UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 000-13611
SPARTAN MOTORS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Michigan |
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38-2078923 |
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1000 Reynolds Road |
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Registrant's Telephone Number, Including Area Code: (517) 543-6400
Securities registered pursuant to Section 12(b) of the Securities Exchange Act |
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Title of Class |
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Name of Exchange on which Registered |
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Securities registered pursuant to Section 12(g) of the Securities Exchange Act: None |
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
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Yes |
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No |
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Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
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Yes |
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No |
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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check One):
Large accelerated filer |
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).
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Yes |
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No |
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The aggregate market value of the registrant's voting stock held by non-affiliates of the registrant, based on the last sales price of such stock on NASDAQ Global Select Market on June 30, 2007, the last business day of the registrant's most recently completed second fiscal quarter: $494,743,019.
The number of shares outstanding of the registrant's Common Stock, $.01 par value, as of February 29, 2008: 32,411,919 shares
Documents Incorporated by Reference
Portions of the definitive proxy statement for the registrant's May 21, 2008 annual meeting of shareholders, to be filed with the Securities and Exchange Commission no later than 120 days after December 31, 2007, are incorporated by reference in Part III.
FORWARD-LOOKING STATEMENTS
This Form 10-K contains statements that are not historical facts. These statements are called "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements involve important known and unknown risks, uncertainties and other factors and can be identified by phrases using "estimate," "anticipate," "believe," "project," "expect," "intend," "predict," "potential," "future," "may," "will," "should" and similar expressions or words. Our future results, performance or achievements may differ materially from the results, performance or achievements discussed in the forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions ("Risk Factors") that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or fore casted in such forward-looking statements.
Risk Factors include, but are not limited to, the risk factors listed and more fully described in Item 1A, "Risk Factors", as well as risk factors that we have discussed in previous public reports and other documents filed with the Securities and Exchange Commission. This list provides examples of factors that could affect the results described by forward-looking statements contained in this Form 10-K. However, this list is not intended to be exhaustive; many other factors could impact our business and it is impossible to predict with any accuracy which factors could result in negative impacts. Other Risk Factors exist, and new Risk Factors emerge from time to time that may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, although we believe that the forward-looking statements contained in this Form 10-K are reasonable, we cannot provide you with any guarantee that the anticipated results will be achieved. All forward-lo oking statements in this Form 10-K are expressly qualified in their entirety by the cautionary statements contained in this section and investors should not place undue reliance on forward-looking statements as a prediction of actual results. The Company undertakes no obligation to update or revise any forward-looking statements to reflect developments or information obtained after the date of this letter.
PART I
Item 1. |
Business. |
General
Spartan Motors, Inc. (the "Company") was organized as a Michigan corporation on September 18, 1975, and is headquartered in Charlotte, Michigan. The Company began development of its first product that same year and shipped its first fire truck chassis in October 1975.
The Company is known as a leading, niche market engineer and manufacturer in the heavy-duty, custom vehicles marketplace. The Company has four wholly owned subsidiaries: Spartan Motors Chassis, Inc., located at the corporate headquarters in Charlotte, Michigan ("Spartan Chassis"); Crimson Fire, Inc., headquartered in Brandon, South Dakota ("Crimson"); Crimson Fire Aerials, Inc., located in Lancaster, Pennsylvania ("Crimson Aerials"); and Road Rescue, Inc., located in Marion, South Carolina ("Road Rescue").
Spartan Chassis is a leading designer, engineer and manufacturer of custom heavy-duty chassis. The chassis consist of a frame assembly, engine, transmission, electrical system, running gear (wheels, tires, axles, suspension and brakes) and, for fire trucks and some specialty chassis applications, a cab. Spartan Chassis customers are original equipment manufacturers ("OEMs") who complete their heavy-duty vehicle product by either mounting the body or apparatus on the Company's chassis or integrating the drive train with the armored body. Crimson and Road Rescue engineer and manufacture emergency vehicles built on chassis platforms purchased from either Spartan Chassis or outside sources. Crimson Aerials engineers and manufactures aerial ladder components for fire trucks.
The Company's business strategy is to further diversify product lines and develop innovative design, engineering and manufacturing expertise in order to be the best value producer of custom vehicle products. Spartan Chassis sells its custom chassis to three principal markets: fire truck, motorhome and specialty vehicles. Spartan Chassis focuses on certain custom niches within its three principal markets and believes that opportunities for growth remain strong for custom-built chassis and vehicles in each market.
The Company is an innovative team focused on building lasting relationships with its customers. This is accomplished by striving to deliver premium custom vehicles and services. The Company believes that it can best carry out its long-term business plan and obtain optimal financial flexibility by using a combination of borrowings under the Company's credit facilities, as well as internally or externally generated equity capital, as sources of expansion capital.
In January 1997, the Company acquired a 33 1/3% interest in Carpenter Industries, Inc. ("Carpenter"), a manufacturer of school bus bodies, headquartered in Richmond, Indiana. The Company increased its ownership twice, to 49.9% in October of 1998 and then to 57.6% in November of 1999. On September 28, 2000, the Company's Board of Directors voted to cease funding of Carpenter. The Board of Directors of Carpenter then passed a resolution on September 29, 2000 to begin the wind-down and orderly liquidation of Carpenter which was substantially completed in the fourth quarter of 2001.
The Company's Segments
The Company is organized into two reportable segments, Spartan Chassis and the Emergency Vehicle Team ("EVTeam"). For certain financial information related to each segment, see Note 12, Business Segments, of the Notes to Consolidated Financial Statements appearing in Item 8 of this Form 10-K.
Spartan Chassis
Sales by Spartan Chassis represented 90.3%, 87.9% and 85.8% of the Company's consolidated sales for the years ended December 31, 2007, 2006 and 2005, respectively. Approximately 98% of the components used by Spartan Chassis to manufacture its products are commercially available products purchased from outside suppliers. This strategy allows Spartan Chassis, and its OEM customers and endusers, to service finished products with ease, control production costs and expedite the development of new products. Spartan Chassis manufactures chassis only upon receipt of confirmed purchase orders; thus, it does not have significant amounts of completed product inventory. Spartan Chassis markets its products throughout the U.S. and Canada.
Spartan Chassis has extensive engineering experience in creating chassis for vehicles that perform specialized tasks. Spartan Chassis engineers, manufactures and markets chassis for fire trucks, motorhomes and specialty applications such as military vehicles, trolleys, utility trucks and crash-rescue vehicles. As a specialized chassis producer, Spartan Chassis believes that it holds a unique position for continued growth due to its engineering reaction time, manufacturing expertise and flexibility. This allows Spartan Chassis to profitably manufacture custom chassis with a specialized design that will serve customer needs more efficiently and economically than a standard, commercially-produced chassis. Spartan Chassis employed approximately 1,454 associates in Charlotte, Michigan as of February 29, 2008, of which approximately 1,417 were full-time. Of the full-time associates, 498 were contracted employees.
Fire Truck Chassis
Spartan Chassis custom manufactures fire truck chassis and cabs in response to exact customer specifications. These specifications vary based on such factors as application, terrain, street configuration and the nature of the community, state or country in which the fire truck will be utilized. Spartan Chassis has three fire truck models within this product line: (1) the "Gladiator" chassis; (2) the "Metro Star" chassis; and (3) the "Furion" chassis.
Spartan Chassis strives to develop innovative engineering solutions to meet customer requirements, and designs new products anticipating the future needs of the marketplace. Spartan Chassis monitors the availability of new technology and works closely with its component manufacturers to apply new technology to its products.
Over the past few years, there have been several examples of such innovations. Spartan Chassis helps to introduce to the fire truck market vehicle systems and components that incrementally improve the level of safety for all vehicle occupants. Spartan Chassis was the first to introduce Roll Stability Control, which helps maintain vehicle stability and aids in reducing vehicle rollovers. Other safety systems include side roll protection, a side air bag and seat pretension system; the seatbelt sensor system that indicates unbuckled seatbelts, and the all-belts-to-seat system with shock-absorbent seats and prominent red-colored seatbelts. The newest safety vehicle application, the 4x4 feature, enables a lower center of gravity, improving vehicle control, balance and maneuverability. The 4x4 option is available on the complete fire truck vehicle line up.
Motorhome Chassis
Spartan Chassis custom manufactures chassis to the individual specifications of its motorhome chassis OEM customers. These specifications vary based on specific interior and exterior design specifications, power requirements, horsepower and electrical needs of the motorhome bodies to be attached to the Spartan chassis. Spartan Chassis' motorhome chassis are separated into five models: (1) the "NVS" series chassis; (2) the "Mountain Master" series chassis; (3) the "K2" series chassis; (4) the "K3" series chassis and (5) the "ME2" series chassis. These motorhome chassis are generally distinguished by differences in allowable vehicle weight, length, gross vehicle weight, engines, options and price. The ME2, which is a mid-engine chassis, provides the OEM a significant opportunity in floor plan flexibility and provides enhanced ride and handling for the driver. A version with a rear-lift deck, or traveling garage, provides extra storage space for bicycles, ATVs, canoes and other "toys" that complement the RV lifestyle. The innovative mid-engine design is now available on entry-level diesel motorhome chassis. Versions of these five basic product models are designed and engineered in order to meet customer requirements. This allows the chassis to be adapted to each OEM's specific floor plan and manufacturing process. Spartan Chassis continually seeks to develop innovative engineering solutions to customer requirements and strives to anticipate future market needs and trends by working closely with the OEMs and listening to the end users.
Specialty Vehicle Chassis
Spartan Chassis continues to develop specialized chassis and actively seeks additional applications of its existing products and technology in the specialty vehicle market. In 2005, the Company produced its first specialty chassis for military vehicles. Military vehicle chassis are the primary model of specialty chassis currently produced. With its experience in manufacturing chassis for cement mixers, trolleys, utility trucks, crash and rescue vehicles and other specialty uses, the Company believes it is well positioned to continue to take advantage of opportunities in military vehicles and other specialty vehicle markets. Our sales of specialty chassis for military vehicles depend on U.S. government contracts awarded to our customers. Multi-year U.S. government contracts generally are not fully funded at inception.
EVTeam
The Company's EVTeam consists of its three wholly owned subsidiaries, Crimson, Crimson Aerials and Road Rescue. Crimson and Road Rescue engineer and manufacture emergency vehicles built on chassis platforms purchased from either Spartan Chassis or outside sources. Crimson Aerials engineers and manufactures aerial ladder components for fire trucks. The EVTeam members manufacture products only upon receipt of confirmed purchase orders; thus they do not have significant amounts of completed product inventory. The EVTeam employed approximately 381 associates as of February 29, 2008 of which approximately 378 were full-time.
Crimson Fire, Inc.
Crimson engineers, manufactures and markets its custom and commercial fire apparatus products through a network of dealers throughout North America. Crimson's product lines include pumpers and aerial fire apparatus, heavy- and light-duty rescue units, tankers and quick attack units. Created by the merger on January 1, 2003 of two of the Company's wholly owned subsidiaries - Luverne Fire Apparatus, Ltd. and Quality Manufacturing, Inc. (two of the industry's oldest brands) - the Crimson Fire brand builds on more than 130 years of heritage. Crimson is recognized in the industry for its innovative design and engineering. Crimson's signature features - such as Tubular Stainless Steel body structure, Vibra-TorqTM mounting system, exclusive Trix-MaxTM body frame and Smart Access pump panels - are designed to offer the safety, reliability and durability that firefighters need to get the job done again and again. As of February 29, 2008 Crimson employed approximately 175 associates of which a pproximately 173 were full-time.
Crimson Fire Aerials, Inc.
Crimson Aerials engineers, manufactures and markets aerial ladder components for fire trucks at its headquarters in Lancaster, Pennsylvania and employed approximately 44 associates as of February 29, 2008 of which 43 were full-time. The Company began operations in the later half of 2003 and has developed a full line of aerial products. Crimson Aerials introduced its first models in 2004 and is poised to produce the next generation of aerial devices in terms of technology, operation and serviceability. Crimson Aerials currently sells its products to only Crimson Fire, Inc.
Road Rescue, Inc.
Road Rescue engineers, manufactures and markets a complete line of premium, custom advanced-care ambulances and rescue vehicles at its headquarters in Marion, South Carolina. Road Rescue is a market leader in the design of Type I and Type III high-performance, modular ambulances that fit all emergency transport requirements and offer the latest in technology. These vehicles are built with safety, performance and ease-of-maintenance in mind. Vehicles such as the UltraMedic Type III offer a glimpse at the ambulance of the future - complete with smart displays, smart glass and a variety of other high-tech features. Road Rescue markets its products through a dealer network throughout the United States and Canada. Road Rescue employed 162 associates as of February 29, 2008 of which all were full-time.
Marketing
Spartan Chassis markets its custom manufactured chassis throughout the U.S. and Canada, primarily through the direct contact of its sales department with OEMs, dealers and endusers. The EVTeam maintains dealer organizations that establish close working relationships through their sales departments with endusers. These personal contacts focus on the quality of the group's custom products and allow the Company to keep customers updated on new and improved product lines and endusers' needs.
In 2007 and consistent with prior years, representatives from the Company attended trade shows, rallies and expositions throughout North America as well as Europe and Asia to promote its products. Trade shows provide the opportunity to display products and to meet directly with OEMs who purchase chassis, dealers who sell finished vehicles and consumers who buy the finished products. Participation in these events also allows the Company to better identify what customers and endusers are looking for in the future. The Company uses these events to create a competitive advantage by relaying this information back to its research and development engineering groups for future development projects.
The Company's sales and marketing team is responsible for marketing its manufactured goods and producing product literature. The sales group consists of 45 salespeople based in Company locations in Charlotte, Michigan; Brandon, South Dakota; Marion, South Carolina; and Lancaster, Pennsylvania; and 13 additional salespeople located throughout North America.
Competition
The principal methods of building competitive advantages utilized by the Company include short engineering reaction time, custom design capability, high product quality, superior customer service and quick delivery. The Company competes with companies that manufacture for similar markets, including some divisions of large diversified organizations that have total sales and financial resources exceeding those of the Company. Certain competitors are vertically integrated and manufacture their own chassis and/or apparatuses, although they generally do not sell their chassis to outside customers (other OEMs). The Company's direct competitors in the emergency vehicle apparatus market are principally smaller manufacturers.
Because of the lack of reliable published statistics, the Company is unable to state with certainty its position in its markets compared to its competitors. The emergency vehicle market and, to a lesser degree, the custom chassis market are fragmented. The Company believes that no one company has a dominant position in either market.
Manufacturing
Spartan Chassis currently has six principal assembly facilities in Charlotte, Michigan for its custom chassis products. In 2007, the Company's Board of Directors approved the purchase of three manufacturing facilities, one of which was previously leased in part as a warehousing facility. In addition, the Company built a new manufacturing facility, approved in 2006 by the Company's Board of Directors, and this facility began production in the second quarter of 2007. This newly constructed plant replaced outdated facilities and also added manufacturing capacity. Due to the custom nature of its business, the Company's chassis cannot be manufactured efficiently on automated assembly lines. Generally, Spartan Chassis designs, engineers and assembles its specialized heavy-duty truck chassis using commercially available components purchased from outside suppliers rather than producing components internally. This approach facilitates prompt serviceability of finished products, reduces production costs, expedites the development of new products and reduces the potential of costly down time for the enduser.
The EVTeam products are manufactured and assembled in each of the subsidiaries' respective manufacturing facilities, represented by four plants in total. The chassis for the products are purchased from Spartan Chassis and from outside commercial chassis manufacturers. The EVTeam facilities do not use automated assembly lines since each vehicle is manufactured to meet specifications of an enduser customized order. The chassis is rolled down the assembly line as other components are added and connected. The body is manufactured at the facility with components such as pumps, tanks, aerial ladders and electrical control units purchased from outside suppliers.
Suppliers
The Company is dedicated to establishing long-term and mutually beneficial relationships with its suppliers. Through these relationships, the Company benefits from new innovations, higher quality, reduced lead times, smoother/faster manufacturing ramp-up of new vehicle introductions and lower total costs of doing business. The combined buying power of the Company's subsidiaries and a corporate supply chain management initiative allow the Company to benefit from economies of scale and to focus on a common vision.
Components for the Company's products are generally available from a number of suppliers. The Company maintains an extensive qualification, on-site inspection, assistance, and performance measurement system to control risks associated with reliance on suppliers. The Company has not experienced any significant shortages of raw materials and normally does not carry inventories of such raw materials or components in excess of those reasonably required to meet production and shipping schedules. The Company purchases steel and aluminum under sales agreements. Material cost increases are passed onto the Company's customers whenever possible. However, there can be no assurance that there will be no steel, aluminum or other cost or supply issues over the long-term.
Research and Development
The Company's success depends on its ability to respond quickly to changing market demands and new regulatory requirements. Thus, it emphasizes research and development and commits significant resources to develop and adapt new products and production techniques. The Company devotes a portion of its facilities to research and development projects and focuses on implementing the latest technology from component manufacturers into existing products and manufacturing prototypes of new product lines. The Company spent $15.9 million, $12.6 million and $9.4 million on research and development in 2007, 2006 and 2005, respectively.
Product Warranties
The Company's subsidiaries all provide limited warranties against assembly/construction defects. These warranties generally provide for the replacement or repair of defective parts or workmanship for a specified period following the date of sale. The endusers also may receive limited warranties from suppliers of components that are incorporated into the Company's chassis and vehicles. For more information concerning the Company's product warranties, see Note 10, Commitments and Contingent Liabilities, of the Notes to Consolidated Financial Statements appearing in this Form 10-K.
Patents, Trademarks and Licenses
The Company has five United States patents which include rights to the design and structure of chassis and certain peripheral equipment, and has two pending patent applications. Spartan Chassis and Crimson Fire Aerials each have one pending patent application. The existing patents will expire on various dates from 2016 through 2024 and all are subject to payments of required maintenance fees. The Company and its subsidiaries also own six United States trademark registrations and one United States service mark registrations, as well as two trademark registrations in each of New Zealand and Peru, and one trademark registration in each of Mexico and Papua New Guinea. The trademark and service mark registrations are generally renewable under applicable laws, subject to payment of required fees and the filing of affidavits of use. In addition, the Company has two pending U.S. trademark applications and three pending Canadian trademark applications.
The Company believes its products are identified by the Company's trademarks and that its trademarks are valuable assets to both of its business segments. The Company is not aware of any infringing uses or any prior claims of ownership of its trademarks that could materially affect its business. It is the policy of the Company to pursue registration of its primary marks whenever possible and to vigorously defend its patents, trademarks and other proprietary marks against infringement or other threats to the greatest extent practicable under applicable laws.
Environmental Matters
Compliance with federal, state and local environmental laws and regulations has not had, nor is it expected to have, a material effect on the Company's capital expenditures, earnings or competitive position.
Associates
The Company and its subsidiaries employed approximately 1,855 associates as of February 29, 2008, of which approximately 1,812 were full-time. Included in the full-time counts are 498 contracted associates. Management presently considers its relations with associates to be positive.
Customer Base
In 2007, the Company's customer base included four major customers, all of which were customers of Spartan Chassis. Sales in 2007 to Force Protection Industries, Inc. ("Force Protection") were $131.5 million, to Newmar Corp. ("Newmar") were $85.6 million, to General Dynamics Land Systems, Inc. ("General Dynamics") were $79.1 million and to Fleetwood Motor Homes of Indiana, Inc. ("Fleetwood") were $74.4 million. These numbers compare to 2006 sales of $45.2 million to Force Protection, $92.4 million to Newmar and $56.9 million to Fleetwood. In 2005, sales included $11.4 million to Force Protection, $83.4 million to Newmar and $75.5 million to Fleetwood. There were no sales to General Dynamics in 2006 or 2005. Sales to customers classified as major amounted to 54.3%, 33.5% and 46.3% of total revenues in 2007, 2006 and 2005, respectively. Although the loss of a major customer could have a material adverse effect on Spartan Chassis and its future operating results, the Company believes that it has developed st rong relationships with its customers.
Sales made to external customers outside the United States were $8.2 million, $7.1 million and $6.9 million for the years ended December 31, 2007, 2006 and 2005, respectively, or 1.2%, 1.6% and 2.0%, respectively, of sales for those years. All of the Company's long-lived assets are located in the United States.
Backlog Orders
At December 31, 2007, the Company had backlog orders for Spartan Chassis of approximately $287.0 million, compared with a backlog of $162.4 million at December 31, 2006. At December 31, 2007, the Company had backlog orders for the EVTeam of $51.4 million, compared with a backlog of $69.7 million at December 31, 2006. The Company expects to fill all of the backlog orders at December 31, 2007 during 2008.
Although the backlog of unfilled orders is one of many indicators of market demand, several factors, such as changes in production rates, available capacity, new product introductions and competitive pricing actions, may affect actual sales. Accordingly, a comparison of backlog from period to period is not necessarily indicative of eventual actual shipments.
Available Information
The address of the Company's web site is www.spartanmotors.com. The Company's Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other reports (and amendments thereto) filed or furnished pursuant to Section 13(a) of the Securities Exchange Act are available on its web site as soon as reasonably practicable after the Company electronically files or furnishes such materials with the Securities and Exchange Commission. In addition, paper copies of these materials are available without charge upon written request to James W. Knapp, Spartan Motors, Inc., 1000 Reynolds Road, Charlotte, Michigan 48813.
Item 1A. |
Risk Factors. |
Any negative change in the Company's relationship with its major customers could have significant negative effects on revenues and profits.
The Company's financial success is directly related to the willingness of its customers to continue to purchase its products. Failure to fill customers' orders in a timely manner could harm the Company's relationships with its customers. Furthermore, if any of the Company's major customers experience a significant downturn in its business, or fails to remain committed to the Company's products or brands, then these customers may reduce or discontinue purchases from the Company, which could have an adverse effect on the Company's business, results of operations and financial condition. The Company has four customers that accounted for 54.3% of its total annual sales in 2007 - any negative change in the Company's relationship with any one of them or the orders placed by any one of them could significantly affect the Company's revenues and profits.
Fuel shortages, or higher prices for fuel, could have a negative effect on sales.
Gasoline or diesel fuel is required for the operation of motorhomes, fire trucks, aerial ladders and ambulances. Particularly in view of increased international tensions and increased global demand for oil, there can be no assurance that the supply of these petroleum products will continue uninterrupted, that rationing will not be imposed or that the price of or tax on these petroleum products will not significantly increase in the future. Increases in gasoline and diesel prices and speculation about potential fuel shortages have had an unfavorable effect on consumer demand for motorhomes from time to time in the past, which then had a material adverse effect on sales volume, and may do so in the future. Increases in the price of oil also can result in significant increases in the price of many of the components in our products, which may have a negative impact on margins or sales volumes.
When we introduce new products we may incur expenses that we did not anticipate, such as recall expenses, resulting in reduced earnings.
The introduction of new products is critical to our future success. We have additional costs when we introduce new products, such as initial labor or purchasing inefficiencies, but we may also incur unexpected expenses. For example, we may experience unexpected engineering or design flaws that will force a recall of a new product. In addition, we may make business decisions that include offering incentives to stimulate the sales of products not adequately accepted by the market, or to stimulate sales of older or obsolete products. The costs resulting from these types of problems could be substantial and have a significant adverse effect on our earnings.
If there is a rise in the frequency and size of product liability, warranty and other claims against us, including wrongful death claims, our business, results of operations and financial condition may be harmed.
We are frequently subject, in the ordinary course of business, to litigation involving product liability and other claims, including wrongful death claims, related to personal injury and warranties. We partially self-insure our product liability claims and purchase excess product liability insurance in the commercial insurance market. We cannot be certain that our insurance coverage will be sufficient to cover all future claims against us. Any increase in the frequency and size of these claims, as compared to our experience in prior years, may cause the premiums that we are required to pay for such insurance to rise significantly. It may also increase the amounts we pay in punitive damages, which may not be covered by our insurance.
Increased costs, including costs of component parts and labor costs, potentially impacted by changes in labor rates and practices, could reduce our operating income.
Our results of operations may be significantly affected by the availability and pricing of manufacturing components and labor, as well as changes in labor rates and practices. Increases in raw materials used in our products could affect the cost of our supply materials and components, as the rising steel and aluminum prices have impacted the cost of certain of the Company's manufacturing
components. Although we attempt to mitigate the effect of any escalation in components and labor costs by negotiating with current or new suppliers and by increasing productivity or, where necessary, by increasing the sales prices of our products, we cannot be certain that we will be able to do so without it having an adverse impact on the competitiveness of our products and, therefore, our sales volume. If we cannot successfully offset increases in our manufacturing costs, this could have a material adverse impact on our margins, operating income and cash flows. Our profit margins may decrease if prices of purchased component parts or labor rates increase and we are unable to pass on those increases to our customers. Even if we were able to offset higher manufacturing costs by increasing the sales prices of our products, the realization of any such increases often lags behind the rise in manufacturing costs, especially in our operations, due in part to our commitment to give our customers and dealers price
protection with respect to previously placed customer orders.
Our sales of specialty chassis for military vehicles depend on U.S. government contracts awarded to our customers. Multi-year U.S. government contracts generally are not fully funded at inception and are subject to termination.
Currently, we derive a portion of our revenue, 36.1% in 2007, from the sale of specialty chassis for military vehicles. Our customers for these specialty chassis have prime contracts with military agencies of the U.S. government. There are unique risks associated with U.S. government contracts, and by extension, subcontracts. Changes in the congressional appropriations process, program funding levels, and unforeseen world events can interrupt, delay, or terminate the funding for any program or contract.
Other risks particular to government contracts and subcontracts include:
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U.S. government contracts generally permit the government to terminate a contract, in whole or in part, for convenience. If a contract is terminated the government will pay the prime and subcontractors for work performed and related termination costs. |
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The government may also terminate a contract for default in the event of a breach by the contractor. If a contract is terminated for default, the government in most cases pays for only the work it has accepted. The loss of anticipated funding or the termination of multiple or large programs could have an adverse effect on our future sales and earnings. |
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In general, future sales under multiyear contracts are conditioned on the continuing availability of congressional appropriations. Congress typically appropriates funds on a fiscal-year basis, even though contract performance may extend over many years. Changes in appropriations in subsequent years may impact the funding available for these programs. Delays or changes in funding can impact the timing of available funds or lead to changes in program content. |
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Contracts and subcontracts for U.S. government programs are subject to various procurement laws and regulations. The government may suspend us from receiving new contracts pending resolution of alleged violations of these laws or regulations. |
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U.S. defense spending has historically been cyclical. Rising budget deficits, increased military expenditures, and increasing costs for domestic programs could ultimately impact government spending on military vehicles. Changes in military strategies, tactics, and conditions on the ground in Iraq and Afghanistan may lead to the reduction, delay, or termination of the vehicle programs that we support. Reductions in our existing vehicle programs, unless offset by other programs and opportunities, could adversely affect our ability to sustain and grow our future sales and earnings. |
We depend on a small group of suppliers for some of our components, and the loss of any of these suppliers could affect our ability to obtain components at competitive prices, which would decrease our sales or earnings.
Most chassis, fire truck, aerial ladder and ambulance commodity components are readily available from a variety of sources. However, a few proprietary or specialty components are produced by a small group of quality suppliers that have the capacity to support our requirements. Changes in our relationships with these suppliers, shortages, production delays or work stoppages by the employees of such suppliers could have a material adverse effect on our ability to timely manufacture our products and secure sales. If we cannot obtain an adequate supply of components, this could result in a decrease in our sales and earnings.
Amendments of the regulations governing our businesses could have a material impact on our operations.
Our manufactured products are subject to extensive federal and state regulations. Amendments to any of these regulations and the implementation of new regulations could significantly increase the costs of manufacturing, purchasing, operating or selling our products and could have a material adverse effect on our results of operations.
Our failure to comply with present or future regulations could result in fines, potential civil and criminal liability, suspension of sales or production, or cessation of operations. In addition, a major product recall could have a material adverse effect on our results of operations.
Certain U.S. tax laws currently afford favorable tax treatment for the purchase and sale of recreational vehicles that are used as the equivalent of second homes. These laws and regulations have historically been amended frequently, and it is likely that further amendments and additional regulations will be applicable to us and our products in the future. Amendments to these laws and regulations and the implementation of new regulations could have a material adverse effect on our results of operations.
Our operations are subject to a variety of federal and state environmental regulations relating to noise pollution and the use, generation, storage, treatment, emission and disposal of hazardous materials and wastes. Although we believe that we are currently in material compliance with applicable environmental regulations, our failure to comply with present or future regulations could result in fines, potential civil and criminal liability, suspension of production or operations, alterations to the manufacturing process, costly cleanup or capital expenditures. For example, laws mandating greater fuel efficiency and the heightened emission standards that took effect in 2007 have increased our research and development costs and the cost of components necessary for production. Additionally, this event could lead to the temporary unavailability of engines. The next change to emission standards that impacts the Company's products will occur in 2010.
Failure to maintain effective internal control in accordance with Section 404 of the Sarbanes-Oxley Act could have an adverse effect on our business and stock price.
Section 404 of the Sarbanes-Oxley Act requires us to evaluate annually the effectiveness of our internal control over financial reporting as of the end of each fiscal year and to include a management report assessing the effectiveness of our internal control over financial reporting in our annual report on Form 10-K. Based on that evaluation our management concluded that our internal control over financial reporting was effective as of December 31, 2007. Section 404 also requires our independent registered public accounting firm to attest to, and report on, the adequacy of our internal control over financial reporting. If we fail to maintain the adequacy of our internal control, as such standards are modified, supplemented or amended from time to time, we cannot assure you that we will be able to conclude in the future that we have effective internal control over financial reporting in accordance with Section 404. If we fail to maintain a system of effective internal control, it could have an adverse effe ct on our business and stock price. The effectiveness of our internal control over financial reporting as of December 31, 2007, has been audited by BDO Seidman LLP, an independent registered public accounting firm, as stated in its attestation report, which is included in Item 8.
Businesses are cyclical and this can lead to fluctuations in operating results.
The industries in which we operate are highly cyclical and there can be substantial fluctuations in our manufacturing shipments and operating results, and the results for any prior period may not be indicative of results for any future period. Companies within these industries are subject to volatility in operating results due to external factors such as economic, demographic and political changes. Factors affecting the manufacture of chassis, fire trucks, aerial ladders and ambulances include:
|
|
interest rates and the availability of financing; |
|
|
commodity prices; |
|
|
unemployment trends; |
|
|
international tensions and hostilities; |
|
|
general economic conditions; |
|
|
strength of the U.S. dollar compared to foreign currencies; |
|
|
overall consumer confidence and the level of discretionary consumer spending; |
|
|
dealers' and manufacturers' inventory levels; and |
|
|
fuel availability and prices. |
General economic conditions.
The effect of new or amended laws or regulations on the Company, our industry or the economy as a whole could have a detrimental effect on our operations. Such laws and regulations could cause an industry-wide market decline or affect the Company due to our inability to compete with other companies that are unaffected by these laws, regulations or policies.
