2. INCENTIVE OPTIONS In addition to the Annual Compensation detailed herein, MANAGER shall receive stock option allocations giving the employee the right to purchase stock in the company at current Fair Market Value (FMV) in accordance with the Elite Logistics Inc., 2000 Employee Incentive Plan.
Allotment Exercise Price Vesting Period Allocation Date --------- -------------- -------------- --------------- 000 Shares FMV on Grant Date 3 years January 1, 2001 000 Shares FMV on Grant Date 3 years January 1, 2002 000 Shares FMV on Grant Date 3 years January 1, 2003
Vesting: In respect of each option grant 1/3 of the options vest on completion of one year's service (on the anniversary of the date of employment) and thereafter 1/24th of the remaining balance vests at the end of each subsequent month of completed service. Confidential Page 9 9-1-2000 10 3. STOCK PURCHASE RIGHTS MANAGER shall on the execution of this agreement receive in addition to the incentive stock options detailed above restricted stock purchase rights pursuant to the 2000 Equity Incentive Plan as follows:
Allotment Grant Date Exercise Price Expiration Date --------- ---------- -------------- --------------- 000 September 1, 2000 $2.75 December 29, 2000
These shares shall be subject to execution of a restricted stock purchase agreement and be restricted for a period of 12 months from the date of such investment. Elite agrees to loan MANAGER the funds necessary to purchase these shares at an interest rate two (2) points above National Prime Rate at the time of purchase. 4. PAID VACATION / DOMESTIC LEAVE MANAGER shall, be entitled to 15 days paid annual vacation /domestic leave to be taken in accordance with company policy. 5. LEAVE OF ABSENCE, BEREAVEMENT LEAVE ETC MANAGER shall be entitled to leave of absence and compensation in accordance with company policy as set out in the Employee Handbook during periods of sickness, disability, or bereavement. 6. HEALTH INSURANCE MANAGER and MANAGER's dependents will be eligible for participation in the company's group health insurance Plan and other employee benefits, on the first of the month following 90 days of employment. 7. RELOCATION EXPENSES If relocation is required by ELITE then ELITE shall reimburse MANAGER's reasonable costs of relocating to Freeport, Texas in accordance with ELITE relocation policy as set our in the Employee Handbook. Confidential Page 10 9-1-2000 11 SCHEDULE B POSITION SPECIFICATION NAME: Joseph D Smith POSITION: Chief Executive Officer and President REPORTING TO: Elite Logistics, Inc. Board of Directors
AREAS OF RESPONSIBILITY PERFORMANCE CRITERIA - ----------------------- -------------------- SUMMARY EDUCATION AND/OR EXPERIENCE Manages and directs the organization toward its primary LANGUAGE SKILLS objectives, based on profit and return on capital, by performing the following duties personally or through MATHEMATICAL SKILLS subordinate managers. REASONING ABILITY ESSENTIAL DUTIES AND RESPONSIBILITIES include the following. Other duties may be assigned. CERTIFICATES, LICENSES, REGISTRATIONS Plans, coordinates, and controls the daily operation of PHYSICAL DEMANDS The physical demands described here the organization through the organization's managers. are representative of those that must be met by an employee to successfully perform the essential Establishes current and long range goals, objectives, functions of this job. Reasonable accommodations may plans and policies, subject to approval by the Board of be made to enable individuals with disabilities to Directors. perform the essential functions. Dispenses advice, guidance, direction, and authorization WORK ENVIRONMENT The work environment characteristics to carry out major plans, standards and procedures, described here are representative of those an employee consistent with established policies and Board approval. encounters while performing the essential functions of this job. Reasonable accommodations may be made to Meets with organization's other executives to ensure enable individuals with disabilities to perform the that operations are being executed in accordance with essential functions. the organization's policies. Oversees the adequacy and soundness of the organization's structure. Reviews operating results of the organization, compares them to established objectives, and takes steps to ensure appropriate measures are taken to correct unsatisfactory results. Plans and directs all investigations and negotiations pertaining to mergers, joint ventures, the acquisition of businesses, or the sale of major assets with approval of the Board of Directors. Establishes and maintains an effective system of communications throughout the organization. Represents the organization with major customers, shareholders, the financial community, and the public. SUPERVISORY RESPONSIBILITIES QUALIFICATIONS To perform this job successfully, an individual must be able to perform each essential duty satisfactorily. The requirements listed below are representative of the knowledge, skill, and/or ability required. Reasonable accommodations may be made to enable individuals with disabilities to perform the essential functions.
Confidential Page 11 9-1-2000 12 SCHEDULE C GENERAL TERMS AND CONDITIONS VACATION/DOMESTIC/PERSONAL Annual leave is provided in accordance with Schedule A. All applications for annual leave shall be made on the leave application form and shall require a minimum of two weeks notice. MANAGER is entitled to up to five days leave on ordinary pay where MANAGER finds that it is essential to stay at home in an emergency in the event of illness of a husband or wife, dependent child or dependent parent. Such leave shall be treated as though it were due to MANAGER's own sickness and shall be subject to the following conditions: o leave shall be set-off against MANAGER's sick leave entitlement o On return to work MANAGER shall complete a sick leave notification and file with the human resources manager. o If requested, a medical certificate shall be provided to support such leave entitlement. BEREAVEMENT LEAVE MANAGER is entitled to 3 days bereavement leave in each year on the death of the MANAGER's spouse, child, parent, brother or sister, grandparent, mother in law or father in law. The entitlement will not form part of any benefit payable upon termination of the Management Services Agreement. MANAGER shall complete a Bereavement Leave Application and file with the human resources manager. DRESS CODE MANAGER is expected to comply with "ELITE" dress code as published in the Employee Handbook from time to time. HOURS OF WORK MANAGER is expected to work a minimum of 40 hours in any week. These will normally be worked Monday to Friday at any time between 7:00 a.m. and 6:00 p.m. to suit the MANAGER. PERIOD FOR TERMINATION OF Unless terminated by Elite for cause, either party may terminate EMPLOYMENT the Management Services Agreement by giving the other party thirty (30) days notice in writing.
Confidential Page 12 9-1-2000 13 PAYMENT ON TERMINATION OF On termination of employment under this Agreement, MANAGER EMPLOYMENT will be paid o Salary to date of termination o Accrued annual leave o Three months salary in lieu of notice if ELITE does not wish MANAGER to work out the notice period (unless termination is for cause). o Any and all bonuses and commissions accrued to the date of termination. Unused sick leave is not payable on termination of employment. SICK LEAVE After three months of service MANAGER is entitled to accrued sick leave to be taken in accordance with company policy. . PUBLIC HOLIDAYS Public holidays shall be taken in accordance with company policy.
Confidential Page 13 9-1-2000 EX-4.3 3 d80861ex4-3.txt MANAGEMENT SERVICES AGREEMENT - DIANA M. SMITH 1 EXHIBIT 4.3 MANAGEMENT SERVICES AGREEMENT MADE THIS 1ST DAY OF SEPTEMBER 2000 PARTIES: 1. ELITE LOGISTICS, INC. AND SUBSIDIARIES (ELITE), AND; 2. DIANA M. SMITH (MANAGER) (LOCATED IN FREEPORT, TEXAS OR OTHER LOCATION) BACKGROUND: 1. ELITE wishes to retain the services of MANAGER to provide management services in accordance with the Position Specification attached hereto. 2. MANAGER agrees to render such services to ELITE subject to the terms and conditions of this Agreement. 3. The mission of ELITE as outlined in its business plan is as follows: "Elite will harness the power of wireless communications and global positioning technology to improve the security of life and property and the efficiency of our clients' business by providing best of breed monitoring, tracking and information systems for motor vehicles and other mobile and fixed assets." 4. Pursuant to this Management Services Agreement MANAGER will assist ELITE to fulfill its business plan and accomplish its mission. DECLARATION I, MANAGER declare that I have read and fully understand the conditions of employment detailed in the attached Management Services Agreement and accept them fully. SIGNED BY MANAGER SIGNED FOR AND ON BEHALF OF ELITE LOGISTICS, INC. - ---------------------------- By: ----------------------- Title: Board of Director Witness: Witness: ----------------------- ----------------------- Full Name Full Name ----------------------- ----------------------- Address Address ----------------------- ----------------------- Occupation Occupation ----------------------- ----------------------- Confidential Page 1 9-1-2000 2 1 DEFINITIONS: ELITE GROUP Means ELITE Logistics Services, Inc. and all subsidiary and affiliate companies in which ELITE may have an equity interest from time to time. THE BOARD Means the Board of Directors of ELITE. THE BUSINESS PLAN Means the plan for the operation of ELITE's business as approved by the Board and amended by the Board from time to time. CONFIDENTIAL INFORMATION Means all information that is confidential to and the property of ELITE and the ELITE Group whether in written, electronic or other form or retained in the mind of the MANAGER. Without limiting the generality of the forgoing, it includes all and any information relating to the business, business plans, affairs, policies, processes, intellectual property (including without limitation software products, source codes, designs, specifications, drawings, technical information, know how, trade secrets, technical and scientific research, copyright, patents and patent applications), documents, costing, pricing methods, operations, finances, strategic relationships, customers, product knowledge, quality standards, devices, market research, past and present legal or regulatory matters and all such similar information of ELITE and the ELITE Group. DOCUMENTS Means all memoranda, notes, specifications, manuals, drawings, plans, design reports, records and other material stored in written, audio, visual or electronic or whatsoever form INTELLECTUAL PROPERTY Means the right to use, copy, modify, market, or license any software concept, design, source code, or documentation. It also includes all rights to any brand, patent, copyright, registered design, trademark, distinguishing logos, trade secret or any other intellectual property right belonging to ELITE or Elite Group including any software, systems or products discovered by MANAGER or by ELITE. It also includes such other Industrial, Intellectual and Contractual Property as may further establish or reinforce the ELITE Group rights in the ELITE software, systems and products. MANAGEMENT SERVICES Means this agreement between the parties AGREEMENT and any amendments thereto. REQUIRED NOTICE OF Means the minimum period for notice of TERMINATION termination set out in Schedule A. REVIEW DATE Means the date for annual salary review as set out in Schedule A. TERRITORY Means the territories as set out in Schedule A. Confidential Page 2 9-1-2000 3 2. COMMENCEMENT DATE 2.1 This Agreement shall commence on the commencement date specified in Schedule A. 3 MANAGER'S DUTIES 3.1 MANAGER shall perform the duties set out in the Position Specification contained in Schedule B diligently and competently and in a professional manner to the best of MANAGER'S ability for the benefit of ELITE. The Chief Executive Officer or designated representative may from time to time at their sole discretion as they deem appropriate assign to MANAGER such other responsibilities and duties. 3.2 MANAGER shall work full-time (a minimum 40 hours per week) for ELITE. MANAGER may act as a non-executive director or advisor for other companies provided that MANAGER advises Elite of such other activities and they do not, in the opinion of ELITE impair MANAGER'S ability to fulfill this Agreement. 3.2 MANAGER shall prepare such business plans, forecasts, activity reports, financial reports, and management reports as the Chief Executive Officer or designated representative may request. MANAGER shall inform the Chief Executive Officer or designated representative of important developments including without limitation: o Information about competitors, their products and prices. o Comments on ELITE' products from actual and prospective customers. o Opportunities for further product development or for new products. o Any other market intelligence. 3.3 MANAGER acknowledges receipt of a copy of the Employee Handbook/Company Policy Manual and has read understood and agreed to the same. MANAGER agrees to abide by company policy and such other reasonable limitations upon his scope of authority as may be established from time to time by the Chief Executive Officer or designated representative. 3.4 MANAGER shall comply with all the applicable laws and regulations in the territory in performing his duties for ELITE. 4 SALARY AND SALARY REVIEWS 4.1 MANAGER shall receive the compensation package including the salary and performance related cash bonuses detailed in Schedule A in the manner detailed. Salary including cash bonuses shall be reviewed annually on the Review Date. 5. GENERAL CONDITIONS 5.1 The general conditions of employment shall be as set out in the Employee Handbook (copy attached at Schedule C) and as amended from time to time, in Elite's sole discretion. Confidential Page 3 9-1-2000 4 6. EXPENSES. 6.1 ELITE shall reimburse MANAGER for reasonable business expenses necessarily incurred in the performance of his duties in accordance with ELITE travel and expenses policies and procedures that are in effect at the time the expenses are incurred. 6.2 If ELITE provides MANAGER with a corporate credit card, MANAGER is responsible for any personal charges incurred on the company credit card and without limitation to any other remedy which may be available to ELITE hereby grants to ELITE the right to offset such charges against any and all amounts which may be due to MANAGER from ELITE. MANAGER shall return such credit card to ELITE immediately upon request by ELITE and in any event upon termination of this Agreement for whatever reason. 6.3 If ELITE provides MANAGER with a corporate phone card, MANAGER is responsible for any personal charges incurred on the company phone card and without limitation to any other remedy which may be available to ELITE hereby grants to ELITE the right to offset such charges against any and all amounts which may be due to MANAGER from ELITE. MANAGER shall return such phone card to ELITE and desist from using such service immediately upon request by ELITE and in any event upon termination of this Agreement for whatever reason. 7. CONFIDENTIAL INFORMATION 7.1 Elite promises to provide MANAGER and MANAGER acknowledges, that by virtue of MANAGER'S employment with ELITE, MANAGER will gain knowledge of Confidential Information. MANAGER agrees and acknowledges that all such Confidential Information is the sole and exclusive property of ELITE. MANAGER covenants that the Confidential Information, and any other information obtained by MANAGER in relation to the ELITE Group shall during the currency of MANAGER'S employment and at all times thereafter, be kept secret and confidential and except to the extent that any such Confidential Information or other information shall be part of the public domain (other than as a result of the breach by the MANAGER of this Clause) such information shall not be disclosed other than as required by law. 7.2 MANAGER will not disclose Confidential Information to such parties within ELITE who MANAGER should reasonably expect to be excluded from receiving such Confidential Information. 7.3 MANAGER further agrees to promptly deliver to ELITE upon termination of this Agreement, or at any time that ELITE may so request, all software, media memoranda, notes, records and other documents comprising Confidential Information that he then possesses or has under his control. 7.4 The MANAGER shall not during the term of this Agreement or subsequently directly or indirectly divulge to any person other than MANAGER'S professional advisor(s) any of the terms of this Agreement. Confidential Page 4 9-1-2000 5 8. PROTECTION OF INTELLECTUAL PROPERTY 8.1 MANAGER acknowledges that all ELITE Group software, systems, products and processes are proprietary to the ELITE Group by virtue of their unique design. 8.2 MANAGER shall have no rights in respect of any Intellectual Property of the ELITE Group, or the goodwill associated therewith and MANAGER acknowledges that all such rights are vested in the ELITE Group. 8.3 MANAGER shall not during the term of this Agreement or for a period of two years thereafter aid, abet or assist, either directly or indirectly, anyone else in replicating, creating, manufacturing, marketing, licensing, or in any other way dealing in systems and products infringing the ELITE Group's Intellectual Property. 8.4 MANAGER shall comply with all directives of the Board and take all other reasonable steps to prevent infringement by third parties of the Intellectual Property of the ELITE Group. 8.5 MANAGER shall promptly notify the Board of Directors in the event that he becomes aware of any infringement by third parties of the ELITE Group's Intellectual Property. 8.6 MANAGER further agrees to promptly deliver to ELITE on termination of this Management Services Agreement, or at any time that ELITE may so request, all memoranda, notes, records and other documents comprising or relating to the Intellectual Property that MANAGER then possesses or has under MANAGER'S control. 9. COVENANTS NOT TO COMPETE 9.1 MANAGER agrees that the services he has to perform under this Agreement are of a special, unique, unusual, extraordinary and intellectual in character. 9.2 MANAGER acknowledges that ELITE would sustain considerable injury were MANAGER to take the knowledge, skills, business contacts and information (whether confidential or otherwise) acquired during MANAGER'S service with ELITE and use them to compete with ELITE. 9.3 In order to protect Elite's interests in its Confidential Information and Intellectual Property, MANAGER covenants that during the term of this Agreement and for a period of one year after termination for any reason, neither MANAGER, nor any corporation, partnership or joint venture of which MANAGER is a member, will without the prior written consent of ELITE, either directly or indirectly, and whether as principal, agent, trustee, financier, shareholder, debenture holder, director, consultant, partner, advisor, or otherwise in the Territory: a) Compete with the Business of ELITE as carried on by ELITE until the date of termination. b) Be concerned in any corporation or business that is or may be engaged or concerned in or does or may carry on business that competes with the Business of ELITE as carried on by ELITE until the date of termination. MANAGER may hold or make investments in Companies whose business does not directly compete with the Business at the time of making such investment, but shall immediately disclose such investments should their business subsequently become competitive. c) Solicit or entice away from ELITE by any means whatsoever (or endeavor to do so) any business from any person who is or was a customer of ELITE within the six month period prior to termination of this Agreement. Confidential Page 5 9-1-2000 6 d) Employ, offer or procure the offer of employment, or solicit or entice away from ELITE, or induce to breach his/her Agreement of service with ELITE (or endeavor to do so) any person who was employed by ELITE or who was an officer or agent of ELITE, or a Contractor to ELITE at the date of termination or was employed by ELITE in any such capacity at any time during the six month period prior to termination. 9.4 MANAGER will not at any time after termination of this agreement represent himself as being in any way connected with or interested in the Business or affairs of ELITE. 9.5 The provisions of this Clause 9 shall bind and enure for the benefit of the Parties after the termination of this Agreement. 9.6 MANAGER acknowledges that this covenant not to compete is not unreasonably restrictive nor will it interfere with his ability to earn his livelihood for among other things the following reasons: o It covers only those services and products of the type marketed by the ELITE Group. The market for such systems and products is very small relative to the total software market. o Inconvenience of this covenant not to compete upon MANAGER is minimal in comparison with the hardship that the ELITE Group would potentially sustain without it. o The experience and skills that MANAGER acquires in the course of his employment with ELITE are readily transferable to other non-competing management opportunities on termination of his Agreement with ELITE. 9.7 Each of the undertakings of MANAGER contained in Clause 9.3 shall be read and construed independently of the other undertakings so that if one or more should be held to be invalid as an unreasonable restraint of trade or for any other reason whatever then the remaining undertakings shall be valid to the extent that they are not held to be so invalid. 9.8 While the undertakings of MANAGER contained in Clause 9.3 and 9.4 are considered by the Parties to be reasonable in all the circumstances, if one or more of such undertakings should be held to be invalid as an unreasonable restraint of trade or for any other reason whatsoever, but would have been held valid if part of the wording thereof had been deleted or the period thereof reduced or the range of activities or area dealt with thereby reduced in scope, the said undertakings shall apply with such modifications as may be necessary to make them valid and binding upon the MANAGER. Any such modifications shall be kept to a minimum. 9.9 As further consideration for entering into the restrictive covenants contained in this Agreement MANAGER shall receive the incentive bonus and/or stock option grants as set out in Schedule A. 10 INTELLECTUAL PROPERTY ASSIGNMENT 10.1 MANAGER agrees that all software, inventions, processes, products, designs or procedures relating to the Business of ELITE which MANAGER may develop or participate in the development of during the term of this Agreement (hereinafter collectively referred to as "MANAGER'S Intellectual Property") whether during normal working hours or not shall be deemed to be the property of ELITE or its assignee. 10.2 MANAGER agrees to assign his rights if any to MANAGER'S Intellectual Property, developed while employed by ELITE, to ELITE and further to sign any documents reasonably required by ELITE in order to protect ELITE' interest in the MANAGER'S Intellectual Property. Confidential Page 6 9-1-2000 7 11 TERM 11.1 The initial term of this Agreement is set out in Schedule A. Thereafter it may be renewed by mutual agreement until terminated by either party giving the other party the Required Notice of Termination. 11.2 ELITE may terminate this Agreement forthwith for cause if: o MANAGER is guilty of gross dereliction of duty, incompetence or a major breach of this Agreement o MANAGER commits any illegal, dishonest or fraudulent act against the company or is indicted, convicted or pleads nolo contendere to any felony or any act of moral turpitude o MANAGER is guilty of the use or possession of illegal drugs, or the excessive use of alcohol, or commits any other act that brings ELITE into disrepute. o MANAGER dies, or is incapable of performing MANAGER'S obligations, in the normal manner, on account of disability for ten consecutive weeks, or in the aggregate fifteen weeks, of any year. If this Agreement is terminated for cause pursuant to this sub-clause (iv), MANAGER or his heirs and assigns as the case may be, shall immediately vest in all options allocated to MANAGER up to and including the end of the calendar year of such death or disability. o Any other termination shall be deemed to be without cause. 11.3 ELITE shall have the right to terminate this Agreement without cause upon written notice to MANAGER. If ELITE terminates this Agreement without cause, ELITE shall continue to pay the salary portion of MANAGER'S compensation as it becomes due and continue benefits for a period of one month from the effective date of termination of this Agreement. 11.4 The Termination of this Agreement shall be without prejudice to the rights of the parties that accrued up to the date of termination. Termination shall not affect those clauses herein, which by their nature the parties intend to survive termination. 12. REPRESENTATIONS AND WARRANTIES 12.1 The parties represent the warrant to each other: o Each is free to enter into this Management Services Agreement o Each possesses the legal authority to enter into this Management Services Agreement o There are no outstanding Contractual commitments that will prevent or restrict any of them from entering into this Agreement and performing the obligations hereunder. Confidential Page 7 9-1-2000 8 13. GOVERNING LAW 13.1 The laws of Texas and controlling Federal Law shall govern this Management Services Agreement and any action hereunder shall subject to the jurisdiction of the federal and state courts sitting in Brazoria County, Texas. 14. ENTIRE AGREEMENT 14.1 This Agreement represents the entire agreement between the parties with respect to the subject thereof as such it supersedes and replaces any prior arrangements between the parties either oral or written. 14.2 Any changes or modifications to this Agreement shall be valid only if made in writing and signed by both parties. 15. SEVERABILITY 15.1 Each provision in this Management Services Agreement is severable wholly and in part and if any provision is said to be illegal or unenforceable for any reason only the illegal or unenforceable portion shall be ineffective and the remainder shall remain in full force and effect. 16. AMENDMENT 16.1 Any purported amendment or variation of this Agreement must be in writing and be signed by both Parties. Confidential Page 8 9-1-2000 9 SCHEDULE A COMPENSATION, TERMS AND CONDITIONS NAME Diana M. Smith POSITION Executive Administrator COMMENCEMENT DATE September 1, 2000 INITIAL TERM One Year REVIEW DATE 1 January each year. TERRITORY United States of America REQUIRED NOTICE OF Thirty (30) days notice in writing (unless terminated TERMINATION for cause) COMPENSATION 1. ANNUAL COMPENSATION MANAGER shall receive the following salary: SALARY: Base Salary (payable biweekly) $ 66,000. per annum TOTAL ON TARGET REMUNERATION $ 66,000. PERFORMANCE BONUS As determined by the Board of Directors
2. INCENTIVE OPTIONS In addition to the Annual Compensation detailed herein, MANAGER shall receive stock option allocations giving the employee the right to purchase stock in the company at current Fair Market Value (FMV) in accordance with the Elite Logistics Inc., 2000 Employee Incentive Plan.
Allotment Exercise Price Vesting Period Allocation Date --------- ----------------- -------------- --------------- 0 Shares FMV on Grant Date 3 years January 1, 2001 0 Shares FMV on Grant Date 3 years January 1, 2002 0 Shares FMV on Grant Date 3 years January 1, 2003
Vesting: In respect of each option grant 1/3 of the options vest on completion of one year's service (on the anniversary of the date of employment) and thereafter 1/24th of the remaining balance vests at the end of each subsequent month of completed service. Confidential Page 9 9-1-2000 10 3. STOCK PURCHASE RIGHTS MANAGER shall on the execution of this agreement receive in addition to the incentive stock options detailed above restricted stock purchase rights pursuant to the 2000 Equity Incentive Plan as follows:
Allotment Grant Date Exercise Price Expiration Date ----------------------- ------------------------ ------------------------ --------------------------- 0 September 1, 2000 $2.75 December 29, 2000
These shares shall be subject to execution of a restricted stock purchase agreement and be restricted for a period of 12 months from the date of such investment. Elite agrees to loan MANAGER the funds necessary to purchase these shares at an interest rate two (2) points above National Prime Rate at the time of purchase. 4. PAID VACATION / DOMESTIC LEAVE MANAGER shall, be entitled to 15 days paid annual vacation /domestic leave to be taken in accordance with company policy. 5. LEAVE OF ABSENCE, BEREAVEMENT LEAVE ETC MANAGER shall be entitled to leave of absence and compensation in accordance with company policy as set out in the Employee Handbook during periods of sickness, disability, or bereavement. 6. HEALTH INSURANCE MANAGER and MANAGER's dependents will be eligible for participation in the company's group health insurance Plan and other employee benefits, on the first of the month following 90 days of employment. 7. RELOCATION EXPENSES If relocation is required by ELITE then ELITE shall reimburse MANAGER's reasonable costs of relocating to Freeport, Texas in accordance with ELITE relocation policy as set our in the Employee Handbook. Confidential Page 10 9-1-2000 11 SCHEDULE B POSITION SPECIFICATION NAME: Diana M. Smith POSITION: Manager, Executive Administrator REPORTING TO: Board of Directors or designated representative
AREAS OF RESPONSIBILITY PERFORMANCE CRITERIA - ----------------------- -------------------- SUMMARY Coordinates activities of various clerical Manages a variety of general office activities by departments or workers within department. performing the following duties personally or through subordinate supervisors. Maintains contact with customers and outside vendors ESSENTIAL DUTIES AND RESPONSIBILITIES include the following. Other duties may be assigned. SUPERVISORY RESPONSIBILITIES Analyzes and organizes office operations and procedures QUALIFICATIONS To perform this job successfully, an such as bookkeeping, preparation of payrolls, personnel, individual must be able to perform each essential duty information management, filing systems, requisition of satisfactorily. The requirements listed below are supplies, and other clerical services. representative of the knowledge, skill, and/or ability required. Reasonable accommodations may be made to Maximizes office productivity through proficient use of enable individuals with disabilities to perform the appropriate software applications. essential functions. Researches and develops resources that create EDUCATION AND/OR EXPERIENCE timely and efficient workflow. Establishes uniform correspondence procedures and style practices. Formulates procedures for systematic retention, protection, retrieval, transfer, and disposal of records. Plans office layout, develops office budget, and initiates cost reduction programs. Reviews clerical and personnel records to ensure completeness, accuracy, and timeliness. Prepares activities reports for guidance of management
Confidential Page 11 9-1-2000 12 SCHEDULE C GENERAL TERMS AND CONDITIONS VACATION/DOMESTIC/PERSONAL Annual leave is provided in accordance with Schedule A. All applications for annual leave shall be made on the leave application form and shall require a minimum of two weeks notice. MANAGER is entitled to up to five days leave on ordinary pay where MANAGER finds that it is essential to stay at home in an emergency in the event of illness of a husband or wife, dependent child or dependent parent. Such leave shall be treated as though it were due to MANAGER's own sickness and shall be subject to the following conditions: o leave shall be set-off against MANAGER's sick leave entitlement o On return to work MANAGER shall complete a sick leave notification and file with the human resources manager. o If requested, a medical certificate shall be provided to support such leave entitlement. BEREAVEMENT LEAVE MANAGER is entitled to 3 days bereavement leave in each year on the death of the MANAGER's spouse, child, parent, brother or sister, grandparent, mother in law or father in law. The entitlement will not form part of any benefit payable upon termination of the Management Services Agreement. MANAGER shall complete a Bereavement Leave Application and file with the human resources manager. DRESS CODE MANAGER is expected to comply with "ELITE" dress code as published in the Employee Handbook from time to time. HOURS OF WORK MANAGER is expected to work a minimum of 40 hours in any week. These will normally be worked Monday to Friday at any time between 7:00 a.m. and 6:00 p.m. to suit the MANAGER. NOTICE PERIOD FOR TERMINATION OF Unless terminated by Elite for cause, either EMPLOYMENT party may terminate the Management Services Agreement by giving the other party thirty (30) days notice in writing.
Confidential Page 12 9-1-2000 13 PAYMENT ON TERMINATION OF On termination of employment under this EMPLOYMENT Agreement, MANAGER will be paid o Salary to date of termination o Accrued annual leave o Three months salary in lieu of notice if ELITE does not wish MANAGER to work out the notice period (unless termination is for cause). o Any and all bonuses and commissions accrued to the date of termination. Unused sick leave is not payable on termination of employment. SICK LEAVE After three months of service MANAGER is entitled to accrued sick leave to be taken in accordance with company policy. PUBLIC HOLIDAYS Public holidays shall be taken in accordance with company policy.
Confidential Page 13 9-1-2000 EX-4.4 4 d80861ex4-4.txt MANAGEMENT SERVICES AGREEMENT - RICHARD L. HANSEN 1 EXHIBIT 4.4 MANAGEMENT SERVICES AGREEMENT MADE THIS 1ST DAY OF SEPTEMBER 2000 PARTIES: 1. ELITE LOGISTICS, INC. AND SUBSIDIARIES (ELITE), AND; 2. RICHARD L HANSEN (MANAGER) (LOCATED IN FREEPORT, TEXAS OR OTHER LOCATION) BACKGROUND: 1. ELITE wishes to retain the services of MANAGER to provide management services in accordance with the Position Specification attached hereto. 2. MANAGER agrees to render such services to ELITE subject to the terms and conditions of this Agreement. 3. The mission of ELITE as outlined in its business plan is as follows: "Elite will harness the power of wireless communications and global positioning technology to improve the security of life and property and the efficiency of our clients' business by providing best of breed monitoring, tracking and information systems for motor vehicles and other mobile and fixed assets." 4. Pursuant to this Management Services Agreement MANAGER will assist ELITE to fulfill its business plan and accomplish its mission. DECLARATION I, MANAGER declare that I have read and fully understand the conditions of employment detailed in the attached Management Services Agreement and accept them fully. SIGNED BY MANAGER SIGNED FOR AND ON BEHALF OF ELITE LOGISTICS, INC. - ----------------------- By: ---------------------- Title: President ---------------------- Witness: Witness: ---------------------- ---------------------- Full Name Full Name ---------------------- ---------------------- Address Address ---------------------- ---------------------- Occupation Occupation ---------------------- ---------------------- Confidential Page 1 9-1-2000 2 1 DEFINITIONS: ELITE GROUP Means ELITE Logistics Services, Inc. and all subsidiary and affiliate companies in which ELITE may have an equity interest from time to time. THE BOARD Means the Board of Directors of ELITE. THE BUSINESS PLAN Means the plan for the operation of ELITE's business as approved by the Board and amended by the Board from time to time. CONFIDENTIAL INFORMATION Means all information that is confidential to and the property of ELITE and the ELITE Group whether in written, electronic or other form or retained in the mind of the MANAGER. Without limiting the generality of the forgoing, it includes all and any information relating to the business, business plans, affairs, policies, processes, intellectual property (including without limitation software products, source codes, designs, specifications, drawings, technical information, know how, trade secrets, technical and scientific research, copyright, patents and patent applications), documents, costing, pricing methods, operations, finances, strategic relationships, customers, product knowledge, quality standards, devices, market research, past and present legal or regulatory matters and all such similar information of ELITE and the ELITE Group. DOCUMENTS Means all memoranda, notes, specifications, manuals, drawings, plans, design reports, records and other material stored in written, audio, visual or electronic or whatsoever form INTELLECTUAL PROPERTY Means the right to use, copy, modify, market, or license any software concept, design, source code, or documentation. It also includes all rights to any brand, patent, copyright, registered design, trademark, distinguishing logos, trade secret or any other intellectual property right belonging to ELITE or Elite Group including any software, systems or products discovered by MANAGER or by ELITE. It also includes such other Industrial, Intellectual and Contractual Property as may further establish or reinforce the ELITE Group rights in the ELITE software, systems and products. MANAGEMENT SERVICES Means this agreement between the parties and AGREEMENT any amendments thereto. REQUIRED NOTICE OF Means the minimum period for notice of TERMINATION termination set out in Schedule A. REVIEW DATE Means the date for annual salary review as set out in Schedule A. TERRITORY Means the territories as set out in Schedule A. Confidential Page 2 9-1-2000 3 2. COMMENCEMENT DATE 2.1 This Agreement shall commence on the commencement date specified in Schedule A. 3 MANAGER'S DUTIES 3.1 MANAGER shall perform the duties set out in the Position Specification contained in Schedule B diligently and competently and in a professional manner to the best of MANAGER'S ability for the benefit of ELITE. The Chief Executive Officer or designated representative may from time to time at their sole discretion as they deem appropriate assign to MANAGER such other responsibilities and duties. 3.2 MANAGER shall work full-time (a minimum 40 hours per week) for ELITE. MANAGER may act as a non-executive director or advisor for other companies provided that MANAGER advises Elite of such other activities and they do not, in the opinion of ELITE impair MANAGER'S ability to fulfill this Agreement. 3.2 MANAGER shall prepare such business plans, forecasts, activity reports, financial reports, and management reports as the Chief Executive Officer or designated representative may request. MANAGER shall inform the Chief Executive Officer or designated representative of important developments including without limitation: o Information about competitors, their products and prices. o Comments on ELITE' products from actual and prospective customers. o Opportunities for further product development or for new products. o Any other market intelligence. 3.3 MANAGER acknowledges receipt of a copy of the Employee Handbook/Company Policy Manual and has read understood and agreed to the same. MANAGER agrees to abide by company policy and such other reasonable limitations upon his scope of authority as may be established from time to time by the Chief Executive Officer or designated representative. 3.4 MANAGER shall comply with all the applicable laws and regulations in the territory in performing his duties for ELITE. 4 SALARY AND SALARY REVIEWS 4.1 MANAGER shall receive the compensation package including the salary and performance related cash bonuses detailed in Schedule A in the manner detailed. Salary including cash bonuses shall be reviewed annually on the Review Date. 5. GENERAL CONDITIONS 5.1 The general conditions of employment shall be as set out in the Employee Handbook (copy attached at Schedule C) and as amended from time to time, in Elite's sole discretion. Confidential Page 3 9-1-2000 4 6. EXPENSES. 6.1 ELITE shall reimburse MANAGER for reasonable business expenses necessarily incurred in the performance of his duties in accordance with ELITE travel and expenses policies and procedures that are in effect at the time the expenses are incurred. 6.2 If ELITE provides MANAGER with a corporate credit card, MANAGER is responsible for any personal charges incurred on the company credit card and without limitation to any other remedy which may be available to ELITE hereby grants to ELITE the right to offset such charges against any and all amounts which may be due to MANAGER from ELITE. MANAGER shall return such credit card to ELITE immediately upon request by ELITE and in any event upon termination of this Agreement for whatever reason. 6.3 If ELITE provides MANAGER with a corporate phone card, MANAGER is responsible for any personal charges incurred on the company phone card and without limitation to any other remedy which may be available to ELITE hereby grants to ELITE the right to offset such charges against any and all amounts which may be due to MANAGER from ELITE. MANAGER shall return such phone card to ELITE and desist from using such service immediately upon request by ELITE and in any event upon termination of this Agreement for whatever reason. 7. CONFIDENTIAL INFORMATION 7.1 Elite promises to provide MANAGER and MANAGER acknowledges, that by virtue of MANAGER'S employment with ELITE, MANAGER will gain knowledge of Confidential Information. MANAGER agrees and acknowledges that all such Confidential Information is the sole and exclusive property of ELITE. MANAGER covenants that the Confidential Information, and any other information obtained by MANAGER in relation to the ELITE Group shall during the currency of MANAGER'S employment and at all times thereafter, be kept secret and confidential and except to the extent that any such Confidential Information or other information shall be part of the public domain (other than as a result of the breach by the MANAGER of this Clause) such information shall not be disclosed other than as required by law. 7.2 MANAGER will not disclose Confidential Information to such parties within ELITE who MANAGER should reasonably expect to be excluded from receiving such Confidential Information. 7.3 MANAGER further agrees to promptly deliver to ELITE upon termination of this Agreement, or at any time that ELITE may so request, all software, media memoranda, notes, records and other documents comprising Confidential Information that he then possesses or has under his control. 7.4 The MANAGER shall not during the term of this Agreement or subsequently directly or indirectly divulge to any person other than MANAGER'S professional advisor(s) any of the terms of this Agreement. Confidential Page 4 9-1-2000 5 8. PROTECTION OF INTELLECTUAL PROPERTY 8.1 MANAGER acknowledges that all ELITE Group software, systems, products and processes are proprietary to the ELITE Group by virtue of their unique design. 8.2 MANAGER shall have no rights in respect of any Intellectual Property of the ELITE Group, or the goodwill associated therewith and MANAGER acknowledges that all such rights are vested in the ELITE Group. 8.3 MANAGER shall not during the term of this Agreement or for a period of two years thereafter aid, abet or assist, either directly or indirectly, anyone else in replicating, creating, manufacturing, marketing, licensing, or in any other way dealing in systems and products infringing the ELITE Group's Intellectual Property. 8.4 MANAGER shall comply with all directives of the Board and take all other reasonable steps to prevent infringement by third parties of the Intellectual Property of the ELITE Group. 8.5 MANAGER shall promptly notify the Board of Directors in the event that he becomes aware of any infringement by third parties of the ELITE Group's Intellectual Property. 8.6 MANAGER further agrees to promptly deliver to ELITE on termination of this Management Services Agreement, or at any time that ELITE may so request, all memoranda, notes, records and other documents comprising or relating to the Intellectual Property that MANAGER then possesses or has under MANAGER'S control. 9. COVENANTS NOT TO COMPETE 9.1 MANAGER agrees that the services he has to perform under this Agreement are of a special, unique, unusual, extraordinary and intellectual in character. 9.2 MANAGER acknowledges that ELITE would sustain considerable injury were MANAGER to take the knowledge, skills, business contacts and information (whether confidential or otherwise) acquired during MANAGER'S service with ELITE and use them to compete with ELITE. 9.3 In order to protect Elite's interests in its Confidential Information and Intellectual Property, MANAGER covenants that during the term of this Agreement and for a period of one year after termination for any reason, neither MANAGER, nor any corporation, partnership or joint venture of which MANAGER is a member, will without the prior written consent of ELITE, either directly or indirectly, and whether as principal, agent, trustee, financier, shareholder, debenture holder, director, consultant, partner, advisor, or otherwise in the Territory: a) Compete with the Business of ELITE as carried on by ELITE until the date of termination. b) Be concerned in any corporation or business that is or may be engaged or concerned in or does or may carry on business that competes with the Business of ELITE as carried on by ELITE until the date of termination. MANAGER may hold or make investments in Companies whose business does not directly compete with the Business at the time of making such investment, but shall immediately disclose such investments should their business subsequently become competitive. c) Solicit or entice away from ELITE by any means whatsoever (or endeavor to do so) any business from any person who is or was a customer of ELITE within the six month period prior to termination of this Agreement. Confidential Page 5 9-1-2000 6 d) Employ, offer or procure the offer of employment, or solicit or entice away from ELITE, or induce to breach his/her Agreement of service with ELITE (or endeavor to do so) any person who was employed by ELITE or who was an officer or agent of ELITE, or a Contractor to ELITE at the date of termination or was employed by ELITE in any such capacity at any time during the six month period prior to termination. 9.4 MANAGER will not at any time after termination of this agreement represent himself as being in any way connected with or interested in the Business or affairs of ELITE. 9.5 The provisions of this Clause 9 shall bind and enure for the benefit of the Parties after the termination of this Agreement. 9.6 MANAGER acknowledges that this covenant not to compete is not unreasonably restrictive nor will it interfere with his ability to earn his livelihood for among other things the following reasons: o It covers only those services and products of the type marketed by the ELITE Group. The market for such systems and products is very small relative to the total software market. o Inconvenience of this covenant not to compete upon MANAGER is minimal in comparison with the hardship that the ELITE Group would potentially sustain without it. o The experience and skills that MANAGER acquires in the course of his employment with ELITE are readily transferable to other non-competing management opportunities on termination of his Agreement with ELITE. 9.7 Each of the undertakings of MANAGER contained in Clause 9.3 shall be read and construed independently of the other undertakings so that if one or more should be held to be invalid as an unreasonable restraint of trade or for any other reason whatever then the remaining undertakings shall be valid to the extent that they are not held to be so invalid. 9.8 While the undertakings of MANAGER contained in Clause 9.3 and 9.4 are considered by the Parties to be reasonable in all the circumstances, if one or more of such undertakings should be held to be invalid as an unreasonable restraint of trade or for any other reason whatsoever, but would have been held valid if part of the wording thereof had been deleted or the period thereof reduced or the range of activities or area dealt with thereby reduced in scope, the said undertakings shall apply with such modifications as may be necessary to make them valid and binding upon the MANAGER. Any such modifications shall be kept to a minimum. 9.9 As further consideration for entering into the restrictive covenants contained in this Agreement MANAGER shall receive the incentive bonus and/or stock option grants as set out in Schedule A. 10 INTELLECTUAL PROPERTY ASSIGNMENT 10.1 MANAGER agrees that all software, inventions, processes, products, designs or procedures relating to the Business of ELITE which MANAGER may develop or participate in the development of during the term of this Agreement (hereinafter collectively referred to as "MANAGER'S Intellectual Property") whether during normal working hours or not shall be deemed to be the property of ELITE or its assignee. 10.2 MANAGER agrees to assign his rights if any to MANAGER'S Intellectual Property, developed while employed by ELITE, to ELITE and further to sign any documents reasonably required by ELITE in order to protect ELITE' interest in the MANAGER'S Intellectual Property. Confidential Page 6 9-1-2000 7 11 TERM 11.1 The initial term of this Agreement is set out in Schedule A. Thereafter it may be renewed by mutual agreement until terminated by either party giving the other party the Required Notice of Termination. 11.2 ELITE may terminate this Agreement forthwith for cause if: o MANAGER is guilty of gross dereliction of duty, incompetence or a major breach of this Agreement o MANAGER commits any illegal, dishonest or fraudulent act against the company or is indicted, convicted or pleads nolo contendere to any felony or any act of moral turpitude o MANAGER is guilty of the use or possession of illegal drugs, or the excessive use of alcohol, or commits any other act that brings ELITE into disrepute. o MANAGER dies, or is incapable of performing MANAGER'S obligations, in the normal manner, on account of disability for ten consecutive weeks, or in the aggregate fifteen weeks, of any year. If this Agreement is terminated for cause pursuant to this sub-clause (iv), MANAGER or his heirs and assigns as the case may be, shall immediately vest in all options allocated to MANAGER up to and including the end of the calendar year of such death or disability. o Any other termination shall be deemed to be without cause. 11.3 ELITE shall have the right to terminate this Agreement without cause upon written notice to MANAGER. If ELITE terminates this Agreement without cause, ELITE shall continue to pay the salary portion of MANAGER'S compensation as it becomes due and continue benefits for a period of one month from the effective date of termination of this Agreement. 11.4 The Termination of this Agreement shall be without prejudice to the rights of the parties that accrued up to the date of termination. Termination shall not affect those clauses herein, which by their nature the parties intend to survive termination. 12. REPRESENTATIONS AND WARRANTIES 12.1 The parties represent the warrant to each other: o Each is free to enter into this Management Services Agreement o Each possesses the legal authority to enter into this Management Services Agreement o There are no outstanding Contractual commitments that will prevent or restrict any of them from entering into this Agreement and performing the obligations hereunder. Confidential Page 7 9-1-2000 8 13. GOVERNING LAW 13.1 The laws of Texas and controlling Federal Law shall govern this Management Services Agreement and any action hereunder shall subject to the jurisdiction of the federal and state courts sitting in Brazoria County, Texas. 14. ENTIRE AGREEMENT 14.1 This Agreement represents the entire agreement between the parties with respect to the subject thereof as such it supersedes and replaces any prior arrangements between the parties either oral or written. 14.2 Any changes or modifications to this Agreement shall be valid only if made in writing and signed by both parties. 15. SEVERABILITY 15.1 Each provision in this Management Services Agreement is severable wholly and in part and if any provision is said to be illegal or unenforceable for any reason only the illegal or unenforceable portion shall be ineffective and the remainder shall remain in full force and effect. 16. AMENDMENT 16.1 Any purported amendment or variation of this Agreement must be in writing and be signed by both Parties. Confidential Page 8 9-1-2000 9 SCHEDULE A COMPENSATION, TERMS AND CONDITIONS NAME RICHARD L HANSEN POSITION MANAGER, CHIEF OPERATING OFFICER EMPLOYMENT DATE August 1, 1998 GRANT OPTION PLAN September 1, 2000 INITIAL TERM One year REVIEW DATE 1 January each year. TERRITORY United States of America REQUIRED NOTICE OF Thirty (30) days notice in writing TERMINATION (unless terminated for cause) COMPENSATION 1. ANNUAL COMPENSATION MANAGER shall receive the following salary: SALARY: Base Salary (payable biweekly) $ 108,000 per annum TOTAL ON TARGET REMUNERATION $ 108,000.00 PERFORMANCE BONUS: As available and approved by the Board of Directors
2. INCENTIVE OPTIONS In addition to the Annual Compensation detailed herein, MANAGER shall receive stock option allocations giving the employee the right to purchase stock in the company at current Fair Market Value (FMV) in accordance with the Elite Logistics Inc., 2000 Employee Incentive Plan.
