1
EXHIBIT 10.1
H&R BLOCK
DEFERRED COMPENSATION PLAN
FOR EXECUTIVES,
AS AMENDED AND RESTATED
JANUARY 1, 1999
2
H & R BLOCK
DEFERRED COMPENSATION PLAN
FOR EXECUTIVES,
AS AMENDED AND RESTATED
TABLE OF CONTENTS
Page
ARTICLE 1 DEFERRED COMPENSATION ACCOUNT........................................ 3
Section 1.1 Establishment of Account....................................... 3
Section 1.2 Property of Company and Participating Affiliates............... 3
ARTICLE 2 DEFINITIONS, GENDER, AND NUMBER...................................... 3
Section 2.1 Definitions.................................................... 3
Section 2.2 Gender and Number.............................................. 9
ARTICLE 3 PARTICIPATION........................................................ 9
Section 3.1 Who May Participate............................................ 9
Section 3.2 Time and Conditions of Participation........................... 9
Section 3.3 Termination of Participation................................... 9
Section 3.4 Missing Persons................................................ 9
Section 3.5 Relationship to Other Plans.................................... 10
Section 3.6 Participants Employed By CompuServe............................ 10
ARTICLE 4 ENTRIES TO THE ACCOUNT............................................... 10
Section 4.1 Contributions.................................................. 10
Section 4.2 Crediting Rate................................................. 12
Section 4.3 Crediting Rate Upon Retirement, Disability, Continued
Employment After Reaching the Age of 75, Death or
Termination of Employment with all Affiliates as a
Result of a Change in Control.................................. 13
Section 4.4 Crediting Rate Upon Resignation or Discharge................... 13
ARTICLE 5 VESTING.............................................................. 14
Section 5.1 Participant Deferrals and Vesting Schedule for Company
Contributions.................................................. 14
Section 5.2 Exceptions to Vesting Schedule................................. 14
ARTICLE 6 DISTRIBUTION OF BENEFITS............................................. 14
Section 6.1 Payments After Termination of Employment....................... 14
Section 6.2 Form of Benefits Upon Retirement, Disability or Continued
Employment After Reaching the Age of 75........................ 15
Section 6.3 Form of Benefits Upon Resignation or Discharge, or Termination
of Employment with all Affiliates as Result of a Change in
Control........................................................ 16
Section 6.4 Amount of Benefit.............................................. 17
1
3
Section 6.5 Time of Payment............................................. 18
Section 6.6 Death Benefits.............................................. 19
Section 6.7 Hardships................................................... 20
Section 6.8 Claims Procedure............................................ 21
Section 6.9 Alternate Forms of Benefit Distribution..................... 21
Section 6.10 Distributions on Plan Termination........................... 21
ARTICLE 7 FUNDING.............................................................. 22
Section 7.1 Source of Benefits.......................................... 22
Section 7.2 No Claim on Specific Assets................................. 22
ARTICLE 8 ADMINISTRATION AND FINANCES......................................... 22
Section 8.1 Administration.............................................. 22
Section 8.2 Powers of Committee......................................... 22
Section 8.3 Actions of the Committee.................................... 22
Section 8.4 Delegation.................................................. 22
Section 8.5 Reports and Records......................................... 22
ARTICLE 9 AMENDMENTS AND TERMINATION.......................................... 23
Section 9.1 Amendments.................................................. 23
Section 9.2 Termination................................................. 23
Section 9.3 Accelerated Vesting. ....................................... 23
ARTICLE 10 ACCELERATED VESTING................................................ 24
Section 10.1 Accelerated Vesting......................................... 24
Section 10.2 Change in Control........................................... 24
ARTICLE 11 MISCELLANEOUS....................................................... 24
Section 11.1 No Guarantee of Employment.................................. 24
Section 11.2 Individual Account Plan..................................... 24
Section 11.3 Release..................................................... 24
Section 11.4 Notices..................................................... 24
Section 11.5 Non-Alienation.............................................. 24
Section 11.6 Tax Liability............................................... 24
Section 11.7 Captions.................................................... 25
Section 11.8 Applicable Law.............................................. 25
2
4
H&R BLOCK
DEFERRED COMPENSATION PLAN
FOR EXECUTIVES,
AS AMENDED AND RESTATED
H&R Block, Inc. (the "Company") established, effective August 1, 1987, a
nonqualified deferred compensation plan for the benefit of specified Executives
of the Company, and specified affiliates of the Company. This plan became known
as the H&R Block Deferred Compensation Plan for Executives (the "DCP"). The
Company amended the DCP by Amendment No. 1 effective December 15, 1990; by
Amendment No. 2 effective January 1, 1990; by Amendment No. 3 effective
September 1, 1991; by Amendment No. 4 effective January 1, 1994; by Amendment
No. 5 effective May 1, 1994; by Amendment No. 6 effective August 1, 1995; by
Amendment No. 7 effective December 11, 1996; by Amendment No. 8 effective
January 1, 1998; by Amendment No. 9 effective as of January 1, 1997; by
Amendment No. 10 effective in part March 1, 1998 and in part April 1, 1998; and
by Amendment No. 11 effective as of May 15, 1998.
The Company adopted the H&R Block Supplemental Deferred Compensation Plan
for Executives (the "Supplemental Plan") effective as of May 1, 1994. The
Company amended said Supplemental Plan by Amendment No. 1 effective September
7, 1994; by Amendment No. 2 effective August 1, 1995; by Amendment No. 3
effective December 11, 1996; by Amendment No. 4 effective January 1, 1998; by
Amendment No. 5 effective May 1, 1997; by Amendment No. 6 effective in part
March 1, 1998 and in part April 1, 1998; and by Amendment No. 7 effective as of
May 15, 1998.
The Company continues to retain the right to amend the DCP and the
Supplemental Plan pursuant to action by the Company's Board of Directors. The
Company hereby exercises that right by combining the DCP and the SDCP into one
plan to be known as the H&R Block Deferred Compensation Plan for Executives, as
Amended and Restated (the "Plan") and by making other amendments to the Plan.
The Plan shall be effective as of January 1, 1999. Like its predecessors, the
Plan is intended to be an unfunded plan maintained primarily for the purpose of
providing deferred compensation for a select group of management or highly
compensated employees as described in Sections 201(2), 301 (a)(3) and 401(a)(1)
of the Employee Retirement Income Security Act of 1974 ("ERISA").
ARTICLE 1 DEFERRED COMPENSATION ACCOUNT
Section 1.1 Establishment of Account. The Company shall establish an
account ("Account") for each Participant which shall be utilized solely as a
device to measure and determine the amount of deferred compensation to be paid
under the Plan. For each Participant in the DCP or each Participant in both the
DCP and the Supplemental Plan as of December 31, 1998, the "Account" shall
include those accounts that existed under such plans for such Participant as of
the close of business on December 31, 1998.
Section 1.2 Property of Company and Participating Affiliates. Any amounts
so set aside for benefits payable under the Plan are the property of the
Company and its participating affiliates ("Participating Affiliates"), except,
and to the extent, of any assignment of such assets to an irrevocable trust.
ARTICLE 2 DEFINITIONS, GENDER, AND NUMBER
Section 2.1 Definitions. Whenever used in the Plan, the following words
and phrases
3
5
shall have the meanings set forth below unless the context plainly requires a
different meaning, and when a defined meaning is intended, the term is
capitalized.
2.1.1 "Account" means the device used to measure and determine
the amount of deferred compensation to be paid to a Participant or
Beneficiary under the Plan, and may refer to the separate Accounts that
represent amounts deferred by a Participant under separate Permissible
Deferral elections or by the Company pursuant to Section 4.1.
2.1.2 "Account Executive" means a person who has the title of
Account Executive, is employed on a full-time basis by a Participating
Affiliate, and is responsible for managing, overseeing, directing or
handling the accounts of clients of the Participating Affiliate.
2.1.3 "Accounting Firm" means an accounting firm in which the
Company has no direct or indirect ownership interest but with which an
Accounting Subsidiary has a contractual relationship in respect of one or
more employees who are employees of both such accounting firm and such
Accounting Subsidiary.
2.1.4 "Accounting Subsidiary" means an indirect accounting firm
subsidiary of the Company that is involved in the provision of non-attest
accounting services, the management of one or more Accounting Firms,
and/or the ownership of one or more other accounting firm subsidiaries of
the Company.
2.1.5 "Affiliates" or "Affiliate" means a group of entities,
including the Company, which constitutes a controlled group of
corporations (as defined in section 414(b) of the Code), a group of
trades or businesses (whether or not incorporated) under common control
(as defined in section 414(c) of the Code), and members of an affiliated
service group (within the meaning of section 414(m) of the Code.)
2.1.6 "Age" of a Participant means the number of whole calendar
years that have elapsed since the date of the Participant's birth.