Concerns regarding acts of terrorism, the war in Iraq and subsequent events have created significant global economic and political uncertainties that may have material and adverse effects on consumer demand (particularly the specialty and motorhome markets), shipping and transportation and the availability of manufacturing components.
Changes in economic conditions, including changes in interest rates, strength of the United States dollar, financial market performance and industry-specific factors could impact the economy in general, resulting in a downward trend that impacts not only our business, but all companies with which we compete; or, the changes could impact only those parts of the economy upon which we rely in a unique fashion, including, for example, the introduction of trade barriers that impact our attempts to expand in North America.
Item 1B. |
Unresolved Staff Comments. |
None.
Item 2. |
Properties. |
The following table sets forth information concerning the properties owned or leased by the Company. The Company believes that its facilities are suitable for their intended purposes and adequate to meet its requirements for the foreseeable future.
|
|
|
|
|
|
Owned/ |
|
Square |
|
|
|
|
|
|
|
|
|
Spartan Motors, Inc., |
|
Plant 1 - 1000 Reynolds Road |
|
Service Parts, |
|
Owned |
|
65,000 |
|
|
|
|
|
|
|
|
|
Spartan Motors, Inc., |
|
Plant 2 - 1165 Reynolds Road |
|
Sales, |
|
Owned |
|
8,000 |
|
|
|
|
|
|
|
|
|
Spartan Motors, Inc., |
|
Plant 3 - 1580 Mikesell Street |
|
Engineering, |
|
Owned |
|
52,000 |
|
|
|
|
|
|
|
|
|
Spartan Motors, Inc., |
|
Plant 4 - 1549 Mikesell Street |
|
Manufacturing, |
|
Owned |
|
142,000 |
|
|
|
|
|
|
|
|
|
Spartan Motors |
|
Plant 5 - 1055 Mikesell Street |
|
Manufacturing |
|
Owned |
|
51,000 |
|
|
|
|
|
|
|
|
|
Spartan Motors |
|
Plant 6 - 1065 Mikesell Street |
|
Manufacturing, |
|
Owned |
|
30,000 |
|
|
|
|
|
|
|
|
|
Spartan Motors |
|
Plant 7 - 1111 Mikesell Street |
|
Manufacturing, |
|
Owned |
|
172,000 |
|
|
|
|
|
|
Owned/ |
|
Square |
|
|
|
|
|
|
|
|
|
Spartan Motors |
|
Plant 8 - 1663 Reynolds Road |
|
Manufacturing |
|
Owned |
|
107,000 |
|
|
|
|
|
|
|
|
|
Spartan Motors |
|
Plant 9 - 909 Shepherd Street |
|
Advanced Projects |
|
Owned |
|
8,000 |
|
|
|
|
|
|
|
|
|
Spartan Motors |
|
Plant 10 - 1014 Reynolds Road |
|
Service Parts |
|
Owned |
|
29,000 |
|
|
|
|
|
|
|
|
|
Crimson Fire, Inc. |
|
907 7th Avenue, North |
|
General Offices, |
|
Owned |
|
32,000 |
|
|
|
|
|
|
|
|
|
Crimson Fire, Inc. |
|
1209 E. Birch Street |
|
General Offices, |
|
Leased |
|
35,000 |
|
|
|
|
|
|
|
|
|
Crimson Fire |
|
1828 Freedom Road |
|
General Offices, |
|
Leased |
|
34,000 |
|
|
|
|
|
|
|
|
|
Road Rescue, Inc. |
|
2914 Spartan Place |
|
General Offices, |
|
Owned |
|
106,000 |
Item 3. |
Legal Proceedings. |
At December 31, 2007, the Company and its subsidiaries were parties, both as plaintiff or defendant, to a number of lawsuits and claims arising out of the normal conduct of their businesses. In the opinion of management, the Company's financial position, future operating results and cash flows will not be materially affected by the final outcome of these legal proceedings.
Item 4. |
Submission of Matters to a Vote of Security Holders. |
During the fourth quarter of 2007, no matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise.
PART II
Item 5. |
Market For Registrant's Common Stock, Related Shareholder Matters, and Issuer Purchases of Equity Securities. |
The Company's common stock is traded on the NASDAQ Global Select Market under the symbol "SPAR."
On May 23, 2007, the Company's Board of Directors announced a 3-for-2 stock split which was issued on June 28, 2007 to shareholders of record on June 14, 2007. Prior to the stock split there were 21,568,499 shares of common stock outstanding. After the split and the related retirement of fractional shares, there were 32,341,312 shares outstanding.
On November 2, 2006, the Company's Board of Directors announced a 3-for-2 stock split which was issued on December 15, 2006 to shareholders of record on November 15, 2006. Prior to the stock split there were 14,032,986 shares of common stock outstanding. After the split and the related retirement of fractional shares, there were 21,048,753 shares outstanding.
The following table sets forth the high and low sale prices for the Company's common stock for the periods indicated, all as reported by the NASDAQ Global Select Market:
|
High |
|
Low |
|
|||
Year Ended December 31, 2007: |
|
|
|
|
|
|
|
|
First Quarter |
$ |
16.93 |
|
$ |
9.42 |
|
|
Second Quarter |
|
25.03 |
|
|
15.35 |
|
|
Third Quarter |
|
19.07 |
|
|
11.17 |
|
|
Fourth Quarter |
|
18.45 |
|
|
6.82 |
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006: |
|
|
|
|
|
|
|
|
First Quarter |
$ |
5.28 |
|
$ |
4.44 |
|
|
Second Quarter |
|
8.31 |
|
|
4.87 |
|
|
Third Quarter |
|
8.77 |
|
|
6.41 |
|
|
Fourth Quarter |
|
11.04 |
|
|
7.78 |
|
In 2007, the Company's Board of Directors declared cash dividends of $0.05 per outstanding share on April 26, 2007 to shareholders of record on May 15, 2007 and $0.05 per outstanding share to shareholders of record on November 14, 2007. On October 23, 2007, a special $0.03 dividend was announced for shareholders of record on November 14, 2007. In 2006, the Company's Board of Directors declared cash dividends of $0.05 per outstanding share on April 27, 2006 to shareholders of record on May 15, 2006 and $0.05 per outstanding share on October 26, 2006 to shareholders of record on November 15, 2006. On October 26, 2006, a special $0.02 dividend was announced for shareholders of record on November 15, 2006.
The number of shareholders of record (excluding participants in security position listings) of the Company's common stock on February 29, 2008 was 577. See Item 12 below for information concerning the Company's equity compensation plans.
Issuer Purchases of Equity Securities
A summary of the Company's purchases of its common stock during the fourth quarter of fiscal year 2007 is as follows:
|
|
|
Total Number of |
|
|
Oct. 1, 2007 to Oct. 31, 2007 |
-- |
|
-- |
-- |
950,000 |
Nov. 1, 2007 to Nov. 30, 2007 |
-- |
|
-- |
-- |
950,000 |
Dec. 1, 2007 to Dec. 31, 2007 |
250,000 |
$ |
7.75 |
250,000 |
700,000 |
Total |
250,000 |
$ |
7.75 |
250,000 |
|
|
(1) |
Shares reported in this column include those delivered by associates in satisfaction of tax withholding obligations that occur upon the vesting of restricted shares. |
|
|
|
|
(2) |
On July 24, 2007, the Board of Directors authorized management to repurchase, over the course of the subsequent 12-month period, up to a total of 1,000,000 shares of its common stock in open market transactions. The program is currently set to expire July 23, 2008. The Company has repurchased 300,000 shares through December 31, 2007, of which 50,000 shares were previously reported as repurchased in the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2007. Repurchase of common stock is contingent upon market conditions. If the Company were to repurchase the remaining 700,000 shares of stock under the repurchase program, they would cost the Company approximately $5.7 million based on the sales price of the Company's stock on February 29, 2008. The Company believes that it has sufficient resources to fund this potential stock buyback. |
Item 6. |
Selected Financial Data. |
The selected financial data shown below for the Company for each of the five years in the period ended December 31, 2007 has been derived from the Consolidated Financial Statements of the Company. The following data should be read in conjunction with the Consolidated Financial Statements and related Notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in this Form 10-K.
Five-Year Operating and Financial Summary
(In Thousands, Except Per Share Data)
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
$ |
681,922 |
|
$ |
445,378 |
|
$ |
343,007 |
|
$ |
312,270 |
|
$ |
237,372 |
|
Cost of products sold |
|
585,421 |
|
|
372,002 |
|
|
294,232 |
|
|
270,891 |
|
|
202,524 |
|
Gross profit |
|
96,501 |
|
|
73,376 |
|
|
48,775 |
|
|
41,379 |
|
|
34,848 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
15,868 |
|
|
12,622 |
|
|
9,431 |
|
|
7,943 |
|
|
7,070 |
|
Selling, general and administrative |
|
41,383 |
|
|
31,360 |
|
|
26,693 |
|
|
24,451 |
|
|
21,604 |
|
Goodwill impairment |
|
-- |
|
|
2,086 |
|
|
-- |
|
|
-- |
|
|
-- |
|
Operating income |
|
39,250 |
|
|
27,308 |
|
|
12,651 |
|
|
8,985 |
|
|
6,174 |
|
Other income (expense), net |
|
(1,023 |
) |
|
664 |
|
|
718 |
|
|
209 |
|
|
(429 |
) |
Earnings from continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes on income |
|
13,723 |
|
|
11,144 |
|
|
5,077 |
|
|
3,312 |
|
|
1,305 |
|
Net earnings from continuing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on disposal of Carpenter (1) |
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
1,609 |
|
Net earnings |
$ |
24,504 |
|
$ |
16,828 |
|
$ |
8,292 |
|
$ |
5,882 |
|
$ |
6,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share (1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings from continuing operations |
$ |
0.77 |
|
$ |
0.57 |
|
$ |
0.29 |
|
$ |
0.21 |
|
$ |
0.16 |
|
Net earnings from discontinued operations |
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
0.06 |
|
Basic earnings per share |
$ |
0.77 |
|
$ |
0.57 |
|
$ |
0.29 |
|
$ |
0.21 |
|
$ |
0.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share (1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings from continuing operations |
$ |
0.75 |
|
$ |
0.55 |
|
$ |
0.29 |
|
$ |
0.21 |
|
$ |
0.16 |
|
Net earnings from discontinued operations |
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
0.06 |
|
Diluted earnings per share |
$ |
0.75 |
|
$ |
0.55 |
|
$ |
0.29 |
|
$ |
0.21 |
|
$ |
0.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per common share |
$ |
0.13 |
|
$ |
0.12 |
|
$ |
0.11 |
|
$ |
0.10 |
|
$ |
0.09 |
|
Basic weighted average common shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding |
|
31,935 |
|
|
29,606 |
|
|
28,254 |
|
|
27,791 |
|
|
27,278 |
|
Diluted weighted average common shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding |
|
32,833 |
|
|
30,531 |
|
|
28,818 |
|
|
28,673 |
|
|
27,977 |
|
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net working capital |
$ |
132,688 |
|
$ |
96,082 |
|
$ |
50,676 |
|
$ |
43,953 |
|
$ |
40,136 |
|
Total assets |
|
318,664 |
|
|
190,648 |
|
|
123,208 |
|
|
106,913 |
|
|
91,382 |
|
Long-term debt |
|
63,218 |
|
|
25,739 |
|
|
1,370 |
|
|
145 |
|
|
-- |
|
Shareholders' equity |
|
129,218 |
|
|
103,180 |
|
|
72,602 |
|
|
67,511 |
|
|
61,120 |
|
|
(1) |
On September 28, 2000, the Company's Board of Directors passed a resolution leading to the orderly liquidation of Carpenter. Because Carpenter was a separate segment of the Company's business, the operating results and the disposition of Carpenter's net assets were accounted for as a discontinued operation. Accordingly, previously reported financial results for all periods presented were restated to reflect this business as a discontinued operation. The $1,609,000 gain on disposal of Carpenter in 2003 is a result of the Company's revision of its estimated loss to dispose of the business, based upon final resolution of certain accrued items related to the disposal. |
|
|
|
|
(2) |
Effective January 1, 2006, the Company adopted FASB Statement 123(R), electing to use the modified prospective method. See Note 1 to the Company's 2007 Consolidated Financial Statements. |
|
|
|
|
(3) |
On May 23, 2007, the Company's Board of Directors announced a 3-for-2 stock split which was issued on June 28, 2007 to shareholders of record on June 14, 2007. On November 2, 2006, the Company's Board of |
|
|
Directors announced a 3-for-2 stock split which was issued on December 15, 2006 to shareholders of record on November 15, 2006. The information included in this table reflects the impact of both stock splits. |
Item 7. |
Management's Discussion and Analysis of Financial Condition and Results of Operations. |
OVERVIEW
Spartan Motors, Inc. was organized as a Michigan corporation on September 18, 1975, and is headquartered in Charlotte, Michigan. The Company began development of its first product that same year and shipped its first fire truck chassis in October 1975.
The Company is known as a leading niche market engineer and manufacturer in the heavy-duty, custom vehicles marketplace. The Company has four wholly owned subsidiaries: Spartan Motors Chassis, Inc., located at the corporate headquarters in Charlotte, Michigan ("Spartan Chassis"); Crimson Fire, Inc., headquartered in Brandon, South Dakota ("Crimson"); Crimson Fire Aerials, Inc., located in Lancaster, Pennsylvania ("Crimson Aerials"); and Road Rescue, Inc., located in Marion, South Carolina ("Road Rescue"). Crimson, Crimson Aerials and Road Rescue make up the Company's EVTeam. The Company's brand names, Spartan™, Crimson Fire™ and Road Rescue™, are known for quality, value, service and innovation.
Spartan Chassis is a leading designer, engineer and manufacturer of custom heavy-duty chassis. The chassis consist of a frame assembly, engine, transmission, electrical system, running gear (wheels, tires, axles, suspension and brakes) and, for fire trucks and some specialty chassis applications, a cab. Spartan Chassis customers are original equipment manufacturers ("OEMs") who manufacture the body or apparatus of the vehicle which is mounted on the Company's chassis. Crimson and Road Rescue engineer and manufacture emergency vehicles built on chassis platforms purchased from either Spartan Chassis or outside sources. Crimson Aerials engineers and manufactures aerial ladder components for fire trucks.
The Company's business strategy is to further diversify product lines and develop innovative design, engineering and manufacturing expertise in order to be the best value producer of custom vehicle products in the North American marketplace. Spartan Chassis sells its custom diesel chassis to three principal markets: fire truck, motorhome and specialty vehicles. Spartan Chassis believes that opportunities for growth remain strong for custom-built chassis and vehicles in each market.
The Company is an innovative team focused on building lasting relationships with its customers. This is accomplished by striving to deliver premium custom vehicles and services that inspire customer loyalty. The Company believes that it can best carry out its long-term business plan and obtain optimal financial flexibility by using a combination of borrowings under the Company's credit facilities, as well as equity capital, as sources of expansion capital. A key metric in measuring the Company's success is the Company's Return on Invested Capital (ROIC). The Company defines ROIC as operating income, less taxes, on an annualized basis, divided by total shareholders' equity.
The Company recognizes that motorhome chassis sales are more sensitive to economic swings than that of the Company's other two principal chassis markets. Thus, in the past few years, management has placed special emphasis on further market penetration in the fire truck market and continued diversification into the specialty chassis market.
The Company expects future growth and earnings to come from:
|
|
The growing strength of the Spartan brands, including Spartan Chassis, Crimson Fire and Road Rescue. |
|
|
|
|
|
EVTeam operational improvements as processes are reengineered to lower costs by eliminating non-value added activities. |
|
|
|
|
|
Further market share gain in the Class A motorhome market as the Company's chassis continue to lead the way in design features such as stability, ride, durability and dependability. |
|
|
|
|
|
Recent additions to manufacturing capacity for fire truck chassis cabs, specialty vehicles, and motorhomes chassis, expanded our capability to fulfill current and future market needs. |
|
|
|
|
|
In 2007, the Company unveiled the Furion which is the entry-level fire truck cab and chassis in the Spartan Chassis product line. The Furion is designed to bridge the market between custom and commercial vehicles. |
|
|
|
|
|
Opportunities in the areas of specialty vehicles, service parts and micro-niche markets. The Company has received subcontract orders under the Mine Resistant Ambush Protected (MRAP) program, the Iraqi Light Armored Vehicle (ILAV) program, the Joint IED-Defeat Organization (JIEDDO) program, the Yeman |
|
|
Light Armored Vehicle (YLAV) program and the Special Operations Command (SOCOM) program. The Company's current backlog for these specialty vehicles will support production through most of 2008. There is an opportunity for increased service parts sales as the number of military vehicles in the field grows. The Company is cautiously optimistic about the potential for additional military business. |
|
|
|
|
|
Potential for increased sales from our EVTeam due to the recent introduction of the "Boomer", an innovative, low cost product that will provide an aerial waterway for fire departments looking for a cost effective solution. It also offers other features such as lifting and elevated lighting capabilities in addition to the necessary connections to operate vehicle extraction tools. |
|
|
|
|
|
The Company believes the major strength of its business model is market diversity and customization, with a growing foundation in emergency rescue. The emergency rescue market is relatively less affected by geo-political events compared to the recreational vehicle market. |
The following section provides a narrative discussion about the Company's financial condition and results of operations. The comments that follow should be read in conjunction with the Company's Consolidated Financial Statements and related Notes thereto included elsewhere within this Report.
Results of Operations
The following table sets forth, for the periods indicated, the components of the Company's consolidated statements of income, on an actual basis, as a percentage of revenues:
|
Year Ended December 31, |
||||||||||
% of Sales |
2007 |
|
2006 |
|
2005 |
||||||
|
Spartan |
|
Consol- |
|
Spartan |
|
Consol- |
|
Spartan |
|
Consol- |
Sales |
100.0 |
100.0 |
100.0 |
|
100.0 |
100.0 |
100.0 |
|
100.0 |
100.0 |
100.0 |
Cost of products sold |
84.8 |
97.0 |
85.8 |
|
82.0 |
95.7 |
83.5 |
|
83.8 |
97.5 |
85.8 |
Gross profit |
15.2 |
3.0 |
14.2 |
|
18.0 |
4.3 |
16.5 |
|
16.2 |
2.5 |
14.2 |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
Research and |
|
|
|
|
|
|
|
|
|
|
|
Selling, general and |
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
|
|
|
|
|
|
|
|
|
Operating income |
8.5 |
-7.1 |
5.8 |
|
9.7 |
-8.7 |
6.1 |
|
7.4 |
-9.9 |
3.7 |
Other income/ |
|
|
|
|
|
|
|
|
|
|
|
Earnings before |
|
|
|
|
|
|
|
|
|
|
|
Taxes on income |
2.9 |
-2.8 |
2.0 |
|
3.4 |
-2.3 |
2.5 |
|
2.5 |
-3.3 |
1.5 |
Net earnings |
5.7 |
-5.7 |
3.6 |
|
6.4 |
-7.0 |
3.8 |
|
5.0 |
-7.3 |
2.4 |
Year Ended December 31, 2007 compared to Year Ended December 31, 2006
Continuing Operations
For the year ended December 31, 2007, consolidated sales increased $236.5 million (53.1%) over sales for the same period in 2006. The increase was due to a $223.9 million (57.2%) increase in Spartan Chassis sales coupled with a $12.1 million (15.6%) increase in EVTeam sales. Intercompany sales from Spartan Chassis to the EVTeam decreased $0.5 million (-2.5%) over the prior year. Intercompany sales are eliminated from the consolidated sales totals.
Within Spartan Chassis, the motorhome chassis line experienced a sales increase of $13.1 million (6.4%) over 2006 sales. This increase was due to higher unit sales due to additional models of existing customers offering Spartan Chassis.
Fire truck chassis, another major product line for Spartan Chassis, experienced an increase of $7.9 million (7.3%) in sales for the year ended December 31, 2007 over the year ended December 31, 2006. Fire truck units sold were flat in 2007 compared to 2006, however the Company's average selling price per fire truck grew as the market continues to demand more complex product options.
Other Spartan Chassis sales were $282.0 million compared to $79.2 million in 2006. This increase primarily is due to higher sales of military chassis for the Mine Resistant Ambush Protected (MRAP) military subcontracts. Increased service part sales also contributed to the increase over the prior year. The increase in service parts sales corresponds to increased military vehicles in the field. The Company's current backlog for these specialty vehicles will support production through most of 2008, considering that orders are not canceled. See Item 1A "Risk Factors" relating to government contracts for more details.
The increase in EVTeam sales for 2007 was a result of increases at Crimson Fire of $8.7 million and at Road Rescue of $2.6 million, while Crimson Fire Aerials remained fairly flat with a $0.8 million increase in sales. The Crimson Fire sales increase was driven by higher average unit prices. Road Rescue experienced improved sales due to an increase in the number of units sold as well as a higher average unit sell price.
Gross profit increased from $73.4 million in 2006 to $96.5 million in 2007 due to higher sales volumes. However, gross margin decreased from 16.5% in 2006 to 14.2% in 2007, due primarily to a change in the product sales mix. In the prior year, the specialty chassis in production were a part of lower volume military programs while the primary specialty chassis product in production in 2007 is part of the MRAP program. The MRAP program is a highly competitive program with many OEM's bidding to secure orders resulting in lower margins for these specialty chassis.
Operating expenses increased by $11.2 million (24.3%) from 2006 levels. The main factors in the increase were staff additions and overtime paid to support the increase in sales discussed above. Operating expenses as a percentage of sales decreased from 10.4% for the year ended December 31, 2006 to 8.4% for the year ended December 31, 2007.
The increase in the Company's income taxes from $11.1 million in 2006 to $13.7 million in 2007 is primarily due to increased earnings before taxes in 2007 when compared to 2006. The effective tax rate was 35.9% in 2007 as compared to 39.8% in 2006. The reason for the decrease in the effective tax rate was twofold. The 2006 effective tax rate was negatively impacted by a non-deductible goodwill charge. Additionally, 2007 experienced an increase in the Section 199 production deduction. See Note 5, Taxes on Income, of the Notes to Consolidated Financial Statements for further information regarding income taxes.
Net earnings increased $7.7 million ($0.20 per diluted share, post-split) from $16.8 million ($0.55 per diluted share, post-split) in 2006 to $24.5 million ($0.75 per diluted share, post-split) in 2007 as a result of the factors discussed above.
Year Ended December 31, 2006 compared to Year Ended December 31, 2005
For the year ended December 31, 2006, consolidated sales increased $102.4 million (29.8%) over sales for the same period in 2005. The increase was due to a $97.5 million (33.1%) increase in Spartan Chassis sales coupled with a $12.6 million (19.4%) increase in EVTeam sales. Increased sales from Spartan Chassis to the EVTeam caused intercompany sales to increase $7.7 million (48.2%) over the prior year. Intercompany sales are eliminated from the consolidated sales totals.
Within Spartan Chassis, the motorhome chassis line experienced a sales increase of $15.0 million (7.9%) over 2005 sales. While 2006 motorhome unit sales were down compared to 2005, 2005 lower end units were replaced with higher end chassis sales and increased sales to a new customer added during 2005.
Fire truck chassis, another major product line for Spartan Chassis, experienced an increase of $22.8 million (26.7%) in sales for the year ended December 31, 2006 over the year ended December 31, 2005. As the increase in sales indicates, the fire truck market continued to be strong in 2006. An increase in market share resulted in the increase in fire truck chassis sales.
Other Spartan Chassis sales were $79.2 million compared to $19.5 million in 2005. This increase is due to higher sales of military chassis for the Joint Explosive Rapid Response Vehicle (JERRV) and Iraqi Light Armored Vehicle (ILAV) military subcontracts. Sales of military vehicle chassis began in the first quarter of 2005.
The increase in EVTeam sales for 2006 was a result of increases at Crimson Fire of $16.0 million and at Crimson Fire Aerials of $2.7 million, partially offset by a sales decrease at Road Rescue of $6.1 million. The increases were driven by higher average unit prices for fire trucks coupled with higher unit sales of fire trucks.
Gross margin increased from 14.2% in 2005 to 16.5% in 2006. Primary drivers for the gross margin increase were changes in product mix with increased fire truck chassis sales, increased military chassis sales and increased sales volumes for the EVTeam. Partially offsetting these improvements were increased expenses due to Road Rescue production issues and increased warranty expense at Spartan Chassis. Also contributing to the increase in gross margin in 2006 were improved production efficiencies at Spartan Chassis and Crimson Fire.
Operating expenses increased by $9.9 million (27.5%) from 2005 levels. Expenses for 2006 include a $2.1 million goodwill impairment charge related to Road Rescue. The Company completes its required annual impairment test as of October 1 each year. Based upon the estimated fair values of the Company's reporting units using a discounted cash flow valuation, the goodwill at Road Rescue subsidiary was evaluated as impaired and goodwill totaling $2.1 million was recognized as a charge against operating income. The remaining balance of the goodwill of the Company relates to its Crimson Fire subsidiary and was not impaired. Other factors causing the increase were staff additions to support the increase in sales discussed above and increased payroll costs due to higher incentive plan payments generated by the improvement in results. Operating expenses as a percentage of sales decreased from 10.5% for the year ended December 31, 2005 to 10.4% for the year ended December 31, 2006.
The increase in the Company's income taxes from $5.1 million in 2005 to $11.1 million in 2006 is primarily due to increased earnings before taxes in 2006 when compared to 2005. The effective tax rate was 39.8% in 2006 as compared to 38.0% in 2005. The increase in the effective tax rate was due to the non-deductible goodwill charge and higher state taxes in 2006 versus 2005. See Note 5, Taxes on Income, of the Notes to Consolidated Financial Statements for further information regarding income taxes.
Net earnings increased $8.5 million from $8.3 million ($0.29 per diluted share, post-split) in 2005 to $16.8 million ($0.55 per diluted share, post-split) in 2006 as a result of the factors discussed above.
Quarterly Results
The Company's rate of sales growth has varied historically from quarter to quarter. For a description of quarterly financial data, see Note 13, Quarterly Financial Data (Unaudited), of the Notes to Consolidated Financial Statements appearing in this Form 10-K.
Liquidity and Capital Resources
The Company generated an ROIC of 27.4% in the fourth quarter of 2007, a 122.8% increase compared to the ROIC of 12.3% for the same period in 2006. The Company defines return on invested capital as operating income, less taxes, on an annualized basis, divided by total shareholders' equity. ROIC for the year ended December 31 2007 was 19.8% compared to ROIC of 15.7% in 2006.
Cash on hand remained relatively flat from $13.8 million at December 31, 2006 to $13.5 million at December 31, 2007. During 2007, proceeds from the Company's net increase in notes payable and use of its line of credit amounted to $37.5 million while $7.2 million was provided from the exercise of stock options and the related tax benefit. Of these funds, $6.7 million was used to fund operating activities. Accounts receivable, inventories and accounts payable increased primarily as a result of increased sales levels at Spartan Chassis. Other uses of the funds were $31.2 million for property, plant and equipment, $4.3 million to pay dividends and $2.8 million for the repurchase of Company stock. The Company's working capital increased by $36.6 million from $96.1 million in 2006 to $132.7 million in 2007. See the "Consolidated Statements of Cash Flows" appearing in Item 8 of this Form 10-K, for further information regarding the components of the decrease in cash and cash equivalents, from $13.8 million as of December 31, 2006, to $13.5 million as of December 31, 2007. See the "Five-Year Operating and Financial Summary" table appearing in Item 6 of this Form 10-K for a five-year comparison of net working capital.
Shareholders' equity increased $26.0 million, from $103.2 million as of December 31, 2006 to $129.2 million as of December 31, 2007. The increase was driven by $24.5 million in net income of the Company, $1.7 million from compensation related to stock appreciation rights and restricted stock and $7.2 million from the exercise of stock options including the corresponding tax benefit. These increases were partially offset by $4.3 million in dividends paid, $2.8 million for the repurchase of Company stock and a $0.3 million adjustment due to the adoption of FIN 48 "Accounting for Uncertain Income Tax Provisions", as of January 1, 2007. See "Consolidated Statements of Shareholders' Equity" appearing in Item 8 of this Form 10-K for further information regarding the changes in shareholders' equity.
On July 24, 2007, the Board of Directors authorized management to repurchase, over the course of the subsequent 12-month period, up to a total of 1,000,000 shares of its common stock in open market transactions. That authorization will expire on July 24, 2008. During the 2007, 300,000 shares were repurchased in open market transactions. Repurchase of common stock is contingent upon market conditions. If the Company were to repurchase the remaining 700,000 shares of stock under the repurchase program, they would cost the Company approximately $5.7 million based on the sales price of the Company's stock on February 29, 2007. The Company believes that it has sufficient cash reserves to fund this potential stock buyback.
During its March 12, 2007, August 6, 2007 and October 23, 2007 meetings, the Board of Directors approved a $40 million increase in the Company's primary revolving note payable with JP Morgan Chase Bank, increasing the total unsecured borrowings available to $65 million. The Company had borrowings of $35.5 million under this debt agreement in the form of a line of credit as of December 31, 2007. The Company also had a $10.0 million term note as of December 31, 2007 under the same debt agreement. The line of credit includes three one-year automatic extensions unless the bank provides notice of non-renewal 14 months in advance of the expiration date. Working capital and capital expenditures created the need for the additional borrowings. Under the terms of the line
of credit and term note agreement, the Company is required to maintain certain financial ratios and other financial conditions. The agreement also prohibits the Company from incurring additional indebtedness, limits certain acquisitions, investments, advances or loans and restricts substantial asset sales. At December 31, 2007, the Company was in compliance with all debt covenants.
The Company has an unsecured fixed rate long term note which bears interest at 4.99%. The loan is repayable in equal monthly installments and matures in October of 2011. At December 31, 2007, the total outstanding amount on this note was $6.5 million of which $466,667 is payable in 2008.
The Company has a secured line of credit for $0.2 million, which has an expiration date of July 5, 2008. This line of credit is secured by accounts receivable, inventory and equipment. There were no borrowings under this line at December 31, 2007. As of December 31, 2007, the Company was in compliance with all debt covenants.
The Company has secured mortgage notes of which $1.1 million and $0.1 million are outstanding as of December 31, 2007. The mortgage notes carry an interest rate of 3.00% payable in monthly installments (for principal and interest) of $6,933 and $834, respectively, with balances due July 1, 2010 and March 1, 2009, respectively. These mortgage notes are secured by real estate and buildings.
On November 30, 2007, the Company entered into a private shelf agreement with Prudential Investment Management, Inc. This agreement allows the Company to borrow up to an additional $40,000,000 to be issued in $5,000,000 minimum increments. The interest rate is determined based on applicable rates at time of issuance. The Company had a $10 million term note issued under this shelf agreement as of December 31, 2007, which carried an interest rate of 4.93%.
The Company had construction in process as of December 31, 2007 for the site development and building construction for a new office building and renovations to manufacturing facilities. Total estimated construction costs for these projects were $13.9 million of which $2.0 million has been spent as of December 31, 2007. All construction projects are expected to be completed by August of 2008.
