SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
UPGRADE INTERNATIONAL CORPORATION
-----------------------------------
(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
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Item 22(a)(2) of Schedule 14A.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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[ ] Fee paid previously by written preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
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paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
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LOGO
NOTICE OF 2002 ANNUAL MEETING
PROXY STATEMENT
February 28, 2002
Dear Fellow Stockholder:
On behalf of the Board of Directors and management of Upgrade International
Corporation, (the "Company"), I cordially invite you to attend the Company's
Annual Meeting of Stockholders. The meeting will be held at 9:30 a.m., local
time, on Thursday, March 28, 2002. The meeting will be held in room 3A North at
the Washington State Convention and Trade Center; 800 Convention Place; Seattle,
WA 98101.
At the meeting, stockholders of the Company will be asked to vote upon the
election of one member to the Board of Directors of the Company; to amend the
Articles of Incorporation to (a) increase the number of authorized Common Stock
of the Company from 100,000,000 to 250,000,000, (b) increase the number of
authorized Preferred Stock of the Company from 20,000,000 to 100,000,000, and
(c) authorize the Board of Directors of the Company to establish classes and
series of common stock with separate rights and preferences to that of other
common stock; to amend the Company's Omnibus Stock Option Plan, as amended, to
increase the maximum number of common shares of the Company reserved for
issuance under the Plan, to approve the Company's noncontributory unfunded
deferred compensation plan and the ratification of the appointment of Grant
Thornton, L.L.P. as the Company's independent public accountant.
I encourage you to attend the meeting in person. Whether or not you plan to
attend, however, PLEASE READ THE ENCLOSED PROXY STATEMENT AND THEN COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE ACCOMPANYING
POSTAGE-PAID ENVELOPE AS PROMPTLY AS POSSIBLE. ADDITIONALLY THIS YEAR, YOU CAN
ALSO VOTE ON THE INTERNET OR BY TELEPHONE. INSTRUCTIONS FOR VOTING
ELECTRONICALLY OR BY TELEPHONE IS DETAILED ON THE PROXY CARD. IF YOU VOTE YOUR
PROXY BY INTERNET OR BY TELEPHONE, YOU DO NOT NEED TO MAIL BACK YOUR PROXY CARD.
This will save the Company additional expense in soliciting proxies and will
ensure that your shares are represented at the meeting.
Thank you for your attention to this important matter.
Very truly yours,
/S/
Daniel S. Bland
President and Chief Executive Officer
LOGO
1411 - Fourth Avenue
Suite 629
Seattle, WA 98101
(206) 903-3116
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, MARCH 28, 2002
Notice is hereby given that the Annual Meeting of Stockholders (the
"Meeting") of Upgrade International Corporation, (the "Company"), to be held at
9:30 a.m., local time, on Thursday, March 28, 2002. The meeting will be held
in room 3A North at the Washington State Convention and Trade Center; 800
Convention Place; Seattle, WA 98101.
A proxy and a Proxy Statement for the Meeting are enclosed.
The Meeting is for the purpose of considering and acting upon:
1. The election of one member to the Board of Directors of the Company;
2. The amendment of the Articles of Incorporation to (a) increase the
number of authorized Common Stock of the Company from 100,000,000 to
250,000,000, (b) increase the number of authorized Preferred Stock of
the Company from 20,000,000 to 100,000,000, and (c) authorize the
Board of Directors of the Company to establish classes and series of
common stock with separate rights and preferences to that of other
common stock;
3. The amendment of the Company's Omnibus Stock Option Plan, to increase
the maximum number of common shares of the Company reserved for
issuance under the Plan;
4. The approval of the Company's noncontributory unfunded deferred
compensation plan;
5. The ratification of the appointment of Grant Thornton, L.L.P. as the
Company's independent public accountant.
6. Such other matters as may properly come before the Meeting, or any
adjournments or postponements thereof.
The Board of Directors is not aware of any other business to come before
the Meeting.
Any action may be taken on the foregoing proposals at the Meeting on the
date specified above, or on any date or dates to which the Meeting may be
adjourned or postponed. Stockholders of record at the close of business on
February 15, 2002 are the stockholders entitled to vote at the Meeting and any
adjournments or postponements thereof.
A complete list of stockholders entitled to vote at the Meeting will be
available for examination during normal business hours by any stockholder, for
any purpose germane to the Meeting, at the main office of the Company, located
at 1411 - Fourth Avenue, Suite 629, Washington, WA 98101, during the ten days
prior to the Meeting as well as at the Meeting.
You are requested to complete, sign and date the enclosed proxy, which is
solicited on behalf of the Board of Directors, and to mail it promptly in the
enclosed postage-paid envelope. Additionally this year, you can also vote on the
internet or by telephone. An instruction for voting electronically or by
telephone is detailed on the Proxy Card. If you vote your proxy by internet or
by telephone, you do NOT need to mail back your proxy card. The proxy will not
be used if you attend and vote at the Meeting in person.
By Order of the Board of Directors
/S/
Daniel S. Bland
President and Chief Executive Officer
Seattle, Washington
February 28, 2002
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IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES TO ENSURE A QUORUM AT THE MEETING. A PRE-ADDRESSED
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED
WITHIN THE UNITED STATES.
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PROXY STATEMENT
UPGRADE INTERNATIONAL CORPORATION
1411 - Fourth Avenue
Suite 629
Seattle, WA 98101
(206) 903-3116
___________________
ANNUAL MEETING OF STOCKHOLDERS
MARCH 28, 2002
This Proxy Statement is furnished in connection with the solicitation, on
behalf of the Board of Directors of Upgrade International Corporation (the
"Company"), of proxies to be used at the Annual Meeting of Stockholders of the
Company (the "Meeting"). The meeting will be held at 9:30 a.m., local time, on
Thursday, March 28, 2002. The meeting will be held in room 3A North at the
Washington State Convention and Trade Center; 800 Convention Place; Seattle, WA
98101.
The accompanying Notice of Annual Meeting and this Proxy Statement are
first being mailed to stockholders on or about February 28, 2002. At the
Meeting, stockholders of the Company are being asked to vote upon the election
of one member to the Board of Directors of the Company; to amend the Articles of
Incorporation to (a) increase the number of authorized Common Stock of the
Company from 100,000,000 to 250,000,000, (b) increase the number of authorized
Preferred Stock of the Company from 20,000,000 to 100,000,000, and (c) authorize
the Board of Directors of the Company to establish classes and series of common
stock with separate rights and preferences to that of other common stock; to
amend the Company's Omnibus Stock Option Plan, as amended, to increase the
maximum number of common shares of the Company reserved for issuance under the
Plan, and to approve the Company's noncontributory unfunded deferred
compensation plan and the ratification of the appointment of Grant Thornton,
L.L.P. as the Company's independent public accountant.
VOTE REQUIRED AND PROXY INFORMATION
All shares of the Company's common stock, par value $.0001 per share (the
"Common Stock"), represented at the Meeting by properly executed proxies
received prior to or at the Meeting, and not revoked, will be voted at the
Meeting in accordance with the instructions thereon. One-third of the
outstanding shares of Common Stock, present in person or represented by proxy,
shall constitute a quorum for purposes of the Meeting. Broker's non-votes are
counted for purposes of determining a quorum. Votes cast by proxy or in person
at the Annual Meeting will be tabulated by the persons appointed by the Company
to act as inspectors of election for the Annual Meeting. The inspectors of
election will also determine whether or not a quorum is present. Each
stockholder of record at the close of business on February 15, 2002 is entitled
to one vote for each share then held on each matter submitted to a vote of
stockholders. Brokers holding shares of record for their customers generally
are not entitled to vote on certain matters unless their customers give them
specific voting instructions.
The voting requirements for the proposal we will consider at the meeting
are:
Election of director: The director shall be elected by a plurality of
the votes present in person or represented by proxy at the Meeting and entitled
to vote on the election of directors. Votes may be cast in favor of or withheld
from the nominee; votes that are withheld will be excluded entirely from the
vote and will have no effect. Broker non-votes will have no effect on the
election of directors. If no instructions are indicated, properly executed
proxies will be voted FOR the nominee set forth herein.
Approval of the amendment to the Articles of Incorporation. The
amendments to the Company's Articles of Incorporation to increase the number of
authorized Common Stock and Preferred Stock of the Company must be approved by
the vote of the holders of a majority of the stock present in person or
represented by proxy at the Annual Meeting and entitled to vote thereat. If the
manner of voting is not specified in an executed proxy received by the Company,
the proxy holders will vote FOR approval of the amendments to the Company's
Articles of Incorporation.
Approval of amendment to the Company's Omnibus Stock Option Plan: The
amendment to the Company's Omnibus Stock Option Plan to increase the maximum
number of common shares of the Company reserved for issuance under the Plan must
be approved by the vote of the holders of a majority of the stock present in
person or represented by proxy at the Annual Meeting and entitled to vote
thereat. If the manner of voting is not specified in an executed proxy received
by the Company, the proxy holders will vote FOR approval of the amendment to the
Company's Omnibus Stock Option Plan.
Approval of the Company's noncontributory unfunded deferred
compensation plan: The Company's noncontributory unfunded deferred compensation
plan must be approved by the vote of the holders of a majority of the stock
present in person or represented by proxy at the Annual Meeting and entitled to
vote thereat. If the manner of voting is not specified in an executed proxy
received by the Company, the proxy holders will vote FOR approval of the
Company's noncontributory unfunded deferred compensation plan.
Ratification of Grant Thornton LLP as the Company's independent
certified public accountants: The selection of Grant Thornton LLP as the
Company's independent certified public accountants must be ratified by the vote
of the holders of a majority of the stock present in person or represented by
proxy at the Annual Meeting and entitled to vote thereat. If the manner of
voting is not specified in an executed proxy received by the Company, the proxy
holders will vote FOR ratification of Grant Thornton LLP as the Company's
independent certified public accountants.
Other matters as may properly come before the Meeting - The Company
does not know of any matters, other than as described in the Notice of Annual
Meeting, that are to be presented at the Meeting. If any other matters are
properly presented at the Meeting for action, the persons named in the enclosed
proxy and acting thereunder will have the discretion to vote on such matters in
accordance with their best judgment.
A proxy given pursuant to the solicitation or otherwise may be revoked at
any time before it is voted. Proxies may be revoked by: (i) filing with the
Secretary of the Company at or before the Meeting a written notice of revocation
bearing a later date than the proxy, (ii) duly executing a subsequent proxy
relating to the same shares and delivering it to the Secretary of the Company at
or before the Meeting, or (iii) attending the Meeting and voting in person
(although attendance at the Meeting will not in and of itself constitute
revocation of a proxy). Any written notice revoking a proxy should be delivered
to Howard A. Jaffe, Executive Vice President, Upgrade International Corporation,
1411 - Fourth Avenue, Suite 629, Seattle, WA 98101.
VOTING SECURITIES AND CERTAIN HOLDERS THEREOF
Stockholders of record as of the close of business on February 15, 2002
will be entitled to one vote for each share of Common Stock then held. As of
that date, the Company had 42,412,025 shares of Common Stock issued and
outstanding.
The following table sets forth, as of February 15, 2002, certain
information as to the beneficial ownership of Common Stock by: (i) those persons
or entities known by management to beneficially own more than 5% of the
Company's outstanding shares of Common Stock; (ii) the Company's Chief Executive
Officer, its Chairman of the Board and the other executive officers of the
Company (the "Named Officers"), and (iii) all directors and executive officers
of the Company as a group:
SHARES
BENEFICIALLY PERCENT OF
BENEFICIAL OWNER OWNED (1) CLASS
------------------------------------------------- ------------- -----------
5% SHAREHOLDERS
Gross Foundation (2) 2,701,474 6.37 %
1660 - 49th Street
Brooklyn, NY 11204
Citilink Investments International Ltd. (3) 2,157,554 5.09 %
8/4 Agasi St.
Harnof
Jerusalem, Israel 93877
DIRECTORS AND EXECUTIVE OFFICERS
Daniel S. Bland (4) 6,476,100 15.27 %
President and Chief Executive Officer
and Director
Howard A. Jaffe (5) 1,224,333 2.89 %
Executive Vice President and Chief Operating and
Financial Officer and Director
Malcolm P. Burke (6) 393,000 0.93 %
Director
Ronald P. Erickson (7) 650,000 1.53 %
Director
C. Rowland Hanson
Director -0- 0.00 %
Upgrade International Corporation (8) 2,000,000 4.72 %
Directors and executive officers as a group 10,743,433 25.33 %
(6 persons and/or entities)
________
(1) Includes shares held directly, in retirement accounts, in a fiduciary
capacity or by certain affiliated entities or members of the named
individuals' families, with respect to which shares the named individuals
and group may be deemed to have sole or shared voting and/or dispositive
powers. Also includes options and warrants which are vested and exercisable
within sixty days.