Allotment Exercise Price Vesting Period Vesting Date Option Grant Date --------- -------------- --------------- ------------- ----------------- 30,000 Shares FMV 3 years 8-1-2000 September 1, 2000 30,000 Shares FMV 3 years 8-1-2001 August 1, 2001 30,000 Shares FMV 3 years 8-1-2002 August 1, 2002
Vesting: In respect of each option grant 1/3 of the options vest on completion of one year's service (on the anniversary of the date of employment) and thereafter 1/24th of the remaining balance vests at the end of each subsequent month of completed service. Confidential Page 9 9-1-2000 10 3. STOCK PURCHASE RIGHTS MANAGER shall on the execution of this agreement receive in addition to the incentive stock options detailed above restricted stock purchase rights pursuant to the 2000 Equity Incentive Plan as follows:
Allotment Grant Date Exercise Price Expiration Date --------- ---------- -------------- ---------------- 20,000 September 1, 2000 $3.00 December 29, 2000
These shares shall be subject to execution of a restricted stock purchase agreement and be restricted for a period of 12 months from the date of such investment. Elite agrees to loan MANAGER the funds necessary to purchase these shares at an interest rate two (2) points above National Prime Rate at the time of purchase. 4. PAID VACATION / DOMESTIC LEAVE MANAGER shall, be entitled to 15 days paid annual vacation /domestic leave to be taken in accordance with company policy. 5. LEAVE OF ABSENCE, BEREAVEMENT LEAVE ETC MANAGER shall be entitled to leave of absence and compensation in accordance with company policy as set out in the Employee Handbook during periods of sickness, disability, or bereavement. 6. HEALTH INSURANCE MANAGER and MANAGER's dependents will be eligible for participation in the company's group health insurance Plan and other employee benefits, on the first of the month following 90 days of employment. 7. RELOCATION EXPENSES If relocation is required by ELITE then ELITE shall reimburse MANAGER's reasonable costs of relocating to Freeport, Texas in accordance with ELITE relocation policy as set our in the Employee Handbook. Confidential Page 10 9-1-2000 11 SCHEDULE B POSITION SPECIFICATION NAME: Richard L Hansen POSITION: Manager, Chief Operating Officer REPORTING TO: Chief Executive Officer or designated representative
AREAS OF RESPONSIBILITY PERFORMANCE CRITERIA - ----------------------- -------------------- - - Manages organization operations by directing - Leader and driver in the organization and coordinating activities consistent with - Sales orientation and strong closer established goals, objectives, and policies. - Excellent communication & influence skills Follows direction set by Chief Executive with the ability to effectively manage Officer and Board of Directors. Implements complex relationships. programs to ensure attainment of business plan - Systems thinking for growth and profit. Provides direction and - Expertise/Achievement drive structure for operating units. May participate - Change orientation in developing policy and strategic plans. - Integrity / Interpersonal understanding SUMMARY Directs, administers, and coordinates the activities of SUPERVISORY RESPONSIBILITIES the organization in support of policies, goals, and objectives established by the chief executive officer QUALIFICATIONS To perform this job successfully, an and the Board of Directors by performing the following individual must be able to perform each essential duties personally or through subordinate managers. duty satisfactorily. The requirements listed below are representative of the knowledge, skill, and/or ability required. Reasonable accommodations may be made to enable individuals with disabilities to ESSENTIAL DUTIES AND RESPONSIBILITIES include the perform the essential functions. following. Other duties may be assigned. Guides and directs management in the development, production, promotion, and financial aspects of the organization's products and services. Directs the preparation of short-term and long-range plans and budgets based on broad corporate goals and growth objectives. Oversees executives who direct department activities that implement the organization's policies. Implements programs that meet corporate goals and objectives. Creates the structure and processes necessary to manage the organization's current activities and its projected growth. Maintains a sound plan of corporate organization, establishing policies to ensure adequate management development and to provide for capable management succession. Develops and installs procedures and controls to promote communication and adequate information flow within the organization. Supervises design of hardware and software systems to assist in the smooth and efficient flow of information. Establishes operating policies consistent with the chief executive officer's broad policies and objectives and ensures their execution. Evaluates the results of overall operations regularly and systematically and reports these results to the chief executive officer. Ensures that the responsibilities, authorities, and accountability of all direct subordinates are defined and understood. Ensures that all organization activities and operations are carried out in compliance with local, state, and federal regulations and laws governing business operations.
Confidential Page 11 9-1-2000 12 SCHEDULE C GENERAL TERMS AND CONDITIONS VACATION/DOMESTIC/PERSONAL Annual leave is provided in accordance with Schedule A. All applications for annual leave shall be made on the leave application form and shall require a minimum of two weeks notice. MANAGER is entitled to up to five days leave on ordinary pay where MANAGER finds that it is essential to stay at home in an emergency in the event of illness of a husband or wife, dependent child or dependent parent. Such leave shall be treated as though it were due to MANAGER's own sickness and shall be subject to the following conditions: o leave shall be set-off against MANAGER's sick leave entitlement o On return to work MANAGER shall complete a sick leave notification and file with the human resources manager. o If requested, a medical certificate shall be provided to support such leave entitlement. BEREAVEMENT LEAVE MANAGER is entitled to 3 days bereavement leave in each year on the death of the MANAGER's spouse, child, parent, brother or sister, grandparent, mother in law or father in law. The entitlement will not form part of any benefit payable upon termination of the Management Services Agreement. MANAGER shall complete a Bereavement Leave Application and file with the human resources manager. DRESS CODE MANAGER is expected to comply with "ELITE" dress code as published in the Employee Handbook from time to time. HOURS OF WORK MANAGER is expected to work a minimum of 40 hours in any week. These will normally be worked Monday to Friday at any time between 7:00 a.m. and 6:00 p.m. to suit the MANAGER. NOTICE PERIOD FOR TERMINATION OF Unless terminated by Elite for cause, either party may EMPLOYMENT terminate the Management Services Agreement by giving the other party thirty (30) days notice in writing.
Confidential Page 12 9-1-2000 13 PAYMENT ON TERMINATION OF On termination of employment under this Agreement, MANAGER EMPLOYMENT will be paid o Salary to date of termination o Accrued annual leave o One months salary in lieu of notice if ELITE does not wish MANAGER to work out the notice period (unless termination is for cause). o Any and all bonuses and commissions accrued to the date of termination. Unused sick leave is not payable on termination of employment. SICK LEAVE After three months of service MANAGER is entitled to accrued sick leave to be taken in accordance with company policy. . PUBLIC HOLIDAYS Public holidays shall be taken in accordance with company policy.
Confidential Page 13 9-1-2000 EX-4.5 5 d80861ex4-5.txt MANAGEMENT SERVICES AGREEMENT - THIEN K. NGUYEN 1 EXHIBIT 4.5 MANAGEMENT SERVICES AGREEMENT MADE THIS 1ST DAY OF SEPTEMBER 2000 PARTIES: 1. ELITE LOGISTICS, INC. AND SUBSIDIARIES (ELITE), AND; 2. THIEN K NGUYEN (MANAGER) (LOCATED IN FREEPORT, TEXAS OR OTHER LOCATION) BACKGROUND: 1. ELITE wishes to retain the services of MANAGER to provide management services in accordance with the Position Specification attached hereto. 2. MANAGER agrees to render such services to ELITE subject to the terms and conditions of this Agreement. 3. The mission of ELITE as outlined in its business plan is as follows: "Elite will harness the power of wireless communications and global positioning technology to improve the security of life and property and the efficiency of our clients' business by providing best of breed monitoring, tracking and information systems for motor vehicles and other mobile and fixed assets." 4. Pursuant to this Management Services Agreement MANAGER will assist ELITE to fulfill its business plan and accomplish its mission. DECLARATION I, MANAGER declare that I have read and fully understand the conditions of employment detailed in the attached Management Services Agreement and accept them fully. SIGNED BY MANAGER SIGNED FOR AND ON BEHALF OF ELITE LOGISTICS, INC. - ------------------------------ By: ------------------------------- Title: President ------------------------------- Witness: Witness: ---------------------- ------------------------------- Full Name Full Name -------------------- ------------------------------- Address Address ---------------------- ------------------------------- Occupation Occupation ------------------- ------------------------------- Page 1 9-1-200 Confidential 2 1 DEFINITIONS: ELITE GROUP Means ELITE Logistics Services, Inc. and all subsidiary and affiliate companies in which ELITE may have an equity interest from time to time. THE BOARD Means the Board of Directors of ELITE. THE BUSINESS PLAN Means the plan for the operation of ELITE's business as approved by the Board and amended by the Board from time to time. CONFIDENTIAL INFORMATION Means all information that is confidential to and the property of ELITE and the ELITE Group whether in written, electronic or other form or retained in the mind of the MANAGER. Without limiting the generality of the forgoing, it includes all and any information relating to the business, business plans, affairs, policies, processes, intellectual property (including without limitation software products, source codes, designs, specifications, drawings, technical information, know how, trade secrets, technical and scientific research, copyright, patents and patent applications), documents, costing, pricing methods, operations, finances, strategic relationships, customers, product knowledge, quality standards, devices, market research, past and present legal or regulatory matters and all such similar information of ELITE and the ELITE Group. DOCUMENTS Means all memoranda, notes, specifications, manuals, drawings, plans, design reports, records and other material stored in written, audio, visual or electronic or whatsoever form INTELLECTUAL PROPERTY Means the right to use, copy, modify, market, or license any software concept, design, source code, or documentation. It also includes all rights to any brand, patent, copyright, registered design, trademark, distinguishing logos, trade secret or any other intellectual property right belonging to ELITE or Elite Group including any software, systems or products discovered by MANAGER or by ELITE. It also includes such other Industrial, Intellectual and Contractual Property as may further establish or reinforce the ELITE Group rights in the ELITE software, systems and products. MANAGEMENT SERVICES AGREEMENT Means this agreement between the parties and any amendments thereto. REQUIRED NOTICE OF TERMINATION Means the minimum period for notice of termination set out in Schedule A. REVIEW DATE Means the date for annual salary review as set out in Schedule A. TERRITORY Means the territories as set out in Schedule A. Confidential Page 2 9-1-2000 3 2. COMMENCEMENT DATE 2.1 This Agreement shall commence on the commencement date specified in Schedule A. 3. MANAGER'S DUTIES 3.1 MANAGER shall perform the duties set out in the Position Specification contained in Schedule B diligently and competently and in a professional manner to the best of MANAGER'S ability for the benefit of ELITE. The Chief Executive Officer or designated representative may from time to time at their sole discretion as they deem appropriate assign to MANAGER such other responsibilities and duties. 3.2 MANAGER shall work full-time (a minimum 40 hours per week) for ELITE. MANAGER may act as a non-executive director or advisor for other companies provided that MANAGER advises Elite of such other activities and they do not, in the opinion of ELITE impair MANAGER'S ability to fulfill this Agreement. 3.2 MANAGER shall prepare such business plans, forecasts, activity reports, financial reports, and management reports as the Chief Executive Officer or designated representative may request. MANAGER shall inform the Chief Executive Officer or designated representative of important developments including without limitation: o Information about competitors, their products and prices. o Comments on ELITE' products from actual and prospective customers. o Opportunities for further product development or for new products. o Any other market intelligence. 3.3 MANAGER acknowledges receipt of a copy of the Employee Handbook/Company Policy Manual and has read understood and agreed to the same. MANAGER agrees to abide by company policy and such other reasonable limitations upon his scope of authority as may be established from time to time by the Chief Executive Officer or designated representative. 3.4 MANAGER shall comply with all the applicable laws and regulations in the territory in performing his duties for ELITE. 4. SALARY AND SALARY REVIEWS 4.1 MANAGER shall receive the compensation package including the salary and performance related cash bonuses detailed in Schedule A in the manner detailed. Salary including cash bonuses shall be reviewed annually on the Review Date. 5. GENERAL CONDITIONS 5.1 The general conditions of employment shall be as set out in the Employee Handbook (copy attached at Schedule C) and as amended from time to time, in Elite's sole discretion. Confidential Page 3 9-1-2000 4 6. EXPENSES. 6.1 ELITE shall reimburse MANAGER for reasonable business expenses necessarily incurred in the performance of his duties in accordance with ELITE travel and expenses policies and procedures that are in effect at the time the expenses are incurred. 6.2 If ELITE provides MANAGER with a corporate credit card, MANAGER is responsible for any personal charges incurred on the company credit card and without limitation to any other remedy which may be available to ELITE hereby grants to ELITE the right to offset such charges against any and all amounts which may be due to MANAGER from ELITE. MANAGER shall return such credit card to ELITE immediately upon request by ELITE and in any event upon termination of this Agreement for whatever reason. 6.3 If ELITE provides MANAGER with a corporate phone card, MANAGER is responsible for any personal charges incurred on the company phone card and without limitation to any other remedy which may be available to ELITE hereby grants to ELITE the right to offset such charges against any and all amounts which may be due to MANAGER from ELITE. MANAGER shall return such phone card to ELITE and desist from using such service immediately upon request by ELITE and in any event upon termination of this Agreement for whatever reason. 7. CONFIDENTIAL INFORMATION 7.1 Elite promises to provide MANAGER and MANAGER acknowledges, that by virtue of MANAGER'S employment with ELITE, MANAGER will gain knowledge of Confidential Information. MANAGER agrees and acknowledges that all such Confidential Information is the sole and exclusive property of ELITE. MANAGER covenants that the Confidential Information, and any other information obtained by MANAGER in relation to the ELITE Group shall during the currency of MANAGER'S employment and at all times thereafter, be kept secret and confidential and except to the extent that any such Confidential Information or other information shall be part of the public domain (other than as a result of the breach by the MANAGER of this Clause) such information shall not be disclosed other than as required by law. 7.2 MANAGER will not disclose Confidential Information to such parties within ELITE who MANAGER should reasonably expect to be excluded from receiving such Confidential Information. 7.3 MANAGER further agrees to promptly deliver to ELITE upon termination of this Agreement, or at any time that ELITE may so request, all software, media memoranda, notes, records and other documents comprising Confidential Information that he then possesses or has under his control. 7.4 The MANAGER shall not during the term of this Agreement or subsequently directly or indirectly divulge to any person other than MANAGER'S professional advisor(s) any of the terms of this Agreement. Confidential Page 4 9-1-2000 5 8. PROTECTION OF INTELLECTUAL PROPERTY 8.1 MANAGER acknowledges that all ELITE Group software, systems, products and processes are proprietary to the ELITE Group by virtue of their unique design. 8.2 MANAGER shall have no rights in respect of any Intellectual Property of the ELITE Group, or the goodwill associated therewith and MANAGER acknowledges that all such rights are vested in the ELITE Group. 8.3 MANAGER shall not during the term of this Agreement or for a period of two years thereafter aid, abet or assist, either directly or indirectly, anyone else in replicating, creating, manufacturing, marketing, licensing, or in any other way dealing in systems and products infringing the ELITE Group's Intellectual Property. 8.4 MANAGER shall comply with all directives of the Board and take all other reasonable steps to prevent infringement by third parties of the Intellectual Property of the ELITE Group. 8.5 MANAGER shall promptly notify the Board of Directors in the event that he becomes aware of any infringement by third parties of the ELITE Group's Intellectual Property. 8.6 MANAGER further agrees to promptly deliver to ELITE on termination of this Management Services Agreement, or at any time that ELITE may so request, all memoranda, notes, records and other documents comprising or relating to the Intellectual Property that MANAGER then possesses or has under MANAGER'S control. 9. COVENANTS NOT TO COMPETE 9.1 MANAGER agrees that the services he has to perform under this Agreement are of a special, unique, unusual, extraordinary and intellectual in character. 9.2 MANAGER acknowledges that ELITE would sustain considerable injury were MANAGER to take the knowledge, skills, business contacts and information (whether confidential or otherwise) acquired during MANAGER'S service with ELITE and use them to compete with ELITE. 9.3 In order to protect Elite's interests in its Confidential Information and Intellectual Property, MANAGER covenants that during the term of this Agreement and for a period of one year after termination for any reason, neither MANAGER, nor any corporation, partnership or joint venture of which MANAGER is a member, will without the prior written consent of ELITE, either directly or indirectly, and whether as principal, agent, trustee, financier, shareholder, debenture holder, director, consultant, partner, advisor, or otherwise in the Territory: a) Compete with the Business of ELITE as carried on by ELITE until the date of termination. b) Be concerned in any corporation or business that is or may be engaged or concerned in or does or may carry on business that competes with the Business of ELITE as carried on by ELITE until the date of termination. MANAGER may hold or make investments in Companies whose business does not directly compete with the Business at the time of making such investment, but shall immediately disclose such investments should their business subsequently become competitive. c) Solicit or entice away from ELITE by any means whatsoever (or endeavor to do so) any business from any person who is or was a customer of ELITE within the six month period prior to termination of this Agreement. Confidential Page 5 9-1-2000 6 d) Employ, offer or procure the offer of employment, or solicit or entice away from ELITE, or induce to breach his/her Agreement of service with ELITE (or endeavor to do so) any person who was employed by ELITE or who was an officer or agent of ELITE, or a Contractor to ELITE at the date of termination or was employed by ELITE in any such capacity at any time during the six month period prior to termination. 9.4 MANAGER will not at any time after termination of this agreement represent himself as being in any way connected with or interested in the Business or affairs of ELITE. 9.5 The provisions of this Clause 9 shall bind and enure for the benefit of the Parties after the termination of this Agreement. 9.6 MANAGER acknowledges that this covenant not to compete is not unreasonably restrictive nor will it interfere with his ability to earn his livelihood for among other things the following reasons: o It covers only those services and products of the type marketed by the ELITE Group. The market for such systems and products is very small relative to the total software market. o Inconvenience of this covenant not to compete upon MANAGER is minimal in comparison with the hardship that the ELITE Group would potentially sustain without it. o The experience and skills that MANAGER acquires in the course of his employment with ELITE are readily transferable to other non-competing management opportunities on termination of his Agreement with ELITE. 9.7 Each of the undertakings of MANAGER contained in Clause 9.3 shall be read and construed independently of the other undertakings so that if one or more should be held to be invalid as an unreasonable restraint of trade or for any other reason whatever then the remaining undertakings shall be valid to the extent that they are not held to be so invalid. 9.8 While the undertakings of MANAGER contained in Clause 9.3 and 9.4 are considered by the Parties to be reasonable in all the circumstances, if one or more of such undertakings should be held to be invalid as an unreasonable restraint of trade or for any other reason whatsoever, but would have been held valid if part of the wording thereof had been deleted or the period thereof reduced or the range of activities or area dealt with thereby reduced in scope, the said undertakings shall apply with such modifications as may be necessary to make them valid and binding upon the MANAGER. Any such modifications shall be kept to a minimum. 9.9 As further consideration for entering into the restrictive covenants contained in this Agreement MANAGER shall receive the incentive bonus and/or stock option grants as set out in Schedule A. 10. INTELLECTUAL PROPERTY ASSIGNMENT 10.1 MANAGER agrees that all software, inventions, processes, products, designs or procedures relating to the Business of ELITE which MANAGER may develop or participate in the development of during the term of this Agreement (hereinafter collectively referred to as "MANAGER'S Intellectual Property") whether during normal working hours or not shall be deemed to be the property of ELITE or its assignee. 10.2 MANAGER agrees to assign his rights if any to MANAGER'S Intellectual Property, developed while employed by ELITE, to ELITE and further to sign any documents reasonably required by ELITE in order to protect ELITE' interest in the MANAGER'S Intellectual Property. Confidential Page 6 9-1-2000 7 11. TERM 11.1 The initial term of this Agreement is set out in Schedule A. Thereafter it may be renewed by mutual agreement until terminated by either party giving the other party the Required Notice of Termination. 11.2 ELITE may terminate this Agreement forthwith for cause if: o MANAGER is guilty of gross dereliction of duty, incompetence or a major breach of this Agreement o MANAGER commits any illegal, dishonest or fraudulent act against the company or is indicted, convicted or pleads nolo contendere to any felony or any act of moral turpitude o MANAGER is guilty of the use or possession of illegal drugs, or the excessive use of alcohol, or commits any other act that brings ELITE into disrepute. o MANAGER dies, or is incapable of performing MANAGER'S obligations, in the normal manner, on account of disability for ten consecutive weeks, or in the aggregate fifteen weeks, of any year. If this Agreement is terminated for cause pursuant to this sub-clause (iv), MANAGER or his heirs and assigns as the case may be, shall immediately vest in all options allocated to MANAGER up to and including the end of the calendar year of such death or disability. o Any other termination shall be deemed to be without cause. 11.3 ELITE shall have the right to terminate this Agreement without cause upon written notice to MANAGER. If ELITE terminates this Agreement without cause, ELITE shall continue to pay the salary portion of MANAGER'S compensation as it becomes due and continue benefits for a period of one month from the effective date of termination of this Agreement. 11.4 The Termination of this Agreement shall be without prejudice to the rights of the parties that accrued up to the date of termination. Termination shall not affect those clauses herein, which by their nature the parties intend to survive termination. 12. REPRESENTATIONS AND WARRANTIES 12.1 The parties represent the warrant to each other: o Each is free to enter into this Management Services Agreement o Each possesses the legal authority to enter into this Management Services Agreement o There are no outstanding Contractual commitments that will prevent or restrict any of them from entering into this Agreement and performing the obligations hereunder. Confidential Page 7 9-1-2000 8 13. GOVERNING LAW 13.1 The laws of Texas and controlling Federal Law shall govern this Management Services Agreement and any action hereunder shall subject to the jurisdiction of the federal and state courts sitting in Brazoria County, Texas. 14. ENTIRE AGREEMENT 14.1 This Agreement represents the entire agreement between the parties with respect to the subject thereof as such it supersedes and replaces any prior arrangements between the parties either oral or written. 14.2 Any changes or modifications to this Agreement shall be valid only if made in writing and signed by both parties. 15. SEVERABILITY 15.1 Each provision in this Management Services Agreement is severable wholly and in part and if any provision is said to be illegal or unenforceable for any reason only the illegal or unenforceable portion shall be ineffective and the remainder shall remain in full force and effect. 16. AMENDMENT 16.1 Any purported amendment or variation of this Agreement must be in writing and be signed by both Parties. Confidential Page 8 9-1-2000 9 SCHEDULE A COMPENSATION, TERMS AND CONDITIONS NAME Thien K Nguyen POSITION MANAGER, CHIEF TECHNICAL OFFICER EMPLOYMENT DATE 8-6-1997 GRANT OPTION DATE September 1, 2000 INITIAL TERM One Year REVIEW DATE 1 January each year. TERRITORY United States of America REQUIRED NOTICE OF Thirty (30) days notice in writing TERMINATION (unless terminated for cause) COMPENSATION 1. ANNUAL COMPENSATION MANAGER shall receive the following salary: SALARY: Base Salary (payable biweekly) $108,000 per annum TOTAL ON TARGET REMUNERATION $108,000.00 PERFORMANCE BONUS As determined by the Board of Directors 2. INCENTIVE OPTIONS In addition to the Annual Compensation detailed herein, MANAGER shall receive stock option allocations giving the employee the right to purchase stock in the company at current Fair Market Value (FMV) in accordance with the Elite Logistics Inc., 2000 Employee Incentive Plan.
Exercise Vesting Vesting Option Allotment Price Period Date Grant Date --------- -------- ------- ------- ---------- 000 Shares FMV 3 years January 1, 2000 September 1, 2000 000 Shares FMV 3 years January 1, 2001 January 1, 2001 000 Shares FMV 3 years January 1, 2002 January 1, 2002
Vesting: In respect of each option grant 1/3 of the options vest on completion of one year's service (on the anniversary of the date of employment) and thereafter 1/24th of the remaining balance vests at the end of each subsequent month of completed service. Confidential Page 9 9-1-2000 10 3. STOCK PURCHASE RIGHTS MANAGER shall on the execution of this agreement receive in addition to the incentive stock options detailed above restricted stock purchase rights pursuant to the 2000 Equity Incentive Plan as follows:
Allotment Grant Date Exercise Price Expiration Date --------- ---------- -------------- --------------- 000 September 1, 2000 $3.00 December 29, 2000
These shares shall be subject to execution of a restricted stock purchase agreement and be restricted for a period of 12 months from the date of such investment. Elite agrees to loan MANAGER the funds necessary to purchase these shares at an interest rate two (2) points above National Prime Rate at the time of purchase. 4. PAID VACATION / DOMESTIC LEAVE MANAGER shall, be entitled to 15 days paid annual vacation /domestic leave to be taken in accordance with company policy. 5. LEAVE OF ABSENCE, BEREAVEMENT LEAVE ETC MANAGER shall be entitled to leave of absence and compensation in accordance with company policy as set out in the Employee Handbook during periods of sickness, disability, or bereavement. 6. HEALTH INSURANCE MANAGER and MANAGER's dependents will be eligible for participation in the company's group health insurance Plan and other employee benefits, on the first of the month following 90 days of employment. 7. RELOCATION EXPENSES If relocation is required by ELITE then ELITE shall reimburse MANAGER's reasonable costs of relocating to Freeport, Texas in accordance with ELITE relocation policy as set our in the Employee Handbook. Confidential Page 10 9-1-2000 11 SCHEDULE B POSITION SPECIFICATION NAME: Thien K Nguyen POSITION: Manager, Chief Technical Officer REPORTING TO: Chief Executive Officer or designated representative
AREAS OF RESPONSIBILITY PERFORMANCE CRITERIA - ----------------------- -------------------- SUMMARY EDUCATION AND/OR EXPERIENCE Directs and coordinates research and development activities for organizational products, services, or LANGUAGE SKILLS ideologies by performing the following duties personally or through subordinate supervisors. MATHEMATICAL SKILLS ESSENTIAL DUTIES AND RESPONSIBILITIES include the REASONING ABILITY following. Other duties may be assigned. CERTIFICATES, LICENSES, REGISTRATIONS Plans and formulates aspects of research and development PHYSICAL DEMANDS The physical demands described here proposals such as objective or purpose of project, are representative of those that must be met by an applications that can be utilized from findings, costs employee to successfully perform the essential of project, and equipment and human resource functions of this job. Reasonable accommodations may requirements. be made to enable individuals with disabilities to perform the essential functions. Reviews and analyzes proposals submitted to determine if benefits derived and possible applications justify WORK ENVIRONMENT The work environment characteristics expenditures. described here are representative of those an employee encounters while performing the essential functions of Approves and submits proposals considered feasible to this job. Reasonable accommodations may be made to management for consideration and allocation of funds enable individuals with disabilities to perform the or allocates funds from department budget. essential functions. Develops and implements methods and procedures for monitoring projects such as preparation of records of expenditures and research findings, progress reports, and staff conferences, in order to inform management of current status of each project. Negotiates contracts with consulting firms to perform research studies. Confidential SUPERVISORY RESPONSIBILITIES QUALIFICATIONS To perform this job successfully, an individual must be able to perform each essential duty satisfactorily. The requirements listed below are representative of the knowledge, skill, and/or ability required. Reasonable accommodations may be made to enable individuals with disabilities to perform the essential functions.