On April 26, 2007, the Board of Directors approved regular dividends of $0.10 per share payable in the amount of $0.05 per share on June 15, 2007 and $0.05 per share on December 14, 2007 to shareholders of record on May 15, 2007 and November 14, 2007 respectively. On October 23, 2007, the Board of Directors approved a special dividend of $0.03 per share payable on December 14, 2007 to shareholders of record on November 14, 2007.
The Company believes it has sufficient resources from cash flows from operating activities and, if necessary, from additional borrowings under its lines of credit to satisfy ongoing cash requirements for the next 12 months. Proceeds from existing credit facilities and anticipated renewals, along with cash flows from operations, are expected to be sufficient to meet capital needs in the foreseeable future.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
Contractual Obligations and Commercial Commitments
The Company's future contractual obligations for agreements, including agreements to purchase materials in the normal course of business, are summarized below. The weighted average interest rate for long term debt as of December 31, 2007 was 5.21%. The Company is in the process of constructing new office space and the renovation of manufacturing facilities for which there were no outstanding purchase commitments as of December 31, 2007. The estimated cost to complete the construction is $11.9 million.
|
Payments Due by Period ( $ - thousands) |
|||||||||||||
|
|
|
Less than |
|
|
|
|
|
More than |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt (1) |
$ |
69,993 |
|
$ |
3,713 |
|
$ |
61,044 |
|
$ |
5,236 |
|
$ |
-- |
Operating leases |
|
1,280 |
|
|
523 |
|
|
638 |
|
|
119 |
|
|
-- |
Purchase obligations |
|
86,262 |
|
|
86,262 |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Long term debt includes estimated interest payments; interest payments on related variable rate debt were calculated using the effective interest rate at December 31, 2007. |
Critical Accounting Policies and Estimates
The following discussion of accounting policies is intended to supplement Note 1, General and Summary of Accounting Policies, of the Notes to Consolidated Financial Statements. These policies were selected because they are broadly applicable within the Company's operating units and they involve additional management judgment due to the sensitivity of the methods, assumptions and estimates necessary in determining the related statement of operations, asset and/or liability amounts.
Revenue Recognition - The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition. Accordingly, revenue is recognized when title to the product and risk of ownership passes to the buyer. In certain instances, risk of ownership and title passes when the unit has been completed in accordance with purchase order specifications and has been tendered for delivery to the customer. Sales are shown net of returns, discounts and sales incentives, which historically have not been significant. The collectability of any related receivable is reasonably assured before revenue is recognized.
Accounts Receivable - The Company maintains an allowance for customer accounts that reduces receivables to amounts that are expected to be collected. In estimating the allowance, management considers factors such as current overall economic conditions, industry-specific economic conditions, historical and anticipated customer performance, historical experience with write-offs and the level of past-due amounts. Changes in these conditions may result in additional allowances.
Inventory - Estimated inventory allowances for slow-moving and obsolete inventory are based upon current assessments about future demands, market conditions and related management initiatives. If market conditions are less favorable than those projected by management, additional inventory allowances may be required.
Impairment of Goodwill - Goodwill represents the difference between the purchase price and the related underlying tangible and identifiable intangible net asset values resulting from business acquisitions. Annually, or if conditions indicate an earlier review is necessary, the carrying value of the reporting unit is compared to an estimate of its fair value. If the estimated fair value is less than the carrying value, goodwill is impaired and will be written down to its estimated fair value. Goodwill is allocated to the reporting unit from which it was created.
Based upon the estimated fair values of the Company's reporting units using a discounted cash flow valuation, the goodwill at its Road Rescue subsidiary which is included in the Company's EVTeam reportable segment was evaluated as impaired and goodwill totaling $2,086,394 was recognized as a charge against operating income during 2006. The remaining balance of the goodwill of the Company relates to its Crimson Fire subsidiary and was not impaired as of December 31, 2007.
Warranties - The Company's policy is to record a provision for the estimated cost of warranty-related claims at the time of the sale, and periodically adjust the provision to reflect actual experience. The amount of warranty liability accrued reflects management's best estimate of the expected future cost of honoring the Company's obligations under the warranty agreements. The Company's estimates are based on historical experience, the number of units involved and the extent of features and components included in product models. For military vehicles with limited historical data, estimates were based upon historical experience of commercial vehicles. See also Note 10, Commitments and Contingent Liabilities, of the Notes to Consolidated Financial Statements included in this 10-K for further information regarding warranties.
Equity Compensation - SFAS 123(R), "Share-Based Payment", addresses the accounting for share-based employee compensation and was adopted by Spartan Motors, Inc. on January 1, 2006 utilizing the modified prospective approach. The effect of applying SFAS 123(R) and further information on Spartan Motors, Inc. equity compensation plans, including inputs used to determine fair value of options and stock appreciation rights (SARs) is disclosed in Note 9 to the financial statements. SFAS 123(R) requires that share options and SARs awarded to employees are recognized as compensation expense based on their fair value at grant date. The fair market value of options and SARs granted under the Company's stock option plans was estimated on the date of grant using the Black-Scholes option-pricing model using assumptions for inputs such as interest rates, expected dividends, volatility measures and specific employee exercise behavior patterns based on statistical data. Some of the inputs we use are not market-obs ervable and have to be estimated or derived from available data. Use of different estimates would produce different values, which in turn would result in higher or lower compensation expense recognized. We have not run the model with alternative inputs to quantify their effects on the fair value of the options or SARs.
To value options and SARs, several recognized valuation models exist. None of these models can be singled out as being the best or most correct one. The model we apply is able to handle some of the specific features included in the awards we grant, which is the reason for its use. If we were to use a different model, the values would differ despite using the same inputs. Accordingly, using different assumptions coupled with using a different valuation model could have a significant impact on the fair value of employee stock options and SARs. Fair value could be either higher or lower than the ones produced by the model we apply and the inputs we used.
New and Pending Accounting Policies
See Note 1 to the consolidated financial statements included in Item 8 of this Form 10-K.
Effect of Inflation
Inflation affects the Company in two principal ways. First, the Company's revolving notes payable is generally tied to the prime and LIBOR interest rates so that increases in those interest rates would be translated into additional interest expense. Second, general inflation impacts prices paid for labor, parts and supplies. Whenever possible, the Company attempts to cover increased costs of production and capital by adjusting the prices of its products. However, the Company generally does not attempt to negotiate inflation-based price adjustment provisions into its contracts. Since order lead times can be as much as six months, the Company has limited ability to pass on cost increases to its customers on a short-term basis. In addition, the markets served by the Company are competitive in nature, and competition limits the Company's ability to pass through cost increases in many cases. The Company strives to minimize the effect of inflation through cost reductions and improved productivity.
Item 7A. |
Quantitative and Qualitative Disclosures About Market Risk. |
The Company's primary market risk exposure is a change in interest rates and the effect of such a change on outstanding variable rate short-term and long-term debt. At December 31, 2007, the Company had $35.5 million of debt outstanding under its variable rate short-term and long-term debt agreements. An increase of 1% in interest rates would not have a material adverse effect on the Company's financial position. The Company does not enter into market risk sensitive instruments for trading or other purposes.
The Company does not believe that there has been a material change in the nature or categories of the primary market risk exposures or the particular markets that present the primary risk of loss to the Company. As of the date of this report, the Company does not know of or expect any material changes in the general nature of its primary market risk exposure in the near term. In this discussion, "near term" means a period of one year following the date of the most recent balance sheet contained in this report.
Prevailing interest rates and interest rate relationships are primarily determined by market factors that are beyond the Company's control. All information provided in response to this item consists of forward-looking statements. Reference is made to the section captioned "Forward-Looking Statements" before Part I of this Annual Report on Form 10-K for a discussion of the limitations on the Company's responsibility for such statements.
Item 8. |
Financial Statements and Supplementary Data. |
SPARTAN MOTORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
December 31, |
|
||||
|
2007 |
|
2006 |
|
||
ASSETS |
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
Cash and cash equivalents |
$ |
13,527,867 |
|
$ |
13,834,892 |
|
Accounts receivable, less allowance for doubtful accounts |
|
|
|
|
|
|
of $802,000 in 2007 and $373,000 in 2006 |
|
132,906,559 |
|
|
62,620,127 |
|
Inventories |
|
103,075,789 |
|
|
64,173,194 |
|
Deferred income tax assets |
|
6,924,832 |
|
|
4,566,657 |
|
Deposits on engines |
|
-- |
|
|
10,900,000 |
|
Other current assets |
|
1,978,322 |
|
|
1,881,706 |
|
Total current assets |
|
258,413,369 |
|
|
157,976,576 |
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
56,673,215 |
|
|
29,659,133 |
|
Goodwill |
|
2,457,028 |
|
|
2,457,028 |
|
Deferred income tax assets |
|
775,000 |
|
|
-- |
|
Other assets |
|
345,327 |
|
|
554,774 |
|
TOTAL ASSETS |
$ |
318,663,939 |
|
$ |
190,647,511 |
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
Accounts payable |
$ |
90,769,512 |
|
$ |
30,703,496 |
|
Accrued warranty |
|
10,823,532 |
|
|
6,380,740 |
|
Accrued customer rebates |
|
1,962,765 |
|
|
3,470,617 |
|
Accrued compensation and related taxes |
|
10,430,556 |
|
|
7,712,421 |
|
Accrued vacation |
|
1,758,354 |
|
|
1,483,389 |
|
Deposits from customers |
|
5,539,824 |
|
|
7,465,422 |
|
Other current liabilities and accrued expenses |
|
3,366,825 |
|
|
2,591,484 |
|
Taxes on income |
|
551,074 |
|
|
1,565,629 |
|
Current portion of long-term debt |
|
522,666 |
|
|
521,105 |
|
Total current liabilities |
|
125,725,108 |
|
|
61,894,303 |
|
|
|
|
|
|
|
|
Other non-current liabilities |
|
1,025,000 |
|
|
-- |
|
Long-term debt, less current portion |
|
62,695,454 |
|
|
25,218,120 |
|
Deferred income tax liabilities |
|
-- |
|
|
355,000 |
|
|
|
|
|
|
|
|
Shareholders' equity: |
|
|
|
|
|
|
Preferred stock, no par value; 2,000,000 shares authorized (none issued) |
|
-- |
|
|
-- |
|
Common stock, $0.01 par value; 40,000,000 and 23,900,000 shares |
|
|
|
|
|
|
Additional paid in capital |
|
62,648,429 |
|
|
54,233,016 |
|
Retained earnings |
|
66,246,421 |
|
|
48,630,402 |
|
Total shareholders' equity |
|
129,218,377 |
|
|
103,180,088 |
|
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY |
$ |
318,663,939 |
|
$ |
190,647,511 |
|
See Accompanying Notes to Consolidated Financial Statements.
SPARTAN MOTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
|
Year Ended December 31, |
|
|||||||
|
2007 |
|
2006 |
|
2005 |
|
|||
|
|
|
|
|
|
|
|
|
|
Sales |
$ |
681,922,475 |
|
$ |
445,377,639 |
|
$ |
343,006,608 |
|
Cost of products sold |
|
585,421,207 |
|
|
372,001,666 |
|
|
294,231,467 |
|
Gross profit |
|
96,501,268 |
|
|
73,375,973 |
|
|
48,775,141 |
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
Research and development |
|
15,868,348 |
|
|
12,622,487 |
|
|
9,431,394 |
|
Selling, general and administrative |
|
41,382,741 |
|
|
31,359,187 |
|
|
26,693,005 |
|
Goodwill impairment |
|
-- |
|
|
2,086,394 |
|
|
-- |
|
Operating income |
|
39,250,179 |
|
|
27,307,905 |
|
|
12,650,742 |
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
Interest expense |
|
(1,747,754 |
) |
|
(347,071 |
) |
|
(140,698 |
) |
Interest and other income |
|
724,852 |
|
|
1,011,613 |
|
|
858,801 |
|
Earnings before taxes on income |
|
38,227,277 |
|
|
27,972,447 |
|
|
13,368,845 |
|
|
|
|
|
|
|
|
|
|
|
Taxes on income |
|
13,723,000 |
|
|
11,144,000 |
|
|
5,077,000 |
|
Net earnings |
$ |
24,504,277 |
|
$ |
16,828,447 |
|
$ |
8,291,845 |
|
|
|
|
|
|
|
|
|
|
|
Basic net earnings per share |
$ |
0.77 |
|
$ |
0.57 |
|
$ |
0.29 |
|
|
|
|
|
|
|
|
|
|
|
Diluted net earnings per share |
$ |
0.75 |
|
$ |
0.55 |
|
$ |
0.29 |
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding |
|
31,935,000 |
|
|
29,606,000 |
|
|
28,254,000 |
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average common shares outstanding |
|
32,833,000 |
|
|
30,531,000 |
|
|
28,818,000 |
|
See Accompanying Notes to Consolidated Financial Statements.
SPARTAN MOTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 2007, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2005 |
18,799,363 |
|
$ |
187,994 |
|
$ |
36,147,937 |
|
$ |
31,182,253 |
|
$ |
-- |
|
$ |
(7,066 |
) |
$ |
67,511,118 |
|
Purchase and constructive |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid ($0.11 per |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of restricted stock |
129,376 |
|
|
1,294 |
|
|
921,581 |
|
|
-- |
|
|
(922,875 |
) |
|
-- |
|
|
-- |
|
Amortization of unearned |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
-- |
|
|
-- |
|
|
-- |
|
|
8,291,845 |
|
|
-- |
|
|
-- |
|
|
8,291,845 |
|
Change in unrealized loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,287,031 |
|
Balance at December 31, 2005 |
18,954,987 |
|
$ |
189,550 |
|
$ |
37,822,630 |
|
$ |
35,447,985 |
|
$ |
(845,969 |
) |
$ |
(11,880 |
) |
$ |
72,602,316 |
|
Reclassification of unearned |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared ($0.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of restricted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation |
-- |
|
|
-- |
|
|
|
|
|
-- |
|
|
-- |
|
|
-- |
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
-- |
|
|
-- |
|
|
-- |
|
|
16,828,447 |
|
|
-- |
|
|
-- |
|
|
16,828,447 |
|
Change in unrealized loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,840,327 |
|
Balance at December 31, 2006 |
21,111,339 |
|
$ |
211,113 |
|
$ |
54,338,573 |
|
$ |
48,630,402 |
|
$ |
-- |
|
$ |
-- |
|
$ |
103,180,088 |
|
Adjustment for 3-for-2 stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment for adoption of FIN |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared ($0.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of restricted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation |
-- |
|
|
-- |
|
|
|
|
|
-- |
|
|
-- |
|
|
-- |
|
|
|
|
Purchase and constructive |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
-- |
|
|
-- |
|
|
-- |
|
|
24,504,277 |
|
|
-- |
|
|
-- |
|
|
24,504,277 |
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,504,277 |
|
Balance at December 31, 2007 |
32,352,679 |
|
$ |
323,527 |
|
$ |
62,648,429 |
|
$ |
66,246,421 |
|
$ |
-- |
|
$ |
-- |
|
$ |
129,218,377 |
|
See Accompanying Notes to Consolidated Financial Statements.
SPARTAN MOTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
Year Ended December 31, |
|
|||||||
|
2007 |
|
2006 |
|
2005 |
|
|||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
Net earnings |
$ |
24,504,277 |
|
$ |
16,828,447 |
|
$ |
8,291,845 |
|
Adjustments to reconcile net earnings to net cash provided by |
|
|
|
|
|
|
|
|
|
(used in) operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation |
|
4,062,789 |
|
|
2,862,721 |
|
|
2,646,990 |
|
(Gain) loss on disposal of assets |
|
86,425 |
|
|
(54,817 |
) |
|
21,524 |
|
Goodwill impairment |
|
-- |
|
|
2,086,394 |
|
|
-- |
|
Tax benefit from stock incentive plan transactions |
|
(3,556,165 |
) |
|
(3,141,000 |
) |
|
118,000 |
|
Deferred income taxes |
|
(3,488,175 |
) |
|
(775,261 |
) |
|
373,060 |
|
Stock based compensation related to stock appreciation |
|
|
|
|
|
|
|
|
|
Decrease (increase) in operating assets: |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
(70,286,432 |
) |
|
(25,603,578 |
) |
|
(4,657,599 |
) |
Inventories |
|
(38,902,595 |
) |
|
(19,907,805 |
) |
|
(11,823,677 |
) |
Taxes receivable |
|
-- |
|
|
989,896 |
|
|
966,639 |
|
Other assets |
|
11,012,831 |
|
|
(10,857,151 |
) |
|
(885,602 |
) |
Increase (decrease) in operating liabilities: |
|
|
|
|
|
|
|
|
|
Accounts payable |
|
60,066,016 |
|
|
9,957,947 |
|
|
1,497,650 |
|
Accrued warranty |
|
4,442,792 |
|
|
1,877,968 |
|
|
832,011 |
|
Accrued compensation and related taxes |
|
2,718,135 |
|
|
3,471,128 |
|
|
976,556 |
|
Accrued vacation |
|
274,965 |
|
|
294,697 |
|
|
101,278 |
|
Deposits from customers |
|
(1,925,598 |
) |
|
(6,174,775 |
) |
|
5,052,063 |
|
Other current liabilities and accrued expenses |
|
(732,511 |
) |
|
1,453,484 |
|
|
1,211,228 |
|
Taxes on income |
|
3,235,610 |
|
|
4,706,629 |
|
|
-- |
|
Total adjustments |
|
(31,198,030 |
) |
|
(37,379,165 |
) |
|
(3,492,973 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
(6,693,753 |
) |
|
(20,550,718 |
) |
|
4,798,872 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
(31,182,496 |
) |
|
(14,435,019 |
) |
|
(2,932,092 |
) |
Proceeds from sale of property, plant and equipment |
|
19,200 |
|
|
456,902 |
|
|
50,002 |
|
Purchases of marketable securities |
|
-- |
|
|
-- |
|
|
(2,000,000 |
) |
Proceeds from sale of marketable securities |
|
-- |
|
|
1,989,190 |
|
|
1,487,986 |
|
Net cash used in investing activities |
|
(31,163,296 |
) |
|
(11,988,927 |
) |
|
(3,394,104 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt |
|
168,800,000 |
|
|
24,500,000 |
|
|
1,250,000 |
|
Payments on long-term debt |
|
(131,321,105 |
) |
|
(130,609 |
) |
|
(25,424 |
) |
Proceeds from the exercise of stock options |
|
3,626,722 |
|
|
12,808,117 |
|
|
926,374 |
|
Purchase and retirement of common stock |
|
(2,768,869 |
) |
|
-- |
|
|
(1,050,235 |
) |
Cash retained on taxes due to stock incentive |
|
|
|
|
|
|
|
|
|
Payment of dividends |
|
(4,342,889 |
) |
|
(3,646,030 |
) |
|
(3,266,878 |
) |
Net cash provided by (used in) financing activities |
|
37,550,024 |
|
|
36,672,478 |
|
|
(2,166,163 |
) |
Net increase (decrease) in cash and cash equivalents |
|
(307,025 |
) |
|
4,132,833 |
|
|
(761,395 |
) |
Cash and cash equivalents at beginning of year |
|
13,834,892 |
|
|
9,702,059 |
|
|
10,463,454 |
|
Cash and cash equivalents at end of year |
$ |
13,527,867 |
|
$ |
13,834,892 |
|
$ |
9,702,059 |
|
Supplemental disclosures: Cash paid for interest was $1,463,000, $308,000 and $194,000 for 2007, 2006 and 2005, respectively. Cash paid for income taxes was $13,502,000, $6,294,000 and $3,707,000 for 2007, 2006 and 2005, respectively.
See Accompanying Notes to Consolidated Financial Statements.
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL AND SUMMARY OF ACCOUNTING POLICIES
Nature of Operations. Spartan Motors, Inc. (the "Company") is an international engineer and manufacturer of custom motor vehicle chassis and bodies. The Company's principal chassis markets are fire trucks, motorhomes and specialty vehicles. The Company also has various subsidiaries that are manufacturers of bodies for various markets including fire trucks and ambulances.
Principles of Consolidation. The consolidated financial statements include the accounts of the Company and its four wholly owned subsidiaries: Spartan Chassis, Inc., Crimson Fire, Inc., Crimson Fire Aerials, Inc. and Road Rescue, Inc. All intercompany transactions have been eliminated.
Financial Instruments. The Company values financial instruments as required by Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosures about Fair Values of Financial Instruments." The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and variable rate debt instruments approximate fair value. Due to the recent addition of fixed rate debt instruments, the fair value of these financial instruments approximates their carrying value at December 31, 2007. The Company does not utilize derivative instruments.
Revenue Recognition. The Company recognizes revenue when title to its product passes to the customer. In certain instances, risk of ownership and title passes when production and testing of the product has been completed and the product has been tendered for delivery. Rebates for certain product sales, which are known and accrued at time of sale, are reflected as a reduction of revenue. Any related receivable is also evaluated for collectability before revenue is recognized.
Shipping and Handling of Products. Costs incurred related to the shipment and handling of products are classified in cost of products sold. Amounts billed to customers for shipping and handling of products are included in sales.
Use of Estimates. The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents include cash on hand, cash on deposit and money market funds. The Company considers all investments purchased with a maturity of three months or less to be cash equivalents.
Accounts Receivable. The Company's receivables are subject to credit risk, and the Company does not typically require collateral on its accounts receivable. The Company performs periodic credit evaluations of its customers' financial condition and generally requires a security interest in the products sold. Receivables generally are due within 30 days and allowances are maintained for potential credit losses. Historically, such losses consistently have been within management's expectations. Past due accounts are written off when collectability is determined to be no longer assured.
Inventories are stated at the lower of first-in, first-out (FIFO) cost or market. Estimated inventory allowances for slow-moving and obsolete inventory are based upon current assessments about future demands, market conditions and related management initiatives. If market conditions are less favorable than those projected by management, additional inventory allowances may be required.
Property, Plant and Equipment is stated at cost and is depreciated over their estimated useful lives using principally an accelerated method for both financial statement and income tax purposes. Estimated useful lives range from 20 to 31.5 years for buildings and improvements, 3 to 7 years for plant machinery and equipment, 3 to 7 years for furniture and fixtures and 3 to 5 years for vehicles.
Goodwill. The Company applies the provisions of SFAS No. 142, "Goodwill and Other Intangible Assets," which prohibits the amortization of goodwill and intangible assets with indefinite lives and requires the Company to evaluate these intangibles for impairment on an annual basis. Goodwill is allocated to the reporting unit from which it was created. The Company completes its required annual impairment test as of October 1 each year. Based upon the estimated fair values of the Company's reporting units using a discounted cash flow valuation, the goodwill at its Road Rescue subsidiary, which is included in the Company's EVTeam reportable segment, was evaluated as impaired and goodwill totaling $2,086,394 was recognized as a charge against operating income during 2006. The remaining balance of the goodwill of the Company relates to its Crimson Fire subsidiary and was not impaired at December 31, 2007.
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1 - GENERAL AND SUMMARY OF ACCOUNTING POLICIES (Continued)
Warranties. The Company's policy is to record a provision for the estimated cost of warranty-related claims at the time of the sale, and periodically adjust the provision to reflect actual experience. The amount of warranty liability accrued reflects management's best estimate of the expected future cost of honoring the Company's obligations under the warranty agreements. The Company's estimates are based on historical experience, the number of units involved and the extent of features and components included in product models. See Note 10, Commitments and Contingent Liabilities, for further information regarding warranties.
Deposits from Customers. The Company receives advance payments from customers for future product orders and records these amounts as liabilities. Such deposits are accepted by the Company when presented by customers seeking improved pricing in connection with orders that are placed for products to be manufactured and sold at a future date. Revenue associated with these deposits is deferred and recognized upon shipment of the related product to the customer.
Research and Development. The Company's research and development costs , which represent compensation costs, travel and entertainment and administrative expenses among other items, are expensed as incurred.
Taxes on Income. The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes," which requires that deferred income tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. SFAS No. 109 also requires deferred income tax assets be reduced by a valuation allowance, if it is more likely than not, some portion or all of the deferred income tax assets will not be realized.
The Company evaluates the realizability of its deferred income tax assets by assessing its valuation allowance and by adjusting the amount of such allowance, if necessary. The factors used to assess the likelihood of realization are the Company's forecast of future taxable income, the projected reversal of temporary differences and available tax planning strategies that could be implemented to realize the net deferred income tax assets.
As disclosed in Note 5, Taxes on Income, the Company adopted the provisions of FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109," effective January 1, 2007. The Company has elected to retain its existing accounting policy with respect to the treatment of interest and penalties attributable to income taxes, and continues to reflect any change for such, to the extent it arises, as a component of its income tax provision or benefit.
Earnings Per Share. Basic earnings per share represents net earnings divided by the weighted average number of common shares outstanding during the period exclusive of unvested restricted shares outstanding. Diluted earnings per share represents net earnings outstanding divided by the weighted average number of common shares outstanding plus the average dilutive effect of the Company's stock options, restricted stock, and stock appreciation rights ("SARs") outstanding during the period determined using the treasury stock method. The effect of dilutive stock options, restricted stock and SARs was 898,000, 925,000 and 564,000 shares in 2007, 2006 and 2005, respectively. For 2006, all shares related to stock options outstanding were included in the diluted weighted average shares. For 2007 and 2005, 88,000, and 1,722,000 shares, respectively, related to stock incentive plans were not included in diluted weighted average common shares outstanding because their inclusion would be antidilutive.
Stock Incentive Plans. Effective January 1, 2006, the Company adopted SFAS No. 123 (revised), "Share-Based Payment" (SFAS 123(R)) utilizing the modified prospective approach. Prior to the adoption of SFAS 123(R), the Company accounted for stock option grants under the recognition and measurement principles of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations, and accordingly, recognized no compensation expense for stock option grants in net income because the exercise price of options granted was equal to the market price of the related common stock at the date of grant.
Under the modified prospective adoption approach, compensation expense is recognized for all share-based payments granted prior to, but not yet vested as of December 31, 2005, based on the grant-date fair value estimated in accordance with the original provisions of SFAS 123, and compensation cost for all share-based payments granted subsequent to December 31, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R). All options and SARs outstanding at the time of adoption were vested as of December 31, 2005. The Company's incentive stock plans are described in more detail in Note 9, Stock Based Compensation.
Prior to the adoption of SFAS 123(R) the Company presented all tax benefit deductions resulting from the exercise of stock options as operating cash flows in the Consolidated Statements of Cash Flows. SFAS 123(R) requires the cash flows resulting from the tax benefits resulting from the tax deductions in excess of the compensation cost recognized for those options to be classified as financing cash flows. The $3,556,165 and $3,141,000 reported as cash retained on taxes due to stock incentive plan transactions classified as a
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1 - GENERAL AND SUMMARY OF ACCOUNTING POLICIES (Continued)
financing cash flow in 2007 and 2006, respectively, would have been classified as an operating cash inflow prior to the adoption of SFAS 123(R).
Stock Split. On May 23, 2007, the Company's Board of Directors announced a 3-for-2 stock split which was issued on June 28, 2007 to shareholders of record on June 14, 2007. Prior to the stock split there were 21,568,499 shares of common stock outstanding. After the split and the related retirement of fractional shares, there were 32,341,312 shares outstanding. On November 2, 2006, the Company's Board of Directors declared a 3-for-2 stock split which was issued on December 15, 2006 to shareholders of record on November 15, 2006. Earnings per share, all share data and additional paid in capital have been restated in all prior periods to reflect these stock split.
Reclassifications. Certain immaterial amounts in the prior years' financial statements have been reclassified to conform to the current year's presentation.
New Accounting Standards. In June 2007, the FASB ratified the consensus reached by the Emerging Issues Task Force (EITF) on EITF issue 06-11, "Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards." EITF 06-11 requires companies to recognize the income tax benefit realized from dividends or dividend equivalents that are charged to retained earnings and paid to employees for non-vested equity-classified employee share-based payment awards as an increase in additional paid-in capital. The EITF should be applied prospectively to the income tax benefits of dividends on equity-classified employee share-based payment awards that are declared in fiscal years beginning after December 15, 2007, and interim periods within those fiscal years. The Company does not expect EITF 06-11 to have a material effect on its consolidated results of operations or its financial position.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities," which permits entities to choose to measure eligible financial instruments at fair value. The objective of this statement is to provide entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The provisions of SFAS No. 159 are effective for fiscal years beginning after November 15, 2007. The Company does not expect the adoption of this statement to have a material impact on its consolidated results of operations or its financial position.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." This statement clarifies the definition of fair value, establishes a framework for measuring fair value and expands the disclosures on fair value measurements. SFAS No. 157 was initially effective for the Company beginning January 1, 2008. In February 2008, the FASB approved the issuance of FASB Staff Position (FSP) FAS 157-2. FSP FAS 157-2 defers the effective date of SFAS No. 157 until January 1, 2009 for nonfinancial assets and nonfinancial liabilities except those items recognized or disclosed at fair value on an annual or more frequently recurring basis. The Company does not expect SFAS 157 to have a material impact on its consolidated results of operations or financial position.
In December 2007, the FASB issued SFAS No. 141(R), "Business Combinations," to further enhance the accounting and financial reporting related to business combinations. SFAS No. 141(R) establishes principles and requirements for how the acquirer in a business combination (1) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree, (2) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase, and (3) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Therefore, the effects of the Company's adoption of SFAS No. 141(R) will depend upon the extent and magni tude of acquisitions after December 31, 2008.
NOTE 2 - INVENTORIES
Inventories are summarized as follows: |
December 31, |
|
|||||
|
2007 |
|
|
2006 |
|
||
|
|
|
|
|
|
|
|
Finished goods |
$ |
18,346,128 |
|
|
$ |
14,937,698 |
|
Work in process |
|
21,426,663 |
|
|
|
14,407,108 |
|
Raw materials and purchased components |
|
65,459,415 |
|
|
|
37,274,183 |
|
Obsolescence and slow-moving reserves |
|
(2,156,417 |
) |
|
|
(2,445,795 |
) |
|
|
|
|
|
|
|
|
TOTAL INVENTORY |
$ |
103,075,789 |
|
|
$ |
64,173,194 |
|
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized by major classifications as follows:
|
December 31, |
|
|||||
|
2007 |
|
|
2006 |
|
||
|
|
|
|
|
|
|
|
Land and improvements |
$ |
2,613,565 |
|
|
$ |
2,014,732 |
|
Buildings and improvements |
|
48,091,565 |
|
|
|
18,241,956 |
|
Plant machinery and equipment |
|
16,545,663 |
|
|
|
10,390,834 |
|
Furniture and fixtures |
|
11,980,457 |
|
|
|
11,671,808 |
|
Vehicles |
|
2,594,369 |
|
|
|
2,353,152 |
|
Construction in process (estimated cost to complete of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUBTOTAL |
|
84,557,124 |
|
|
|
53,831,782 |
|
Less accumulated depreciation |
|
(27,883,909 |
) |
|
|
(24,172,649 |
) |
|
|
|
|
|
|
|
|
TOTAL PROPERTY, PLANT AND EQUIPMENT, NET |
$ |
56,673,215 |
|
|
$ |
29,659,133 |
|
Interest capitalized during 2007 related to construction and renovation of manufacturing facilities amounted to approximately $429,000. There was no capitalized interest in 2006 and 2005.