(2) Disclosure based upon Form 13-G/A, Amended Statement of Beneficial
Ownership filed with the Securities & Exchange Commission by the Gross
Foundation on February 12, 2002.
(3) Disclosure based upon Form 13-G, Statement of Beneficial Ownership filed
with the Securities & Exchange Commission by Citilink Investments
International Ltd. on February 1, 2002.
(4) Comprised of 4,000,000 shares and 800,000 warrants (exercisable at $0.25
per share and expiring 1/20/2004) owned by the Bland Family Trust, as to
which Mr. Bland, as trustee, has sole voting and investment powers, 476,100
shares owned by International Internet Corporation, which Mr. Bland
controls, and 1,200,000 options (600,000 exercisable at $0.25 per share and
expiring 1/20/2004; 350,000 options exercisable at $2.50 per share and
expiring 09/30/04; 250,000 exercisable at $3.19 per share and expiring
04/02/11) owned directly by Mr. Bland.
(5) Comprised of 286,000 shares and 555,000 warrants (205,000 exercisable at
$2.00 and expiring 02/15/06; 200,000 exercisable at $.75 and expiring
09/15/06; and 150,000 exercisable at $1.00 and expiring 01/08/07), and
500,000 options (200,000 shares at a price of $2.50 per share fully vested
and expiring 10/25/10; 200,000 options to acquire shares at a price of
$2.50 vesting quarterly over a period of three years and expiring 10/25/10;
100,000 shares at a price of $3.19 per share fully vested and expiring
04/02/11) owned directly by Mr. Jaffe.
(6) Comprised of 7,500 shares and 450,000 options (150,000 exercisable at $0.25
per share fully vested and expiring 1/20/2004; 200,000 vesting quarterly
over a three year period at $2.50 per share and expiring 09/30/04; and
100,000 shares vesting quarterly over a three year period at a price of
$3.19 and expiring 04/02/11) owned directly by Mr. Burke. In addition
10,500 shares owned by Primary Ventures Corporation, a company controlled
by Mr. Burke.
(7) Comprised of 750,000 options (550,000 exercisable at $0.25 per share fully
vested and expiring 1/20/2004; 100,000 vesting quarterly over a three year
period at $2.50 per share and expiring 09/30/2004; and 100,000 shares
vesting quarterly over a three year period at a price of $3.19 and expiring
04/02/11) owned directly by Mr. Erickson.
(8) Shares assigned to the Company, and pledged as collateral for loan
outstanding.
There are no arrangements known to the Company that may result in a change in
control of the Company.
DIRECTORS AND EXECUTIVE MANAGEMENT
The Company's Board of Directors currently consists of five members. The
Company's bylaws provide for directors' terms to be divided into three classes,
with each class to be as nearly equal in number as possible. Currently, one
director is serving in the class expiring in 2002, and two directors are serving
in each class expiring in 2003 and 2004. Mr. Hanson was recently appointed to
the Board of Directors will fill the class whose term will expire in 2005.
The following table sets forth certain information, as of February 15,
2002, regarding the Company's Board of Directors, including each director's term
of office. The Board of Directors acting as the nominating committee has
recommended and approved the Mr. Hanson as the nominee for the 2005 class
position. It is intended that the proxies solicited on behalf of the Board of
Directors (other than proxies in which the vote is withheld as to one or more
nominee) will be voted at the Meeting "FOR" the election of Mr. Hanson. If he
is unable to serve, the shares represented by all valid proxies will be voted
for the election of such substitute nominee as the Board of Directors may
recommend. At this time, the Board of Directors knows of no reason why the
nominee may be unable to serve, if elected. There are no arrangements or
understandings between any director or nominee and any other person pursuant to
which such director or nominee was selected.
SHARES OF
CURRENT COMMON STOCK PERCENT
POSITION(S) HELD DIRECTOR TERM BENEFICIALLY OF
NAME AGE IN THE COMPANY SINCE (1) EXPIRES OWNED (2,3) CLASS
-------------------- --- --------------------------- --------- ------- ------------- --------
NOMINEE -
TERM EXPIRES IN 2005
C.Rowland Hanson 49 Director 2002 2002 -0- .00 %
DIRECTORS -
TERM EXPIRES IN 2004
Daniel S. Bland 43 Chief Executive Officer 1997 2004 6,476,100 15.27 %
& President and Director
Malcolm P. Burke 59 Director 1997 2004 393,000 .93 %
DIRECTORS -
TERM EXPIRES IN 2003
Ronald P. Erickson 57 Director 1997 2003 650,000 1.53 %
Howard A. Jaffe 48 Executive Vice President 2000 2003 1,224,333 2.89 %
Chief Operating & Financial
Officer and Director
The business experience for at least the past five years of each nominee
and/or Director is set forth below.
DANIEL S. BLAND is the founder of Upgrade and has served as its President
since 1997. He also was a founder, and from 1993 to 1996 served as a director
and the chief executive officer of, Empyrean Diagnostics Ltd., a reporting
company in British Columbia under the British Columbia Securities Commission.
MALCOLM P. BURKE is the founder, and since 1998 has been the president and
chief executive officer, of Primary Ventures Corp., a Vancouver, British
Columbia company providing financial and strategic consulting services to
start-up companies. He also is president of Sopio Investments Ltd., a family
holding company. From 1992 to 1998 Mr. Burke was president and chief executive
officer of Interactive Entertainment Limited, an NASD Small Cap Market company.
RONALD P. ERICKSON has served as a director and senior executive officer
(currently chairman of the board of directors) of eCharge Corporation, a Seattle
based provider of Internet billing solutions, since October 1997. From January
1996 through August 1998, Mr. Erickson was chairman of the board of directors
and chief executive officer of GlobalTel Resources, Inc., an international
provider of telecommunications services, messaging and intranet solutions. From
September 1994 to January 1996, Mr. Erickson was managing director of
GlobalVision LLC, a consulting firm. Mr. Erickson also was a co-founder of
Egghead Software, a leading software retailer, where he was variously chairman,
vice chairman, president and chief executive officer from 1992 to 1994.
C. ROLAND HANSON is the managing member of CRH and Associates, a consulting
firm Mr. Hanson formed in 1987, based in Redmond, Washington which specializes
in strategic planning for a wide range of business enterprises. Prior to
founding CRH, Mr. Hanson served as Vice President of Corporate Communications
for Microsoft Corporation, where he developed and executed the company's
original branding strategy. Prior to Microsoft, Mr. Hanson was Vice President of
World-Wide Marketing for Neutrogena Corporation. Mr. Hanson serves on a number
of advisory boards and is a member of the Board of Directors of Direct Focus,
Inc. (Nasdaq : DFXI).
HOWARD A. JAFFE joined the Company in October 2000 as a consultant and in
January 2001 as the Chief Operating and Financial Officer. Mr. Jaffe is a
business and financial professional with substantial experience in mergers and
acquisitions and other capital market transactions. During the prior five years
Mr. Jaffe was the Executive Vice President and Chief Financial Officer of MB
Financial and Manufacturers Bank, a $1.4 billion financial institution.
EXECUTIVE OFFICERS
The following contains certain information regarding key officers of
subsidiaries who are not directors of the Company.
DANIEL KEHOE (UltraCard) has held the position of President and director
of UltraCard Inc. since 1997. Prior thereto, from 1994 to 1997 Mr. Kehoe
operated as an independent consultant to various technology companies
specializing in strategic business development. Mr. Kehoe has a degree from
Northwestern School of Law.
JOHN A. FRENCH (cQue) has been the President of cQue Corporation since
1996, a subsidiary of Upgrade which specializes in the development and
implementation of online Web Access software products for instant data retrieval
featuring the latest products in IT technology, including the smart card. Prior
to that Mr. French worked as a business consultant with Horizon Resources/2000
specializing in the software and smartcard development business.
MARCO GARIBALDI (Rockster, Transaction In-Process) has been involved in the
technology business his whole professional career. He received his degree in
computer sciences in 1974. Mr. Garibaldi worked with Burroughs Worldwide
Business Machines and Host International holding a succession of programming,
technical and financial positions. Later, Mr. Garibaldi founded InterComm, Inc.,
a think-tank company, (which developed the online shopping cart, bookstore
online, the auction server, just to name a few) where he served as President and
CEO. Mr. Garibaldi later joined Maximum Precision, an aerospace manufacturing
company, where during his tenure served as President and CEO. Mr. Garibaldi left
Maximum Precession to commence operations at Rockster.
Upgrade is not aware of any arrangements or understandings pursuant to
which its directors or executive officers are nominated or selected, other than
arrangements or understandings with directors or officers of Upgrade acting
solely in their capacities as such.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
THE COMPANY. The Company's Board of Directors has standing Audit and
Compensation Policy Committees.
During 2001, the Board of Directors of the Company met twice times in
formal meetings and issued consents to Company action a number of times. No
director nominee or standing director of the Company attended fewer than 75% of
the total number of board and committee meetings held by the Board of Directors.
The entire Board of Directors acts as a nominating committee for selecting
nominees for election as directors. While the Board of Directors will consider
nominees recommended by stockholders, the Board has not actively solicited such
nominations. Pursuant to the Company's Bylaws, nominations by stockholders
generally must be delivered in writing to the Secretary of the Company at least
30 days prior to the date of the Meeting. The Board of Directors met once
during 2001 in its capacity as a nominating committee.
The Audit Committee is responsible for recommending the selection of the
independent auditors of the Company and meeting with the independent auditors to
outline the scope and review the results of the annual audit. The Audit
Committee also meets with the Company's internal auditor on a periodic basis.
The Audit Committee is comprised of Directors Erickson (Chairman) and Burke.
This committee held two meetings during 2001.
The Compensation Policy Committee is responsible for the design and
administration of the overall compensation program. In addition, the committee
reviews and approves all executive officers' compensation plans, evaluates
executive performance, grants awards under the Omnibus Stock Option Plan and
considers other related matters. The Compensation Policy Committee includes
Directors Burke (Chairman) and Erickson The Compensation Policy Committee met
twice during 2001.
DIRECTOR COMPENSATION
For 2001, the Board of Directors approved a fee schedule for its
non-employee directors. The fee schedule is detailed as follows:
Annual Compensation $12,500
Attendance at Board Meetings $2,000
Annual Compensation for Committee Chairmanship $2,500
Attendance at Committee Meetings $11,000
Directors at their option can defer their fees into the deferred
compensation plan. Also, the non-employee directors have received stock options
at market for their services. Additionally, directors are reimbursed for their
out-of-pocket expenses related to their attendance at Board or Committee
meetings.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation of
the Named Officers for services in all capacities to the Company or its
subsidiaries for the years ended September 30, 2001, 2000 and 1999.
SUMMARY COMPENSATION TABLE
NAME AND FISCAL ANNUAL LONG TERM COMPENSATION ALL OTHER
PRINCIPAL POSITION YEAR COMPENSATION AWARDS COMPENSATION($)
------------------------------------ ------ ------------------ ---------------------------- ---------------
OPTIONS/
SALARY BONUS RESTRICTED STOCK WARRANTS
($)(2) ($)(3) AWARD(S)($)(4) (#)(5)
-------- -------- ----------------- ---------
Daniel S. Bland 2001 $250,000 $125,000 $ - 250,000 -
President and Chief Executive 2000 175,000 - - - -
Officer 1999 115,000 - - 1,750,000 -
Howard A. Jaffe (1) 2001 $250,000 $125,000 $ - 905,000 -
Executive Vice President and 2000 - - - - -
Chief Operating & Financial Officer 1999 - - - - -
_________
(1) Mr. Jaffe was hired as a consultant in October 2000 and as an executive officer in January 2001.
(2) Salary for 2001 represents amount accrued, but unpaid.
(3) Payment for bonuses awarded may be received in cash or stock (at $1.00 per share) at the discretion of
the recipient. Election must be made prior to September 30, 2002.
(4) Represents restricted stock issued.
(5) Represents warrants, or incentive and non-qualified stock options granted pursuant to the Company's
Stock Option Plans. All options were granted at or above the market price of the stock on the date of
the grant and vest up to three years.
STOCK OPTION GRANTS IN FISCAL YEAR 2001
The following table sets forth certain information with respect to stock
options granted to the Named Officers during the fiscal year ended September
30, 2001.
In addition to providing the number of options granted in the Summary
Compensation Table, the following table discloses the range of potential
realizable values at various assumed appreciation rates. The table discloses for
the Chief Executive Officer and other Named Officers the gain or "spread" that
would be realized at the end of the option term for the options granted during
2001, if the price of the Common Stock appreciates annually by the percentage
levels indicated from the market price on the date of grant.