Confidential Page 11 9-1-2000 12 SCHEDULE C GENERAL TERMS AND CONDITIONS VACATION/DOMESTIC/PERSONAL Annual leave is provided in accordance with Schedule A. All applications for annual leave shall be made on the leave application form and shall require a minimum of two weeks notice. MANAGER is entitled to up to five days leave on ordinary pay where MANAGER finds that it is essential to stay at home in an emergency in the event of illness of a husband or wife, dependent child or dependent parent. Such leave shall be treated as though it were due to MANAGER's own sickness and shall be subject to the following conditions: o leave shall be set-off against MANAGER's sick leave entitlement o On return to work MANAGER shall complete a sick leave notification and file with the human resources manager. o If requested, a medical certificate shall be provided to support such leave entitlement. BEREAVEMENT LEAVE MANAGER is entitled to 3 days bereavement leave in each year on the death of the MANAGER's spouse, child, parent, brother or sister, grandparent, mother in law or father in law. The entitlement will not form part of any benefit payable upon termination of the Management Services Agreement. MANAGER shall complete a Bereavement Leave Application and file with the human resources manager. DRESS CODE MANAGER is expected to comply with "ELITE" dress code as published in the Employee Handbook from time to time. HOURS OF WORK MANAGER is expected to work a minimum of 40 hours in any week. These will normally be worked Monday to Friday at any time between 7:00 a.m. and 6:00 p.m. to suit the MANAGER. NOTICE PERIOD FOR TERMINATION OF Unless terminated by Elite for EMPLOYMENT cause, either party may terminate the Management Services Agreement by giving the other party thirty (30) days notice in writing. Confidential Page 12 9-1-2000 13 PAYMENT ON TERMINATION OF On termination of employment under EMPLOYMENT this Agreement, MANAGER will be paid o Salary to date of termination o Accrued annual leave o One months salary in lieu of notice if ELITE does not wish MANAGER to work out the notice period (unless termination is for cause). o Any and all bonuses and commissions accrued to the date of termination. Unused sick leave is not payable on termination of employment. SICK LEAVE After three months of service MANAGER is entitled to accrued sick leave to be taken in accordance with company policy. PUBLIC HOLIDAYS Public holidays shall be taken in accordance with company policy. Confidential Page 13 9-1-2000 EX-4.6 6 d80861ex4-6.txt 2000 EQUITY INCENTIVE PLAN DATED 3/2/00 1 EXHIBIT 4.6 ELITE LOGISTICS, INC. 2000 EQUITY INCENTIVE PLAN 1. PURPOSES OF THE PLAN. The purposes of this 2000 Equity Incentive Plan are: (a) To attract and retain the best available personnel for positions of substantial responsibility, (b) To provide additional incentive to Employees, Directors and Consultants, to promote the success of the Company's business. Options granted under the Plan may be Incentive Stock Options or Non-statutory Stock Options, as determined by the Administrator at the time of grant. Stock Purchases Rights may also be granted under the Plan. 2. DEFINITIONS. The following definitions shall apply as used herein,: ADMINISTRATOR Means the Board or any of its Committees as shall be administering the Plan, in accordance with Section 4 of the Plan. APPLICABLE LAWS Means the requirements relating to the administration of stock option plans under U.S. state laws, U.S. federal and state securities laws, the Code, and stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Options or Stock Purchase Rights are, or will be, granted under the Plan. BOARD Means the Board of Directors of the Company. CODE Means the Internal Revenue Code of 1986, as amended. COMMITTEE Means a committee of Directors appointed by the Board in accordance with Section 4 of the Plan. COMMON STOCK Means the common stock of the Company. COMPANY Means Elite Logistics, Inc., an IDAHO corporation. CONSULTANT Means any person, including an advisor, engaged by the Company or a Parent Subsidiary to render services to such entity. DIRECTOR Means a member of the Board. DISABILITY Means total and permanent disability as defined in Section 22(e)(3) of the Code. EMPLOYEE Means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. A Service Provider shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. For purposes of Incentive Stock Options, no such leave may exceed ninety days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the 181st day of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock 2 Option and shall be treated for tax purposes as a Non-statutory Stock Option. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company. EXCHANGE ACT Means the Securities Exchange Act of 1934, as amended. FAIR MARKET VALUE Means, as of any date, the value of Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or (iii) In the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Administrator. INCENTIVE STOCK OPTION Means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. NON-STATUTORY STOCK Means an Option not intended to qualify as an OPTION Incentive Stock Option. NOTICE OF GRANT Means a written or electronic notice evidencing certain terms and conditions of an individual Option or Stock Purchase Right grant. The Notice of Grant is part of the Option Agreement. OFFICER Means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. OPTION Means a stock option granted pursuant to the Plan. OPTION AGREEMENT Means an agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan. OPTION EXCHANGE PROGRAM Means a program whereby outstanding Options are surrendered in exchange for Options with a lower exercise price. OPTIONED STOCK Means the Common Stock subject to an Option or Stock Purchase Right. OPTIONEE Means the holder of an outstanding Option or Stock Purchase Right granted under the Plan. PARENT Means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code. 3 PLAN Means this 2000 Equity Incentive Plan. RESTRICTED STOCK Means shares of Common Stock acquired pursuant to a grant of Stock Purchase Rights under Section 11 of the Plan. RESTRICTED STOCK PURCHASE Means a written agreement between the Company and AGREEMENT the Optionee evidencing the terms and restrictions applying to stock purchased under a Stock Purchase Right. The Restricted Stock Purchase Agreement is subject to the terms and conditions of the Plan and the Notice of Grant. RULE 16B-3 Means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan. SECTION 16(b) Means Section 16(b) of the Exchange Act. SERVICE PROVIDER Means an Employee, Director or Consultant. SHARE Means a share of the Common Stock, as adjusted in accordance with Section 13 of the Plan. STOCK PURCHASE RIGHT Means the right to purchase Common Stock pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant. SUBSIDIARY Means a "subsidiary corporation", whether now or hereafter existing, as defined in Section 424(f) of the Code. 3. STOCK SUBJECT TO THE PLAN Subject to the provisions of Section 13 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is 1,000,000 SHARES, plus an annual increase to be added on the first day of the Company's fiscal year beginning in 2001 equal to the lesser of (i) 200,000 SHARES, (ii) 1.5% of the outstanding shares on such date or (iii) A lesser amount determined by the Board. The Shares may be authorized, but unissued, or reacquired Common Stock. If an Option or Stock Purchase Right expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Option Exchange Program, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated); provided, however, that Shares that have actually been issued under the Plan, whether upon exercise of an Option or Right, shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if Shares of Restricted Stock are repurchased by the Company at their original purchase price, such Shares shall become available for future grant under the Plan. 4 4. ADMINISTRATION OF THE PLAN (a) Procedure. (i) Multiple Administrative Bodies. The Plan may be administered by different Committees with respect to different groups of Service Providers. (ii) Section 162(m). To the extent that the Administrator determines it to be desirable to qualify Options granted hereunder as "performance-based compensation" within the meaning of Section 162(m) of the Code, the Plan shall be administered by a Committee of two or more "outside directors" within the meaning of Section 162(m) of the Code. (iii) Rule 16b-3. To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder shall be structured to satisfy the requirements for exemption under Rule 16b-3. (iv) Other Administration. Other than as provided above, the Plan shall be administered by (A) the Board or (B) a Committee, which committee shall be constituted to satisfy Applicable Laws. (b) Powers of the Administrator. Subject to the provisions of the Plan, and in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its discretion: (i) to determine the Fair Market Value; (ii) to select the Service Providers to whom Options and Stock Purchase Rights may be granted hereunder; (iii) to determine the number of shares of Common Stock to be covered by each Option and Stock Purchase Right granted hereunder; (iv) to approve forms of agreement for use under the Plan; (v) To determine the terms and conditions, not inconsistent with the terms of the Plan, of any Option or Stock Purchase Right granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Options or Stock Purchase Rights may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or Stock Purchase Right or the shares of Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine; (vi) to reduce the exercise price of any Option or Stock Purchase Right to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option or Stock Purchase Right shall have declined since the date the Option or Stock Purchase Right was granted; (vii) to institute an Option Exchange Program; (viii) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan; (ix) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of qualifying for preferred tax treatment under foreign tax laws; (x) to modify or amend each Option or Stock Purchase Right (subject to Section 15(c) of the Plan), including the discretionary authority to extend the post-termination exercisability period of Options longer than is otherwise provided for in the Plan; 5 (xi) to allow Optionees to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Option or Stock Purchase Right that number of Shares having a Fair Market Value equal to the amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by an Optionee to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable; (xii) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Option or Stock Purchase Right previously granted by the Administrator; (xiii) to make all other determinations deemed necessary or advisable for administering the Plan (c) Effect of Administrator's Decision. The Administrator's decisions, determinations and interpretations shall be final and binding on all Optionees and any other holders of Options or Stock Purchase Rights. 5. ELIGIBILITY Non-statutory Stock Options and Stock Purchase Rights may be granted to Service Providers. Incentive Stock Options may be granted only to Employees. 6. LIMITATIONS (a) Each Option shall be designated in the Option Agreement as either an Incentive Stock Option or a Non-statutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Non-statutory Stock Options. For purposes of this Section 6(a), Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted. (b) Neither the Plan nor any Option or Stock Purchase Right shall confer upon an Optionee any right with respect to continuing the Optionee's relationship as a Service Provider with the Company, nor shall they interfere in any way with the Optionee's right or the Company's right to terminate such relationship at any time, with or without cause. (c) The following limitations shall apply to grants of Options: (i) No Service Provider shall be granted, in any fiscal year of the Company, Options to purchase more than 50,000 SHARES. (ii) In connection with his or her initial service, a Service Provider may be granted Options to purchase up to an additional 25,000 SHARES, which shall not count against the limit set forth in subsection (i) above. (iii) The foregoing limitations shall be adjusted proportionately in connection with any change in the Company's capitalization as described in Section 13. (iv) If an Option is cancelled in the same fiscal year of the Company in which it was granted (other than in connection with a transaction described in Section 13), the cancelled Option will be counted against the limits set forth in subsections (i) and (ii) above. For this purpose, if the exercise price of an Option is reduced, the transaction will be treated as a cancellation of the Option and the grant of a new Option. 6 7. TERM OF THE PLAN Subject to Section 19 of the Plan, the Plan shall become effective upon its adoption by the Board. It shall continue in effect for a term of ten (10) years unless terminated earlier under Section 15 of the Plan. 8. TERM OF OPTION The term of each Option shall be stated in the Option Agreement. In the case of an Incentive Stock Option granted to an Optionee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option shall be five (5) years from the date of grant or such shorter term as may be provided in the Option Agreement. Otherwise, in the case of an Incentive Stock Option, the term shall be ten (10) years from the date of grant or such shorter term as may be provided in the Option Agreement. 9. OPTION EXERCISE PRICE AND CONSIDERATION (a) Exercise Price. The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be determined by the Administrator, subject to the following: (i) In the case of an Incentive Stock Option (A) Granted to an Employee who, at the time of the Incentive Stock Option grant, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the exercise price per Share shall be no less than 110% of the Fair Market Value per Share on the date of grant. (B) Granted to any Employee other than an Employee described in paragraph (A) immediately above, the exercise price per Share shall be no less than 100% of the Fair Market Value per Share on the date of grant. (ii) In the case of a Non-statutory Stock Option, the per Share exercise price shall be determined by the Administrator. In the case of a Non-statutory Stock Option intended to qualify as "performance-based compensation" within the meaning of Section 162(m) of the Code, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (iii) Notwithstanding the foregoing, Options may be granted with a per Share exercise price of less than 100% of the Fair Market Value per Share on the date of grant pursuant to a merger or other corporate transaction. (b) Waiting Period and Exercise Dates. At the time an Option is granted, the Administrator shall fix the period within which the Option may be exercised and shall determine any conditions that must be satisfied before the Option may be exercised. (c) Form of Consideration. The Administrator shall determine the acceptable form of consideration for exercising an Option, including the method of payment. In the case of an Incentive Stock Option, the Administrator shall determine the acceptable form of consideration at the time of grant. Such consideration may consist entirely of: (i) cash; (ii) check (iii) promissory note; (iv) other Shares which 7 (A) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six months on the date of surrender, and (B) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised; (v) consideration received by the Company under a cash-less exercise program implemented by the Company in connection with the Plan (vi) a reduction in the amount of any Company liability to the Optionee, including any liability attributable to the Optionee's participation in any Company-sponsored deferred compensation program or arrangement; (vii) any combination of the foregoing methods of payment; or (viii) Such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws. 10. EXERCISE OF OPTION (a) Procedure for Exercise; Rights as a Shareholder. Any Option granted hereunder shall be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement. Unless the Administrator provides otherwise, vesting of Options granted hereunder shall be tolled during any unpaid leave of absence. An Option may not be exercised for a fraction of a Share. An Option shall be deemed exercised when the Company receives: (i) written or electronic notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Option Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 13 of the Plan. Exercising an Option in any manner shall decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Relationship as a Service Provider. If an Optionee ceases to be a Service Provider, other than upon the Optionee's death or Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for three (3) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. 8 (c) Disability of Optionee. If an Optionee ceases to be a Service Provider as a result of the Optionee's Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (d) Death of Optionee. If an Optionee dies while a Service Provider, the Option may be exercised within such period of time as is specified in the Option Agreement (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant), by the Optionee's estate or by a person who acquires the right to exercise the Option by bequest or inheritance, but only to the extent that the Option is vested on the date of death. In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, at the time of death, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall immediately revert to the Plan. The Option may be exercised by the executor or administrator of the Optionee's estate or, if none, by the person(s) entitled to exercise the Option under the Optionee's will or the laws of descent or distribution. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (e) Buyout Provisions. The Administrator may at any time offer to buy out for a payment in cash or Shares an Option previously granted based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made. 11. STOCK PURCHASE RIGHTS (a) Rights to Purchase. Stock Purchase Rights may be issued either alone, in addition to, or in tandem with other awards granted under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing or electronically, by means of a Notice of Grant, of the terms, conditions and restrictions related to the offer, including the number of Shares that the offeree shall be entitled to purchase, the price to be paid, and the time within which the offeree must accept such offer. The offer shall be accepted by execution of a Restricted Stock Purchase Agreement in the form determined by the Administrator. (b) Repurchase Option. Unless the Administrator determines otherwise, the Restricted Stock Purchase Agreement shall grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser's service with the Company for any reason (including death or Disability). The purchase price for Shares repurchased pursuant to the Restricted Stock Purchase Agreement shall be the original price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at a rate determined by the Administrator. (c) Other Provisions. The Restricted Stock Purchase Agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion. 9 (d) Rights as a Shareholder. Once the Stock Purchase Right is exercised, the purchaser shall have the rights equivalent to those of a shareholder, and shall be a shareholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided in Section 13 of the Plan. 12. NON TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS Unless determined otherwise by the Administrator, an Option or Stock Purchase Right may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. If the Administrator makes an Option or Stock Purchase Right transferable, such Option or Stock Purchase Right shall contain such additional terms and conditions as the Administrator deems appropriate. 13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR ASSET SALE (a) Changes in Capitalization. Subject to any required action by the shareholders of the Company, the number of shares of Common Stock covered by each outstanding Option and Stock Purchase Right, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options or Stock Purchase Rights have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option or Stock Purchase Right, as well as the price per share of Common Stock covered by each such outstanding Option or Stock Purchase Right, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option or Stock Purchase Right. (b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each Optionee as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its discretion may provide for an Optionee to have the right to exercise his or her Option until fifteen (15) days prior to such transaction as to all of the Optioned Stock covered thereby, including Shares as to which the Option would not otherwise be exercisable. In addition, the Administrator may provide that any Company repurchase option applicable to any Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse as to all such Shares, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an Option or Stock Purchase Right will terminate immediately prior to the consummation of such proposed action. 10 (c) Merger or Asset Sale. In the event of a merger of the Company with or into another corporation, or the sale of substantially all of the assets of the Company, each outstanding Option and Stock Purchase Right shall be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the Option or Stock Purchase Right, the Optionee shall fully vest in and have the right to exercise the Option or Stock Purchase Right as to all of the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable. If an Option or Stock Purchase Right becomes fully vested and exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee in writing or electronically that the Option or Stock Purchase Right shall be fully vested and exercisable for a period of fifteen (15) days from the date of such notice, and the Option or Stock Purchase Right shall terminate upon the expiration of such period. For the purposes of this paragraph, the Option or Stock Purchase Right shall be considered assumed if, following the merger or sale of assets, the option or right confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option or Stock Purchase Right immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or sale of assets is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock subject to the Option or Stock Purchase Right, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets. 14. DATE OF GRANT The date of grant of an Option or Stock Purchase Right shall be, for all purposes, the date on which the Administrator makes the determination granting such Option or Stock Purchase Right, or such other later date as is determined by the Administrator. Notice of the determination shall be provided to each Optionee within a reasonable time after the date of such grant. 15. AMENDMENT AND TERMINATION OF THE PLAN (a) Amendment and Termination. The Board may amend, alter, suspend or terminate the Plan at any time. (b) Shareholder Approval. The Company shall obtain shareholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws. (c) Effect of Amendment or Termination. No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Optionee, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company. Termination of the Plan shall not affect the Administrator's ability to exercise the powers granted to it hereunder with respect to Options granted under the Plan prior to the date of such termination. 11 16. CONDITIONS UPON ISSUANCE OF SHARES (a) Legal Compliance. Shares shall not be issued pursuant to the exercise of an Option or Stock Purchase Right unless the exercise of such Option or Stock Purchase Right and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance. (b) Investment Representations. As a condition to the exercise of an Option or Stock Purchase Right, the Company may require the person exercising such Option or Stock Purchase Right to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required. 17. INABILITY TO OBTAIN AUTHORITY The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 18. RESERVATION OF SHARES The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 19. SHAREHOLDER APPROVAL The Plan shall be subject to approval by the shareholders of the Company within twelve (12) months after the date the Plan is adopted. Such shareholder approval shall be obtained in the manner and to the degree required under Applicable Laws. 12 ELITE LOGISTICS, INC. 2000 EQUITY INCENTIVE PLAN STOCK OPTION AGREEMENT Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Option Agreement. I. NOTICE OF STOCK OPTION GRANT - -------------------------- - -------------------------- - -------------------------- [Optionee's Name and Address] You have been granted an option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Option Agreement, as follows: Grant Number ------------------------------ Date of Grant ------------------------------ Vesting Commencement Date ------------------ Exercise Price per Share $ ------------------ Total Number of Shares Granted ------------- Total Exercise Price $ -------------------- Type of Option (check applicable): Incentive Stock Option --- Non-statutory Stock Option --- Term/Expiration Date: ----------------------- Vesting Schedule: This Option may be exercised, in whole or in part, in accordance with the following schedule: VESTING: IN RESPECT OF EACH OPTION GRANT 1/3 OF THE OPTIONS VEST ON COMPLETION OF ONE YEAR'S SERVICE (ON THE ANNIVERSARY OF THE DATE OF EMPLOYMENT) AND THEREAFTER 1/24TH OF THE REMAINING BALANCE VESTS AT THE END OF EACH MONTH OF COMPLETED SERVICE. TERMINATION PERIOD: This Option may be exercised for three (3) months after Optionee ceases to be a Service Provider. Upon the death or Disability of the Optionee, this Option may be exercised for one year after Optionee ceases to be a Service Provider. In no event shall this Option be exercised later than the Term/Expiration Date as provided above. 13 II. AGREEMENT A. GRANT OF OPTION. The Plan Administrator of the Company hereby grants to the Optionee named in the Notice of Grant attached as Part I of this Agreement (the "Optionee") an option (the "Option") to purchase the number of Shares, as set forth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant (the "Exercise Price"), subject to the terms and conditions of the Plan, which is incorporated herein by reference. Subject to Section 15(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Option Agreement, the terms and conditions of the Plan shall prevail. If designated in the Notice of Grant as an Incentive Stock Option ("ISO"), this Option is intended to qualify as an Incentive Stock Option under Section 422 of the Code. However, if this Option is intended to be an Incentive Stock Option, to the extent that it exceeds the $100,000 rule of Code Section 422(d) it shall be treated as a Non-statutory Stock Option ("NSO"). B. EXERCISE OF OPTION. (a) Right to Exercise. This Option is exercisable during its term in accordance with the Vesting Schedule set out in the Notice of Grant and the applicable provisions of the Plan and this Option Agreement. (b) Method of Exercise. This Option is exercisable by delivery of an exercise notice, in the form attached as Exhibit A (the "Exercise Notice"), which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised (the "Exercised Shares"), and such other representations and agreements as may be required by the Company pursuant to the provisions of the Plan. The Exercise Notice shall be completed by the Optionee and delivered to the SECRETARY of the Company. The Exercise Notice shall be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares. This Option shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by such aggregate Exercise Price. No Shares shall be issued pursuant to the exercise of this Option unless such issuance and exercise complies with Applicable Laws. Assuming such compliance, for income tax purposes the Exercised Shares shall be considered transferred to the Optionee on the date the Option is exercised with respect to such Exercised Shares. C. METHOD OF PAYMENT. Payment of the aggregate Exercise Price shall be by any of the following, or a combination thereof, at the election of the Optionee: 1. cash; or 2. check; or 3. consideration received by the Company under a cash-less exercise program implemented by the Company in connection with the Plan; or 4. surrender of other Shares which (i) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six (6) months on the date of surrender, and (ii) have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Exercised Shares; or 5. With the Administrator's consent, delivery of Optionee's promissory note (the "Note") in the form attached hereto as Exhibit C, in the amount of the aggregate Exercise Price of the Exercised Shares together with the execution and delivery by the Optionee of the Security Agreement attached hereto as Exhibit B. The Note shall bear interest at the "applicable federal rate" prescribed under the Code and its regulations at time of purchase, and shall be secured by a pledge of the Shares purchased by the Note pursuant to the Security Agreement. 14 D. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by the Optionee. The terms of the Plan and this Option Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee. E. TERM OF OPTION. This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option Agreement. F. TAX CONSEQUENCES. Some of the federal tax consequences relating to this Option, as of the date of this Option, are set forth below. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES. G. EXERCISING THE OPTION. 1. Non-statutory Stock Option. The Optionee may incur regular federal income tax liability upon exercise of a NSO. The Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Exercised Shares on the date of exercise over their aggregate Exercise Price. If the Optionee is an Employee or a former Employee, the Company will be required to withhold from his or her compensation or collect from Optionee and pay to the applicable taxing authorities an amount in cash equal to a percentage of this compensation income at the time of exercise, and may refuse to honor the exercise and refuse to deliver Shares if such withholding amounts are not delivered at the time of exercise. 2. Incentive Stock Option. If this Option qualifies as an ISO, the Optionee will have no regular federal income tax liability upon its exercise, although the excess, if any, of the Fair Market Value of the Exercised Shares on the date of exercise over their aggregate Exercise Price will be treated as an adjustment to alternative minimum taxable income for federal tax purposes and may subject the Optionee to alternative minimum tax in the year of exercise. In the event that the Optionee ceases to be an Employee but remains a Service Provider, any Incentive Stock Option of the Optionee that remains unexercised shall cease to qualify as an Incentive Stock Option and will be treated for tax purposes as a Non-statutory Stock Option on the date three (3) months and one (1) day following such change of status. 3. Disposition of Shares. (a) NSO. If the Optionee holds NSO Shares for at least one year, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal income tax purposes. (b) ISO. If the Optionee holds ISO Shares for at least one year after exercise and two years after the grant date, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal income tax purposes. If the Optionee disposes of ISO Shares within one year after exercise or two years after the grant date, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the excess, if any, of the lesser of (A) the difference between the Fair Market Value of the Shares acquired on the date of exercise and the aggregate Exercise Price, or (B) the difference between the sale price of such Shares and the aggregate Exercise Price. Any additional gain will be taxed as capital gain, short-term or long-term depending on the period that the ISO Shares were held. 15 (c) Notice of Disqualifying Disposition of ISO Shares. If the Optionee sells or otherwise disposes of any of the Shares acquired pursuant to an ISO on or before the later of (i) two years after the grant date, or (ii) one year after the exercise date, the Optionee shall immediately notify the Company in writing of such disposition. The Optionee agrees that he or she may be subject to income tax withholding by the Company on the compensation income recognized from such early disposition of ISO Shares by payment in cash or out of the current earnings paid to the Optionee. H. ENTIRE AGREEMENT, GOVERNING LAW. The Plan is incorporated herein by reference. The Plan and this Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee's interest except by means of a writing signed by the Company and Optionee. This agreement is governed by the internal substantive laws, but not the choice of law rules, of Texas. I. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE. By your signature and the signature of the Company's representative below, you and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan and this Option Agreement. Optionee has reviewed the Plan and this Option Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option Agreement and fully understands all provisions of the Plan and Option Agreement. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions relating to the Plan and Option Agreement. Optionee further agrees to notify the Company upon any change in the residence address indicated below. OPTIONEE ELITE LOGISTICS, INC. - ----------------------------- -------------------------------- Signature By - ----------------------------- Print Name -------------------------------- - ----------------------------- Title Residence Address - ----------------------------- 16 CONSENT OF SPOUSE The undersigned spouse of Optionee has read and hereby approves the terms and conditions of the Plan and this Option Agreement. In consideration of the Company's granting his or her spouse the right to purchase Shares as set forth in the Plan and this Option Agreement, the undersigned hereby agrees to be irrevocably bound by the terms and conditions of the Plan and this Option Agreement and further agrees that any community property interest shall be similarly bound. The undersigned hereby appoints the undersigned's spouse as attorney-in-fact for the undersigned with respect to any amendment or exercise of rights under the Plan or this Option Agreement. - ----------------------------- Spouse of Optionee 17 EXHIBIT A 2000 EQUITY INCENTIVE PLAN EXERCISE NOTICE Elite Logistics, Inc. Petro Chem Bldg. 1201 N. Avenue H Freeport, TX 77541 Attention: [Title] 1. Exercise of Option. Effective as of today, ________________, _____, the undersigned ("Purchaser") hereby elects to purchase ______________ shares (the "Shares") of the Common Stock of Elite Logistics, Inc. (the "Company") under and pursuant to the 2000 Equity Incentive Plan (the "Plan") and the Stock Option Agreement dated ____________, _____ (the "Option Agreement"). The purchase price for the Shares shall be $_______, as required by the Option Agreement. 2. Delivery of Payment. Purchaser herewith delivers to the Company the full purchase price for the Shares. 3. Representations of Purchaser. Purchaser acknowledges that Purchaser has received, read and understood the Plan and the Option Agreement and agrees to abide by and be bound by their terms and conditions. 4. Rights as Shareholder. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the Shares, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Shares so acquired shall be issued to the Optionee as soon as practicable after exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date of issuance, except as provided in Section 13 of the Plan. 5. Tax Consultation. Purchaser understands that Purchaser may suffer adverse tax consequences as a result of Purchaser's purchase or disposition of the Shares. Purchaser represents that Purchaser has consulted with any tax consultants Purchaser deems advisable in connection with the purchase or disposition of the Shares and that Purchaser is not relying on the Company for any tax advice. 6. Entire Agreement; Governing Law. The Plan and Option Agreement are incorporated herein by reference. This Agreement, the Plan and the Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Purchaser with respect to the subject matter hereof, and may not be modified adversely to the Purchaser's interest except by means of a writing signed by the Company and Purchaser. This agreement is governed by the internal substantive laws, but not the choice of law rules, of Texas. Submitted by: PURCHASER Accepted by: ELITE LOGISTICS, INC. - -------------------------------- -------------------------------- Signature By - -------------------------------- -------------------------------- Print Name: Title: Address: Address: Elite Logistics, Inc. Petro Chem Bldg. - -------------------------------- 1201 N. Avenue H Freeport, TX 77541 - -------------------------------- -------------------------------- Date Received 18 EXHIBIT B SECURITY AGREEMENT This Security Agreement is made as of __________, _____ between Elite Logistics, Inc., an Idaho corporation ("The Company"), and _________________________ ("Pledgor"). RECITALS Pursuant to Pledgor's election to purchase Shares under the Option Agreement dated ________ (the "Option"), between Pledgor and The Company under The Company's 2000 Equity Incentive Plan, and Pledgor's election under the terms of the Option to pay for such shares with his promissory note (the "Note"), Pledgor has purchased _________ shares of The Company's Common Stock (the "Shares") at a price of $________ per share, for a total purchase price of $__________. The Note and the obligations thereunder are as set forth in Exhibit C to the Option. NOW, THEREFORE, it is agreed as follows: 1. Creation and Description of Security Interest. In consideration of the transfer of the Shares to Pledgor under the Option Agreement, Pledgor, pursuant to the Texas Commercial Code, hereby pledges all of such Shares (herein sometimes referred to as the "Collateral") represented by certificate number ______, duly endorsed in blank or with executed stock powers, and herewith delivers said certificate to the Secretary of The Company ("Pledgeholder"), who shall hold said certificate subject to the terms and conditions of this Security Agreement. The pledged stock (together with an executed blank stock assignment for use in transferring all or a portion of the Shares to The Company if, as and when required pursuant to this Security Agreement) shall be held by the Pledgeholder as security for the repayment of the Note, and any extensions or renewals thereof, to be executed by Pledgor pursuant to the terms of the Option, and the Pledgeholder shall not encumber or dispose of such Shares except in accordance with the provisions of this Security Agreement. 2. Pledgor's Representations and Covenants. To induce The Company to enter into this Security Agreement, Pledgor represents and covenants to The Company, its successors and assigns, as follows: (a) Payment of Indebtedness. Pledgor will pay the principal sum of the Note secured hereby, together with interest thereon, at the time and in the manner provided in the Note. (b) Encumbrances. The Shares are free of all other encumbrances, defenses and liens, and Pledgor will not further encumber the Shares without the prior written consent of The Company. (c) Margin Regulations. In the event that The Company's Common Stock is now or later becomes margin-listed by the Federal Reserve Board and The Company is classified as a "lender" within the meaning of the regulations under Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G"), Pledgor agrees to cooperate with The Company in making any amendments to the Note or providing any additional collateral as may be necessary to comply with such regulations. 3. Voting Rights. During the term of this pledge and so long as all payments of principal and interest are made as they become due under the terms of the Note, Pledgor shall have the right to vote all of the Shares pledged hereunder. 19 4. Stock Adjustments. In the event that during the term of the pledge any stock dividend, reclassification, readjustment or other changes are declared or made in the capital structure of The Company, all new, substituted and additional shares or other securities issued by reason of any such change shall be delivered to and held by The Company under the terms of this Security Agreement in the same manner as the Shares originally pledged hereunder. In the event of substitution of such securities, Pledgor, The Company and Pledgeholder shall cooperate and execute such documents as are reasonable so as to provide for the substitution of such Collateral and, upon such substitution, references to "Shares" in this Security Agreement shall include the substituted shares of capital stock of Pledgor as a result thereof. 5. Options and Rights. In the event that, during the term of this pledge, subscription Options or other rights or options shall be issued in connection with the pledged Shares, such rights, Options and options shall be the property of Pledgor and, if exercised by Pledgor, all new stock or other securities so acquired by Pledgor as it relates to the pledged Shares then held by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under the terms of this Security Agreement in the same manner as the Shares pledged. 6. Default. Pledgor shall be deemed to be in default of the Note and of this Security Agreement in the event: (a) Payment of principal or interest on the Note shall be delinquent for a period of 10 days or more; or (b) Pledgor fails to perform any of the covenants set forth in the Option or contained in this Security Agreement for a period of 10 days after written notice thereof from The Company. In the case of an event of Default, as set forth above, The Company shall have the right to accelerate payment of the Note upon notice to Pledgor, and The Company shall thereafter be entitled to pursue its remedies under the Texas Commercial Code. 7. Release of Collateral. Subject to any applicable contrary rules under Regulation G, there shall be released from this pledge a portion of the pledged Shares held by Pledgeholder hereunder upon payments of the principal of the Note. The number of the pledged Shares which shall be released shall be that number of full Shares which bears the same proportion to the initial number of Shares pledged hereunder as the payment of principal bears to the initial full principal amount of the Note. 8. Withdrawal or Substitution of Collateral. Pledgor shall not sell, withdraw, pledge, substitute or otherwise dispose of all or any part of the Collateral without the prior written consent of The Company. 9. Term. The within pledge of Shares shall continue until the payment of all indebtedness secured hereby, at which time the remaining pledged stock shall be promptly delivered to Pledgor, subject to the provisions for prior release of a portion of the Collateral as provided in paragraph 7 above. 10. Insolvency. Pledgor agrees that if a bankruptcy or insolvency proceeding is instituted by or against it, or if a receiver is appointed for the property of Pledgor, or if Pledgor makes an assignment for the benefit of creditors, the entire amount unpaid on the Note shall become immediately due and payable, and The Company may proceed as provided in the case of default. 11. Pledgeholder Liability. In the absence of willful or gross negligence, Pledgeholder shall not be liable to any party for any of his acts, or omissions to act, as Pledgeholder. 12. Invalidity of Particular Provisions. Pledgor and The Company agree that the enforceability or invalidity of any provision or provisions of this Security Agreement shall not render any other provision or provisions herein contained unenforceable or invalid. 20 13. Successors or Assigns. Pledgor and The Company agree that all of the terms of this Security Agreement shall be binding on their respective successors and assigns, and that the term "Pledgor" and the term "The Company" as used herein shall be deemed to include, for all purposes, the respective designees, successors, assigns, heirs, executors and administrators. 14. Governing Law. This Security Agreement shall be interpreted and governed under the internal substantive laws, but not the choice of law rules, of Texas. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. PLEDGOR - -------------------------------- Signature - -------------------------------- Print Name: Address: - -------------------------------- - -------------------------------- THE COMPANY: Elite Logistics, Inc. an Idaho Corporation - ----------------------------------- By - ----------------------------------- Print Name - ----------------------------------- Title: PLEDGEHOLDER - ---------------------------------- Secretary of Elite Logistics, Inc. 21 EXHIBIT C NOTE $ - ----------------- --------------, ----- [City, State] FOR VALUE RECEIVED, ______________________________ promises to pay to Elite Logistics, Inc., an Idaho corporation (the "Company"), or order, the principal sum of ___________________________________________ ___ ($_____________), together with interest on the unpaid principal hereof from the date hereof at the rate of _______________________ percent (____%) per annum, compounded semiannually. Principal and interest shall be due and payable on __________, _____. Payment of principal and interest shall be made in lawful money of the United States of America. The undersigned may at any time prepay all or any portion of the principal or interest owing hereunder. This Note is subject to the terms of the Option, dated as of ________________. This Note is secured in part by a pledge of the Company's Common Stock under the terms of a Security Agreement of even date herewith and is subject to all the provisions thereof. The holder of this Note shall have full recourse against the undersigned, and shall not be required to proceed against the collateral securing this Note in the event of default. In the event the undersigned shall cease to be an employee, director or consultant of the Company for any reason, this Note shall, at the option of the Company, be accelerated, and the whole unpaid balance on this Note of principal and accrued interest shall be immediately due and payable. Should any action be instituted for the collection of this Note, the reasonable costs and attorneys' fees therein of the holder shall be paid by the undersigned. - -------------------------------- Signature - -------------------------------- Print Name: Address: - -------------------------------- - -------------------------------- 22 2000 EQUITY INCENTIVE PLAN NOTICE OF GRANT OF STOCK PURCHASE RIGHT Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Notice of Grant. - -------------------------------- - -------------------------------- - -------------------------------- [Grantee's Name and Address] You have been granted the right to purchase Common Stock of the Company, subject to the Company's Repurchase Option and your ongoing status as a Service Provider (as described in the Plan and the attached Restricted Stock Purchase Agreement), as follows: Grant Number ----------------- Date of Grant ----------------- Price Per Share $ ----------------- Total Number of Shares Subject to This Stock Purchase Right ----------------- Expiration Date: ----------------- YOU MUST EXERCISE THIS STOCK PURCHASE RIGHT BEFORE THE EXPIRATION DATE OR IT WILL TERMINATE AND YOU WILL HAVE NO FURTHER RIGHT TO PURCHASE THE SHARES. By your signature and the signature of the Company's representative below, you and the Company agree that this Stock Purchase Right is granted under and governed by the terms and conditions of the 2000 Equity Incentive Plan and the Restricted Stock Purchase Agreement, attached hereto as Exhibit A-1, both of which are made a part of this document. You further agree to execute the attached Restricted Stock Purchase Agreement as a condition to purchasing any shares under this Stock Purchase Right. GRANTEE: ELITE LOGISTICS, INC. - -------------------------------- ----------------------------------- Signature By - -------------------------------- ----------------------------------- Print Name: Title: 23 EXHIBIT A-1 ELITE LOGISTICS, INC. RESTRICTED STOCK PURCHASE AGREEMENT Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Restricted Stock Purchase Agreement. WHEREAS the Purchaser named in the Notice of Grant, (the "Purchaser") is a Service Provider, and the Purchaser's continued participation is considered by the Company to be important for the Company's continued growth; and WHEREAS in order to give the Purchaser an opportunity to acquire an equity interest in the Company as an incentive for the Purchaser to participate in the affairs of the Company, the Administrator has granted to the Purchaser a Stock Purchase Right subject to the terms and conditions of the Plan and the Notice of Grant, which are incorporated herein by reference, and pursuant to this Restricted Stock Purchase Agreement (the "Agreement"). NOW THEREFORE, the parties agree as follows: 1. Sale of Stock. The Company hereby agrees to sell to the Purchaser and the Purchaser hereby agrees to purchase shares of the Company's Common Stock (the "Shares"), at the per Share purchase price and as otherwise described in the Notice of Grant. 