NOTE 4 - LEASES
The Company leases certain office equipment and manufacturing and warehouse space under operating lease agreements. Leases generally provide that the Company shall pay the cost of utilities, insurance, taxes and maintenance. Rent expense for the years ended December 31, 2007, 2006 and 2005 was $1,124,000, $773,000 and $729,000, respectively. Future minimum lease commitments under non-cancelable leases are as follows: $523,000 in 2008; $430,000 in 2009, $208,000 in 2010, $42,000 in 2011 and $77,000 in 2012 and thereafter.
NOTE 5 - TAXES ON INCOME
Income tax expense (credit) is summarized as follows:
|
Year Ended December 31, |
|
|||||||
|
2007 |
|
2006 |
|
2005 |
|
|||
Current: |
|
|
|
|
|
|
|
|
|
Federal |
$ |
15,789,588 |
|
$ |
10,996,402 |
|
$ |
4,430,000 |
|
State |
|
1,421,587 |
|
|
922,859 |
|
|
273,940 |
|
Total current |
|
17,211,175 |
|
|
11,919,261 |
|
|
4,703,940 |
|
Deferred (credit): |
|
|
|
|
|
|
|
|
|
Federal |
|
(3,116,866 |
) |
|
(718,816 |
) |
|
433,000 |
|
State |
|
(371,309 |
) |
|
(56,445 |
) |
|
(59,940 |
) |
Total deferred |
|
(3,488,175 |
) |
|
(775,261 |
) |
|
373,060 |
|
|
|
|
|
|
|
|
|
|
|
TOTAL PROVISION FOR INCOME TAXES |
$ |
13,723,000 |
|
$ |
11,144,000 |
|
$ |
5,077,000 |
|
Current taxes on income are further reduced by tax benefits associated with stock incentive plan transactions under the plans described in Note 9. This reduction totaled $3,556,165 in 2007 and $3,141,000 in 2006 and was recognized as an adjustment of additional paid-in capital. In 2005, this amounted to an increase of $118,000 and was also recognized as an adjustment of additional paid-in capital.
Differences between the expected income tax expense derived from applying the federal statutory income tax rate to earnings before taxes on income and the actual tax expense, are as follows:
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 5 - TAXES ON INCOME (Continued)
|
Year Ended December 31, |
|||||||||||||||||||
|
2007 |
|
2006 |
|
2005 |
|||||||||||||||
|
Amount |
|
Percentage |
|
Amount |
|
Percentage |
|
Amount |
|
Percentage |
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Federal income taxes at the |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
statutory rate |
$ |
13,379,547 |
|
35.00 |
% |
|
$ |
9,790,356 |
|
35.00 |
% |
|
$ |
4,545,407 |
|
34.00 |
% |
|||
Increase (decrease) in income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Nondeductible expenses |
|
418,000 |
|
1.09 |
|
|
|
74,000 |
|
0.26 |
|
|
|
39,000 |
|
0.29 |
|
|||
State tax expense |
|
924,000 |
|
2.42 |
|
|
|
168,000 |
|
0.60 |
|
|
|
74,000 |
|
0.55 |
|
|||
Non-deductible goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Adjustments to federal and state |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Adjustment of valuation allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Adjustment of valuation allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Section 199 production deduction |
|
(791,000 |
) |
(2.07 |
) |
|
|
(238,000 |
) |
(0.85 |
) |
|
|
(122,000 |
) |
(0.91 |
) |
|||
Other |
|
(108,547 |
) |
(0.28 |
) |
|
|
130,644 |
|
0.47 |
|
|
|
160,593 |
|
1.20 |
|
|||
TOTAL |
$ |
13,723,000 |
|
35.90 |
% |
|
$ |
11,144,000 |
|
39.83 |
% |
|
$ |
5,077,000 |
|
37.97 |
% |
Temporary differences which give rise to deferred tax assets (liabilities) are as follows:
|
December 31, |
|
||||
|
2007 |
|
2006 |
|
||
Current asset (liability): |
|
|
|
|
|
|
Additional capitalized inventory costs |
$ |
150,000 |
|
$ |
148,000 |
|
Vacation accrual |
|
666,000 |
|
|
561,000 |
|
Warranty reserve |
|
4,221,000 |
|
|
2,489,000 |
|
Inventory allowance |
|
782,000 |
|
|
909,000 |
|
Allowance for doubtful accounts |
|
562,000 |
|
|
146,000 |
|
Prepaid insurance |
|
(92,000 |
) |
|
-- |
|
State tax net operating loss carryforward |
|
378,000 |
|
|
529,000 |
|
Valuation allowance for state tax net operating loss carryforward |
|
(378,000 |
) |
|
(529,000 |
) |
State tax credit carryforward |
|
44,000 |
|
|
-- |
|
Valuation allowance for state tax credit carryforward |
|
(44,000 |
) |
|
-- |
|
Federal tax benefit related to state tax reserves |
|
334,000 |
|
|
219,000 |
|
Other |
|
301,832 |
|
|
94,657 |
|
|
|
|
|
|
|
|
NET CURRENT DEFERRED TAX ASSETS |
$ |
6,924,832 |
|
$ |
4,566,657 |
|
|
|
|
|
|
|
|
Noncurrent asset (liability) - Other |
|
775,000 |
|
|
(355,000 |
) |
|
|
|
|
|
|
|
NET NONCURRENT DEFERRED TAX ASSETS (LIABILITIES) |
$ |
775,000 |
|
$ |
(355,000 |
) |
At December 31, 2007 and 2006, the Company had state deferred tax assets, related to state tax net operating loss carryforwards, of approximately $582,000 and $802,000, respectively, which begin expiring in 2017. At December 31, 2007, the Company had a state tax credit carryforward of approximately $67,000 that expires in 2009. The Company has full valuation allowances against these deferred tax assets and expects to maintain these allowances on future tax benefits of state net operating losses and tax credits until an appropriate level of profitability is sustained or the Company is able to develop tax strategies that will enable it to conclude that, more likely than not, a portion of the deferred tax assets will be realizable.
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 5 - TAXES ON INCOME (Continued)
The Company adopted the provisions of FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109" ("FIN 48"), effective January 1, 2007. The Company identified unrecognized tax benefits ("UTB") of $723,000 as of January 1, 2007. Computed interest and penalties on UTB amounted to $238,000, for a total FIN 48 liability of $961,000 at date of adoption. In accordance with the transition provisions of FIN 48, the Company recorded a decrease to its beginning balance of retained earnings in the amount of $331,000 with the remaining $630,000 being reclassified from current accrued taxes on income to other non-current liabilities. The change in UTB, excluding interest and penalties, is as follows for 2007:
|
|
2007 |
|
|
|
|
|
|
|
|
Balance at January 1, 2007 |
$ |
723,000 |
|
|
Decrease related to prior year tax positions |
|
(43,000 |
) |
|
Increase related to current year tax positions |
|
42,000 |
|
|
Settlements |
|
(60,000 |
) |
|
Balance at December 31, 2007 |
$ |
662,000 |
|
Included in other non-current liabilities in the Consolidated Balance Sheet as of December 31, 2007 is the ending UTB balance of $662,000, as well as $363,000 of interest and penalties, for a total of $1,025,000. The total UTB of $662,000 would affect the effective tax rate if recognized in future periods. The total amount of UTB could increase or decrease within the next twelve months for a number of reasons including the expiration of statute of limitations, audit settlements, tax examination activities and the recognition and measurement considerations under FIN 48. The Company does not believe that the total amount of UTB will materially increase or decrease over the next twelve months. The Company was last audited by the Internal Revenue Service ("IRS") in 2002 and settled all issues for the years 1998 through 2000. The Company also files tax returns in a number of states and those jurisdictions remain subject to examination in accordance with relevant state statutes.
On July 12, 2007, Michigan enacted a new business tax (Michigan Business Tax), which is a combined income tax and modified gross receipts tax. This tax replaces the Single Business Tax, which is similar to a value added tax and thus was not included in income tax expense by the Company. The new Michigan Business Tax, which was effective January 1, 2008 and applies to all business activity after December 31, 2007, is largely based on income and thus will be treated as an income tax by the Company. In accordance with SFAS No. 109, "Accounting for Income Taxes," deferred income tax assets and liabilities are required to be adjusted for the effect of a change in tax laws or rates with the effect included in income for the period that includes the enactment date. The Company has evaluated this change on its deferred income tax accounts and determined the impact to be immaterial.
NOTE 6 - DEBT
Long-term debt consists of the following:
|
December 31, |
|
December 31, |
|
||
Mortgage notes payable to Brandon Revolving Loan Foundation: |
|
|
|
|
|
|
Due March 1, 2009 with monthly installments of $834 including |
|
|
|
|
|
|
Due July 1, 2010 with monthly installments of $6,933 including |
|
|
|
|
|
|
Note Payable to Charter One Bank: |
|
|
|
|
|
|
Note Payable to JP Morgan Chase Bank: |
|
|
|
|
|
|
Note Payable to Prudential Investment Management, Inc.: |
|
|
|
|
|
|
Line of credit with JP Morgan Chase Bank |
|
35,500,000 |
|
|
17,500,000 |
|
|
|
63,218,120 |
|
|
25,739,225 |
|
Less current portion of long-term debt |
|
(522,666 |
) |
|
(521,105 |
) |
TOTAL |
$ |
62,695,454 |
|
$ |
25,218,120 |
|
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 6 - DEBT (Continued)
The long-term debt is due as follows: $522,666 in 2008; $46,139,838 in 2009; $11,500,061 in 2010; $5,055,555 in 2011; and none thereafter.
The Company's primary line of credit is a $65,000,000 unsecured revolving note payable to a bank that expires on September 30, 2009. This line carries an interest rate equal to the Eurodollar rate plus an applicable margin. Borrowings on this line amounted to $35,500,000 and $17,500,000 at December 31, 2007 and 2006, respectively. The applicable Eurodollar rate plus margin was 5.38% and 5.72%, respectively. Under the terms of the credit agreement for the line of credit, the Company is required to maintain certain financial ratios and other financial conditions. The agreement also prohibits the Company from incurring additional indebtedness, limits certain acquisitions, investments, advances or loans and restricts substantial asset sales. At December 31, 2007 and 2006, the Company was in compliance with all debt covenants.
The Company also has a secured line of credit of $200,000 which carries an interest rate of 1% above the bank's prime rate (prime rate at December 31, 2007 was 7.25%) and is secured by accounts receivable, inventory and equipment. This line of credit will expire on July 5, 2008. There were no borrowings under this line at December 31, 2007 and 2006.
As of November 30, 2007, the Company entered into a private shelf agreement with Prudential Investment Management, Inc. This agreement allows the Company to borrow up to $40,000,000 to be issued in $5,000,000 minimum increments. The interest rate is determined based on applicable rates at time of issuance. As of December 31, 2007, the Company had $10,000,000 issued under this agreement.
NOTE 7 - TRANSACTIONS WITH MAJOR CUSTOMERS
The Company had four Spartan Chassis customers classified as major customers in 2007, 2006 and 2005, as follows:
|
|
2007 |
|
2006 |
|
2005 |
||||||||||||
|
|
|
|
Accounts |
|
|
|
Accounts |
|
|
|
Accounts |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Customer A |
|
$ |
131,461,000 |
|
$ |
27,590,000 |
|
$ |
45,186,000 |
|
$ |
15,014,000 |
|
$ |
11,397,000 |
|
$ |
5,890,000 |
Customer B |
|
|
85,566,000 |
|
|
4,052,000 |
|
|
92,440,000 |
|
|
1,706,000 |
|
|
83,396,000 |
|
|
2,121,000 |
Customer C |
|
|
79,118,000 |
|
|
46,728,000 |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
Customer D |
|
|
74,393,000 |
|
|
81,000 |
|
|
56,858,000 |
|
|
3,330,000 |
|
|
75,518,000 |
|
|
5,364,000 |
NOTE 8 - PROFIT-SHARING PLAN
The Spartan Motors Retirement Plan provides for matching 401(k) contributions and covers all associates who meet length of service and minimum age requirements. The Company's matching contributions vest over 5 years and were approximately $870,000, $599,000 and $564,000 in 2007, 2006 and 2005, respectively. These amounts were expensed as incurred.
NOTE 9 - STOCK BASED COMPENSATION
The Company has stock incentive plans covering certain employees and non-employee directors. Shares reserved for stock awards under these plans total 7,200,000. Total shares remaining available for stock incentive grants under these plans totaled 1,760,425 at December 31, 2007.
The Company is currently authorized to grant stock options, restricted stock, restricted stock units, stock appreciation rights and common stock under its various stock incentive plans which include its Non Qualified Stock Option Plan, 1994 Incentive Stock Option Plan, 1996 Stock Option and Restricted Stock Plan for Outside Market Advisors, Stock Option and Restricted Stock Plan of 1998, Stock Option and Restricted Stock Plan of 2003, Stock Incentive Plan of 2005 and Stock Incentive Plan of 2007. The stock incentive plans allow certain employees, officers and non-employee directors to purchase common stock of Spartan Motors at a price established on the date of grant. Incentive stock options granted under these plans must have an exercise price equal to or greater than 100% of the fair market value of Spartan Motors stock on the grant date. Options under these plans to date were granted with exercise prices at 100% of the fair market value on the date of grant.
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 9 - STOCK BASED COMPENSATION (Continued)
Stock Options and Stock Appreciation Rights. Granted options and Stock Appreciation Rights (SARs) vest immediately and are exercisable for a period of 10 years from the grant date. The exercise price for all options and the base price for all SARs granted has been equal to the market price at the date of grant. Dividends are not paid on unexercised options or SARs.
We receive a tax deduction for certain stock option exercises during the period the options are exercised, generally for the excess of the fair value of the stock on date of exercise over the exercise price of the options. Prior to the adoption of SFAS 123(R), we reported all tax benefits resulting from the exercise of stock options as operating cash flows in our consolidated statement of cash flows. Upon adoption of SFAS 123(R), any excess tax benefits are required to be shown in our consolidated statement of cash flows as financing cash flows. Excess tax benefits derive from the difference between the tax deduction and the fair market value of the option as determined by a valuation model which in our case is the Black-Scholes model.
The following table illustrates the effect on net income and earnings per share as if the Company had applied the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation for the year ended December 31, 2005:
|
|
Year Ended |
|
|
|
|
|
|
|
|
Net earnings as reported |
$ |
8,291,845 |
|
|
Deduct: Compensation expense - fair value |
|
|
|
|
Add: Income tax benefit for disqualifying |
|
|
|
|
Pro forma |
$ |
7,036,728 |
|
|
|
|
|
|
|
Basic net earnings per share |
|
|
|
|
As reported |
$ |
0.29 |
|
|
Pro forma |
|
0.25 |
|
|
|
|
|
|
|
Diluted net earnings per share |
|
|
|
|
As reported |
$ |
0.29 |
|
|
Pro forma |
|
0.24 |
|
The table below lists the weighted-average assumptions used in the Black-Scholes option-pricing model and the resulting estimated weighted average fair value of SARs in 2007 and 2006 and options in 2005. Expected volatilities are based on the historical volatility of the Company's stock and the expected life of the SARs awarded. The effective term of the SARs, based on using the "simplified method" as outlined in Staff Accounting Bulletin No. 107 as published by the Securities and Exchange Commission, is five years. Based on this effective term, the five-year Treasury Bond rates as of the date of grant were used to estimate the risk-free rate of return.
|
|
Dividend |
|
Expected |
|
Risk Free |
|
Expected |
|
Estimated Fair |
|
2007 |
1.5% |
|
49.9% |
|
3.44% |
|
5 years |
|
$3.20 |
|
2006 |
1.5% |
|
35.0% |
|
4.70% |
|
5 years |
|
$3.39 |
|
2005 |
2.0% |
|
54.4% |
|
4.38% |
|
5 years |
|
$2.03 |
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 9 - STOCK BASED COMPENSATION (Continued)
Option activity for the year ended December 31, 2007 is as follows for all plans:
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Options outstanding and |
|
|
|
|
|
|
|
|
Granted and vested |
-- |
|
-- |
|
|
|
|
|
Exercised |
(711,397 |
) |
4.09 |
|
|
|
|
|
Cancelled |
(17,965 |
) |
3.43 |
|
|
|
|
|
Options outstanding and |
|
|
|
|
|
|
|
The weighted-average grant date fair value of options granted in 2005 was $2.03. No options were granted in 2006 or 2007. Total intrinsic value of options exercised during years ended December 31, 2005, 2006 and 2007 were $347,845, $9,253,462, and $8,265,521, respectively.
SARs activity for the year ended December 31, 2007 is as follows for all plans:
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
SARs outstanding and exercisable |
|
|
|
|
|
|
|
|
Granted and vested |
226,742 |
|
3.20 |
|
|
|
|
|
Exercised |
(57,164 |
) |
3.04 |
|
|
|
|
|
Cancelled |
(1,125 |
) |
3.39 |
|
|
|
|
|
SARs outstanding and exercisable |
|
|
|
|
|
|
|
The weighted-average grant date fair value of SARs granted was $2.03, $3.39 and $3.20 for years ended December 31, 2005, 2006 and 2007, respectively. These SARS could have been exercised for the issuance of 50,719 shares of the Company's common stock at December 31, 2007. The total intrinsic value of SARs exercised during the years ended December 31, 2006 and 2007 was $202,102 and $608,847, respectively. There were no SARs exercised during the year ended December 31, 2005.
The Company recorded $841,576 and $725,574 in compensation expense related to SARs granted for the years ended December 31, 2006 and 2007, respectively. The total income tax benefit recognized in the income statement related to SARs was $294,552 and $253,951 for 2006 and 2007, respectively.
Restricted Stock Awards. The Company issues restricted stock, at no cash cost, to directors, officers and key employees of the Company. Shares awarded entitle the shareholder to all rights of common stock ownership except that the shares may not be sold, transferred, pledged, exchanged or otherwise disposed of during the vesting period, which is generally three to five years. Dividends are paid on unvested restricted stock grants and all such dividends vest immediately.
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 9 - STOCK BASED COMPENSATION (Continued)
Restricted stock activity for the year ended December 31, 2007, is as follows:
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
Nonvested shares outstanding |
|
|
|
|
|
|
Granted |
304,118 |
|
17.46 |
|
|
|
Vested |
(131,369 |
) |
5.91 |
|
|
|
Cancelled |
(26,580 |
) |
8.54 |
|
|
|
Nonvested shares outstanding |
|
|
|
|
|
The weighted-average grant date fair value of nonvested shares granted was $4.76, $6.84 and $17.46 for years ended December 31, 2005, 2006 and 2007, respectively.
During 2005, 2006 and 2007 the Company recorded compensation expense of $76,906, $592,782 and $1,068,309, respectively, related to restricted stock awards. The total income tax benefit recognized in the income statement related to restricted stock awards was $26,917, $207,474 and $373,908 for 2005, 2006 and 2007, respectively. As of December 31, 2007, the Company had unearned stock-based compensation of $4,789,490 associated with these restricted stock grants. The unearned stock-based compensation related to these grants is being amortized to compensation expense over the applicable vesting periods.
NOTE 10 - COMMITMENTS AND CONTINGENT LIABILITIES
Under the terms of its credit agreement with its bank, the Company has the ability to issue letters of credit totaling $2,500,000. At December 31, 2007 and 2006, the Company had outstanding letters of credit totaling $200,000.
At December 31, 2007, the Company and its subsidiaries were parties, both as plaintiff and defendant, to a number of lawsuits and claims arising out of the normal course of their businesses. In the opinion of management, the financial position, future operating results or cash flows of the Company will not be materially affected by the final outcome of these legal proceedings.
The Company has repurchase agreements with third-party lending institutions, which have provided floor plan financing to customers. These agreements provide for the repurchase of products from the lending institution in the event of the customer's default. There were no significant repurchase agreements in effect as of December 31, 2007 and 2006. Historically, losses under these agreements have not been significant and it is management's opinion that any future losses will not have a material effect on the Company's financial position or future operating results and cash flows.
The Company's products generally carry limited warranties, based on terms that are generally accepted in the marketplace. Selected components included in the Company's end products (such as engines, transmissions, tires, etc.) may include manufacturers' warranties. These manufacturers' warranties are generally passed on to the end customer of the Company's products. The Company's policy is to record a provision for the estimated cost of warranty-related claims at the time of the sale and periodically adjust the provision to reflect actual experience. The amount of warranty liability accrued reflects management's best estimate of the expected future cost of honoring the Company's obligations under the warranty agreements. Historically, the cost of fulfilling the Company's warranty obligations have principally involved replacement parts, labor and sometimes travel for field retrofit campaigns. The Company's estimates for motorhomes and emergency vehicles are based on historical experience, the number of uni ts involved and the extent of features and components included in product models. Due to limited historical experience, the estimates for military vehicles are based upon experience with commercial vehicles.
Certain warranty and other related claims involve matters of dispute that ultimately are resolved by negotiation, arbitration or litigation. Infrequently, a material warranty issue can arise which is beyond the scope of the Company's historical experience. The
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 10 - COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
Company provides for any such warranty issues as they become known and are estimable. It is reasonably possible that additional warranty and other related claims could arise from disputes or other matters beyond the scope of the Company's historical experience.
Changes in the Company's warranty liability during the years ended December 31, 2007 and 2006 were as follows:
|
2007 |
|
2006 |
|
|||
|
|
|
|
|
|||
Balance of accrued warranty at January 1 |
$ |
6,380,740 |
|
$ |
4,502,772 |
|
|
|
|
|
|
|
|
|
|
Warranties issued during the period |
|
7,302,289 |
|
|
4,048,923 |
|
|
|
|
|
|
|
|
|
|
Cash settlements made during the period |
|
(7,965,485 |
) |
|
(5,015,422 |
) |
|
|
|
|
|
|
|
|
|
Changes in liability for pre-existing warranties during |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance of accrued warranty at December 31 |
$ |
10,823,532 |
|
$ |
6,380,740 |
|
NOTE 11 - SHAREHOLDERS' RIGHTS PLAN
On June 14, 2007, the Company's Board of Directors authorized the adoption of a Series B Preferred Stock Purchase Rights Plan (Rights Plan) replacing the previous plan that expired on July 7, 2007. Under the Rights Plan, a dividend distribution of one Series B Preferred Stock Purchase Right (Right) was made for each outstanding share of common stock, payable to shareholders of record on July 9, 2007. The Rights Plan is designed to protect shareholders against unsolicited attempts to acquire control of the Company in a manner that does not offer a fair price to all shareholders.
Each Right entitles shareholders to purchase one one-hundredth of a share of preferred stock from the Company at a price of $125 per share, subject to adjustment. The Rights will become exercisable ten business days after a person or group (Acquiring Person) acquires 20% or more of the Company's common stock or ten business days after an acquiring person announces a tender offer that would result in ownership of 20% or more of the Company's common stock or ten business days after the Company's Board of Directors determines, pursuant to certain criteria set forth in the Rights Agreement, that a person beneficially owning 15% or more of the outstanding shares of common stock is an "Adverse Person."
The Company's Series B Preferred Stock consists of 2,000,000 shares authorized, at no par value, none of which are issued. Shares of preferred stock are reserved at a level sufficient to permit the exercise in full of all the outstanding Rights. Each share of preferred stock purchasable upon exercise of the Rights will have a minimum preferential quarterly dividend rate of $12.50 per share but will be entitled to an aggregate dividend of 100 times the dividend declared on the shares of common stock. In the event of liquidation, the holders of preferred stock will receive a minimum preferred liquidation payment of $250 per share but will be entitled to receive an aggregate liquidation payment equal to 100 times the payment made per share of common stock. Each share of preferred stock will have 100 votes, voting together with the common stock. In the event of any merger, consolidation or other transaction in which shares of common stock are exchanged, each share of preferred stock will be entitled to receiv e 100 times the amount received per share of common stock. Under terms specified in the Rights Plan, the Company has the right to redeem the Rights at one cent per Right. The Rights will expire on July 6, 2017, unless previously redeemed or exercised.
NOTE 12 - BUSINESS SEGMENTS
The Company segregates its operations into two reportable business segments: Spartan Chassis and EVTeam. The Spartan Chassis segment is an international engineer and manufacturer of custom motor vehicle chassis. The segment's principal markets are fire truck, motorhome and specialty vehicle chassis. The Company's EVTeam consists of three subsidiaries that are manufacturers of emergency vehicle bodies. Sales in the column labeled "other" represent sales from the Spartan Chassis segment to the EVTeam segment, which are eliminated from the consolidated sales totals. Assets and related depreciation expense, along with interest expense, in the column labeled "other" pertain to capital assets and debt maintained at the corporate level. Appropriate expense amounts are allocated to the two reportable segments and are included in their reported earnings or loss from operations. Segment loss from operations in the "other" column contains the related eliminations for the allocation.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Sales and other financial information by business segment are as follows (amounts in thousands):
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 12 - BUSINESS SEGMENTS (Continued)
Year Ended December 31, 2007
|
Business Segments |
|
|
|
|
|
||||||
|
Spartan |
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Motorhome chassis sales |
$ |
217,225 |
|
|
-- |
|
|
-- |
|
$ |
217,225 |
|
Fire truck chassis sales |
|
116,236 |
|
|
-- |
|
$ |
(23,041 |
) |
|
93,195 |
|
EVTeam product sales |
|
-- |
|
$ |
89,453 |
|
|
-- |
|
|
89,453 |
|
Other sales |
|
282,049 |
|
|
-- |
|
|
-- |
|
|
282,049 |
|
Sales |
$ |
615,510 |
|
$ |
89,453 |
|
$ |
(23,041 |
) |
$ |
681,922 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
-- |
|
$ |
1,618 |
|
$ |
130 |
|
$ |
1,748 |
|
Depreciation expense |
$ |
1,796 |
|
|
1,165 |
|
|
1,102 |
|
|
4,063 |
|
Taxes (credit) on income |
|
17,824 |
|
|
(2,510 |
) |
|
(1,591 |
) |
|
13,723 |
|
Segment earnings (loss) |
|
34,815 |
|
|
(5,069 |
) |
|
(5,242 |
) |
|
24,504 |
|
Segment assets |
|
219,885 |
|
|
54,076 |
|
|
44,703 |
|
|
318,664 |
|
Year Ended December 31, 2006
|
Business Segments |
|
|
|
|
|
||||||
|
Spartan |
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Motorhome chassis sales |
$ |
204,165 |
|
|
-- |
|
|
-- |
|
$ |
204,165 |
|
Fire truck chassis sales |
|
108,302 |
|
|
-- |
|
$ |
(23,631 |
) |
|
84,671 |
|
EVTeam product sales |
|
-- |
|
$ |
77,365 |
|
|
-- |
|
|
77,365 |
|
Other sales |
|
79,177 |
|
|
-- |
|
|
-- |
|
|
79,177 |
|
Sales |
$ |
391,644 |
|
$ |
77,365 |
|
$ |
(23,631 |
) |
$ |
445,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill Impairment |
|
-- |
|
$ |
2,086 |
|
|
-- |
|
$ |
2,086 |
|
Interest expense |
$ |
1 |
|
|
942 |
|
$ |
(596 |
) |
|
347 |
|
Depreciation expense |
|
1,142 |
|
|
1,298 |
|
|
423 |
|
|
2,863 |
|
Taxes (credit) on income |
|
13,405 |
|
|
(1,853 |
) |
|
(408 |
) |
|
11,144 |
|
Segment earnings (loss) |
|
24,681 |
|
|
(5,453 |
) |
|
(2,400 |
) |
|
16,828 |
|
Segment assets |
|
123,282 |
|
|
49,941 |
|
|
17,425 |
|
|
190,648 |
|
Year Ended December 31, 2005
|
Business Segments |
|
|
|
|
|
||||||
|
Spartan |
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Motorhome chassis sales |
$ |
189,170 |
|
|
-- |
|
|
-- |
|
$ |
189,170 |
|
Fire truck chassis sales |
|
85,498 |
|
|
-- |
|
$ |
(15,946 |
) |
|
69,552 |
|
EVTeam product sales |
|
-- |
|
$ |
64,793 |
|
|
-- |
|
|
64,793 |
|
Other sales |
|
19,492 |
|
|
-- |
|
|
-- |
|
|
19,492 |
|
Sales |
$ |
294,160 |
|
$ |
64,793 |
|
$ |
(15,946 |
) |
$ |
343,007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
-- |
|
$ |
867 |
|
$ |
(726 |
) |
$ |
141 |
|
Depreciation expense |
$ |
1,040 |
|
|
1,190 |
|
|
417 |
|
|
2,647 |
|
Taxes (credit) on income |
|
7,455 |
|
|
(2,173 |
) |
|
(205 |
) |
|
5,077 |
|
Segment earnings (loss) |
|
14,498 |
|
|
(4,714 |
) |
|
(1,492 |
) |
|
8,292 |
|
Segment assets |
|
52,447 |
|
|
50,282 |
|
|
20,479 |
|
|
123,208 |
|
Foreign sales are not significant.
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 13 - QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for the year ended December 31, 2007 is as follows:
|
Quarter Ended |
|
||||||||||
|
March 31 |
|
June 30 |
|
September 30 |
|
December 31 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
$ |
142,882,064 |
|
$ |
152,582,845 |
|
$ |
148,890,919 |
|
$ |
237,566,647 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
$ |
24,691,559 |
|
$ |
24,012,682 |
|
$ |
17,574,627 |
|
$ |
30,222,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
$ |
7,206,740 |
|
$ |
6,515,502 |
|
$ |
2,570,468 |
|
$ |
8,211,567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net earnings per share |
$ |
0.23 |
|
$ |
0.20 |
|
$ |
0.08 |
|
$ |
0.26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net earnings per share |
$ |
0.22 |
|
$ |
0.20 |
|
$ |
0.08 |
|
$ |
0.25 |
|
Summarized quarterly financial data for the year ended December 31, 2006 is as follows:
|
Quarter Ended |
|
||||||||||
|
March 31 |
|
June 30 |
|
September 30 |
|
December 31 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
$ |
103,665,931 |
|
$ |
109,227,185 |
|
$ |
108,876,342 |
|
$ |
123,608,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
$ |
16,767,642 |
|
$ |
18,673,924 |
|
$ |
17,166,646 |
|
$ |
20,767,761 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
$ |
4,481,481 |
|
$ |
4,992,797 |
|
$ |
4,073,877 |
|
$ |
3,280,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net earnings per share |
$ |
0.16 |
|
$ |
0.17 |
|
$ |
0.14 |
|
$ |
0.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net earnings per share |
$ |
0.15 |
|
$ |
0.17 |
|
$ |
0.13 |
|
$ |
0.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the three month period ended December 31, 2006 the Company recorded a goodwill impairment charge related to its EVTeam segment totaling $2,086,394 as a charge against operating income.