2.1.7 "Annual Deferral Amount" means the amount of Base Salary,
and/or Bonus that a Participant elects to defer each Plan Year under a
Permissible Deferral. The amount of Base Salary included in the Annual
Deferral Amount shall be equal to a percentage of the Participant's Base
Salary that is not less than three percent (3%) and not greater than
fifty percent (50%), and the amount of Bonus or Bonuses included in the
Annual Deferral Amount shall be equal to (i) a flat dollar amount,
expressed in one thousand dollar ($1,000) increments, or (ii) a
percentage of the Bonus or Bonuses paid during the Plan Year that is not
less than five percent (5%) and not greater than fifty percent (50%),
expressed in five percent (5%) increments. In the case of a Participant
who is an employee of both an Accounting Subsidiary and an Accounting
Firm, the calculation of the amount of the Annual Deferral Amount that
the Participant is permitted to elect shall be made by taking into
account the amount of salary and bonus paid to such Participant by the
Accounting Firm, but the actual deferral under the Plan shall only be
made out of the Base Salary and/or Bonus or Bonuses paid by all
Affiliates.
2.1.8 "Assumed Interest Rate" has the meaning specified in
Section 6.4.3.
2.1.9 "Base Salary" of an Executive for any Plan Year means the
total annual salary and wages paid by all Affiliates to such individual
during that Plan Year, including any amount which would be included in
the definition of Base Salary, but for the
4
6
individual's election to defer some of his or her salary pursuant to this
Plan or some other deferred compensation plan established by an
Affiliate; but excluding any other remuneration paid by Affiliates, such
as overtime, net commissions, bonuses, stock options, distributions of
compensation previously deferred, restricted stock, allowances for
expenses (including moving, travel expenses, and automobile allowances),
and fringe benefits payable in a form other than cash. The "Base Salary"
of an Account Executive for any Plan Year means the total earnings and
wages, including any and all commissions, incentives and bonuses, paid by
all Affiliates to such individual during that Plan Year, including any
amount which would be included in the definition of Base Salary, but for
the individual's election to defer some of his or her earnings pursuant
to this Plan or some other deferred compensation plan established by an
Affiliate; but excluding any other remuneration paid by Affiliates, such
as overtime, stock options, distributions of compensation previously
deferred, restricted stock, allowances for expenses (including moving,
travel expenses, and automobile allowances), and fringe benefits payable
in a form other than cash. In the case of an individual who is a
participant in a plan sponsored by an Affiliate which is described in
Section 401(k) of the Code, the term Base Salary shall include any amount
which would be included in the definition of Base Salary, but for the
individual's election to reduce his salary or earnings and have the
amount of the reduction contributed to the 401(k) plan on his behalf.
2.1.10 "Beneficiary" or "Beneficiaries" means the persons or
trusts designated by a Participant in writing pursuant to Section 6.6.4
of the Plan as being entitled to receive any benefit payable under the
Plan by reason of the death of a Participant, or, in the absence of such
designation, the persons specified in Section 6.6.5 of the Plan.
2.1.11 "Board" means the Board of Directors of the Company as
constituted at the relevant time.
2.1.12 "Bonus" or "Bonuses" of an Executive for any Plan Year
means the total remuneration paid under the various annual management
bonus programs ("annual bonuses") by Affiliates to such individual for
that Plan Year including any amount which would be included in the
definition of Bonus, but for the individual's election to defer some or
all of his or her annual bonus pursuant to this Plan or some other
deferred compensation plan established by an Affiliate; but excluding any
other remuneration paid by Affiliates, such as Base Salary, overtime, net
commissions, stock options, distributions of compensation previously
deferred, restricted stock, allowances for expenses (including moving,
travel expenses, and automobile allowances), and fringe benefits payable
in a form other than cash. For purposes of this Plan, the terms Bonus and
Bonuses specifically exclude any and all types of commissions, incentives
or bonuses paid by any Affiliate to an Account Executive.
2.1.13 "Change in Control" has the meaning specified in
Section 10.2
2.1.14 "Closing Price" means the closing price of the Company's
Common Stock on the New York Stock Exchange as of the applicable date;
provided, however, that if no closing price is available for such date,
"Closing Price" means the closing price of the Company's Common Stock as
of the next most recent date for which a price is available.
2.1.15 "Code" means the Internal Revenue Code of 1986, as
amended from time to time and any successor statute. References to a
Code section shall be deemed to be to that section or to any successor to
that section.
5
7
2.1.16 "Committee" means the Compensation Committee of the
Company's Board.
2.1.17 "Common Stock" means the common stock of the Company.
2.1.18 "Company" means H&R Block, Inc.
2.1.19 "Company Contribution" or "Company Contributions" means
the sum of (i) the Company Matching Contributions described in Section
4.1.2, and (ii) the additional Company contributions described in Section
4.1.3.
2.1.20 "DCP" means the H&R Block Deferred Compensation Plan for
Executives initially adopted by the Company effective as of August 1,
1987, as subsequently amended prior to the Effective Date of this Plan.
2.1.21 "Deferred Compensation Unit" means a unit equal in value
to one share of Common Stock and posted to a Participant's Account for
the purpose of measuring the benefits payable under the Plan.
2.1.22 "Disabled" or "Disability" with respect to a Participant
shall have the same definition as in the Company's then existing long
term group disability insurance program.
2.1.23 "Early Retirement Date" of a Participant means the first
day of the first calendar month commencing on or after the date on which
(i) the Participant has reached Age 55 while in the employ of an
Affiliate and (ii) the Participant has completed at least ten (10) Years
of Service."
2.1.24 "Effective Date" or "Effective Date of this Plan" means
the date on which the DCP became effective, i.e., August 1, 1987.
2.1.25 "Enrollment Period" for a Plan Year commencing on January
1 means the immediately preceding period of October 1 through December
15, inclusive. At its sole and absolute discretion, the Committee may
grant to a person eligible to participate in the Plan an "Enrollment
Period" consisting of the 30-day period immediately following the date on
which such person is first employed by a Participating Affiliate.
2.1.26 "Executive" means a person other than an Account
Executive with substantial responsibility in the management of a
Participating Affiliate employed on a full-time basis by that
Participating Affiliate.
2.1.27 "5-year payout" has the meaning specified in
Section 6.3.2.
2.1.28 "Fixed 120 Account" means an Account that represents
amounts deferred by a Participant under a Permissible Deferral
election(s) as a part of which the Participant elected the fixed rate
investment option described in the second paragraph of Section 4.2.1.
2.1.29 "Group A Participant" has the meaning specified in
Section 3.1.1.
2.1.30 "Group B Participant" has the meaning specified in
Section 3.1.2.
6
8
2.1.31 "Hours of Service" means hours of service determined in
accordance with the provisions of the then existing H&R Block Employee
Profit Sharing Retirement Plan.
2.1.32 "Initial Payment Period" has the meaning specified in
Section 6.4.2.
2.1.33 "Matching Contributions" has the meaning specified in
Section 4.1.2.
2.1.34 "Normal Retirement Date" of a Participant means the last
day of the calendar month in which the Participant reaches the Age of 65
while in the employ of an Affiliate.
2.1.35 "Overall Payment Period" has the meaning specified in
Section 6.4.1.
2.1.36 "Participant" means an Executive or an Account Executive
who is eligible to participate in the Plan and has elected to participate
in the Plan.
2.1.37 "Participating Affiliate" or "Participating Affiliates"
means the Company and the following indirect subsidiaries of the Company,
each of which is an Affiliate: HRB Management, Inc., H&R Block Tax
Services, Inc., Block Financial Corporation, HRB Business Services, Inc.,
and the U.S. subsidiaries of such indirect subsidiaries; and such other
Affiliates as may be designated as such by the Company from time to time.
2.1.38 "Permissible Deferral" means, with respect to a Plan
Year, a deferral in that Plan Year of an Annual Deferral Amount. For all
Participants, the aggregate of all deferrals made under the Plan,
including the DCP and the Supplemental Plan, for all Plan Years may not
exceed one million dollars ($1,000,000.00).
In the case of a Participant who is an employee of both an
Accounting Subsidiary and an Accounting Firm, the calculation of the
amount of the Permissible Deferral shall be made by taking into account
the amount of salary and bonus paid to such Participant by the Accounting
Firm, but the actual deferral under the Plan shall only be made out of
Base Salary and/or Bonus or Bonuses paid by all Affiliates.
Deferrals may be made from Base Salary for a Plan Year and/or
from a Bonus or Bonuses applicable to the Plan Year. Deferrals from the
Base Salary or from a Bonus or Bonuses are made in separate elections by
the Participant during the Enrollment Period prior to the Plan Year
during which such Base Salary would otherwise be paid to the Participant
or the Bonus would be earned without further contingency (regardless of
when such Bonus is paid). Deferral elections must specify (i) the
percentage (stated as an integer) of the deferral that is intended to be
deducted from the Base Salary and (ii) the percentage (stated as an
integer) or the flat dollar amount of the deferral that is intended to be
deducted from the Bonus or Bonuses. Deferrals made from the Base Salary
shall be made in installments, as instructed and approved by the
Committee. Deferrals made from each Bonus shall be made at the time or
times during the applicable Plan Year that the Bonus would otherwise be
paid to the Participant (based upon the deferral election in effect for
the Plan Year when the Bonus was earned without further contingency).
Each installment of a deferral shall be rounded to the nearest whole
dollar amount.