% OF TOTAL
OPTIONS
GRANTED TO POTENTIAL REALIZABLE VALUE AT
EMPLOYEES EXERCISE ASSUMED ANNUAL RATES OF
OPTIONS IN FISCAL PRICE PER EXPIRATION STOCK PRICE APPRECIATION FOR
NAME GRANTED 2001(1) SHARE DATE OPTION TERM
-------------------------- ------- ---------- ---------- -------- --------------------------------
5.00% 10.00%
--------------- ---------------
Daniel S. Bland 250,000 20.4% $ 3.19 04/02/11 -0- $ 10,000
Howard A. Jaffe (2 Grants) 400,000 32.6% $ 2.50 10/25/10 -0- $ 292,000
100,000 8.2% $ 3.19 04/02/11 -0- $ 4,000
OPTION EXERCISES, HOLDINGS AND VALUES TABLE
The following table sets forth information with respect to shares of the
Common Stock acquired in 2001 through the exercise of stock options, including
the value realized upon the exercise, and the value of all stock options held at
September 30, 2001.
SHARES NUMBER OF VALUE OF UNEXERCISED
ACQUIRED VALUE UNEXERCISED OPTIONS "IN-THE-MONEY" OPTIONS
NAME ON EXERCISE REALIZED AT SEPTEMBER 30, 2001 AT SEPTEMBER 30, 2001 (1)
--------------- ----------- -------- -------------------------- ----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ------------ --------------
Daniel S. Bland -0- -0- 1,200,000 -0- $ 672,000 $ -0-
Howard A. Jaffe -0- -0- 500,000 -0- -0- -0-
__________
(1) Represents the difference between the closing price of the Common Stock on September 30,
2001 ($1.37 per share) and the exercise price of the stock options.
COMPENSATION POLICY COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Under rules established by the Securities and Exchange Commission ("SEC"),
the Company is required to provide certain data and information in regard to the
compensation and benefits provided to the Company's Chief Executive Officer and
other executive officers of the Company. The disclosure requirements for the
Chief Executive Officer and other executive officers include the use of tables
and a report explaining the rationale for and considerations that led to
fundamental executive compensation decisions affecting those individuals. In
fulfillment of this requirement, the Compensation Policy Committee of the Bank,
at the direction of the Board of Directors, has prepared the following report
for inclusion in this Proxy Statement.
GENERAL. The Board of Directors of the Company delegated to the
Compensation Policy Committee the responsibility and authority to oversee the
general compensation policies of the Company, to establish compensation plans
and specific compensation levels for executive officers, and to review the
recommendations of management for compensation and benefits for other officers
and employees of the Company. The Compensation Policy Committee is composed
solely of independent outside directors.
The Compensation Policy Committee has adopted an executive compensation
program designed to: (i) offer competitive compensation packages in order to
attract, motivate, retain and reward those key executive officers who are
crucial to the long-term success of the Company; (ii) establish a direct link
between executive compensation and annual and long-term performance of the
Company; and (iii) encourage decision-making that maximizes long-term
shareholder value. The Compensation Policy Committee's primary compensation
objective is to ensure that such compensation be tied to the achievement of both
short term and longer term goals and objectives established in conjunction with
the Company's planning process.
Executive Compensation Policy. The compensation package provided to the
executive officers of the Company is composed principally of base salary, an
annual incentive bonus and awards under the Company's equity based plans.
Executive officers also participate in other benefit plans available to all
eligible employees.
Base Salary. It is the policy of the Compensation Policy Committee to
annually review executive compensation packages, including base salaries paid or
proposed to be paid, with compensation packages and base salaries offered by
other technology-based companies. This information is primarily derived from
third party sources and company proxy statements that provide compensation data
and analysis from other publicly held companies. Specific factors considered
include the level of responsibility delegated to a particular officer, the
complexity of the job being evaluated, the position's impact on both short term
and long term corporate goals and objectives, the expertise and skill level of
the individual under consideration, the degree to which the officer has achieved
his management objectives for the plan year, his ability to attract highly
skilled individuals to the Company and the officer's overall performance in
managing his area of responsibility. The Compensation Policy Committee's
decisions are discretionary and no quantifiable formula or weighting of the
above mentioned factors are utilized in the decision making process.
Incentive Bonus Awards. The annual incentive bonus is designed to provide
that a substantial portion of each executive officer's total compensation
remains variable. The purpose of the incentive plan is to more closely align
executive performance to the annual and long-term financial and operating
performance of the Company and to reward officers for the achievement of certain
specified goals and objectives.
Benefit Plans. The Compensation Policy Committee's policy with respect to
employee benefit plans is to provide competitive benefits to employees of the
Company, including its executive officers. Additionally, the Omnibus Incentive
Plan will provide employees, including executive officers, with an additional
equity-based incentive to maximize long-term shareholder value. The Compensation
Policy Committee believes that a competitive employee benefit package is
essential to achieving the goals of attracting and retaining highly qualified
employees.
CHIEF EXECUTIVE OFFICER. The base salary paid to the Daniel S. Bland,
Chief Executive Officer of the Company for 2001 was increased to $250,000. In
examining the base compensation of other executives among other development
stage companies, along with companies at similar stages in its development, the
Compensation Policy Committee felt the compensation level was proper and
consistent with these other businesses.
The majority of Mr. Bland's compensation is tied to options issued upon the
Company's omnibus stock option plan and warrants to purchase shares of stock.
In this position where a key component of Mr. Bland's wealth and compensation is
directly tied to the performance of the Company's stock. Therefore, his
interests are closely aligned with that of the stockholders.
Malcolm P. Burke
Chairman of the Compensation Policy Committee
Ronald P. Erickson
AUDIT COMMITTEE REPORT
Under guideline established by the Securities and Exchange Commission
("SEC"), the Company has expanded the responsibilities for its Audit Committee.
Included in the guideline is the establishment of a charter which details the
responsibilities for the Audit Committee. The Company's Audit Committee Charter
was adopted by the Board of Directors during 2000 and was disseminated to
shareholders previously.
The Audit Committee reviewed and discussed with Grant Thornton LLP, the
Company's independent auditors, who are responsible for expressing an opinion on
the conformity of those audited financial statements with generally accepted
accounting principles, the matters required to be discussed with the Audit
Committee under generally accepted auditing standards (including Statement on
Auditing Standards No. 61). In addition, the Audit Committee has discussed with
the independent auditors the auditors' independence from management and the
Company, including the matters in the written disclosures required by the
Independence Standards Board Standard No. 1.
The Audit Committee has also considered whether the provision of non-audit
services by Grant Thornton LLP is compatible with their independence. The Audit
Committee discussed with the Company's independent auditors the overall scope
and plans for their audit. The Audit Committee met with the independent
auditors, with and without management present, to discuss the results of their
examinations, their evaluations of the Company's internal controls, and the
overall quality of the Company's financial reporting.
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors that the audited financial
statements be included in the Annual Report on Form 10-K for the year ended
September 30, 2001 for filing with the Securities and Exchange Commission. The
Committee also recommended the reappointment, subject to shareholder approval,
of the independent auditors and the Board concurred in such recommendation.
The Audit Committee of
the Board of Directors
Ronald P. Erickson
Chairman of the Audit Committee
---------------------------------------
Malcolm P. Burke
CERTAIN TRANSACTIONS
Under the rules of the SEC Mr. Bland is considered a promoter of the
Company.
On October 10, 1997, UltraCard licensed the rights to two technology
patents from CardTech, Inc. (CardTech). UltraCard's President Daniel Kehoe is
also the controlling stockholder of CardTech. The license agreement terminates
upon the expiration of the last licensed patent. Because the agreement covers
any new patent applications filed in conjunction with the original technology
patents, the agreement does not have a definite expiration date.
As of September 30, 2001, UltraCard's remaining commitments under the
license agreement are summarized as follows:
- An earned royalty fee of 5% of the gross proceeds generated from
sales, leases or other distributions of products incorporating the CardTech
technology. The minimum annual royalty fee is payable at $650,000 per calendar
year through 2009.
- A capital fee equal to 12.5% of all equity capital invested in the
UltraCard until such time that CardTech has received a total of $3,000,000 in
such fees. The maximum remaining amount of the commitment is $1,990,187.
Royalty fees are due on January 1 of each calendar year. As of September
30, 2001, $1,300,000 for both the calendar year 2000 and 2001 royalty fees
remained unpaid, causing UltraCard to be past due on the agreement. Cardtech has
deferred the required payments to March 31, 2002.
In July, 2001, the Company received from its President and Chief Executive
Officer, Daniel S. Bland, funds in the amount of $1,210,000 as a loan to the
company. The Company's Board of Directors as of November 1, 2001, converted the
$1,210,000 loan into equity by issuing 2,000,000 shares of common stock to Bland
in full satisfaction of the company's loan obligation to him. As part of this
transaction, Upgrade assumed the obligations of Bland, as borrower, under
Bland's loan agreements with International Mercantile Holding Group, Inc.
(IMHG), the original lender of the funds. Under the terms of the loan
agreements, repayment of the loan amount is secured by collateral in the form of
2,000,000 shares of Upgrade, which have been pledged by Bland to IMHG, which are
now assigned to the Company. Upon repayment of the loan and return of the
collateral, Upgrade intends to cancel the 2,000,000 shares of stock. The term of
the loan is five years.
AMENDMENT TO THE ARTICLES OF INCORPORATION OF UPGRADE
INTERNATIONAL CORPORATION.
The Company's Articles of Incorporation currently authorize the issuance of
up to 100,000,000 shares of common stock and 20,000,000 shares of preferred
stock. As of February 15, 2002, the Company had 42,412,025 shares of common
stock outstanding, and no shares of preferred stock outstanding. The Company
proposes to increase the authorized common stock to 250,000,000 shares and the
preferred stock to100,000,000 shares. The purpose of the proposed amendment is
to authorize capital that will permit the Company to use its equity securities
to further its business plans. This will ensure that the Company has an
adequate amount of stock authorized to raise capital, acquire other businesses
or issue stock as partial compensation for business transactions. In addition to
the increase in authorized stock, the Company proposes to add a provision
enabling the Board of Directors to establish classes and series of common stock
with separate rights and preferences to that of other common stock. The Board
currently has the authority to establish the designation, preferences,
limitations and relative rights of the shares of preferred stock. The effect of
granting this power with respect to the common stock provides the Board of
Directors with a mechanism for establishing a separate class of common stock
with different rights which may facilitate raising capital in markets to which
the Company has historically not had access. The issuance of either common or
preferred stock may dilute stock ownership of holders of common stock and
thereby reduce their voting power and reduce their rights to the net assets of
the Company upon dissolution.
The Board of Directors recommends that the stockholders approve an
amendment to the Amended and Restated Articles of Incorporation by adopting the
following resolutions:
BE IT RESOLVED, that Article II, Section 2.1 of the Corporation's Amended
and Restated Articles of Incorporation is hereby amended to read in its entirety
as follows:
2.1. AUTHORIZED CAPITAL
The total number of shares that this corporation is authorized to
issue is 350,000,000 consisting of 250,000,000 shares of Common Stock
having a par value of $0.0001 per share and 100,000,000 shares of Preferred
Stock having a par value of $0.0001 per share. The Common Stock is subject
to the rights and preferences of the Preferred Stock.
RESOLVED FURTHER, that a new Section 2.2 shall be added to the
Corporation's Amended and Restated Articles to read in its entirety as follows:
2.2. ISSUANCE OF COMMON STOCK BY CLASS AND IN SERIES
Common Stock may be issued from time to time in one or more classes
and one or more series within such classes in any manner permitted by law
and the provisions of these Articles of Incorporation, as determined from
time to time by the Board of Directors and stated in the resolution or
resolutions providing for its issuance, prior to the issuance of any
shares. The Board of Directors shall have the authority to fix and
determine and to amend the designation, preferences, limitations and
relative rights of the shares (including, without limitation, such matters
as dividends, redemption, liquidation, conversion and voting) of any class
or series that is wholly unissued or to be established. Unless otherwise
specifically provided in the resolution establishing any class or series,
the Board of Directors shall further have the authority, after the issuance
of shares of a class or series whose number it has designated, to amend the
resolution establishing such class or series to decrease the number of
shares of that class or series, but not below the number of shares of such
class or series then outstanding.
RESOLVED FURTHER, that the old Section 2.2 shall be renumbered accordingly.
THE UPGRADE BOARD RECOMMENDS THAT UPGRADE STOCKHOLDERS
VOTE FOR APPROVAL OF THE AMENDMENT.
AMENDMENT TO THE OMNIBUS STOCK OPTION PLAN, AS AMENDED OF
UPGRADE INTERNATIONAL CORPORATION.
The purpose of the Company's Omnibus Stock Option (the "Plan") is to
provide a means by which the Company may attract, reward, and retain services or
advice of current or future employees, officers, directors, and agents of the
Company and to provide added incentives to them by encouraging stock ownership
in the Company. Shareholder approval is required to amend the plan to increase
the maximum aggregate number of common shares of the Company issuable under the
Plan.