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Spartan Motors, Inc.
Charlotte, Michigan
We have audited the accompanying consolidated balance sheet of Spartan Motors, Inc. as of December 31, 2007 and the related consolidated statements of income, shareholders' equity and cash flows for the year ended December 31, 2007. In connection with our audit of the financial statements, we have also audited the 2007 information in the financial statement schedule as listed in the index at Item 15(a)(2). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Spartan Motors, Inc. as of December 31, 2007, and the results of its operations and its cash flows for the year ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the 2007 information in the financial statement schedule referred to above, when considered in relation to the basic 2007 consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, in 2007, the Company changed its method of accounting for uncertain tax positions with the required adoption of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Spartan Motors, Inc.'s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 10, 2008 expressed an unqualified opinion thereon.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Grand Rapids, Michigan
March 10, 2008
Report of Independent Registered Public Accounting Firm
On Internal Control Over Financial Reporting
Board of Directors and Shareholders
Spartan Motors, Inc.
Charlotte, Michigan
We have audited Spartan Motors, Inc.'s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Spartan Motors, Inc.'s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company' s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Spartan Motors, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Spartan Motors, Inc. as of December 31, 2007 and the related consolidated statements of income, shareholders' equity and cash flows for the year ended December 31, 2007 and our report dated March 10, 2008 expressed an unqualified opinion thereon.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Grand Rapids, Michigan
March 10, 2008
Report of Predecessor Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Spartan Motors, Inc.
We have audited the accompanying consolidated balance sheet of Spartan Motors, Inc. and subsidiaries as of December 31, 2006, and the related consolidated statements of income, shareholders' equity and cash flows for each of the two years in the period ended December 31, 2006. Our audits also included the financial statement schedule, as of and for the year ended December 31, 2006 and 2005, listed in the Index at Item 15(a)(2). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Spartan Motors, Inc. and subsidiaries at December 31, 2006, and the consolidated results of their operations and their cash flows for each of the two years in the period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, in 2006 the Company changed its method of accounting for share-based payments in connection with the required adoption of Statement of Financial Accounting Standards No. 123(R).
|
/s/ Ernst & Young LLP |
Grand Rapids, Michigan
March 2, 2007
Item 9. |
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. |
We previously reported a change in our registered public accounting firm from Ernst & Young, LLP to BDO Seidman, LLP. On March 29, 2007, we filed a report on Form 8-K with the Securities and Exchange Commission reporting the change of accountants and making related disclosures.
Item 9A. |
Controls and Procedures. |
Evaluation of Disclosure Controls and Procedures.
An evaluation was performed under the supervision and with the participation of the Company's Management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of December 31, 2007. Based on and as of the time of such evaluation, the Company's management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed by us in the reports that we file or submit is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to the our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure
Management's Report on Internal Control Over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2007, based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation our management concluded that our internal control over financial reporting was effective as of December 31, 2007. Our effectiveness of our internal control over financial reporting as of December 31, 2007, has been audited by BDO Seidman, LLP, an independent registered public accounting firm, as stated in its attestation report, which is included in Item 8 and is incorporated into this Item 9A by refer ence.
Changes in Internal Control Over Financial Reporting.
There was no change in the Company's internal control over financial reporting that occurred during the fiscal quarter ended December 31, 2007 that has materially affected, or that is reasonably likely to materially affect, the Company's internal control over financial reporting.
Item 9B. |
Other Information. |
None.
PART III
Item 10. |
Directors, Executive Officers, and Corporate Governance. |
The information required by this item, with respect to directors, executive officers, audit committee, and audit committee financial experts of the Company and Section 16(a) beneficial ownership reporting compliance is contained under the captions "Spartan Motors' Board of Directors and Executive Officers," "Audit Committee Report" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's definitive proxy statement for its annual meeting of shareholders to be held on May 21, 2008, to be filed with the Securities and Exchange Commission no later than 120 days after December 31, 2007, and is incorporated herein by reference.
The Company has adopted a Code of Ethics that applies to the Company's principal executive officer, principal financial officer and principal accounting officer. This Code of Ethics is posted on the "Corporate Information" section of the Company's website at www.spartanmotors.com. The Company has also adopted a Code of Business Conduct and Compliance applicable to all directors, officers and associates, which is posted on the "About Spartan" section of the Company's website at www.spartanmotors.com. Any waiver from or amendment to a provision of either code will be disclosed on the Company's website.
Item 11. |
Executive Compensation. |
The information required by this item is contained under the captions "Compensation Discussion and Analysis," "Compensation of Directors," "Executive Compensation," "Compensation Committee Report" and "Compensation Committee Interlocks and Insider Participation" in the Company's definitive proxy statement for its annual meeting of shareholders to be held on May 21, 2008, to be filed with the Securities and Exchange Commission no later than 120 days after December 31, 2007, and is incorporated herein by reference.
Item 12. |
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters. |
The information required by this item (other than that set forth below) is contained under the caption "Ownership of Spartan Motors Stock" in for the Company's definitive proxy statement for its annual meeting of shareholders to be held on May 21, 2008, to be filed with the Securities and Exchange Commission no later than 120 days after December 31, 2007, and is incorporated herein by reference.
The following table provides information about the Company's equity compensation plans regarding the number of securities to be issued under these plans, the weighted-average exercise prices of options outstanding under these plans and the number of securities available for future issuance as of December 31, 2007.
Equity Compensation Plan Information
|
Number of securities to |
Weighted average |
|
|
|
(a) |
(b) |
(c) |
|
Equity compensation plans |
|
|
|
|
Equity compensation plans not |
|
|
|
|
Total |
1,475,000 |
$5.67 |
1,760,000 |
|
(1) |
Consists of the Spartan Motors, Inc. Stock Incentive Plan of 2007 (the "2007 Plan"), Spartan Motors, Inc. Stock Incentive Plan of 2005 (the "2005 Plan"), the Spartan Motors, Inc. Stock Option and Restricted Stock Plan of 2003 (the "2003 Plan"), the Spartan Motors, Inc. Stock Option and Restricted Stock Plan of 1998 (the "1998 Plan"), the Spartan Motors, Inc. 1996 Stock Option and Restricted Stock Plan for Outside Market Advisors (the "1996 Plan") and the Spartan Motors, Inc. 1994 Incentive Stock Option Plan (the "1994 Plan"). |
|
|
(2) |
Consists of the Spartan Motors, Inc. Directors' Stock Purchase Plan. This plan provides that non-employee directors of the Company may elect to receive at least 25% and up to 100% of their "director's fees" in the form of the Company's common stock. The term "director's fees" means the amount of income payable to a non-employee director for his or her service as a director of the Company, including payments for attendance at meetings of the Company's Board of Directors or meetings of committees of the board, and any retainer fee paid to such persons as members of the board. A non-employee director who elects to receive Company common stock in lieu of some or all of his or her director's fees will, on or shortly after each "applicable date," receive a number of shares of common stock (rounded down to the nearest whole share) determined by dividing (1) the dollar amount of the director's fees payable to him or her on the applicable date that he or she has elected to receive in common stock by ( 2) the market value of common stock on the applicable date. The term "applicable date" means any date on which a director's fee is payable to the participant. To date, no shares have been issued under this plan. |
|
|
(3) |
Each of the plans reflected in the above chart contains customary anti-dilution provisions that are applicable in the event of a stock split or certain other changes in the Company's capitalization. Furthermore, each of the 2007 Plan, the 2005 Plan, the 2003 Plan, the 1998 Plan, the 1996 Plan, the 1994 Plan and the 1988 Plan provides that if a stock option is canceled, surrendered, modified, expires or is terminated during the term of the plan but before the exercise of the option, the shares subject to the option will be available for other awards under the plan. |
|
|
|
The numbers of shares reflected in column (c) in the table above with respect to the 2007 Plan (1,350,000 shares), the 2005 Plan (328,726 shares), the 2003 Plan (29,189 shares) and the 1998 Plan (27,510 shares) represent shares that may be issued other than upon the exercise of an option, warrant or right. |
Item 13. |
Certain Relationships and Related Transactions, and Director Independence. |
The information required by this item is contained under the captions "Transactions with Related Persons" and "Spartan Motors' Board of Directors and Executive Officers" in the Company's definitive proxy statement for its annual meeting of shareholders to be held on May 21, 2008, to be filed with the Securities and Exchange Commission no later than 120 days after December 31, 2007, and is incorporated herein by reference.
Item 14. |
Principal Accountant Fees and Services. |
The information required by this item is contained under the caption "Independent Auditor Fees" in the Company's definitive proxy statement for its annual meeting of shareholders to be held on May 21, 2008, to be filed with the Securities and Exchange Commission no later than 120 days after December 31, 2007, and is incorporated herein by reference.
PART IV
Item 15. |
Exhibits, Financial Statement Schedules. |
|
Item 15(a)(1). |
List of Financial Statements. |
The following consolidated financial statements of the Company and its subsidiaries are filed as a part of this report under Item 8 - Financial Statements and Supplementary Data:
|
Consolidated Balance Sheets - December 31, 2007 and December 31, 2006 |
|
|
|
Consolidated Statements of Income - Years Ended December 31, 2007, 2006, and 2005 |
|
|
|
Consolidated Statements of Shareholders' Equity - Years Ended December 31, 2007, 2006 and 2005 |
|
|
|
Consolidated Statements of Cash Flows - Years Ended December 31, 2007, 2006 and 2005 |
|
|
|
Notes to Consolidated Financial Statements - December 31, 2007 |
|
|
|
Independent Registered Public Accounting Firms' Reports on Consolidated Financial Statements - Years Ended December 31, 2007, 2006 and 2005 |
|
|
|
Independent Registered Public Accounting Firm's Report on Internal Controls - December 31, 2007 |
|
|
|
Item 15(a)(2). |
Financial Statement Schedules. Attached as Appendix A. |
The following consolidated financial statement schedule of the Company and its subsidiaries is filed as part of this report:
|
Schedule II-Valuation and Qualifying Accounts |
All other financial statement schedules are not required under the related instructions or are inapplicable and therefore have been omitted.
|
Item 15(a)(3). |
List of Exhibits. The following exhibits are filed as a part of this report: |
Exhibit |
|
|
|
|
|
3.1 |
|
Spartan Motors, Inc. Restated Articles of Incorporation, as amended to date. Previously filed as an exhibit to the Company's Form 10-Q Quarterly Report for the period ended March 31, 2005, and incorporated herein by reference. |
|
|
|
3.2 |
|
Spartan Motors, Inc. Bylaws, as amended to date. Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2003, and incorporated herein by reference. |
|
|
|
4.1 |
|
Spartan Motors, Inc. Restated Articles of Incorporation. See Exhibit 3.1 above. |
|
|
|
4.2 |
|
Spartan Motors, Inc. Bylaws. See Exhibit 3.2 above. |
|
|
|
4.3 |
|
Form of Stock Certificate. Previously filed as an exhibit to the Registration Statement on Form S-18 (Registration No. 2-90021-C) filed on March 19, 1984, and incorporated herein by reference. |
|
|
|
4.4 |
|
Rights Agreement dated July 7, 2007, between Spartan Motors, Inc. and American Stock Transfer and Trust Company, which includes the form of Certificate of Designation, Preferences and Rights of Series B Preferred Stock as Exhibit A, the form of Rights Certificate as Exhibit B and the Summary of Rights to Purchase Series B Preferred Stock as Exhibit C. Previously filed as Exhibit 1 to the Company's Form 8-A filed on July 10, 2007, and incorporated herein by reference. |
|
|
|
4.5 |
|
The Registrant has several classes of long-term debt instruments outstanding. The authorized amount of none of these classes of debt exceeds 10% of the Company's total consolidated assets. The Company agrees to furnish copies of any agreement defining the rights of holders of any such long-term indebtedness to the Securities and Exchange Commission upon request. |
|
|
|
10.1 |
|
Restated Spartan Motors, Inc. 1988 Non-Qualified Stock Option Plan, as amended to date.* |
|
|
|
10.2 |
|
Restated Spartan Motors, Inc. 1994 Incentive Stock Option Plan, as amended to date.* |
|
|
|
10.3 |
|
Spartan Motors, Inc. 1996 Stock Option and Restricted Stock Plan for Outside Market Advisors, as amended. Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the period ended December 31, 2005, and incorporated herein by reference.* |
|
|
|
10.4 |
|
Spartan Motors, Inc. Stock Option and Restricted Stock Plan of 1998, as amended. Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the period ended December 31, 2005, and incorporated herein by reference.* |
|
|
|
10.5 |
|
Spartan Motors, Inc. Stock Option and Restricted Stock Plan of 2003, as amended. Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the period ended December 31, 2005, and incorporated herein by reference.* |
|
|
|
10.6 |
|
Spartan Motors, Inc. Stock Incentive Plan of 2005, as amended. Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 2005, and incorporated herein by reference.* |
|
|
|
10.7 |
|
Spartan Motors, Inc. Stock Incentive Plan of 2007, as amended. Previously filed as Appendix A to the Company's 2007 Proxy Statement filed April 23, 2007 and incorporated herein by reference.* |
10.8 |
|
Spartan Motors, Inc. Spartan Profit and Return Management Incentive Bonus Plan. Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the period ended December 31, 2005, and incorporated herein by reference.* |
|
|
|
10.9 |
|
Spartan Motors, Inc. Directors' Stock Purchase Plan. Previously filed as an exhibit to the Company's Form S-8 Registration Statement (Registration No. 333-98083) filed on August 14, 2002, and incorporated herein by reference.* |
|
|
|
10.10 |
|
Form of Stock Appreciation Rights Agreement.* |
|
|
|
10.12 |
|
Form of Restricted Stock Agreement. Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the period ended December 31, 2005 and incorporated herein by reference.* |
|
|
|
10.13 |
|
Form of Indemnification Agreement. Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the period ended December 31, 2005, and incorporated herein by reference.* |
|
|
|
10.14 |
|
Supplemental Executive Retirement Plan.* |
|
|
|
10.15 |
|
Note Purchase and Private Shelf Agreement with Prudential Management, Inc. Previously filed as an exhibit to the Company's Current Report on Form 8-K filed December 4, 2007 and incorporated herein by reference. |
|
|
|
16.1 |
|
Letter dated March 28, 2007 from Ernst & Young LLP to the Securities and Exchange Commission regarding a change in the Company's certifying accountant. Previously filed as an exhibit to the Company's Current Report on Form 8-K filed March 29, 2007 and incorporated herein by reference. |
|
|
|
21 |
|
Subsidiaries of Registrant. |
|
|
|
23.1 |
|
Consent of BDO Seidman, LLP, Independent Registered Public Accounting firm. |
|
|
|
23.2 |
|
Consent of Ernst & Young LLP, Independent Registered Public Accounting firm. |
|
|
|
24 |
|
Limited Powers of Attorney. |
|
|
|
31.1 |
|
Certification of President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act. |
|
|
|
31.2 |
|
Certification of Chief Financial Officer, Secretary and Treasurer pursuant to Section 302 of the Sarbanes-Oxley Act. |
|
|
|
32 |
|
Certification pursuant to 18 U.S.C. § 1350. |
_________________________
*Management contract or compensatory plan or arrangement.
The Company will furnish a copy of any exhibit listed above to any shareholder of the Company without charge upon written request to James W. Knapp, Chief Financial Officer, Spartan Motors, Inc., 1000 Reynolds Road, Charlotte, Michigan 48813.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
SPARTAN MOTORS, INC. |
|
|
|
|
|
|
|
March 14, 2008 |
By |
/s/ James W. Knapp |
|
|
James W. Knapp |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
March 14, 2008 |
By |
/s/ John E. Sztykiel |
|
|
John E. Sztykiel, Director, President and Chief |
|
|
|
March 14, 2008 |
By |
/s/ James W. Knapp |
|
|
James W. Knapp |
|
|
|
March 14, 2008 |
By |
/s/ Richard J. Schalter |
|
|
Richard J. Schalter, Director |
|
|
|
|
|
|
March 14, 2008 |
By |
/s/ William F. Foster |
|
|
William F. Foster, Director |
|
|
|
|
|
|
March 14, 2008 |
By |
* /s/ George Tesseris |
|
|
George Tesseris, Director |
|
|
|
|
|
|
March 14, 2008 |
By |
* /s/ David R. Wilson |
|
|
David R. Wilson, Director |
|
|
|
|
|
|
March 14, 2008 |
By |
* /s/ Charles E. Nihart |
|
|
Charles E. Nihart, Director |
|
|
|
|
|
|
March 14, 2008 |
By |
* /s/ Hugh W. Sloan |
|
|
Hugh W. Sloan, Director |
|
|
|
|
|
|
March 14, 2008 |
By |
* /s/ Kenneth Kaczmarek |
|
|
Kenneth Kaczmarek, Director |
|
|
|
|
|
|
March 14, 2008 |
*By |
/s/ James W. Knapp |
|
|
James W. Knapp |
APPENDIX A SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
SPARTAN MOTORS, INC. AND SUBSIDIARIES
Column A |
|
Column B |
|
Column C |
|
Column D |
|
Column E |
|||||||
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
Additions |
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
373,000 |
|
$ |
1,062,031 |
|
$ |
-- |
|
$ |
633,031 |
|
$ |
802,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obsolescence and slow-moving |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued warranty |
|
|
6,380,740 |
|
|
12,408,277 |
|
|
-- |
|
|
7,965,485 |
|
|
10,823,532 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance for deferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
202,000 |
|
$ |
219,494 |
|
$ |
-- |
|
$ |
48,494 |
|
$ |
373,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obsolescence and slow-moving |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued warranty |
|
|
4,502,772 |
|
|
6,893,390 |
|
|
-- |
|
|
5,015,422 |
|
|
6,380,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance for deferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2005: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
400,000 |
|
$ |
(77,959 |
) |
$ |
-- |
|
$ |
120,041 |
|
$ |
202,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obsolescence and slow-moving |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued warranty |
|
|
3,670,761 |
|
|
4,645,181 |
|
|
-- |
|
|
3,813,170 |
|
|
4,502,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance for deferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXHIBIT INDEX
Exhibit |
|
|
|
|
|
3.1 |
|
Spartan Motors, Inc. Restated Articles of Incorporation, as amended to date. Previously filed as an exhibit to the Company's Form 10-Q Quarterly Report for the period ended March 31, 2005, and incorporated herein by reference. |
|
|
|
3.2 |
|
Spartan Motors, Inc. Bylaws, as amended to date. Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2003, and incorporated herein by reference. |
|
|
|
4.1 |
|
Spartan Motors, Inc. Restated Articles of Incorporation. See Exhibit 3.1 above. |
|
|
|
4.2 |
|
Spartan Motors, Inc. Bylaws. See Exhibit 3.2 above. |
|
|
|
4.3 |
|
Form of Stock Certificate. Previously filed as an exhibit to the Registration Statement on Form S-18 (Registration No. 2-90021-C) filed on March 19, 1984, and incorporated herein by reference. |
|
|
|
4.4 |
|
Rights Agreement dated July 7, 2007, between Spartan Motors, Inc. and American Stock Transfer and Trust Company, which includes the form of Certificate of Designation, Preferences and Rights of Series B Preferred Stock as Exhibit A, the form of Rights Certificate as Exhibit B and the Summary of Rights to Purchase Series B Preferred Stock as Exhibit C. Previously filed as Exhibit 1 to the Company's Form 8-A filed on July 10, 2007, and incorporated herein by reference. |
|
|
|
4.5 |
|
The Registrant has several classes of long-term debt instruments outstanding. The authorized amount of none of these classes of debt exceeds 10% of the Company's total consolidated assets. The Company agrees to furnish copies of any agreement defining the rights of holders of any such long-term indebtedness to the Securities and Exchange Commission upon request. |
|
|
|
10.1 |
|
Restated Spartan Motors, Inc. 1988 Non-Qualified Stock Option Plan, as amended to date.* |
|
|
|
10.2 |
|
Restated Spartan Motors, Inc. 1994 Incentive Stock Option Plan, as amended to date.* |
|
|
|
10.3 |
|
Spartan Motors, Inc. 1996 Stock Option and Restricted Stock Plan for Outside Market Advisors, as amended. Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the period ended December 31, 2005, and incorporated herein by reference.* |
|
|
|
10.4 |
|
Spartan Motors, Inc. Stock Option and Restricted Stock Plan of 1998, as amended. Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the period ended December 31, 2005, and incorporated herein by reference.* |
|
|
|
10.5 |
|
Spartan Motors, Inc. Stock Option and Restricted Stock Plan of 2003, as amended. Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the period ended December 31, 2005, and incorporated herein by reference.* |
|
|
|
10.6 |
|
Spartan Motors, Inc. Stock Incentive Plan of 2005, as amended. Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 2005, and incorporated herein by reference.* |
|
|
|
10.7 |
|
Spartan Motors, Inc. Stock Incentive Plan of 2007, as amended. Previously filed as Appendix A to the Company's 2007 Proxy Statement filed April 23, 2007 and incorporated herein by reference.* |
|
|
|
10.8 |
|
Spartan Motors, Inc. Spartan Profit and Return Management Incentive Bonus Plan. Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the period ended December 31, 2005, and incorporated herein by reference.* |
10.9 |
|
Spartan Motors, Inc. Directors' Stock Purchase Plan. Previously filed as an exhibit to the Company's Form S-8 Registration Statement (Registration No. 333-98083) filed on August 14, 2002, and incorporated herein by reference.* |
|
|
|
10.10 |
|
Form of Stock Appreciation Rights Agreement.* |
|
|
|
10.12 |
|
Form of Restricted Stock Agreement. Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the period ended December 31, 2005 and incorporated herein by reference.* |
|
|
|
10.13 |
|
Form of Indemnification Agreement. Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the period ended December 31, 2005, and incorporated herein by reference.* |
|
|
|
10.14 |
|
Supplemental Executive Retirement Plan.* |
|
|
|
10.15 |
|
Note Purchase and Private Shelf Agreement with Prudential Management, Inc. Previously filed as an exhibit to the Company's Current Report on Form 8-K filed December 4, 2007 and incorporated herein by reference. |
|
|
|
16.1 |
|
Letter dated March 28, 2007 from Ernst & Young LLP to the Securities and Exchange Commission regarding a change in the Company's certifying accountant. Previously filed as an exhibit to the Company's Current Report on Form 8-K filed March 29, 2007 and incorporated herein by reference. |
|
|
|
21 |
|
Subsidiaries of Registrant. |
|
|
|
23.1 |
|
Consent of BDO Seidman, LLP, Independent Registered Public Accounting firm. |
|
|
|
23.2 |
|
Consent of Ernst & Young LLP, Independent Registered Public Accounting firm. |
|
|
|
24 |
|
Limited Powers of Attorney. |
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31.1 |
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Certification of President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act. |
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31.2 |
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Certification of Chief Financial Officer, Secretary and Treasurer pursuant to Section 302 of the Sarbanes-Oxley Act. |
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32 |
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Certification pursuant to 18 U.S.C. § 1350. |
_________________________
*Management contract or compensatory plan or arrangement.
EXHIBIT 10.1
SPARTAN MOTORS, INC.
1988 NONQUALIFIED STOCK OPTION PLAN
1. Purpose. The 1988 Nonqualified Stock Option Plan (the "Plan") is intended to advance the interest of Spartan Motors, Inc. (the "Company"), its shareholders, and its subsidiaries by encouraging and enabling selected officers, directors and other key employees upon whose judgment, initiative and effort the Company is largely dependent for the successful conduct of its business, to acquire and retain a proprietary interest in the Company by ownership of its stock. Options granted under the Plan are intended to be options which do not meet the requirements of Section 422A of the Internal Revenue Code of 1986, as amended (the "Code").
2. Definitions.
(a) "Board" means the Board of Directors of the Company.
(b) "Committee" means the body administering the Plan.
(c) "Common Stock" means the company's Common Stock, $.01 par value.
(d) "Date of Grant" means the date on which an option is granted under the Plan.
(e) "Option" means an option granted under the Plan.
(f) "Optionee" means a person to whom an option, which has not expired, has been granted under the Plan.
(g) "Subsidiary" or "Subsidiaries" means a subsidiary corporation or corporations of the Company as defined in Section 425 of the Code.
(h) "Successor" means the legal representative of the estate of a deceased optionee or the person or persons who acquire the right to exercise an option by bequest or inheritance or by reason of the death of any optionee.
(i) "Tax Benefit Right" means any right granted to a Participant under Paragraph 8 of the Plan;
3. Administration of the Plan. The Plan shall be administered by a committee appointed by the Board (the "Committee"). The Committee shall report all action taken by it to the Board. Options to directors who are not employees of the Company may be granted only pursuant to subparagraph (a) of paragraph 6 of the Plan. The Committee shall have full and final authority in its discretion, subject to the provisions of the Plan and in particular to the provisions of subparagraph (a) of paragraph 6, to determine the employees to whom and the time or times at which options shall be granted and the number of shares and purchase price of Common Stock covered by each option; to construe and interpret the Plan; to determine the terms and provisions of the respective option agreements, which need not be identical, including, but without limitation, terms covering the payment of the option price; and to make all other d eterminations and take all other actions deemed necessary or advisable for the proper administration of the Plan. All such actions and determinations shall be conclusively binding for all purposes and upon all persons.
4. Common Stock Subject to Options. The aggregate number of shares of the Company's Common Stock which may be issued upon the exercise of options granted under the Plan shall not exceed 400,000 (900,000 as adjusted through June 5, 1996), subject to adjustment under the provisions of paragraph 7. The shares of Common Stock to be issued upon the exercise of options may be authorized but unissued shares, shares issued and reacquired by the Company, or shares bought on the market for the purposes of the Plan. In the event any option shall, for any reason, terminate or expire or be surrendered without having been exercised in full, the shares
subject to such option but not purchased thereunder shall again be available for options to be granted under the Plan. Subject to adjustments under paragraph 7, options for no more than 16,000 shares (36,000 as adjusted through June 5, 1996), may be granted under this or any other Plan of the Company to any one person in any calendar year.
5. Participants. Options and tax benefit rights may be granted under the Plan to: (a) any person who is an officer or employee (including officers and employees who are directors) of the Company or any of its subsidiaries; and (b) directors of the Company who are not employees of the Company only as provided in subparagraph (a) of paragraph 6 of the Plan.
6. Terms and Conditions of Options. Any option granted under the Plan shall be evidenced by an agreement executed by the Company and the applicable director, officer, or employee and shall contain such terms and be in such form as the Committee may from time to time approve, consistent with the terms of the Plan and specifically subject to the following limitations and conditions.
(a) Non-Employee Director Options. Subject to adjustment as provided in paragraph 7, an option to purchase 3,500 shares of Common stock shall be granted automatically on June 30 and December 31, of each year, to each director of the Company who is not an employee of the Company or any of its subsidiaries. Stock options awarded under this paragraph shall be subject to such terms and conditions, consistent with the other provisions of the Plan, as may be determined by the Committee in its sole discretion. The per share price of each option awarded pursuant to this paragraph shall be 100 percent of: (i) if Common Stock is not then listed and traded on a recognized securities exchange, the mean of the bid and asked quotations for Common Stock on the Date of Grant (as reported by a recognized stock quotation service) or, if there is no bid or asked quotation on the Date of Grant, the mean of the bid and asked quotatio ns on the date nearest preceding the Date of Grant; or (ii) if Common Stock is then listed and traded on a recognized securities exchange, the mean of the highest and lowest sales prices at which shares of Common Stock were traded on that exchange on the Date of Grant or, if Common Stock was not traded on the Date of Grant, the mean of such prices on the date nearest preceding the Date of Grant. The exercise price for each share purchased pursuant to an option granted under the Plan shall be payable in cash or in shares of Common Stock (including Common Stock to be received upon a simultaneous exercise) or other consideration substantially equivalent to cash. When appropriate arrangements are made with a broker or other institution, payment may be made by a properly executed exercise notice directing delivery of shares to a broker, together with irrevocable instructions to the broker to deliver promptly to the Company the amount of sale or loan proceeds to pay the exercise price. Except as provided in thi s subparagraph, no director who is not an employee of the Company or any other person shall have any claim to be granted any option under the Plan. Nothing in the Plan shall prevent the Company from adopting or continuing in effect other or additional compensation arrangements. The grant of an option under the Plan shall not be considered to give a director the right to be retained as a director of the Company or to continue as a director of the Company.
(b) Option Price. Other than for awards to directors who are not employees of the Company or any of its subsidiaries, the per share price of each option awarded pursuant to the Plan shall be determined by the Committee but shall not be less than 85 percent of the fair market value of a share of Common Stock on the Date of Grant. For purposes of this subparagraph, fair market value shall be as determined by the Committee and that determination shall be binding on the Company and the Optionee. The Committee may base that determination on: (i) if Common Stock is not then listed and traded on a recognized securities exchange, the mean of the bid and asked quotations for Common Stock on the Date of Grant (as reported by a recognized stock quotation service) or, if there is no bid or asked quotation on the Date of Grant, the mean of the bid and asked quotations on the date nearest preceding the Date of Grant; (ii) if Common St
ock
(c) Option Period. The expiration date of each option shall be fixed by the Committee, but, notwithstanding any provision of the Plan to the contrary, such expiration date shall be more than ten (10) years from the Date of Grant.
(d) Vesting of Shareholder Rights. Neither an Optionee nor his successor shall have any of the rights of a shareholder of the Company until the certificates evidencing the shares purchased are properly delivered to such Optionee or his successor.
(e) Exercise of Option. Each option shall be exercisable from time to time over a period beginning on the Date of Grant and ending upon the expiration or termination of the option; provided that the Committee may, by the provisions of any option agreement, limit the number of shares that may be purchased pursuant to an option in any period or periods of time during which the option is exercisable. An option shall not be exercisable in whole or in part prior to the date of shareholder approval of the Plan.
  (f)   Nontransferability of Option. No option shall be transferable or assignable by an Optionee, other than by will or the laws of descent and distribution, and each option shall be exercisable during the Optionee's lifetime only by him. No option shall be pledged or hypothecated in any way and no option shall be subject to execution, attachment, or similar process except with the express consent of the Committee.
  (g)   Termination of Employment or Directorship. Unless the Committee otherwise consents, upon termination of an Optionee's employment or association with the Company or with any of its subsidiaries, his option privileges shall be limited to the shares which were immediately purchasable by him at the date of such termination and such option privileges shall expire unless exercised by him within 90 days after the date of such termination. The award of an option to any participant shall not alter in any way the Company's or the relevant subsidiary's rights to terminate the Optionee's employment or directorship at any time for any reason, nor shall it confer upon an Optionee any rights or privileges except as specifically provided in the Plan.
(h) Death of Optionee. If an Optionee dies while in the employ of the Company or any of its subsidiaries or while serving as a director of the Company, the Optionee's successor in interest may purchase only those for which options were exercisable at the date of death and such options shall expire unless exercised by the successor within one year of the date of death.