A Participant may irrevocably elect at the time of making a
Permissible Deferral election to have the entire amount of his or her
Base Salary deferral for a Plan Year deferred from such Participant's
Bonus or Bonuses earned during such Plan Year without
7
9
further contingency. The amount of the Base Salary deferral will be
determined as of January 1 of such Plan Year based on the annual rate of
Base Salary in effect for the Participant on that date. Such election may
be in addition to an election to defer Bonus itself and both the Base
Salary deferral amount and the Bonus deferral amount are eligible for
Company Contributions (subject to the limits specified in Article 4). For
example, Participant A, a 5-year Plan Participant, is paid a Base Salary
at an annual rate of $100,000 on January 1 of Plan Year X, and earns a
Bonus of $50,000 without further contingency during Plan Year X. During
the Enrollment Period prior to Plan Year X, A elected to defer 25% of
Base Salary and 25% of Bonus in Plan Year X. A also elected to have all
of the Base Salary deferral deferred from the Bonus. In this example,
$37,500 would be deferred from A's bonus ($25,000 of salary deferrals
(25% of $100,000) and $12,500 of bonus deferrals ($25% of $50,000)). The
entire $37,500 would be subject to Company Contributions under Article 4.
If, in such example, the actual Bonus amount is $35,000, all of the bonus
would be deferred and $2,500 of elected Base Salary deferrals would not
be deferred from Base Salary or Bonus applicable to such Plan Year
because the Bonus was not sufficiently large to cover both the elected
Base Salary deferral and the Bonus deferral.
2.1.39 "Plan" means the "H&R Block Deferred Compensation Plan
for Executives, as Amended and Restated" as of January 1, 1999, as set
forth herein and as further amended and/or restated from time to time.
2.1.40 "Plan Year" means the calendar year for all Permissible
Deferrals and for all purposes when used in Sections 4.3, 4.4, 6.2, 6.3,
6.4, 6.6 and 6.7. Except for Permissible Deferrals elected to commence on
March 1, 1998, and Permissible Deferrals elected during a discretionary
Enrollment Period in accordance with Section 2.1.25, "Plan Year " means
the calendar year (a) for all Permissible Deferrals elected by Group B
Participants, and (b) for Permissible Deferrals of Group A Participants
elected to commence January 1, 1991 or later. For Permissible Deferrals
of Group A Participants elected to commence on or before May 1, 1990,
"Plan Year" means the 12-month period ending each April 30, through April
30, 1997, the period between May 1, 1997 and December 31, 1997,
inclusive, and the calendar year thereafter. For Permissible Deferrals of
Participants elected to commence on March 1, 1998, "Plan Year" means the
10-month period between March 1, 1998 and December 31, 1998, inclusive,
and the calendar year thereafter. If the Committee grants to a person
eligible to participate in the Plan a discretionary Enrollment Period in
accordance with Section 2.1.25 and such person submits to the Company a
Permissible Deferral election, such Participant's first "Plan Year" shall
be the period (i) beginning on the first day of his or her first regular
pay period commencing not less than 30 days after the Company's receipt
of his or her Permissible Deferral election, and (ii) ending on December
31 of the year in which such pay period falls. Plan Years under the DCP
and Supplemental Plan shall constitute Plan Years under this Plan,
provided that, for all purposes hereunder, a Participant that
participated in both the DCP and the Supplemental Plan simultaneously
shall be considered to have participated in this Plan for only one Plan
Year for each Plan Year of simultaneous participation in the DCP and
Supplemental Plan.
2.1.41 "Plan Year Payment Period" has the meaning specified in
Section 6.4.2.
2.1.42 "Remainder Payment Period" has the meaning specified in
Section 6.4.2.
2.1.43 "Standard Form of Benefit" as to any Participant means
semimonthly payments for a fifteen (15) year period.
8
10
2.1.44 "Supplemental Plan" means the H&R Block Supplemental
Deferred Compensation Plan for Executives initially adopted by the
Company effective as of May 1, 1994, as subsequently amended prior to the
Effective Date of this Plan.
2.1.45 "10-year payout" has the meaning specified in
Section 6.3.2.
2.1.46 "Trust" means the H&R Block, Inc. Deferred Compensation
Trust Agreement.
2.1.47 "Years of Service" means the number of consecutive Plan
Years (including years prior to the Effective Date of this Plan) for
which the Participant had at least 1,000 Hours of Service.
Section 2.2 Gender and Number. Except as otherwise indicated by
context, masculine terminology used herein also includes the feminine and
neuter, and terms used in the singular may also include the plural.
ARTICLE 3 PARTICIPATION
Section 3.1 Who May Participate. Participation in the Plan is
limited to Group A and Group B Participants, described as follows:
3.1.1 "Group A Participant" is an Executive of the
Company or of a Participating Affiliate (i) serving as a Vice
President of the Company or applicable Participating Affiliate,
or (ii) participating in the DCP as a "Group A Participant"
under the DCP as of December 31, 1998, as such term was defined
as of such date.
3.1.2 "Group B Participant" is an Executive or Account
Executive who does not qualify as a Group A Participant, but who
is designated by the Committee as eligible to participate in the
Plan.
Section 3.2 Time and Conditions of Participation. An eligible
Executive or Account Executive shall become a Participant only upon (i)
the individual's completion of a Permissible Deferral election for the
succeeding Plan Year or Plan Years during an Enrollment Period, in
accordance with a form established by the Company from time to time, and
(ii) compliance with such terms and conditions as the Committee may from
time to time establish for the implementation of the Plan, including, but
not limited to, any condition the Committee may deem necessary or
appropriate for the Company to meet its obligations under the Plan. An
individual may make a Permissible Deferral election for any succeeding
Plan Year during an Enrollment Period provided the total Permissible
Deferral elections do not exceed the limitation set forth in Section
2.1.38.
Section 3.3 Termination of Participation. Once an individual
has become a Participant in the Plan, participation shall continue until
the first to occur of (i) payment in full of all benefits to which the
Participant or Beneficiary is entitled under the Plan, or (ii) the
occurrence of an event specified in Section 3.4 which results in loss of
benefits, or (iii) for a Group B Participant, having an Annual Deferral
Amount that causes the Participant's Base Salary and Bonus for the Plan
Year, after reduction for the Annual Deferral Amount, to be less than
ninety-nine percent (99%) of the United States Social Security
Contribution and Benefit Base determined under Section 230 of
9
11
the Social Security Act for such Plan Year. A Group B Participant whose
participation in the Plan is terminated under clause (iii) of the preceding
sentence shall be deemed for purposes of all Plan provisions (including Section
4.4, Section 5.1 and Section 6.3) to have voluntarily terminated employment with
the Company as of the date the Participant's Plan participation is terminated.
Such a Participant may then reenter the Plan during the following Enrollment
Period, assuming the Participant continues to be eligible to participate in the
Plan as provided in Section 3.1. Except as otherwise specified in the Plan, the
Company may not terminate an individual's participation in the Plan.
Section 3.4 Missing Persons. If the Company is unable to locate the
Participant or his Beneficiary for purposes of making a distribution, the amount
of a Participant's benefits under this Plan that would otherwise be considered
as non-forfeitable shall be forfeited effective four (4) years after (i) the
last date a payment of said benefit was made, if at least one such payment was
made, or (ii) the first date a payment of said benefit was directed to be made
by the Company pursuant to the terms of the Plan, if no payments had been made.
If such person is located after the date of such forfeiture, the benefits for
such Participant or Beneficiary shall not be reinstated hereunder.
Section 3.5 Relationship to Other Plans. Participation in the Plan shall
not preclude participation of the Participant in any other fringe benefit
program or plan sponsored by an Affiliate for which such Participant would
otherwise be eligible. For persons participating in the DCP and, if applicable,
the Supplemental Plan, as of December 31, 1998, who continue as Participants in
this Plan as of January 1, 1999, participation in this Plan shall be deemed to
be continued participation in the DCP and, if applicable, the Supplemental Plan,
but under the terms of this Plan.
Section 3.6 Changes in Employment Status. If a Participant has a change in
his or her employment responsibilities, title and/or compensation, such that the
Participant would not qualify for initial participation in the Plan as a Group A
Participant or Group B Participant, as determined by the Committee, (i) the
Participant shall continue to make deferrals in accordance with the
Participant's Permissible Deferral election for the Plan Year during which the
change in employment responsibilities, title and/or compensation occurs, (ii)
the Participant shall not be eligible to make Permissible Deferrals in Plan
Years following the Plan Year during which the change in employment
responsibilities, title and/or compensation occurs unless and until the
Participant again qualifies for initial participation as a Group A Participant
or a Group B Participant, as determined by the Committee, and (iii) the
Participant shall otherwise continue to participate in the Plan.
ARTICLE 4 ENTRIES TO THE ACCOUNT
Section 4.1 Contributions
4.1.1 Deferrals. During each Plan Year, if the Participant
elects the fixed rate and/or variable crediting rate option for measuring
the performance of the Account under Section 4.2, the Company shall post
to the Account of such Participant the dollar amount of Base Salary and
Bonuses to be deferred as designated by the Participant's Permissible
Deferral election in effect for that Plan Year. Deferrals from Base
Salary each calendar month shall be posted as of the first day of such
month and deferrals from Bonuses shall be posted as of the first day of
the calendar month in which the Bonus would otherwise have been paid to
the Participant.