2. Payment of Purchase Price. The purchase price for the Shares may be paid by delivery to the Company at the time of execution of this Agreement of cash, a check, or some combination thereof. 3. Repurchase Option. (a) In the event the Purchaser ceases to be a Service Provider for any or no reason (including death or disability) before all of the Shares are released from the Company's Repurchase Option (see Section 4), the Company shall, upon the date of such termination (as reasonably fixed and determined by the Company) have an irrevocable, exclusive option (the "Repurchase Option") for a period of sixty (60) days from such date to repurchase up to that number of shares which constitute the Unreleased Shares (as defined in Section 4) at the original purchase price per share (the "Repurchase Price"). The Repurchase Option shall be exercised by the Company by delivering written notice to the Purchaser or the Purchaser's executor (with a copy to the Escrow Holder) AND, at the Company's option, (i) by delivering to the Purchaser or the Purchaser's executor a check in the amount of the aggregate Repurchase Price, or (ii) by canceling an amount of the Purchaser's indebtedness to the Company equal to the aggregate Repurchase Price, or (iii) by a combination of (i) and (ii) so that the combined payment and cancellation of indebtedness equals the aggregate Repurchase Price. Upon delivery of such notice and the payment of the aggregate Repurchase Price, the Company shall become the legal and beneficial owner of the Shares being repurchased and all rights and interests therein or relating thereto, and the Company shall have the right to retain and transfer to its own name the number of Shares being repurchased by the Company. (b) Whenever the Company shall have the right to repurchase Shares hereunder, the Company may designate and assign one or more employees, officers, directors or shareholders of the Company or other persons or organizations to exercise all or a part of the Company's purchase rights under this Agreement and purchase all or a part of such Shares. If the Fair Market Value of the Shares to be repurchased on the date of such designation or assignment (the "Repurchase FMV") exceeds the aggregate Repurchase Price of such Shares, then each such designee or assignee shall pay the Company cash equal to the difference between the Repurchase FMV and the aggregate Repurchase Price of such Shares. 24 4. Release of Shares From Repurchase Option. (a) TWENTY FIVE PERCENT (28%) of the Shares shall be released from the Company's Repurchase Option ONE YEAR after the Date of Grant and TWO PERCENT (2%) of the Shares at the end of each month thereafter; provided that the Purchaser does not cease to be a Service Provider prior to the date of any such release. (b) Any of the Shares that have not yet been released from the Repurchase Option are referred to herein as "Unreleased Shares." (c) The Shares that have been released from the Repurchase Option shall be delivered to the Purchaser at the Purchaser's request (see Section 6). 5. Restriction on Transfer. Except for the escrow described in Section 6 or the transfer of the Shares to the Company or its assignees contemplated by this Agreement, none of the Shares or any beneficial interest therein shall be transferred, encumbered or otherwise disposed of in any way until such Shares are released from the Company's Repurchase Option in accordance with the provisions of this Agreement, other than by will or the laws of descent and distribution. 6. Escrow of Shares. (a) To ensure the availability for delivery of the Purchaser's Unreleased Shares upon repurchase by the Company pursuant to the Repurchase Option, the Purchaser shall, upon execution of this Agreement, deliver and deposit with an escrow holder designated by the Company (the "Escrow Holder") the share certificates representing the Unreleased Shares, together with the stock assignment duly endorsed in blank, attached hereto as Exhibit A-2. The Unreleased Shares and stock assignment shall be held by the Escrow Holder, pursuant to the Joint Escrow Instructions of the Company and Purchaser attached hereto as Exhibit A-3, until such time as the Company's Repurchase Option expires. As a further condition to the Company's obligations under this Agreement, the Company may require the spouse of Purchaser, if any, to execute and deliver to the Company the Consent of Spouse attached hereto as Exhibit A-4. (b) The Escrow Holder shall not be liable for any act it may do or omit to do with respect to holding the Unreleased Shares in escrow while acting in good faith and in the exercise of its judgment. (c) If the Company or any assignee exercises the Repurchase Option hereunder, the Escrow Holder, upon receipt of written notice of such exercise from the proposed transferee, shall take all steps necessary to accomplish such transfer. (d) When the Repurchase Option has been exercised or expires unexercised or a portion of the Shares has been released from the Repurchase Option, upon request the Escrow Holder shall promptly cause a new certificate to be issued for the released Shares and shall deliver the certificate to the Company or the Purchaser, as the case may be. (e) Subject to the terms hereof, the Purchaser shall have all the rights of a shareholder with respect to the Shares while they are held in escrow, including without limitation, the right to vote the Shares and to receive any cash dividends declared thereon. If, from time to time during the term of the Repurchase Option, there is (i) any stock dividend, stock split or other change in the Shares, or (ii) any merger or sale of all or substantially all of the assets or other acquisition of the Company, any and all new, substituted or additional securities to which the Purchaser is entitled by reason of the Purchaser's ownership of the Shares shall be immediately subject to this escrow, deposited with the Escrow Holder and included thereafter as "Shares" for purposes of this Agreement and the Repurchase Option. 25 7. Legends. The share certificate evidencing the Shares, if any, issued hereunder shall be endorsed with the following legend (in addition to any legend required under applicable state securities laws): THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. 8. Adjustment for Stock Split. All references to the number of Shares and the purchase price of the Shares in this Agreement shall be appropriately adjusted to reflect any stock split, stock dividend or other change in the Shares that may be made by the Company after the date of this Agreement. 9. Tax Consequences. The Purchaser has reviewed with the Purchaser's own tax advisors the federal, state, local and foreign tax consequences of this investment and the transactions contemplated by this Agreement. The Purchaser is relying solely on such advisors and not on any statements or representations of the Company or any of its agents. The Purchaser understands that the Purchaser (and not the Company) shall be responsible for the Purchaser's own tax liability that may arise as a result of the transactions contemplated by this Agreement. The Purchaser understands that Section 83 of the Internal Revenue Code of 1986, as amended (the "Code"), taxes as ordinary income the difference between the purchase price for the Shares and the Fair Market Value of the Shares as of the date any restrictions on the Shares lapse. In this context, "restriction" includes the right of the Company to buy back the Shares pursuant to the Repurchase Option. The Purchaser understands that the Purchaser may elect to be taxed at the time the Shares are purchased rather than when and as the Repurchase Option expires by filing an election under Section 83(b) of the Code with the IRS within 30 days from the date of purchase. The form for making this election is attached as Exhibit A-5 hereto. THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON THE PURCHASER'S BEHALF. 10. General Provisions. (a) This Agreement shall be governed by the internal substantive laws, but not the choice of law rules of Texas. This Agreement, subject to the terms and conditions of the Plan and the Notice of Grant, represents the entire agreement between the parties with respect to the purchase of the Shares by the Purchaser. Subject to Section 15(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Agreement, the terms and conditions of the Plan shall prevail. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Agreement. (b) Any notice, demand or request required or permitted to be given by either the Company or the Purchaser pursuant to the terms of this Agreement shall be in writing and shall be deemed given when delivered personally or deposited in the U.S. mail, First Class with postage prepaid, and addressed to the parties at the addresses of the parties set forth at the end of this Agreement or such other address as a party may request by notifying the other in writing. Any notice to the Escrow Holder shall be sent to the Company's address with a copy to the other party hereto. 26 (c) The rights of the Company under this Agreement shall be transferable to any one or more persons or entities, and all covenants and agreements hereunder shall inure to the benefit of, and be enforceable by the Company's successors and assigns. The rights and obligations of the Purchaser under this Agreement may only be assigned with the prior written consent of the Company. (d) Either party's failure to enforce any provision of this Agreement shall not in any way be construed as a waiver of any such provision, nor prevent that party from thereafter enforcing any other provision of this Agreement. The rights granted both parties hereunder are cumulative and shall not constitute a waiver of either party's right to assert any other legal remedy available to it. (e) The Purchaser agrees upon request to execute any further documents or instruments necessary or desirable to carry out the purposes or intent of this Agreement. (f) PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO SECTION 4 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED OR PURCHASING SHARES HEREUNDER). PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH PURCHASER'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE PURCHASER'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE. By Purchaser's signature below, Purchaser represents that he or she is familiar with the terms and provisions of the Plan, and hereby accepts this Agreement subject to all of the terms and provisions thereof. Purchaser has reviewed the Plan and this Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Agreement and fully understands all provisions of this Agreement. Purchaser agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan or this Agreement. Purchaser further agrees to notify the Company upon any change in the residence indicated in the Notice of Grant. DATED: -------------------- PURCHASER ELITE LOGISTICS, INC. - -------------------------------- --------------------------------- Signature By - -------------------------------- Print Name: --------------------------------- Title: - -------------------------------- Address: - -------------------------------- 27 EXHIBIT A-2 ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED I, _________________________________________, hereby sell, assign and transfer unto _________________________________________ (__________) shares of the Common Stock of Elite Logistics, Inc. standing in my name of the books of said corporation represented by Certificate No. _____ herewith and do hereby irrevocably constitute and appoint _____________________ to transfer the said stock on the books of the within named corporation with full power of substitution in the premises. This Stock Assignment may be used only in accordance with the Restricted Stock Purchase Agreement (the "Agreement") between ________________________ and the undersigned dated ______________, _____. Dated: -----------------, ---- Signature: ------------------- INSTRUCTIONS: PLEASE DO NOT FILL IN ANY BLANKS OTHER THAN THE SIGNATURE LINE. THE PURPOSE OF THIS ASSIGNMENT IS TO ENABLE THE COMPANY TO EXERCISE THE REPURCHASE OPTION, AS SET FORTH IN THE AGREEMENT, WITHOUT REQUIRING ADDITIONAL SIGNATURES ON THE PART OF THE PURCHASER. 28 EXHIBIT A-3 JOINT ESCROW INSTRUCTIONS Dated: -----------------, ---- Corporate Secretary Elite Logistics, Inc. Petro Chem Bldg. 1201 N. Avenue H Freeport, TX 77541 Dear ________________________: As Escrow Agent for both Elite Logistics, Inc., an Idaho corporation (the "Company"), and the undersigned purchaser of stock of the Company (the "Purchaser"), you are hereby authorized and directed to hold the documents delivered to you pursuant to the terms of that certain Restricted Stock Purchase Agreement ("Agreement") between the Company and the undersigned, in accordance with the following instructions: 1. In the event the Company and/or any assignee of the Company (referred to collectively as the "Company") exercises the Company's Repurchase Option set forth in the Agreement, the Company shall give to Purchaser and you a written notice specifying the number of shares of stock to be purchased, the purchase price, and the time for a closing hereunder at the principal office of the Company. Purchaser and the Company hereby irrevocably authorize and direct you to close the transaction contemplated by such notice in accordance with the terms of said notice. 2. At the closing, you are directed (a) to date the stock assignments necessary for the transfer in question, (b) to fill in the number of shares being transferred, and (c) to deliver same, together with the certificate evidencing the shares of stock to be transferred, to the Company or its assignee, against the simultaneous delivery to you of the purchase price (by cash, a check, or some combination thereof) for the number of shares of stock being purchased pursuant to the exercise of the Company's Repurchase Option. 3. Purchaser irrevocably authorizes the Company to deposit with you any certificates evidencing shares of stock to be held by you hereunder and any additions and substitutions to said shares as defined in the Agreement. Purchaser does hereby irrevocably constitute and appoint you as Purchaser's attorney-in-fact and agent for the term of this escrow to execute with respect to such securities all documents necessary or appropriate to make such securities negotiable and to complete any transaction herein contemplated, including but not limited to the filing with any applicable state blue sky authority of any required applications for consent to, or notice of transfer of, the securities. Subject to the provisions of this paragraph 3, Purchaser shall exercise all rights and privileges of a shareholder of the Company while you hold the stock. 4. Upon written request of the Purchaser, but no more than once per calendar year, unless the Company's Repurchase Option has been exercised, you shall deliver to Purchaser a certificate or certificates representing so many shares of stock as are not then subject to the Company's Repurchase Option. Within 90 days after Purchaser ceases to be a Service Provider, you shall deliver to Purchaser a certificate or certificates representing the aggregate number of shares held or issued pursuant to the Agreement and not purchased by the Company or its assignees pursuant to exercise of the Company's Repurchase Option. 29 5. If at the time of termination of this escrow you should have in your possession any documents, securities, or other property belonging to Purchaser, you shall deliver all of the same to Purchaser and shall be discharged of all further obligations hereunder. 6. Your duties hereunder may only be altered, amended, modified or revoked by an agreement in writing signed by all of the parties hereto. 7. You shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed by you to be genuine and to have been signed or presented by the proper party or parties. You shall not be personally liable for any act you may do or omit to do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith, and any act done or omitted by you pursuant to the advice of your own attorneys shall be conclusive evidence of such good faith. 8. You are hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or corporation, excepting only orders or process of courts of law, and are hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case you obey or comply with any such order, judgment or decree, you shall not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction. 9. You shall not be liable in any respect on account of the identity, authorities or rights of the parties executing or delivering or purporting to execute or deliver the Agreement or any documents or papers deposited or called for hereunder. 10. You shall not be liable for the outlawing of any rights under the statute of limitations with respect to these Joint Escrow Instructions or any documents deposited with you. 11. You shall be entitled to employ such legal counsel and other experts as you may deem necessary properly to advise you in connection with your obligations hereunder, may rely upon the advice of such counsel, and may pay such counsel reasonable compensation therefor. 12. Your responsibilities as Escrow Agent hereunder shall terminate if you shall cease to be an officer or agent of the Company or if you shall resign by written notice to each party. In the event of any such termination, the Company shall appoint a successor Escrow Agent. 13. If you reasonably require other or further instruments in connection with these Joint Escrow Instructions or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments. 14. It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the securities held by you hereunder, you are authorized and directed to retain in your possession without liability to anyone all or any part of said securities until such disputes shall have been settled either by mutual written agreement of the parties concerned or by a final order, decree or judgment of a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but you shall be under no duty whatsoever to institute or defend any such proceedings. 15. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail with postage and fees prepaid, addressed to each of the other parties thereunto entitled at the following addresses or at such other addresses as a party may designate by ten days' advance written notice to each of the other parties hereto. 30 COMPANY: Elite Logistics, Inc. Petro Chem Bldg. 1201 N. Avenue H Freeport, TX 77541 PURCHASER: ------------------------------ ------------------------------ ------------------------------ ESCROW AGENT: Corporate Secretary Elite Logistics, Inc. Petro Chem Bldg. 1201 N. Avenue H Freeport, TX 77541 16. By signing these Joint Escrow Instructions, you become a party hereto only for the purpose of said Joint Escrow Instructions; you do not become a party to the Agreement. 17. This instrument shall be binding upon and inure to the benefit of the parties hereto, and their respective successors and permitted assigns. 18. These Joint Escrow Instructions shall be governed by, and construed and enforced in accordance with, the internal substantive laws, but not the choice of law rules, of Texas. Very truly yours, ELITE LOGISTICS, INC. - ---------------------------------------- By - ---------------------------------------- Title PURCHASER: - ---------------------------------------- Signature - ---------------------------------------- Print Name ESCROW AGENT: - ---------------------------------------- Corporate Secretary 31 EXHIBIT A-4 CONSENT OF SPOUSE I, ____________________, spouse of ___________________, have read and approve the foregoing Restricted Stock Purchase Agreement (the "Agreement"). In consideration of the Company's grant to my spouse of the right to purchase shares of Elite Logistics, Inc., as set forth in the Agreement, I hereby appoint my spouse as my attorney-in-fact in respect to the exercise of any rights under the Agreement and agree to be bound by the provisions of the Agreement insofar as I may have any rights in said Agreement or any shares issued pursuant thereto under the community property laws or similar laws relating to marital property in effect in the state of our residence as of the date of the signing of the foregoing Agreement. Dated: -----------------, ---- - ----------------------------------------- Signature of Spouse 32 EXHIBIT A-5 ELECTION UNDER SECTION 83(b) OF THE INTERNAL REVENUE CODE OF 1986 The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income for the current taxable year the amount of any compensation taxable to taxpayer in connection with his or her receipt of the property described below: 1. The name, address, taxpayer identification number and taxable year of the undersigned are as follows: NAME: TAXPAYER: SPOUSE: --------------------------- -------------------- ADDRESS: : --------------------------, ------------------------- TAX ID NO.: TAXPAYER: SPOUSE: ----------------------- ----------------------- TAXABLE YEAR: ------------------------ 2. The property with respect to which the election is made is described as follows: ________ shares (the "Shares") of the Common Stock of Elite Logistics, Inc. (the "Company"). 3. The property was transferred on (date): ________, ______. 4. The property is subject to the following restrictions: (a) The Shares may be repurchased by the Company, or its assignee, upon certain events. This right lapses with regard to a portion of the Shares based on the continued performance of services by the taxpayer over time. (b) ----------------------------------------------------------------- ----------------------------------------------------------------- 5. The fair market value at the time of transfer, determined without regard to any restriction other than a restriction which by its terms will never lapse, of such property is: $_______________. 6. The amount (if any) paid for such property is: $_______________. The undersigned has submitted a copy of this statement to the person for whom the services were performed in connection with the undersigned's receipt of the above-described property. The transferee of such property is the person performing the services in connection with the transfer of said property. The undersigned understands that the foregoing election may not be revoked except with the consent of the Commissioner. Dated: ------------------------, ------- Taxpayer -------------------------------------------- The undersigned spouse of taxpayer joins in this election Dated: ------------------------, ------- Spouse of Taxpayer -------------------------------------------- EX-4.7 7 d80861ex4-7.txt 401K PLAN DATED 5/24/00 1 EXHIBIT 4.7 ELITE LOGISTICS SERVICES, INC. 401(K) PLAN 2 TABLE OF CONTENTS ARTICLE I DEFINITIONS ARTICLE II ADMINISTRATION 2.1 POWERS AND RESPONSIBILITIES OF THE EMPLOYER .......................... 15 2.2 DESIGNATION OF ADMINISTRATIVE AUTHORITY .............................. 16 2.3 POWERS AND DUTIES OF THE ADMINISTRATOR ............................... 16 2.4 RECORDS AND REPORTS .................................................. 18 2.5 APPOINTMENT OF ADVISERS .............................................. 18 2.6 PAYMENT OF EXPENSES .................................................. 18 2.7 CLAIMS PROCEDURE ..................................................... 18 2.8 CLAIMS REVIEW PROCEDURE .............................................. 18 ARTICLE III ELIGIBILITY 3.1 CONDITIONS OF ELIGIBILITY ............................................ 19 3.2 EFFECTIVE DATE OF PARTICIPATION ...................................... 19 3.3 DETERMINATION OF ELIGIBILITY ......................................... 19 3.4 TERMINATION OF ELIGIBILITY ........................................... 20 3.5 OMISSION OF ELIGIBLE EMPLOYEE ........................................ 20 3.6 INCLUSION OF INELIGIBLE EMPLOYEE ..................................... 20 3.7 ELECTION NOT TO PARTICIPATE .......................................... 20 ARTICLE IV CONTRIBUTION AND ALLOCATION 4.1 FORMULA FOR DETERMINING EMPLOYER CONTRIBUTION ........................ 20 4.2 PARTICIPANT'S SALARY REDUCTION ELECTION .............................. 22 4.3 TIME OF PAYMENT OF EMPLOYER CONTRIBUTION ............................. 26 4.4 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS ................. 26 4.5 ACTUAL DEFERRAL PERCENTAGE TESTS ..................................... 29 4.6 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS ....................... 32 4.7 ACTUAL CONTRIBUTION PERCENTAGE TESTS ................................. 34 4.8 ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS ................... 38
3 4.9 MAXIMUM ANNUAL ADDITIONS ............................................. 39 4.10 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS ............................ 41 4.11 TRANSFERS FROM QUALIFIED PLANS ....................................... 42 4.12 DIRECTED INVESTMENT ACCOUNT .......................................... 44 ARTICLE V VALUATIONS 5.1 VALUATION OF THE TRUST FUND .......................................... 45 5.2 METHOD OF VALUATION .................................................. 46 ARTICLE VI DETERMINATION AND DISTRIBUTION OF BENEFITS 6.1 DETERMINATION OF BENEFITS UPON RETIREMENT ............................ 46 6.2 DETERMINATION OF BENEFITS UPON DEATH ................................. 46 6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY ..................... 47 6.4 DETERMINATION OF BENEFITS UPON TERMINATION ........................... 47 6.5 DISTRIBUTION OF BENEFITS ............................................. 50 6.6 DISTRIBUTION OF BENEFITS UPON DEATH .................................. 52 6.7 TIME OF SEGREGATION OR DISTRIBUTION .................................. 53 6.8 DISTRIBUTION FOR MINOR BENEFICIARY ................................... 54 6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN ....................... 54 6.10 PRE-RETIREMENT DISTRIBUTION .......................................... 54 6.11 ADVANCE DISTRIBUTION FOR HARDSHIP .................................... 54 6.12 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION ...................... 56 ARTICLE VII TRUSTEE 7.1 BASIC RESPONSIBILITIES OF THE TRUSTEE ................................ 56 7.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE .......................... 57 7.3 OTHER POWERS OF THE TRUSTEE .......................................... 58 7.4 DUTIES OF THE TRUSTEE REGARDING PAYMENTS ............................. 60 7.5 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES ........................ 60 7.6 ANNUAL REPORT OF THE TRUSTEE ......................................... 60 7.7 AUDIT ................................................................ 61 7.8 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE ....................... 61
4 7.9 TRANSFER OF INTEREST ................................................ 62 7.10 DIRECT ROLLOVER ..................................................... 62 7.11 EMPLOYER SECURITIES AND REAL PROPERTY ............................... 63 ARTICLE VIII AMENDMENT, TERMINATION AND MERGERS 8.1 AMENDMENT ........................................................... 64 8.2 TERMINATION ......................................................... 64 8.3 MERGER OR CONSOLIDATION ............................................. 65 ARTICLE IX TOP HEAVY 9.1 TOP HEAVY PLAN REQUIREMENTS ......................................... 65 9.2 DETERMINATION OF TOP HEAVY STATUS ................................... 65 ARTICLE X MISCELLANEOUS 10.1 PARTICIPANT'S RIGHTS ................................................ 68 10.2 ALIENATION .......................................................... 68 10.3 CONSTRUCTION OF PLAN ................................................ 69 10.4 GENDER AND NUMBER ................................................... 69 10.5 LEGAL ACTION ........................................................ 69 10.6 PROHIBITION AGAINST DIVERSION OF FUNDS .............................. 70 10.7 BONDING ............................................................. 70 10.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE .......................... 70 10.9 INSURER'S PROTECTIVE CLAUSE ......................................... 70 10.10 RECEIPT AND RELEASE FOR PAYMENTS .................................... 71 10.11 ACTION BY THE EMPLOYER .............................................. 71 10.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY .................. 71 10.13 HEADINGS ............................................................ 72 10.14 APPROVAL BY INTERNAL REVENUE SERVICE ................................ 72 10.15 UNIFORMITY .......................................................... 72 ARTICLE XI PARTICIPATING EMPLOYERS 11.1 ADOPTION BY OTHER EMPLOYERS ......................................... 72
5 11.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS ............................. 73 11.3 DESIGNATION OF AGENT ................................................ 73 11.4 EMPLOYEE TRANSFERS .................................................. 74 11.5 PARTICIPATING EMPLOYER CONTRIBUTION ................................. 74 11.6 AMENDMENT ........................................................... 74 11.7 DISCONTINUANCE OF PARTICIPATION ..................................... 74 11.8 ADMINISTRATOR'S AUTHORITY ........................................... 75
6 ELITE LOGISTICS SERVICES, INC. 401(K) PLAN THIS AGREEMENT, hereby made and entered into this 24th day of May 2000, by and between Elite Logistics Services, Inc. (herein referred to as the "Employer") and Richard L. Hansen, Joseph D. Smith and Hanh Nguyen (herein referred to as the "Trustee"). WITNESSETH: WHEREAS, the Employer desires to recognize the contribution made to its successful operation by its employees and to reward such contribution by means of a 401(k) Profit Sharing Plan for those employees who shall qualify as Participants hereunder; NOW, THEREFORE, effective June 1, 2000, (hereinafter called the "Effective Date"), the Employer hereby establishes a 401(k) Profit Sharing Plan and creates this trust (which plan and trust are hereinafter called the "Plan") for the exclusive benefit of the Participants and their Beneficiaries, and the Trustee hereby accepts the Plan on the following terms: ARTICLE I DEFINITIONS 1.1 "Act" means the Employee Retirement Income Security Act of 1974, as it may be amended from time to time. 1.2 "Administrator" means the Employer unless another person or entity has been designated by the Employer pursuant to Section 2.2 to administer the Plan on behalf of the Employer. 1.3 "Affiliated Employer" means any corporation which is a member of a controlled group of corporations (as defined in Code Section 414(b)) which includes the Employer; any trade or business (whether or not incorporated) which is under common control (as defined in Code Section 414(c)) with the Employer; any organization (whether or not incorporated) which is a member of an affiliated service group (as defined in Code Section 414(m)) which includes the Employer; and any other entity required to be aggregated with the Employer pursuant to Regulations under Code Section 414(o). 1.4 "Aggregate Account" means, with respect to each Participant, the value of all accounts maintained on behalf of a Participant, whether attributable to Employer or Employee contributions, subject to the provisions of Section 9.2. 1.5 "Anniversary Date" means May 31st. 1.6 "Beneficiary" means the person to whom the share of a deceased Participant's total account is payable, subject to the restrictions of Sections 6.2 and 6.6. 1.7 "Code" means the Internal Revenue Code of 1986, as amended or replaced from time to time. 1 7 1.8 "Compensation" with respect to any Participant means such Participant's wages as defined in Code Section 3401(a) and all other payments of compensation by the Employer (in the course of the Employer's trade or business) for a Plan Year for which the Employer is required to furnish the Participant a written statement under Code Sections 6041(d), 6051(a)(3) and 6052. Compensation must be determined without regard to any rules under Code Section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code Section 3401(a)(2)). For purposes of this Section, the determination of Compensation shall be made by: (a) including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 402(e)(3), 402(h)(1)(B), 403(b) or 457(b), and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions. For a Participant's initial year of participation, Compensation shall be recognized as of such Employee's effective date of participation pursuant to Section 3.2. Compensation in excess of $150,000 shall be disregarded. Such amount shall be adjusted for increases in the cost of living in accordance with Code Section 401(a)(17), except that the dollar increase in effect on January 1 of any calendar year shall be effective for the Plan Year beginning with or within such calendar year. For any short Plan Year the Compensation limit shall be an amount equal to the Compensation limit for the calendar year in which the Plan Year begins multiplied by the ratio obtained by dividing the number of full months in the short Plan Year by twelve (12). For purposes of this Section, if the Plan is a plan described in Code Section 413(c) or 414(f) (a plan maintained by more than one Employer), the limitation applies separately with respect to the Compensation of any Participant from each Employer maintaining the Plan. 1.9 "Contract" or "Policy" means any life insurance policy, retirement income or annuity policy or annuity contract (group or individual) issued pursuant to the terms of the Plan. 1.10 "Deferred Compensation" with respect to any Participant means the amount of the Participant's total Compensation which has been contributed to the Plan in accordance with the Participant's deferral election pursuant to Section 4.2 excluding any such amounts distributed as excess "annual additions" pursuant to Section 4.10(a). 1.11 "Designated Investment Alternative" means a specific investment identified by name by a Fiduciary as an available investment under the Plan which may be acquired or disposed of by the Trustee pursuant to the investment direction by a Participant. 2 8 1.12 "Directed Investment Option" means one or more of the following: (a) a Designated Investment Alternative. (b) any other investment permitted by the Plan and the Participant Direction Procedures and acquired or disposed of by the Trustee pursuant to the investment direction of a Participant. 1.13 "Early Retirement Date." This Plan does not provide for a retirement date prior to Normal Retirement Date. 1.14 "Elective Contribution" means the Employer contributions to the Plan of Deferred Compensation excluding any such amounts distributed as excess "annual additions" pursuant to Section 4.10(a). In addition, the Employer contribution made pursuant to Section 4.1(b) which is used to satisfy the safe harbor methods permitted by Code Sections 401(k)(12) and 401(m)(11) and any Employer Qualified Non-Elective Contribution made pursuant to Section 4.6(b) which is used to satisfy the "Actual Deferral Percentage" tests shall be considered an Elective Contribution for purposes of the Plan. Any contributions deemed to be Elective Contributions (whether or not used to satisfy the "Actual Deferral Percentage" tests) shall be subject to the requirements of Sections 4.2(b) and 4.2(c) and shall further be required to satisfy the nondiscrimination requirements of Regulation 1.401(k)-1(b)(5), the provisions of which are specifically incorporated herein by reference. 1.15 "Eligible Employee" means any Employee. Employees who are Leased Employees within the meaning of Code Sections 414(n)(2) and 414(o)(2) shall not be eligible to participate in this Plan. Employees whose employment is governed by the terms of a collective bargaining agreement between Employee representatives (within the meaning of Code Section 7701(a)(46)) and the Employer under which retirement benefits were the subject of good faith bargaining between the parties will not be eligible to participate in this Plan unless such agreement expressly provides for coverage in this Plan. Employees who are nonresident aliens (within the meaning of Code Section 7701(b)(1)(B)) and who receive no earned income (within the meaning of Code Section 911(d)(2)) from the Employer which constitutes income from sources within the United States (within the meaning of Code Section 861(a)(3)) shall not be eligible to participate in this Plan. Any worker that the Employer treats as an independent contractor shall not be eligible to participate in this Plan, regardless of any other Plan terms to the contrary and regardless of whether the individual is a common law employee of the Employer, during the period that the worker is so treated. A worker is treated as an independent contractor if payment of his services is reported on a Form 1099 and not on a Form W-2. The purpose of this provision is to exclude from participation in the Plan all persons who may actually be common law employees of the Employer, but who are not paid as though they were employees, regardless of the reason they are excluded from payroll and regardless of whether that exclusion is correct. 3 9 Any worker who has signed an employment agreement, independent contractor agreement, or other personal services contract with the Employer stating that he is not eligible to participate in the Plan shall not be eligible to participate in this Plan. Employees of Affiliated Employers shall not be eligible to participate in this Plan unless such Affiliated Employers have specifically adopted this Plan in writing. 1.16 "Employee" means any person who is employed by the Employer or Affiliated Employer. Employee shall include Leased Employees within the meaning of Code Sections 414(n)(2) and 414(o)(2) unless such Leased Employees are covered by a plan described in Code Section 414(n)(5) and such Leased Employees do not constitute more than 20% of the recipient's non-highly compensated work force. 1.17 "Employer" means Elite Logistics Services, Inc. and any successor which shall maintain this Plan; and any predecessor which has maintained this Plan. The Employer is a corporation, with principal offices in the State of Texas. In addition, where appropriate, the term Employer shall include any Participating Employer (as defined in Section 11.1) which shall adopt this Plan. 1.18 "Excess Aggregate Contributions" means, with respect to any Plan Year, the excess of the aggregate amount of the Employer matching contributions made pursuant to Section 4.1(b) (to the extent such matching contributions are not used to satisfy the safe harbor methods permitted by Code Sections 401(k)(12) and 401(m)(1 1)), Employer matching contributions made pursuant to Section 4.1(c) and any qualified non-elective contributions or elective deferrals taken into account pursuant to Section 4.7(c) on behalf of Highly Compensated Participants for such Plan Year, over the maximum amount of such contributions permitted under the limitations of Section 4.7(a) (determined by reducing contributions made on behalf of Highly Compensated Participants in order of the actual contribution ratios beginning with the highest of such ratios). 1.19 "Excess Contributions" means, with respect to a Plan Year, the excess of Elective Contributions used to satisfy the "Actual Deferral Percentage" tests made on behalf of Highly Compensated Participants for the Plan Year over the maximum amount of such contributions permitted under Section 4.5(a) (determined by reducing contributions made on behalf of Highly Compensated Participants in order of the actual deferral ratios beginning with the highest of such ratios). Excess Contributions shall be treated as an "annual addition" pursuant to Section 4.9(b). 1.20 "Excess Deferred Compensation" means, with respect to any taxable year of a Participant, the excess of the aggregate amount of such Participant's Deferred Compensation and the elective deferrals pursuant to Section 4.2(f) actually made on behalf of such Participant for such taxable year, over the dollar limitation provided for in Code Section 402(g), which is incorporated herein by reference. Excess Deferred Compensation shall be treated as an "annual addition" pursuant to Section 4.9(b) when contributed to the Plan unless distributed to the affected Participant not later than the first April 15th following the close of the Participant's taxable year. Additionally, for purposes of Sections 9.2 and 4.4(g), Excess Deferred Compensation shall continue to be treated as Employer contributions even if distributed pursuant to Section 4.2(f). However, Excess Deferred Compensation of Non-Highly Compensated Participants is not taken into account for 4 10 purposes of Section 4.5(a) to the extent such Excess Deferred Compensation occurs pursuant to Section 4.2(d). 1.21 "Fiduciary" means any person who (a) exercises any discretionary authority or discretionary control respecting management of the Plan or exercises any authority or control respecting management or disposition of its assets, (b) renders investment advice for a fee or other compensation, direct or indirect, with respect to any monies or other property of the Plan or has any authority or responsibility to do so, or (c) has any discretionary authority or discretionary responsibility in the administration of the Plan, including, but not limited to, the Trustee, the Employer and its representative body, and the Administrator. 1.22 "Fiscal Year" means the Employer's accounting year of 12 months commencing on June 1st of each year and ending the following May 31st. 1.23 "Forfeiture" means that portion of a Participant's Account that is not Vested, and occurs on the earlier of: (a) the distribution of the entire Vested portion of a Terminated Participant's Account, or (b) the last day of the Plan Year in which the Participant incurs five (5) consecutive 1-Year Breaks in Service. Furthermore, for purposes of paragraph (a) above, in the case of a Terminated Participant whose Vested benefit is zero, such Terminated Participant shall be deemed to have received a distribution of his Vested benefit upon his termination of employment. Restoration of such amounts shall occur pursuant to Section 6.4(e)(2). In addition, the term Forfeiture shall also include amounts deemed to be Forfeitures pursuant to any other provision of this Plan. 1.24 "Former Participant" means a person who has been a Participant, but who has ceased to be a Participant for any reason. 1.25 "415 Compensation" with respect to any Participant means such Participant's wages as defined in Code Section 3401(a) and all other payments of compensation by the Employer (in the course of the Employer's trade or business) for a Plan Year for which the Employer is required to furnish the Participant a written statement under Code Sections 6041(d), 6051(a)(3) and 6052. "415 Compensation" must be determined without regard to any rules under Code Section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code Section 3401(a)(2)). For Plan Years beginning after December 31, 1997, for purposes of this Section, the determination of "415 Compensation" shall include any elective deferral (as defined in Code Section 402(g)(3)), and any amount which is contributed or deferred by the Employer at the election of the Participant and which is not includible in the gross income of the Participant by reason of Code Sections 125 or 457. 5 11 1.26 "414(s) Compensation" with respect to any Participant means such Participant's "415 Compensation" paid during a Plan Year. The amount of "414(s) Compensation" with respect to any Participant shall include "414(s) Compensation" for the entire twelve (12) month period ending on the last day of such Plan Year, except that "414(s) Compensation" shall only be recognized for that portion of the Plan Year during which an Employee was a Participant in the Plan. For purposes of this Section, the determination of "414(s) Compensation" shall be made by including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 402(e)(3), 402(h)(1)(B), 403(b) or 457(b), and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions. "414(s) Compensation" in excess of $150,000 shall be disregarded. Such amount shall be adjusted for increases in the cost of living in accordance with Code Section 401(a)(17), except that the dollar increase in effect on January 1 of any calendar year shall be effective for the Plan Year beginning with or within such calendar year. For any short Plan Year the "414(s) Compensation" limit shall be an amount equal to the "414(s) Compensation" limit for the calendar year in which the Plan Year begins multiplied by the ratio obtained by dividing the number of full months in the short Plan Year by twelve (12). 1.27 "Highly Compensated Employee" means an Employee described in Code Section 414(q) and the Regulations thereunder, and generally means an Employee who performed services for the Employer during the "determination year" and is in one or more of the following groups: (a) Employees who at any time during the "determination year" or "look-back year" were "five percent owners" as defined in Section 1.34(c). (b) Employees who received "415 Compensation" during the "look-back year" from the Employer in excess of $80,000 and were in the Top Paid Group of Employees for the Plan Year. The "determination year" shall be the Plan Year for which testing is being performed, and the "look-back year" shall be the immediately preceding twelve-month period. For purposes of this Section, the determination of "415 Compensation" shall be made by including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 402(e)(3), 402(h)(1)(B), 403(b) or 457(b), and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions. Additionally, the dollar threshold amount specified in (b) above shall be adjusted at such time and in the same manner as under Code Section 415(d), except that the base period shall be the calendar quarter ending September 30, 1996. In the case of such an adjustment, the dollar limit which shall be applied is the limit for the calendar year in which the "look-back year" begins. 