7. Adjustments.
(a) In the event that the outstanding shares of Common Stock of the Company are hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company or of another corporation, by reason of a recapitalization, reclassification, stock split-up, combination of shares, or dividend or other distribution payable in capital stock, appropriate adjustment shall be made by the Committee in the number and kind of shares for the purchase of which options may be granted under the Plan. In addition, the Committee shall make appropriate adjustment in the number and kind of shares as to which outstanding options, or portions thereof then unexercised, shall be exercisable, to the end that the proportionate interest of the holder of the option shall, to the extent practicable, be maintained as before the
(b) In the event of the dissolution or liquidation of the Company, any option granted under the Plan shall terminate as of a date to be fixed by the Committee, provided that not less than 30 days' written notice of the date so fixed shall be given to each optionee and each such optionee shall have the right during such period to exercise his option as to all or any part of the shares covered thereby including shares as to which such option would not otherwise be exercisable by reason of an insufficient lapse of time.
(c) In the event of a Reorganization (as hereinafter defined) in which the company is not the surviving or acquiring company, or in which the Company is or becomes a wholly-owned subsidiary of another company after the effective date of the Reorganization, then the committee shall adjust the shares under such outstanding and unexercised stock options (and shall adjust the shares remaining under the Plan which are then available to the Option under the Plan) in a manner not inconsistent with the provisions of the Reorganization Agreement for the adjustment, change, conversion, or exchange of such stock and such options.
The term "Reorganization" as used in this subparagraph (c) of this paragraph 7 shall mean any statutory merger, statutory consolidation, sale of all or substantially all of the assets of the Company, or sale, pursuant to an agreement with the Company, or securities of the Company pursuant to which the Company is or becomes a wholly-owned subsidiary of another company after the effective date of the Reorganization.
(d) Adjustments and determinations under this paragraph 7 shall be made by the Committee, whose decisions as to what adjustments or determinations shall be made, and the extent thereof, shall be final, binding, and conclusive.
8. Tax Benefit Rights. A Participant may be granted Tax Benefit Rights under the Plan to encourage a Participant to exercise Options and provide certain tax benefits to the Company.
(a) Grant. A Tax Benefit Right entitles a Participant to receive from the Company or a Subsidiary a cash payment not to exceed the amount calculated by multiplying the ordinary income, if any, realized by the Participant for federal tax purposes as a result of the exercise of a nonqualified stock option by the maximum federal income tax rate (including any surtax or similar charge or assessment) for corporations, plus the applicable state and local tax imposed on the exercise of the Option.
(b) Restrictions. A Tax Benefit Right may be granted only with respect to a stock option issued and outstanding or to be issued under the Plan or any other plan of the Company or its Subsidiaries that has been approved by the shareholders as of the date of the Plan and may be granted concurrently with or after the grant of the stock option. Such rights with respect to outstanding incentive stock options under Section 422 of the Code shall be issued only with the consent of the Participant if the effect would change the date of grant or the exercise price, or otherwise impair the Participant's existing stock options. A stock option to which a Tax Benefit Right has been attached shall not be exercisable by an officer or employee subject to Section 16 of the Securities Exchange Act of 1934 for a period of six months from the date of the grant of the option.
(c) Terms and Conditions. The Committee shall determine the terms and conditions of any Tax Benefit Rights granted and the Participants to whom such rights will be granted with respect to stock options under the Plan or any
9. Restrictions on Issuing Shares.
(a) Withholding. The Company or a subsidiary shall be entitled to (a) withhold and deduct from future wages of a Participant (or from other amounts that may be due and owing to a Participant from the Company or the subsidiary), or make other arrangements for the collection of, all legally required amounts necessary to satisfy any and all federal, state and local withholding and employment-related tax requirements attributable to an Option including, without limitation, the grant, exercise or vesting of, or payment of dividends with respect to, an Option; or (b) require a Participant promptly to remit the amount of such withholding to the Company before taking any action with respect to an Option. Unless the Committee determines otherwise, withholding may be satisfied by withholding Common Stock to be received upon exercise or by delivery to the Company of previously owned Common Stock. The Company may establish such rules and p rocedures concerning timing of any withholding election as it deems appropriate to comply with Rule 16b-3 under the Act.
(b) Compliance With Laws; Listing and Registration of Shares. All Options granted under the Plan (and all issuances of Common Stock or other securities under the Plan) shall be subject to applicable laws, rules and regulations, and to the requirement that if at any time the Committee determines, in its sole discretion, that the listing, registration or qualification of the shares covered thereby upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such Option or the issue or purchase of shares thereunder, such Option may not be exercised in whole or in part, or the restrictions on such Option shall not lapse, unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained f ree of any conditions not acceptable to the Committee.
10. Use of Proceeds. The proceeds received by the Company from the sale of Common Stock pursuant to the exercise of options granted under the Plan shall be added to the Company's general funds and used for general corporate purposes.
11. Amendment, Suspension and Termination of Plan. The Board may at any time suspend or terminate the Plan. The Board may amend the Plan from time to time in such respects as the Board may deem advisable for the options granted under the Plan to conform to any changes in law or any other respect which the Board may deem to be in the best interests of the Company; provided, that: (a) the provisions of subparagraph (a) of paragraph 6 may not be amended more than once every six months, other than to conform to changes in the Internal Revenue Code of 1986, as amended, the Employee Retirement Income Security Act of 1974, as amended, or the rules issued under either of such statutes; and (b) without approval of the shareholders of the Company representing a majority of the voting power, no such amendment shall (i) except as specified in paragraph 7, increase the maximum number of shares for which opt
ions may be granted under the Plan, (ii) change the provisions of subparagraph (b) of paragraph 6 relating to the establishment of the option price, (iii) change the provisions of subparagraph (c) of paragraph 6 relating to the expiration date of each option, or (iv) change the provisions of the third sentence of this paragraph 11 relating to the term of the Plan. Unless the Plan is terminated earlier by the Board or as provided in paragraph 12, the Plan shall terminate ten years after the effective date of the Plan. No option may be granted during any suspension or after the termination of the Plan. Except as provided in paragraph 12, no amendment,
suspension, or termination of the Plan shall, without an Optionee's consent, alter or impair any of the rights or obligations under any option previously granted to that Optionee under the Plan.
12. Effective Date of Plan and Shareholder Approval. The effective date of the Plan is March 28, 1988, the date of its approval by the Board; provided, however, if the Plan is not approved by such shareholders before December 31, 1988, the Plan shall terminate and any options granted thereunder shall be void and have no force or effect.
EXHIBIT 10.2
SPARTAN MOTORS, INC.
1994 INCENTIVE STOCK OPTION PLAN
1. Purpose.
The purpose of the Spartan Motors, Inc. 1994 Incentive Stock Option Plan (the "Plan") is to give officers and key employees (collectively referred to herein as "Key Employees") of Spartan Motors, Inc., a Michigan corporation (the "Company"), an opportunity to acquire shares of the common stock of the Company, $.01 par value ("Common Stock"), to provide an incentive for Key Employees to continue to promote the best interests of the Company and enhance its long-term performance, and to provide an incentive for Key Employees to join or remain with the Company.
2. Administration.
(a) Compensation Committee. The Plan shall be administered by the Compensation Committee ("Committee") appointed by the Board of Directors (the "Board") and composed of not less than three members of the Board. No member of the Board may exercise discretion with respect to, or participate in, the administration of the Plan if, at any time within one year prior to such exercise or participation, he or she has received stock, stock options, stock appreciation rights or any other derivative security pursuant to the Plan or any other plan of the Company or any affiliate thereof, as which any discretion is exercised.
(b) Powers. Within the limits of the express provisions of the Plan, the Committee shall determine:
(i) the Key Employees to whom awards hereunder shall be granted;
(ii) the time or times at which such awards shall be granted;
(iii) the form and amount of the awards; and
(iv) the limitations, restrictions and conditions applicable to any such award.
In making such determinations, the Committee may take into account the nature of the services rendered by such employees, or classes of employees, their present and potential contributions to the Company's success and such other factors as the Committee in its discretion shall deem relevant.
(c) Interpretations. Subject to the express provisions of the Plan, the Committee may interpret the Plan, prescribe, amend and rescind rules and regulations relating to it, determine the terms and provisions of the respective awards and make all other determinations it deems necessary or advisable for the administration of the Plan.
(d) Determinations. The determinations of the Committee on all matters regarding the Plan shall be conclusive. A member of the Committee shall only be liable for any action taken or determination made in bad faith.
(e) Nonuniform Determinations. The Committee's determinations under the Plan, including without limitation, determinations as to the persons to receive awards, the terms and provisions of such awards and the agreements evidencing the same, need not be uniform and may be made by it selectively among persons who receive or are eligible to receive awards under the Plan, whether or not such persons are similarly situated.
3. Awards Under The Plan.
(a) Form. Awards under the Plan shall be in the form of Incentive Stock Options.
(b) Maximum Limitations. The aggregate number of shares of Common Stock available for grant under the Plan is 2,000,000, subject to adjustment pursuant to Section 7. Shares of Common Stock issued pursuant to the Plan shall be authorized but unissued shares of the Company. In the event that, prior to the end of the period during which Incentive Stock Options may be granted under the Plan, any Incentive Stock Option under the Plan expires unexercised or is terminated, surrendered or canceled, without being exercised, in whole or in part, for any reason, the number of shares theretofore subject to such Incentive Stock Option, or the unexercised, terminated, forfeited or unearned portion thereof, shall be added to the remaining number of shares of Common Stock available for grant as an Incentive Stock Option under the Plan, including a grant to a former holder of such Incentive Stock Option, upon such terms and conditions as the Co mmittee shall determine, which terms may be more or less favorable than those applicable to such former Incentive Stock Option.
(c) Ten Percent Shareholder. Notwithstanding any other provision herein contained, no Key Employee may receive an Incentive Stock Option under the Plan if such employee, at the time the award is granted, owns (as defined in Section 424(d) of the Internal Revenue Code of 1986, as amended (the "Code")) stock possessing more than 10% of the total combined voting power of all classes of stock of the Company, unless the option price for such Incentive Stock Option is at least 110% of the fair market value of the Common Stock subject to such Incentive Stock Option on the date of grant and such Option is not exercisable after the date five years from the date such Option is granted.
4. Incentive Stock Options.
It is intended that Incentive Stock Options granted under the Plan shall constitute Incentive Stock Options within the meaning of Section 422 of the Code. Incentive Stock Options may be granted under the Plan for the purchase of shares of Common Stock. Incentive Stock Options shall be in such form and upon such conditions as the Committee shall from time to time determine, subject to the following:
(a) Option Prices. The option price of each Incentive Stock Option shall be at least 100% of the fair market value of the Common Stock subject to such Incentive Stock Option on the date of grant.
(b) Terms of Options. No Incentive Stock Option shall be exercisable after the date ten years from the date such Incentive Stock Option is granted.
(c) Limitation on Amounts. The aggregate fair market value (determined with respect to each Incentive Stock Option as of the time such Incentive Stock Option is granted) of the capital stock with respect to which Incentive Stock Options are exercisable for the first time by a Key Employee during any calendar year (under this Plan or any other plan of the Company) shall not exceed $100,000.
5. Provisions Applicable To Incentive Stock Options.
(a) Exercise. Incentive Stock Options shall be subject to such terms and conditions, shall be exercisable at such time or times, and shall be evidenced by such form of written option agreement between the optionee and the Company, as the Committee shall determine; provided, that such determinations are not inconsistent with the other provisions of the Plan, and with Section 422 of the Code or regulations thereunder.
(b) Manner of Exercise of Options and Payment for Common Stock. Incentive Stock Options may be exercised by an optionee by giving written notice to the Secretary of the Company stating the number of shares of Common Stock with respect to which the Incentive Stock Option is being exercised and tendering payment therefor. At the time that an Incentive Stock Option granted under the Plan, or any part thereof, is exercised, payment for the Common Stock issuable thereupon shall be made in full in cash or by certified check or, if the Committee in its discretion agrees to accept, in shares of Common Stock of the Company (the number of such shares paid for each share subject to the Incentive Stock Option, or part thereof, being exercised shall be determined by dividing the option price by the fair market value per share of the Common Stock on the date of exercise). As soon as reasonably possible following such exercise, a certificate r epresenting shares of Common Stock purchased, registered in the name of the optionee shall be delivered to the optionee.
6. Transferability.
No Incentive Stock Option may be transferred, assigned, pledged or hypothecated (whether by operation of law or otherwise), except as provided by will or the applicable laws of descent or distribution, and no Incentive Stock Option shall be subject to execution, attachment or similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition of an Incentive Stock Option or levy of attachment or similar process upon the Incentive Stock Option not specifically permitted herein shall be null and void and without effect. An Incentive Stock Option may be exercised only by a Key Employee during his or her lifetime, or pursuant to Section 10(c), by his or her estate or the person who acquires the right to exercise such Incentive Stock Option upon his or her death by bequest or inheritance.
7. Adjustment Provisions.
The aggregate number of shares of Common Stock with respect to which Incentive Stock Options may be granted, the aggregate number of shares of Common Stock subject to each outstanding Incentive Stock Option and the option price per share of each such Incentive Stock Option, may all be appropriately adjusted as the Committee may determine for any increase or decrease in the number of shares of issued Common Stock resulting from a subdivision or consolidation of shares, whether through reorganization, recapitalization, stock split-up, stock distribution or combination of shares, or the payment of a share dividend or other increase or decrease in the number of such shares outstanding effected without receipt of consideration by the Company. Adjustments under this Section 7 shall be made according to the sole discretion of the Committee, and its decisions shall be binding and conclusive.
8. Dissolution, Merger And Consolidation.
Upon the dissolution or liquidation of the Company, or upon a merger or consolidation of the Company in which the Company is not the surviving corporation, each Incentive Stock Option granted hereunder shall expire as of the effective date of such transaction; provided, however, that the Committee shall give at least 30 days' prior written notice of such event to each optionee during which time he or she shall have a right to exercise his or her wholly or partially unexercised Incentive Stock Option and, subject to prior expiration pursuant to Section 10(b) or (c), each Incentive Stock Option shall be exercisable after receipt of such written notice and prior to the effective date of such transaction.
9. Effective Date And Conditions Subsequent To Effective Date.
The Plan shall become effective on the date of the approval of the Plan by the shareholders of the Company; provided, however, that the adoption of the Plan is subject to such shareholder approval within twelve (12) months before or after the date of adoption of the Plan by the Board. The Plan shall be null and void and of no effect if the foregoing condition is not fulfilled, and in such event each Incentive Stock Option granted hereunder shall, notwithstanding any of the preceding provisions of the Plan, be null and void and of no effect.
No grant or award shall be made under the Plan more than ten years from the earlier of the date of adoption of the Plan by the Board and shareholder approval hereof; provided, however, that the Plan and all Incentive Stock Options granted under the Plan prior to such date shall remain in effect and subject to adjustment and amendment as herein provided until they have been satisfied or terminated in accordance with the terms of the respective grants or awards and the related agreements.
10. Termination Of Employment.
(a) Each Incentive Stock Option shall, unless sooner expired pursuant to Section 10(b) or (c) below, expire on the first to occur of the tenth anniversary of the date of grant thereof and the expiration date set forth in the applicable option agreement.
(b) An Incentive Stock Option shall expire on the first to occur of the applicable date set forth in paragraph (a) next above and the date that the employment of the Key Employee with the Company terminates for any reason other than death or disability. Notwithstanding the preceding provisions of this paragraph, the Committee, in its sole discretion, may, by written notice given to an ex-employee, permit the ex-employee to exercise Incentive Stock Options during a period following his or her termination of employment, which period shall not exceed three months. In no event, however, may the Committee permit an ex-employee to exercise an Incentive Stock Option after the expiration date contained in the agreement evidencing such Incentive Stock Option.
(c) If the employment of a Key Employee with the Company terminates by reason of disability (as defined in Section 422(c)(6) of the Code and as determined by the Committee) or by reason of death, his or her Incentive Stock Options shall expire on the first to occur of the date set forth in paragraph (a) of this Section 10 and the first anniversary of such termination of employment.
11. Miscellaneous.
(a) Legal and Other Requirements. The obligation of the Company to sell and deliver Common Stock under the Plan shall be subject to all applicable laws, regulations, rules and approvals, including, but not by way of limitation, the effectiveness of a registration statement under the Securities Act of 1993 if deemed necessary or appropriate by the Company. Certificates for shares of Common Stock issued hereunder may be legended as the Committee shall deem appropriate.
(b) No Obligation to Exercise Options. The granting of an Incentive Stock Option shall impose no obligation upon an optionee to exercise such Incentive Stock Option.
(c) Termination and Amendment of Plan. The Board, without further action on the part of the shareholders of the Company, may from time to time alter, amend or suspend the Plan or any Incentive Stock Option granted hereunder or may at any time terminate the Plan, except that it may not, without the approval of the shareholders of the Company (except to the extent provided in Section 7 hereof):
(i) Materially increase the total number of shares of Common Stock available for grant under the Plan except as provided in Section 7.
(ii) Materially modify the class of eligible employees under the Plan;
(iii) Materially increase benefits to any Key Employee who is subject to the restrictions of Section 16 of the Securities Exchange Act of 1934; or
(iv) Effect a change relating to Incentive Stock Options granted hereunder which is inconsistent with Section 422 of the Code or regulations issued thereunder.
No action taken by the Board under this Section, either with or without the approval of the shareholders of the Company, may materially and adversely affect any outstanding Incentive Stock Option without the consent of the holder thereof.
(d) Application of Funds. The proceeds received by the Company from the sale of Common Stock pursuant to Incentive Stock Options will be used for general corporate purposes.
(e) Withholding Taxes. In the event that the optionee disposes of any Common Stock acquired by the exercise of an Incentive Stock Option within the two-year period following grant, or within the one-year period following exercise, of the Incentive Stock Option, the Company shall have the right to require the optionee to remit to the Company an amount sufficient to satisfy all federal, state and local withholding tax requirements as a condition to the registration of the transfer of such Common Stock on its books. Whenever under the Plan payments are to be made by the Company in cash or by check, such payments shall be net of any amounts sufficient to satisfy all federal, state and local withholding tax requirements.
(f) Right to Terminate Employment. Nothing in the Plan or any agreement entered into pursuant to the Plan shall confer upon any Key Employee or other optionee the right to continue in the employment of the Company or affect any right which the Company may have to terminate the employment of such Key Employee or other optionee.
(g) Rights as a Shareholder. No optionee shall have any rights as a shareholder unless and until certificates for shares of Common Stock are issued to him or her.
(h) Notices. Every direction, revocation or notice authorized or required by the Plan shall be deemed delivered to the Company (1) on the date it is personally delivered to the Secretary of the Company at its principal executive offices or (2) three business days after it is sent by registered or certified mail, postage prepaid, addressed to the Secretary at such offices, and shall be deemed delivered to an optionee (1) on the date it is personally delivered to him or her or (2) three business days after it is sent by registered or certified mail, postage prepaid, addressed to him or her at the last address shown for him or her on the records of the Company.
(i) Applicable Law. All questions pertaining to the validity, construction and administration of the Plan and Incentive Stock Options granted hereunder shall be determined in conformity with the laws of the state of Michigan, to the extent not inconsistent with Section 422 of the Code and regulations thereunder.
EXHIBIT 10.10
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STOCK APPRECIATION RIGHTS AGREEMENT
This Stock Appreciation Rights Agreement ("Agreement") is made as of the Grant Date set forth above (the "Grant Date") between SPARTAN MOTORS, INC., a Michigan corporation ("Spartan"), and the grantee named above ("Grantee").
The Spartan Motors, Inc. Stock Incentive Plan of 2007 (the "Plan") is administered by the Compensation Committee of Spartan's Board of Directors (the "Committee"). The Committee has determined that Grantee is eligible to participate in the Plan. The Committee has granted stock appreciation rights to Grantee, subject to the terms and conditions contained in this Agreement and in the Plan. This Agreement is intended to comply with the provisions governing stock appreciation rights under Internal Revenue Service Regulation 26 C.F.R. § 1.409A-1(b)(5) in order to exempt the stock appreciation rights from application of Section 409A of the Internal Revenue Code ("Section 409A").
Grantee acknowledges receipt of a copy of the Plan and accepts the stock appreciation rights subject to all of the terms, conditions and provisions of this Agreement and the Plan.
1. Grant. Spartan grants to Grantee stock appreciation rights (the "Stock Appreciation Rights") with respect to the number of shares of Spartan's common stock, $.01 par value ("Common Stock") equal to the Number of Shares set forth above. A Stock Appreciation Right is a right awarded to Grantee that entitles Grantee to receive Common Stock having a value on the date the Stock Appreciation Right is exercised equal to the excess of (a) the Market Value (as defined in the Plan) of a share of Common Stock at the time of exercise over (b) the Base Price per Share set forth above, which equals the Market Value of the Common Stock on the Grant Date. The Stock Appreciation Rights consist of a single Stock Appreciation Right for each share of Common Stock.
2. Price. The per-share base price of the Stock Appreciation Rights shall equal the Base Price per Share set forth above (subject to adjustment as provided in the Plan).
3. Term and Vesting. The right to exercise the Stock Appreciation Rights shall vest immediately and shall terminate on the Expiration Date set forth above, unless earlier terminated pursuant to the terms of the Plan.
4. Exercise. Grantee shall exercise the Stock Appreciation Rights by giving Spartan a written notice of the exercise of the Stock Appreciation Rights in the form of Exhibit A to this Agreement and providing any other documentation that the Committee may require from time to time. The notice shall set forth the number of shares with respect to which Grantee is exercising the Stock Appreciation Rights. The notice shall be effective when received at Spartan's main office. The Stock Appreciation Rights will be considered exercised with respect to the number of shares specified in the notice on the latest of (i) the date of exercise designated in the notice, (ii) if the date so designated is not a
business day, the first business day following such date or (iii) the earliest business day by which Spartan has received the notice and all documentation required by the Committee. Spartan shall deliver to Grantee a certificate or certificates for the shares received upon exercise of the Stock Appreciation Rights: provided, however, that the time of delivery may be postponed for such period as may be required for Spartan with reasonable diligence to comply with any requirements or provisions of the Securities Act of 1933 or the Securities Exchange Act of 1934, any law, order or regulation of any governmental authority, or any rule or regulation of, or agreement of Spartan with, any applicable securities exchange or quotation system. If at any time the number of shares to be received upon exercise of the Stock Appreciation Rights includes a fractional share, the number of shares actually issued shall be rounded down to the nearest whole share. If Grantee fails to accept delivery or tender of a
ll or any of the shares to be received upon exercise of the Stock Appreciation Rights specified in the notice, Grantee's right to exercise the Stock Appreciation Rights with respect to such unaccepted shares shall terminate.
5. Withholding. Spartan and its subsidiaries shall be entitled to (a) withhold and deduct from Grantee's future wages (or from other amounts that may be due and owing to Grantee from Spartan and/or its subsidiaries), or make other arrangements for the collection of, all legally required amounts necessary to satisfy any and all federal, state, and local withholding and employment-related tax requirements attributable to the Stock Appreciation Rights under this Agreement, including without limitation, attributable to the award, vesting or exercise of the Stock Appreciation Rights; or (b) require Grantee promptly to remit the amount of such withholding to Spartan before taking any action with respect to the Stock Appreciation Rights. Grantee acknowledges that Grantee is obligated to pay the amount of such withholding. Unless the Committee provides otherwise, Grantees who are employees may satisfy withholding obligations b y having shares to be received upon exercise of the Stock Appreciation Rights withheld or by delivery to Spartan of previously owned Common Stock. Non-employee Grantees may not satisfy withholding obligations by withholding shares of stock to be received upon exercise of the Stock Appreciation Rights or by delivery to Spartan of previously owned Common Stock.
6. Transferability. The Plan provides that the Stock Appreciation Rights are generally not transferable by Grantee except by will or according to the laws of descent and distribution, and are exercisable during Grantee's lifetime only by Grantee or Grantee's guardian. The Stock Appreciation Rights may be transferred to a revocable living trust established by the Grantee under which Grantee is treated as the owner of property held by the trust for tax purposes, and in such circumstances, during Grantee's lifetime, ownership by the trust shall be treated as ownership by Grantee for purposes of all actions taken or to be taken under the terms of this Plan or the related Stock Appreciation Rights. All options granted to Grantee during his or her lifetime shall be exercisable during his or her lifetime only by Grantee, Grantee's guardian, or legal representative. Grantee may designate a "beneficiary" to be the person or ent ity entitled to be Grantee's successor in interest in the event of Grantee's death. The designated beneficiary shall be treated for all purposes as Grantee's successor in interest entitled to exercise and receive the proceeds of exercise the Stock Appreciation Rights. If no revocable trust is named as owner during Grantee's lifetime and no beneficiary is designated, Grantee's estate is the successor in interest. Spartan may, in the event it deems the same desirable to assure compliance with applicable federal and state securities laws, place an appropriate restrictive legend upon any certificate representing shares received upon exercise of the Stock Appreciation Rights, and may also issue appropriate stop-transfer instructions to its transfer agent with respect to such shares.
7. Termination of Employment, Directorship or Officer Status. If Grantee's employment, directorship and/or officer status (each as applicable) with Spartan or any of its subsidiaries terminates for any reason, such termination shall affect the Stock Appreciation Rights, and Grantee's rights with respect to the Stock Appreciation Rights, as set forth in the Plan. In no event will Grantee's Retirement, death, or Disability extend the last date to exercise the Stock Appreciation Rights.
8. Acceleration. The Stock Appreciation Rights shall be immediately exercisable in the event of any Change in Control (as defined in the Plan) of Spartan.
9. Shareholder Rights. Grantee shall have no rights as a shareholder by reason of the Stock Appreciation Rights or with respect to any shares to be received upon exercise of the Stock Appreciation Rights until the date of issuance of a stock certificate to Grantee for such shares.
10. Employment by Spartan. To the extent Grantee is or becomes an employee of Spartan or any of its subsidiaries, the grant of the Stock Appreciation Rights shall not impose upon Spartan or any of its subsidiaries any obligation to retain Grantee in its employ for any given period or upon any specific terms of employment. Spartan or any of its subsidiaries, as appropriate, may at any time dismiss Grantee from employment, free from any liability or claim under the Plan or this Agreement, except as otherwise expressly provided in any written agreement with Grantee.
11. Certifications. Grantee agrees that Spartan may impose reasonable restrictions on the sale or distribution of the shares to be received upon exercise of the Stock Appreciation Rights to ensure compliance with federal and state securities laws.
12. Effective Date. The Stock Appreciation Rights Agreement shall be effective as of the Grant Date.
13. Amendment. Neither the Stock Appreciation Rights nor this Agreement shall be modified except in a writing executed by the parties to this Agreement and except as Spartan, upon advice of legal counsel, determines is necessary or advisable because of the promulgation of, or change in or of the interpretation of, any law or governmental rule or regulation, including without limitation, Section 409A and any applicable federal or state securities laws.
14. Agreement Controls. The Plan is incorporated in this Agreement by reference. Capitalized terms not defined in this Agreement shall have those meanings provided in the Plan. In the event of any conflict between the terms of this Agreement and the terms of the Plan, the terms of this Agreement shall control.
15. Corporate Changes. In the event of any stock dividend, stock split or other increase or reduction in the number of shares of Common Stock outstanding, the number and class of shares that may be received upon exercise of the Stock Appreciation Rights, and the Base Price per Share, are subject to adjustment as provided in the Plan; provided however, that no adjustment shall be contrary to Section 409A or shall be effected in a manner that would subject Grantee to taxes and penalties under Section 409A.
16. Administration. The Committee has full power and authority to interpret the provisions of the Plan, to supervise the administration of the Plan and to adopt forms and procedures for the administration of the Plan, except as limited by the Plan. All determinations made by the Committee shall be final and conclusive.
17. Illegality. Grantee shall not exercise the Stock Appreciation Rights, and Spartan shall not
be obligated to issue any shares of Common Stock to Grantee pursuant to the exercise of the Stock Appreciation Rights, if the exercise thereof or the issuance of such shares would constitute a violation by Grantee or Spartan of any provisions of the Securities Act of 1933 or the Securities Exchange Act of 1934, any other law, order or regulation of any governmental authority, or any rule or regulation of, or agreement of Spartan with, any applicable securities exchange or quotation system. Spartan will in no event be obligated to take any affirmative action in order to cause the exercise of the Stock Appreciation Rights or the resulting issuance of shares of Common Stock to comply with any such law, order, rule, regulation or agreement.
18. Governing Law. This Agreement will be governed by, and construed in accordance with, the internal laws of the State of Michigan, without regard to conflict of law principles. Each party irrevocably submits to the general jurisdiction of the state and federal courts located in the State of Michigan in the counties of Kent and Eaton, in any action to interpret or enforce this Agreement and irrevocably waives any objection to jurisdiction that such party may have based on inconvenience of forum.
SPARTAN MOTORS, INC. |
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James W. Knapp |
EXHIBIT 10.14
The CORPORATEplan for RetirementSM
EXECUTIVE PLAN
BASIC PLAN DOCUMENT
IMPORTANT NOTE
This document has not been approved by the Department of Labor, the Internal Revenue Service or any other governmental entity. An Adopting Employer must determine whether the plan is subject to the Federal securities laws and the securities laws of the various states. An Adopting Employer may not rely on this document to ensure any particular tax consequences or to ensure that the Plan is "unfunded and maintained primarily for the purpose of providing deferred compensation to a select group of management or highly compensated employees" under the Employee Retirement Income Security Act with respect to the Employer's particular situation. Fidelity Management Trust Company, its affiliates and employees cannot provide you with legal advice in connection with the execution of this document. This document should be reviewed by the Employer's attorney prior to execution.
CORPORATEplan for EXECUTIVE
BASIC PLAN DOCUMENT
ARTICLE 1
ADOPTION AGREEMENT
ARTICLE 2
DEFINITIONS
2.01 - Definitions
ARTICLE 3
PARTICIPATION
3.01 - Date of Participation
3.02 - Resumption of Participation Following Re employment
3.03 - Cessation or Resumption of Participation Following a Change in Status
ARTICLE 4
CONTRIBUTIONS
4.01 - Deferral Contributions
4.02 - Matching Contributions
4.03 - Employer Contributions
4.04 - Time of Making Contributions
ARTICLE 5
PARTICIPANTS' ACCOUNTS
5.01 - Individual Accounts
ARTICLE 6
INVESTMENT OF CONTRIBUTIONS
6.01 - Manner of Investment
6.02 - Investment Decisions
ARTICLE 7
RIGHT TO BENEFITS
7.01 - Normal or Early Retirement
7.02 - Death
7.03 - Other Termination of Employment
7.04 - Separate Account
7.05 - Forfeitures
7.06 - Adjustment for Investment Experience
7.07 - Unforeseeable Emergency Withdrawals
7.08 - Change in Control
ARTICLE 8
DISTRIBUTION OF BENEFITS PAYABLE AFTER TERMINATION OF SERVICE
8.01 - Distribution of Benefits to Participants and Beneficiaries
8.02 - Determination of Method of Distribution
8.03 - Notice to Trustee
8.04 - Time of Distribution
ARTICLE 9
AMENDMENT AND TERMINATION
9.01 - Amendment by Employer
9.02 - Retroactive Amendments
9.03 - Termination
9.04 - Distribution Upon Termination of the Plan
ARTICLE 10
MISCELLANEOUS
10.01 - Communication to Participants
10.02 - Limitation of Rights
10.03 - Nonalienability of Benefits
10.04 - Facility of Payment
10.05 - Information between Employer and Trustee
10.06 - Notices
10.07 - Governing Law
ARTICLE 11
PLAN ADMINISTRATION
11.01 - Powers and responsibilities of the Administrator
11.02 - Nondiscriminatory Exercise of Authority
11.03 - Claims and Review Procedures
PREAMBLE
It is the intention of the Employer to establish herein an unfunded plan maintained solely for the purpose of providing deferred compensation for a select group of management or highly compensated employees as provided in ERISA.