During each Plan Year, if the Participant elects the Common
Stock crediting rate option for measuring the performance of the Account
under Section 4.2, the Company
10
12
shall post to the Account of such Participant a number of Deferred
Compensation Units equivalent to the amount of Base Salary and Bonuses to
be deferred as designated by the Participant's Permissible Deferral
election in effect for that Plan Year. Deferrals from Base Salary each
calendar month (and the corresponding number of Deferred Compensation
Units) shall be posted as of the first day of such month and deferrals
from Bonuses shall be posted as of the first day of the calendar month in
which the Bonus would otherwise have been paid to the Participant. The
number of Deferred Compensation Units posted for each calendar month
shall be calculated by dividing: (i) the dollar amount deferred during
that month; by (ii) the Closing Price on the first business day (i.e., a
day on which the Common Stock is traded on the New York Stock Exchange)
of that month.
4.1.2 Company Matching Contributions. The Company shall post
"Matching Contributions" to the Account of each Participant as follows.
For each $1.00 of Base Salary or Bonus deferred pursuant to Section
4.1.1, the Company shall post an additional $.25 to the Participant's
Account, provided, however, that the maximum percentage of each of Base
Salary and Bonus to which a Matching Contribution shall be made with
respect to a Plan Year shall be dependent upon the number of Plan Years
in which the Participant has participated in the Plan, as follows:
Maximum Percentage
of Base Salary and Bonus
Plan Year of Participation Matched by a Company Contribution
-------------------------- ---------------------------------
1st and 2nd Year of Participation 10%
3rd and 4th Year of Participation 20%
5th Year of Participation and After 25%
and, provided further, that the total of all Matching Contributions made
pursuant to this Plan after December 31, 1998 shall not exceed
twenty-five percent (25%) of the amount by which $1,000,000.00 exceeds
the aggregate amount of Permissible Deferrals completed by the
Participant pursuant to the Plan on or before December 31, 1998.
The combination of the DCP and the Supplemental Plan into this
Plan shall not result in the posting of any Company Matching
Contributions to any accounts applicable to the Supplemental Plan (which
had no Matching Contributions), nor shall such combination affect any
Company Matching Contributions posted to accounts pursuant to the DCP.
Deferrals made on and after January 1, 1999, by Participants who were
participants in the Supplemental Plan shall result in the posting of
Company Matching Contributions to the extent permitted by the immediately
preceding paragraph of this Section 4.1.2.
If the Participant elects the Common Stock crediting rate option
for measuring the performance of the Account under Section 4.2, the
Company shall post to the Account of such Participant for each calendar
month a number of Deferred Compensation Units equal to (i) the dollar
amount of Matching Contributions posted to the Account during such month;
divided by (ii) the Closing Price on the first business day of that
month. Deferred Compensation Units attributable to Matching
Contributions shall be posted as of the same time as the corresponding
Matching Contributions.
4.1.3 Additional Company Contributions. The Company shall also
post to the Account of each Participant once each Plan Year the
difference, if any, between (a) the amount for that Plan Year which would
have been contributed on behalf of the Participant to any profit sharing
plan which is deemed to be a "qualified plan" under the Code if the
11
13
Participant had not made a Permissible Deferral election under the Plan;
and (b) the amount for that Plan Year contributed on behalf of the
Participant to such a plan.
If the Participant elects the Common Stock crediting rate option
for measuring the performance of the Account under Section 4.2, the
Company shall post to the Account of such Participant for the calendar
month in which any Plan Year contribution is made by the Company pursuant
to the first paragraph of this Section 4.1.3 a number of Deferred
Compensation Units equal to (i) the dollar amount of any such Plan Year
contribution made during such month; divided by (ii) the Closing Price on
the first business day of that month. Deferred Compensation Units
attributable to any contribution made by the Company pursuant to the
first paragraph of this Section 4.1.3 shall be posted as of the same time
as such corresponding contributions.
4.1.4 Disability. During the first 90-day period in which a
Participant is Disabled, deferrals and Company Contributions (and, if
applicable, the corresponding number of Deferred Compensation Units)
shall continue to be posted as described in Sections 4.1.1, 4.1.2 and
4.1.3. If a Participant continues to be Disabled after such 90-day
period, deferrals will cease but Company Contributions will continue for
the balance of the Participant's Permissible Deferral period as if the
Participant's deferrals had continued. A Participant may resume deferrals
upon his or her return to work.
4.1.5 Fixed 120 Account Permissible Deferral Elections. A
Participant making Base Salary and/or Bonus deferrals into a Fixed 120
Account under the DCP as of December 31, 1997 who did not make the
special, one-time election provided under the DCP to have all then
outstanding and incomplete Fixed 120 Account deferral cycles deemed
completed as of December 31, 1997, shall continue to make such deferrals
in accordance with the Participant's original Permissible Deferral
election.
Section 4.2 Crediting Rate. Gains or losses shall be posted to the
Account in accordance with the Participant's election of investment options
which will be a reference for measuring the performance of the Account, as
modified, if applicable, by Section 4.3 or Section 4.4. The Company intends to
measure the performance of the Account in accordance with the Participant's
election but reserves the right to do otherwise. The Participant shall elect
from among the following investment options: (i) a fixed rate as described in
4.2.1, (ii) a variable rate as described in 4.2.2, or (iii) a Common Stock
crediting rate as described in 4.2.3. On a monthly basis, Participants may elect
to reallocate all or any portion of their Account balances, including the entire
balance in a Fixed 120 Account, among the available investment options,
including those funds selected by the Company for the variable rate investment
option, provided said reallocations are in at least ten percent (10%)
increments. If a Participant does elect to reallocate his or her entire Fixed
120 Account balance to another investment option, said Fixed 120 Account will be
deemed closed and terminated. In no event shall a Participant be entitled to
reallocate an Account balance that is not a Fixed 120 Account balance into a
Fixed 120 Account.
Participants may change their crediting rate elections during an
Enrollment Period or once each calendar month by giving the Company written
notice of such change on a form provided by the Company for that purpose. Upon
receipt of such notice submitted with enrollment materials during an Enrollment
Period, the crediting rate change shall be made as of the first day of the Plan
Year to which the Enrollment Period relates. Upon receipt of such notice other
than in connection with enrollment materials, the Company will effect the change
on the first day of the calendar month immediately following the month in which
such notice was received. Any change in crediting rate made in accordance with
such notice procedures will govern the Participant's
12
14
Account balance and future deferrals occurring after the effective date.
4.2.1 Fixed Rate. If a Participant elects a fixed rate, the
interest will be compounded on a daily basis and posted to the
Participant's Account per each pay period at an effective annual yield
equal to the rate of ten-year United States Treasury notes. The rate will
be determined once each Plan Year and will be the rate in effect as of
September 30 of the Plan Year immediately prior to the Plan Year to which
it applies, as published by Salomon Brothers Inc., or any successor
thereto, or as determined by the Chief Financial Officer of the Company.
For Permissible Deferrals elected under the DCP and commencing
prior to January 1, 1995, the effective annual yield for the fixed rate
crediting option shall be equal to one hundred twenty percent (120%) of
the ten-year rolling average rate of ten-year United States Treasury
notes. The ten-year rolling average rate will be the rate in effect as of
September 30 of the Plan Year immediately prior to the Plan Year to which
it applies, as published by Salomon Brothers Inc., or any successor
thereto, or as determined by the Chief Financial Officer of the Company.
4.2.2 Variable Rate. If a Participant elects a variable rate,
the Participant's Account will be credited or debited as if the Account
balance were invested in one or more funds selected by the Company in the
proportions elected by the Participant. Statements will be provided on a
quarterly basis. Initially the funds will be from the Pruco Variable
Appreciable Life Insurance Contracts and include the Equity Portfolio,
the Flexible Managed Portfolio, the Conservative Balanced Portfolio, the
Money Market Portfolio, the Diversified Bond Portfolio, the High Yield
Bond Portfolio and the Real Property Portfolio. Participants may elect to
have their Accounts treated as if they were invested in one or more of
the funds selected, provided the election is in at least ten percent
(10%) increments of the Account.
4.2.3 Common Stock Crediting Rate. If a Participant elects the
Common Stock crediting rate, the Participant's Account will be valued as
if his or her Account were invested in shares of Common Stock equal to
the number of Deferred Compensation Units posted to his or her Account.
The value of a Participant's Account will vary with the value of the
Company's Common Stock. The Participant's Account will be credited, as of
the applicable dividend payment date, with additional Deferred
Compensation Units equal in value to any dividends declared on the
Company's Common Stock based on the number of Deferred Compensation Units
posted to the Participant's Account as of the record date with respect to
the declaration of such dividend. As of any date of valuation, the value
of a Participant's Account will be equal to the value (at the Closing
Price on such date) of the number of shares of Common Stock represented
by the Deferred Compensation Units credited to the Account as of that
date.