The Company's Board of Directors believes that the Company's performance
and growth is dependent upon ensuring the best possible management. The Board
further believes that the Plans will encourage equity ownership in the Company
by key employees and to also attract new members to its Board of Directors who
can contribute to the Company and in turn provide such individuals with further
incentive and motivation to perform in the best interests of the Company, its
customers, and its stockholders and will aid in attracting and retaining high
quality employees and Board Members. Without approval of the proposed amendment
to reserve additional shares for issuance, the Company will soon be unable to
make awards under the Plan. Previously, the shareholders approved shares for the
Omnibus plan at just under 5% of the authorized common shares of the Company.
The Board of Directors anticipates that the shareholders will approve the
proposal to increase the Company's authorized common stock at this Annual
Meeting. The Board of Directors therefore recommends that the stockholders
approve a commensurate increase in the number of shares available for issuance
under the Plan from 4,800,000 shares (4.8% of the authorized common shares) to
12,000,000 (the same 4.8% of the authorized common shares) by adopting the
following resolution:
BE IT RESOLVED, that Article 4, Section 4.1 shall be amended to read in its
entirety as follows:
4.1 Number of Shares. Subject to adjustment as provided in Section 4.3
herein, the total number of Shares available for grant under the Plan
may not exceed 12,000,000. These Shares may be either authorized but
unissued, or Shares that have been reacquired by the Company. The
grant of an Option, Stock Appreciation Right, Restricted Stock Award
or Performance Award shall reduce the Shares available for grant under
the Plan by the number of Shares subject to such Award.
RESOLVED FURTHER, that any one director or senior officer of the Company be
authorized to take any steps and execute any documents as may be necessary to
give effect to the amendment to the Plan.
THE UPGRADE BOARD RECOMMENDS THAT UPGRADE STOCKHOLDERS
VOTE FOR APPROVAL OF THE PLAN AMENDMENT.
ADOPTION OF THE NONCONTRIBUATORY UNFUNDED DEFERRED
COMPENSATION PLAN
The purpose of the Noncontributory Unfunded Deferred Compensation Plan is
to permit Executive Officers, Directors, or other agents of the Company to defer
a portion of their salary or fee into a tax deferred vehicle. Participation in
the plan is solely upon the discretion of those eligible to participate.
Currently, participants in the plan receive no contribution from the Company
based upon their election to participate. The Plan is overseen by Trustees
appointed by the Company's Board of Directors. Assets held in the plan are
subject to creditors of the Company in the event of bankruptcy. A complete copy
of the plan is attached to this proxy as exhibit "A".
THE UPGRADE BOARD RECOMMENDS THAT UPGRADE STOCKHOLDERS VOTE FOR APPROVAL OF
THE NONCONTRIBUTORY UNFUNDED DEFERRED COMPENSATION PLAN.
INDEPENDENT PUBLIC ACCOUNTANTS
Grant Thornton, LLP ("Grant Thornton"), independent certified public
accountants, have been selected by the Board of Directors to continue to serve
the Company in that capacity for 2001, subject to ratification by the
stockholders. Representatives of Grant Thornton are expected to be present at
the Meeting and can make a statement should they desire to do so and will be
available to respond to appropriate questions from stockholders.
Grant Thornton continues to perform audit professional services for and on
behalf of the Company. During 2001, Grant Thornton's audit services included
examination of the consolidated financial statements of the Company, examination
of the financial statements of subsidiaries and a review of certain filings with
the Securities and Exchange Commission. Grant Thornton's unqualified opinion of
the consolidated financial statements, along with the consolidated financial
statements of the Company, are enclosed in the mailing of this Proxy Statement.
THE UPGRADE BOARD RECOMMENDS THAT UPGRADE STOCKHOLDERS VOTE FOR APPROVAL OF THE
APPOINTMENT OF GRANT THORNTON LLP AS INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
OF THE COMPANY.
STOCKHOLDER PROPOSALS
In order to be eligible for inclusion in the Company's proxy materials for
the next Annual Meeting of Stockholders, any stockholder proposal to take action
at such meeting must be received by the Company prior to October 31, 2002. Any
such proposal shall be subject to the requirements of the proxy rules adopted
under the Exchange Act.
OTHER MATTERS
The Board of Directors is not aware of any business to be properly
presented at the Meeting other than those matters described above in this Proxy
Statement. However, if any other matter should properly come before the Meeting,
it is intended that holders of the proxies will act in accordance with their
best judgment.
The cost of solicitation of proxies will be borne by the Company. The
Company will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending proxy materials
to the beneficial owners of Common Stock. In addition to solicitation by mail,
directors, officers and employees of the Company may solicit proxies personally
or by telegraph or telephone without additional compensation.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
Upgrade files reports, proxy statements and other information with the
Commission under the Exchange Act. You may read this information at the
Commission's Public Reference Room located at 450 Fifth Street, N.W.
Room 1024, Washington, D.C. 20549. You may also obtain copies of this
information by mail from the Public Reference Section of the Commission, 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at prescribed rates. The
public may obtain information on the operation of the Public Reference Room by
calling the Commission at 1-800-SEC-0330. The Commission also maintains an
Internet world wide web site that contains reports, proxy statements and other
information about issuers, like Upgrade, who file electronically with the
Commission. The address of that site is http://www.sec.gov.
The Commission allows Upgrade to "incorporate by reference" information
into this Proxy Statement/Prospectus. This means that Upgrade can disclose
important information to you by referring you to another document filed
separately with the Commission. The information incorporated by reference is
considered to be a part of this Proxy Statement/Prospectus, except for any
information that other information included directly in this document
supersedes.
You can obtain any of the documents incorporated by reference in this
document through Upgrade or from the Commission through the Commission's web
site at the address described above. Documents incorporated by reference are
available from Upgrade without charge, excluding any exhibits to those documents
unless the exhibit is specifically incorporated by reference as an exhibit in
this Proxy Statement/Prospectus. You can obtain documents incorporated by
reference in this Proxy Statement/Prospectus by requesting them in writing or by
telephone from Upgrade at the following address:
Upgrade International Corporation
1411 - Fourth Avenue
Suite 629
Seattle, WA 98101
(206) 903-3116
Attention: Howard A. Jaffe
If you would like to request documents, please do so by March 15, 2002 to
receive them before the Annual Meeting. If you request any incorporated
documents from us, we will mail them to you by first class mail, or another
equally prompt means, within one business day after we receive your request.
We have not authorized anyone to give any information or make any
representation about our Company that is different from, or in addition to, that
contained in this Proxy Statement/Prospectus or in any of the materials that we
have incorporated into this document. Therefore, if anyone does give you
information of this sort, you should not rely on it. The information contained
in this document speaks only as of the date of this document unless the
information specifically indicates that another date applies.
By Order of the Board of Directors
/S/
Daniel S. Bland
President and Chief Executive Officer
Seattle, Washington
February 28, 2002
EXHIBIT "A"
UPGRADE INTERNATIONAL CORPORATION
UNFUNDED DEFERRED COMPENSATION PLAN
UPGRADE INTERNATIONAL CORPORATION
DEFERRED COMPENSATION PLAN
AS STATED EFFECTIVE NOVEMBER 1, 2001
PURPOSE
-------
The purpose of this Plan is to provide specified benefits to a select group
of management, highly compensated employees, directors, and agents who
facilitate raising capital and contribute materially to the continued growth,
development and future business success of Upgrade International, and its other
subsidiaries, if any, that sponsor this Plan. This Plan shall be unfunded for
tax purposes and for purposes of Title I of ERISA.
ARTICLE I
DEFINITIONS
-----------
For purposes of this Plan, unless otherwise clearly apparent from the
context, the following phrases or terms shall have the following indicated
meanings:
"Account Balance" shall mean, with respect to a Participant, a credit on
------------------
the records of the Employer equal to the Deferral Account balance. The
Account Balance, and each other specified account balance, shall be a
bookkeeping entry only and shall be utilized solely as a device for the
measurement and determination of the amounts to be paid to a Participant,
or his or her designated Beneficiary, pursuant to this Plan.
"Annual Bonus" shall mean any compensation, in addition to Base Annual
---------------
Salary relating to services performed during any calendar year, whether or
not paid in such calendar year or included on the Federal Income Tax Form
W-2 for such calendar year, payable to a Participant as an Employee under
any Employer's annual bonus and cash incentive plans, excluding stock
options.
"Annual Deferral Amount" shall mean that portion of a Participant's Base
--------------------------
Annual Salary, Annual Bonus, Director's Compensation and "finder's fees
related to financings that a Participant elects to have, and is deferred,
in accordance with Article 3, for any one Plan Year. In the event of a
Participant's Retirement, Disability (if deferrals cease in accordance with
Section 8.1), death or a Termination of Employment prior to the end of a
Plan Year, such year's Annual Deferral Amount shall be the actual amount
withheld prior to such event.
"Base Annual Salary" shall mean the annual cash compensation relating to
----------------------
services performed by an Employee during any calendar year, whether or not
paid in such calendar year or included on the Federal Income Tax Form W-2
for such calendar year, excluding bonuses, commissions, overtime, fringe
benefits, stock options, relocation expenses, incentive payments,
non-monetary awards, and other fees, automobile and other allowances paid
to a Participant for employment services rendered (whether or not such
allowances are included in the Employee's gross income). Base Annual Salary
shall be calculated before reduction for compensation voluntarily deferred
or contributed by the Participant pursuant to all qualified or
non-qualified plans of any Employer and shall be calculated to include
amounts not otherwise included in the Participant's gross income under Code
Sections 125, 402(e)(3), 402(h), or 403(b) pursuant to plans established by
any Employer; provided, however, that all such amounts will be included in
compensation only to the extent that, had there been no such plan, the
amount would have been payable in cash to the Employee.
"Beneficiary" shall mean one or more persons, estates or other entities,
-------------
designated in accordance with Article 9, that are entitled to receive
benefits under this Plan upon the death of a Participant.
1
"Beneficiary Designation Form" shall mean the form established from time to
------------------------------
time by the Committee that a Participant completes, signs and returns to
the Committee to designate one or more Beneficiaries.
"Board" shall mean the board of directors of the Company.
-------
"Change in Control" shall mean the first to occur of any of the following
---------------------
events:
(a) Any "person" (as that term is used in Section 13 and 14(d)(2) of the
Securities Exchange Act of 1934 (the "Exchange Act")) becomes the
beneficial owner (as that term is used in Section 13(d) of the
Exchange Act), directly or indirectly, of 50% or more of the Company's
capital stock entitled to vote in the election of directors;
(b) During any period of not more than two consecutive years, not
including any period prior to the adoption of this Plan, individuals
who at the beginning of such period constitute the board of directors
of the Company, and any new director (other than a director designated
by a person who has entered into an agreement with the Company to
effect a transaction described in clause (a), (c), (d) or (e) herein)
whose election by the board of directors or nomination for election by
the Company's stockholders was approved by a vote of at least
three-fourths (3/4ths) of the directors then in office who either were
directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any
reason to constitute at least a majority thereof;
(c) The shareholders of the Company approve any consolidation or merger of
the Company, other than a consolidation or merger of the Company in
which the holders of the common stock of the Company immediately prior
to the consolidation or merger hold more than 50% of the common stock
of the surviving corporation immediately after the consolidation or
merger;
(d) The Shareholders of the Company approve any plan or proposal for the
liquidation or dissolution of the Company; or
(e) The Shareholders of the Company approve the sale or transfer of all or
substantially all of the assets of the Company to parties that are not
within a "controlled group of corporation"( as defined in Code Section
1563) in which the Company is a member.
"Claimant" shall have the meaning set forth in Section 14.1.
----------
"Code" shall mean the Internal Revenue Code 1986, as it may be amended from
------
time to time.
"Committee" shall mean the committee described in Article 12.
-----------
"Company" shall mean Upgrade International, a state of Washington
---------
Corporation, and any successor to all or substantially all of the Company's
assets or business.
"Deduction Limitation" shall mean the following described limitation on a
-----------------------
benefit that may otherwise be distributable pursuant to the provisions of
this Plan. Except as otherwise provided, this limitation shall be applied
to all distributions that are "subject to the Deduction Limitation" under
this Plan. If an Employer determines in good faith prior to a Change in
Control that there is a reasonable likelihood that any compensation paid to
a Participant for a taxable year of the Employer would not be deductible by
the Employer solely by reason of the limitation under Code Section 162(m),
then to the extent deemed necessary by the Employer to ensure that the
entire amount of any distribution to the Participant pursuant to this Plan
prior the Change in Control is deductible, the Employer may defer all or
any portion of a distribution under this Plan. Any amounts deferred
2
pursuant to this limitation shall continue to be credited/debited with
additional amounts in accordance with Section 3.7 below, even if such
amount is being paid out in installments. The amounts so deferred and
amounts credited thereon shall be distributed to the Participant or his or
her Beneficiary (in the event of the Participant's death) at the earliest
possible date, as determined by the Employer in good faith, on which the
deductibility of compensation paid or payable to the Participant for the
taxable year of the Employer during which the distribution is made will not
be limited by Section 162(m), or if earlier, the effective date of a Change
in Control. Notwithstanding anything to the contrary in this Plan the
Deduction Limitation shall not apply to any distributions made after a
Change in Control.