6 12 In determining who is a Highly Compensated Employee, Employees who are non-resident aliens and who received no earned income (within the meaning of Code Section 911(d)(2)) from the Employer constituting United States source income within the meaning of Code Section 861(a)(3) shall not be treated as Employees. Additionally, all Affiliated Employers shall be taken into account as a single employer and Leased Employees within the meaning of Code Sections 414(n)(2) and 414(o)(2) shall be considered Employees unless such Leased Employees are covered by a plan described in Code Section 414(n)(5) and are not covered in any qualified plan maintained by the Employer. The exclusion of Leased Employees for this purpose shall be applied on a uniform and consistent basis for all of the Employer's retirement plans. Highly Compensated Former Employees shall be treated as Highly Compensated Employees without regard to whether they performed services during the "determination year." 1.28 "Highly Compensated Former Employee" means a former Employee who had a separation year prior to the "determination year" and was a Highly Compensated Employee in the year of separation from service or in any "determination year" after attaining age 55. Notwithstanding the foregoing, an Employee who separated from service prior to 1987 will be treated as a Highly Compensated Former Employee only if during the separation year (or year preceding the separation year) or any year after the Employee attains age 55 (or the last year ending before the Employee's 55th birthday), the Employee either received "415 Compensation" in excess of $50,000 or was a "five percent owner." For purposes of this Section, "determination year," "415 Compensation" and "five percent owner" shall be determined in accordance with Section 1.27. Highly Compensated Former Employees shall be treated as Highly Compensated Employees. The method set forth in this Section for determining who is a "Highly Compensated Former Employee" shall be applied on a uniform and consistent basis for all purposes for which the Code Section 414(q) definition is applicable. 1.29 "Highly Compensated Participant" means any Highly Compensated Employee who is eligible to participate in the Plan. 1.30 "Hour of Service" means, for purposes of eligibility for participation, each hour for which an Employee is paid or entitled to payment for the performance of duties for the Employer. 1.31 "Hour of Service" means, for purposes of vesting and benefit accrual, (1) each hour for which an Employee is directly or indirectly compensated or entitled to compensation by the Employer for the performance of duties (these hours will be credited to the Employee for the computation period in which the duties are performed); (2) each hour for which an Employee is directly or indirectly compensated or entitled to compensation by the Employer (irrespective of whether the employment relationship has terminated) for reasons other than performance of duties (such as vacation, holidays, sickness, jury duty, disability, lay-off, military duty or leave of absence) during the applicable computation period (these hours will be calculated and credited pursuant to Department of Labor regulation 2530.200b-2 which is incorporated herein by reference); (3) each hour for which back pay is awarded or agreed to by the Employer without regard to mitigation of damages (these hours will be credited to the Employee for the computation period or periods to which the award or agreement pertains rather than the computation period in which the award, agreement or payment is made). The same Hours of Service shall not be credited both under (1) or (2), as the case may be, and under (3). 7 13 Notwithstanding the above, (i) no more than 501 Hours of Service are required to be credited to an Employee on account of any single continuous period during which the Employee performs no duties (whether or not such period occurs in a single computation period); (ii) an hour for which an Employee is directly or indirectly paid, or entitled to payment, on account of a period during which no duties are performed is not required to be credited to the Employee if such payment is made or due under a plan maintained solely for the purpose of complying with applicable worker's compensation, or unemployment compensation or disability insurance laws; and (iii) Hours of Service are not required to be credited for a payment which solely reimburses an Employee for medical or medically related expenses incurred by the Employee. For purposes of this Section, a payment shall be deemed to be made by or due from the Employer regardless of whether such payment is made by or due from the Employer directly, or indirectly through, among others, a trust fund, or insurer, to which the Employer contributes or pays premiums and regardless of whether contributions made or due to the trust fund, insurer, or other entity are for the benefit of particular Employees or are on behalf of a group of Employees in the aggregate. For purposes of this Section, Hours of Service will be credited for employment with other Affiliated Employers. The provisions of Department of Labor regulations 2530.200b-2(b) and (c) are incorporated herein by reference. 1.32 "Income" means the income or losses allocable to "excess amounts" which shall equal the allocable gain or loss for the "applicable computation period". The income allocable to "excess amounts" for the "applicable computation period" is determined by multiplying the income for the "applicable computation period" by a fraction. The numerator of the fraction is the "excess amount" for the "applicable computation period." The denominator of the fraction is the total "account balance" attributable to "Employer contributions" as of the end of the "applicable computation period", reduced by the gain allocable to such total amount for the "applicable computation period" an increased by the loss allocable to such total amount for the "applicable computation period". The provisions of this Section shall be applied: (a) For purposes of Section 4.2(f), by substituting: (1) "Excess Deferred Compensation" for "excess amounts"; (2) "taxable year of the Participant" for "applicable computation period"; (3) "Deferred Compensation" for "Employer contributions"; and (4) "Participant's Elective Account" for "account balance." (b) For purposes of Section 4.6(a), by substituting: (1) "Excess Contributions" for "excess amounts"; (2) "Plan Year" for "applicable computation period"; 8 14 (3) "Elective Contributions" for "Employer contributions"; and (4) "Participant's Elective Account" for "account balance." (c) For purposes of Section 4.8(a), by substituting: (1) "Excess Aggregate Contributions" for "excess amounts"; (2) "Plan Year" for "applicable computation period"; (3) "Employer matching contributions made pursuant to Section 4.1(b) (to the extent such matching contributions are used to satisfy the "Actual Contribution Percentage" tests), Employer matching contributions made pursuant to Section 4.1(c) and any qualified non-elective contributions or elective deferrals taken into account pursuant to Section 4.7(c)" for "Employer contributions"; and (4) "Participant's Account" for "account balance." Income allocable to any distribution of Excess Deferred Compensation on or before the last day of the taxable year of the Participant shall be calculated from the first day of the taxable year of the Participant to the date on which the distribution is made pursuant to either the "fractional method" or the "safe harbor method." Under such "safe harbor method," allocable Income for such period shall be deemed to equal ten percent (10%) of the Income allocable to such Excess Deferred Compensation multiplied by the number of calendar months in such period. For purposes of determining the number of calendar months in such period, a distribution occurring on or before the fifteenth day of the month shall be treated as having been made on the last day of the preceding month and a distribution occurring after such fifteenth day shall be treated as having been made on the first day of the next subsequent month. 1.33 "Investment Manager" means an entity that (a) has the power to manage, acquire, or dispose of Plan assets and (b) acknowledges fiduciary responsibility to the Plan in writing. Such entity must be a person, firm, or corporation registered as an investment adviser under the Investment Advisers Act of 1940, a bank, or an insurance company. 1.34 "Key Employee" means an Employee as defined in Code Section 416(i) and the Regulations thereunder. Generally, any Employee or former Employee (as well as each of his Beneficiaries) is considered a Key Employee if he, at any time during the Plan Year that contains the "Determination Date" or any of the preceding four (4) Plan Years, has been included in one of the following categories: (a) an officer of the Employer (as that term is defined within the meaning of the Regulations under Code Section 416) having annual "415 Compensation" greater than 50 percent of the amount in effect under Code Section 415(b)(1)(A) for any such Plan Year. (b) one of the ten employees having annual "415 Compensation" from the Employer for a Plan Year greater than the dollar limitation in effect 9 15 under Code Section 415(c)(1)(A) for the calendar year in which such Plan Year ends and owning (or considered as owning within the meaning of Code Section 318) both more than one-half percent interest and the largest interests in the Employer. (c) a "five percent owner" of the Employer. "Five percent owner" means any person who owns (or is considered as owning within the meaning of Code Section 318) more than five percent (5%) of the outstanding stock of the Employer or stock possessing more than five percent (5%) of the total combined voting power of all stock of the Employer or, in the case of an unincorporated business, any person who owns more than five percent (5%) of the capital or profits interest in the Employer. In determining percentage ownership hereunder, employers that would otherwise be aggregated under Code Sections 414(b), (c), (m) and (o) shall be treated as separate employers. (d) a "one percent owner" of the Employer having an annual "415 Compensation" from the Employer of more than $150,000. "One percent owner" means any person who owns (or is considered as owning within the meaning of Code Section 318) more than one percent (1%) of the outstanding stock of the Employer or stock possessing more than one percent (1%) of the total combined voting power of all stock of the Employer or, in the case of an unincorporated business, any person who owns more than one percent (1%) of the capital or profits interest in the Employer. In determining percentage ownership hereunder, employers that would otherwise be aggregated under Code Sections 414(b), (c), (m) and (o) shall be treated as separate employers. However, in determining whether an individual has "415 Compensation" of more than $150,000, "415 Compensation" from each employer required to be aggregated under Code Sections 414(b), (c), (m) and (o) shall be taken into account. For purposes of this Section, the determination of "415 Compensation" shall be made by including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 402(e)(3), 402(h)(1)(B), 403(b) or 457(b), and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions. 1.35 "Late Retirement Date" means the first day of the month coinciding with or next following a Participant's actual Retirement Date after having reached his Normal Retirement Date. 1.36 "Leased Employee" means any person (other than an Employee of the recipient) who pursuant to an agreement between the recipient and any other person ("leasing organization") has performed services for the recipient (or for the recipient and related persons determined in accordance with Code Section 414(n)(6)) on a substantially full time basis for a period of at least one year, and such services are performed under primary direction or control by the recipient employer. Contributions or benefits provided a Leased Employee by the leasing organization which are attributable to services performed 10 16 for the recipient employer shall be treated as provided by the recipient employer. A Leased Employee shall not be considered an Employee of the recipient: (a) if such employee is covered by a money purchase pension plan providing: (1) a non-integrated employer contribution rate of at least 10% of compensation, as defined in Code Section 415(c)(3), but including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 402(e)(3), 402(h)(1)(B), 403(b) or 457(b), and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions. (2) immediate participation; and (3) full and immediate vesting; and (b) if Leased Employees do not constitute more than 20% of the recipient's non-highly compensated work force. 1.37 "Non-Elective Contribution" means the Employer contributions to the Plan excluding, however, contributions made pursuant to the Participant's deferral election provided for in Section 4.2, matching contributions or nonelective contributions (which are used to satisfy the safe harbor methods permitted by Code Sections 401(k)(12) and 401(m)(11)) made pursuant to Section 4.1(b) and any Qualified Non-Elective Contribution used in the "Actual Deferral Percentage" tests. 1.38 "Non-Highly Compensated Participant" means any Participant who is not a Highly Compensated Employee. 1.39 "Non-Key Employee" means any Employee or former Employee (and his Beneficiaries) who is not a Key Employee. 1.40 "Normal Retirement Age" means the Participant's 65th birthday, or his 5th anniversary of joining the Plan, if later. A Participant shall become fully Vested in his Participant's Account upon attaining his Normal Retirement Age. 1.41 "Normal Retirement Date" means the first day of the month coinciding with or next following the Participant's Normal Retirement Age. 1.42 "1-Year Break in Service" means, for purposes of eligibility for participation, a Period of Severance of at least 12 consecutive months. 1.43 "1-Year Break in Service" means, for purposes of vesting, the applicable computation period during which an Employee has not completed more than 500 Hours of Service with the Employer. Further, solely for the purpose of determining whether a Participant has incurred a 1-Year Break in Service, Hours of Service shall be recognized for "authorized leaves of absence" and "maternity and paternity leaves of absence." Years of Service and 1-Year Breaks in Service shall be measured on the same computation period. 11 17 "Authorized leave of absence" means an unpaid, temporary cessation from active employment with the Employer pursuant to an established nondiscriminatory policy, whether occasioned by illness, military service, or any other reason. A "maternity or paternity leave of absence" means, for Plan Years beginning after December 31, 1984, an absence from work for any period by reason of the Employee's pregnancy, birth of the Employee's child, placement of a child with the Employee in connection with the adoption of such child, or any absence for the purpose of caring for such child for a period immediately following such birth or placement. For this purpose, Hours of Service shall be credited for the computation period in which the absence from work begins, only if credit therefore is necessary to prevent the Employee from incurring a 1-Year Break in Service, or, in any other case, in the immediately following computation period. The Hours of Service credited for a "maternity or paternity leave of absence" shall be those which would normally have been credited but for such absence, or, in any case in which the Administrator is unable to determine such hours normally credited, eight (8) Hours of Service per day. The total Hours of Service required to be credited for a "maternity or paternity leave of absence" shall not exceed 501. 1.44 "Participant" means any Eligible Employee who participates in the Plan and has not for any reason become ineligible to participate further in the Plan. 1.45 "Participant Direction Procedures" means such instructions, guidelines or policies, the terms of which are incorporated herein, as shall be established pursuant to Section 4.12 and observed by the Administrator and applied and provided to Participants who have Participant Directed Accounts. 1.46 "Participant's Account" means the account established and maintained by the Administrator for each Participant with respect to his total interest in the Plan and Trust resulting from the Employer Non-Elective Contributions. A separate accounting shall be maintained with respect to that portion of the Participant's Account attributable to Employer matching contributions and nonelective contributions made pursuant to Section 4.1(b), Employer matching contributions made pursuant to Section 4.1(c), Employer discretionary contributions made pursuant to Section 4.1(d) and any Employer Qualified Non-Elective Contributions. 1.47 "Participant's Combined Account" means the total aggregate amount of each Participant's Elective Account and Participant's Account. 1.48 "Participant's Directed Account" means that portion of a Participant's interest in the Plan with respect to which the Participant has directed the investment in accordance with the Participant Direction Procedure. 1.49 "Participant's Elective Account" means the account established and maintained by the Administrator for each Participant with respect to his total interest in the Plan and Trust resulting from the Employer Elective Contributions used to satisfy the "Actual Deferral Percentage" tests. A separate accounting shall be maintained with respect to that portion of the Participant's Elective Account attributable to such Elective Contributions pursuant to Section 4.2, Employer matching contributions and nonelective 12 18 contributions made pursuant to Section 4.1(b) and any Employer Qualified Non-Elective Contributions. 1.50 "Period of Service" means the aggregate of all periods commencing with the Employee's first day of employment or reemployment with the Employer or Affiliated Employer and ending on the date a 1-Year Break in Service begins. The first day of employment or reemployment is the first day the Employee performs an Hour of Service. An Employee will also receive partial credit for any Period of Severance of less than 12 consecutive months. Fractional periods of a year will be expressed in terms of days. 1.51 "Period of Severance" means a continuous period of time during which the Employee is not employed by the Employer. Such period begins on the date the Employee retires, quits or is discharged, or if earlier, the 12 month anniversary of the date on which the Employee was otherwise first absent from service. In the case of an individual who is absent from work for maternity or paternity reasons, the 12-consecutive month period beginning on the first anniversary of the first day of such absence shall not constitute a 1-Year Break in Service. For purposes of this paragraph, an absence from work for maternity or paternity reasons means an absence (a) by reason of the pregnancy of the individual, (b) by reason of the birth of a child of the individual, (c) by reason of the placement of a child with the individual in connection with the adoption of such child by such individual, or (d) for purposes of caring for such child for a period beginning immediately following such birth or placement. 1.52 "Plan" means this instrument, including all amendments thereto. 1.53 "Plan Year" means the Plan's accounting year of twelve (12) months commencing on June 1st of each year and ending the following May 31st. 1.54 "Qualified Non-Elective Contribution" means any Employer contributions made pursuant to Section 4.6(b) and Section 4.8(f). Such contributions shall be considered an Elective Contribution for the purposes of the Plan and used to satisfy the "Actual Deferral Percentage" tests or the "Actual Contribution Percentage" tests. 1.55 "Regulation" means the Income Tax Regulations as promulgated by the Secretary of the Treasury or his delegate, and as amended from time to time. 1.56 "Retired Participant" means a person who has been a Participant, but who has become entitled to retirement benefits under the Plan. 1.57 "Retirement Date" means the date as of which a Participant retires for reasons other than Total and Permanent Disability, whether such retirement occurs on a Participant's Normal Retirement Date or Late Retirement Date (see Section 6.1). 1.58 "Super Top Heavy Plan" means a plan described in Section 9.2(b). 1.59 "Terminated Participant" means a person who has been a Participant, but whose employment has been terminated other than by death, Total and Permanent Disability or retirement. 13 19 1.60 "Top Heavy Plan" means a plan described in Section 9.2(a). 1.61 "Top Heavy Plan Year" means a Plan Year during which the Plan is a Top Heavy Plan. 1.62 "Top Paid Group" means the top 20 percent of Employees who performed services for the Employer during the applicable year, ranked according to the amount of "415 Compensation" (determined for this purpose in accordance with Section 1.27) received from the Employer during such year. All Affiliated Employers shall be taken into account as a single employer, and Leased Employees within the meaning of Code Sections 414(n)(2) and 414(o)(2) shall be considered Employees unless such Leased Employees are covered by a plan described in Code Section 414(n)(5) and are not covered in any qualified plan maintained by the Employer. Employees who are non-resident aliens and who received no earned income (within the meaning of Code Section 911(d)(2)) from the Employer constituting United States source income within the meaning of Code Section 861(a)(3) shall not be treated as Employees. Additionally, for the purpose of determining the number of active Employees in any year, the following additional Employees shall also be excluded; however, such Employees shall still be considered for the purpose of identifying the particular Employees in the Top Paid Group: (a) Employees with less than six (6) months of service; (b) Employees who normally work less than 17 1/2 hours per week; (c) Employees who normally work less than six (6) months during a year; and (d) Employees who have not yet attained age 21. In addition, if 90 percent or more of the Employees of the Employer are covered under agreements the Secretary of Labor finds to be collective bargaining agreements between Employee representatives and the Employer, and the Plan covers only Employees who are not covered under such agreements, then Employees covered by such agreements shall be excluded from both the total number of active Employees as well as from the identification of particular Employees in the Top Paid Group. The foregoing exclusions set forth in this Section shall be applied on a uniform and consistent basis for all purposes for which the Code Section 414(q) definition is applicable. 1.63 "Total and Permanent Disability" means a physical or mental condition of a Participant resulting from bodily injury, disease, or mental disorder which renders him incapable of continuing his usual and customary employment with the Employer. The disability of a Participant shall be determined by a licensed physician chosen by the Administrator. The determination shall be applied uniformly to all Participants. 1.64 "Trustee" means the person or entity named as trustee herein or in any separate trust forming a part of this Plan, and any successors. 14 20 1.65 "Trust Fund" means the assets of the Plan and Trust as the same shall exist from time to time. 1.66 "USERRA" means the Uniformed Services Employment and Reemployment Rights Act of 1994. Notwithstanding any provision of this Plan to the contrary, effective December 12, 1994, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with Code Section 414(u). 1.67 "Valuation Date" means the Anniversary Date and such other date or dates deemed necessary by the Administrator. The Valuation Date may include any day during the Plan Year that the Trustee, any transfer agent appointed by the Trustee or the Employer and any stock exchange used by such agent are open for business. 1.68 "Vested" means the nonforfeitable portion of any account maintained on behalf of a Participant. 1.69 "Year of Service" means the computation period of twelve (12) consecutive months, herein set forth, during which an Employee has at least 1000 Hours of Service. For vesting purposes, the computation periods shall be measured from the date on which the Employee first performs an Hour of Service and anniversaries thereof, including periods prior to the Effective Date of the Plan. The computation period shall be the Plan Year if not otherwise set forth herein. Notwithstanding the foregoing, for any short Plan Year, the determination of whether an Employee has completed a Year of Service shall be made in accordance with Department of Labor regulation 2530.203-2(c). However, in determining whether an Employee has completed a Year of Service for benefit accrual purposes in the short Plan Year, the number of the Hours of Service required shall be proportionately reduced based on the number of full months in the short Plan Year. Years of Service with any Affiliated Employer shall be recognized. ARTICLE II ADMINISTRATION 2.1 POWERS AND RESPONSIBILITIES OF THE EMPLOYER (a) In addition to the general powers and responsibilities otherwise provided for in this Plan, the Employer shall be empowered to appoint and remove the Trustee and the Administrator from time to time as it deems necessary for the proper administration of the Plan to ensure that the Plan is being operated for the exclusive benefit of the Participants and their Beneficiaries in accordance with the terms of the Plan, the Code, and the Act. The Employer may appoint counsel, specialists, advisers, agents (including any nonfiduciary agent) and other persons as the Employer deems necessary or desirable in connection with the exercise of its fiduciary duties under this Plan. The Employer may compensate such agents or advisers from the 15 21 assets of the Plan as fiduciary expenses (but not including any business (settlor) expenses of the Employer), to the extent not paid by the Employer. (b) The Employer shall establish a "funding policy and method," i.e., it shall determine whether the Plan has a short run need for liquidity (e.g., to pay benefits) or whether liquidity is a long run goal and investment growth (and stability of same) is a more current need, or shall appoint a qualified person to do so. The Employer or its delegate shall communicate such needs and goals to the Trustee, who shall coordinate such Plan needs with its investment policy. The communication of such a "funding policy and method" shall not, however, constitute a directive to the Trustee as to investment of the Trust Funds. Such "funding policy and method" shall be consistent with the objectives of this Plan and with the requirements of Title I of the Act. (c) The Employer shall periodically review the performance of any Fiduciary or other person to whom duties have been delegated or allocated by it under the provisions of this Plan or pursuant to procedures established hereunder. This requirement may be satisfied by formal periodic review by the Employer or by a qualified person specifically designated by the Employer, through day-to-day conduct and evaluation, or through other appropriate ways. 2.2 DESIGNATION OF ADMINISTRATIVE AUTHORITY The Employer shall be the Administrator. The Employer may appoint any person, including, but not limited to, the Employees of the Employer, to perform the duties of the Administrator. Any person so appointed shall signify his acceptance by filing written acceptance with the Employer. Upon the resignation or removal of any individual performing the duties of the Administrator, the Employer may designate a successor. 2.3 POWERS AND DUTIES OF THE ADMINISTRATOR The primary responsibility of the Administrator is to administer the Plan for the exclusive benefit of the Participants and their Beneficiaries, subject to the specific terms of the Plan. The Administrator shall administer the Plan in accordance with its terms and shall have the power and discretion to construe the terms of the Plan and to determine all questions arising in connection with the administration, interpretation, and application of the Plan. Any such determination by the Administrator shall be conclusive and binding upon all persons. The Administrator may establish procedures, correct any defect, supply any information, or reconcile any inconsistency in such manner and to such extent as shall be deemed necessary or advisable to carry out the purpose of the Plan; provided, however, that any procedure, discretionary act, interpretation or construction shall be done in a nondiscriminatory manner based upon uniform principles consistently applied and shall be consistent with the intent that the Plan shall continue to be deemed a qualified plan under the terms of Code Section 401(a), and shall comply with the terms of the Act and all regulations issued pursuant thereto. The Administrator shall have all powers necessary or appropriate to accomplish his duties under this Plan. 16 22 The Administrator shall be charged with the duties of the general administration of the Plan, including, but not limited to, the following: (a) the discretion to determine all questions relating to the eligibility of Employees to participate or remain a Participant hereunder and to receive benefits under the Plan; (b) to compute, certify, and direct the Trustee with respect to the amount and the kind of benefits to which any Participant shall be entitled hereunder; (c) to authorize and direct the Trustee with respect to all nondiscretionary or otherwise directed disbursements from the Trust; (d) to maintain all necessary records for the administration of the Plan; (e) to interpret the provisions of the Plan and to make and publish such rules for regulation of the Plan as are consistent with the terms hereof; (f) to determine the size and type of any Contract to be purchased from any insurer, and to designate the insurer from which such Contract shall be purchased; (g) to compute and certify to the Employer and to the Trustee from time to time the sums of money necessary or desirable to be contributed to the Plan; (h) to consult with the Employer and the Trustee regarding the short and long-term liquidity needs of the Plan in order that the Trustee can exercise any investment discretion in a manner designed to accomplish specific objectives; (i) to prepare and implement a procedure to notify Eligible Employees that they may elect to have a portion of their Compensation deferred or paid to them in cash; (j) to act as the named Fiduciary responsible for communications with Participants as needed to maintain Plan compliance with ERISA Section 404(c), including but not limited to the receipt and transmitting of Participant's directions as to the investment of their account(s) under the Plan and the formulation of policies, rules, and procedures pursuant to which Participants may give investment instructions with respect to the investment of their accounts; (k) to assist any Participant regarding his rights, benefits, or elections available under the Plan. 17 23 2.4 RECORDS AND REPORTS The Administrator shall keep a record of all actions taken and shall keep all other books of account, records, policies, and other data that may be necessary for proper administration of the Plan and shall be responsible for supplying all information and reports to the Internal Revenue Service, Department of Labor, Participants, Beneficiaries and others as required by law. 2.5 APPOINTMENT OF ADVISERS The Administrator, or the Trustee with the consent of the Administrator, may appoint counsel, specialists, advisers, agents (including nonfiduciary agents) and other persons as the Administrator or the Trustee deems necessary or desirable in connection with the administration of this Plan, including but not limited to agents and advisers to assist with the administration and management of the Plan, and thereby to provide, among such other duties as the Administrator may appoint, assistance with maintaining Plan records and the providing of investment information to the Plan's investment fiduciaries and to Plan Participants. 2.6 PAYMENT OF EXPENSES All expenses of administration may be paid out of the Trust Fund unless paid by the Employer. Such expenses shall include any expenses incident to the functioning of the Administrator, or any person or persons retained or appointed by any Named Fiduciary incident to the exercise of their duties under the Plan, including, but not limited to, fees of accountants, counsel, Investment Managers, agents (including nonfiduciary agents) appointed for the purpose of assisting the Administrator or the Trustee in carrying out the instructions of Participants as to the directed investment of their accounts and other specialists and their agents, and other costs of administering the Plan. Until paid, the expenses shall constitute a liability of the Trust Fund. 2.7 CLAIMS PROCEDURE Claims for benefits under the Plan may be filed in writing with the Administrator. Written notice of the disposition of a claim shall be furnished to the claimant within 90 days after the application is filed. In the event the claim is denied, the reasons for the denial shall be specifically set forth in the notice in language calculated to be understood by the claimant, pertinent provisions of the Plan shall be cited, and, where appropriate, an explanation as to how the claimant can perfect the claim will be provided. In addition, the claimant shall be furnished with an explanation of the Plan's claims review procedure. 2.8 CLAIMS REVIEW PROCEDURE Any Employee, former Employee, or Beneficiary of either, who has been denied a benefit by a decision of the Administrator pursuant to Section 2.7 shall be entitled to request the Administrator to give further consideration to his claim by filing with the Administrator (on a form which may be obtained from the Administrator) a request for a hearing. Such request, together with a written statement of the reasons why the claimant believes his claim should be allowed, shall be filed with the Administrator no later than 60 18 24 days after receipt of the written notification provided for in Section 2.7. The Administrator shall then conduct a hearing within the next 60 days, at which the claimant may be represented by an attorney or any other representative of his choosing and at which the claimant shall have an opportunity to submit written and oral evidence and arguments in support of his claim. At the hearing (or prior thereto upon 5 business days written notice to the Administrator) the claimant or his representative shall have an opportunity to review all documents in the possession of the Administrator which are pertinent to the claim at issue and its disallowance. Either the claimant or the Administrator may cause a court reporter to attend the hearing and record the proceedings. In such event, a complete written transcript of the proceedings shall be furnished to both parties by the court reporter. The full expense of any such court reporter and such transcripts shall be borne by the party causing the court reporter to attend the hearing. A final decision as to the allowance of the claim shall be made by the Administrator within 60 days of receipt of the appeal (unless there has been an extension of 60 days due to special circumstances, provided the delay and the special circumstances occasioning it are communicated to the claimant within the 60 day period). Such communication shall be written in a manner calculated to be understood by the claimant and shall include specific reasons for the decision and specific references to the pertinent Plan provisions on which the decision is based. ARTICLE III ELIGIBILITY 3.1 CONDITIONS OF ELIGIBILITY Any Eligible Employee who was employed on June 1, 2000 shall be eligible to participate and shall enter the Plan as of the first day of such Plan Year. Any other Eligible Employee who has completed a 90 day Period of Service shall be eligible to participate hereunder as of the date he has satisfied such requirements. 3.2 EFFECTIVE DATE OF PARTICIPATION An Eligible Employee shall become a Participant effective as of the earlier of the first day of the Plan Year or the first day of the seventh month of such Plan Year coinciding with or next following the date such Employee met the eligibility requirements of Section 3.1, provided said Employee was still employed as of such date (or if not employed on such date, as of the date of rehire if a 1-Year Break in Service has not occurred). In the event an Employee who is not a member of an eligible class of Employees becomes a member of an eligible class, such Employee will participate immediately if such Employee has satisfied the minimum age and service requirements and would have otherwise previously become a Participant. 3.3 DETERMINATION OF ELIGIBILITY The Administrator shall determine the eligibility of each Employee for participation in the Plan based upon information furnished by the Employer. Such determination shall be conclusive and binding upon all persons, as long as the same is made pursuant to the Plan and the Act. Such determination shall be subject to review per Section 2.8. 19 25 3.4 TERMINATION OF ELIGIBILITY (a) In the event a Participant shall go from a classification of an Eligible Employee to an ineligible Employee, such Former Participant shall continue to vest in his interest in the Plan for each Year of Service completed while a noneligible Employee, until such time as his Participant's Account shall be forfeited or distributed pursuant to the terms of the Plan. Additionally, his interest in the Plan shall continue to share in the earnings of the Trust Fund. (b) In the event a Participant is no longer a member of an eligible class of Employees and becomes ineligible to participate, such Employee will participate immediately upon returning to an eligible class of Employees. 3.5 OMISSION OF ELIGIBLE EMPLOYEE If, in any Plan Year, any Employee who should be included as a Participant in the Plan is erroneously omitted and discovery of such omission is not made until after a contribution by his Employer for the year has been made, the Employer shall make a subsequent contribution with respect to the omitted Employee in the amount which the said Employer would have contributed with respect to him had he not been omitted. Such contribution shall be made regardless of whether or not it is deductible in whole or in part in any taxable year under applicable provisions of the Code. 3.6 INCLUSION OF INELIGIBLE EMPLOYEE If, in any Plan Year, any person who should not have been included as a Participant in the Plan is erroneously included and discovery of such incorrect inclusion is not made until after a contribution for the year has been made, the Employer shall not be entitled to recover the contribution made with respect to the ineligible person regardless of whether or not a deduction is allowable with respect to such contribution. In such event, the amount contributed with respect to the ineligible person shall constitute a Forfeiture (except for Deferred Compensation which shall be distributed to the ineligible person) for the Plan Year in which the discovery is made. 3.7 ELECTION NOT TO PARTICIPATE An Employee may, subject to the approval of the Employer, elect voluntarily not to participate in the Plan. The election not to participate must be communicated to the Employer, in writing, at least thirty (30) days before the beginning of a Plan Year. ARTICLE IV CONTRIBUTION AND ALLOCATION 4.1 FORMULA FOR DETERMINING EMPLOYER CONTRIBUTION For each Plan Year, the Employer shall contribute to the Plan, except as otherwise provided: 20 26 (a) The amount of the total salary reduction elections of all Participants made pursuant to Section 4.2(a), which amount shall be deemed an Employer Elective Contribution. (b) On behalf of each Participant, at the election of the Employer, either (1), (2), (3) or (4) below: (1) Basic Matching Contributions: An amount equal to the Participant's Deferred Compensation up to 3% of his Compensation plus one-half of the Participant's Deferred Compensation in excess of 3% of his Compensation (but not in excess of 5%), which amount shall be deemed an Employer Elective Contribution. (2) Enhanced Matching Contribution: An amount, at any rate of Deferred Compensation, equal to at least the aggregate amount of matching contributions that would have been provided under the Basic Matching Contribution formula. In addition, the rate of matching contribution may not increase as a Participant's rate of Deferred Compensation increases. The amount of any Enhanced Matching Contribution shall be deemed an Employer Elective Contribution. (3) Nonelective Contribution: An amount equal to at least 3% of the Participant's Compensation, which amount shall be deemed an Employer Elective Contribution. (4) A contribution to another plan maintained by the Employer, which amount shall be deemed an Employer Elective Contribution. Contributions made to the Plan pursuant to this Section 4.1(b) are intended to comply with Sections 4.5(a) and 4.7(a) pursuant to the safe harbor methods permitted by Code Sections 401(k)(12) and 401(m)(11). However, if matching contributions are made to this Plan or any other plan maintained by the Employer, and (i) such matching contributions are made with respect to Deferred Compensation or voluntary Employee contributions that in the aggregate exceed 6% of the Employee's Compensation, (ii) the rate of matching contributions increases as the rate of Deferred Compensation or voluntary Employee contributions increases, (iii) at any rate of Deferred Compensation or voluntary Employee contributions, the rate of matching contributions that would apply with respect to any Highly Compensated Employee is greater than the rate of matching contributions that would apply with respect to a Non-Highly Compensated Participant and who has the same rate of Deferred Compensation or voluntary Employee contributions, (iv) any discretionary matching contribution made to this Plan and any other plan maintained by the Employer, in the aggregate, exceed 4% of the Participant's Compensation, then such matching contributions in the aggregate must satisfy the "Actual Contribution Percentage" tests of Section 4.7. In this regard, the Employer may elect to disregard, with respect to all Eligible Employees, all matching contributions with respect to a Participant's Deferred Compensation up to 6% of each Participant's Compensation, or matching contributions up to 4% of each Participant's 21 27 Compensation. In applying the "Actual Contribution Percentage" tests, match contributions or nonelective contributions made pursuant to this Section 4.1(b) that satisfy the safe harbor methods permitted by Code Section 401(k)(12) may not be treated as matching contributions under Code Section 401(m)(3). The rules that apply for purposes of aggregating and disaggregating cash or deferred arrangements and plans under Code Sections 401(k) and 401(m) also apply for purposes of Code Sections 401(k)(12) and 401(m)(11). (c) On behalf of each Participant who is eligible to share in matching contributions for the Plan Year, a matching contribution equal to 50% of each such Participant's Deferred Compensation plus a uniform discretionary percentage of each such Participant's Deferred Compensation, the exact percentage, if any, to be determined each year by the Employer, which amount, if any, shall be deemed an Employer Non-Elective Contribution. Except, however, in applying the matching percentage specified above, only salary reductions up to 6% of payroll period Compensation shall be considered. (d) A discretionary amount, which amount, if any, shall be deemed an Employer Non-Elective Contribution. (e) Additionally, to the extent necessary, the Employer shall contribute to the Plan the amount necessary to provide the top heavy minimum contribution. All contributions by the Employer shall be made in cash. 4.2 PARTICIPANT'S SALARY REDUCTION ELECTION (a) Each Participant may elect to defer from 1% to 15% of his Compensation which would have been received in the Plan Year, but for the deferral election. A deferral election (or modification of an earlier election) may not be made with respect to Compensation which is currently available on or before the date the Participant executed such election or, if later, the latest of the date the Employer adopts this cash or deferred arrangement, or the date such arrangement first became effective. For purposes of this Section, Compensation shall be determined prior to any reductions made pursuant to Code Sections 125, 402(e)(3), 402(h)(1)(B), 403(b) or 457(b), and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions. The amount by which Compensation is reduced shall be that Participant's Deferred Compensation and be treated as an Employer Elective Contribution and allocated to that Participant's Elective Account. 22 28 (b) The balance in each Participant's Elective Account shall be fully Vested at all times and shall not be subject to Forfeiture for any reason. (c) Notwithstanding anything in the Plan to the contrary, amounts held in the Participant's Elective Account may not be distributable earlier than: (1) a Participant's separation from service, Total and Permanent Disability, or death; (2) a Participant's attainment of age 59 1/2; (3) the termination of the Plan without the establishment or existence of a "successor plan," as that term is described in Regulation 1.401(k)-1(d)(3); (4) the date of disposition by the Employer to an entity that is not an Affiliated Employer of substantially all of the assets (within the meaning of Code Section 409(d)(2)) used in a trade or business of such corporation if such corporation continues to maintain this Plan after the disposition with respect to a Participant who continues employment with the corporation acquiring such assets; (5) the date of disposition by the Employer or an Affiliated Employer who maintains the Plan of its interest in a subsidiary (within the meaning of Code Section 409(d)(3)) to an entity which is not an Affiliated Employer but only with respect to a Participant who continues employment with such subsidiary; or (6) the proven financial hardship of a Participant, subject to the limitations of Section 6.11. (d) For each Plan Year, a Participant's Deferred Compensation made under this Plan and all other plans, contracts or arrangements of the Employer maintaining this Plan shall not exceed, during any taxable year of the Participant, the limitation imposed by Code Section 402(g), as in effect at the beginning of such taxable year. If such dollar limitation is exceeded, a Participant will be deemed to have notified the Administrator of such excess amount which shall be distributed in a manner consistent with Section 4.2(f). The dollar limitation shall be adjusted annually pursuant to the method provided in Code Section 415(d) in accordance with Regulations. (e) In the event a Participant has received a hardship distribution from his Participant's Elective Account pursuant to Section 6.11(b) or pursuant to Regulation 1.401(k)-1(d)(2)(iv)(B) from any other plan maintained by the Employer, then such Participant shall not be permitted to elect to have Deferred Compensation contributed to the Plan on his behalf for a period of twelve (12) months following the receipt of the distribution. Furthermore, the dollar limitation under Code Section 402(g) shall be reduced, with respect to the Participant's taxable year following the taxable year in which the hardship distribution was made, by the amount of such Participant's Deferred 23 29 Compensation, if any, pursuant to this Plan (and any other plan maintained by the Employer) for the taxable year of the hardship distribution. (f) If a Participant's Deferred Compensation under this Plan together with any elective deferrals (as defined in Regulation 1.402(g)-1(b)) under another qualified cash or deferred arrangement (as defined in Code Section 401(k)), a simplified employee pension (as defined in Code Section 408(k)), a salary reduction arrangement (within the meaning of Code Section 3121(a)(5)(D)), a deferred compensation plan under Code Section 457(b), or a trust described in Code Section 501(c)(18) cumulatively exceed the limitation imposed by Code Section 402(g) (as adjusted annually in accordance with the method provided in Code Section 415(d) pursuant to Regulations) for such Participant's taxable year, the Participant may, not later than March 1 following the close of the Participant's taxable year, notify the Administrator in writing of such excess and request that his Deferred Compensation under this Plan be reduced by an amount specified by the Participant. In such event, the Administrator may direct the Trustee to distribute such excess amount (and any Income allocable to such excess amount) to the Participant not later than the first April 15th following the close of the Participant's taxable year. Any distribution of less than the entire amount of Excess Deferred Compensation and Income shall be treated as a pro rata distribution of Excess Deferred Compensation and Income. The amount distributed shall not exceed the Participant's Deferred Compensation under the Plan for the taxable year (and any Income allocable to such excess amount). Any distribution on or before the last day of the Participant's taxable year must satisfy each of the following conditions: (1) the distribution must be made after the date on which the Plan received the Excess Deferred Compensation; (2) the Participant shall designate the distribution as Excess Deferred Compensation; and (3) the Plan must designate the distribution as a distribution of Excess Deferred Compensation. Any distribution made pursuant to this Section 4.2(f) shall be made first from unmatched Deferred Compensation and, thereafter, from Deferred Compensation which is matched. Matching contributions which relate to such Deferred Compensation shall be forfeited. (g) Notwithstanding Section 4.2(f) above, a Participant's Excess Deferred Compensation shall be reduced, but not below zero, by any distribution of Excess Contributions pursuant to Section 4.6(a) for the Plan Year beginning with or within the taxable year of the Participant. (h) At Normal Retirement Date, or such other date when the Participant shall be entitled to receive benefits, the fair market value of the Participant's Elective Account shall be used to provide additional benefits to the Participant or his Beneficiary. 