Section 4.3 Crediting Rate Upon Retirement, Disability, Continued
Employment After Reaching the Age of 75, Death or Termination of Employment with
all Affiliates as a Result of a Change in Control. If a Participant (i)
terminates employment at or after Normal Retirement Date or Early Retirement
Date, (ii) is Disabled, or (iii) continues employment after reaching the Age of
75 and has completed ten (10) Years of Service, gains and losses shall be
credited as described in Section 4.2 to that Participant's Accounts. If a
Participant dies prior to termination of employment, gains and losses shall be
credited, to date of death, as described in Section 4.2 to that Participant's
Accounts. If a Participant terminates employment with all Affiliates before
Normal Retirement Date or Early Retirement Date as a result of a Change in
Control, gains and losses to all of that Participant's Accounts shall be
credited as described in Section 4.2 up to, but not after,
13
15
the date of the Change in Control.
Section 4.4 Crediting Rate Upon Resignation or Discharge.
4.4.1 For a Participant whose employment with all Affiliates
terminates on or after August 1, 1995, but before the Normal Retirement
Date or the Early Retirement Date, for reasons other than death,
Disability or a Change in Control, gains and losses shall be credited to
that Participant's Account as described in Section 4.2 up to the date of
termination of employment, and the crediting shall continue after such
date for those Participants who elected a 10-year payout or a 5-year
payout, as such terms are defined in Section 6.3.2. If a Participant
elected to be paid in a lump sum, there shall be no further crediting to
the Participant's Account following the date of termination of
employment.
4.4.2 For a Participant whose employment with all Affiliates
terminated prior to August 1, 1995, and before the Normal Retirement Date
or the Early Retirement Date, for reasons other than death, Disability or
a Change in Control, gains and losses to that Participant's Accounts that
represent completed deferral cycles shall be credited as described in
Section 4.2 up to the date of termination of employment. Gains and losses
to that Participant's Accounts that do not represent completed deferral
cycles and gains and losses after the date of termination of employment
shall be credited at an interest rate equal to the average of (i) the
interest rate set by the Chief Financial Officer of the Company in his
discretion for the Plan Year in which the termination of employment
occurs, which rate shall not be less than the rate then payable on
Investment Savings Accounts of $1,000 or less at Commerce Bank of Kansas
City, N.A., Kansas City, Missouri, or any successor thereto, and (ii) the
respective interest rates so set by the Chief Financial Officer of the
Company for each of the two Plan Years immediately prior to the Plan Year
in which the termination of employment occurs.
ARTICLE 5 VESTING
Section 5.1 Participant Deferrals and Vesting Schedule for Company
Contributions. Participant deferrals pursuant to Section 4.1.1 are fully vested
immediately. The Participant's interest in the Company Matching Contributions
under Section 4.1.2 and the Company Contributions described in Section 4.1.3
shall vest according to the following schedule:
Percentage of
Company Contributions
Years of Service Vested
---------------- ---------------------
Less than 2 None
2 20%
3 30%
4 40%
5 50%
6 60%
7 70%
8 80%
9 90%
10 100%
For purposes of crediting Years of Service under the foregoing Schedule,
Participants will be credited with Years of Service beginning with the year in
which the Participant began participation
14
16
in the Plan. A Disabled Participant will be credited with any Hours of Service
with which he or she would have been credited but for the Disability.
Section 5.2 Exceptions to Vesting Schedule. Company Contributions are
fully vested upon a Participant's death prior to termination of employment, and
upon a Change in Control as defined in Section 10.2. Participants who have
attained Age 65 prior to the date on which they first became eligible to
participate in the Plan and who have completed ten (10) Years of Service are
fully vested. Participants who have attained Age 55 (but are less than Age 65)
prior to the date on which they first became eligible to participate in the Plan
and who have completed ten (10) Years of Service, vest according to the
following formula:
Years of Service since initial Plan eligibility date
------------------------------------------------------------
65 minus Participant's Age on initial Plan eligibility date.
ARTICLE 6 DISTRIBUTION OF BENEFITS
Section 6.1 Payments After Termination of Employment. Generally, payments
of benefits to a Participant shall be made by the Company only upon the
termination, voluntary or involuntary, of the Participant's employment with all
Affiliates, except where (i) a Participant is Disabled, (ii) the provisions of
Section 6.2.2 apply, or (iii) the provisions of Section 6.7 apply.
Section 6.2 Form of Benefits Upon Retirement, Disability or Continued
Employment After Reaching the Age of 75.
6.2.1 Retirement or Disability. Payments from the
Account shall be made in accordance with the Standard Form of
Benefit for Participants who terminate employment on or after
Normal Retirement Date or Early Retirement Date or are
Disabled. However, no less than 13 months prior to such
termination of employment, the Participant may petition the
Committee for, and the Committee may approve at such time, an
optional form of benefit.
6.2.2 Continued Employment After Reaching the Age of
75. If a Participant reaches the Age of 75 while in the employ
of an Affiliate, and has completed ten (10) Years of Service,
payment of benefits shall commence in the first pay period of
the first calendar quarter that begins at least forty-five (45)
days after the date on which the Participant reaches the Age of
75. Payments from the Account shall be made in accordance with
the Standard Form of Benefit. However, no less than 13 months
prior to the date on which the Participant reaches the Age of
75, the Participant may petition the Committee for, and the
Committee may approve at such time, an optional form of
benefit.
6.2.3 Lump-Sum Payment. Notwithstanding any other
provisions of the Plan, a Participant who terminates employment
on or after Normal Retirement Date or Early Retirement Date,
and a Participant who reaches the Age of 75 while in the employ
of an Affiliate may, at any time before or after a Change in
Control, as defined in Section 10.2, elect to receive an
immediate lump-sum payment of the
15
17
aggregate of the balances of said Participant's Accounts
reduced by a penalty, which shall be forfeited to the Company,
in lieu of payments in accordance with the Standard Form of
Benefit or such optional form of benefit as may have previously
been approved by the Committee under this Section 6.2.3. The
penalty shall be equal to ten percent (10%) of the aggregate of
the balances of such Accounts if the election is made before a
Change in Control and shall be equal to five percent (5%) of
the aggregate of the balances of such Accounts if the election
is made after a Change in Control. However, the penalty shall
not apply if the Committee determines, based on advice of
counsel or a final determination or ruling by the Internal
Revenue Service or any court of competent jurisdiction, that by
reason of the provisions of this paragraph any Participant has
recognized or will recognize gross income for federal income
tax purposes under this Plan in advance of payment to the
Participant of Plan benefits. The Company shall notify all
Participants of any such determination by the Committee and
shall thereafter refund all penalties which were imposed
hereunder in connection with any lump-sum payments made at any
time during or after the first year to which the Committee's
determination applies (i.e., the first year for which, by
reasons of the provisions of this paragraph, gross income under
this Plan is recognized for federal income tax purposes in
advance of payment of benefits). Interest compounded annually
shall be paid by the Company to the Participant (or the
Participant's Beneficiary if the Participant is deceased) on
any such refund from the date of the Company's payment of the
lump sum at an annual rate equal to the rate of one-year United
States Treasury notes in effect as of September 30 of the Plan
Year immediately prior to the Plan Year in which such refund is
paid, as published by Salomon Brothers, Inc., or any successor
thereto, or as determined by the Chief Financial Officer of the
Company. The Committee may also reduce or eliminate the penalty
if it determines that the right to elect an immediate lump-sum
payment under this paragraph, with the reduced penalty or with
no penalty, as the case may be, will not cause any Participant
to recognize gross income for federal income tax purposes under
this Plan in advance of payment to the Participant of Plan
benefits.
Section 6.3 Form of Benefits Upon Resignation or Discharge, or
Termination of Employment with all Affiliates as a Result of a Change in
Control.
6.3.1 Upon a Participant's termination of employment with all
Affiliates before Normal Retirement Date or Early Retirement Date, but
following a Change in Control, payments from the Account shall be paid in
a lump sum within forty-five (45) days after the date of the termination
of employment.
6.3.2 If a Change in Control has not occurred, for Participants
who terminate employment with all Affiliates on or after August 1, 1995,
but before the Normal Retirement Date or the Early Retirement Date, for
reasons other than Disability or death, payment(s) from the Account shall
be in the form of (a) semimonthly payments over a 10-year period (a
"10-year payout"); (b) semimonthly payments over a five-year period (a
"5-year payout"); or (c) a lump sum, as elected by the Participant at the
time of said Participant's first Permissible Deferral election, or, in
the case of a Participant who made one or more Permissible Deferral
elections prior to August 1, 1995, as elected by the Participant in
writing during a special election period between August 15, 1995 and
September 15, 1995, inclusive.
6.3.3 If a Change in Control has not occurred, for Participants
who terminated employment with all Affiliates prior to August 1, 1995,
but before the Normal Retirement
16
18
Date or the Early Retirement Date, for reasons other than Disability or
death, payment(s) from the Account shall be in the form of (a)
semi-monthly payments over a three-year period for all Permissible
Deferrals that satisfy a completed deferral cycle, or (b) a lump sum for
all Permissible Deferrals that do not satisfy a completed deferral cycle.
6.3.4 If no election under Section 6.3.2 is made by the
Participant eligible to make such an election, payment from the Account
shall be in the form of a lump sum. An election made in accordance with
Section 6.3.2 shall apply to all Permissible Deferral elections made by
the Participant under the Plan and is irrevocable.