"Deferral Account" shall mean (i) a sum of all of a Participant's Annual
-------------------
Deferral Amounts, (ii) the sum of Excess Matching Contributions contributed
on behalf of the Participant, (iii) amounts credited in accordance with all
the applicable crediting provisions of this Plan that relate to the
Participant's Deferral Account, less (iv) all distributions made to the
Participant or his or her Beneficiary pursuant to this Plan that relate to
his or her Deferral Account.
"Director" shall mean a member of the board of directors of the Company.
----------
"Director's Compensation" shall mean fees and other compensation payable
--------------------------
for services as a Director.
"Disability" shall mean a period of disability during which a Participant
------------
qualifies for permanent disability benefits under the Participant's
Employer's long-term disability plan, or, if a Participant does not
participate in such a plan, a period of disability during which the
Participant would have qualified for permanent disability benefits under
such a plan had the Participant been a participant in such a plan, as
determined in the sole discretion of the Committee. If the Participant's
Employer does not sponsor such a plan, or discontinues to sponsor such a
plan, Disability shall be determined by the Committee in its sole
discretion.
"Disability Benefit" shall mean the benefit set forth in Article 8.
---------------------
"Effective Date" shall mean November 1, 2001.
-----------------
"Election Form" shall mean the form established from time to time by the
----------------
Committee that a Participant completes, signs and returns to the Committee
to make an election under the Plan.
"Employee" shall mean a person who is classified as an employee of any
----------
Employer.
"Employer(s)" shall mean Upgrade International, and any other subsidiaries,
-------------
if any, that have been selected by the Board to participate in the Plan and
have adopted the Plan as a sponsor.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
-------
it may be amended from time to time.
"Excess Matching Contributions" shall equal to the difference between (a)
---------------------------------
and (b) where:
(a) is the amount of Matching Contribution that would have been allocated
for the Plan Year on behalf of the Participant under a Qualified Plan,
except for the limitation imposed on such Matching Contributions for
the Plan Year by Code Section 415; and
(b) is the amount of Matching Contributions actually allocated on behalf
of the Participant for the Plan Year.
"Finder's Fee" shall mean cash and/or stock paid to an agent of the
---------------
Company responsible for successfully raising working capital for the
Company.
3
"Matching Contribution" shall mean a matching contribution (within the
------------------------
meaning of Code Section 401(m)(4)(A)) that is allocable on behalf of a
Participant under a qualified plan described in Code Section 401(a), that
is maintained by an Employer and in which the Participant participates.
"Monthly installment Method" shall be a monthly installment payment over
------------------------------
the number of months selected by the Participant in accordance with this
Plan, calculated as follows: The Account Balance of the Participant shall
be calculated as of the close of business three business days prior to the
last business day of the month. The monthly installment shall be calculated
by multiplying this balance by a fraction, the numerator of which is one,
and the denominator of which is the remaining number of monthly payments
due the Participant. By way of example, if a 120-month Monthly Installment
Method is elected, the payment shall be 1/120 of the Account Balance,
calculated as described in this definition. The following month, the
payment shall be 1/119 of the Account Balance, calculated as described in
this definition. Each monthly installment shall be paid on or as soon as
practicable after the last business day of the applicable month.
"Participant" shall mean any Employee or Director (i) who is selected to
-------------
participate in the Plan, (ii) who elects to participate in the Plan, (iii)
who signs a Plan Agreement and an Election Form, (iv) whose signed Plan
Agreement, Election Form and Beneficiary Designation Form are accepted by
the Committee, (v) who commences participation in the Plan, and (vi) whose
Plan Agreement has not terminated. A spouse or former spouse of a
Participant shall not be treated as a Participant in the Plan or have an
Account Balance under the Plan, even if he or she has an interest in the
Participant's benefits under the Plan as a result of applicable law or
property settlements resulting from legal separation or divorce.
"Plan" shall mean this Deferred Compensation Plan, which shall be evidenced
------
by this instrument and by each Plan Agreement, as they may be amended from
time to time.
"Plan Agreement" shall mean a written agreement, as may be amended from
-----------------
time to time, which is entered into by and between an Employer and a
Participant. Each Plan Agreement executed by a Participant and the
Participant's Employer shall provide for the entire benefit to which such
Participant is entitled under the Plan; should there be more than one Plan
Agreement, the Plan Agreement bearing the latest date of acceptance by the
Employer shall supersede all previous Plan Agreements in their entirety and
shall govern such entitlement. The terms of any Plan Agreement may be
different for any Participant, and any Plan Agreement may provide
additional benefits not set forth in the Plan or limit the benefits
otherwise provided under the Plan; provided, however, that any such
additional benefits or benefit limitations must be agreed to by both the
Employer and the Participant
"Plan Year" shall mean a period beginning on January 1 of each calendar
------------
year and continuing through December 31 of such calendar year.
"Pre-Retirement Survivor Benefit" shall mean the benefit set forth in
-----------------------------------
Article 6.
"Qualified Plan" means a plan that meets the qualification requirements of
-----------------
Code Section 401(a) that is maintained by an Employer.
"Retirement", "Retire(s)" or "Retired" shall mean severance from employment
--------------------------------------
from all Employers for any reason other than a leave of absence, death or
Disability on or after the earlier of the attainment of (a) age sixty-five
(65) or (b) age fifty-five (55) with ten (10) Years of Service.
"Retirement Benefit" shall mean the benefit set forth in Article 5.
---------------------
"Short-Term Payout" shall mean the payout set forth in Section 4.1.
--------------------
"Termination Benefit" shall mean the benefit set forth in Article 7.
----------------------
4
"Termination of Employment" shall mean the severing of employment with all
----------------------------
Employers voluntarily or involuntarily, for any reason other than
Retirement, Disability, death or an authorized leave of absence.
"Trust" shall mean one or more trusts established pursuant to that certain
-------
Master Trust Agreement, between the Company and the trustee named therein,
as amended from time to time.
"Unforeseeable Financial Emergency" shall mean an unanticipated emergency
-------------------------------------
that is caused by an event beyond the control of the Participant that would
result in severe financial hardship to the Participant resulting from (i) a
sudden and unexpected illness or accident of the Participant or a dependent
of the Participant, (ii) a loss of the Participant's property due to
casualty, or (iii) such other extraordinary and unforeseeable circumstances
arising as a result of events beyond the control of the Participant, all as
determined in the sole discretion of the Committee. A distribution will be
deemed to be on account of an Unforeseeable Financial Emergency if the
distribution is on account of:
a) Unreimbursed medical expenses (as defined in Code Section 213(d))
and amounts necessary to obtain medical care for the Participant,
the Participant's spouse or any dependent;
b) the purchase of the Participant's principal residence (but not
ongoing mortgage payments);
c) tuition and related educational fees for the immediately
forthcoming twelve (12) month period of post-secondary education
for the Participant, his spouse or dependents;
d) the need to prevent eviction from or foreclosure on a
Participant's principal residence.
ARTICLE 2
SELECTION, ENROLLMENT, ELIGIBILITY
----------------------------------
2.1 SELECTION BY COMMITTEE. Participation in the Plan shall be limited to a
----------------------
select group of management. highly compensated Employees of the Employers,
Directors of the Company, and agents of the Company who raise operating
capital for the Company and its subsidiary as designated by the Committee
in its sole discretion from time to time. From that group, the Committee
shall select, in its sole discretion, Employees, Directors and agents to
participate in the Plan.
2.2 ENROLLMENT REQUIREMENTS. As a condition to participation, each selected
-----------------------
Employee, Director or agent shall complete, execute and return to the
Committee a Plan Agreement, an Election Form and a Beneficiary Designation
Form, all within 30 days after he or she is selected to participate in the
Plan. In addition, the Committee shall establish from time to time such
other enrollment requirements as it determines in its sole discretion are
necessary or appropriate.
2.3 ELIGIBILITY; COMMENCEMENT OF PARTICIPATION. Provided an Employee ,
---------------------------------------------
Director or Agent selected to participate in the Plan has met all
enrollment requirements set forth in this Plan and required by the
Committee, including returning all required documents to the Committee
within the specified time period, that Employee, Director or Agent shall
commence participation in the Plan on the first day of the month following
the month in which the Employee completes all enrollment requirements. If
an Employee , Director or Agent fails to meet all such requirements within
the period required, in accordance with Section 2.2, that Employee,
Director or Agent shall not be eligible to participate in the Plan until
the first day of the Plan Year following the delivery to and acceptance by
the Committee of the required documents.
5
2.4 TERMINATION OF PARTICIPATION AND/OR DEFERRALS. If the Committee
-------------------------------------------------
determines in good faith than a Participant no longer qualifies as a member
of a select group of management or highly compensated employees, as
membership in such group is determined in accordance with Sections 201(2),
301(a)(3) and 401(a)(1) of ERISA, or is no longer a Director, or Agent, the
Committee shall have the right, in its sole discretion, to (i) terminate
any deferral election the Participant has made for the remainder of the
Plan Year in which the Participant's membership status changes, (ii)
prevent the Participant from making future deferral elections, (iii) cease
making Excess Matching Contributions on his behalf (other than those
previously declared), and/or (iv) immediately distribute the Participant's
then Account Balance as a Termination Benefit and terminate the
Participant's participation in the Plan.
ARTICLE 3
DEFERRAL COMMITMENTS/MATCHING CONTRIBUTIONS/CREDITING/TAXES
-----------------------------------------------------------
3.1 COMPENSATION DEFERRALS.
-----------------------
For each Plan Year, a Participant may elect to defer, as his or her Annual
Deferral Amount, Base Annual Salary, Annual Bonus, and/or Director's
Compensation, or any Finder's Fee which may be earned as the case may be,
such amount as is set forth in the Participant's Plan Agreement with
respect to the Plan Year. The election shall be irrevocable with respect to
compensation covered by the election until the end of the Plan Year. If no
election is made, the amount deferred shall be zero. Notwithstanding the
foregoing, if a Participant first becomes a Participant after the first day
of a Plan Year, the maximum Annual Deferral Amount shall be limited to the
amount of compensation not yet earned by the Participant as of the date the
Participant submits a Plan Agreement and Election Form to the Committee for
acceptance.
3.2 DISCRETIONARY MATCHING CONTRIBUTIONS.
---------------------------------------
With respect to each Plan Year, each Employer, in its sole distribution,
may agree to contribute on behalf of Participant who is an Employee of that
Employer an amount equal to the Participant's Excess Matching Contribution
with respect to the Plan Year. The Excess Matching Contribution shall be
credited to each eligible Participant's Deferral Account as of the last day
of the Plan Year to which the Excess Matching Contribution relates.
3.3 ELECTION TO DEFER; EFFECT OF ELECTION FORM; SUSPENSION.
--------------------------------------------------------------
(a) FIRST PLAN YEAR. In connection with a Participant's commencement of
-----------------
participation in the Plan, the Participant shall make an irrevocable
election regarding his Annual Deferral Amount for the Plan Year in
which the Participant commences participation in the Plan, along with
such other elections as the Committee deems necessary or desirable
under the Plan. For these elections to be valid, the Election Form
must be completed and signed by the Participant, timely delivered to
the Committee (in accordance with Section 2.2 above) and accepted by
the Committee.
(b) SUBSEQUENT PLAN YEARS. For each succeeding Plan Year, the Participant
-----------------------
shall make an irrevocable election regarding his Annual Deferral
Amount for that Plan Year, and such other elections as the Committee
deems necessary or desirable under the Plan. Such election shall be
made before the end of the Plan Year preceding the Plan Year for which
the election is made, by means of a new Election Form. If no such
Election Form is timely delivered for a Plan Year, the Annual Deferral
Amount shall be zero for that Plan Year. In the case of a deferral of
a Participant's Annual Bonus, the election form shall be delivered to
the Committee prior to the date such Annual Bonus is announced by the
Employer.
6
(c) SUSPENSION OF ELECTION. A Participant may suspend an election to defer
----------------------
compensation for the remainder of the Plan Year by filing with the
Committee a written notice of the suspension, which election will
become effective as of the next payroll period.
3.4 WITHHOLDING OF ANNUAL DEFERRAL AMOUNTS. For each Plan Year, the Base
-----------------------------------------
Annual Salary portion of the Annual Deferral Amount shall be withheld from
each regularly scheduled Base Annual Salary payroll in equal amounts, as
adjusted from time to time for increases and decreases in Base Annual
Salary. The Annual Bonus portion of the Annual Deferral Amount shall be
withheld at the time the Annual Bonus is paid to the Participant, whether
or not this occurs during the Plan Year itself. The Director's Compensation
portion of the Annual Deferral Amount shall be withheld at the time the
Director's Compensation is paid to the Participant, whether or not this
occurs during the Plan Year.