Article 1. Adoption Agreement.
Article 2. Definitions.
2.01. Definitions.
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(a) Wherever used herein, the following terms have the meanings set forth below, unless a different meaning is clearly required by the context: |
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(1) "Account" means an account established on the books of the Employer for the purpose of recording amounts credited on behalf of a Participant and any income, expenses, gains or losses included thereon. |
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(2) "Administrator" means the Employer adopting this Plan, or other person designated by the Employer in Section 1.01(b). |
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(3) "Adoption Agreement" means Article 1, under which the Employer establishes and adopts or amends the Plan and designates the optional provisions selected by the Employer. The provisions of the Adoption Agreement shall be an integral part of the Plan. |
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(4) "Beneficiary" means the person or persons entitled under Section 7.02 to receive benefits under the Plan upon the death of a Participant. |
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(5) "Bonus" means any performance-based Compensation based on services performed for the Employer over a period of at least 12 months. |
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(6) "Change of Control" means a change in the ownership or effective control of the Employer, or a substantial portion of the Employer's assets as defined in the regulations under Code Section 409A. |
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(7) "Code" means the Internal Revenue Code of 1986, as amended from time to time. |
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(8) "Compensation" means for purposes of Article 4 (Contributions) wages as defined in Section 3401(a) of the Code and all other payments of compensation to an employee by the Employer (in the course of the Employer's trade or business) for which the Employer is required to furnish the employee a written statement under Section 6041(d) and 6051(a)(3) of the Code, excluding any items elected by the Employer in Section 1.04, reimbursements or other expense allowances, fringe benefits (cash and non-cash), moving expenses, deferred compensation and welfare benefits, but including amounts that are not includable in the gross income of the Participant under a salary reduction agreement by reason of the application of Sections 125, 132(f)(4), 402(e)(3), 402(h) or 403(b) of the Code. Compensation shall be determined without regard to any rules under Section 3401(a) of the Code that limit the remuneration included in wages based on the nature or location of the employment or the services pe rformed (such as the exception for agricultural labor in Section 3401(a)(2) of the Code). |
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Compensation shall also include amounts deferred pursuant to an election under Section 4.01. |
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In the case of any Self-Employed Individual or an Owner-Employee, Compensation means the Self-Employed Individual's Earned Income. |
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(9) "Earned Income" means the net earnings of a Self-Employed Individual derived from the trade or business with respect to which the Plan is established and for which the personal services of such individual are a material income-providing factor, excluding any items not included in gross income and the deductions allocated to such items, except that for taxable years beginning after December 31, 1989 net earnings shall be determined with regard to the deduction allowed under Section 164(f) of the Code, to the extent applicable to the Employer. Net earnings shall be reduced by contributions of the Employer to any qualified plan, to the extent a deduction is allowed to the Employer for such contributions under Section 404 of the Code. |
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(10) "Employee" means any employee of the Employer, Self-Employed Individual or Owner-Employee. |
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(11) "Employer" means the employer named in Section 1.02(a) and any Related Employers designated in Section 1.02(b). |
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(12) "Employment Commencement Date" means the date on which the Employee first performs an Hour of Service. |
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(13) "Entry Date" means the date(s) designated in Section 1.03(b). |
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(14) "ERISA" means the Employee Retirement Income Security Act of 1974, as from time to time amended. |
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(15) "Fund Share" means the share, unit, or other evidence of ownership in a Permissible Investment. |
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(16) "Hour of Service" means, with respect to any Employee, |
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(A) Each hour for which the Employee is directly or indirectly paid, or entitled to payment, for the performance of duties for the Employer or a Related Employer, each such hour to be credited to the Employee for the computation period in which the duties were performed; |
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(B) Each hour for which the Employee is directly or indirectly paid, or entitled to payment, by the Employer or Related Employer (including payments made or due from a trust fund or insurer to which the Employer contributes or pays premiums) on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity, disability, layoff, jury duty, military duty, or leave of absence, each such hour to be credited to the Employee for the Eligibility Computation Period in which such period of time occurs, subject to the following rules: |
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(i) No more than 501 Hours of Service shall be credited under this paragraph (B) on account of any single continuous period during which the Employee performs no duties; |
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(ii) Hours of Service shall not be credited under this paragraph (B) for a payment which solely reimburses the Employee for medically-related expenses, or which is made or due under a plan maintained solely for the purpose of complying with applicable workmen's compensation, unemployment compensation or disability insurance laws; and |
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(iii) If the period during which the Employee performs no duties falls within two or more computation periods and if the payment made on account of such period is not calculated on the basis of units of time, the Hours of Service credited with respect to such period shall be allocated between not more than the first two such computation periods on any reasonable basis consistently applied with respect to similarly situated Employees; and |
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(C) Each hour not counted under paragraph (A) or (B) for which back pay, irrespective of mitigation of damages, has been either awarded or agreed to be paid by the Employer or a Related Employer, each such hour to be credited to the Employee for the computation period to which the award or agreement pertains rather than the computation period in which the award agreement or payment is made. |
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For purposes of determining Hours of Service, Employees of the Employer and of all Related Employers will be treated as employed by a single employer. For purposes of paragraphs (B) and (C) above, Hours of Service will be calculated in accordance with the provisions of Section 2530.200b-2(b) of the Department of Labor regulations, which are incorporated herein by reference. |
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Solely for purposes of determining whether a break in service for participation purposes has occurred in a computation period, an individual who is absent from work for maternity or paternity reasons shall receive credit for the hours of service which would otherwise been credited to such individual but for such absence, or in any case in which such hours cannot be determined, 8 hours of service per day of such absence. For purposes of this paragraph, an absence from work for maternity reasons means an absence (1) by reason of the pregnancy of the individual, (2) by reason of a birth of a child of the individual, (3) by reason of the placement of a child with the individual in connection with the adoption of such child by such individual, or (4) for purposes of caring for such child for a period beginning immediately following such birth or placement. The hours of service credited under this paragraph shall be credited (1) in the computation period in which the a bsence begins if the crediting is necessary to prevent a break in service in that period, or (2) in all other cases, in the following computation period. |
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(17) "Key Employee" means a Participant who is key employee pursuant to Code Section 416(i), without regard to paragraph (5) thereof. A Participant will not be considered a Key Employee unless the Employer is a corporation which has any of its stock publicly traded according to Code Section 409A and regulations thereunder. |
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(18) "Normal Retirement Age" means the normal retirement age specified in Section 1.07(f) of the Adoption Agreement. |
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(19) "Owner-Employee" means, if the Employer is a sole proprietorship, the individual who is the sole proprietor, or, if the Employer is a partnership, a partner who owns more than 10 percent of either the capital interest or the profits interest of the partnership. |
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(20) "Participant" means any Employee who participates in the Plan in accordance with Article 3 hereof. |
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(21) "Permissible Investment" means the investments specified by the Employer as available for investment of assets of the Trust and agreed to by the Trustee. The Permissible Investments under the Plan shall be listed in the Service Agreement. |
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(22) "Plan" means the plan established by the Employer as set forth herein as a new plan or as an amendment to an existing plan, by executing the Adoption Agreement, together with any and all amendments hereto. |
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(23) "Plan Year" means the 12-consecutive-month period designated by the Employer in Section 1.01(c). |
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(24) "Related Employer" means any employer other than the Employer named in Section 1.02(a), if the Employer and such other employer are members of a controlled group of corporations (as defined in Section 414(b) of the Code) or an affiliated service group (as defined in Section 414(m)), or are trades or businesses (whether or not incorporated) which are under common control (as defined in Section 414(c)), or such other employer is required to be aggregated with the Employer pursuant to regulations issued under Section 414(o). |
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(25) "Self-Employed Individual" means an individual who has Earned Income for the taxable year from the Employer or who would have had Earned Income but for the fact that the trade or business had no net profits for the taxable year. |
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(26) "Service Agreement" means the agreement between the Employer and Trustee regarding the arrangement between the parties for recordkeeping services with respect to the Plan. |
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(27) "Trust" means the trust created by the Employer. |
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(28) "Trust Agreement" means the agreement between the Employer and the Trustee, as set forth in a separate agreement, under which assets are held, administered, and managed subject to the claims of the Employer's creditors in the event of the Employer's insolvency, until paid to Plan Participants and their Beneficiaries as specified in the Plan. |
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(29) "Trust Fund" means the property held in the Trust by the Trustee. |
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(30) "Trustee" means the corporation or individual(s) appointed by the Employer to administer the Trust in accordance with the Trust Agreement. |
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(31) "Years of Service for Vesting" means, with respect to any Employee, the number of whole years of his periods of service with the Employer or a Related Employer (the elapsed time method to compute vesting service), subject to any exclusions elected by the Employer in Section 1.07(c). An Employee will receive credit for the aggregate of all time period(s) commencing with the Employee's Employment Commencement Date and ending on the date a break in service begins, unless any such years are excluded by Section 1.07(c). An Employee will also receive credit for any period of severance of less than 12 consecutive months. Fractional periods of a year will be expressed in terms of days. |
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In the case of a Participant who has 5 consecutive 1-year breaks in service, all years of service after such breaks in service will be disregarded for the purpose of vesting the Employer-derived account balance that accrued before such breaks, but both pre-break and post-break service will count for the purposes of vesting the Employer-derived account balance that accrues after such breaks. Both accounts will share in the earnings and losses of the fund. |
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In the case of a Participant who does not have 5 consecutive 1-year breaks in service, both the pre-break and post-break service will count in vesting both the pre-break and post-break employer-derived account balance. |
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A break in service is a period of severance of at least 12 consecutive months. Period of severance is a continuous period of time during which the Employee is not employed by the Employer. Such period begins on the date the Employee retires, quits or is discharged, or if earlier, the 12-month anniversary of the date on which the Employee was otherwise first absent from service. |
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In the case of an individual who is absent from work for maternity or paternity reasons, the 12-consecutive month period beginning on the first anniversary of the first date of such absence shall not constitute a break in service. For purposes of this paragraph, an absence from work for maternity or paternity reasons means an absence (1) by reason of the pregnancy of the individual, (2) by reason of the birth of a child of the individual, (3) by reason of the placement of a child with the individual in connection with the adoption of such child by such individual, or (4) for purposes of caring for such child for a period beginning immediately following such birth or placement. |
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If the Plan maintained by the Employer is the plan of a predecessor employer, an Employee's Years of Service for Vesting shall include years of service with such predecessor employer. In any case in which the Plan maintained by the Employer is not the plan maintained by a predecessor employer, service for such predecessor shall be treated as service for the Employer to the extent provided in Section 1.08. |
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(b) Pronouns used in the Plan are in the masculine gender but include the feminine gender unless the context clearly indicates otherwise. |
Article 3. Participation.
3.01. Date of Participation. An eligible Employee (as set forth in Section 1.03(a)) who has filed an election pursuant to Section 4.01 will become a Participant in the Plan on the first Entry Date coincident with or following the date on which such election would otherwise become effective, as determined under Section 4.01.
3.02. Resumption of Participation Following Reemployment. If a Participant ceases to be an Employee and thereafter returns to the employ of the Employer he will again become a Participant as of an Entry Date following the date on which he completes an Hour of Service for the Employer following his re employment, if he is an eligible Employee as defined in Section 1.03(a), and has filed an election pursuant to Section 4.01.
3.03. Cessation or Resumption of Participation Following a Change in Status. If any Participant continues in the employ of the Employer or Related Employer but ceases to be an eligible Employee as defined in Section 1.03(a), the individual shall continue to be a Participant until the entire amount of his benefit is distributed; however, the individual shall not be entitled to make Deferral Contributions or receive an allocation of Matching or Employer Contributions during the period that he is not an eligible Employee. Such Participant shall continue to receive credit for service completed during the period for purposes of determining his vested interest in his Accounts. In the event that the individual subsequently again becomes an eligible Employee, the individual shall resume full participation in accordance with Section 3.01.
Article 4. Contributions.
4.01. Deferral Contributions. Each Participant may elect to execute a salary reduction agreement with the Employer to reduce his Compensation by a specified percentage, not exceeding the percentage set forth in Section 1.05(a) and equal to a whole number multiple of one (1) percent, per payroll period, subject to any election regarding Bonuses, as set out in Subsection 1.05(a)(2). Such agreement shall become effective on the first day of the period as set forth in the Participant's election. The election will be effective to defer Compensation relating to all services performed in a calendar year subsequent to the filing of such an election, subject to any election regarding Bonuses, as set out in Subsection 1.05(a)(2). An election once made will remain in effect until a new election is made; provided, however that such an election choosing a
distribution date pursuant to 1.06(b)(1)(B) will only be effective for the Plan Year indicated. A new election will be effective as of the first day of the following calendar year and will apply only to Compensation payable with respect to services rendered after such date, except that a separate election made pursuant to Section 1.05(a)(2) will be effective immediately if made no later than 6 months before the end of the period during which the services on which the Bonus is based are performed. If the Employer has selected 1.05(a)(2), no amount will be deducted from Bonuses unless the Participant has made a separate election. Amounts credited to a Participant's account prior to the effective date of any new election will not be affected and will be paid in accordance with that prior election. The Employer shall credit an amount to the account maintained on behalf of the Participant corresponding to the amount of said reduction. Under no circumstances may a salary reduction agreement be adopted retroactivel
y. To the extent permitted in regulations under Code Section 409A, a Participant may revoke a salary reduction agreement for a calendar year during that year, provided, however, that such revocation shall apply only to Compensation not yet earned. In that event, the Participant shall be precluded from electing to defer future Compensation hereunder during the calendar year to which the revocation applies. Notwithstanding the above, in the calendar year in which the Plan first becomes effective or in the year in which the Participant first becomes eligible to participate, an election to defer compensation may be made within 30 days after the Participant is first eligible or the Plan is first effective, which election shall be effective with respect to Compensation payable with respect to services rendered after the date of the election.
4.02. Matching Contributions. If so provided by the Employer in Section 1.05(b), the Employer shall make a "Matching Contribution" to be credited to the account maintained on behalf of each Participant who had "Deferral Contributions" pursuant to Section 4.01 made on his behalf during the year and who meets the requirement, if any, of Section 1.05(b)(3). The amount of the "Matching Contribution" shall be determined in accordance with Section 1.05(b).
4.03. Employer Contributions. If so provided by the Employer in Section 1.05(c)(1), the Employer shall make an "Employer Contribution" to be credited to the account maintained on behalf of each Participant who meets the requirement, if any, of Section 1.05(c)(3) in the amount required by Section 1.05(c)(1). If so provided by the Employer in Section 1.05(c)(2), the Employer may make an "Employer Contribution" to be credited to the account maintained on behalf of any Participant in such an amount as the Employer, in its sole discretion, shall determine. In making "Employer Contributions" pursuant to Section 1.05(c)(2), the Employer shall not be required to treat all Participants in the same manner in determining such contributions and may determine the "Employer Contribution" of any Participant to be zero.
4.04. Time of Making Contributions. The Employer shall remit contributions deemed made hereunder to the Trust as soon as practicable after such contributions are deemed made under the terms of the Plan.
Article 5. Participants' Accounts.
5.01. Individual Accounts. The Administrator will establish and maintain an Account for each Participant, which will reflect Matching, Employer and Deferral Contributions credited to the Account on behalf of the Participant and earnings, expenses, gains and losses credited thereto, and deemed investments made with amounts in the Participant's Account. The Administrator will establish and maintain such other accounts and records as it decides in its discretion to be reasonably required or appropriate in order to discharge its duties under the Plan. Participants will be furnished statements of their Account values at least once each Plan Year. The Administrator shall provide the Trustee with information on the amount credited to the separate account of each Participant maintained by the Administrator in its records.
Article 6. Investment of Contributions.
6.01. Manner of Investment. All amounts credited to the Accounts of Participants shall be treated as though invested and reinvested only in eligible investments selected by the Employer in the Service Agreement.
6.02. Investment Decisions. Investments in which the Accounts of Participants shall be treated as invested and reinvested shall be directed by the Employer or by each Participant, or both, in accordance with the Employer's election in Section 1.11(a).
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(a) All dividends, interest, gains and distributions of any nature that would be earned in respect of Fund Shares in which the Account is treated as investing shall be credited to the Account as though reinvested in additional shares of that Permissible Investment. |
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(b) Expenses that would be attributable to the acquisition of investments shall be charged to the Account of the Participant for which such investment is treated as having been made. |
Article 7. Right to Benefits.
7.01. Normal or Early Retirement. If provided by the Employer in Section 1.07(e), each Participant who attains his Normal Retirement Age or Early Retirement Age will have a nonforfeitable interest in his Account in accordance with the vesting schedule(s) elected in Section 1.07. If a Participant retires on or after attainment of Normal or Early Retirement Age, such retirement is referred to as a normal retirement. On or after his normal retirement, the balance of the Participant's Account, plus any amounts thereafter credited to his Account, subject to the provisions of Section 7.06, will be distributed to him in accordance with Article 8.
If provided by the Employer in Section 1.07, a Participant who separates from service before satisfying the age requirements for early retirement, but has satisfied the service requirement will be entitled to the distribution of his Account, subject to the provisions of Section 7.06, in accordance with Article 8, upon satisfaction of such age requirement.
7.02. Death. If a Participant dies before the distribution of his Account has commenced, or before such distribution has been completed, his Account shall become vested in accordance with the vesting schedule(s) elected in Section 1.07 and his designated Beneficiary or Beneficiaries will be entitled to receive the balance or remaining balance of his Account, plus any amounts thereafter credited to his Account, subject to the provisions of Section 7.06. Distribution to the Beneficiary or Beneficiaries will be made in accordance with Article 8. A distribution to a beneficiary of a Key Employee is not considered to be a distribution to a Key Employee for purposes of Sections 1.06 and 7.08.
A Participant may designate a Beneficiary or Beneficiaries, or change any prior designation of Beneficiary or Beneficiaries, by giving notice to the Administrator on a form designated by the Administrator. If more than one person is designated as the Beneficiary, their respective interests shall be as indicated on the designation form.
A copy of the death certificate or other sufficient documentation must be filed with and approved by the Administrator. If upon the death of the Participant there is, in the opinion of the Administrator, no designated Beneficiary for part or all of the Participant's Account, such amount will be paid to his surviving spouse or, if none, to his estate (such spouse or estate shall be deemed to be the Beneficiary for purposes of the Plan). If a Beneficiary dies after benefits to such Beneficiary have commenced, but before they have been completed, and, in the opinion of the Administrator, no person has been designated to receive such remaining benefits, then such benefits shall be paid to the deceased Beneficiary's estate.
7.03. Other Termination of Employment. If provided by the Employer in Section 1.07, if a Participant terminates his employment for any reason other than death or normal retirement, he will be entitled to a termination benefit equal to (i) the vested percentage(s) of the value of the Matching and Employer Contributions to his Account, as adjusted for income, expense, gain, or loss, such percentage(s) determined in accordance with the vesting schedule(s) selected by the Employer in Section 1.07, and (ii) the value of the Deferral Contributions to his Account as adjusted for income, expense, gain or loss. The amount
payable under this Section 7.03 will be subject to the provisions of Section 7.06 and will be distributed in accordance with Article 8. For purposes of the Plan, a termination of employment is a separation from service as defined pursuant to Code Section 409A and regulations thereunder.
7.04. Separate Account. If a distribution from a Participant's Account has been made to him at a time when he has a nonforfeitable right to less than 100 percent of his Account, the vesting schedule in Section 1.07 will thereafter apply only to amounts in his Account attributable to Matching and Employer Contributions allocated after such distribution. The balance of his Account immediately after such distribution will be transferred to a separate account that will be maintained for the purpose of determining his interest therein according to the following provisions.
At any relevant time prior to a forfeiture of any portion thereof under Section 7.05, a Participant's nonforfeitable interest in his Account held in a separate account described in the preceding paragraph will be equal to P(AB + (RxD))-(RxD), where P is the nonforfeitable percentage at the relevant time determined under Section 7.05; AB is the account balance of the separate account at the relevant time; D is the amount of the distribution; and R is the ratio of the account balance at the relevant time to the account balance after distribution. Following a forfeiture of any portion of such separate account under Section 7.05 below, any balance in the Participant's separate account will remain fully vested and nonforfeitable.
7.05. Forfeitures. If a Participant terminates his employment, any portion of his Account (including any amounts credited after his termination of employment) not payable to him under Section 7.03 will be forfeited by him.
7.06. Adjustment for Investment Experience. If any distribution under this Article 7 is not made in a single payment, the amount remaining in the Account after the distribution will be subject to adjustment until distributed to reflect the income and gain or loss on the investments in which such amount is treated as invested and any expenses properly charged under the Plan to such amounts.
7.07. Unforeseeable Emergency Withdrawals. Subject to the provisions of Article 8, a Participant shall not be permitted to withdraw his Account (and earnings thereon) prior to retirement or termination of employment, except that, to the extent permitted under Section 1.09, a Participant may apply to the Administrator to withdraw some or all of his Account if such withdrawal is made on account of an unforeseeable emergency as determined by the Administrator in accordance with the requirements of and subject to the limitations provided within Code Section 409A and regulations thereunder.
7.08. Change in Control Distributions. If the Employer has elected to apply Section 1.06(c), then, upon a Change in Control, notwithstanding any other provision of the Plan to the contrary, all Participants shall have a nonforfeitable right to receive the entire amount of their account balances under the Plan. All distributions due to a Change in Control shall be paid out to Participants as soon as administratively practicable, except that any such distribution to a Key Employee who has terminated employment pursuant to Section 7.03 shall not be earlier than the 1st day of the seventh month following that Key Employee's termination of employment.
Article 8. Distribution of Benefits.
8.01. Form of Distribution of Benefits to Participants and Beneficiaries. The Plan provides for distribution as a lump sum to be paid in cash on the date specified by the Employer in Section 1.06 pursuant to the method provided in Section 8.02. If elected by the Employer in Section 1.10 and specified in the Participant's deferral election, the distribution will be paid through a systematic withdrawal plan (installments) for a time period not exceeding 10 years beginning on the date specified by the Employer in Section 1.06.
8.02. Events Requiring Distribution of Benefits to Participants and Beneficiaries.
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(a) If elected by the Employer in Section 1.06(a), the Participant will receive a distribution upon the earliest of the events specified by the Employer in Section 1.06(a), subject to the provisions of Section 7.08, and at the time indicated in Section 1.06(a)(2). If the Participant dies before any event in Section 1.06(a) occurs, the Participant shall be considered to have terminated employment and the Participant's benefit will be paid to the Participant's Beneficiary in the same form and at the same time as it would have been paid to the Participant pursuant to this Article 8. |
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(b) If elected by the Employer in Section 1.06(b), the Participant will receive a distribution of all amounts not deferred pursuant to Section 1.06(b)(1)(B) (and earnings attributable to those amounts) upon termination of employment, subject to the delay applicable to Key Employees described therein, as applicable. If elected by the Employer in Section 1.06(b)(1)(B), the Participant shall have the election to receive distributions of amounts deferred pursuant to Section 4.01 (and earnings attributable to those amounts) after a date specified by the Participant in his deferral election which is at least 12 months after the first day of the calendar year in which such amounts would be earned. Amounts distributed to the Participant pursuant to Section 1.06(b) shall be distributed at the time indicated in Section 1.06(b)(2). Subject to the provisions of Section 7.08, the Participant shall receive a distribution in the form provided in Section 8.01. If the Participant dies before any ev ent in Section 1.06(a) occurs, the Participant shall be considered to have terminated employment and the Participant's benefit will be paid to the Participant's Beneficiary in the same form and at the same time as it would have been paid to the Participant pursuant to this Article 8. However, if the Participant dies before the date specified by the Participant in an election pursuant to Section 1.06(b)(1)(B), then the Participant's benefit shall be paid to the Participant's Beneficiary in the form provided in Section 8.01 as if the Participant had elected to be paid at termination of employment. |
8.03. Determination of Method of Distribution. The Participant will determine the method of distribution of benefits to himself and his Beneficiary, subject to the provisions of Section 8.02. Such determination will be made at the time the Participant makes a deferral election. A Participant's election cannot be altered, except, if elected by the Employer in Section 1.10(b), if the Participant's balance falls below the level described in regulations under Code Section 409A, the Participant's benefit payable due to termination of employment will be distributed in a lump sum rather than installments.
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(a) When Section 1.06(a) has been elected by the Employer. The distribution period specified in a Participant's first deferral election specifying distribution under a systematic withdrawal plan shall apply to all subsequent elections of distributions under a systematic withdrawal plan made by the Participant. Once a Participant has made an election for the method of distribution, that election shall be effective for all contributions made on behalf of the Participant attributable to any Plan Year after that election was made and before the Plan Year for which that election has been altered in the manner prescribed by the Administrator. If the Participant does not designate in the manner prescribed by the Administrator the method of distribution, such method of distribution shall be a lump sum at termination of employment. |
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(b) When Section 1.06(b) has been elected by the Employer. The distribution period for distributions under a systematic withdrawal plan shall be specified in each Participant's contribution election selecting payments under a systematic withdrawal plan. If the Participant does not designate in the manner prescribed by the Administrator the method of distribution, such method of distribution for all such contributions shall be a lump sum at termination of employment. |
8.04. Notice to Trustee. The Administrator will notify the Trustee, pursuant to the method stated in the Trust Agreement for providing direction, whenever any Participant or Beneficiary is entitled to receive benefits under the Plan. The Administrator's notice shall indicate the form, amount and frequency of benefits that such Participant or Beneficiary shall receive.
8.05. Time of Distribution. In no event will distribution to a Participant be made later than the date specified by the Participant in his salary reduction agreement. All distributions will be made as soon as administratively feasible following the distribution date specified in Section 1.06 or Section 7.08, if applicable.
Article 9. Amendment and Termination.
9.01 Amendment by Employer. The Employer reserves the authority to amend the Plan by filing with the Trustee an amended Adoption Agreement, executed by the Employer only, on which said Employer has indicated a change or changes in provisions previously elected by it. Such changes are to be effective on the effective date of such amended Adoption Agreement. Any such change notwithstanding, no Participant's Account shall be reduced by such change below the amount to which the Participant would have been entitled if he had voluntarily left the employ of the Employer immediately prior to the date of the change. The Employer may from time to time make any amendment to the Plan that may be necessary to satisfy the Code or ERISA. The Employer's board of directors or other individual specified in the resolution adopting this Plan shall act on behalf of the Employer for purposes of this Section 9.01.
9.02 Retroactive Amendments. An amendment made by the Employer in accordance with Section 9.01 may be made effective on a date prior to the first day of the Plan Year in which it is adopted if such amendment is necessary or appropriate to enable the Plan and Trust to satisfy the applicable requirements of the Code or ERISA or to conform the Plan to any change in federal law or to any regulations or ruling thereunder. Any retroactive amendment by the Employer shall be subject to the provisions of Section 9.01.
9.03. Termination. The Employer has adopted the Plan with the intention and expectation that contributions will be continued indefinitely. However, said Employer has no obligation or liability whatsoever to maintain the Plan for any length of time and may discontinue contributions under the Plan or terminate the Plan at any time by written notice delivered to the Trustee without any liability hereunder for any such discontinuance or termination.
9.04. Distribution upon Termination of the Plan. Upon termination of the Plan, no further Deferral, Employer or Matching Contributions shall be made under the Plan, but Accounts of Participants maintained under the Plan at the time of termination shall continue to be governed by the terms of the Plan until paid out in accordance with the terms of the Plan.
Article 10. Miscellaneous.
10.01. Communication to Participants. The Plan will be communicated to all Participants by the Employer promptly after the Plan is adopted.
10 02. Limitation of Rights. Neither the establishment of the Plan and the Trust, nor any amendment thereof, nor the creation of any fund or account, nor the payment of any benefits, will be construed as giving to any Participant or other person any legal or equitable right against the Employer, Administrator or Trustee, except as provided herein; and in no event will the terms of employment or service of any Participant be modified or in any way affected hereby.
10.03. Nonalienability of Benefits. The benefits provided hereunder will not be subject to alienation, assignment, garnishment, attachment, execution or levy of any kind, either voluntarily or involuntarily, and any attempt to cause such benefits to be so subjected will not be recognized, except to such extent as may be required by law.
10 04. Facility of Payment. In the event the Administrator determines, on the basis of medical reports or other evidence satisfactory to the Administrator, that the recipient of any benefit payments under the Plan is incapable of handling his affairs by reason of minority, illness, infirmity or other incapacity, the Administrator may disburse such payments, or direct the Trustee to disburse such payments, as applicable, to a person or institution designated by a court which has jurisdiction over such recipient or a person or institution otherwise having the legal authority under State law for the care and control of such recipient. The receipt by such person or institution of any such payments shall be complete acquittance therefore, and any such payment to the extent thereof, shall discharge the liability of the Trust for the payment of benefits hereunder to such recipient.
10.05. Information between Employer and Trustee. The Employer agrees to furnish the Trustee, and the Trustee agrees to furnish the Employer with such information relating to the Plan and Trust as may be required by the other in order to carry out their respective duties hereunder, including without limitation information required under the Code or ERISA and any regulations issued or forms adopted thereunder.
10.06. Notices. Any notice or other communication in connection with this Plan shall be deemed delivered in writing if addressed as provided below and if either actually delivered at said address or, in the case of a letter, three business days shall have elapsed after the same shall have been deposited in the United States mails, first-class postage prepaid and registered or certified:
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(a) If to the Employer or Administrator, to it at the address set forth in the Adoption Agreement, to the attention of the person specified to receive notice in the Adoption Agreement; |
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(b) If to the Trustee, to it at the address set forth in the Trust Agreement; |
or, in each case at such other address as the addressee shall have specified by written notice delivered in accordance with the foregoing to the addressor's then effective notice address.
10.07. Governing Law. The Plan and the accompanying Adoption Agreement will be construed, administered and enforced according to ERISA, and to the extent not preempted thereby, the laws of the Commonwealth of Massachusetts, without regard to its conflicts of law principles.
Article 11. Plan Administration.