6.3.5 If an eligible Participant has elected a 10-year payout or
a 5-year payout pursuant to Section 6.3.2, and the amount of each
semimonthly installment, as initially calculated, is less than $500 (such
calculation to be accomplished by amortizing the aggregate of the
Participant's Account balances over the payment period using a crediting
rate equal to the rate of one-year United States Treasury notes in effect
as of September 30 of the Plan Year prior to the Plan Year in which the
termination of employment occurs), the form of payment(s) for such
Participant shall be a 5-year payout in lieu of an elected 10-year payout
(unless the amount of each semimonthly installment under a 5-year payout,
as so calculated, is also less than $500, in which case the form of
payment will be a single lump sum), or a lump sum in lieu of an elected
5-year payout, as the case may be.
6.3.6 Notwithstanding any other provisions of the Plan, an
eligible Participant who (1) elects either a 10-year payout or a 5-year
payout and either such payout is not automatically converted to a lump
sum pursuant to Section 6.3.5, and (2) terminates employment before the
Normal Retirement Date or the Early Retirement Date may, at any time
before or after a Change in Control, as defined in Section 10.2, elect to
receive an immediate lump-sum payment of the aggregate of the balances of
said Participant's Accounts reduced by a penalty, which shall be
forfeited to the Company, in lieu of payments in accordance with the
10-year payout or the 5-year payout, whichever is applicable. The penalty
shall be equal to ten percent (10%) of the aggregate of the balances of
such Accounts if the election is made before a Change in Control and
shall be equal to five percent (5%) of the aggregate of the balances of
such Accounts if the election is made after a Change in Control. However,
the penalty shall not apply if the Committee determines, based on advice
of counsel or a final determination or ruling by the Internal Revenue
Service or any court of competent jurisdiction, that by reason of the
provisions of this paragraph any Participant has recognized or will
recognize gross income for federal income tax purposes under this Plan in
advance of payment to the Participant of Plan benefits. The Company shall
notify all Participants of any such determination by the Committee and
shall thereafter refund all penalties which were imposed hereunder in
connection with any lump-sum payments made at any time during or after
the first year to which the Committee's determination applies (i.e., the
first year for which, by reasons of the provisions of this paragraph,
gross income under this Plan is recognized for federal income tax
purposes in advance of payment of benefits). Interest compounded
annually shall be paid by the Company to the Participant (or the
Participant's Beneficiary if the Participant is deceased) on any such
refund from the date of the Company's payment of the lump sum at an
annual rate equal to the rate of one-year United States Treasury notes in
effect as of September 30 of the Plan Year immediately prior to the Plan
Year in which such refund is paid, as published by Salomon Brothers,
Inc., or any successor thereto, or as determined by the Chief Financial
Officer of the Company. The Committee may also reduce or eliminate the
penalty if it determines that the right to elect an immediate lump-sum
payment under this paragraph, with the reduced penalty or with no
penalty, as the
17
19
case may be, will not cause any Participant to recognize gross income for
federal income tax purposes under this Plan in advance of payment to the
Participant of Plan benefits.
Section 6.4 Amount of Benefit.
6.4.1 Except for distributions in the form of a lump sum,
benefit payments shall be in the form of semimonthly cash installments
paid during the applicable payment period (the "Overall Payment Period").
6.4.2 Except as provided in Section 6.4.4, the amount of each
installment payment shall be level during the portion of the Overall
Payment Period ending on December 31 of the Plan Year in which benefit
payments commence (the "Initial Payment Period"), during each complete
Plan Year of the Overall Payment Period thereafter (a "Plan Year Payment
Period"), and during any remaining period of the Overall Payment Period
following the last Plan Year Payment Period (the "Remainder Payment
Period"), but will vary from one such portion of the Overall Payment
Period to the next. If a Participant was receiving benefits pursuant to
Section 6.2 as of August 1, 1995, payments due on and after January 1,
1996 shall be made in accordance with this Section 6.4.2 and with Section
6.4.3.
6.4.3 The amount of each level payment for the Initial Payment
Period, if any, shall be calculated using the balance in the Account as
of the beginning of the Initial Payment Period and amortizing such
balance over the remaining Overall Payment Period using an assumed
interest rate equal to the rate of one-year United States Treasury notes,
said rate to be determined once each Plan Year and to be the rate in
effect as of the September 30 immediately preceding the payment period to
which it applies, as published by Solomon Brothers, Inc., or any
successor thereto, or as determined by the Chief Financial Officer of the
Company (the "Assumed Interest Rate"). The amount of each level payment
for each Plan Year Payment Period shall be calculated by taking the
balance in the Account as of November 30 of the Plan Year immediately
prior to such Plan Year Payment Period, subtracting the benefit payments
made during the portion of such preceding Plan Year following November
30, and amortizing the difference over the remaining Overall Payment
Period using the Assumed Interest Rate. The amount of each level payment
for the Remainder Payment Period, if any, shall be calculated by taking
the balance in the Account as of November 30 of the Plan Year immediately
prior to the Remainder Payment Period, subtracting the benefit payments
made during the portion of such preceding Plan Year following November
30, and amortizing the difference over the Remainder Payment Period using
an assumed interest rate of zero percent (0%) per annum. If the actual
crediting rate for the Remainder Payment Period is more than zero
percent, the additional gain resulting from the difference in crediting
rates shall be paid to the Participant in a single payment within six
months after the last day of the Remainder Payment Period.
6.4.4 If the Participant terminates employment with all
Affiliates prior to August 1, 1995, and receives benefits pursuant to
Section 6.3.3, semimonthly payments for Permissible Deferrals that
satisfy a completed deferral cycle shall be level during the entire
Overall Payment Period and shall be calculated using the balance in the
Account at the commencement of benefit payments, and amortizing such
balance over three years at the crediting rate determined in accordance
with Section 4.4.2.
6.4.5 Generally, the Account shall continue to be credited
during the Overall Payment Period with gains and losses as provided in
Section 4.3. However, if a Participant
18
20
receives benefits pursuant to Section 6.3 (other than pursuant to Section
6.3.1), the Account shall be credited with gains and losses as provided
in Section 4.4. Except as provided otherwise, if a Participant dies,
Section 6.6 shall apply.
6.4.6 Notwithstanding anything in this Plan to the contrary, the
Committee may, in its sole discretion, (i) increase or reduce any assumed
interest rate set forth in this Section 6.4 and any such assumed interest
rate, as so adjusted, shall be effective for calculating level
semimonthly installments for Participants whose benefit payments commence
after the date of such adjustment, and (ii) change the date set forth in
Section 6.4.3 on which the balance in the Participant's Account is to be
determined for purposes of calculating the amount of each level payment
for each Plan Year Payment Period and each Remainder Payment Period, and
any such revised date shall be effective for calculating level
semimonthly installments for the Plan Year Payment Period or the
Remainder Payment Period beginning on or after the effective date of such
revision.
Section 6.5 Time of Payment. Generally, benefit payments to a Participant
shall commence in the first pay period of the calendar quarter that begins at
least forty-five (45) days after the date of termination of employment.
Notwithstanding the preceding sentence, if a Participant elected to be paid in a
lump sum, the benefit payment shall be made within forty-five (45) days after
the date of termination of employment. In the case of a Disabled Participant,
benefits shall commence no later than six (6) months after the Participant's
Early Retirement Date.
With respect to Permissible Deferral elections made under the DCP prior
to January 1, 1997, a Participant was permitted elect at the time of each
Permissible Deferral election to defer commencement of the payment of benefits
after termination of employment with respect to such Permissible Deferral
election until the earlier of: (a) five (5) years after termination of
employment; or (b) Age 70. If the Participant made such an election and did not
revoke such election pursuant to a one-time opportunity during the Enrollment
Period prior to the Plan Year commencing January 1, 1998, the Participant shall
receive benefit payments in accordance with said election, provided that the
Committee, upon written petition of the Participant, may begin benefit payments
at an earlier time after termination if it determines that compelling reasons
exist for such earlier payments. No elections to defer commencement of benefits
shall be permitted under this Plan with respect to Permissible Deferrals
commencing on or after January 1, 1998.
Section 6.6 Death Benefits.
6.6.1 Death After Benefit Commencement. In the event a
Participant dies after benefit payments have commenced (other than
payments made pursuant to Section 6.7), the remaining benefit payments,
if any, shall be paid to the Participant's Beneficiary in the same manner
such benefits would have been paid to the Participant had the Participant
survived. A Beneficiary may petition the Committee for an alternative
method of payment. If such benefits were payable pursuant to Section 6.3,
the Account shall continue to be credited during the payout period as
provided in Section 4.4, except that, if such benefits were payable
because of the Participant's termination of employment with all
Affiliates following a Change in Control, the Account shall continue to
be credited as provided in Section 4.3. If such benefits were payable
pursuant to Section 6.2, the Account shall be credited from the date of
the Participant's death at a rate equal to the rate of one-year United
States Treasury notes, said rate to be determined once each Plan Year and
to be the rate in effect as of September 30 of the Plan Year immediately
prior to the Plan Year to which it applies, as published by Salomon
Brothers, Inc., or any successor thereto, or as determined by the Chief
Financial Officer of the Company. The Participant's Beneficiary
19
21
may make the election to receive an immediate lump-sum payment of the
balance of said Participant's Account in accordance with the provisions
of Section 6.2.3 or Section 6.3.6, whichever is applicable, and all
provisions set forth therein relating to penalties shall apply to any
such election.