24 30 (i) Employer Elective Contributions made pursuant to this Section may be segregated into a separate account for each Participant in a federally insured savings account, certificate of deposit in a bank or savings and loan association, money market certificate, or other short-term debt security acceptable to the Trustee until such time as the allocations pursuant to Section 4.4 have been made. (j) The Employer and the Administrator shall implement the salary reduction elections provided for herein in accordance with the following: (1) A Participant must make his initial salary deferral election within a reasonable time, not to exceed thirty (30) days, after entering the Plan pursuant to Section 3.2. If the Participant fails to make an initial salary deferral election within such time, then such Participant may thereafter make an election in accordance with the rules governing modifications. The Participant shall make such an election by entering into a written salary reduction agreement with the Employer and filing such agreement with the Administrator. Such election shall initially be effective beginning with the pay period following the acceptance of the salary reduction agreement by the Administrator, shall not have retroactive effect and shall remain in force until revoked. (2) A Participant may modify a prior election during the Plan Year and concurrently make a new election by filing a written notice with the Administrator within a reasonable time before the pay period for which such modification is to be effective. However, modifications to a salary deferral election shall only be permitted quarterly, during election periods established by the Administrator prior to the first day of each Plan Year quarter. Any modification shall not have retroactive effect and shall remain in force until revoked. (3) A Participant may elect to prospectively revoke his salary reduction agreement in its entirety at any time during the Plan Year by providing the Administrator with thirty (30) days written notice of such revocation (or upon such shorter notice period as may be acceptable to the Administrator). Such revocation shall become effective as of the beginning of the first pay period coincident with or next following the expiration of the notice period. Furthermore, the termination of the Participant's employment, or the cessation of participation for any reason, shall be deemed to revoke any salary reduction agreement then in effect, effective immediately following the close of the pay period within which such termination or cessation occurs. (4) If the Employer elects to make a contribution pursuant to Section 4.1(b), the Employer, at least 30 days, but not more than 90 days, before the beginning of the Plan Year, will provide each eligible Employee a comprehensive notice of the Employee's rights and obligations under the Plan, written in a manner calculated to be understood by the average Employee. If an Employee becomes 25 31 eligible after the 90th day before the beginning of the Plan Year and does not receive the notice for that reason, the notice must be provided no more than 90 days before the Employee becomes eligible but not later than the date the Employee becomes eligible. In addition to any other election periods provided under this Section 4.2, each eligible Employee may make or modify a salary reduction election during the 30-day period immediately following receipt of the notice described above. 4.3 TIME OF PAYMENT OF EMPLOYER CONTRIBUTION The Employer shall generally pay to the Trustee its contribution to the Plan for each Plan Year within the time prescribed by law, including extensions of time, for the filing of the Employer federal income tax return for the Fiscal Year. However, Employer Elective Contributions accumulated through payroll deductions shall be paid to the Trustee as of the earliest date on which such contributions can reasonably be segregated from the Employer general assets, but in any event within ninety (90) days from the date on which such amounts would otherwise have been payable to the Participant in cash. The provisions of Department of Labor regulations 2510.3-102 are incorporated herein by reference. Furthermore, any additional Employer contributions which are allocable to the Participant's Elective Account for a Plan Year shall be paid to the Plan no later than the twelve-month period immediately following the close of such Plan Year. 4.4 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS (a) The Administrator shall establish and maintain an account in the name of each Participant to which the Administrator shall credit as of each Anniversary Date all amounts allocated to each such Participant as set forth herein. (b) The Employer shall provide the Administrator with all information required by the Administrator to make a proper allocation of the Employer contributions for each Plan Year. Within a reasonable period of time after the date of receipt by the Administrator of such information, the Administrator shall allocate such contribution as follows: (1) With respect to the Employer Elective Contribution made pursuant to Section 4.1(a), to each Participant's Elective Account in an amount equal to each such Participant's Deferred Compensation for the year. (2) With respect to the Employer Elective Contribution made pursuant to Section 4.1(b), to each Participant's Elective Account when used to satisfy the "Actual Deferral Percentage" tests, otherwise to each Participant's Account. 26 32 (3) With respect to the Employer Non-Elective Contribution made pursuant to Section 4.1(c), to each Participant's Account in accordance with Section 4.1(c). Any Participant actively employed during the Plan Year shall be eligible to share in the matching contribution for the Plan Year. (4) With respect to the Employer Non-Elective Contribution made pursuant to Section 4.1(d), to each Participant's Account in the same proportion that each such Participant's Compensation for the year bears to the total Compensation of all Participants for such year. Only Participants who have completed a Year of Service during the Plan Year and are actively employed on the last day of the Plan Year shall be eligible to share in the discretionary contribution for the year. (c) As of each Anniversary Date any amounts which became Forfeitures since the last Anniversary Date shall first be made available to reinstate previously forfeited account balances of Former Participants, if any, in accordance with Section 6.4(e)(2). The remaining Forfeitures, if any, shall be used to reduce the contribution of the Employer hereunder for the Plan Year in which such Forfeitures occur in the following manner: (1) Forfeitures attributable to Employer matching contributions made pursuant to Section 4.1(c) shall be used to reduce the Employer contribution for the Plan Year in which such Forfeitures occur. (2) Forfeitures attributable to Employer discretionary contributions made pursuant to Section 4.1(d) shall be used to reduce the Employer contribution for the Plan Year in which such Forfeitures occur. (d) For any Top Heavy Plan Year, Employees not otherwise eligible to share in the allocation of contributions as provided above, shall receive the minimum allocation provided for in Section 4.4(g) if eligible pursuant to the provisions of Section 4.4(i). (e) Notwithstanding the foregoing, Participants who are not actively employed on the last day of the Plan Year due to Retirement (Normal or Late), Total and Permanent Disability or death shall share in the allocation of contributions for that Plan Year. (f) As of each Valuation Date, any earnings or losses (net appreciation or net depreciation) of the Trust Fund shall be allocated in the same proportion that each Participant's and Former Participant's time weighted average nonsegregated accounts bear to the total of all Participants' and Former Participants' time weighted average nonsegregated accounts as of such date. Earnings or losses with respect to a Participant's Directed Account shall be allocated in accordance with Section 4.12. 27 33 Participants' transfers from other qualified plans deposited in the general Trust Fund shall share in any earnings and losses (net appreciation or net depreciation) of the Trust Fund in the same manner provided above. Each segregated account maintained on behalf of a Participant shall be credited or charged with its separate earnings and losses. (g) Minimum Allocations Required for Top Heavy Plan Years: Notwithstanding the foregoing, for any Top Heavy Plan Year, the sum of the Employer contributions allocated to the Participant's Combined Account of each Employee shall be equal to at least three percent (3%) of such Employee's "415 Compensation" (reduced by contributions and forfeitures, if any, allocated to each Employee in any defined contribution plan included with this plan in a Required Aggregation Group). However, if (1) the sum of the Employer contributions allocated to the Participant's Combined Account of each Key Employee for such Top Heavy Plan Year is less than three percent (3%) of each Key Employee's "415 Compensation" and (2) this Plan is not required to be included in an Aggregation Group to enable a defined benefit plan to meet the requirements of Code Section 401(a)(4) or 410, the sum of the Employer contributions allocated to the Participant's Combined Account of each Employee shall be equal to the largest percentage allocated to the Participant's Combined Account of any Key Employee. However, in determining whether a Non-Key Employee has received the required minimum allocation, such Non-Key Employee's Deferred Compensation and matching contributions needed to satisfy the "Actual Deferral Percentage" tests pursuant to Section 4.5(a) or the "Actual Contribution Percentage" tests pursuant to Section 4.7(a) shall not be taken into account. However, no such minimum allocation shall be required in this Plan for any Employee who participates in another defined contribution plan subject to Code Section 412 included with this Plan in a Required Aggregation Group. (h) For purposes of the minimum allocations set forth above, the percentage allocated to the Participant's Combined Account of any Key Employee shall be equal to the ratio of the sum of the Employer contributions allocated on behalf of such Key Employee divided by the "415 Compensation" for such Key Employee. (i) For any Top Heavy Plan Year, the minimum allocations set forth above shall be allocated to the Participant's Combined Account of all Employees who are Participants and who are employed by the Employer on the last day of the Plan Year, including Employees who have (1) failed to complete a Year of Service; and (2) declined to make mandatory contributions (if required) or, in the case of a cash or deferred arrangement, elective contributions to the Plan. (j) For the purposes of this Section, "415 Compensation" shall be limited to $150,000. Such amount shall be adjusted for increases in the cost of living in accordance with Code Section 401(a)(17), except that the dollar increase in effect on January 1 of any calendar year shall be effective for the 28 34 Plan Year beginning with or within such calendar year. For any short Plan Year the "415 Compensation" limit shall be an amount equal to the "415 Compensation" limit for the calendar year in which the Plan Year begins multiplied by the ratio obtained by dividing the number of full months in the short Plan Year by twelve (12). (k) Notwithstanding anything herein to the contrary, Participants who terminated employment for any reason during the Plan Year shall share in the salary reduction contributions made by the Employer for the year of termination without regard to the Hours of Service credited. (l) If a Former Participant is reemployed after five (5) consecutive 1-Year Breaks in Service, then separate accounts shall be maintained as follows: (1) one account for nonforfeitable benefits attributable to pre-break service; and (2) one account representing his status in the Plan attributable to post-break service. 4.5 ACTUAL DEFERRAL PERCENTAGE TESTS (a) Maximum Annual Allocation: For each Plan Year, the annual allocation derived from Employer Elective Contributions to a Highly Compensated Participant's Elective Account shall satisfy one of the following tests: (1) The "Actual Deferral Percentage" for the Highly Compensated Participant group shall not be more than the "Actual Deferral Percentage" of the Non-Highly Compensated Participant group (for the preceding Plan Year if the prior year testing method is used to calculate the "Actual Deferral Percentage" for the Non-Highly Compensated Participant group) multiplied by 1.25, or (2) The excess of the "Actual Deferral Percentage" for the Highly Compensated Participant group over the "Actual Deferral Percentage" for the Non-Highly Compensated Participant group (for the preceding Plan Year if the prior year testing method is used to calculate the "Actual Deferral Percentage" for the Non-Highly Compensated Participant group) shall not be more than two percentage points. Additionally, the "Actual Deferral Percentage" for the Highly Compensated Participant group shall not exceed the "Actual Deferral Percentage" for the Non-Highly Compensated Participant group (for the preceding Plan Year if the prior year testing method is used to calculate the "Actual Deferral Percentage" for the Non-Highly Compensated Participant group) multiplied by 2. The provisions of Code Section 401(k)(3) and Regulation 1.401(k)-1(b) are incorporated herein by reference. 29 35 However, in order to prevent the multiple use of the alternative method described in (2) above and in Code Section 401(m)(9)(A), any Highly Compensated Participant eligible to make elective deferrals pursuant to Section 4.2 and to make Employee contributions or to receive matching contributions under this Plan or under any other plan maintained by the Employer or an Affiliated Employer shall have a combination of his Elective Contributions and Employer matching contributions reduced pursuant to Section 4.6(a) and Regulation 1.401(m)-2, the provisions of which are incorporated herein by reference. Notwithstanding the above, if the prior year testing method is used for the first Plan Year, the "Actual Deferral Percentage" for the Non-Highly Compensated Participant group shall be determined for such Plan Year. However, the Plan shall not have a first Plan Year (1) if the Plan is aggregated under Regulation 1.401(k)-1(g)(11) with any other plan that was or that included a Code Section 401(k) plan in the prior year, or (2) the Plan is a "successor plan" as defined in Internal Revenue Service Notice 98-1, Section V and any superseding guidance. (b) For the purposes of this Section "Actual Deferral Percentage" means, with respect to the Highly Compensated Participant group and Non-Highly Compensated Participant group for a Plan Year, the average of the ratios, calculated separately for each Participant in such group, of the amount of Employer Elective Contributions allocated to each Participant's Elective Account for such Plan Year, to such Participant's "414(s) Compensation" for such Plan Year. The actual deferral ratio for each Participant and the "Actual Deferral Percentage" for each group shall be calculated to the nearest one-hundredth of one percent. Employer Elective Contributions allocated to each Non-Highly Compensated Participant's Elective Account shall be reduced by Excess Deferred Compensation to the extent such excess amounts are made under this Plan or any other plan maintained by the Employer. (c) For the purposes of Sections 4.5(a) and 4.6, a Highly Compensated Participant and a Non-Highly Compensated Participant shall include any Employee eligible to make a deferral election pursuant to Section 4.2, whether or not such deferral election was made or suspended pursuant to Section 4.2. (d) If the Plan uses the prior year testing method, the "Actual Deferral Percentage" for the Non-Highly Compensated Participant group is determined without regard to changes in the group of Non-Highly Compensated Participants who are eligible under the Plan in the testing year. However, if the Plan results from, or is otherwise affected by, a "Plan Coverage Change" that becomes effective during the testing year, then the "Actual Deferral Percentage" for the Non-Highly Compensated Participant group for the prior year is the "Weighted Average Of The Actual Deferral Percentages For The Prior Year Subgroups." Notwithstanding the above, if ninety (90) percent or more of the total number of Non-Highly Compensated 30 36 Participants from all "Prior Year Subgroups" are from a single "Prior Year Subgroup," then in determining the "Actual Deferral Percentage" for the Non-Highly Compensated Participants for the prior year, the Employer may elect to use the "Actual Deferral Percentage" for Non-Highly Compensated Participants for the prior year under which that single "Prior Year Subgroup" was eligible, in lieu of using the weighted averages. For purposes of this Section the following definitions shall apply: (1) "Plan Coverage Change" means a change in the group or groups of eligible Participants on account of (i) the establishment or amendment of a plan, (ii) a plan merger, consolidation, or spinoff under Code Section 414(l), (iii) a change in the way plans within the meaning of Code Section 414(l) are combined or separated for purposes of Regulation 1.401(k)-1(g)(11), or (iv) a combination of any of the foregoing. (2) "Prior Year Subgroup" means all Non-Highly Compensated Participants for the prior year who, in the prior year, were eligible Participants under a specific Code Section 401(k) plan maintained by the Employer and who would have been eligible Participants in the prior year under the plan tested if the plan coverage change had first been effective as of the first day of the prior year instead of first being effective during the testing year. (3) "Weighted Average Of The Actual Deferral Percentages For The Prior Year Subgroups" means the sum, for all prior year subgroups, of the "Adjusted Actual Deferral Percentages." (4) "Adjusted Actual Deferral Percentage" with respect to a prior year subgroup means the Actual Deferral Percentage for Non-Highly Compensated Participants for the prior year of the specific plan under which the members of the prior year subgroup were eligible Participants, multiplied by a fraction, the numerator of which is the number of Non-Highly Compensated Participants in the prior year subgroup and the denominator of which is the total number of Non-Highly Compensated Participants in all prior year subgroups. (e) For the purposes of this Section and Code Sections 401(a)(4), 410(b) and 401(k), if two or more plans which include cash or deferred arrangements are considered one plan for the purposes of Code Section 401(a)(4) or 410(b) (other than Code Section 410(b)(2)(A)(ii)), the cash or deferred arrangements included in such plans shall be treated as one arrangement. In addition, two or more cash or deferred arrangements may be considered as a single arrangement for purposes of determining whether or not such arrangements satisfy Code Sections 401(a)(4), 410(b) and 401(k). In such a case, the cash or deferred arrangements included in such plans and the plans including such arrangements shall be treated as one arrangement and as one plan for purposes of this Section and Code Sections 401(a)(4), 410(b) and 401(k). Any adjustment to the Non-Highly Compensated Participant actual deferral ratio for the prior year shall be made in accordance 31 37 with Internal Revenue Service Notice 98-1 and any superseding guidance. Plans may be aggregated under this paragraph (e) only if they have the same plan year. Notwithstanding the above, for Plan Years beginning after December 31, 1996, if two or more plans which include cash or deferred arrangements are permissively aggregated under Regulation 1.410(b)-7(d), all plans permissively aggregated must use either the current year testing method or the prior year testing method for the testing year. Notwithstanding the above, an employee stock ownership plan described in Code Section 4975(e)(7) or 409 may not be combined with this Plan for purposes of determining whether the employee stock ownership plan or this Plan satisfies this Section and Code Sections 401(a)(4), 410(b) and 401(k). (f) For the purposes of this Section, if a Highly Compensated Participant is a Participant under two or more cash or deferred arrangements (other than a cash or deferred arrangement which is part of an employee stock ownership plan as defined in Code Section 4975(e)(7) or 409) of the Employer or an Affiliated Employer, all such cash or deferred arrangements shall be treated as one cash or deferred arrangement for the purpose of determining the actual deferral ratio with respect to such Highly Compensated Participant. However, if the cash or deferred arrangements have different plan years, this paragraph shall be applied by treating all cash or deferred arrangements ending with or within the same calendar year as a single arrangement. (g) For the purpose of this Section, when calculating the "Actual Deferral Percentage" for the Non-Highly Compensated Participant group, the year testing method shall be used. Any change from the current year testing method to the prior year testing method shall be made pursuant to Internal Revenue Service Notice 98-1, Section VII (or superseding guidance), the provisions of which are incorporated herein by reference. (h) Notwithstanding the above, contributions made pursuant to Section 4.1(b) are intended to comply with this Section 4.5 pursuant to the alternative methods permitted by Code Section 401(k)(12). 4.6 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS In the event (or if it is anticipated) that the initial allocations of the Employer Elective Contributions made pursuant to Section 4.4 do (or might) not satisfy one of the tests set forth in Section 4.5(a), the Administrator shall adjust Excess Contributions pursuant to the options set forth below: (a) On or before the fifteenth day of the third month following the end of each Plan Year, the Highly Compensated Participant having the largest amount of Elective Contributions shall have a portion of his Elective Contributions distributed to him until the total amount of Excess Contributions has been distributed, or until the amount of his Elective Contributions equals the Elective Contributions of the Highly Compensated Participant having the 32 38 second largest amount of Elective Contributions. This process shall continue until the total amount of Excess Contributions has been distributed. In determining the amount of Excess Contributions to be distributed with respect to an affected Highly Compensated Participant as determined herein, such amount shall be reduced pursuant to Section 4.2(f) by any Excess Deferred Compensation previously distributed to such affected Highly Compensated Participant for his taxable year ending with or within such Plan Year. (1) With respect to the distribution of Excess Contributions pursuant to (a) above, such distribution: (i) may be postponed but not later than the close of the Plan Year following the Plan Year to which they are allocable; (ii) shall be adjusted for Income; and (iii) shall be designated by the Employer as a distribution of Excess Contributions (and Income). (2) Any distribution of less than the entire amount of Excess Contributions shall be treated as a pro rata distribution of Excess Contributions and Income. (3) Matching contributions which relate to Excess Contributions shall be forfeited unless the related matching contribution is distributed as an Excess Aggregate Contribution pursuant to Section 4.8. (b) Within twelve (12) months after the end of the Plan Year, the Employer may make a special Qualified Non-Elective Contribution on behalf of Non-Highly Compensated Participants in an amount sufficient to satisfy (or to prevent an anticipated failure of) one of the tests set forth in Section 4.5(a). Such contribution shall be allocated to the Participant's Elective Account of each Non-Highly Compensated Participant in the same proportion that each Non-Highly Compensated Participant's Compensation for the year bears to the total Compensation of all Non-Highly Compensated Participants. However, if the prior year testing method is used, the special Qualified Non-Elective Contribution shall be allocated in the prior Plan Year to the Participant's Elective Account on behalf of each Non-Highly Compensated Participant who was employed by the Employer on the last day of the prior Plan Year in the same proportion that each such Non-Highly Compensated Participant's Compensation for the prior Plan Year bears to the total Compensation of all such Non-Highly Compensated Participants for the prior Plan Year. Such contribution shall be made by the Employer prior to the end of the current Plan Year. Notwithstanding the above, if the testing method changes from the current year testing method to the prior year testing method, then for purposes of preventing the double counting of Qualified Non-Elective Contributions for the first testing year for which the change is effective, any 33 39 special Qualified Non-Elective Contribution on behalf of Non-Highly Compensated Participants used to satisfy the "Actual Deferral Percentage" or "Actual Contribution Percentage" test under the current year testing method for the prior year testing year shall be disregarded. (c) If during a Plan Year the projected aggregate amount of Elective Contributions to be allocated to all Highly Compensated Participants under this Plan would, by virtue of the tests set forth in Section 4.5(a), cause the Plan to fail such tests, then the Administrator may automatically reduce proportionately or in the order provided in Section 4.6(a) each affected Highly Compensated Participant's deferral election made pursuant to Section 4.2 by an amount necessary to satisfy one of the tests set forth in Section 4.5(a). 4.7 ACTUAL CONTRIBUTION PERCENTAGE TESTS (a) The "Actual Contribution Percentage" for the Highly Compensated Participant group shall not exceed the greater of: (1) 125 percent of such percentage for the Non-Highly Compensated Participant group (for the preceding Plan Year if the prior year testing method is used to calculate the "Actual Contribution Percentage" for the Non-Highly Compensated Participant group); or (2) the lesser of 200 percent of such percentage for the Non-Highly Compensated Participant group (for the preceding Plan Year if the prior year testing method is used to calculate the "Actual Contribution Percentage" for the Non-Highly Compensated Participant group), or such percentage for the Non-Highly Compensated Participant group (for the preceding Plan Year if the prior year testing method is used to calculate the "Actual Contribution Percentage" for the Non-Highly Compensated Participant group) plus 2 percentage points. However, to prevent the multiple use of the alternative method described in this paragraph and Code Section 401(m)(9)(A), any Highly Compensated Participant eligible to make elective deferrals pursuant to Section 4.2 or any other cash or deferred arrangement maintained by the Employer or an Affiliated Employer and to make Employee contributions or to receive matching contributions under this Plan or under any plan maintained by the Employer or an Affiliated Employer shall have a combination of his Elective Contributions and Employer matching contributions reduced pursuant to Regulation 1.401(m)-2 and Section 4.8(a). The provisions of Code Section 401(m) and Regulations 1.401(m)-1(b) and 1.401(m)-2 are incorporated herein by reference. Notwithstanding the above, if the prior year testing method is used for the first Plan Year, the "Actual Contribution Percentage" for the Non-Highly Compensated Participant group shall be determined for such Plan Year. However, the Plan shall not have a first Plan Year (1) if the Plan is aggregated under Regulation 1.401(m)-1(g)(14) with any other plan that was or that included a Code Section 401(m) plan in 34 40 the prior year, or (2) the Plan is a "successor plan" as defined in Internal Revenue Service Notice 98-1, Section V and any superseding guidance. (b) For the purposes of this Section and Section 4.8, "Actual Contribution Percentage" for a Plan Year means, with respect to the Highly Compensated Participant group and Non-Highly Compensated Participant group (for the preceding Plan Year if the prior year testing method is used to calculate the "Actual Contribution Percentage" for the Non-Highly Compensated Participant group), the average of the ratios (calculated separately for each Participant in each group rounded to the nearest one-hundredth of one percent) of: (1) the sum of Employer matching contributions made pursuant to Section 4.1(b) (to the extent such matching contributions are not used to satisfy the safe harbor methods permitted by Code Sections 401(k)(12) and 401(m)(11) and Employer matching contributions made pursuant to Section 4.1(c) on behalf of each such Participant for such Plan Year; to (2) the Participant's "414(s) Compensation" for such Plan Year. (c) For purposes of determining the "Actual Contribution Percentage", only Employer matching contributions contributed to the Plan prior to the end of the succeeding Plan Year shall be considered. In addition, the Administrator may elect to take into account, with respect to Employees eligible to have Employer matching contributions pursuant to Section 4.1(b) (to the extent such matching contributions are not used to satisfy the safe harbor methods permitted by Code Sections 401(k)(12) and 401(m)(11) and Employer matching contributions pursuant to Section 4.1(c) allocated to their accounts, nonelective contributions (as described in Code Section 401(k)(12)(C)) (to the extent such nonelective contributions are not used to satisfy the safe harbor methods permitted by Code Section 401(k)(12) and 401(m)), elective deferrals (as defined in Regulation 1.402(g)-1(b)) and qualified non-elective contributions (as defined in Code Section 401(m)(4)(C)) contributed to any plan maintained by the Employer. Such Nonelective Contributions, elective deferrals and qualified non-elective contributions shall be treated as Employer matching contributions subject to Regulation 1.401(m)-1(b)(5) which is incorporated herein by reference. However, the Plan Year must be the same as the plan year of the plan to which the elective deferrals and the qualified non-elective contributions are made. (d) For purposes of this Section and Code Sections 401(a)(4), 410(b) and 401(m), if two or more plans of the Employer to which matching contributions, Employee contributions, or both, are made are treated as one plan for purposes of Code Sections 401(a)(4) or 410(b) (other than the average benefits test under Code Section 410(b)(2)(A)(ii)), such plans shall be treated as one plan. In addition, two or more plans of the Employer to which matching contributions, Employee contributions, or both, are made may be considered as a single plan for purposes of determining whether or not 35 41 such plans satisfy Code Sections 401(a)(4), 410(b) and 401(m). In such a case, the aggregated plans must satisfy this Section and Code Sections 401(a)(4), 410(b) and 401(m) as though such aggregated plans were a single plan. Any adjustment to the Non-Highly Compensated Participant actual contribution ratio for the prior year shall be made in accordance with Internal Revenue Service Notice 98-1 and any superseding guidance. Plans may be aggregated under this paragraph (e) only if they have the same plan year. Notwithstanding the above, for Plan Years beginning after December 31, 1996, if two or more plans which include cash or deferred arrangements are permissively aggregated under Regulation 1.410(b)-7(d), all plans permissively aggregated must use either the current year testing method or the prior year testing method for the testing year. Notwithstanding the above, an employee stock ownership plan described in Code Section 4975(e)(7) or 409 may not be aggregated with this Plan for purposes of determining whether the employee stock ownership plan or this Plan satisfies this Section and Code Sections 401(a)(4), 410(b) and 401(m). (e) If a Highly Compensated Participant is a Participant under two or more plans (other than an employee stock ownership plan as defined in Code Section 4975(e)(7) or 409) which are maintained by the Employer or an Affiliated Employer to which matching contributions, Employee contributions, or both, are made, all such contributions on behalf of such Highly Compensated Participant shall be aggregated for purposes of determining such Highly Compensated Participant's actual contribution ratio. However, if the plans have different plan years, this paragraph shall be applied by treating all plans ending with or within the same calendar year as a single plan. (f) For purposes of Sections 4.7(a) and 4.8, a Highly Compensated Participant and Non-Highly Compensated Participant shall include any Employee eligible to have Employer matching contributions (whether or not a deferral election was made or suspended) or voluntary employee contributions (whether or not voluntary employee contributions are made) allocated to his account for the Plan Year. (g) If the Plan uses the prior year testing method, the "Actual Contribution Percentage" for the Non-Highly Compensated Participant group is determined without regard to changes in the group of Non-Highly Compensated Participants who are eligible under the Plan in the testing year. However, if the Plan results from, or is otherwise affected by, a "Plan Coverage Change" that becomes effective during the testing year, then the "Actual Contribution Percentage" for the Non-Highly Compensated Participant group for the prior year is the "Weighted Average Of The Actual Contribution Percentages For The Prior Year Subgroups." Notwithstanding the above, if ninety (90) percent or more of the total number of Non-Highly Compensated Participants from all "Prior Year Subgroups" are from a single "Prior Year Subgroup," then in determining the "Actual Contribution Percentage" for the Non-Highly Compensated Participants for the prior year, the Employer may elect to use the "Actual Contribution Percentage" for Non-Highly 36 42 Compensated Participants for the prior year under which that single "Prior Year Subgroup" was eligible, in lieu of using the weighted averages. For purposes of this Section the following definitions shall apply: (1) "Plan Coverage Change" means a change in the group or groups of eligible Participants on account of (i) the establishment or amendment of a plan, (ii) a plan merger, consolidation, or spinoff under Code Section 414(l), (iii) a change in the way plans within the meaning of Code Section 414(l) are combined or separated for purposes of Regulation 1401(k)-1(g)(11), or (iv) a combination of any of the foregoing. (2) "Prior Year Subgroup" means all Non-Highly Compensated Participants for the prior year who, in the prior year, were eligible Participants under a specific Code Section 401(m) plan maintained by the Employer and who would have been eligible Participants in the prior year under the plan tested if the plan coverage change had first been effective as of the first day of the prior year instead of first being effective during the testing year. (3) "Weighted Average Of The Actual Contribution Percentages For The Prior Year Subgroups" means the sum, for all prior year subgroups, of the "Adjusted Actual Contribution Percentages." (4) "Adjusted Actual Contribution Percentage" with respect to a prior year subgroup means the Actual Contribution Percentage for Non-Highly Compensated Participants for the prior year of the specific plan under which the members of the prior year subgroup were eligible Participants, multiplied by a fraction, the numerator of which is the number of Non-Highly Compensated Participants in the prior year subgroup and the denominator of which is the total number of Non-Highly Compensated Participants in all prior year subgroups. (h) For the purpose of this Section, when calculating the "Actual Contribution Percentage" for the Non-Highly Compensated Participant group, the year testing method shall be used. Any change from the current year testing method to the prior year testing method shall be made pursuant to Internal Revenue Service Notice 98-1, Section VII (or superseding guidance), the provisions of which are incorporated herein by reference. (i) Notwithstanding the above, contributions made pursuant to Section 4.1(b) are intended to comply with this Section 4.7 pursuant to the alternative methods permitted by Code Section 401(m)(11). 37 43 4.8 ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS (a) In the event (or if it is anticipated) that the "Actual Contribution Percentage" for the Highly Compensated Participant group exceeds (or might exceed) the "Actual Contribution Percentage" for the Non-Highly Compensated Participant group pursuant to Section 4.7(a), the Administrator (on or before the fifteenth day of the third month following the end of the Plan Year, but in no event later than the close of the following Plan Year) shall direct the Trustee to distribute to the Highly Compensated Participant having the largest amount of contributions determined pursuant to Section 4.7(b)(2), his Vested portion of such contributions (and Income allocable to such contributions) and, if forfeitable, forfeit such non-Vested Excess Aggregate Contributions attributable to Employer matching contributions (and Income allocable to such forfeitures) until the total amount of Excess Aggregate Contributions has been distributed, or until his remaining amount equals the amount of contributions determined pursuant to Section 4.7(b)(2) of the Highly Compensated Participant having the second largest amount of contributions. This process shall continue until the total amount of Excess Aggregate Contributions has been distributed. If the correction of Excess Aggregate Contributions attributable to Employer matching contributions is not in proportion to the Vested and non-Vested portion of such contributions, then the Vested portion of the Participant's Account attributable to Employer matching contributions after the correction shall be subject to Section 6.5(f). (b) Any distribution and/or forfeiture of less than the entire amount of Excess Aggregate Contributions (and Income) shall be treated as a pro rata distribution and/or forfeiture of Excess Aggregate Contributions and Income. Distribution of Excess Aggregate Contributions shall be designated by the Employer as a distribution of Excess Aggregate Contributions (and Income). Forfeitures of Excess Aggregate Contributions shall be treated in accordance with Section 4.4. (c) Excess Aggregate Contributions, including forfeited matching contributions, shall be treated as Employer contributions for purposes of Code Sections 404 and 415 even if distributed from the Plan. Forfeited matching contributions that are reallocated to Participants' Accounts for the Plan Year in which the forfeiture occurs shall be treated as an "annual addition" pursuant to Section 4.9(b) for the Participants to whose Accounts they are reallocated and for the Participants from whose Accounts they are forfeited. (d) The determination of the amount of Excess Aggregate Contributions with respect to any Plan Year shall be made after first determining the Excess Contributions, if any, to be treated as voluntary Employee contributions due to recharacterization for the plan year of any other qualified cash or deferred arrangement (as defined in Code Section 401(k)) maintained by the Employer that ends with or within the Plan Year. 38 44 (e) If during a Plan Year the projected aggregate amount of Employer matching contributions to be allocated to all Highly Compensated Participants under this Plan would, by virtue of the tests set forth in Section 4.7(a), cause the Plan to fail such tests, then the Administrator may automatically reduce proportionately or in the order provided in Section 4.8(a) each affected Highly Compensated Participant's projected share of such contributions by an amount necessary to satisfy one of the tests set forth in Section 4.7(a). (f) Notwithstanding the above, within twelve (12) months after the end of the Plan Year, the Employer may make a special Qualified Non-Elective Contribution on behalf of Non-Highly Compensated Participants in an amount sufficient to satisfy (or to prevent an anticipated failure of) one of the tests set forth in Section 4.7(a). Such contribution shall be allocated to the Participant's Account of Non-Highly Compensated Participant in the same proportion that each Non-Highly Compensated Participant's Compensation for the Plan Year bears to the total Compensation of all Non-Highly Compensated Participants for the Plan Year. A separate accounting of any special Qualified Non-Elective Contribution shall be maintained in the Participant's Account. However, if the prior year testing method is used, the special Qualified Non-Elective Contribution shall be allocated in the prior Plan Year to the Participant's Account on behalf of each Non-Highly Compensated Participant who was employed by the Employer on the last day of the prior Plan Year in the same proportion that each such Non-Highly Compensated Participant's Compensation for the prior Plan Year bears to the total Compensation of all such Non-Highly Compensated Participants for the prior Plan Year. Such contribution shall be made by the Employer prior to the end of the current Plan Year. A separate accounting of any special Qualified Non-Elective Contributions shall be maintained in the Participant's Account. Notwithstanding the above, if the testing method changes from the current year testing method to the prior year testing method, then for purposes of preventing the double counting of Qualified Non-Elective Contributions for the first testing year for which the change is effective, any special Qualified Non-Elective Contribution on behalf of Non-Highly Compensated Participants used to satisfy the "Actual Deferral Percentage" or "Actual Contribution Percentage" test under the current year testing method for the prior year testing year shall be disregarded. 4.9 MAXIMUM ANNUAL ADDITIONS (a) Notwithstanding the foregoing, the maximum "annual additions" credited to a Participant's accounts for any "limitation year" shall equal the lesser of: (1) $30,000 adjusted annually as provided in Code Section 415(d) pursuant to the Regulations, or (2) twenty-five percent (25%) of the Participant's "415 Compensation" for such "limitation year." For any short "limitation year," the dollar limitation in (1) above shall be reduced by a 39 45 fraction, the numerator of which is the number of full months in the short "limitation year" and the denominator of which is twelve (12). (b) For purposes of applying the limitations of Code Section 415, "annual additions" means the sum credited to a Participant's accounts for any "limitation year" of (1) Employer contributions, (2) Employee contributions, (3) forfeitures, (4) amounts allocated, after March 31, 1984, to an individual medical account, as defined in Code Section 415(l)(2) which is part of a pension or annuity plan maintained by the Employer and (5) amounts derived from contributions paid or accrued after December 31, 1985, in taxable years ending after such date, which are attributable to post-retirement medical benefits allocated to the separate account of a key employee (as defined in Code Section 419A(d)(3)) under a welfare benefit plan (as defined in Code Section 419(e)) maintained by the Employer. Except, however, the "415 Compensation" percentage limitation referred to in paragraph (a)(2) above shall not apply to: (1) any contribution for medical benefits (within the meaning of Code Section 419A(f)(2)) after separation from service which is otherwise treated as an "annual addition," or (2) any amount otherwise treated as an "annual addition" under Code Section 415(l)(1). (c) For purposes of applying the limitations of Code Section 415, the transfer of funds from one qualified plan to another is not an "annual addition." In addition, the following are not Employee contributions for the purposes of Section 4.9(b)(2): (1) rollover contributions (as defined in Code Sections 402(e)(6), 403(a)(4), 403(b)(8) and 408(d)(3)); (2) repayments of loans made to a Participant from the Plan; (3) repayments of distributions received by an Employee pursuant to Code Section 411(a)(7)(B) (cash-outs); (4) repayments of distributions received by an Employee pursuant to Code Section 411(a)(3)(D) (mandatory contributions); and (5) Employee contributions to a simplified employee pension excludable from gross income under Code Section 408(k)(6). (d) For purposes of applying the limitations of Code Section 415, the "limitation year" shall be the Plan Year. (e) For the purpose of this Section, all qualified defined contribution plans (whether terminated or not) ever maintained by the Employer shall be treated as one defined contribution plan. (f) For the purpose of this Section, if the Employer is a member of a controlled group of corporations, trades or businesses under common control (as defined by Code Section 1563(a) or Code Section 414(b) and (c) as modified by Code Section 415(h)), is a member of an affiliated service group (as defined by Code Section 414(m)), or is a member of a group of entities required to be aggregated pursuant to Regulations under Code Section 414(o), all Employees of such Employers shall be considered to be employed by a single Employer. 