11.01. Powers and responsibilities of the Administrator. The Administrator has the full power and the full responsibility to administer the Plan in all of its details, subject, however, to the applicable requirements of ERISA. The Administrator's powers and responsibilities include, but are not limited to, the following:
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(a) To make and enforce such rules and regulations as it deems necessary or proper for the efficient administration of the Plan; |
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(b) To interpret the Plan, its interpretation thereof in good faith to be final and conclusive on all persons claiming benefits under the Plan; |
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(c) To decide all questions concerning the Plan and the eligibility of any person to participate in the Plan; |
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(d) To administer the claims and review procedures specified in Section 11.03; |
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(e) To compute the amount of benefits which will be payable to any Participant, former Participant or Beneficiary in accordance with the provisions of the Plan; |
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(f) To determine the person or persons to whom such benefits will be paid; |
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(g) To authorize the payment of benefits; |
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(h) To comply with any applicable reporting and disclosure requirements of Part 1 of Subtitle B of Title I of ERISA; |
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(i) To appoint such agents, counsel, accountants, and consultants as may be required to assist in administering the Plan; |
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(j) By written instrument, to allocate and delegate its responsibilities, including the formation of an Administrative Committee to administer the Plan; |
11.02. Nondiscriminatory Exercise of Authority. Whenever, in the administration of the Plan, any discretionary action by the Administrator is required, the Administrator shall exercise its authority in a nondiscriminatory manner so that all persons similarly situated will receive substantially the same treatment.
11.03. Claims and Review Procedures.
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(a) Claims Procedure. If any person believes he is being denied any rights or benefits under the Plan, such person may file a claim in writing with the Administrator. If any such claim is wholly or partially denied, the Administrator will notify such person of its decision in writing. Such notification will contain (i) specific reasons for the denial, (ii) specific reference to pertinent Plan provisions, (iii) a description of any additional material or information necessary for such person to perfect such claim and an explanation of why such material or information is necessary, and (iv) information as to the steps to be taken if the person wishes to submit a request for review, including a statement of the such person's right to bring a civil action under Section 502(a) of ERISA following as adverse determination upon review. Such notification will be given within 90 days after the claim is received by the Administrator (or within 180 days, if special circumstances require an extension of time for processing the claim, and if written notice of such extension and circumstances is given to such person within the initial 90-day period). |
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If the claim concerns disability benefits under the Plan, the Plan Administrator must notify the claimant in writing within 45 days after the claim has been filed in order to deny it. If special circumstances require an extension of time to process the claim, the Plan Administrator must notify the claimant before the end of the 45-day period that the claim may take up to 30 days longer to process. If special circumstances still prevent the resolution of the claim, the Plan Administrator may then only take up to another 30 days after giving the claimant notice before the end of the original 30-day extension. If the Plan Administrator gives the claimant notice that the claimant needs to provide additional information regarding the claim, the claimant must do so within 45 days of that notice. |
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(b) Review Procedure. Within 60 days after the date on which a person receives a written notice of a denied claim (or, if applicable, within 60 days after the date on which such denial is considered to have occurred), such person (or his duly authorized representative) may (i) file a written request with the Administrator for a review of his denied claim and of pertinent documents and (ii) submit written issues and comments to the Administrator. This written request may include comments, documents, records, and other information relating to the claim for benefits. The claimant shall be provided, upon the claimant's request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claim for benefits. The review will take into account all comments, documents, records, and other information submitted by the claimant relating to the claim, without regard to whether such information was submitted or considered in the in itial benefit determination. The Administrator will notify such person of its decision in writing. Such notification will be written in a manner calculated to be understood by such person and will contain specific reasons for the decision as well as specific references to pertinent Plan provisions. The decision on review will be made within 60 days after the request for review is received by the Administrator (or within 120 days, if special circumstances require an extension of time for processing the request, such as an election by the Administrator to hold a hearing, and if written notice of such extension and circumstances is given to such person within the initial 60-day period). The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Plan expects to render the determination on review. |
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If the initial claim was for disability benefits under the Plan and has been denied by the Plan Administrator, the claimant will have 180 days from the date the claimant received notice of the claim's denial in which to appeal that decision. The review will be handled completely independently of the findings and decision made regarding the initial claim and will be processed by an individual who is not a subordinate of the individual who denied the initial claim. If the claim requires medical judgment, the individual handling the appeal will consult with a medical professional whom was not consulted regarding the initial claim and who is not a subordinate of anyone consulted regarding the initial claim and identify that medical professional to the claimant. |
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The Plan Administrator shall provide the claimant with written notification of a plan's benefit determination on review. In the case of an adverse benefit determination, the notification shall set forth, in a manner calculated to be understood by the claimant - the specific reason or reasons for the adverse determinations, reference to the specific plan provisions on which the benefit determination is based, a statement that the claimant is entitled to receive, upon the claimant's request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claim for benefits. |
The CORPORATEplan for RetirementSM
EXECUTIVE PLAN
Adoption Agreement
IMPORTANT NOTE
This document has not been approved by the Department of Labor, the Internal Revenue Service or any other governmental entity. An Adopting Employer must determine whether the plan is subject to the Federal securities laws and the securities laws of the various states. An Adopting Employer may not rely on this document to ensure any particular tax consequences or to ensure that the Plan is "unfunded and maintained primarily for the purpose of providing deferred compensation to a select group of management or highly compensated employees" under the Employee Retirement Income Security Act with respect to the Employer's particular situation. Fidelity Management Trust Company, its affiliates and employees cannot provide you with legal advice in connection with the execution of this document. This document should be reviewed by the Employer's attorney prior to execution.
ADOPTION AGREEMENT
ARTICLE 1
1.01 |
PLAN INFORMATION |
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(a) |
Name of Plan: |
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This is the Spartan Motors, Inc. Supplemental Executive Retirement Plan (the "Plan"). |
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(b) |
Name of Plan Administrator, if not the Employer: |
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Address: |
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Phone Number: |
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The Plan Administrator is the agent for service of legal process for the Plan. |
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(c) |
Plan Year End is December 31. |
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(d) |
Plan Status (check one): |
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(1) |
þ |
Effective Date of new Plan: |
1/1/2006 |
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(2) |
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Amendment Effective Date: |
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The original effective date of the Plan: |
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1.02 |
EMPLOYER |
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(a) |
The Employer is: |
Spartan Motors, Inc. |
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Address: |
1165 Reynolds Road |
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Charlotte, MI 48813 |
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Contact's Name: |
James Knapp |
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Telephone Number: |
(517) 543-6400 |
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(1) |
Employer's Tax Identification Number: 38-2078923 |
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(2) |
Business form of Employer (check one): |
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(A) |
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Corporation (Other than a Subchapter S corporation) |
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(B) |
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Other (e.g., Subchapter S corporation, partnership, sole proprietor) |
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(3) |
Employer's fiscal year end: 12/31 |
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The term "Employer" includes the following Related Employer(s) |
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Spartan Motors Chassis, Inc. |
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Crimson Fire, Inc. |
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Crimson Fire Aerials, Inc. |
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Road Rescue, Inc. |
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1.03 |
COVERAGE |
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(a) |
The following Employees are eligible to participate in the Plan: |
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(1) |
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Only those Employees listed in Attachment A will be eligible to participate in the Plan. |
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(2) |
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Only those Employees in the eligible class described below will be eligible to participate in the Plan: |
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Employees listed in Attachment A or identified in a Board of Directors Resolution as participants in this Plan who have completed the eligibility requirements of the Spartan Motors Retirement Plan |
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(3) |
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Only those Employees described in the Board of Directors Resolutions attached hereto and hereby made a part hereof will be eligible to participate in the Plan. |
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(b) |
The Entry Date(s) shall be (check one): |
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(1) |
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each January 1. |
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(2) |
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each January 1 and each July 1. |
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(3) |
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each January 1 and each April 1, July 1 and October 1. |
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(4) |
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the first day of each month. |
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(5) |
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immediate upon meeting the eligibility requirements specified in Subsection 1.03(a). |
1.04 |
COMPENSATION |
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For purposes of determining Contributions under the Plan, Compensation shall be as defined (check (a) or (b) below, as appropriate): |
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(a) þ |
in Section 2.01(a)(8), (check (1) or (2) below, if and as appropriate)): |
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(1) |
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but excluding (check the appropriate box(es)): |
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(A) o |
Overtime Pay. |
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(B) o |
Bonuses. |
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(C) o |
Commissions. |
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(D) o |
The value of a qualified or a non-qualified stock option granted to an Employee by the Employer to the extent such value is includable in the Employee's taxable income. |
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(E) o |
The following: |
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(2) |
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except as otherwise provided below: |
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(b) o |
in the ___________________ Plan maintained by the Employer to the extent it is in excess of the limit imposed under Code Section 401(a)(17). |
1.05 |
CONTRIBUTIONS |
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(a) |
Employee contributions (Complete all that apply) |
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(1) |
þ Deferral Contributions. The Employer shall make a Deferral Contribution in accordance with, and subject to, Section 4.01 on behalf of each Participant who has an executed salary reduction agreement in effect with the Employer for the calendar year (or portion of the calendar year) in question, not to exceed 25% of Compensation, exclusive of any Bonus. |
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(2) |
o Bonus Contributions. The Employer requires Participants to enter into a special salary reduction agreement to make Deferral Contributions of any percentage of Employer paid cash Bonuses, up to 100% of such Bonuses. (The Compensation definition elected by the Employer in Section 1.04 must include Bonuses if Bonus contributions are permitted.) |
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Matching Contributions |
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(1) |
þ The Employer shall make a Matching Contribution on behalf of each Participant in an amount equal to the following percentage of a Participant's Deferral Contributions during the Plan Year (check one): |
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(A) o |
50% |
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(B) o |
100% |
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(C) o |
______% |
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(D) o |
(Tiered Match) __________% of the first ________% of the Participant's Compensation contributed to the Plan. |
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(E) þ |
The percentage declared for the year, if any, by a Board of Directors' resolution. |
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(F) þ |
Other: Plus, if approved by the Board of Directors for a year, the Matching Contribution provided in (2) below. |
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(2) |
þ Matching Contribution Offset. For each Participant who has made 401(k) Deferrals at least equal to the maximum under Code Section 402(g) or, if less, the maximum permitted under the Qualified Plan, the Employer shall make a Matching Contribution for the calendar year equal to (A) minus (B) below: |
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(A) |
The 401(m) Match that the Participant would have received under the Qualified Plan for such calendar year on the sum of the Participant's Deferral Contributions and the Participant's 401(k) Deferrals if no limits |
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otherwise imposed by tax law applied to 401(m) Match and deeming the Participant's Deferral Contributions to be 401(k) Deferrals. |
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(B) |
The 401(m) Match actually allocated to such Participant under the Qualified Plan for the calendar year. |
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For purposes of this Section 1.05(b): "Qualified Plan" means the Plan; "401(k) Deferrals" means contributions under the Qualified Plan's cash or deferred arrangement as defined in Code Section 401(k); and "401(m) Match" means a matching contribution as defined in Code Section 401(m). |
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(3) |
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Matching Contribution Limits (check the appropriate box(es)): |
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(A) o |
Deferral Contributions in excess of ______% of the Participant's Compensation for the period in question shall not be considered for Matching Contributions. |
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Note: |
If the Employer elects a percentage limit in (A) above and requests the Trustee to account separately for matched and unmatched Deferral Contributions, the Matching Contributions allocated to each Participant must be computed, and the percentage limit applied, based upon each period. |
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(B) o |
Matching Contributions for each Participant for each Plan Year shall be limited to $._________ |
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(4) |
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Eligibility Requirement(s) for Matching Contributions. A Participant who makes Deferral Contributions during the Plan Year under Section 1.05(a) shall be entitled to Matching Contributions for that Plan Year if the Participant satisfies the following requirement(s) (Check the appropriate box(es). Options (B) and (C) may not be elected together): |
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(A) þ |
Is employed by the Employer on the last day of the Plan Year and |
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(B) o |
Earns at least 500 Hours of Service during the Plan Year. |
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(C) þ |
Earns at least 1,000 Hours of Service during the Plan Year |
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(D) þ |
Other: or retires, dies or becomes disabled during the Plan Year |
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(E) o |
No requirements. |
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Note: If option (A), (B) or (C) above is selected, then Matching Contributions can only be made by the Employer after the Plan Year ends. Any Matching Contribution made before Plan Year end shall not be subject to the eligibility requirements of this Section 1.05(b)(3)). |
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(c) |
Employer Contributions |
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(1) |
o |
Fixed Employer Contributions. The Employer shall make an Employer Contribution on behalf of each Participant in an amount determined as described below (check at least one): |
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(A) o |
In an amount equal to ______% of each Participant's Compensation each Plan Year. |
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(B) o |
In an amount determined and allocated as described below: |
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(C) o |
In an amount equal to (check at least one): |
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(i.) o |
Any profit sharing contribution that the Employer would have made on behalf of the Participant under the following qualified defined contribution plan but for the limitations imposed by Code Section 401(a)(17): |
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(ii.) o |
Any contribution described in Code Section 401(m) that the Employer would have made on behalf of the Participant under the following qualified defined contribution plan but for the limitations imposed by Code Section 401(a)(17): |
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(2) |
þ |
Discretionary Employer Contributions. The Employer may make Employer Contributions to the accounts of Participants in any amount, as determined by the Employer in its sole discretion from time to time, which amount may be zero. |
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(3) |
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Eligibility Requirement(s) for Employer Contributions. A Participant shall only be entitled to Employer Contributions under Section 1.05(c)(1) for a Plan Year if the Participant satisfies the following requirement(s) (Check the appropriate box(es). Options (B) and (C) may not be elected together): |
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(A) þ |
Is employed by the Employer on the last day of the Plan Year and |
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(B) o |
Earns at least 500 Hours of Service during the Plan Year. |
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(C) þ |
Earns at least 1,000 Hours of Service during the Plan Year. |
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(D) þ |
Other: or retires, dies or becomes disabled during the Plan Year |
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(E) o |
No requirements. |
1.06 |
DISTRIBUTION DATES See Amendment |
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Distribution from a Participant's Account pursuant to Section 8.02 shall begin upon the following date(s) (check either (a) or (b); check (c), if desired): |
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(a) o |
Non-Class Year Accounting (complete (1) and (2)). |
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(1) |
The earliest of termination of employment with the Employer (see Plan Section 7.03) and the following event(s) (check appropriate box(es); if none selected, all distributions will be upon termination of employment): |
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(A) o |
Attainment of Normal Retirement Age (as defined in Section 1.07(f)). |
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(B) o |
Attainment of Early Retirement Age (as defined in Section 1.07(g)). |
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(C) o |
The date on which the Participant becomes disabled (as defined in Section 1.07(h)). |
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(2) |
Timing of distribution (check either (A) or (B)). |
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(A) o |
The distribution of the Participant's Account will be begin in the month following the event described in (a)(1) above, however, if the event is termination of employment, then such distribution will begin as soon as practicable on or after the 1st day of the seventh calendar month following such separation if the Participant was a Key Employee. |
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(B) o |
The distribution of the Participant's Account will begin as soon as administratively feasible in the calendar year following distribution event described in (a)(1) above, provided however, that if the event is termination of employment, in no event will such distribution begin earlier than the 1st day of the seventh calendar month following such separation if the Participant was a Key Employee. |
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(b) o |
Class Year Accounting (complete (1) and (2)). |
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(1) |
Upon (check at least one; (A) must be selected if plan has contributions pursuant to section 1.05(b) or (c)): |
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(A) |
o Termination of employment with the Employer (see Plan Section 7.03); provided however, that if the event is termination of employment, in no event will such distribution begin earlier than the 1st day of the seventh calendar month following such separation if the Participant was a Key Employee. |
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(B) o |
The date elected by the Participant, pursuant to Plan Section 8.02, and subject to the restrictions imposed in Plan Section 8.02 with respect to future Deferral Contributions, in which event such date of distribution must be at least one year after the date such Deferral Contribution would have been paid to the Participant in cash in the absence of the election to make the Deferral Contribution. |
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(2) |
Timing of distribution subject to Subsection (b)(1)(A) above (check either (A) or (B)). |
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(A) o |
The Distribution of the Participant's Account will begin ______ (specify month and day) following the event described in (b)(1) above. |
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(B) o |
The Distribution of the Participant's Account will begin ______ (specify month and day) of the calendar year following the event described in (b)(1) above. |
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(c) o |
Upon a Change of Control in accordance with Plan Section 7.08. |
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Note: Internal Revenue Code Section 280G could impose certain, adverse tax consequences on both Participants and the Employer as a result of the application of this Section 1.06(c). The Employer should consult with its attorney prior to electing to apply Section 1. 06(c). |
1.07 |
VESTING SCHEDULE |
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(a) |
The Participant's vested percentage in Matching Contributions elected in Section 1.05(b) shall be based upon the schedule(s) selected below. |
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(1) |
o |
N/A - No Matching Contributions |
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(2) |
o |
100% Vesting immediately |
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(3) |
o |
3 year cliff (see C below) |
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(4) |
o |
5 year cliff (see D below) |
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(5) |
o |
6 year graduated (see E below) |
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(6) |
o |
7 year graduated (see F below) |
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(7) |
þ |
G below |
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(8) |
o |
Other (Attachment "B") |
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Years of |
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Vesting Schedule |
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0 |
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0% |
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0% |
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0% |
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0% |
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0% |
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1 |
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0% |
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0% |
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0% |
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0% |
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20% |
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2 |
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0% |
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0% |
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20% |
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0% |
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40% |
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3 |
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100% |
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0% |
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40% |
|
20% |
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60% |
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4 |
|
100% |
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0% |
|
60% |
|
40% |
|
80% |
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|
5 |
|
100% |
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100% |
|
80% |
|
60% |
|
100% |
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|
6 |
|
100% |
|
100% |
|
100% |
|
80% |
|
100% |
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7 |
|
100% |
|
100% |
|
100% |
|
100% |
|
100% |
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(b) |
The Participant's vested percentage in Employer Contributions elected in Section 1.05(c) shall be based upon the schedule(s) selected below. |
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(1) |
o |
N/A - No Employer Contributions |
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(2) |
o |
100% Vesting immediately |
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(3) |
o |
3 year cliff (see C below) |
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(4) |
o |
5 year cliff (see D below) |
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(5) |
o |
6 year graduated (see E below) |
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(6) |
o |
7 year graduated (see F below) |
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(7) |
þ |
G below |
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(8) |
o |
Other (Attachment "B") |
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Years of |
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Vesting Schedule |
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0 |
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0% |
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0% |
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0% |
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0% |
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0% |
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1 |
|
0% |
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0% |
|
0% |
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0% |
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20% |
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2 |
|
0% |
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0% |
|
20% |
|
0% |
|
40% |
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3 |
|
100% |
|
0% |
|
40% |
|
20% |
|
60% |
|
|
4 |
|
100% |
|
0% |
|
60% |
|
40% |
|
80% |
|
|
5 |
|
100% |
|
100% |
|
80% |
|
60% |
|
100% |
|
|
6 |
|
100% |
|
100% |
|
100% |
|
80% |
|
100% |
|
|
7 |
|
100% |
|
100% |
|
100% |
|
100% |
|
100% |
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(c) o |
Years of Service for Vesting shall exclude (check one): |
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(1) o |
for new plans, service prior to the Effective Date as defined in Section 1.01(d)(1). |
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(2) o |
for existing plans converting from another plan document, service prior to the original Effective Date as defined in Section 1.01(d)(2). |
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(d) þ |
A Participant will forfeit his Matching Contributions and Employer Contributions upon the occurrence of the following event (s): |
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If a Participant engages in any activity deemed by the Plan Administrator to be in competition with or detrimental to the Employer, the entire remaining unpaid amount in the Participant's Employer Contribution and Matching Contribution Accounts shall be canceled and forfeited. An activity will be deemed detrimental to or in competition with the Employer if the activity involves the: |
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(a) divulging, or causing or inducing divulgence of, any information of a confidential nature about the Employer, including, but not limited to, trade secrets, operational methods, the names of the Employer's customers or information about them, information concerning suppliers, information concerning the Employer's products and means of production, and any other confidential information of the Employer provided such information is not already publicly known. |
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(b) inducing, or causing inducement to be made to, any of Employees to terminate employment with the Employer or to undertake employment with the Employer's competitors. |
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|
(c) engaging, as an employee, owner, independent contractor, consultant, or in any other capacity, in any line of business in which the Employer is engaged, or planning to engage, as of the date the Participant's employment terminates. |
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If the Participant is a party to an employment agreement with the Employer, the restrictions set forth in (a), (b) and (c) will be superseded to the extent they conflict with the restrictive provisions contained in the Participant's employment agreement or any amendments thereto. |
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(e) |
A Participant will be 100% vested in his Matching Contributions and Employer Contributions upon (check the appropriate box(es), if any; if 1.06(c) is selected, Participants will automatically vest upon Change of Control as defined in Section 1.12): |
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(1) |
þ |
Normal Retirement Age (as defined in Section 1.07(f)). |
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(2) |
o |
Early Retirement Age (as defined in Section 1.07(g)). |
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(3) |
þ |
Death. |
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(4) |
þ |
The date on which the Participant becomes disabled, as determined under Section 1.07(h) of the Plan. |
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(f) |
Normal Retirement Age under the Plan is (check one): |
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(1) o |
age 65. |
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(2) þ |
age 60 (specify from 55 through 64). |
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(3) o |
the later of age _____ (cannot exceed 65) or the fifth anniversary of the Participant's Commencement Date. |
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|
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If no box is checked in this Section 1.07(f), then Normal Retirement Age is 65. |
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(g) o |
Early Retirement Age is the first day of the month after the Participant attains age ___ (specify 55 or greater) and completes _____ Years of Service for Vesting. |
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(h) þ |
A Participant is considered disabled when that Participant (check one): |
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(1) þ |
is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months. |
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(2) þ |
is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under an accident and health plan covering employees of the Employer. |
1.08 |
PREDECESSOR EMPLOYER SERVICE |
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|
o |
Service for purposes of vesting in Section 1.07(a) and (b) shall include service with the following employer(s): |
1.09 |
UNFORESEEABLE EMERGENCY WITHDRAWALS |
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Participant withdrawals for unforeseeable emergency prior to termination of employment (check one): |
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(a) þ |
will be allowed in accordance with Section 7.07, subject to a $ 5,000 minimum amount. (Must be at least $1,000) |
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(b) o |
will not be allowed. |
1.10 |
DISTRIBUTIONS |
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Subject to Articles 7 and 8 distributions under the Plan are always available as a lump sum. Check below to allow distributions in installment payments: |
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|
þ |
under a systematic withdrawal plan (installments) not to exceed 10 years which (check one if box for this Section is selected): |
|
(a) o |
will not be accelerated, regardless of the Participant's Account balance. |
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(b) þ |
will be accelerated to a lump sum distribution in accordance with Section 8.03. |
1.11 |
INVESTMENT DECISIONS |
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(a) |
Investment Directions |
|
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Investments in which the Accounts of Participants shall be treated as invested and reinvested shall be directed (check one): |
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(1) o |
by the Employer among the options listed in (b) below. |
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(2) þ |
by each Participant among the options listed in (b) below. |
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(3) o |
in accordance with investment directions provided by each Participant for all contribution sources in a Participant's Account except the following sources shall be invested as directed by the Employer (check (A) and/or (B)): |
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(A) o |
Nonelective Employer Contributions |
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(B) o |
Matching Employer Contributions |
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The Employer must direct the applicable sources among the same investment options made available for Participant directed sources listed in the Service Agreement. |
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(b) |
Plan Investment Options |
|
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Participant Accounts will be treated as invested among the Investment Funds listed in the Service Agreement from time to time pursuant to Participant and/or Employer directions, as applicable. |
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|
Note: |
The method and frequency for change of investments will be determined under the rules applicable to the selected funds. Information will be provided regarding expenses, if any, for changes in investment options. |
1.12 |
RELIANCE ON PLAN |
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|
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An adopting Employer may not rely solely on this Plan to ensure that the Plan is "unfunded and maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees" with respect to the Employer's particular situation. This Agreement must be reviewed by the Employer's attorney before it is executed. |
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|
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This Adoption Agreement may be used only in conjunction with the CORPORATEplan for Retirement Executive Plan Basic Plan Document. |
EXECUTION PAGE
(Fidelity's Copy)
IN WITNESS WHEREOF, the Employer has caused this Adoption Agreement to be executed this ________day of _______________, 20_______.
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Employer |
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By |
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Title |
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Employer |
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By |
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Title |
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EXECUTION PAGE
(Employer's Copy)
IN WITNESS WHEREOF, the Employer has caused this Adoption Agreement to be executed this ________day of _______________, 20______.
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Employer |
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By |
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Title |
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Employer |
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By |
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Title |
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Attachment A
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Employer |
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By |
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Title |
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Date |
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Note: |
The Employer must revise Attachment A to add Employees as they become eligible or delete Employees who are no longer eligible. Attachment A should be signed and dated every time a change is made. |
(a) |
o The Participant's vested percentage in Matching Contributions elected in Section 1.05(b) shall be based upon the following schedule: |
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(b) |
o The Participant's vested percentage in Employer Contributions elected in Section 1.05(c) shall be based upon the following schedule: |
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EXHIBIT 21
SUBSIDIARIES OF SPARTAN MOTORS, INC.
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Jurisdiction of |
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Spartan Motors Chassis, Inc. |
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Michigan, United States |
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Crimson Fire, Inc.* |
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South Dakota, United States |
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Road Rescue, Inc. |
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South Carolina, United States |
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Crimson Fire Aerials, Inc. |
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Pennsylvania, United States |
*Formerly also did business under the names Luverne Fire Apparatus Co., Ltd. and Quality Manufacturing Inc.
Exhibit 23.1-CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Spartan Motors, Inc.
Charlotte, MI
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-25357) and Form S-8 (Nos. 033-80980, 333-69028, 333-98083, 333-111887, 333-111888, 333-126269 and 333-145674) of Spartan Motors, Inc. of our reports dated March 10, 2008, relating to the 2007 consolidated financial statements and the 2007 information in the financial statement schedule, and the effectiveness of Spartan Motors, Inc.'s internal control over financial reporting, which appear in this Annual Report on Form 10-K.
/s/ BDO Seidman, LLP
Grand Rapids, Michigan
March 13, 2008
Exhibit 23.2-CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the following Registration Statements (Form S-8 Nos. 033-80980, 333-69028, 333-98083, 333-111887, 333-111888, 333-126269, and 333-145674 and Form S-3 No. 333-25357) pertaining to various stock option and incentive plans of Spartan Motors, Inc. of our report dated March 2, 2007, with respect to the consolidated financial statements and schedule of Spartan Motors, Inc. and subsidiaries included in this Annual Report (Form 10-K) for the year ended December 31, 2007.
|
/s/ Ernst & Young LLP |
Grand Rapids, Michigan
March 12, 2008
EXHIBIT 24
POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or officer, or both, as the case may be, of Spartan Motors, Inc., does hereby appoint John E. Sztykiel, James W. Knapp and Stephen C. Waterbury, and each of them, his or her attorneys or attorney, with full power of substitution and resubstitution, for such individual and in his or her name, place and stead, in any and all capacities, to sign the Form 10-K of Spartan Motors, Inc. for its fiscal year ended December 31, 2007, together with any and all amendments thereto, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission.
|
Signature: |
/s/ Charles E. Nihart |
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Print Name: |
Charles E. Nihart |
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Title: |
Director |
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Date: |
1/19/08 |
POWER OF ATTORNEY The undersigned, in his or her capacity as a director or officer, or both, as the case may be, of Spartan Motors, Inc., does hereby appoint John E. Sztykiel, James W. Knapp and Stephen C. Waterbury, and each of them, his or her attorneys or attorney, with full power of substitution and resubstitution, for such individual and in his or her name, place and stead, in any and all capacities, to sign the Form 10-K of Spartan Motors, Inc. for its fiscal year ended December 31, 2007, together with any and all amendments thereto, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission.
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Signature: |
/s/ Kenneth Kaczmarek |
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Print Name: |
Kenneth Kaczmarek |
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Title: |
Director |
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Date: |
1/25/08 |
POWER OF ATTORNEY The undersigned, in his or her capacity as a director or officer, or both, as the case may be, of Spartan Motors, Inc., does hereby appoint John E. Sztykiel, James W. Knapp and Stephen C. Waterbury, and each of them, his or her attorneys or attorney, with full power of substitution and resubstitution, for such individual and in his or her name, place and stead, in any and all capacities, to sign the Form 10-K of Spartan Motors, Inc. for its fiscal year ended December 31, 2007, together with any and all amendments thereto, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission.
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Signature: |
/s/ David R. Wilson |
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Print Name: |
David R. Wilson |
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Title: |
Director |
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Date: |
1/25/08 |
POWER OF ATTORNEY The undersigned, in his or her capacity as a director or officer, or both, as the case may be, of Spartan Motors, Inc., does hereby appoint John E. Sztykiel, James W. Knapp and Stephen C. Waterbury, and each of them, his or her attorneys or attorney, with full power of substitution and resubstitution, for such individual and in his or her name, place and stead, in any and all capacities, to sign the Form 10-K of Spartan Motors, Inc. for its fiscal year ended December 31, 2007, together with any and all amendments thereto, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission.
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Signature: |
/s/ Hugh W. Sloan, Jr. |
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Print Name: |
Hugh W. Sloan, Jr. |
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Title: |
Director |
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Date: |
2/6/08 |
POWER OF ATTORNEY The undersigned, in his or her capacity as a director or officer, or both, as the case may be, of Spartan Motors, Inc., does hereby appoint John E. Sztykiel, James W. Knapp and Stephen C. Waterbury, and each of them, his or her attorneys or attorney, with full power of substitution and resubstitution, for such individual and in his or her name, place and stead, in any and all capacities, to sign the Form 10-K of Spartan Motors, Inc. for its fiscal year ended December 31, 2007, together with any and all amendments thereto, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission.
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Signature: |
/s/ George Tesseris |
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Print Name: |
George Tesseris |
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Title: |
Director |
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Date: |
1/19/08 |
EXHIBIT 31.1
CEO CERTIFICATION
I, John E. Sztykiel, certify that:
1. I have reviewed this annual report on Form 10-K of Spartan Motors, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 14, 2008 |
/s/ John E. Sztykiel |
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John E. Sztykiel |
EXHIBIT 31.2
CFO CERTIFICATION
I, James W. Knapp, certify that:
1. I have reviewed this annual report on Form 10-K of Spartan Motors, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 14, 2008 |
/s/ James W. Knapp |
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James W. Knapp |
EXHIBIT 32
CERTIFICATION
Solely for the purpose of complying with 18 U.S.C. § 1350, each of the undersigned hereby certifies in his capacity as an officer of Spartan Motors, Inc. (the "Company"), pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 that:
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1. |
The Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 2007 (the "Report") fully complies with the requirements of Section 13(a) of the Securities and Exchange Act of 1934 (15 U.S.C. 78m); and |
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2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for such period. |
Date: March 14, 2008 |
/s/ John E. Sztykiel |
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John E. Sztykiel |
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Date: March 14, 2008 |
/s/ James W. Knapp |
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James W. Knapp |
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.