In addition, if a Participant dies on or after such
Participant's Normal Retirement Date or Early Retirement Date after
having retired, or after benefits have commenced because of the
Participant's Disability, an annuity shall be paid to the Participant's
surviving spouse, if any (to whom he has been married at least one (1)
year prior to the date of death). The annuity shall be for the life of
the Participant's surviving spouse with each semimonthly payment equal to
fifty percent (50%) of the average amount which would have been payable
to the Participant and his or her Beneficiary if, on the date benefits
commenced, the Participant had received the Standard Form of Benefit
payment. If the Participant's surviving spouse is more than thirty-six
(36) months younger than the Participant, the survivor life annuity
payable to such spouse shall be reduced by one-half of one percent (.5%)
for each month the spouse is more than thirty-six (36) months younger
than the Participant. Payment shall commence on the first day of the
month following the later of (a) the Participant's death, (b) the
completion of the death benefits under the first paragraph of this
Section 6.6.1, or (c) fifteen (15) years from the date benefits commenced
or would have commenced to the Participant.
6.6.2 Death Prior to Benefit Commencement. In the event a
Participant dies before benefit payments have commenced, the Company
shall pay a pre-retirement death benefit to the Participant's
Beneficiary. The amount of such pre-retirement death benefit is the
greater of:
(a) the Participant's Account as of the date of
the Participant's death annuitized over a ten-year
period at an interest rate equal to the rate of
one-year United States Treasury notes in effect as of
September 30 of the Plan Year immediately prior to the
Plan Year in which payment of the pre-retirement death
benefit commences, as published by Salomon Brothers,
Inc., or any successor thereto, or as determined by
the Chief Financial Officer of the Company; or
(b) An annual benefit of twenty-five percent
(25%) of the total deferrals and Company Contributions
made as of the date of the Participant's death.
The pre-retirement death benefit shall be paid semimonthly for a ten-year
period. The Beneficiary may petition the Committee for an alternative
method of payment. If the pre-retirement death benefit is computed
pursuant to 6.6.2(a), the Account shall continue to be credited during
the payment period at an interest rate equal to the rate of one-year
United States Treasury notes, said rate to be determined once each Plan
Year and to be the rate in effect as of September 30 of the Plan Year
immediately prior to the Plan Year to which it applies, as published by
Salomon Brothers, Inc., or any successor thereto, or as determined by the
Chief Financial Officer of the Company. Commencement of benefits under
this Section 6.6.2 shall begin no later than six (6) months following the
death of the Participant notwithstanding any election which the
Participant may have made to defer benefits pursuant to Section 6.5.
6.6.3 Marital Deduction. Any benefits which become payable
under this Article 6 to the surviving spouse of a Participant shall be
paid in a manner which will qualify such
20
22
benefits for a marital deduction in the estate of a deceased Participant
under the terms of Section 2056 of the Code, and unless specifically
directed by a Participant to the contrary pursuant to an effective
beneficiary designation, any portion of a Participant's death benefit
payable to a surviving spouse which remains unpaid at the death of such
spouse shall be paid to the spouse's estate.
6.6.4 Designation by Participant. Each Participant has the
right to designate primary and contingent Beneficiaries for death
benefits payable under the Plan. Such Beneficiaries may be individuals or
trusts for the benefit of individuals. A Beneficiary designation by a
Participant shall be in writing on a form acceptable to the Committee and
shall only be effective upon delivery to the Company. A Beneficiary
designation may be revoked by a Participant at any time by delivering to
the Company either written notice of revocation or a new Beneficiary
designation form. The Beneficiary designation form last delivered to the
Company prior to the death of a Participant shall control.
6.6.5 Failure to Designate Beneficiary. In the event there is
no Beneficiary designation on file with the Company, or all Beneficiaries
designated by a Participant have predeceased the Participant, the
benefits payable by reason of the death of the Participant shall be paid
to the Participant's spouse, if living; if the Participant does not leave
a surviving spouse, to the Participant's issue by right of
representation; or, if there are no such issue then living, to the
Participant's estate. In the event there are benefits remaining unpaid at
the death of a sole Beneficiary and no successor Beneficiary has been
designated, either by the Participant or the Participant's spouse
pursuant to 6.6.3, the remaining balance of such benefit shall be paid to
the deceased Beneficiary's estate; or, if the deceased Beneficiary is one
of multiple concurrent Beneficiaries, such remaining benefits shall be
paid proportionally to the surviving Beneficiaries.
Section 6.7 Hardships. Upon the application of any Participant, the
Committee, in accordance with its uniform, non-discriminatory policy, may permit
such Participant to terminate future deferrals or to withdraw his total Account.
A Participant must give a written petition of the termination of his or her
Permissible Deferral election at least thirty (30) days prior to the next
periodic (for Base Salary) or single sum (for Bonuses) deferral. A Participant
must give a written petition of the intent to withdraw the Account at least
sixty (60) days (or such shorter time as permitted by the Committee) prior to
the date of withdrawal. No termination or withdrawal shall be made under the
provisions of this Section except for the purpose of enabling a Participant to
meet immediate needs created by a financial hardship for which the Participant
does not have other reasonably available sources of funds, as determined by the
Committee in accordance with uniform rules. The term financial hardship shall
include the need for funds to: meet uninsured medical expenses for the
Participant or his dependents, meet a significant uninsured casualty loss for
the Participant or his dependents, and meet other catastrophes of a "sudden and
serious nature."
The Committee may permit a withdrawal of any deferrals. If a withdrawal
is permitted, a Participant's deferrals shall be credited at the lesser of (a)
the amount as described in Section 4.2; or (b) an interest rate equal to the
rate of one-year United States Treasury notes in effect as of September 30 of
the Plan Year immediately prior to the Plan Year in which application for such
withdrawal is made, as published by Salomon Brothers, Inc., or any successor
thereto, or as determined by the Chief Financial Officer of the Company.
Withdrawals shall be distributed in the form of a lump sum as soon as is
reasonably convenient.
If a termination of deferrals or a withdrawal is made under this Section,
the Participant may not enter into a new Permissible Deferral election for two
(2) complete Plan Years after the date of
21
23
the termination or withdrawal.
Section 6.8 Claims Procedure. The Committee shall notify a Participant in
writing within ninety (90) days of the Participant's written application for
benefits of his eligibility or non-eligibility for benefits under the Plan. If
the Committee determines that a Participant is not eligible for benefits or full
benefits, the notice shall set forth (a) the specific reasons for such denial,
(b) a specific reference to the provision of the Plan on which the denial is
based, (c) a description of any additional information or material necessary for
the claimant to perfect his claim, and a description of why it is needed, and
(d) an explanation of the Plan's claims review procedure and other appropriate
information as to the steps to be taken if the Participant wishes to have his
claim reviewed. If the Committee determines that there are special circumstances
requiring additional time to make a decision, the Committee shall notify the
Participant of the special circumstances and the date by which a decision is
expected to be made, and may extend the time for up to an additional 90-day
period. If a Participant is determined by the Committee to be not eligible for
benefits, or if the Participant believes that he is entitled to greater or
different benefits, he shall have the opportunity to have his claim reviewed by
the Committee by filing a petition for review with the Committee within sixty
(60) days after receipt by him of the notice issued by the Committee. Said
petition shall state the specific reasons the Participant believes he is
entitled to benefits or greater or different benefits. Within sixty (60) days
after receipt by the Committee of said petition, the Committee shall afford the
Participant (and his counsel, if any) an opportunity to present his position to
the Committee orally or in writing, and said Participant (or his counsel) shall
have the right to review the pertinent documents, and the Committee shall notify
the Participant of its decision in writing within said sixty (60) day period,
stating specifically the basis of said decision written in a manner calculated
to be understood by the Participant and the specific provisions of the Plan on
which the decision is based. If, because of the need for a hearing, the sixty
(60) day period is not sufficient, the decision may be deferred for up to
another sixty (60) day period at the election of the Committee, but notice of
this deferral shall be given to the Participant.
Section 6.9 Alternate Forms of Benefit Distribution. Participants shall have
the right to petition the Committee to request methods of benefit distribution
other than those provided to Participants pursuant to this Article 6.
Section 6.10 Distributions on Plan Termination. Notwithstanding anything in
this Article 6 to the contrary, if the Plan is terminated, distributions shall
be made in accordance with Section 9.2.
ARTICLE 7 FUNDING
Section 7.1 Source of Benefits. All benefits under the Plan shall be paid
when due by the Company out of its assets or from an irrevocable trust
established by the Company for that purpose. The Company may, but shall have no
obligations to, make such advance provision for the payment of such benefit as
the Board may from time to time consider appropriate.
Section 7.2 No Claim on Specific Assets. No Participant shall be deemed to
have, by virtue of being a Participant in the Plan, any claim on any specific
assets of the Company such that the Participant would be subject to income
taxation on his benefits under the Plan prior to distribution and the rights of
Participants and Beneficiaries to benefits to which they are otherwise entitled
under the Plan shall be those of an unsecured general creditor of the Company.