40 46 (g) For the purpose of this Section, if this Plan is a Code Section 413(c) plan, each Employer who maintains this Plan will be considered to be a separate Employer. (h)(1) If a Participant participates in more than one defined contribution plan maintained by the Employer which have different Anniversary Dates, the maximum "annual additions" under this Plan shall equal the maximum "annual additions" for the "limitation year" minus any "annual additions" previously credited to such Participant's accounts during the "limitation year." (2) If a Participant participates in both a defined contribution plan subject to Code Section 412 and a defined contribution plan not subject to Code Section 412 maintained by the Employer which have the same Anniversary Date, "annual additions" will be credited to the Participant's accounts under the defined contribution plan subject to Code Section 412 prior to crediting "annual additions" to the Participant's accounts under the defined contribution plan not subject to Code Section 412. (3) If a Participant participates in more than one defined contribution plan not subject to Code Section 412 maintained by the Employer which have the same Anniversary Date, the maximum "annual additions" under this Plan shall equal the product of (A) the maximum "annual additions" for the "limitation year" minus any "annual additions" previously credited under subparagraphs (1) or (2) above, multiplied by (B) a fraction (i) the numerator of which is the "annual additions" which would be credited to such Participant's accounts under this Plan without regard to the limitations of Code Section 415 and (ii) the denominator of which is such "annual additions" for all plans described in this subparagraph. (i) Notwithstanding anything contained in this Section to the contrary, the limitations, adjustments and other requirements prescribed in this Section shall at all times comply with the provisions of Code Section 415 and the Regulations thereunder, the terms of which are specifically incorporated herein by reference. 4.10 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS (a) If, as a result of a reasonable error in estimating a Participant's Compensation, a reasonable error in determining the amount of elective deferrals (within the meaning of Code Section 402(g)(3)) that may be made with respect to any Participant under the limits of Section 4.9 or other facts and circumstances to which Regulation 1.415-6(b)(6) shall be applicable, the "annual additions" under this Plan would cause the maximum "annual additions" to be exceeded for any Participant, the Administrator shall (1) distribute any elective deferrals (within the meaning of Code Section 402(g)(3)) or return any Employee contributions (whether voluntary or mandatory), and for the distribution of gains attributable to those elective 41 47 deferrals and Employee contributions, to the extent that the distribution or return would reduce the "excess amount" in the Participant's accounts (2) hold any "excess amount" remaining after the return of any elective deferrals or voluntary Employee contributions in a "Section 415 suspense account" (3) use the "Section 415 suspense account" in the next "limitation year" (and succeeding "limitation years" if necessary) to reduce Employer contributions for that Participant if that Participant is covered by the Plan as of the end of the "limitation year," or if the Participant is not so covered, allocate and reallocate the "Section 415 suspense account" in the next "limitation year" (and succeeding "limitation years" if necessary) to all Participants in the Plan before any Employer or Employee contributions which would constitute "annual additions" are made to the Plan for such "limitation year" (4) reduce Employer contributions to the Plan for such "limitation year" by the amount of the "Section 415 suspense account" allocated and reallocated during such "limitation year." (b) For purposes of this Article, "excess amount" for any Participant for a "limitation year" shall mean the excess, if any, of (1) the "annual additions" which would be credited to his account under the terms of the Plan without regard to the limitations of Code Section 415 over (2) the maximum "annual additions" determined pursuant to Section 4.9. (c) For purposes of this Section, "Section 415 suspense account" shall mean an unallocated account equal to the sum of "excess amounts" for all Participants in the Plan during the "limitation year." The "Section 415 suspense account" shall not share in any earnings or losses of the Trust Fund. 4.11 TRANSFERS FROM QUALIFIED PLANS (a) With the consent of the Administrator, amounts may be transferred from other qualified plans by Eligible Employees, provided that the trust from which such funds are transferred permits the transfer to be made and the transfer will not jeopardize the tax exempt status of the Plan or Trust or create adverse tax consequences for the Employer. The amounts transferred shall be set up in a separate account herein referred to as a "Participant's Rollover Account." Such account shall be fully Vested at all times and shall not be subject to Forfeiture for any reason. (b) Amounts in a Participant's Rollover Account shall be held by the Trustee pursuant to the provisions of this Plan and may not be withdrawn by, or distributed to the Participant, in whole or in part, except as provided in paragraphs (c) and (d) of this Section. (c) Except as permitted by Regulations (including Regulation 1.411(d)-4), amounts attributable to elective contributions (as defined in Regulation 1.401(k)-1(g)(3)), including amounts treated as elective contributions, which are transferred from another qualified plan in a plan-to-plan transfer shall be subject to the distribution limitations provided for in Regulation 1.401(k)-1(d). 42 48 (d) The Administrator, at the election of the Participant, shall direct the Trustee to distribute all or a portion of the amount credited to the Participant's Rollover Account. Any distributions of amounts held in a Participant's Rollover Account shall be made in a manner which is consistent with and satisfies the provisions of Section 6.5, including, but not limited to, all notice and consent requirements of Code Section 411(a)(11) and the Regulations thereunder. Furthermore, such amounts shall be considered as part of a Participant's benefit in determining whether an involuntary cash-out of benefits without Participant consent may be made. (e) The Administrator may direct that employee transfers made after a Valuation Date be segregated into a separate account for each Participant in a federally insured savings account, certificate of deposit in a bank or savings and loan association, money market certificate, or other short term debt security acceptable to the Trustee until such time as the allocations pursuant to this Plan have been made, at which time they may remain segregated or be invested as part of the general Trust Fund, to be determined by the Administrator. (f) For purposes of this Section, the term "qualified plan" shall mean any tax qualified plan under Code Section 401(a). The term "amounts transferred from other qualified plans" shall mean: (i) amounts transferred to this Plan directly from another qualified plan; (ii) distributions from another qualified plan which are eligible rollover distributions and which are either transferred by the Employee to this Plan within sixty (60) days following his receipt thereof or are transferred pursuant to a direct rollover; (iii) amounts transferred to this Plan from a conduit individual retirement account provided that the conduit individual retirement account has no assets other than assets which (A) were previously distributed to the Employee by another qualified plan as a lump-sum distribution (B) were eligible for tax-free rollover to a qualified plan and (C) were deposited in such conduit individual retirement account within sixty (60) days of receipt thereof and other than earnings on said assets; and (iv) amounts distributed to the Employee from a conduit individual retirement account meeting the requirements of clause (iii) above, and transferred by the Employee to this Plan within sixty (60) days of his receipt thereof from such conduit individual retirement account. (g) Prior to accepting any transfers to which this Section applies, the Administrator may require the Employee to establish that the amounts to be transferred to this Plan meet the requirements of this Section and may also require the Employee to provide an opinion of counsel satisfactory to the Employer that the amounts to be transferred meet the requirements of this Section. (h) This Plan shall not accept any direct or indirect transfers (as that term is defined and interpreted under Code Section 401(a)(11) and the Regulations thereunder) from a defined benefit plan, money purchase plan (including a target benefit plan), stock bonus or profit sharing plan which 43 49 would otherwise have provided for a life annuity form of payment to the Participant. (i) Notwithstanding anything herein to the contrary, a transfer directly to this Plan from another qualified plan (or a transaction having the effect of such a transfer) shall only be permitted if it will not result in the elimination or reduction of any "Section 411(d)(6) protected benefit" as described in Section 8.1. 4.12 DIRECTED INVESTMENT ACCOUNT (a) Participants may, subject to a procedure established by the Administrator (the Participant Direction Procedures) and applied in a uniform nondiscriminatory manner, direct the Trustee to invest all of their accounts in specific assets, specific funds or other investments permitted under the Plan and the Participant Direction Procedures. That portion of the interest of any Participant so directing will thereupon be considered a Participant's Directed Account. (b) As of each Valuation Date, all Participant Directed Accounts shall be charged or credited with the net earnings, gains, losses and expenses as well as any appreciation or depreciation in the market value using publicly listed fair market values when available or appropriate. (1) To the extent that the assets in a Participant's Directed Account are accounted for as pooled assets or investments, the allocation of earnings, gains and losses of each Participant's Directed Account shall be based upon the total amount of funds so invested, in a manner proportionate to the Participant's share of such pooled investment. (2) To the extent that the assets in the Participant's Directed Account are accounted for as segregated assets, the allocation of earnings, gains and losses from such assets shall be made on a separate and distinct basis. (c) The Participant Direction Procedures shall provide an explanation of the circumstances under which Participants and their Beneficiaries may give investment instructions, including, but need not be limited to, the following: (1) the conveyance of instructions by the Participants and their Beneficiaries to invest Participant Directed Accounts in Directed Investments; (2) the name, address and phone number of the Fiduciary (and, if applicable, the person or persons designated by the Fiduciary to act on its behalf) responsible for providing information to the Participant or a Beneficiary upon request relating to the investments in Directed Investments; 44 50 (3) applicable restrictions on transfers to and from any Designated Investment Alternative; (4) any restrictions on the exercise of voting, tender and similar rights related to a Directed Investment by the Participants or their Beneficiaries; (5) a description of any transaction fees and expenses which affect the balances in Participant Directed Accounts in connection with the purchase or sale of Directed Investments; and (6) general procedures for the dissemination of investment and other information relating to the Designated Investment Alternatives as deemed necessary or appropriate, including but not limited to a description of the following: (i) the investment vehicles available under the Plan, including specific information regarding any Designated Investment Alternative; (ii) any designated Investment Managers; and (iii) a description of the additional information which may be obtained upon request from the Fiduciary designated to provide such information. (d) Any information regarding investments available under the Plan, to the extent not required to be described in the Participant Direction Procedures, may be provided to the Participant in one or more written documents which are separate from the Participant Direction Procedures and are not thereby incorporated by reference into this Plan. (e) The Administrator may, at its discretion, include in or exclude by amendment or other action from the Participant Direction Procedures such instructions, guidelines or policies as it deems necessary or appropriate to ensure proper administration of the Plan, and may interpret the same accordingly. ARTICLE V VALUATIONS 5.1 VALUATION OF THE TRUST FUND The Administrator shall direct the Trustee, as of each Valuation Date, to determine the net worth of the assets comprising the Trust Fund as it exists on the Valuation Date. In determining such net worth, the Trustee shall value the assets comprising the Trust Fund at their fair market value as of the Valuation Date and shall deduct all expenses for which the Trustee has not yet obtained reimbursement from the Employer or the Trust Fund. The Trustee may update the value of any shares held in the 45 51 Participant Directed Account by reference to the number of shares held by that Participant, priced at the market value as of the Valuation Date. 5.2 METHOD OF VALUATION In determining the fair market value of securities held in the Trust Fund which are listed on a registered stock exchange, the Administrator shall direct the Trustee to value the same at the prices they were last traded on such exchange preceding the close of business on the Valuation Date. If such securities were not traded on the Valuation Date, or if the exchange on which they are traded was not open for business on the Valuation Date, then the securities shall be valued at the prices at which they were last traded prior to the Valuation Date. Any unlisted security held in the Trust Fund shall be valued at its bid price next preceding the close of business on the Valuation Date, which bid price shall be obtained from a registered broker or an investment banker. In determining the fair market value of assets other than securities for which trading or bid prices can be obtained, the Trustee may appraise such assets itself, or in its discretion, employ one or more appraisers for that purpose and rely on the values established by such appraiser or appraisers. ARTICLE VI DETERMINATION AND DISTRIBUTION OF BENEFITS 6.1 DETERMINATION OF BENEFITS UPON RETIREMENT Every Participant may terminate his employment with the Employer and retire for the purposes hereof on his Normal Retirement Date. However, a Participant may postpone the termination of his employment with the Employer to a later date, in which event the participation of such Participant in the Plan, including the right to receive allocations pursuant to Section 4.4, shall continue until his Late Retirement Date. Upon a Participant's Retirement Date or attainment of his Normal Retirement Date without termination of employment with the Employer, or as soon thereafter as is practicable, the Trustee shall distribute, at the election of the Participant, all amounts credited to such Participant's Combined Account in accordance with Section 6.5. 6.2 DETERMINATION OF BENEFITS UPON DEATH (a) Upon the death of a Participant before his Retirement Date or other termination of his employment, all amounts credited to such Participant's Combined Account shall become fully Vested. The Administrator shall direct the Trustee, in accordance with the provisions of Sections 6.6 and 6.7, to distribute the value of the deceased Participant's accounts to the Participant's Beneficiary. (b) Upon the death of a Former Participant, the Administrator shall direct the Trustee, in accordance with the provisions of Sections 6.6 and 6.7, to distribute any remaining Vested amounts credited to the accounts of a deceased Former Participant to such Former Participant's Beneficiary. (c) The Administrator may require such proper proof of death and such evidence of the right of any person to receive payment of the value of the account of a deceased Participant or Former Participant as the 46 52 Administrator may deem desirable. The Administrator's determination of death and of the right of any person to receive payment shall be conclusive. (d) The Beneficiary of the death benefit payable pursuant to this Section shall be the Participant's spouse. Except, however, the Participant may designate a Beneficiary other than his spouse if: (1) the spouse has waived the right to be the Participant's Beneficiary, or (2) the Participant is legally separated or has been abandoned (within the meaning of local law) and the Participant has a court order to such effect (and there is no "qualified domestic relations order" as defined in Code Section 414(p) which provides otherwise), or (3) the Participant has no spouse, or (4) the spouse cannot be located. In such event, the designation of a Beneficiary shall be made on a form satisfactory to the Administrator. A Participant may at any time revoke his designation of a Beneficiary or change his Beneficiary by filing written notice of such revocation or change with the Administrator. However, the Participant's spouse must again consent in writing to any change in Beneficiary unless the original consent acknowledged that the spouse had the right to limit consent only to a specific Beneficiary and that the spouse voluntarily elected to relinquish such right. In the event no valid designation of Beneficiary exists at the time of the Participant's death, the death benefit shall be payable to his estate. (e) Any consent by the Participant's spouse to waive any rights to the death benefit must be in writing, must acknowledge the effect of such waiver, and be witnessed by a Plan representative or a notary public. Further, the spouse's consent must be irrevocable and must acknowledge the specific nonspouse Beneficiary. 6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY In the event of a Participant's Total and Permanent Disability prior to his Retirement Date or other termination of his employment, all amounts credited to such Participant's Combined Account shall become fully Vested. In the event of a Participant's Total and Permanent Disability, the Trustee, in accordance with the provisions of Sections 6.5 and 6.7, shall distribute to such Participant all amounts credited to such Participant's Combined Account as though he had retired. 6.4 DETERMINATION OF BENEFITS UPON TERMINATION (a) If a Participant's employment with the Employer is terminated for any reason other than death, Total and Permanent Disability or retirement, 47 53 such Participant shall be entitled to such benefits as are provided hereinafter pursuant to this Section 6.4. Distribution of the funds due to a Terminated Participant shall be made on the occurrence of an event which would result in the distribution had the Terminated Participant remained in the employ of the Employer (upon the Participant's death, Total and Permanent Disability or Normal Retirement). However, at the election of the Participant, the Administrator shall direct the Trustee to cause the entire Vested portion of the Terminated Participant's Combined Account to be payable to such Terminated Participant. Any distribution under this paragraph shall be made in a manner which is consistent with and satisfies the provisions of Section 6.5, including, but not limited to, all notice and consent requirements of Code Section 411(a)(11) and the Regulations thereunder. If the value of a Terminated Participant's Vested benefit derived from Employer and Employee contributions does not exceed $5,000, the Administrator shall direct the Trustee to cause the entire Vested benefit to be paid to such Participant in a single lump sum. For purposes of this Section 6.4, if the value of a Terminated Participant's Vested benefit is zero, the Terminated Participant shall be deemed to have received a distribution of such Vested benefit. (b) The Vested portion of any Participant's Account shall be a percentage of the total amount credited to his Participant's Account determined on the basis of the Participant's number of Years of Service according to the following schedule:
Vesting Schedule Years of Service Percentage 0-1 0% 2 25% 3 50% 4 75% 5 100%
(c) Notwithstanding the vesting schedule above, upon the complete discontinuance of the Employer contributions to the Plan or upon any full or partial termination of the Plan, all amounts credited to the account of any affected Participant shall become 100% Vested and shall not thereafter be subject to Forfeiture. (d) The computation of a Participant's nonforfeitable percentage of his interest in the Plan shall not be reduced as the result of any direct or indirect amendment to this Plan. For this purpose, the Plan shall be treated as having been amended if the Plan provides for an automatic change in vesting due to a change in top heavy status. In the event that the Plan is amended to change or modify any vesting schedule, a Participant with at 48 54 least three (3) Years of Service as of the expiration date of the election period may elect to have his nonforfeitable percentage computed under the Plan without regard to such amendment. If a Participant fails to make such election, then such Participant shall be subject to the new vesting schedule. The Participant's election period shall commence on the adoption date of the amendment and shall end 60 days after the latest of: (1) the adoption date of the amendment, (2) the effective date of the amendment, or (3) the date the Participant receives written notice of the amendment from the Employer or Administrator. (e)(1) If any Former Participant shall be reemployed by the Employer before a 1-Year Break in Service occurs, he shall continue to participate in the Plan in the same manner as if such termination had not occurred. (2) If any Former Participant shall be reemployed by the Employer before five (5) consecutive 1-Year Breaks in Service, and such Former Participant had received, or was deemed to have received, a distribution of his entire Vested interest prior to his reemployment, his forfeited account shall be reinstated only if he repays the full amount distributed to him before the earlier of five (5) years after the first date on which the Participant is subsequently reemployed by the Employer or the close of the first period of five (5) consecutive 1-Year Breaks in Service commencing after the distribution, or in the event of a deemed distribution, upon the reemployment of such Former Participant. In the event the Former Participant does repay the full amount distributed to him, or in the event of a deemed distribution, the undistributed portion of the Participant's Account must be restored in full, unadjusted by any gains or losses occurring subsequent to the Valuation Date coinciding with or preceding his termination. The source for such reinstatement shall first be any Forfeitures occurring during the year. If such source is insufficient, then the Employer shall contribute an amount which is sufficient to restore any such forfeited Accounts provided, however, that if a discretionary contribution is made for such year pursuant to Section 4.1(d), such contribution shall first be applied to restore any such Accounts and the remainder shall be allocated in accordance with Section 4.4. (3) If any Former Participant is reemployed after a 1-Year Break in Service has occurred, Years and Periods of Service shall include Years and Periods of Service prior to his 1-Year Break in Service subject to the following rules: (i) If a Former Participant has a 1-Year Break in Service, his pre-break and post-break service shall be used for computing Years and Periods of Service for eligibility and for vesting purposes only after he has been employed for one (1) Year or 49 55 Period of Service, whichever is applicable, following the date of his reemployment with the Employer; (ii) Any Former Participant who under the Plan does not have a nonforfeitable right to any interest in the Plan resulting from Employer contributions shall lose credits otherwise allowable under (i) above if his consecutive 1-Year Breaks in Service equal or exceed the greater of (A) five (5) or (B) the aggregate number of his pre-break Years or Periods of Service, whichever is applicable; (iii) After five (5) consecutive 1-Year Breaks in Service, a Former Participant's Vested Account balance attributable to pre-break service shall not be increased as a result of post-break service; (iv) If a Former Participant is reemployed by the Employer, he shall participate in the Plan immediately on his date of reemployment; (v) If a Former Participant (a 1-Year Break in Service previously occurred, but employment had not terminated) is credited with an Hour of Service after the first eligibility computation period in which he incurs a 1-Year Break in Service, he shall participate in the Plan immediately. 6.5 DISTRIBUTION OF BENEFITS (a) The Administrator, pursuant to the election of the Participant, shall direct the Trustee to distribute to a Participant or his Beneficiary any amount to which he is entitled under the Plan in one or more of the following methods: (1) One lump-sum payment in cash. (2) Payments over a period certain in monthly, quarterly, semiannual, or annual cash installments. In order to provide such installment payments, the Administrator may (A) segregate the aggregate amount thereof in a separate, federally insured savings account, certificate of deposit in a bank or savings and loan association, money market certificate or other liquid short-term security or (B) purchase a nontransferable annuity contract for a term certain (with no life contingencies) providing for such payment. The period over which such payment is to be made shall not extend beyond the Participant's life expectancy (or the life expectancy of the Participant and his designated Beneficiary). (b) Any distribution to a Participant who has a benefit which exceeds $5,000 shall require such Participant's consent if such distribution commences prior to the later of his Normal Retirement Age or age 62. However, if a 50 56 Participant has begun to receive distributions pursuant to an optional form of benefit under which at least one scheduled periodic distribution has not yet been made, and if the value of the Participant's benefit, determined at the time of the first distribution under that optional form of benefit, exceeded $5,000, then the value of the Participant's benefit is deemed to continue to exceed such amount. With regard to this required consent: (1) The Participant must be informed of his right to defer receipt of the distribution. If a Participant fails to consent, it shall be deemed an election to defer the commencement of payment of any benefit. However, any election to defer the receipt of benefits shall not apply with respect to distributions which are required under Section 6.5(c). (2) Notice of the rights specified under this paragraph shall be provided no less than 30 days and no more than 90 days before the date the distribution commences. (3) Consent of the Participant to the distribution must not be made before the Participant receives the notice and must not be made more than 90 days before the date the distribution commences. (4) No consent shall be valid if a significant detriment is imposed under the Plan on any Participant who does not consent to the distribution. Any such distribution may commence less than 30 days after the notice required under Regulation 1.411(a)-11 (c) is given, provided that: (1) the Administrator clearly informs the Participant that the Participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and (2) the Participant, after receiving the notice, affirmatively elects a distribution. (c) Notwithstanding any provision in the Plan to the contrary, the distribution of a Participant's benefits shall be made in accordance with the following requirements and shall otherwise comply with Code Section 401(a)(9) and the Regulations thereunder (including Regulation 1.401(a)(9)-2), the provisions of which are incorporated herein by reference: (1) A Participant's benefits shall be distributed or must begin to be distributed to him not later than April 1st of the calendar year following the later of (i) the calendar year in which the Participant attains age 70 1/2 or (ii) the calendar year in which the Participant retires, provided, however, that this clause (ii) shall not apply in the case of a Participant who is a "five (5) percent owner" at any time during the Plan Year ending with or within the calendar year in which such owner attains age 70 1/2. Such distributions shall be equal to or greater than any required distribution. 51 57 Alternatively, distributions to a Participant must begin no later than the applicable April 1st as determined under the preceding paragraph and must be made over a period certain measured by the life expectancy of the Participant (or the life expectancies of the Participant and his designated Beneficiary) in accordance with Regulations. (2) Distributions to a Participant and his Beneficiaries shall only be made in accordance with the incidental death benefit requirements of Code Section 401(a)(9)(G) and the Regulations thereunder. (d) For purposes of this Section, the life expectancy of a Participant and a Participant's spouse shall not be redetermined in accordance with Code Section 401(a)(9)(D). Life expectancy and joint and last survivor expectancy shall be computed using the return multiples in Tables V and VI of Regulation 1.72-9. (e) All annuity Contracts under this Plan shall be non-transferable when distributed. Furthermore, the terms of any annuity Contract purchased and distributed to a Participant or spouse shall comply with all of the requirements of the Plan. (f) If a distribution is made at a time when a Participant is not fully Vested in his Participant's Account and the Participant may increase the Vested percentage in such account: (1) a separate account shall be established for the Participant's interest in the Plan as of the time of the distribution; and (2) at any relevant time, the Participant's Vested portion of the separate account shall be equal to an amount ("X") determined by the formula: X equals P(AB plus (R x D)) - (R x D) For purposes of applying the formula: P is the Vested percentage at the relevant time, AB is the account balance at the relevant time, D is the amount of distribution, and R is the ratio of the account balance at the relevant time to the account balance after distribution. 6.6 DISTRIBUTION OF BENEFITS UPON DEATH (a)(1) The death benefit payable pursuant to Section 6.2 shall be paid to the Participant's Beneficiary within a reasonable time after the Participant's death by either of the following methods, as elected by the Participant (or if no election has been made prior to the Participant's death, by his Beneficiary) subject, however, to the rules specified in Section 6.6(b): (i) One lump-sum payment in cash. 52 58 (ii) Payment in monthly, quarterly, semi-annual, or annual cash installments over a period to be determined by the Participant or his Beneficiary. After periodic installments commence, the Beneficiary shall have the right to direct the Trustee to reduce the period over which such periodic installments shall be made, and the Trustee shall adjust the cash amount of such periodic installments accordingly. (2) In the event the death benefit payable pursuant to Section 6.2 is payable in installments, then, upon the death of the Participant, the Administrator may direct the Trustee to segregate the death benefit into a separate account, and the Trustee shall invest such segregated account separately, and the funds accumulated in such account shall be used for the payment of the installments. (b) Notwithstanding any provision in the Plan to the contrary, distributions upon the death of a Participant shall be made in accordance with the following requirements and shall otherwise comply with Code Section 401(a)(9) and the Regulations thereunder. If it is determined pursuant to Regulations that the distribution of a Participant's interest has begun and the Participant dies before his entire interest has been distributed to him, the remaining portion of such interest shall be distributed at least as rapidly as under the method of distribution selected pursuant to Section 6.5 as of his date of death. If a Participant dies before he has begun to receive any distributions of his interest under the Plan or before distributions are deemed to have begun pursuant to Regulations, then his death benefit shall be distributed to his Beneficiaries by December 31st of the calendar year in which the fifth anniversary of his date of death occurs. However, in the event that the Participant's spouse (determined as of the date of the Participant's death) is his Beneficiary, then in lieu of the preceding rules, distributions must be made over a period not extending beyond the life expectancy of the spouse and must commence on or before the later of: (1) December 31st of the calendar year immediately following the calendar year in which the Participant died; or (2) December 31st of the calendar year in which the Participant would have attained age 70 1/2. If the surviving spouse dies before distributions to such spouse begin, then the 5-year distribution requirement of this Section shall apply as if the spouse was the Participant. (c) For purposes of this Section, the life expectancy of a Participant and a Participant's spouse shall not be redetermined in accordance with Code Section 401(a)(9)(D). Life expectancy and joint and last survivor expectancy shall be computed using the return multiples in Tables V and VI of Regulation 1.72-9. 6.7 TIME OF SEGREGATION OR DISTRIBUTION Except as limited by Sections 6.5 and 6.6, whenever the Trustee is to make a distribution or to commence a series of payments the distribution or series of payments may be made or begun as soon as is practicable. However, unless a Former Participant elects in 53 59 writing to defer the receipt of benefits (such election may not result in a death benefit that is more than incidental), the payment of benefits shall begin not later than the 60th day after the close of the Plan Year in which the latest of the following events occurs: (a) the date on which the Participant attains the earlier of age 65 or the Normal Retirement Age specified herein; (b) the 10th anniversary of the year in which the Participant commenced participation in the Plan; or (c) the date the Participant terminates his service with the Employer. 6.8 DISTRIBUTION FOR MINOR BENEFICIARY In the event a distribution is to be made to a minor, then the Administrator may direct that such distribution be paid to the legal guardian; or if none, to a parent of such Beneficiary or a responsible adult with whom the Beneficiary maintains his residence, or to the custodian for such Beneficiary under the Uniform Gift to Minors Act or Gift to Minors Act, if such is permitted by the laws of the state in which said Beneficiary resides. Such a payment to the legal guardian, custodian or parent of a minor Beneficiary shall fully discharge the Trustee, Employer, and Plan from further liability on account thereof. 6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN In the event that all, or any portion, of the distribution payable to a Participant or his Beneficiary hereunder shall, at the later of the Participant's attainment of age 62 or his Normal Retirement Age, remain unpaid solely by reason of the inability of the Administrator, after sending a registered letter, return receipt requested, to the last known address, and after further diligent effort, to ascertain the whereabouts of such Participant or his Beneficiary, the amount so distributable shall be treated as a Forfeiture pursuant to the Plan. In the event a Participant or Beneficiary is located subsequent to his benefit being reallocated, such benefit shall be restored unadjusted for earnings or losses. 6.10 PRE-RETIREMENT DISTRIBUTION At such time as a Participant shall have attained the age of 59 1/2 years, the Administrator, at the election of the Participant, shall direct the Trustee to distribute all or a portion of the amount then credited to the accounts maintained on behalf of the Participant. However, no distribution from the Participant's Account shall occur prior to 100% vesting. In the event that the Administrator makes such a distribution, the Participant shall continue to be eligible to participate in the Plan on the same basis as any other Employee. Any distribution made pursuant to this Section shall be made in a manner consistent with Section 6.5, including, but not limited to, all notice and consent requirements of Code Section 411(a)(11) and the Regulations thereunder. Notwithstanding the above, pre-retirement distributions from a Participant's Elective Account shall not be permitted prior to the Participant attaining age 59 1/2 except as otherwise permitted under the terms of the Plan. 6.11 ADVANCE DISTRIBUTION FOR HARDSHIP (a) The Administrator, at the election of the Participant, shall direct the Trustee to distribute to any Participant in any one Plan Year up to the lesser of 100% of his Participant's Elective Account (excluding amounts attributable to the Employer contribution made pursuant to Section 4.1(b)) 54 60 valued as of the last Valuation Date or the amount necessary to satisfy the immediate and heavy financial need of the Participant. Any distribution made pursuant to this Section shall be deemed to be made as of the first day of the Plan Year or, if later, the Valuation Date immediately preceding the date of distribution, and the Participant's Elective Account shall be reduced accordingly. Withdrawal under this Section is deemed to be on account of an immediate and heavy financial need of the Participant if the withdrawal is for: (1) Expenses for medical care described in Code Section 213(d) previously incurred by the Participant, his spouse, or any of his dependents (as defined in Code Section 152) or necessary for these persons to obtain medical care; (2) The costs directly related to the purchase of a principal residence for the Participant (excluding mortgage payments); (3) Payment of tuition, related educational fees, and room and board expenses for the next twelve (12) months of post-secondary education for the Participant, his spouse, children, or dependents; or (4) Payments necessary to prevent the eviction of the Participant from his principal residence or foreclosure on the mortgage of the Participant's principal residence. (b) No distribution shall be made pursuant to this Section unless the Administrator, based upon the Participant's representation and such other facts as are known to the Administrator, determines that all of the following conditions are satisfied: (1) The distribution is not in excess of the amount of the immediate and heavy financial need of the Participant. The amount of the immediate and heavy financial need may include any amounts necessary to pay any federal, state, or local income taxes or penalties reasonably anticipated to result from the distribution; (2) The Participant has obtained all distributions, other than hardship distributions, and all nontaxable (at the time of the loan) loans currently available under all plans maintained by the Employer; (3) The Plan, and all other plans maintained by the Employer, provide that the Participant's elective deferrals and voluntary Employee contributions will be suspended for at least twelve (12) months after receipt of the hardship distribution or, the Participant, pursuant to a legally enforceable agreement, will suspend his elective deferrals and voluntary Employee contributions to the Plan and all other plans maintained by the Employer for at least twelve (12) months after receipt of the hardship distribution; and (4) The Plan, and all other plans maintained by the Employer, provide that the Participant may not make elective deferrals for the 55 61 Participant's taxable year immediately following the taxable year of the hardship distribution in excess of the applicable limit under Code Section 402(g) for such next taxable year less the amount of such Participant's elective deferrals for the taxable year of the hardship distribution. (c) Notwithstanding the above, distributions from the Participant's Elective Account pursuant to this Section shall be limited solely to the Participant's total Deferred Compensation as of the date of distribution, reduced by the amount of any previous distributions pursuant to this Section and Section 6.10. (d) Any distribution made pursuant to this Section shall be made in a manner which is consistent with and satisfies the provisions of Section 6.5, including, but not limited to, all notice and consent requirements of Code Section 411(a)(11) and the Regulations thereunder. 6.12 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION All rights and benefits, including elections, provided to a Participant in this Plan shall be subject to the rights afforded to any "alternate payee" under a "qualified domestic relations order." Furthermore, a distribution to an "alternate payee" shall be permitted if such distribution is authorized by a "qualified domestic relations order," even if the affected Participant has not separated from service and has not reached the "earliest retirement age" under the Plan. For the purposes of this Section, "alternate payee," "qualified domestic relations order" and "earliest retirement age" shall have the meaning set forth under Code Section 414(p). ARTICLE VII TRUSTEE 7.1 BASIC RESPONSIBILITIES OF THE TRUSTEE (a) The Trustee shall have the following categories of responsibilities: (1) Consistent with the "funding policy and method" determined by the Employer, to invest, manage, and control the Plan assets subject, however, to the direction of a Participant with respect to his Participant Directed Accounts, the Employer or an Investment Manager if the Trustee should appoint such manager as to all or a portion of the assets of the Plan; (2) At the direction of the Administrator, to pay benefits required under the Plan to be paid to Participants, or, in the event of their death, to their Beneficiaries; and (3) To maintain records of receipts and disbursements and furnish to the Employer and/or Administrator for each Plan Year a written annual report per Section 7.6. 56 62 (b) In the event that the Trustee shall be directed by a Participant (pursuant to the Participant Direction Procedures), or the Employer, or an Investment Manager with respect to the investment of any or all Plan assets, the Trustee shall have no liability with respect to the investment of such assets, but shall be responsible only to execute such investment instructions as so directed. (1) The Trustee shall be entitled to rely fully on the written instructions of a Participant (pursuant to the Participant Direction Procedures), or the Employer, or any Fiduciary or nonfiduciary agent of the Employer, in the discharge of such duties, and shall not be liable for any loss or other liability, resulting from such direction (or lack of direction) of the investment of any part of the Plan assets. (2) The Trustee may delegate the duty to execute such instructions to any nonfiduciary agent, which may be an affiliate of the Trustee or any Plan representative. (3) The Trustee may refuse to comply with any direction from the Participant in the event the Trustee, in its sole and absolute discretion, deems such directions improper by virtue of applicable law. The Trustee shall not be responsible or liable for any loss or expense which may result from the Trustee's refusal or failure to comply with any directions from the Participant. (4) Any costs and expenses related to compliance with the Participant's directions shall be borne by the Participant's Directed Account, unless paid by the Employer. (c) If there shall be more than one Trustee, they shall act by a majority of their number, but may authorize one or more of them to sign papers on their behalf. 7.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE (a) The Trustee shall invest and reinvest the Trust Fund to keep the Trust Fund invested without distinction between principal and income and in such securities or property, real or personal, wherever situated, as the Trustee shall deem advisable, including, but not limited to, stocks, common or preferred, bonds and other evidences of indebtedness or ownership, and real estate or any interest therein. The Trustee shall at all times in making investments of the Trust Fund consider, among other factors, the short and long-term financial needs of the Plan on the basis of information furnished by the Employer. In making such investments, the Trustee shall not be restricted to securities or other property of the character expressly authorized by the applicable law for trust investments; however, the Trustee shall give due regard to any limitations imposed by the Code or the Act so that at all times the Plan may qualify as a qualified Profit Sharing Plan and Trust. 57 63 (b) The Trustee may employ a bank or trust company pursuant to the terms of its usual and customary bank agency agreement, under which the duties of such bank or trust company shall be of a custodial, clerical and record-keeping nature. 7.3 OTHER POWERS OF THE TRUSTEE The Trustee, in addition to all powers and authorities under common law, statutory authority, including the Act, and other provisions of the Plan, shall have the following powers and authorities, to be exercised in the Trustee's sole discretion: (a) To purchase, or subscribe for, any securities or other property and to retain the same. In conjunction with the purchase of securities, margin accounts may be opened and maintained; (b) To sell, exchange, convey, transfer, grant options to purchase, or otherwise dispose of any securities or other property held by the Trustee, by private contract or at public auction. No person dealing with the Trustee shall be bound to see to the application of the purchase money or to inquire into the validity, expediency, or propriety of any such sale or other disposition, with or without advertisement; (c) To vote upon any stocks, bonds, or other securities; to give general or special proxies or powers of attorney with or without power of substitution; to exercise any conversion privileges, subscription rights or other options, and to make any payments incidental thereto; to oppose, or to consent to, or otherwise participate in, corporate reorganizations or other changes affecting corporate securities, and to delegate discretionary powers, and to pay any assessments or charges in connection therewith; and generally to exercise any of the powers of an owner with respect to stocks, bonds, securities, or other property. However, the Trustee shall not vote proxies relating to securities for which it has not been assigned full investment management responsibilities. In those cases where another party has such investment authority or discretion, the Trustee will deliver all proxies to said party who will then have full responsibility for voting those proxies; (d) To cause any securities or other property to be registered in the Trustee's own name or in the name of one or more of the Trustee's nominees, and to hold any investments in bearer form, but the books and records of the Trustee shall at all times show that all such investments are part of the Trust Fund; (e) To borrow or raise money for the purposes of the Plan in such amount, and upon such terms and conditions, as the Trustee shall deem advisable; and for any sum so borrowed, to issue a promissory note as Trustee, and to secure the repayment thereof by pledging all, or any part, of the Trust Fund; and no person lending money to the Trustee shall be bound to see to the application of the money lent or to inquire into the validity, expediency, or propriety of any borrowing; 58 64 (f) To keep such portion of the Trust Fund in cash or cash balances as the Trustee may, from time to time, deem to be in the best interests of the Plan, without liability for interest thereon; (g) To accept and retain for such time as the Trustee may deem advisable any securities or other property received or acquired as Trustee hereunder, whether or not such securities or other property would normally be purchased as investments hereunder; (h) To make, execute, acknowledge, and deliver any and all documents of transfer and conveyance and any and all other instruments that may be necessary or appropriate to carry out the powers herein granted; (i) To settle, compromise, or submit to arbitration any claims, debts, or damages due or owing to or from the Plan, to commence or defend suits or legal or administrative proceedings, and to represent the Plan in all suits and legal and administrative proceedings; (j) To employ suitable agents and counsel and to pay their reasonable expenses and compensation, and such agent or counsel may or may not be agent or counsel for the Employer; (k) To apply for and procure from responsible insurance companies, to be selected by the Administrator, as an investment of the Trust Fund such annuity, or other Contracts (on the life of any Participant) as the Administrator shall deem proper; to exercise, at any time or from time to time, whatever rights and privileges may be granted under such annuity, or other Contracts; to collect, receive, and settle for the proceeds of all such annuity or other Contracts as and when entitled to do so under the provisions thereof; (l) To invest funds of the Trust in time deposits or savings accounts bearing a reasonable rate of interest in the Trustee's bank; (m) To invest in Treasury Bills and other forms of United States government obligations; (n) To invest in shares of investment companies registered under the Investment Company Act of 1940; (o) To sell, purchase and acquire put or call options if the options are traded on and purchased through a national securities exchange registered under the Securities Exchange Act of 1934, as amended, or, if the options are not traded on a national securities exchange, are guaranteed by a member firm of the New York Stock Exchange; (p) To deposit monies in federally insured savings accounts or certificates of deposit in banks or savings and loan associations; (q) To pool all or any of the Trust Fund, from time to time, with assets belonging to any other qualified employee pension benefit trust 59 65 created by the Employer or an affiliated company of the Employer, and to commingle such assets and make joint or common investments and carry joint accounts on behalf of this Plan and such other trust or trusts, allocating undivided shares or interests in such investments or accounts or any pooled assets of the two or more trusts in accordance with their respective interests; (r) To appoint a nonfiduciary agent or agents to assist the Trustee in carrying out any investment instructions of Participants and of any Investment Manager or Fiduciary, and to compensate such agent(s) from the assets of the Plan, to the extent not paid by the Employer; (s) To do all such acts and exercise all such rights and privileges, although not specifically mentioned herein, as the Trustee may deem necessary to carry out the purposes of the Plan. 7.4 DUTIES OF THE TRUSTEE REGARDING PAYMENTS At the direction of the Administrator, the Trustee shall, from time to time, in accordance with the terms of the Plan, make payments out of the Trust Fund. The Trustee shall not be responsible in any way for the application of such payments. 