3.5 INVESTMENT OF TRUST ASSETS. The Trustee of the Trust shall be
-----------------------------
authorized, upon written instructions received from the Committee or
investment manager appointed by the Committee, to invest and reinvest the
assets of the Trust in accordance with the applicable Trust Agreement,
including the disposition of stock and reinvestment of the proceeds in one
or more investment vehicles designated by the Committee.
3.6 VESTING. A Participant shall at all times be 100% vested in his or her
-------
Deferral Account.
3.7 CREDITING/DEBITING OF ACCOUNT BALANCES. In accordance with, and subject
--------------------------------------
to, the rules and procedures that are established from time to time by the
Committee, in its sole discretion, amounts shall be credited or debited to
a Participant's Account Balance in accordance with the following rules:
(a) ELECTION OF MEASUREMENT FUNDS. A Participant, in connection with his
-------------------------------
or her initial compensation deferral election in accordance with
Section 3.3(a) above, shall elect, on the Election Form, one or more
Measurement Fund(s) (as described in Section 3.7(c) below) to be used
to determine the additional amounts to be credited to his or her
Account Balance for the first calendar quarter or portion thereof in
which the Participant commences participation in the Plan and
continuing thereafter for each subsequent calendar quarter in which
the Participant participates in the Plan, unless changed in accordance
with the next sentence. Commencing with the first calendar quarter
that follows the Participant's commencement of participation in the
Plan and continuing thereafter for each subsequent calendar quarter in
which the Participant participates in the Plan, no later than the next
to last business day of the calendar quarter, the Participant may (but
is not required to) elect, by submitting an Election Form to the
Committee that is accepted by the Committee, to add or delete one or
more Measurement Fund(s) to be used to determine the additional
amounts to be credited to his or her Account Balance, or to change the
portion of his or her Account Balance allocated to each previously or
newly elected Measurement Fund. If an election is made in accordance
with the previous sentence, it shall apply to the next calendar
quarter and continue thereafter for each subsequent calendar quarter
in which the Participant participates in the Plan, unless changed in
accordance with the previous sentence.
(b) PROPORTIONATE ALLOCATION. In making any election described in Section
-------------------------
3.7(a) above, the Participant shall specify on the Election Form, in
increments of ten percentage points (10%), the percentage of his or
her Account Balance to be allocated to a Measurement Fund (as if the
Participant were making an investment in that Measurement Fund with
that portion of his or her Account Balance).
(c) MEASUREMENT FUNDS. Except as otherwise provided herein, the
------------------
Participant may elect one or more measurement funds, based on certain
mutual funds selected by the Board from time to time, or Company
common stock on a limited basis as hereinafter described (the
"Measurement Funds"), for the purpose of crediting or debiting amounts
to his or her Account Balance. Notwithstanding the foregoing, Company
7
common stock may be used as a Measurement Fund only with respect to
(1) the deferral of compensation from the Company and not with respect
to compensation deferred from any other Employer, and (2) Excess
Matching Contributions attributable to compensation from the Company.
The manner in which Participants elect their Measurement Funds shall
be determined in accordance with rules promulgated by the Committee.
As necessary, the Committee may, in its sole discretion, discontinue,
substitute or add a Measurement Fund. Each such action will take
effect as of the first day of the calendar quarter that follows by
fifteen (15) days the day on which the Committee gives Participants
advance written notice of such change.
Upon a Change in Control, the Participants may direct the investment
of their Account Balance among any investment permitted by the
Trustee, in such percentages as the Participant may determine.
(d) CREDITING OR DEBITING METHOD. The performance of each selected
-------------------------------
Measurement Fund (either positive or negative) will be determined by
the Committee, in its sole discretion, based on the performance of the
Measurement Funds themselves. A Participant's Account Balance shall be
credited or debited on a daily basis based on the performance of each
Measurement Fund selected by the Participant, as determined by the
Committee in its sole discretion, as though (i) a Participant's
Account Balance were invested in the Measurement Fund(s) selected by
the Participant, in the percentages applicable to such calendar
quarter, as of the close of business on the first business day of such
calendar quarter, at the closing price on such date; (ii) the portion
of the Annual Deferral Amount that was actually deferred during any
calendar quarter were invested in the Measurement Fund(s) selected by
the Participant, in the percentages applicable to such calendar
quarter, no later than the close of business on the third business day
after the day on which such amounts are actually deferred from the
Participant's Base Annual Salary through reductions in his or her
payroll, at the closing price on such date; (iii) the Participant's
Excess Matching Contribution was actually contributed as of the last
day of the Plan Year and invested in the Measurement Fund(s) selected
by the Participant as of that date, at the closing price on such date,
and (iv) any distribution made to a Participant that decreases such
Participant's Account Balance shall cease being invested in the
Measurement Fund(s), in the percentages applicable to such calendar
quarter, no earlier than three business days prior to the
distribution, at the closing price on such date.
(e) NO ACTUAL INVESTMENT. Notwithstanding any other provision of this Plan
---------------------
that may be interpreted to the contrary, the Measurement Funds are to
be used for measurement purposes only, and a Participant's election of
any such Measurement Fund, the allocation of his or her Account
Balance thereto, the calculation of additional amounts and the
crediting or debiting of such amounts to a Participant's Account
Balance shall not be considered or construed in any manner as an
actual investment of his or her Account Balance in any such
Measurement Fund. In the event that the Company or the Trustee (as
that term is defined in the Trust), in its own discretion, decides to
invest funds in any or all of the Measurement Funds, no Participant
shall have any rights in or to such investments themselves. Without
limiting the foregoing, a Participant's Account Balance shall at all
times be a bookkeeping entry only and shall not represent any
investment made on his or her behalf by the Company or the Trust; the
Participant shall at all times remain an unsecured creditor of the
Company.
3.8 FICA AND OTHER TAXES. For each Plan Year in which an Annual Deferral Amount
--------------------
is being withheld from a Participant, the Participant's Employer(s) shall
withhold from that portion of the Participant's Base Annual Salary, Annual
Bonus and Director's Compensation that is not being deferred in a manner
determined by the Employer(s), the Participant's share of FICA and other
8
employment taxes on such Annual Deferral Amount. The Committee may reduce
the Annual Deferral Amount in order to comply with this Section 3.8 if it
determines that such action is necessary or appropriate.
3.9 DISTRIBUTIONS. The Participant's Employer(s), or the trustee of the Trust,
-------------
shall withhold from any payments made to a Participant under this Plan all
federal, state and local income, employment and other taxes required to be
withheld by the Employer(s), or the trustee of the Trust, in connection
with such payments, in amounts and in a manner to be determined in the sole
discretion of the Employer(s) and the trustee of the Trust.
ARTICLE 4
SHORT-TERM PAYOUT; UNFORESEEABLE FINANCIAL EMERGENCIES; WITHDRAWAL ELECTION
---------------------------------------------------------------------------
4.1 SHORT-TERM PAYOUT. In connection with each election to defer an Annual
------------------
Deferral Amount, a Participant may irrevocably elect to receive a future
"Short-Term Payout" from the Plan with respect to his Account Balance.
Subject to the Deduction Limitation, the Short-Term Payout shall be a lump
sum payment in an amount that is equal to the Participant's Account
Balance, determined at the time that the Short-Term Payout becomes payable
(rather than the date of a Termination of Employment). Subject to the
Deduction Limitation and the other terms and conditions of this Plan, each
Short-Term Payout elected shall be paid out during a period beginning 1 day
and ending 60 days after the last day of any Plan Year designated by the
Participant that is at least five Plan Years after the Plan Year in which
the Annual Deferral Amount is actually deferred. By way of example, if a
five year Short-Term Payout is elected for Annual Deferral Amounts that are
deferred in the Plan Year commencing January 1, 2001, the five year
Short-Term Payout would become payable during a 60 day period commencing
January 1, 2007.
4.2 OTHER BENEFITS TAKE PRECEDENCE OVER SHORT-TERM. Should an event occur
------------------------------------------------
that triggers a benefit under Article 5, 6, 7 or 8, any Annual Deferral
Amount, plus amounts credited or debited thereon, that is subject to a
Short-Term Payout election under Section 4.1 shall not be paid in
accordance with Section 4.1 but shall be paid in accordance with the other
applicable Article.
4.3 WITHDRAWAL PAYOUT/SUSPENSIONS FOR UNFORESEEABLE FINANCIAL EMERGENCIES.
-----------------------------------------------------------------------
If the Participant experiences an Unforeseeable Financial Emergency, the
Participant may petition the Committee to (i) suspend any deferrals
required to be made by a Participant and/or (ii) receive a partial or full
payout from the Plan. The payout shall not exceed the lesser of the
Participant's Account Balance, calculated as if such Participant were
receiving a Termination Benefit, or the amount reasonably needed to satisfy
the Unforeseeable Financial Emergency. If, subject to the sole discretion
of the Committee, the petition for a suspension and/or payout is approved,
suspension shall take effect upon the date of approval and any payout shall
be made within 60 days of the date of approval. Following approval of a
payout under this Section 4.3, a Participant shall not be permitted to
resume participation in the Plan for the later of 6 months following such
withdrawal or the first day of the following Plan Year. If the Participant
petitions the Committee only to suspend deferrals and the Committee
approves such suspension, the Participant shall not be permitted to resume
participation in the Plan until the first day of the following Plan Year.
The payment of any amount under this Section 4.3 shall be subject to the
Deduction Limitation.
9
4.4 WITHDRAWAL ELECTION. A Participant (or, after a Participant's death, his
--------------------
or her Beneficiary) may elect, at any time, to withdraw all of his or her
Account Balance, calculated as if there had occurred a Termination of
Employment as of the day of the election, less a withdrawal penalty equal
to 10% of such amount (the net amount shall be referred to as the
"Withdrawal Amount"). This election can be made at any time, before or
after Retirement, Disability, death or Termination of Employment and
whether or not the Participant (or Beneficiary) is in the process of being
paid pursuant to an installment payment schedule. If made before
Retirement, Disability or death, a Participant's Withdrawal Amount shall be
his or her Account Balance calculated as if there had occurred a
Termination of Employment as of the day of the election. No partial
withdrawals of the Withdrawal Amount shall be allowed. The Participant (or
his or her Beneficiary) shall make this election by giving the Committee
advance written notice of the election in a form determined from time to
time by the Committee. The Participant (or his or her Beneficiary) shall be
paid the Withdrawal Amount within 60 days of his or her election. Once the
Withdrawal Amount is paid, the Participant's participation in the Plan
shall terminate and the Participant shall not be eligible to participate in
the Plan in the future. The payment of this Withdrawal Amount shall be
subject to the Deduction Limitation.
ARTICLE 5
RETIREMENT BENEFIT
------------------
5.1 RETIREMENT BENEFIT. Subject to the Deduction Limitation, a Participant
-------------------
who Retires shall receive as a Retirement Benefit his or her Account
Balance.
5.2 PAYMENT OF RETIREMENT BENEFIT. The Committee, in its sole and
--------------------------------
unrestricted discretion, shall determine whether the Participant will
receive distribution of all amounts payable to him under this paragraph, in
a lump sum or in installments over a designated period of years not to
exceed ten (10). The lump sum payment shall be made, or installment
payments shall commence, no later than 60 days after the date the
Participant Retires. Also, the Committee, in its sole and unrestricted
discretion, but taking into account any request made by the Participant,
shall determine whether the lump sum payment shall be in cash or in kind.
Payment shall be made no later than 60 days after the date the Participant
Retires. Any payment made shall be subject to the Deduction Limitation.
5.3 DEATH PRIOR TO ENTIRE PAYMENT OF RETIREMENT BENEFIT. If a Participant
------------------------------------------------------
dies after Retirement but before the Retirement Benefit is paid in full,
the Participant's unpaid Retirement Benefit payments shall continue and
shall be paid to the Participant's Beneficiary (i) over the remaining
number of months and in the same amounts as that benefit would have been
paid to the Participant had the Participant survived, or (ii) in a lump
sum, if requested by the Beneficiary and allowed in the sole discretion of
the Committee, that is equal to the Participant's unpaid remaining Account
Balance. Payment shall be payable either in cash or in-kind, as determined
in the sole discretion of the Committee, taking into account any request
made by the Beneficiary.
ARTICLE 6
PRE-RETIREMENT SURVIVOR BENEFIT
---------------------------------
6.1 PRE-RETIREMENT SURVIVOR BENEFIT. Subject to the Deduction Limitation, the
--------------------------------
Participant's Beneficiary shall receive a Pre-Retirement Survivor Benefit
equal to the Participant's Account Balance if the Participant dies before
he or she Retires, experiences a Termination of Employment or suffers a
Disability.