ARTICLE 8 ADMINISTRATION AND FINANCES
22
24
Section 8.1 Administration. The Plan shall be administered by the Committee.
The Company shall bear all administrative costs of the Plan other than those
specifically charged to a Participant or Beneficiary.
Section 8.2 Powers of Committee. In addition to the other powers granted
under the Plan, the Committee shall have all powers necessary to administer the
Plan, including, without limitation, powers:
(a) to interpret the provisions of the Plan;
(b) to establish and revise the method of accounting for the
Plan and to maintain the Accounts; and
(c) to establish rules for the administration of the Plan
and to prescribe any forms required to administer the Plan.
Not in limitation, but in amplification of the foregoing and of the authority
conferred upon the Committee in Section 8.1, the Company specifically intends
that the Committee have the greatest permissible discretion to construe the
terms of the Plan and to determine all questions concerning eligibility,
participation and benefits. Any such decision made by the Committee is intended
to be subject to the most deferential standard of judicial review. Such standard
of review is not to be effected by any real or alleged conflict of interest on
the part of the Company or any member of the Committee.
Section 8.3 Actions of the Committee. Except as modified by the Company, all
determinations, interpretations, rules, and decisions of the Committee shall be
conclusive and binding upon all persons having or claiming to have any interest
or right under the Plan.
Section 8.4 Delegation. The Committee, or any officer designated by the
Committee, shall have the power to delegate specific duties and responsibilities
to officers or other employees of the Company or other individuals or entities.
Any delegation may be rescinded by the Committee at any time. Each person or
entity to whom a duty or responsibility has been delegated shall be responsible
for the exercise of such duty or responsibility and shall not be responsible for
any act or failure to act of any other person or entity.
Section 8.5 Reports and Records. The Committee and those to whom the
Committee has delegated duties under the Plan shall keep records of all their
proceedings and actions and shall maintain books of account, records, and other
data as shall be necessary for the proper administration of the Plan and for
compliance with applicable law.
ARTICLE 9 AMENDMENTS AND TERMINATION
Section 9.1 Amendments. The Company, by action of the Board, may amend the
Plan, in whole or in part, at any time and from time to time. Any such amendment
shall be filed with the Plan documents. No amendment, however, may be effective
to eliminate or reduce the benefits of any retired Participant or the
Beneficiary of any deceased Participant then eligible for benefits or the vested
portion of the benefits, if any, in any active Participant's Account immediately
before the effective date of such amendment, and each such Account will be
credited to the date of such amendment in accordance with Section 4.2.
Notwithstanding anything in this Section 9.1 to the contrary, the Committee may,
in its discretion, amend the Plan to reduce the rates set forth in Section 4.2
effective for crediting of Accounts from the date of any such amendment.
23
25
Notwithstanding anything in this Section 9.1 to the contrary, the Committee may,
in its discretion, (i) amend the Plan to reduce or eliminate the penalty
described in Section 6.2.3 and/or the penalty described in Section 6.3.6, in
accordance with the provisions of such Section 6.2.3 and/or such Section 6.3.6,
(ii) amend the Plan to increase or reduce any assumed interest rate set forth in
Section 6.4, in accordance with the provisions of Section 6.4.6, or (iii) amend
the Plan to change the date set forth in Section 6.4.3 on which the balance in
the Participant's Account is to be determined for purposes of calculating the
amount of each level payment for each Plan Year Payment Period and each
Remainder Payment Period, in accordance with the provisions of Section 6.4.6.
Section 9.2 Termination. The Company expects the Plan to be permanent, but
necessarily must, and hereby does, reserve the right to terminate the Plan at
any time by action of the Board. In all events, the Plan will be terminated if
the existence of a trust causes a federal court to hold that the Plan is
"funded" for ERISA purposes, as defined in Section 2.02-4 of the Trust and
appeals from that holding are no longer timely or have been exhausted, and the
trust is therefore terminated with respect to the Plan. Upon termination of the
Plan, all deferrals and Company Contributions will cease and no future deferrals
or Company Contributions will be made. Termination of the Plan shall not operate
to eliminate or reduce benefits of any retired Participant or the Beneficiary of
any deceased Participant then eligible for benefits. Active Participants shall
become vested in their accrued benefits to the extent and in the manner provided
in Section 9.3 as of the effective date of such termination and each account of
an active Participant shall be credited, to the date of distribution of all
benefits in each such Account, in accordance with Section 4.2., as it may be
amended from time to time pursuant to Section 9.1.
If the Plan is terminated, payments from the Accounts of all Participants
and Beneficiaries shall be made as soon as administratively convenient in the
form of monthly payments over a five (5) year period; however, the Committee in
its sole discretion may pay the benefits in a lump sum. Notwithstanding the
preceding sentence, if the termination occurs because the Plan is held to be
"funded" as described in the first paragraph of this Section 9.2, the
distribution will be paid in a lump sum not later than ninety (90) days after
such termination.
Section 9.3 Accelerated Vesting. Notwithstanding Article 5, upon termination
of the Plan a Participant shall vest in Company Contributions according to the
following schedule:
Percentage of Company
Years of Service Contributions Vested
---------------- ---------------------
Less than 1 None
1 20%
2 40%
3 60%
4 80%
5 or more 100%
Years of Service shall be credited in accordance with Section 5.1.
ARTICLE 10 ACCELERATED VESTING
Section 10.1 Accelerated Vesting. Notwithstanding Article 5, upon a Change
in Control as defined in Section 10.2, a Participant shall be fully vested in
Company Contributions.
Section 10.2 Change in Control. A Change in Control for any Participant
shall occur if there is a Change in Control of the Company as defined in Section
1.01-2 of the Trust or there is a
24
26
Change in Control of a Participating Subsidiary, as defined in Section 1.01-2 of
the Trust, of the Participating Affiliate by whom the Participant is employed.
ARTICLE 11 MISCELLANEOUS
Section 11.1 No Guarantee of Employment. Neither the adoption and
maintenance of the Plan nor the execution by the Company of a Permissible
Deferral agreement with any Executive shall be deemed to be a contract of
employment between the Company and any Participant. Nothing contained herein
shall give any Participant the right to be retained in the employ of the Company
or to interfere with the right of the Company to discharge any Participant at
any time, nor shall it give the Company the right to require any Participant to
remain in its employ or to interfere with the Participant's right to terminate
his employment at any time.
Section 11.2 Individual Account Plan. If it is determined that the Plan is
not an unfunded deferred compensation plan maintained primarily for a select
group of management or highly compensated employees as described in Sections
201(2), 301(a)(3) and 401(a)(1) of ERISA, then the Plan is intended to be an
individual account plan (other than a money purchase plan) as described in
Section 301(a)(8) of ERISA and the vesting schedule set forth in Article 5 shall
be replaced by the vesting schedule in the then current H&R Block Profit Sharing
Retirement Plan.
Section 11.3 Release. Any payment of benefits to or for the benefit of a
Participant or a Participant's Beneficiaries that is made in good faith by the
Company in accordance with the Company's interpretation of its obligations
hereunder, shall be in full satisfaction of all claims against the Company for
benefits under this Plan to the extent of such payment.
Section 11.4 Notices. Any notice permitted or required under the Plan shall
be in writing and shall be hand delivered or sent, postage prepaid, certified or
registered mail with return receipt requested, to the principal office of the
Company, if to the Company, or to the address last shown on the records of the
Company, if to a Participant or Beneficiary. Any such notice shall be effective
as of the date of hand delivery or mailing.
Section 11.5 Non-Alienation. No benefit payable at any time under this Plan
shall be subject in any manner to alienation, sale, transfer, assignment,
pledge, levy, attachment, or encumbrance of any kind.
Section 11.6 Tax Liability. The Company may direct the trustee of the Trust
to withhold from any payment of benefits under the Plan such amounts as the
Company determines are reasonably necessary to pay any taxes (and interest
thereon) required to be withheld or for which the trustee of the Trust may
become liable under applicable law. The Company may also direct the trustee of
the Trust to forward to the appropriate taxing authority any amounts required to
be paid by the Company or the Trust under the preceding sentence. Any amounts
withheld pursuant to this Section 11.6 in excess of the amount of taxes due (and
interest thereon) shall be paid to the Participant or Beneficiary upon final
determination, as determined by the Company, of such amount. No interest shall
be payable by the Company to any Participant or Beneficiary by reason of any
amounts withheld pursuant to this Section 11.6.
Section 11.7 Captions. Article and section headings and captions are
provided for purposes of reference and convenience only and shall not be relied
upon in any way to construe, define, modify, limit, or extend the scope of any
provision of the Plan.
Section 11.8 Applicable Law. The Plan and all rights hereunder shall be
governed by and construed according to the laws of the State of Missouri, except
to the extent such laws are
25
27
preempted by the laws of the United States of America.
Dated: November 1, 1998 H&R BLOCK, INC.
By: /s/ Frank L. Salizzoni
---------------------------------------
Its: President and Chief Executive Officer
---------------------------------------
26