7.5 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES The Trustee shall be paid such reasonable compensation as shall from time to time be agreed upon in writing by the Employer and the Trustee. An individual serving as Trustee who already receives full-time pay from the Employer shall not receive compensation from the Plan. In addition, the Trustee shall be reimbursed for any reasonable expenses, including reasonable counsel fees incurred by it as Trustee. Such compensation and expenses shall be paid from the Trust Fund unless paid or advanced by the Employer. All taxes of any kind and all kinds whatsoever that may be levied or assessed under existing or future laws upon, or in respect of, the Trust Fund or the income thereof, shall be paid from the Trust Fund. 7.6 ANNUAL REPORT OF THE TRUSTEE Within a reasonable period of time after the later of the Anniversary Date or receipt of the Employer contribution for each Plan Year, the Trustee shall furnish to the Employer and Administrator a written statement of account with respect to the Plan Year for which such contribution was made setting forth: (a) the net income, or loss, of the Trust Fund; (b) the gains, or losses, realized by the Trust Fund upon sales or other disposition of the assets; (c) the increase, or decrease, in the value of the Trust Fund; (d) all payments and distributions made from the Trust Fund; and 60 66 (e) such further information as the Trustee and/or Administrator deems appropriate. The Employer, forthwith upon its receipt of each such statement of account, shall acknowledge receipt thereof in writing and advise the Trustee and/or Administrator of its approval or disapproval thereof. Failure by the Employer to disapprove any such statement of account within thirty (30) days after its receipt thereof shall be deemed an approval thereof. The approval by the Employer of any statement of account shall be binding as to all matters embraced therein as between the Employer and the Trustee to the same extent as if the account of the Trustee had been settled by judgment or decree in an action for a judicial settlement of its account in a court of competent jurisdiction in which the Trustee, the Employer and all persons having or claiming an interest in the Plan were parties; provided, however, that nothing herein contained shall deprive the Trustee of its right to have its accounts judicially settled if the Trustee so desires. 7.7 AUDIT (a) If an audit of the Plan's records shall be required by the Act and the regulations thereunder for any Plan Year, the Administrator shall direct the Trustee to engage on behalf of all Participants an independent qualified public accountant for that purpose. Such accountant shall, after an audit of the books and records of the Plan in accordance with generally accepted auditing standards, within a reasonable period after the close of the Plan Year, furnish to the Administrator and the Trustee a report of his audit setting forth his opinion as to whether any statements, schedules or lists that are required by Act Section 103 or the Secretary of Labor to be filed with the Plan's annual report, are presented fairly in conformity with generally accepted accounting principles applied consistently. All auditing and accounting fees shall be an expense of and may, at the election of the Administrator, be paid from the Trust Fund. (b) If some or all of the information necessary to enable the Administrator to comply with Act Section 103 is maintained by a bank, insurance company, or similar institution, regulated and supervised and subject to periodic examination by a state or federal agency, it shall transmit and certify the accuracy of that information to the Administrator as provided in Act Section 103(b) within one hundred twenty (120) days after the end of the Plan Year or by such other date as may be prescribed under regulations of the Secretary of Labor. 7.8 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE (a) The Trustee may resign at any time by delivering to the Employer, at least thirty (30) days before its effective date, a written notice of his resignation. (b) The Employer may remove the Trustee by mailing by registered or certified mail, addressed to such Trustee at his last known address, at least thirty (30) days before its effective date, a written notice of his removal. 61 67 (c) Upon the death, resignation, incapacity, or removal of any Trustee, a successor may be appointed by the Employer; and such successor, upon accepting such appointment in writing and delivering same to the Employer, shall, without further act, become vested with all the estate, rights, powers, discretions, and duties of his predecessor with like respect as if he were originally named as a Trustee herein. Until such a successor is appointed, the remaining Trustee or Trustees shall have full authority to act under the terms of the Plan. (d) The Employer may designate one or more successors prior to the death, resignation, incapacity, or removal of a Trustee. In the event a successor is so designated by the Employer and accepts such designation, the successor shall, without further act, become vested with all the estate, rights, powers, discretions, and duties of his predecessor with the like effect as if he were originally named as Trustee herein immediately upon the death, resignation, incapacity, or removal of his predecessor. (e) Whenever any Trustee hereunder ceases to serve as such, he shall furnish to the Employer and Administrator a written statement of account with respect to the portion of the Plan Year during which he served as Trustee. This statement shall be either (i) included as part of the annual statement of account for the Plan Year required under Section 7.6 or (ii) set forth in a special statement. Any such special statement of account should be rendered to the Employer no later than the due date of the annual statement of account for the Plan Year. The procedures set forth in Section 7.6 for the approval by the Employer of annual statements of account shall apply to any special statement of account rendered hereunder and approval by the Employer of any such special statement in the manner provided in Section 7.6 shall have the same effect upon the statement as the Employer's approval of an annual statement of account. No successor to the Trustee shall have any duty or responsibility to investigate the acts or transactions of any predecessor who has rendered all statements of account required by Section 7.6 and this subparagraph. 7.9 TRANSFER OF INTEREST Notwithstanding any other provision contained in this Plan, the Trustee at the direction of the Administrator shall transfer the Vested interest, if any, of such Participant in his account to another trust forming part of a pension, profit sharing or stock bonus plan maintained by such Participant's new employer and represented by said employer in writing as meeting the requirements of Code Section 401(a), provided that the trust to which such transfers are made permits the transfer to be made. 7.10 DIRECT ROLLOVER (a) Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee's election under this Section, a distributee may elect, at the time and in the manner prescribed by the Administrator, to have any portion of an eligible rollover distribution that is equal to at least 62 68 $500 paid directly to an eligible retirement plan specified by the distributee in a direct rollover. (b) For purposes of this Section the following definitions shall apply: (1) An eligible rollover distribution is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee's designated beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Code Section 401(a)(9); the portion of any other distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities); any hardship distribution described in Code Section 401(k)(2)(B)(i)(IV); and any other distribution that is reasonably expected to total less than $200 during a year. (2) An eligible retirement plan is an individual retirement account described in Code Section 408(a), an individual retirement annuity described in Code Section 408(b), an annuity plan described in Code Section 403(a), or a qualified trust described in Code Section 401(a), that accepts the distributee's eligible rollover distribution. However, in the case of an eligible rollover distribution to the surviving spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity. (3) A distributee includes an Employee or former Employee. In addition, the Employee's or former Employee's surviving spouse and the Employee's or former Employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Code Section 414(p), are distributees with regard to the interest of the spouse or former spouse. (4) A direct rollover is a payment by the Plan to the eligible retirement plan specified by the distributee. 7.11 EMPLOYER SECURITIES AND REAL PROPERTY The Trustee shall be empowered to acquire and hold "qualifying Employer securities" and "qualifying Employer real property," as those terms are defined in the Act, provided, however, that the Trustee shall not be permitted to acquire any qualifying Employer securities or qualifying Employer real property if, immediately after the acquisition of such securities or property, the fair market value of all qualifying Employer securities and qualifying Employer real property held by the Trustee hereunder should amount to more than 100% of the fair market value of all the assets in the Trust Fund. 63 69 ARTICLE VIII AMENDMENT, TERMINATION AND MERGERS 8.1 AMENDMENT (a) The Employer shall have the right at any time to amend the Plan, subject to the limitations of this Section. However, any amendment which affects the rights, duties or responsibilities of the Trustee and Administrator, other than an amendment to remove the Trustee or Administrator, may only be made with the Trustee's and Administrator's written consent. Any such amendment shall become effective as provided therein upon its execution. The Trustee shall not be required to execute any such amendment unless the Trust provisions contained herein are a part of the Plan and the amendment affects the duties of the Trustee hereunder. (b) No amendment to the Plan shall be effective if it authorizes or permits any part of the Trust Fund (other than such part as is required to pay taxes and administration expenses) to be used for or diverted to any purpose other than for the exclusive benefit of the Participants or their Beneficiaries or estates; or causes any reduction in the amount credited to the account of any Participant; or causes or permits any portion of the Trust Fund to revert to or become property of the Employer, (c) Except as permitted by Regulations, no Plan amendment or transaction having the effect of a Plan amendment (such as a merger, plan transfer or similar transaction) shall be effective to the extent it eliminates or reduces any "Section 411(d)(6) protected benefit" or adds or modifies conditions relating to "Section 411(d)(6) protected benefits" the result of which is a further restriction on such benefit unless such protected benefits are preserved with respect to benefits accrued as of the later of the adoption date or effective date of the amendment. "Section 411(d)(6) protected benefits" are benefits described in Code Section 411(d)(6)(A), early retirement benefits and retirement-type subsidies, and optional forms of benefit. 8.2 TERMINATION (a) The Employer shall have the right at any time to terminate the Plan by delivering to the Trustee and Administrator written notice of such termination. Upon any full or partial termination, all amounts credited to the affected Participants' Combined Accounts shall become 100% Vested as provided in Section 6.4 and shall not thereafter be subject to forfeiture, and all unallocated amounts shall be allocated to the accounts of all Participants in accordance with the provisions hereof. (b) Upon the full termination of the Plan, the Employer shall direct the distribution of the assets of the Trust Fund to Participants in a manner which is consistent with and satisfies the provisions of Section 6.5. Distributions to a Participant shall be made in cash or through the purchase of irrevocable nontransferable deferred commitments from an insurer. Except as 64 70 permitted by Regulations, the termination of the Plan shall not result in the reduction of "Section 411(d)(6) protected benefits" in accordance with Section 8.1(c). 8.3 MERGER OR CONSOLIDATION This Plan and Trust may be merged or consolidated with, or its assets and/or liabilities may be transferred to any other plan and trust only if the benefits which would be received by a Participant of this Plan, in the event of a termination of the plan immediately after such transfer, merger or consolidation, are at least equal to the benefits the Participant would have received if the Plan had terminated immediately before the transfer, merger or consolidation, and such transfer, merger or consolidation does not otherwise result in the elimination or reduction of any "Section 411(d)(6) protected benefits" in accordance with Section 8.1(c). ARTICLE IX TOP HEAVY 9.1 TOP HEAVY PLAN REQUIREMENTS For any Top Heavy Plan Year, the Plan shall provide the special vesting requirements of Code Section 416(b) pursuant to Section 6.4 of the Plan and the special minimum allocation requirements of Code Section 416(c) pursuant to Section 4.4 of the Plan. 9.2 DETERMINATION OF TOP HEAVY STATUS (a) This Plan shall be a Top Heavy Plan for any Plan Year in which, as of the Determination Date, (1) the Present Value of Accrued Benefits of Key Employees and (2) the sum of the Aggregate Accounts of Key Employees under this Plan and all plans of an Aggregation Group, exceeds sixty percent (60%) of the Present Value of Accrued Benefits and the Aggregate Accounts of all Key and Non-Key Employees under this Plan and all plans of an Aggregation Group. If any Participant is a Non-Key Employee for any Plan Year, but such Participant was a Key Employee for any prior Plan Year, such Participant's Present Value of Accrued Benefit and/or Aggregate Account balance shall not be taken into account for purposes of determining whether this Plan is a Top Heavy or Super Top Heavy Plan (or whether any Aggregation Group which includes this Plan is a Top Heavy Group). In addition, if a Participant or Former Participant has not performed any services for any Employer maintaining the Plan at any time during the five year period ending on the Determination Date, any accrued benefit for such Participant or Former Participant shall not be taken into account for the purposes of determining whether this Plan is a Top Heavy or Super Top Heavy Plan. (b) This Plan shall be a Super Top Heavy Plan for any Plan Year in which, as of the Determination Date, (1) the Present Value of Accrued Benefits of Key Employees and (2) the sum of the Aggregate Accounts of Key 65 71 Employees under this Plan and all plans of an Aggregation Group, exceeds ninety percent (90%) of the Present Value of Accrued Benefits and the Aggregate Accounts of all Key and Non-Key Employees under this Plan and all plans of an Aggregation Group. (c) Aggregate Account: A Participant's Aggregate Account as of the Determination Date is the sum of: (1) his Participant's Combined Account balance as of the most recent valuation occurring within a twelve (12) month period ending on the Determination Date; (2) an adjustment for any contributions due as of the Determination Date. Such adjustment shall be the amount of any contributions actually made after the Valuation Date but due on or before the Determination Date, except for the first Plan Year when such adjustment shall also reflect the amount of any contributions made after the Determination Date that are allocated as of a date in that first Plan Year. (3) any Plan distributions made within the Plan Year that includes the Determination Date or within the four (4) preceding Plan Years. However, in the case of distributions made after the Valuation Date and prior to the Determination Date, such distributions are not included as distributions for top heavy purposes to the extent that such distributions are already included in the Participant's Aggregate Account balance as of the Valuation Date. Notwithstanding anything herein to the contrary, all distributions, including distributions under a terminated plan which if it had not been terminated would have been required to be included in an Aggregation Group, will be counted. Further, distributions from the Plan (including the cash value of life insurance policies) of a Participant's account balance because of death shall be treated as a distribution for the purposes of this paragraph. (4) any Employee contributions, whether voluntary or mandatory. However, amounts attributable to tax deductible qualified voluntary employee contributions shall not be considered to be a part of the Participant's Aggregate Account balance. (5) with respect to unrelated rollovers and plan-to-plan transfers (ones which are both initiated by the Employee and made from a plan maintained by one employer to a plan maintained by another employer), if this Plan provides the rollovers or plan-to-plan transfers, it shall always consider such rollovers or plan-to-plan transfers as a distribution for the purposes of this Section. If this Plan is the plan accepting such rollovers or plan-to-plan transfers, it shall not consider such rollovers or plan-to-plan transfers as part of the Participant's Aggregate Account balance. 66 72 (6) with respect to related rollovers and plan-to-plan transfers (ones either not initiated by the Employee or made to a plan maintained by the same employer), if this Plan provides the rollover or plan-to-plan transfer, it shall not be counted as a distribution for purposes of this Section. If this Plan is the plan accepting such rollover or plan-to-plan transfer, it shall consider such rollover or plan-to-plan transfer as part of the Participant's Aggregate Account balance, irrespective of the date on which such rollover or plan-to-plan transfer is accepted. (7) For the purposes of determining whether two employers are to be treated as the same employer in (5) and (6) above, all employers aggregated under Code Section 414(b), (c), (m) and (o) are treated as the same employer. (d) "Aggregation Group" means either a Required Aggregation Group or a Permissive Aggregation Group as hereinafter determined. (1) Required Aggregation Group: In determining a Required Aggregation Group hereunder, each plan of the Employer in which a Key Employee is a participant in the Plan Year containing the Determination Date or any of the four preceding Plan Years, and each other plan of the Employer which enables any plan in which a Key Employee participates to meet the requirements of Code Sections 401(a)(4) or 410, will be required to be aggregated. Such group shall be known as a Required Aggregation Group. In the case of a Required Aggregation Group, each plan in the group will be considered a Top Heavy Plan if the Required Aggregation Group is a Top Heavy Group. No plan in the Required Aggregation Group will be considered a Top Heavy Plan if the Required Aggregation Group is not a Top Heavy Group. (2) Permissive Aggregation Group: The Employer may also include any other plan not required to be included in the Required Aggregation Group, provided the resulting group, taken as a whole, would continue to satisfy the provisions of Code Sections 401(a)(4) and 410. Such group shall be known as a Permissive Aggregation Group. In the case of a Permissive Aggregation Group, only a plan that is part of the Required Aggregation Group will be considered a Top Heavy Plan if the Permissive Aggregation Group is a Top Heavy Group. No plan in the Permissive Aggregation Group will be considered a Top Heavy Plan if the Permissive Aggregation Group is not a Top Heavy Group. (3) Only those plans of the Employer in which the Determination Dates fall within the same calendar year shall be aggregated in order to determine whether such plans are Top Heavy Plans. 67 73 (4) An Aggregation Group shall include any terminated plan of the Employer if it was maintained within the last five (5) years ending on the Determination Date. (e) "Determination Date" means (a) the last day of the preceding Plan Year, or (b) in the case of the first Plan Year, the last day of such Plan Year. (f) Present Value of Accrued Benefit: In the case of a defined benefit plan, the Present Value of Accrued Benefit for a Participant other than a Key Employee, shall be as determined using the single accrual method used for all plans of the Employer and Affiliated Employers, or if no such single method exists, using a method which results in benefits accruing not more rapidly than the slowest accrual rate permitted under Code Section 411(b)(1)(C). The determination of the Present Value of Accrued Benefit shall be determined as of the most recent Valuation Date that falls within or ends with the 12-month period ending on the Determination Date except as provided in Code Section 416 and the Regulations thereunder for the first and second plan years of a defined benefit plan. (g) "Top Heavy Group" means an Aggregation Group in which, as of the Determination Date, the sum of: (1) the Present Value of Accrued Benefits of Key Employees under all defined benefit plans included in the group, and (2) the Aggregate Accounts of Key Employees under all defined contribution plans included in the group, exceeds sixty percent (60%) of a similar sum determined for all Participants. ARTICLE X MISCELLANEOUS 10.1 PARTICIPANT'S RIGHTS This Plan shall not be deemed to constitute a contract between the Employer and any Participant or to be a consideration or an inducement for the employment of any Participant or Employee. Nothing contained in this Plan shall be deemed to give any Participant or Employee the right to be retained in the service of the Employer or to interfere with the right of the Employer to discharge any Participant or Employee at any time regardless of the effect which such discharge shall have upon him as a Participant of this Plan. 10.2 ALIENATION (a) Subject to the exceptions provided below, no benefit which shall be payable out of the Trust Fund to any person (including a Participant or his Beneficiary) shall be subject in any manner to anticipation, alienation, 68 74 sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge the same shall be void; and no such benefit shall in any manner be liable for, or subject to, the debts, contracts, liabilities, engagements, or torts of any such person, nor shall it be subject to attachment or legal process for or against such person, and the same shall not be recognized by the Trustee, except to such extent as may be required by law. (b) This provision shall not apply to a "qualified domestic relations order" defined in Code Section 414(p), and those other domestic relations orders permitted to be so treated by the Administrator under the provisions of the Retirement Equity Act of 1984. The Administrator shall establish a written procedure to determine the qualified status of domestic relations orders and to administer distributions under such qualified orders. Further, to the extent provided under a "qualified domestic relations order," a former spouse of a Participant shall be treated as the spouse or surviving spouse for all purposes under the Plan. (c) This provision shall not apply to an offset to a Participant's accrued benefit against an amount that the Participant is ordered or required to pay the Plan with respect to a judgment, order, or decree issued, or a settlement entered into, on or after August 5, 1997, in accordance with Code Sections 401(a)(13)(C) and (D). 10.3 CONSTRUCTION OF PLAN This Plan and Trust shall be construed and enforced according to the Act and the laws of the State of Texas, other than its laws respecting choice of law, to the extent not preempted by the Act. 10.4 GENDER AND NUMBER Wherever any words are used herein in the masculine, feminine or neuter gender, they shall be construed as though they were also used in another gender in all cases where they would so apply, and whenever any words are used herein in the singular or plural form, they shall be construed as though they were also used in the other form in all cases where they would so apply. 10.5 LEGAL ACTION In the event any claim, suit, or proceeding is brought regarding the Trust and/or Plan established hereunder to which the Trustee, the Employer or the Administrator may be a party, and such claim, suit, or proceeding is resolved in favor of the Trustee, the Employer or the Administrator, they shall be entitled to be reimbursed from the Trust Fund for any and all costs, attorney's fees, and other expenses pertaining thereto incurred by them for which they shall have become liable. 69 75 10.6 PROHIBITION AGAINST DIVERSION OF FUNDS (a) Except as provided below and otherwise specifically permitted by law, it shall be impossible by operation of the Plan or of the Trust, by termination of either, by power of revocation or amendment, by the happening of any contingency, by collateral arrangement or by any other means, for any part of the corpus or income of any trust fund maintained pursuant to the Plan or any funds contributed thereto to be used for, or diverted to, purposes other than the exclusive benefit of Participants, Retired Participants, or their Beneficiaries. (b) In the event the Employer shall make an excessive contribution under a mistake of fact pursuant to Act Section 403(c)(2)(A), the Employer may demand repayment of such excessive contribution at any time within one (1) year following the time of payment and the Trustees shall return such amount to the Employer within the one (1) year period. Earnings of the Plan attributable to the excess contributions may not be returned to the Employer but any losses attributable thereto must reduce the amount so returned. 10.7 BONDING Every Fiduciary, except a bank or an insurance company, unless exempted by the Act and regulations thereunder, shall be bonded in an amount not less than 10% of the amount of the funds such Fiduciary handles; provided, however, that the minimum bond shall be $1,000 and the maximum bond, $500,000. The amount of funds handled shall be determined at the beginning of each Plan Year by the amount of funds handled by such person, group, or class to be covered and their predecessors, if any, during the preceding Plan Year, or if there is no preceding Plan Year, then by the amount of the funds to be handled during the then current year. The bond shall provide protection to the Plan against any loss by reason of acts of fraud or dishonesty by the Fiduciary alone or in connivance with others. The surety shall be a corporate surety company (as such term is used in Act Section 412(a)(2)), and the bond shall be in a form approved by the Secretary of Labor. Notwithstanding anything in the Plan to the contrary, the cost of such bonds shall be an expense of and may, at the election of the Administrator, be paid from the Trust Fund or by the Employer. 10.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE Neither the Employer, the Administrator, nor the Trustee, nor their successors shall be responsible for the validity of any Contract issued hereunder or for the failure on the part of the insurer to make payments provided by any such Contract, or for the action of any person which may delay payment or render a Contract null and void or unenforceable in whole or in part. 10.9 INSURER'S PROTECTIVE CLAUSE Any insurer who shall issue Contracts hereunder shall not have any responsibility for the validity of this Plan or for the tax or legal aspects of this Plan. The insurer shall be protected and held harmless in acting in accordance with any written 70 76 direction of the Trustee, and shall have no duty to see to the application of any funds paid to the Trustee, nor be required to question any actions directed by the Trustee. Regardless of any provision of this Plan, the insurer shall not be required to take or permit any action or allow any benefit or privilege contrary to the terms of any Contract which it issues hereunder, or the rules of the insurer. 10.10 RECEIPT AND RELEASE FOR PAYMENTS Any payment to any Participant, his legal representative, Beneficiary, or to any guardian or committee appointed for such Participant or Beneficiary in accordance with the provisions of the Plan, shall, to the extent thereof, be in full satisfaction of all claims hereunder against the Trustee and the Employer, either of whom may require such Participant, legal representative, Beneficiary, guardian or committee, as a condition precedent to such payment, to execute a receipt and release thereof in such form as shall be determined by the Trustee or Employer. 10.11 ACTION BY THE EMPLOYER Whenever the Employer under the terms of the Plan is permitted or required to do or perform any act or matter or thing, it shall be done and performed by a person duly authorized by its legally constituted authority. 10.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY The "named Fiduciaries" of this Plan are (1) the Employer, (2) the Administrator and (3) the Trustee. The named Fiduciaries shall have only those specific powers, duties, responsibilities, and obligations as are specifically given them under the Plan or as accepted by or assigned to them pursuant to any procedure provided under the Plan, including but not limited to any agreement allocating or delegating their responsibilities, the terms of which are incorporated herein by reference. In general, unless otherwise indicated herein or pursuant to such agreements, the Employer shall have the duties specified in Article II hereof, as the same may be allocated or delegated thereunder, including but not limited to the responsibility for making the contributions provided for under Section 4.1; and shall have the authority to appoint and remove the Trustee and the Administrator; to formulate the Plan's "funding policy and method"; and to amend or terminate, in whole or in part, the Plan. The Administrator shall have the responsibility for the administration of the Plan, including but not limited to the items specified in Article II of the Plan, as the same may be allocated or delegated thereunder. The Administrator shall act as the named Fiduciary responsible for communicating with the Participant according to the Participant Direction Procedures. The Trustee shall have the responsibility of management and control of the assets held under the Trust, except to the extent directed pursuant to Article II or with respect to those assets, the management of which has been assigned to an Investment Manager, who shall be solely responsible for the management of the assets assigned to it, all as specifically provided in the Plan and any agreement with the Trustee. Each named Fiduciary warrants that any directions given, information furnished, or action taken by it shall be in accordance with the provisions of the Plan, authorizing or providing for such direction, information or action. Furthermore, each named Fiduciary may rely upon any such direction, information or action of another named Fiduciary as being proper under the Plan, and is not required under the Plan to inquire into the propriety of any such direction, information or action. It is intended under the Plan that each named 71 77 Fiduciary shall be responsible for the proper exercise of its own powers, duties, responsibilities and obligations under the Plan as specified or allocated herein. No named Fiduciary shall guarantee the Trust Fund in any manner against investment loss or depreciation in asset value. Any person or group may serve in more than one Fiduciary capacity. In the furtherance of their responsibilities hereunder, the "named Fiduciaries" shall be empowered to interpret the Plan and Trust and to resolve ambiguities, inconsistencies and omissions, which findings shall be binding, final and conclusive. 10.13 HEADINGS The headings and subheadings of this Plan have been inserted for convenience of reference and are to be ignored in any construction of the provisions hereof. 10.14 APPROVAL BY INTERNAL REVENUE SERVICE (a) Notwithstanding anything herein to the contrary, contributions to this Plan are conditioned upon the initial qualification of the Plan under Code Section 401. If the Plan receives an adverse determination with respect to its initial qualification, then the Plan may return such contributions to the Employer within one year after such determination, provided the application for the determination is made by the time prescribed by law for filing the Employer's return for the taxable year in which the Plan was adopted, or such later date as the Secretary of the Treasury may prescribe. (b) Notwithstanding any provisions to the contrary, except Sections 3.5, 3.6, and 4.1(e), any contribution by the Employer to the Trust Fund is conditioned upon the deductibility of the contribution by the Employer under the Code and, to the extent any such deduction is disallowed, the Employer may, within one (1) year following the disallowance of the deduction, demand repayment of such disallowed contribution and the Trustee shall return such contribution within one (1) year following the disallowance. Earnings of the Plan attributable to the excess contribution may not be returned to the Employer, but any losses attributable thereto must reduce the amount so returned. 10.15 UNIFORMITY All provisions of this Plan shall be interpreted and applied in a uniform, nondiscriminatory manner. In the event of any conflict between the terms of this Plan and any Contract purchased hereunder, the Plan provisions shall control. ARTICLE XI PARTICIPATING EMPLOYERS 11.1 ADOPTION BY OTHER EMPLOYERS Notwithstanding anything herein to the contrary, with the consent of the Employer and Trustee, any other corporation or entity, whether an affiliate or subsidiary or not, may adopt this Plan and all of the provisions hereof, and participate herein and be 72 78 known as a Participating Employer, by a properly executed document evidencing said intent and will of such Participating Employer. 11.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS (a) Each such Participating Employer shall be required to use the same Trustee as provided in this Plan. (b) The Trustee may, but shall not be required to, commingle, hold and invest as one Trust Fund all contributions made by Participating Employers, as well as all increments thereof. However, the assets of the Plan shall, on an ongoing basis, be available to pay benefits to all Participants and Beneficiaries under the Plan without regard to the Employer or Participating Employer who contributed such assets. (c) The transfer of any Participant from or to an Employer participating in this Plan, whether he be an Employee of the Employer or a Participating Employer, shall not affect such Participant's rights under the Plan, and all amounts credited to such Participant's Combined Account as well as his accumulated service time with the transferor or predecessor, and his length of participation in the Plan, shall continue to his credit. (d) All rights and values forfeited by termination of employment shall inure only to the benefit of the Participants of the Employer or Participating Employer by which the forfeiting Participant was employed, except if the Forfeiture is for an Employee whose Employer is an Affiliated Employer, then said Forfeiture shall inure to the benefit of the Participants of those Employers who are Affiliated Employers. Should an Employee of one ("First") Employer be transferred to an associated ("Second") Employer which is an Affiliated Employer, such transfer shall not cause his account balance (generated while an Employee of "First" Employer) in any manner, or by any amount to be forfeited. Such Employee's Participant Combined Account balance for all purposes of the Plan, including length of service, shall be considered as though he had always been employed by the "Second" Employer and as such had received contributions, forfeitures, earnings or losses, and appreciation or depreciation in value of assets totaling the amount so transferred. (e) Any expenses of the Trust which are to be paid by the Employer or borne by the Trust Fund shall be paid by each Participating Employer in the same proportion that the total amount standing to the credit of all Participants employed by such Employer bears to the total standing to the credit of all Participants. 11.3 DESIGNATION OF AGENT Each Participating Employer shall be deemed to be a party to this Plan; provided, however, that with respect to all of its relations with the Trustee and Administrator for the purpose of this Plan, each Participating Employer shall be deemed to have designated irrevocably the Employer as its agent. Unless the context of the Plan clearly 73 79 indicates the contrary, the word "Employer" shall be deemed to include each Participating Employer as related to its adoption of the Plan. 11.4 EMPLOYEE TRANSFERS It is anticipated that an Employee may be transferred between Participating Employers, and in the event of any such transfer, the Employee involved shall carry with him his accumulated service and eligibility. No such transfer shall effect a termination of employment hereunder, and the Participating Employer to which the Employee is transferred shall thereupon become obligated hereunder with respect to such Employee in the same manner as was the Participating Employer from whom the Employee was transferred. 11.5 PARTICIPATING EMPLOYER CONTRIBUTION Any contribution subject to allocation during each Plan Year shall be allocated only among those Participants of the Employer or Participating Employer making the contribution, except if the contribution is made by an Affiliated Employer, in which event such contribution shall be allocated among all Participants of all Participating Employers who are Affiliated Employers in accordance with the provisions of this Plan. On the basis of the information furnished by the Administrator, the Trustee shall keep separate books and records concerning the affairs of each Participating Employer hereunder and as to the accounts and credits of the Employees of each Participating Employer. The Trustee may, but need not, register Contracts so as to evidence that a particular Participating Employer is the interested Employer hereunder, but in the event of an Employee transfer from one Participating Employer to another, the employing Employer shall immediately notify the Trustee thereof. 11.6 AMENDMENT Amendment of this Plan by the Employer at any time when there shall be a Participating Employer hereunder shall only be by the written action of each and every Participating Employer and with the consent of the Trustee where such consent is necessary in accordance with the terms of this Plan. 11.7 DISCONTINUANCE OF PARTICIPATION Any Participating Employer shall be permitted to discontinue or revoke its participation in the Plan. At the time of any such discontinuance or revocation, satisfactory evidence thereof and of any applicable conditions imposed shall be delivered to the Trustee. The Trustee shall thereafter transfer, deliver and assign Contracts and other Trust Fund assets allocable to the Participants of such Participating Employer to such new Trustee as shall have been designated by such Participating Employer, in the event that it has established a separate pension plan for its Employees, provided however, that no such transfer shall be made if the result is the elimination or reduction of any "Section 411(d)(6) protected benefits" in accordance with Section 8.1(c). If no successor is designated, the Trustee shall retain such assets for the Employees of said Participating Employer pursuant to the provisions of Article VII hereof. In no such event shall any part of the corpus or income of the Trust as it relates to such Participating Employer be used for or diverted to 74 80 purposes other than for the exclusive benefit of the Employees of such Participating Employer. 11.8 ADMINISTRATOR'S AUTHORITY The Administrator shall have authority to make any and all necessary rules or regulations, binding upon all Participating Employers and all Participants, to effectuate the purpose of this Article. 75 81 IN WITNESS WHEREOF, this Plan has been executed the day and year first above written. Signed, sealed, and delivered in the presence of: Elite Logistics Services, Inc. /s/ DIANA SMITH By /s/ JOSEPH D. SMITH - -------------------------------- ------------------------------------- EMPLOYER /s/ REBECCA WOMACK - -------------------------------- WITNESSES AS TO EMPLOYER ATTEST /s/ REBECCA WOMACK -------------------------------- /s/ DIANA SMITH /s/ JOSEPH D. SMITH (SEAL) - -------------------------------- -------------------------------- TRUSTEE /s/ REBECCA WOMACK - -------------------------------- WITNESSES AS TO TRUSTEE /s/ DIANA SMITH /s/ HANH NGUYEN (SEAL) - -------------------------------- -------------------------------- TRUSTEE /s/ REBECCA WOMACK - -------------------------------- WITNESSES AS TO TRUSTEE (SEAL) - -------------------------------- -------------------------------- TRUSTEE - -------------------------------- WITNESSES AS TO TRUSTEE 76 82 CERTIFICATE OF CORPORATE RESOLUTION The undersigned Secretary of Elite Logistics Services, Inc. (the Corporation) hereby certifies that the following resolutions were duly adopted by the board of directors of the Corporation on May 24, 2000, and that such resolutions have not been modified or rescinded as of the date hereof: RESOLVED, that the form of Profit Sharing Plan and Trust effective June 1, 2000, presented to this meeting is hereby approved and adopted and that the proper officers of the Corporation are hereby authorized and directed to execute and deliver to the Trustee of the Plan one or more counterparts of the Plan. RESOLVED, that for purposes of the limitations on contributions and benefits under the Plan, prescribed by Section 415 of the Internal Revenue Code, the "limitation year" shall be the Plan Year. RESOLVED, that not later than the due date (including extensions hereof) of the Corporation's federal income tax return for each of its fiscal years hereafter, the Corporation shall contribute to the Plan for each such fiscal year such amount as shall be determined by the board of directors of the Corporation and that the Treasurer of the Corporation is authorized and directed to pay such contribution to the Trustee of the Plan in cash or property and to designate to the Trustee the year for which such contribution is made. RESOLVED, that the proper officers of the Corporation shall act as soon as possible to notify the employees of the Corporation of the adoption of the Profit Sharing Plan by delivering to each employee a copy of the summary description of the Plan in the form of the Summary Plan Description presented to this meeting, which form is hereby approved. The undersigned further certifies that attached hereto as Exhibits A, B and C, respectively, are true copies of Elite Logistics Services, Inc. 401(k) Plan, Summary Plan Description and Funding Policy and Method approved and adopted in the foregoing resolutions. /s/ DIANA SMITH -------------------------------- Secretary Assistant 5-24-2000 -------------------------------- Date 83 ELITE LOGISTICS SERVICES, INC. 401(K) PLAN FUNDING POLICY AND METHOD A pension benefit plan (as defined in the Employee Retirement Income Security Act of 1974) has been adopted by the company for the purpose of rewarding long and loyal service to the company by providing to employees additional financial security at retirement. Incidental benefits are provided in the case of disability, death or other termination of employment. Since the principal purpose of the plan is to provide benefits at normal retirement age, the principal goal of the investment of the funds in the plan should be both security and long-term stability with moderate growth commensurate with the anticipated retirement dates of participants. Investments, other than "fixed dollar" investments, should be included among the plan's investments to prevent erosion by inflation. However, investments should be sufficiently liquid to enable the plan, on short notice, to make some distributions in the event of the death or disability of a participant. EX-11.1 8 d80861ex11-1.txt STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11.1 COMPUTATION OF PER SHARE EARNINGS For the following periods the registrant had no securities which were dilutive for the calculation of earnings per share.
Weighted average number of basic Summary from year-end audited Basic and diluted loss per common and diluted common stock shares financial statements share outstanding - ------------------------------ --------------------------------- -------------------------------- Three months ended 8/31/2000 (0.04) 12,231,494 Three months ended 8/31/1999 (0.01) 10,040,000
EX-27.1 9 d80861ex27-1.txt FINANCIAL DATA SCHEDULE
5 3-MOS MAY-31-2001 JUN-01-2000 AUG-31-2000 58,835 0 116,012 0 808,210 983,057 228,209 (116,474) 1,142,549 961,412 0 0 244,500 122,603 (185,966) 1,142,549 172,221 172,221 174,944 424,808 19,273 0 1,102 (447,906) 0 (447,906) 0 0 0 (447,906) (0.04) (0.04)
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