6.2 PAYMENT OF PRE-RETIREMENT SURVIVOR BENEFIT. The Committee, in its sole
-------------------------------------------
and unrestricted discretion, shall determine whether the Participant will
receive distribution of all amounts payable to him under this paragraph, in
a cash lump sum or in installments over a designated period of years not to
exceed ten (10). The lump sum payment shall be made, or installment
payments shall commence, no later than 60 days after the date the Committee
10
is provided with proof that is satisfactory to the Committee of the
Participant's death. Also, the Committee, in its sole and unrestricted
discretion, but taking into account any request made by the Beneficiary,
shall determine whether the lump sum payment shall be in cash or in kind.
Any payment made shall be subject to the Deduction Limitation.
ARTICLE 7
TERMINATION BENEFIT
-------------------
7.1 TERMINATION BENEFIT. Subject to the Deduction Limitation, the
--------------------
Participant shall receive a Termination Benefit, which shall be equal to
the Participant's Account Balance if a Participant experiences a
Termination of Employment prior to his or her Retirement, death or
Disability.
7.2 PAYMENT OF TERMINATION BENEFIT. The Committee, in its sole and
---------------------------------
unrestricted discretion, shall determine whether the Participant will
receive distribution of all amounts payable to him under this paragraph, in
a lump sum or in installments over a designated period of years not to
exceed ten (10). The lump sum payment shall be made, or installment
payments shall commence, no later than 60 days after the date the
Participant Retires. Also, the Committee, in its sole and unrestricted
discretion, but taking into account any request made by the Participant,
shall determine whether the lump sum payment shall be in cash or in kind.
Payment shall be made no later than 60 days after the date of the
Participant's Termination of Employment. Any payment made shall be subject
to the Deduction Limitation. Should the Participant die before payment of
his entire Termination Benefit, Section 5.3 shall apply.
ARTICLE 8
DISABILITY WAIVER AND BENEFIT
--------------------------------
8.1 DISABILITY WAIVER.
------------------
(a) WAIVER OF DEFERRAL. A Participant who suffers from a Disability shall
-------------------
be excused from fulfilling that portion of the Annual Deferral Amount
commitment that would otherwise have been withheld from a
Participant's Base Annual Salary, Annual Bonus, or Director's
Compensation for the Plan Year during which the Participant first
suffers a Disability. During the period of Disability, the Participant
shall not be allowed to make any additional deferral elections, but
will continue to be considered a Participant for all other purposes of
this Plan.
(b) RETURN TO WORK. If a Participant returns to employment with an
---------------
Employer after a Disability ceases, the Participant may elect to defer
an Annual Deferral Amount for the Plan Year following his or her
return to employment or service and for every Plan Year thereafter
while a Participant in the Plan; provided such deferral elections are
otherwise allowed and an Election Form is delivered to and accepted by
the Committee for each such election in accordance with Section 3.3
above.
8.2 CONTINUED ELIGIBILITY; DISABILITY BENEFIT. A Participant suffering a
--------------------------------------------
Disability shall, for benefit purposes under this Plan, continue to be
considered to be employed and shall be eligible for the benefits provided
in Articles 4, 5, 6 or 7 in accordance with the provisions of those
Articles. Notwithstanding the above, the Committee shall have the right to,
in its sole and absolute discretion and for purposes of this Plan only, and
must in the case of a Participant who is otherwise eligible to Retire, deem
the Participant to have experienced a Termination of Employment, or in the
case of a Participant who is eligible to Retire, to have Retired, at any
time (or in the case of a Participant who is eligible to Retire, as soon as
practicable) after such Participant is determined to be suffering a
Disability, in which case the Participant shall receive a Disability
Benefit equal to his or her Account Balance at the time of the Committee's
determination; provided, however, that should the Participant otherwise
have been eligible to Retire, he or she shall be paid in accordance with
Article 5. The Disability Benefit shall be paid in a lump sum within 60
days of the Committee's exercise of such right. Any payment made shall be
subject to the Deduction Limitation.
11
ARTICLE 9
BENEFICIARY DESIGNATION
------------------------
9.1 BENEFICIARY. Each Participant shall have the right, at any time, to
-----------
designate his or her Beneficiary(ies) (both primary as well as contingent)
to receive any benefits payable under the Plan to a beneficiary upon the
death of a Participant. The Beneficiary designated under this Plan may be
the same as or different from the Beneficiary designated under any other
plan of an Employer in which the Participant participates.
9.2 BENEFICIARY DESIGNATION: CHANGE; SPOUSAL CONSENT. A Participant shall
----------------------------------------------------
designate his or her Beneficiary by completing and signing the Beneficiary
Designation Form and returning it to the Committee or its designated agent.
A Participant shall have the right to change a Beneficiary by completing,
signing and otherwise complying with the terms of the Beneficiary
Designation Form and the Committee's rules and procedures, as in effect
from time to time. If the Participant names someone other than his or her
spouse as a Beneficiary, a spousal consent, in the form designated by the
Committee, must be signed by that Participant's spouse and returned to the
Committee. Upon the acceptance by the Committee of a new Beneficiary
Designation Form, all Beneficiary designations previously filed shall be
canceled. The Committee shall be entitled to rely on the last Beneficiary
Designation Form filed by the Participant and accepted by the Committee
prior to his or her death.
9.3 ACKNOWLEDGMENT. No designation or change in designation of a
--------------
Beneficiary shall be effective until received and acknowledged in writing
by the Committee or its designated agent.
9.4 NO BENEFICIARY DESIGNATION. If a Participant fails to designate a
----------------------------
Beneficiary as provided in Sections 9.1, 9.2 and 9.3 above or, if all
designated Beneficiaries predecease the Participant or die prior to
complete distribution of the Participant's benefits, then the Participant's
designated Beneficiary shall be deemed to be his or her surviving spouse.
If the Participant has no surviving spouse, the benefits remaining under
the Plan to be paid to a Beneficiary shall be payable to the executor or
personal representative of the Participant's estate.
9.5 DOUBT AS TO BENEFICIARY. If the Committee has any doubt as to the
--------------------------
proper Beneficiary to receive payments pursuant to this Plan, the Committee
shall have the right, exercisable in its discretion, to cause the
Participant's Employer to withhold such payments until this matter is
resolved to the Committee's satisfaction.
9.6 DISCHARGE OF OBLIGATIONS. The payment of benefits under the Plan to a
--------------------------
Beneficiary shall fully and completely discharge all Employers and the
Committee from all further obligations under this Plan with respect to the
Participant, and that Participant's Plan Agreement shall terminate upon
such full payment of benefits.
ARTICLE 10
LEAVE OF ABSENCE
----------------
10.1 PAID LEAVE OF ABSENCE. If a Participant is authorized by the
------------------------
Participant's Employer for any reason to take a paid leave of absence from
the employment of the Employer, the Participant shall continue to be
considered employed by the Employer and the Annual Deferral Amount shall
continue to be withheld during such paid leave of absence in accordance
with Section 3.3.
10.2 UNPAID LEAVE OF ABSENCE. If a Participant is authorized by the
--------------------------
Participants Employer for any reason to take an unpaid leave of absence
from the employment of the Employer, the Participant shall continue to be
considered employed by the Employer and the Participant shall be excused
from making deferrals until the earlier of the date the leave of absence
12
expires or the Participant returns to a paid employment status. Upon such
expiration or return, deferrals shall resume for the remaining portion of
the Plan Year in which the expiration or return occurs, based on the
deferral election, if any, made for that Plan Year. If no election was made
for that Plan Year, no deferral shall be withheld.
ARTICLE 11
TERMINATION, AMENDMENT OR MODIFICATION
--------------------------------------
11.1 TERMINATION. Although each Employer anticipates that it will continue the
------------
Plan for an indefinite period of time, there is no guarantee that any
Employer will continue the Plan or will not terminate the Plan at any time
in the future. Accordingly, each Employer reserves the right to discontinue
its sponsorship of the Plan and/or to terminate the Plan at any time with
respect to any or all of its participating Employees by action of its board
of directors. Upon the termination of the Plan with respect to any
Employer, the Plan Agreements of the affected Participants who are employed
by that Employer shall terminate and their Account Balances, determined as
if they had experienced a Termination of Employment on the date of Plan
termination or, if Plan termination occurs after the date upon which a
Participant was eligible to Retire, then with respect to that Participant
as if he or she had Retired on the date of Plan termination, shall be paid
to the Participants as follows: Prior to a Change in Control, if the Plan
is terminated with respect to all of its Participants, an Employer shall
have the right, in its sole discretion, and notwithstanding any elections
made by the Participant, to pay such benefits in a lump sum or pursuant to
a Monthly Installment Method of up to 10 years, with amounts credited and
debited during the installment period as provided herein. If the Plan is
terminated with respect to less than all of its Participants, an Employer
shall be required to pay such benefits in a lump sum. After a Change in
Control, the Employer shall be required to pay such benefits in a lump sum.
The termination of the Plan shall not adversely affect any Participant or
Beneficiary who has become entitled to the payment of any benefits under
the Plan as of the date of termination; provided, however, that the
Employer shall have the right to accelerate installment payments without a
premium or prepayment penalty by paying the Account Balance in a lump sum
or pursuant to a Monthly Installment Method using fewer months.
11.2 AMENDMENT. Any Employer may, at any time, amend or modify the Plan in
----------
whole or in part with respect to that Employer by the action of its board
of directors; provided, however, that no amendment or modification shall be
effective to decrease or restrict the value of a Participant's Account
Balance in existence at the time the amendment or modification is made,
calculated as if the Participant had experienced a Termination of
Employment as of the effective date of the amendment or modification or, if
the amendment or modification occurs after the date upon which the
Participant was eligible to Retire, the Participant had Retired as of the
effective date of the amendment or modification. The amendment or
modification of the Plan shall not affect any Participant or Beneficiary
who has become entitled to the payment of benefits under the Plan as of the
date of the amendment or modification; provided, however, that the Employer
shall have the right to accelerate installment payments by paying the
Account Balance in a lump sum or pursuant to a Monthly Installment Method
using fewer months (provided that the present value of all payments that
will have been received by a Participant at any given point of time under
the different payment schedule shall equal or exceed the present value of
all payments that would have been received at that point in time under the
original payment schedule).
11.3 PLAN AGREEMENT. Despite the provisions of Sections 11.1 and 11.2 above,
---------------
if a Participant's Plan Agreement contains benefits or limitations that are
not in this Plan document, the Employer may only amend or terminate such
provisions with the consent of the Participant.
11.4 EFFECT OF PAYMENT. The full payment of the applicable benefit under
-------------------
Articles 4, 5, 6, 7 or 8 of the Plan shall completely discharge all
obligations to a Participant and his or her designated Beneficiaries under
this Plan and the Participant's Plan Agreement shall terminate.
13
ARTICLE 12
ADMINISTRATION
--------------
12.1 COMMITTEE DUTIES. This Plan shall be administered by a Committee which
-----------------
shall consist of the Board, or such committee as the Board shall appoint.
Members of the Committee may be Participants under this Plan. The Committee
shall also have the discretion and authority to (i) make, amend, interpret,
and enforce all appropriate rules and regulations for the administration of
this Plan and (ii) decide or resolve any and all questions including
interpretations of this Plan, as may arise in connection with the Plan. Any
individual on the Committee who is a Participant shall not vote or act on
any matter relating solely to himself or herself. When making a
determination or calculation, the Committee shall be entitled to rely on
information furnished by a Participant or the Company.
12.2 AGENTS. In the administration of this Plan, the Committee may, from time to
------
time, employ agents and delegate to them such administrative duties as it
sees fit (including acting through a duly appointed representative) and may
from time to time consult with counsel who may be counsel to any Employer.
12.3 BINDING EFFECT OF DECISIONS. The decision or action of the Committee with
-----------------------------
respect to any question arising out of or in connection with the
administration, interpretation and application of the Plan and the rules
and regulations promulgated hereunder shall be final and conclusive and
binding upon all persons having any interest in the Plan.
12.4 INDEMNITY OF COMMITTEE. All Employers shall indemnify and hold harmless the
----------------------
members of the Committee, and any Employee to whom the duties of the
Committee may be delegated, against any and all claims, losses, damages,
expenses or liabilities arising from any action or failure to act with
respect to this Plan, except in the case of misconduct by the Committee or
any of its members or any such Employee.
12.5 EMPLOYER INFORMATION. To enable the Committee to perform its functions,
---------------------
each Employer shall supply full and timely information to the Committee on
all relating to the compensation of its Participants, the date and
circumstances of the Retirement Disability, death or Termination of
Employment of its Participants, and such other pertinent information as the
Committee may reasonably require.
ARTICLE 13
OTHER BENEFITS AND AGREEMENTS
--------------------------------
The benefits provided for a Participant or a Participant's Beneficiary under the
Plan are in addition to any other benefits available to such Participant under
any other plan or program for employees of the Participant's Employer. The Plan
shall supplement and shall not supersede, modify or amend any other such plan or
program except as may otherwise be expressly provided.
ARTICLE 14
CLAIMS PROCEDURES
------------------
14.1 PRESENTATION OF CLAIM. Any Participant or Beneficiary of a deceased
-----------------------
Participant (such Participant or Beneficiary being referred to below as a
"Claimant") may deliver to the Committee a written claim for a
determination with respect to the amounts distributable to such Claimant
from the Plan. If such a claim relates to the contents of a notice received
by the Claimant, the claim must be made within 60 days after such notice
was received by the Claimant. All other claims must be made within 180 days
of the date on which the event that caused the claim to anise occurred. The
claim must state with particularity the determination desired by the
Claimant.
14
14.2 NOTIFICATION OF DECISION. The Committee shall consider a Claimants claim
--------------------------
within a reasonable time, and shall notify the Claimant in writing:
(a) that the Claimant's requested determination has been made, and that
the claim has been allowed in full; or
(b) that the Committee has reached a conclusion contrary, in whole or in
part, to the Claimant's requested determination, and such notice must
set forth in a manner calculated to be understood by the Claimant:
(i) the specific reason(s) for the denial of the claim, or any part
of it;
(ii) specific reference(s) to pertinent provisions of the Plan upon
which such denial was based;
(iii) a description of any additional material or information
necessary for the Claimant to perfect the claim, and an
explanation of why such material or information is necessary; and
(iv) an explanation of the claim review procedure set forth in Section
14.3 below.
14.3 REVIEW OF A DENIED CLAIM. With 60 days after receiving a notice from
---------------------------
the Committee that a claim has been denied, in whole or in part, a Claimant
(or the Claimant's duly authorized representative) may file with the
Committee a written request for a review of the denial of the claim.
Thereafter, but not later than 30 days after the review procedure began,
the Claimant (or the Claimant's duly authorized representative):
(a) may review pertinent documents;
(b) may submit written comments or other documents; and/or
(c) may request a hearing, which the Committee, in its sole discretion,
may grant.
14.4 DECISION ON REVIEW. The Committee shall render its decision on review
-------------------
promptly, and not later dm 60 days after the filing of a written request
for review of the denial, unless a hearing is held or other special
circumstances require additional time, in which case the Committee's
decision must be rendered within 120 days after such date. Such decision
must be written in a manner calculated to be understood by the Claimant,
and it must contain:
(a) specific reasons for the decision;
(b) specific reference(s) to the pertinent Plan provisions upon which the
decision was based; and
(c) such other matters as the Committee deems relevant.
14.5 LEGAL ACTION. A Claimant's compliance with the foregoing provisions of
------------
this Article 14 is a mandatory prerequisite to a Claimant's right to
commence any legal action with respect to any claim for benefits under this
Plan.
15
ARTICLE 15
TRUST
-----
16
15.1 ESTABLISHMENT OF THE TRUST. The Company shall establish the Trust and
---------------------------
each Employer shall, at each pay period, transfer over to the Trust such
cash as the Participant elected to defer under the Plan, or such other
amount as it determines to be appropriate.
15.2 INTERRELATIONSHIP OF THE PLAN AND THE TRUST. The provisions of the
-----------------------------------------------
Plan and the Plan Agreement shall govern the rights of a Participant to
receive distributions pursuant to the Plan. The provisions of the Trust
shall govern the rights of the Employers, Participants and the creditors of
the Employers to the assets transferred to the Trust. Each Employer shall
at all times remain liable to carry out its obligations under the Plan.
15.3 DISTRIBUTIONS FROM THE TRUST. Each Employer's obligations under the
-------------------------------
Plan may be satisfied with Trust assets distributed pursuant to the terms
of the Trust and any such distribution shall reduce the Employer's
obligations under this Plan.
ARTICLE 16
MISCELLANEOUS
-------------
16.1 STATUS OF PLAN. The Plan is intended to be a plan that is not
----------------
qualified within the meaning of Code Section 401(a) and that "is unfunded
and is maintained by an employer primarily for the purpose of providing
deferred compensation for a select group of management or highly
compensated employees" within the meaning of ERISA Sections 201(2),
301(a)(3) and 401(a)(1). The Plan shall be administered and interpreted to
the extent possible in a manner consistent with that intent.
16.2 UNSECURED GENERAL CREDITOR. Participants and their Beneficiaries, heirs,
---------------------------
successors and assigns shall have no legal or equitable rights, interests
or claims in any property or assets of an Employer. For purposes of the
payment of benefits under this Plan, any and all of an Employer's assets
shall be, and remain the general, unpledged and unrestricted assets of the
Employer. An Employer's obligation under the Plan shall be merely of an
unfunded and unsecured promise to pay money in the future.
16.3 EMPLOYER'S LIABILITY. An Employer's liability for the payment of
---------------------
benefits shall be defined only by the Plan and the Plan Agreement as
entered into between the Employer and a Participant. An Employer shall have
no obligation to a Participant under the Plan except as expressly provided
in the Plan and his or her Plan Agreement.
16.4 NONASSIGNABILITY. Neither a Participant nor any other person shall have
----------------
any right to commute, sell, assign, transfer, pledge, anticipate, mortgage
or otherwise encumber, transfer, hypothecate, alienate or convey in advance
of actual receipt, the amounts, if any, payable hereunder, or any part
thereof, which are, and all rights to which are expressly declared to be,
unassignable and non-transferable. No part of the amounts payable shall,
prior to actual payment be subject to seizure, attachment, garnishment or
sequestration for the payment of any debts, judgments, alimony or separate
maintenance allowed by a Participant or any other person, be transferable
by operation of law in the event of a Participant's or any other person's
bankruptcy or insolvency or be transferable to a spouse as a result of a
property settlement or otherwise.
16.5 NOT A CONTRACT OF EMPLOYMENT. The terms and conditions of this Plan
-------------------------------
shall not be deemed to constitute a contract of employment between any
Employer and the Participant. Such employment is hereby acknowledged to be
an "at will" employment relationship that can be terminated at any time for
any reason, or no reason, with or without cause, and with or without
notice, unless expressly provided in a written employment agreement.
Nothing in this Plan shall be deemed to give a Participant the right to be
retained in the service of any Employer or to interfere with the right of
any Employer to discipline or discharge the Participant at any time.
16.6 FURNISHING INFORMATION. A Participant or his or her Beneficiary will
-----------------------
cooperate with the Committee by furnishing any and all information
requested by the Committee and take such other actions as may be requested
in order to facilitate the administration of the Plan and the payments of
benefits hereunder, including but not limited to, taking such physical
examinations as the Committee may deem necessary.
16.7 TERMS. Whenever any words are used herein in the masculine, they shall
-----
be construed as though they were in the feminine in all cases where they
would so apply; and whenever any words are used herein in the singular or
in the plural, they shall be co as though they were used in the plural or
the singular, as the case may be, in all cases where they would so apply.
16.8 CAPTIONS. The captions of the articles, sections and paragraphs of
--------
this Plan are for convenience only and shall not control or affect the
meaning or construction of any of its provisions.
16.9 GOVERNING LAW. Subject to ERISA, the provisions of this Plan shall be
--------------
construed and interpreted according to the internal laws of the State of
Washington without regard to its conflicts of laws and principles.
16.10 NOTICE. Any notice or filing required or permitted to be given to the
------
Committee under this Plan shall be sufficient if in writing and
hand-delivered, or sent by registered or certified mail, to the address
below.
Chief Financial Officer
Upgrade International
1411 Fourth Ave. - Suite 629
Seattle, WA 98101
Such notice shall be deemed given as of the date of delivery or, if
delivery is made by mail, as of the date shown on the postmark on the
receipt for registration or certification. Any notice or filing required or
permitted to be given to a Participant under s Plan shall be sufficient if
in writing and hand-delivered, or sent by mail, to the last known address
of the Participant.
16.11 SUCCESSORS. The provisions of this Plan shall bind and inure to the
-----------
benefit of the Participant's Employer and its successors and assigns and
the Participant and the Participant's designated Beneficiaries.
16.12 SPOUSE'S INTEREST. The interest in the benefits hereunder of a spouse
-------------------
of a Participant who has predeceased the Participant shall automatically
pass to the Participant and shall not be transferable by such spouse in
any manner, including, but not limited to, such spouse's will, nor shall
such interest pass under the laws of interstate succession.
16.13 VALIDITY. In case any provision of this Plan shall be illegal or
--------
invalid for any reason, said illegality or invalidity shall not affect the
remaining parts hereof, but this Plan shall be constructed and enforced as
if such illegal or invalid provision had never been inserted herein.
16.14 INCOMPETENT. If the Committee determines in its discretion a benefit
-----------
under this Plan is to be paid to a minor, a person declared incompetent or
to a person incapable of handling the disposition of that person's
property, the Committee may direct payment of such benefit to the
guardian, legal representative or person having the care and custody of
such minor, incompetent or incapable person. The Committee may require
proof of minority, incompetence, incapacity or guardianship, as it may
deem appropriate prior to distribution of the benefit. Any payment of a
benefit shall be a payment for the account of the Participant and the
Participant's Beneficiary, as the case may be, and shall be a complete
discharge of any liability under the Plan for such payment amount
16.15 COURT ORDER. The Committee is authorized to make any payments directed
-----------
by court order in any action in which the Plan or the Committee has been
named as a party. In addition, if a court determines that a spouse or
former spouse of a Participant has an interest in the Participant's
benefits under the Plan in connection with a property settlement or
otherwise, the Committee, in its sole discretion shall have the right,
notwithstanding any election made by a Participant, to immediately
distribute the spouse's or former spouse's interest in the Participant's
benefits under the Plan to that spouse or former spouse.
16.16 DISTRIBUTION IN THE EVENT OF TAXATION.
-------------------------------------------
(a) IN GENERAL. If, for any reason, all or any portion of a Participant's
------------
benefits under this Plan becomes taxable to the Participant prior to
receipt, a Participant may petition the Committee before a Change in
Control, or the trustee of the Trust after a Change in Control, for a
distribution of that portion of his or her benefit that has become
taxable. Upon the grant of such a petition, which grant shall not be
unreasonably withheld (and, after a Change in Control, shall be
granted), a Participant's Employer shall distribute to the Participant
immediately available funds in an amount equal to the taxable portion
of his or her benefit (which amount shall not exceed a Participant's
unpaid Account Balance under the Plan). If the petition is granted,
the tax liability distribution shall be made within 90 days of the
date when the Participant's petition is granted. Such a distribution
shall affect and reduce the benefits to be paid under this Plan.
(b) TRUST. If the Trust terminates in accordance with Section 3.6(e) of
-----
the Trust, and benefits are distributed from the Trust to a
Participant in accordance with that Section, the Participant's
benefits under this Plan shall be reduced to the extent of such
distributions.
16.17 INSURANCE. The Employers, on their own behalf or on behalf of the
---------
trustee of the Trust, and, in their sole discretion, may apply for and
procure insurance on the life of the Participant, in such amounts and in
such forms as they may choose. The Employers or the trustee of the Trust,
as the case may be, shall be the sole owner and beneficiary of any such
insurance. The Participant shall have no interest whatsoever in any such
policy or policies, and at the request of the Employers shall submit to
medical examinations and supply such information and execute such
documents as may be required by the insurance company or companies to whom
the Employers have applied for insurance.
16.18 LEGAL FEES TO ENFORCE RIGHTS AFTER CHANGE IN CONTROL. The Company and
------------------------------------------------------
each Employer is aware that upon the occurrence of a Change in Control,
the Board or the board of directors of a Participant's Employer (which
might then be composed of new members) or shareholder of the Company or
the Participant's Employer, or of any successor corporation, might then
cause or attempt to cause the Company, the Participant's Employer or such
successor to refuse to comply with its obligations under the Plan and
might cause or attempt to cause the Company or the Participant's Employer
to institute, or may institute, litigation seeking to deny Participants
the benefits intended under the Plan. In these circumstances, the purpose
of the Plan could be frustrated. Accordingly, if, following a Change in
Control, it should appear to any Participant that the Company, the
Participant's Employer or any successor corporation has failed to comply
with any of its obligations under the Plan or any agreement thereunder,
or, if the Company, such Employer or any other person takes any action to
declare the Plan void or unenforceable or institutes any litigation or
other legal action designed to deny, diminish or to recover from any
participant the benefits intended to be provided, then the Company and the
Participant's Employer irrevocably authorize such Participant to retain
counsel of his or her choice at the expense of the Company and the
Participant's Employer (who shall be jointly and severally liable) to
represent such Participant in connection with the initiation or defense of
any litigation or other legal action, whether by or against the Company,
the Participant's Employer or any director, officer, shareholder or other
person affiliated with the Company, the Participant's Employer or any
successor thereto in any jurisdiction.
IN WITNESS WHEREOF, the Company has signed this Plan document as of March
28, 2002, but effective for all purposes as of November 1, 2001.
UPGRADE INTERNATIONAL CORP.
a Washington Corporation
By: _________________________________
Title: _________________________________